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November 29, 2018 | One Down. Two to Go.

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Marianne runs two car dealerships (not GM) and seems good at it. Ten years from retirement, she has business equity and an investment portfolio of just over two million. Sweet. But M suffers an affliction. She’s a Type A person who makes quick, gut decisions and takes her own advice above all others.

After doing fine for a year, in October her portfolio got the shakes like everything else. She called. “It’s down 2%,” she bellowed. “What gives?”

That was an easy answer. US stocks were blowing off froth in an overdue correction. Trump was being Trump, whipping up America for a Mexican invasion. The US midterms were happening. Interest rates were rising. Trade wars were continuing. Oil prices were swooning. Virtually every asset class was being blindly dumped as markets went risk-off.

Ignore it, I told Marianne. You don’t go and shutter your dealership when a seasonal slump hits, but rather hang in and anticipate sales will improve. Same with your portfolio. It’s balanced and diversified and boring. Relax. By the way, I said, my accounts have exactly the same stuff as you – and I’m not going to cash.

But she did. Marianne took a $40,000 paper loss and turned it into a real one. That, I told her sympathetically, was simply and truly dumb. ‘You’ll regret it.’ Two weeks later, the assets she punted restored. The forty grand she lost would have been returned to her portfolio. But she tossed it away.

Now she’s got millions sitting in a cashable bank GIC paying 1.9%, fully taxable, not even pacing inflation. And here I thought she had oodles of business acumen.

Why, I asked, did you do that? Answer: she read on some doomer blog that markets would crash. The US was going into recession. Things would get terrible. It was time to run and hide – despite the global economy growing, more Americans working than at any time in half a century, stocks near record high and corporate profits shooting out the lights. In the end, fear won.

What’s the story now?

The market rally in New York and Toronto on Wednesday was monumental. Perhaps pivotal. It occurred after Fed boss Jay Powell gave a speech saying US interest rates – after nine increases – were ‘just about neutral’. Neutral is the Holy Grail for central bankers – the point at which the cost of money neither encourages nor discourages economic activity. It was only a few months ago that the guy was convinced we were ‘a long way’ from neutral, leading markets to brace for five or more additional hikes.

So what changed?

The market roiled. Trump tweeted. Oil swooned. US house sales fell as mortgages swelled. The Fed looked at the impact of its actions to date and apparently reconsidered its aggressive path forward. So while everyone expects another rate hike in December, there likely won’t be three or four more next year. The markets roared higher as one big negative faded.

Now, two more to go.

The next Big Thing happens Saturday at the G20 summit in Buenos Aires – probably the most anticipated political gabfest in decades. In the midst of a global trade war that could get worse – or dramatically fizzle – Donald Trump will sit down to dinner with China’s boss, Xi Jinping. If they don’t see eye-to-eye the US leader has said existing tariffs on Chinese goods will double and billions more be hit. But if they do agree on a trade framework (as Trump has done with the EU and Canada/Mexico), markets will cheer again.

Here’s the latest: “President Donald Trump said he is very close to “doing something” with China ahead of a planned meeting with Xi Jinping, raising expectations again that the two leaders may be able to hash out a ceasefire in their trade war.” (Bloomberg)

The third hurdle is Brexit. UK leader Theresa May has the backing of European leaders for a workable departure from the EU while still maintaining trade ties. The thing goes to a vote in Parliament soon with the Bank of England warning of tough days for Britain if it doesn’t pass.

Here’s the view from my fancy portfolio manager buddy Ryan, always happy to show up and confuse us with a chart. “Technically, the S&P 500 is coming up to a key level around 2,740 to 2,780. This marks the confluence of the short-term downtrend, and the 50- and 200-day moving averages. We need to see a break about this range for us to move out of this current correction and resume the uptrend. I expect this to occur.”

Here’s the chart. Phew.


Well, I haven’t called Marianne in a few days. No point. She made an emotional decision, ignored reasonable advice, and blew it. Human nature being what it is, she’ll be defensive, maybe arguing that the End of Days could still come next week. Everybody wants to think they’re money geniuses, even when they suck at it. So, why push?

This is a volatile world. It won’t stop. Worrying about every little gyration, burp, plop, pop or pizzle that comes along is pointless. Exhausting. Marianne should focus on next year’s models. Because, yes, there’ll be a new year. And many thereafter.

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November 29th, 2018

Posted In: The Greater Fool

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