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October 2, 2019 | Stuff Happens

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.

Despite Wednesday’s market spanking, it’s been quite the year.  Including dividends, Bay Street is ahead close to 20% in 2019. Wall Street has added 15%. Balanced, boring, pedestrian, sleep-at-night portfolios are running double digits in the black. Even wrinklies with less growth stuff and more fixed income are up 7%. Hard to argue that a liquid portfolio has beat the socks off bank deposits, brain-dead investment certificates or real estate that costs a bundle to buy and maintain.

But, but, but, the Rabble cries. What if there’s a recession, or the Orange One goes down hard and starts a civil war between Brietbart’s militia and the Antifa army? Or if Brexit blows up just as China rolls tanks into HK, Israel bombs Iran and Putin’s nuke-powered cruise missiles backfire, blowing up the Arctic? What then Mr. Smartypants advisor dude?

Well, stuff is always happening and the first thing worried people should do is look over their shoulders. Check out history. See what’s taken place in past decades when the SHTF. In fact since this pathetic blog first crawled out of the primordial ooze and grew legs (shapely ones) in 2008 we’ve had our fair share of grief. The GFC was just ending after a 55% market plop. Then the 2011 US debt ceiling crisis hit. Then the 2015 oil price collapse. Then the 2016 Trump bombshell. Then the 2018 Christmas Bear Market Massacre. And we’re still standing.

In fact over that decade a balanced, diversified 60/40 portfolio which was totally ignored (except for a little annual rebalancing) has delivered an average of 7%. Unless you diddled with it, tried to time the market and thought you were being smarter than everyone else. (You’re not.) If you bailed every time the steerage section moaned, gnashed and forecast Armageddon, returns would be far less and you’d have a perforated bowel.

But what now? Are we at the end of a ten-year economic expansion and about to head over a cliff? Is it different this time?

Markets have been tanky this week thanks to a slump in manufacturing. Not just in the US. Globally things have been slowing. Land Rover is hurting in the UK, thanks in part to Bojo. The Australian central bank cut rates again, cuz the ‘roos there are in a housing funk. Chinese data has sucked lately. The ECB is now more stimulating than Deepika Padukone. South America is a smouldering, political mess. And the ongoing American-Sino trade war is sapping growth everywhere.

Of course it all comes down to the States. And Bloomberg economists are pegging the odds of a recession next year at 25%. That’s it. Pffft.

How is it possible the economy, markets and portfolios will keep chugging along? First, manufacturing data – which has caused this week’s dip – is growing irrelevant. In Canada less than 15% of our GDP comes out of factories, and in the US 70% of the entire economy is generated by consumer spending. It’s still robust. People are spendy because job creation has been outstanding, interest rates are still cheap and household income’s been rising. When families spend, corps make money, Profits are good. Stocks go up.

Second, Trump may be an unpredictable, quixotic, truth-bending rebel now in serious political trouble, but he’s no idiot. No way he’s going into the 2020 campaign with a lingering trade war, the threat of a recession or a market sell-off. Besides, its Year Three of the presidential cycle, and traditionally this has been a bullish time for investors. Plus, don’t forget seasonality – the six-month period from November to May is traditionally the strongest of the year for equity markets. Miss those gains, and you‘ve historically missed a lot.

Third, this is 2019. We’re in the midst of an AI, 5G, autonomous-driving, drone-delivery, online revolution which is making society more efficient, productive and profitable, leading to the creation of omnibus conglomerates like Amazon which were unfathomable a decade ago. None of this is going away. (And it’s also responsible for populism, Trump, Brexit, nationalism and trade tensions which result when traditional employment vanishes. But these forces are destined to lose.)

Finally, focus more on your own financial plan than the swirl of current events. If you’re trying to save for a downpayment in four years, have a kid going to uni in a decade or want to retire at age 60, then set a goal, invest and stick to it. Flipping in and out of assets because you’re scared of Trump being impeached or factory data in Europe is just nuts. History says so. Logic confirms it. Set up a correctly-weighted portfolio, then forget the damn thing. Recall that some of the best-performing accounts at a major US brokerage are those of dead people. They get it. Buy and hold.

So, yeah, the economy will slow. October may be dark and stormy. And we’re living in an era of political bankruptcy. Doesn’t matter. Next month you’ll still be a month older. Time is your most precious asset. Don’t blow it fretting over the immaterial.

About the picture...

“Have read your blog for years and enjoy it very much,” writes Gerry. “Thank you for sharing your insightful perspectives on personal finances and politics. I came across this picture with the caption ‘Never buy a dog when you’re drunk’.

“I do enjoy your gallery of crazy canines and this may not fit perfectly with your theme, but when I saw it with the caption I immediately thought of your site.”

Thanks, I think.

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October 2nd, 2019

Posted In: The Greater Fool

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