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December 19, 2019 | Trumped

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.

One year ago this blog’s comment section was overwhelmed with gnashing and moping as equity markets swooned. We were just days away from the bottom of the Santa Slaughter that carved 20% out of all-stock portfolios. By the last day of 2018 US markets had shed more than 6% and Bay Street gave up 12%. Balanced portfolios were off for the year by just 3%.

Lots of people gave up, despite the advice of a certain pathetic blog that it would go away. A year ago today (Dec 19) the Dow lost 358 points and closed at its lowest level in a year as the Fed raised its key rate and investors clamored to take risk off the table. It was the worst December performance since 1931, and came after a year of record highs.

Here were the eight rules we told you to follow as the blood flowed…

(a) Always have a balanced and diversified portfolio
(b) Never sell into a storm.
(c) Ignore volatility. It’s noise.
(d) Never exit an asset class.
(e) Don’t try to time the market. You can’t.
(f) Ignore those who tell you to (i) go to cash, (ii) buy gold, (iii) buy Bitcoin, (iv) buy GICs or (v) run screaming
(g) Invest in quality ETFs in the correct weightings, rebalance once or twice a year and ignore whatever the hell the Dow is doing.
(h) Never watch BNN. Like, never.

One reader with much money invested (four million) couldn’t take it, sold assets at a loss, went to cash and parked in a 2% GIC. After I told you that story, lots of comments rolled in supporting the decision.  Proof that fear is the greatest motivator.

Of course since then the Dow has swelled by 5,000 points, or more than 21%. When you add in dividends, US markets have gained almost 30% in 2019. Even Bay Street has roared back. Boring balanced portfolios are fatter by about 13% this year and the millionaire stuck in the GIC has paid a handsome price for getting the willies. The return was $80,000, fully taxable as interest, versus a potential $800,000 profit (tax-efficient) if left in the portfolio.

Now, let’s consider 2019. The bond market produced an inverted yield curve, meaning short-term rates were higher than long ones, suggesting investors saw a recession looming. But that didn’t happen. The Fed dropped the cost of money three times, which Chicken Littles said confirmed we’d have a storm. Nah, nothing. The Brexit crisis roiled. Hong Kong boiled. Wars in Syria and Yemen while Turkey went rogue and the climate change debate became an emergency movement. And Trump, jeez. He ratcheted up the trade wars and said the stock market would crash if he was impeached. Last night it happened. Investors yawned. The market hit a new high.


Well, the last guy to get impeached said it best in four words: “It’s the economy, stupid.”  That’s what markets and investors have been seized with, not a political process which won’t remove the president, just sully him. Wall Street (and Bay) believes Trump will be re-elected in November. His expansionist, inflationary, deregulatory and pro-growth, pro-business, more-jobs agenda will continue. No pesky Democrats breaking up Amazon and Apple, forcing social responsibility upon corporations or saddling the economy with trillions in debt forgiveness and new social spending.

Meanwhile the economy is mocking the doomers. American unemployment is the lowest in half a century. Corporate earnings have beat expectations over and again. Three Fed cuts are adding stimulus. Consumer spending and confidence are at record levels, largely thanks to jobs. GDP growth is just fine. China trade tensions are easing and tariffs relaxed. Commodity prices are rising as the global picture brightens. Brexit will get done and stop being an uncertainty, fostering new investment. And Trump will do whatever it takes to get re-elected – using a booming stock market and economic growth as his proxies.

So, here ya go: no market risk from impeachment. Everybody’s had time to absorb this news and get over it. The Senate will not convict. Trump’s staying. For years. Economic growth, employment, corporate earnings, consumer spending – none of these things will be impacted. And although we’re now into the 11th year of recovery and growth after the last downturn, lots more to come.

Will there be more corrections, more wailing?

You bet. Like always. But remember more than 70% of the time markets rise because the world grows. Rarely do corrections of 10% to 20% lead to bear markets. And even when everything hits the fan, recovery’s assured within a relatively short time. The only losers are those who let fear take hold. Emotion is not your friend.

Remember the rules.


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December 19th, 2019

Posted In: The Greater Fool

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