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The Stock Markets Lost Over 3% Today. Our Global Wealth Builder Fund lost 0.93% and the High Income Fund Lost 0.66%

Our defensive posture is working well for us and we have lots of cash for bargain hunting when the time is right.

However, we do not think the markets are offering any bargains yet. The media has been hand-holding investors for most of the year. I find it difficult to understand why they encourage investors to take the “long view” and remain fully exposed to this bubble market. In my view, the market losses this year are just the beginning of much more pain.

I don’t believe the economic numbers are very reliable. For example, the US labor statistics in particular, which are embellished, have become leading economic indicators influencing day-to-day market activity. Labor conditions are not leading indicators. They always appear at their best at market tops. A better indicator might be the participation rate, which indicates only 62% of the labor force have jobs, compared to 67% in 2007. Ex retirees, about 75-80 million people are unemployed but not counted as such.

The trade war is causing a lot of distortion in global trade as importers hedge against anticipated higher tariffs. This activity increases the difficulty of interpreting trade and economic growth rates. However, on balance, the several economic indicators suggest economic grow this slowing.

Our Bank of Canada is expected to make an interest rate announcement tomorrow (December 5th) but the oil situation and slowing growth should discourage another rate increase at this time.

Right after being sworn in, both Trudeau and Notley issued press statements opposing construction of pipelines for environmental reasons. Three years later, our economy is in the tank and more hazardous surface transport of oil at higher cost is now the only alternative. It looks like Notley is at the end, but the poor prospects for the national NDP could pave the way for Trudeau to get another 4 years.

The oil market is in for some volatility if Iran implements their threat to interrupt the oil flow through the Suez. It could be an opportunity to play the oil Internationals, for a nimble investor not requiring a good night’s sleep!

The bank stocks reported fairly good results but their stock prices are down collectively, by almost 12% from their highs. They are the largest weighting in most portfolios, indicating that many investors are hurting more than the popular indices suggest.

I think it would be a mistake to be complacent and ignore how the bubble is unwinding. In the pursuit of yield, most investors are over exposed to equities and not prepared for a market correction. The market is down a little but not much as illustrated by the S&P 500 chart below:

                                   

 

It is clear that the market is still in bubble territory and has room for a far more serious correction as the bubble unwinds.

 

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WealthNotes

The Federal Open Market Committee (FOMC) reduced the central bank rate by 0.25% yesterday. The Dow closed down 334.75 points (1.22%) which reflects the disappointment that the cut wasn’t 0.50%, with promises of more stimuli to follow.

The market fully recovered that loss early today but Trump’s announcement of additional tariffs of 10% on over $300 Billion of Chinese exports caused that gain to evaporate to a loss of another 280 points (1.04%).

The FOMC is walking a delicate tightrope. If they had made a bigger cut and promised more stimuli, investors would have interpreted that as confirmation that the economy is in worse shape than is understood.

The question period after the announcement was an amazing display of circumlocution. I found it quite understandable because the US economy has some pockets of weakness that are concerning but the indicators are not universally bad.

I will give them the benefit of the doubt for the time being but I suspect that the 20% market decline in late 2018 increased pressure from Mr. Trump to cut rates. Trump does not want a strong US currency or falling markets.

He has been trying to talk down the US currency.

The European and Asian economies are clearly in a slowdown, which will impact the US in due course. This cut in rates could be the FOMC’s response to the risk from external weakness. The European Central Bank is promising to join in with more stimuli. Their rates are already negative, which is killing the European banks.

The FOMC denies that more cuts will be automatic unless the economy needs more help. I don’t believe that statement, because there has never been just one cut and done through history.

They seem to be trying to get out of the way of the financial markets, rather than promise to come to the rescue of investors if markets decline. This is probably the most important message because investors have been rescued from falling markets since 2009 and have been expecting this to continue.

Currently, short-term bond yields, have fallen below the Fed’s new rate. Clearly, the bond market is anticipating more rate cuts.

All-in-all, the rate reduction is not meaningful. In the meantime, we are implementing a significant adjustment to our portfolios with the expectation the change may provide a solid gain over the next few months.  There is no guarantee of course but it is a strong likelihood.

Sincerely

Bruce Sansom

 

 

 

 

 

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Investment Wisdom

WealthNotes

WealthNotes

The Federal Open Market Committee (FOMC) reduced the central bank rate by 0.25% yesterday. The Dow closed down 334.75 points (1.22%) which reflects the disappointment that the cut wasn’t 0.50%, with promises of more stimuli to follow.

The market fully recovered that loss early today but Trump’s announcement of additional tariffs of 10% on over $300 Billion of Chinese exports caused that gain to evaporate to a loss of another 280 points (1.04%).

The FOMC is walking a delicate tightrope. If they had made a bigger cut and promised more stimuli, investors would have interpreted that as confirmation that the economy is in worse shape than is understood.

The question period after the announcement was an amazing display of circumlocution. I found it quite understandable because the US economy has some pockets of weakness that are concerning but the indicators are not universally bad.

I will give them the benefit of the doubt for the time being but I suspect that the 20% market decline in late 2018 increased pressure from Mr. Trump to cut rates. Trump does not want a strong US currency or falling markets.

He has been trying to talk down the US currency.

The European and Asian economies are clearly in a slowdown, which will impact the US in due course. This cut in rates could be the FOMC’s response to the risk from external weakness. The European Central Bank is promising to join in with more stimuli. Their rates are already negative, which is killing the European banks.

The FOMC denies that more cuts will be automatic unless the economy needs more help. I don’t believe that statement, because there has never been just one cut and done through history.

They seem to be trying to get out of the way of the financial markets, rather than promise to come to the rescue of investors if markets decline. This is probably the most important message because investors have been rescued from falling markets since 2009 and have been expecting this to continue.

Currently, short-term bond yields, have fallen below the Fed’s new rate. Clearly, the bond market is anticipating more rate cuts.

All-in-all, the rate reduction is not meaningful. In the meantime, we are implementing a significant adjustment to our portfolios with the expectation the change may provide a solid gain over the next few months.  There is no guarantee of course but it is a strong likelihood.

Sincerely

Bruce Sansom

 

 

 

 

 

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