Thursday, April 2, 2020

Investment Wisdom

 Investment Wisdom News Blog

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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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