FVI Economic Update November 2019
Now is not the time to be greedy!
- Sébastien Mc Mahon Sr. Economist & Fund Manager IAG
As you know by now, we have decided to change up our event format and will not be hosting Christmas Parties this year. However, we certainly did not want anyone to think we are hiding or not engaging with our clients.
We simply want to regroup our efforts and come at our clients, friends and potential new clients with a strong to start a new decade.
With that, since our August update, there has been some very positive movements in the markets, and news that we think you ought to be aware of.
So let us start with the portfolio and where we are at right now in two simple charts.
*Past and present returns are not indicative of potential future performance.
What has changed since our last update is that we have come through quite a bit of volatility, nearly all of it due to political pressures from a single twitter account. I would like to say I am kidding about this, but frankly, since the news travels faster from this media format than anything else, and often before news can break, it is true. The underlying cause of this volatility remains the trade tensions between the US and China.
What is interesting, however, is that the markets continue to bounce back quickly and very recently global markets have broken through a number of psychological barriers.
IE: The Dow Jones breaking through 27,500
We provide these data points to give you a good idea of what has happened over the past number of years, but also to suggest that there are always buying opportunities present if you have the courage to look for them.
May and August provided two such opportunities.
This is a lot of data to consider, so let us break the last year and a bit down for you and what we have learned recently from our partners around Canada.
*Past and present returns are not indicative of potential future performance.
Since October 1st of last year, a little more than 13 months ago, the markets have recovered in pretty staggering fashion considering where the global economy is at in the long term bull cycle we are in at the moment.
We had to take our lumps last fall, and for no real good reason, we saw a sell-off that concluded on Christmas eve, since then we have seen a very solid late-cycle climb to new highs that we believe should continue for the foreseeable future.
The questions you may be, and we are telling you that you ought to be, asking yourself is: it may not be a good reason, but why did we see a sharp drop in the markets leading to a correction to end 2018, and what should we be doing now?
To answer the first; from all the available data we have been able to collect and from the varying opinions we respect: Sentiment.
Investor sentiment was so out of control last year that there was no quarterly earnings, jobs or economic report that could come out that was going to satiate the mindset of the investor around the globe. Q3 reporting was incredibly positive, not breaking records, but still great news. It did not matter, and while the bots were taking profits, the flesh and bone investors were acting like childish buffoons throwing their money into cash accounts with no real idea why.
We know this because we saw the money market explode with little cash going to traditional safe havens.
As of Boxing day, the single biggest day in the history of the Dow Jones, the flight to cash was over and a return to sanity resumed.
To take care of the second question, we have been in contact with Sébastien Mc Mahon and our friends at IAG that manage the money we and you invest with them, and while confirming our suspicions about the above, they have also let us know that fundamentally they expect solid growth into 2020.
Their recommendations are:
Diversify your profits
Stay calm
Don’t become greedy
Of course, this is good advice, but how do we diversify in this market?
Last year we found three new ideas to help us diversify the portfolio globally, and went back to an old friend to help invest in Canada without risking more capital in banks and resources by investing in liquid REIT’s (Real Estate Income Trusts).
This year IAG has come out with five new funds, four of which we believe show great promise to accomplish our goals of increasing returns while they are available, while adding more diversity through liquid infrastructure investments.
We do face a dilemma. All four funds have American content because all of the money in the world is still being invested in the USA. Trillions of dollars flowing into the country…
At some point, that will stop and we have to be prepared. Luckily we have time to ensure we are prepared. Our goal will be to squeeze the American content down to a more manageable size, focussing mainly on Tech and Dividends, both at once where possible, and whatever oozes out between our fingers we will slowly begin to move to Europe and the Emerging Markets where prices are right and ought to stay in a buy position.
We believe that as the Brexit saga eventually takes care of itself, Europe should be wide open for business, so finding the most efficient route into the region will be important and we ought to have profits to re-invest.
We also believe that at some point the USD will likely face a valuation problem, meaning the value of the greenback could pull back, this will make emerging markets investments very attractive, and guess who just happens to have a new Emerging Markets manager? That’s right, IAG.
So, suffice it to say, there is a lot going on, and we have a lot of great news and ideas to share with you over the weeks leading up to Christmas and beyond.
During this time we will work to share resources and concepts with you, the first of which you have seen in the past, but bears repeating is the weekly update from Clement Ginac and Sébastien Mc Mahon . This is a great resource for anyone looking for information and education in the moment, and a great jumping off point for our conversations.
Thank you for reading and leave your constructive comments below or better yet Contact Us right away so we can talk about the wonderful news and exciting changes we are working on as I type this out.
Thank you for reading.
Darris Cameron
President & COO
Financial Value Inc.