“The Quickest Way to Double Your Money Is to Fold It Over And Put It In Your Pocket.” – Will Rogers

 

If only doubling your money was that easy. Instead, it requires time, patience, planning, discipline. As part of keeping you up to date, I would like to share our latest views.

 

Strategy Update Highlights

1)         After the market’s great year-to-date performance, and with economic growth slowing, we are moving to be more defensive.  There is no imminent recession, however.   

2)         We expect more Canadian and US interest rate cuts.

3)         We are back to normal market volatility.

 

Fixed Income:

 

The US/China trade war continues to dampen global trade and economic growth. Concerns about the growing impact and unintended consequences on the global economy has most central banks around the world in rate-easing mode. While Bank of Canada Policy rate is 1.75%, RBC currently forecasts a drop of 25 basis points to 1.50% in the first quarter of 2020 and remain at 1.50% into Q3 2020.  Additionally, the US FED is expected to drop its rate by 25 basis points to 1.625%.

 

We still have short-term and floating-rate bond exposure, but I’ve increased alternative global fixed-income exposure. Over the next quarter, I will increase that even more. The following chart shows that a near-term US recession is still unlikely, but we are seeing small cracks appear. One indicator is that ISM Manufacturing moved into neutral after a recent weak reading.

 

 

Overseas, Brexit is looming late in October. Rates are very low and negative in parts of Europe. With all the political and European economic uncertainty, central bankers are keeping rates lower to provide some stimulus.

 

 

Equities:

 

The portfolio’s Canadian equity holdings continue to perform better than expected and is still almost fully invested to its target weight. That said, we are keeping the Canadian equity market downside put (“insurance-like”) protection in place until December 2019.  Last quarter, I said the protection will likely increase, but I held off.  There is one position, Shopify (SHOP) that we still like, but due to its continual price increases over the past year, I have been paring back on that position.

 

US dollar-based accounts have slightly elevated cash positions. As the US/China trade war continues, there should be opportunities as events unfold. We are assuming the Canada/US/Mexico (CUSMA) Trade Agreement (or USMCA, in the US) will come into effect, which should reduce some economic uncertainties.  We are monitoring potential short-term equity disruptions given the issues surrounding the US/China Trade War, Brexit, Canadian Election, interest rate directions, recession worries and commodities prices, to name just a few. As these and other events unfold, they provide us with opportunities.

 

 

Conclusion:

 

In wealth management, there are always things I like and don’t like about global market and the global economic and geopolitical environment. The art is using those experiences and knowledge to constantly improve and to provide consistent performance. I wish we could double your money as easily as Will Rogers humorously suggested.

 

Over the next quarter, there will certainly be some interesting updates. The only constant is change.

 

Please get in touch with questions or concerns, or to set up a meeting. We always appreciate an introduction to family or friends who might benefit from our unique personalized approach.