“Investing is not supposed to be easy. Anyone who finds it easy is stupid.”

Charlie Munger, Berkshire Hathaway

 

For the second quarter in a row, the Canadian market outperformed the US stock markets. Just when many had given up on Canada at the end of 2013, it seemed reasonable to me that Canada would play catch up as long as the US markets did not reverse course and so far this has come to pass. Most sectors performed well with energy and financials leading the way.

 

What has been the most surprising to me over the last few months is the market’s ability to “shake off” bad news. When the Malaysian jet was recently shot down over the Ukraine by pro Russian rebels, I expected some rough trading days but markets seemed oblivious to that event. With the escalating violence between Israel and Hamas last month, I was once again surprised by the market’s resilience. The latest negative event is the default by Argentina but markets again seemed to have taken this in stride. It is not the first time that Argentina has defaulted and it likely will not be the last either. So nothing seems to be shaking the market confidence lately and it is worth noting that I suspect that any of these events would have been more damaging to investor confidence if they happened just one year ago. The confidence that we were so sorely lacking after the financial crisis has returned.

 

As I type, I am celebrating my 18th anniversary with RBC Dominion Securities and I have learned many hard lessons over the years, sometimes more than once! Many of you have heard me say that “when there is nothing to worry about, it is time to be worried” and it almost feels like this is the case of late. The problem is, too many pundits are calling for a big correction these days and markets rarely accommodate the majority view. So yes we will have a meaningful setback at some point and timing such is inherently tough to do.

 

I remain concerned about what lies on the other side of Quantitative Easing. The US Federal Reserve has steadily reduced the amount of its monthly bond purchases, attempting to wean the markets off the liquidity pump. By October, the program is scheduled to be completed and then sometime next year, overnight interest rates will begin to rise. How the markets react to these events is anybody’s guess but I suspect there will be some convulsions which will offer better buying opportunities so I continue to hold a decent cash allocation to be able to take advantage of convulsions, or corrections. So far, the markets have given the QE program high marks, but again, that is not surprising since we have only seen the positive side of the activity with bonds, stocks, houses and almost all asset prices appreciating. Stay tuned.