I’m writing to you once again from the RBC Dominion Securities office in beautiful Collingwood today as I’ve left the city to celebrate my bestest friend Adrienne’s wedding this weekend – and it’s shaping out to be a sunny, perfect weekend to get married - but, before I step away for the festivities – we’ve got lots to talk about regarding this so called “Great Canadian Non-Recession”…

As you likely heard, the Bank of Canada cut rates again for the second time this year on Wednesday, moving the overnight lending rate from 0.75% to 0.50%. The Canadian economy has been significantly weaker in the first half of the year than the Bank of Canada initially expected – so while Poloz isn’t using the R-word, he is forecasting two back-to-back quarters of economic decline amid the crash in crude prices.

With Canadians carrying record-high debt loads and cheap money fuelling hot housing markets in Toronto and Vancouver, the 25 bps rate cut has been viewed by some as a risky play - adding more fuel to the debt fire.

With Canada’s growth outlook “marked down considerably” (full-year growth forecast have been reduced to 1.1% - down from 1.9% - with expectations of 2.3% growth in 2016 and 2.6% in 2017); the bank says “additional monetary stimulus is required at this time to help return the economy to full capacity” – suggesting that by pulling the rate lever to loosen monetary policy, it will spur confidence and economic growth through various channels – such as foreign investment from a weaker currency or increased spending in the economy with cheaper borrowing costs – just what the doctor ordered.

Still, there are real concerns about “further job losses in oil and related industries” with oil prices assumed to remain near recent levels of $60 US for WTI (even though we slipped to $50.48 this afternoon) and fears regarding our hot housing market becoming even more dangerously overvalued and facing a real sharp correction sometime this summer – all that said, the bank says it still expects a “constructive evolution,” meaning the market will stabilize over the next two years.

While this is all a little alarming, it comes as no surprise as we’ve been saying for a long while now that if you want to see growth in your portfolio, you need to diversify outside of Canada – something you’ve heard me say time and time again. In particular, of my three favourtie sectors in the US (healthcare, tech & financials), my team put together a great piece entitled, HealthCare: A Dynamic Prescription for Portfolios, in where we prescribe exposure to this sector as a must for your investment portfolio. Over the last 5 years, the S&P Health Care Index has averaged annual returns of 18% versus the S&P 500’s 12%. In our view, such outperformance is reflective of the defensive nature of the sector, strength of execution, and consistent and increasing returns of shareholder capital. We believe such outperformance can endure as the sector is primed to benefit from numerous structural tailwinds in the coming decades—e.g., an aging global population, longer life expectancies, and rising wealth levels. Given its scope and diversity, we believe health care offers a rich set of compelling opportunities for investors of varying tastes. Read more here.

 

Now, I’m off to the celebrate the beautiful Adrienne and Eduardo tying the knot – congrats!!