Paradox (definition) – A seemingly absurd or self-contradictory statement or proportion that when investigated or explained may prove to be well founded or true.
“Someone is sitting in the shade today because someone planted a tree a long time ago”
-Warren Buffett, Legendary Investor
We seem to be in a world where we are in the midst of the greatest technological disruption we as humans have ever experienced, while at the same time, the global political arenas appear to be going through their own unsettling, and creating deep chasms in the various societies impacted by then.
As a result, the daily flow of information, be it in mainstream media, on the internet in the form of blogs, websites, etc… or be it in whatever form one receives it, has created a lot of “misinformation”, or maybe just too much information and appears to be confusing the masses.
It has created a world encumbered with paradox.
On the economic side, some are obvious:
- There is full employment, but little or no inflation
- There is low economic growth, but high valuations
- There has been low market volatility for some time, but high uncertainty
- Real rates are higher, yet lower (short term) market returns
- Oil is rallying, yet the Canadian dollar goes lower
On the political side:
- In the USA, the impact of Trump’s election
- In Canada, we’ve always leaned “left of centre”, but may be leaning totally left
- BC and Alberta are NDP
- NB, NFLD, NS, PEI, QC and until last week Ontario were Liberals
- Saskatchewan has its own party
- Manitoba (until last week) was the only one with a Conservative Premier
- In Europe,
- Macron trying to change France
- Italy which has leaned far left for 40 years, now leaning right
- Merkel’s position not as strong in Germany
- The impact of Brexit
- Hungary, Bulgaria elected conservative governments
- In Asia, China President Xi was given the position “for life”
- What will the end game on the Korean peninsula
- In Mexico, just this weekend, elected a far left “socialist” government which adds more questions to NAFTA.
In technology, the internet is now over almost 30 years old, but look what’s going on right now:
- Artificial Intelligence (AI)
- Autonomous Vehicles
- Streaming
- Social Networking
- Robotics
- Blockchain
- Biomedicine
- Electric Vehicles
- Cryptocurrencies
- Among many others…
The chart under the “Notes” section shows how fast technologies took to get mass adoption. To add to it:
The Television took 50 years to get to 50 million users.
The Radio? …………. 31 years
The Internet ..……… 7 years
The latest “app.” …. 30 seconds
This is true, real secular disruption going on. The simple rumour of Amazon entering a business causes damage. Last week, the day Amazon announced they purchased an online pharmacy, eight publicly traded drug retailers lost about $18 billion in market capitalization. Market wise, we keep reading that the economy is in late cycle. The risks are rising inflation, a slowing China, central bank policy, etc. … some 1999 investor behaviors has even crept in as witnessed in Bitcoin, and the Canadian pot stocks as two recent examples. The Canadian market typically benefits in late stage cycles, but half way through 2018, we remain negative on the TSX.
The wild card in all of this noise remains the US economy. If an investor can simply get the US economy right most investment decisions would fall in line after that. The USA is but 4% of the entire World’s population, but accounts for about 25% of the global economy. And the biggest piece of the USA economy? The US consumer which accounts for an astonishing 71% of the USA’s entire GDP.
The US economy will be about $20 trillion this year, with #2 China still a distance at $11 trillion (US). Canada by the way is at about $1.75 billion. So yes, a great place to live, work, play, but as a global economic powerhouse? Not so much.
So after all the noise and information is processed, here are some conclusions we might come to:
- Even though we are now 10 years out of the Great Recession, and sentiment is higher, as are valuations, equites still seem to be the place to be
- With global interest rates rising, bonds have some risk
- Still think a rotation (more of it) coming as assets shift from bonds to stocks
- With pretty well full employment, inflation, especially wage inflation is a risk
- Tariffs do not necessarily = trade war (I doubt it in fact)
- Disruptions are a bigger threat than ever
- No imminent US recession (at least for 2018), and right now late 2019/2020 at the earliest
- An error in central bank policy remains one of the biggest risks.
So in our World of even more rapid change, where disruptions remain as big a threat as ever, we need to sometimes take a breath, not believe all the nay-sayers and pundits, and remember that everything will be AOK… for now anyway.
AROUND THE GLOBE
Canada (Buy)
- Tariffs impact? 73% of Canadian exports go to the USA.
- Right now the Canadian economy is sandwiched between the USA and China
- Housing market remains frothy
- Expect GDP of just 1.75% for 2018
U.S.A. (Strong Buy)
- Economy continues to move nicely, expect 3.00+ GDP in 2018
- Protection/Nationalism remain big question marks
- Global markets still trying to figure out Trump
- Q1 GDP number was at 2.00% was the best in 7 years
Europe (Hold)
- EU growth in fits and starts
- Remain behind the USA in cycle
- 2018 GDP 2.25%
- Brexit impact still up in the air
- Monetary policy patient and persistent (so far)
- Macron changing France, Merkel’s grip on Germany not as strong as it once was
- Italian politics have created an unstable coalition
Asia (Avoid)
- China stumbling – Shanghai’s index down 23%
- 2018 GDP up 6.50%
- Japan now past deflation – negative rates expected to disappear by Q1 2019
- Korean situation seems to have settled (for now!)
Emerging Markets (Avoid)
- Have had a tough 2018
- Venezuela, Argentina and Brazil all stumbling
- New socialist PM (extreme) elected in Mexico
- India also underperforming vs. expectations
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