August was a volatile month with 2,000 points of movement in the Dow Jones but we ended almost flat for the month. On the TSE side we had 500 points of movement but here again ended near flat for the month. It has been a very choppy market and it is easy to get caught up in the news headlines and make wrong decisions because of volatility.
We start September with even more headlines; we have tariffs being increased on China, we have a hurricane, we have Brexit and of course the most important headline is the inverted yield curve (short term interest rates are higher than long term rates) which has been the past predictor of recessions. All of the above are headlines and short term events that give cause for the market to go drastically in either direction.
Looking closer at the biggest news item which is the inverted yield curve; yes it has been an indicator of recessions previously but that was when the Federal Reserve was raising rates to slow down an overheated economy. What we have now is over 17 trillion dollars worldwide with negative rates looking to find a good place to invest. That place is the U.S. and when these countries buy these bonds it distorts the yield curve which currently is into an inverted position. It appears the U.S. is going to have to have lower rates rather than raise rates and this is not because of a recession. I do feel the market has priced in all the events and hence the reason we are in a range and although the perception is negative we really haven’t moved anywhere.
With all of the above it is our job to look through this volatility to use it to our long term advantage. This is where knowing what a company is worth is key so when we see these same companies being sold off it is to our advantage to buy as short term fluctuations will end and value always comes back. Try not to get too caught up in the day to day swings in the market and feel assured that our team is taking advantage of mispricing.
Paul Belous, CIM
Vice-President & Portfolio Manager