Good day
Based on conversations we have had over the past month, both in and out of the office, there is some lamenting on how bad things are from an economic point of view. Apparently a recession is imminent. Really?
Why do people calling for doom and gloom get the most attention? David Rosenberg and Jeremy Grantham, for example, get a tremendous amount of press and the headlines always show a recession in the near future. Yet they have been calling for recessions since 2013. At what point do they lose all credibility? I cannot imagine how much money you would lose (by not making any) by heeding that advice.
Not everyone on TV is an expert. You may recall that I had a weekly spot on Canada AM and was a regular on BNN in the late 90’s early 2000’s (the only people that recognized me were males aged 30-50 which wasn’t what a single guy living in Toronto aspired to).
I read a report recently that was calling for a 100% chance of recession. Seems ominous (so I sold everything) but I read past the headlines and…there was no date attached (so I bought everything back). Going forward, there is definitely a 100% chance of recession at some point.
Not that I walk around wearing rose coloured glasses but most people I chat with have more money in the bank than they can spend right now (admittedly, it is mostly clients of Dominion Securities which is not at all a representative sample of the overall population). And the plan is to spend it.
Getting a job is not difficult. Wages are going up. Borrowing money can’t really get much easier.
RBC Global Asset Management has a lot of focus on the ‘consumer’ and what may happen over the next 12 months. There is good and bad news.
Recently, I sent a piece about the yield curve and also hinted about some other indicators that show growth or contraction.
A few folks asked what those are and here you go.
Recession Risk Scorecard
I am often asked for my economic outlook over the next 3 months. Not being an economist (and lacking a crystal ball), it is hard to say what the next 3 months will bring and most economists are wrong in their predictions anyway. I am pretty good at identifying long term risks and selecting companies that will grow more than the overall economy with some predictability attached to them. I am quite comfortable with what we are doing for the next 3-5 years; 3-5 months is too short a time frame to show value. I joke around that it is like playing golf and adding up the score and settling bets as you approach the second tee box.
Who likes a sale?
Also, I talk a lot about earnings and valuation. As an investor, you are setting yourself up to participate in a company’s future earnings and cash flow. The Canadian market is actually cheap right now – valued about 10% below the average of the past 20 years. The US market is the other direction – about 10% above the average seen over the past 20 years. This is one reason why we are more excited about Canada now and harvesting some of the massive US gains and moving the dollars back to Canada. That, and the fact that most clients are spending Canadian dollars on a monthly basis and therefore need that sent to bank account ongoing.
No more charts for today. Hope you are enjoying a great week.
Best regards,
J. Todd Kennedy, CIM, FCSI
Senior Portfolio Manager
613-566-4582