Friday, April 29, 2016

Preferred Shares Or Groceries?

I had an interesting call from a former client the other day, he claimed that his advisor was more interested in his new grocery store than he was in the fact that the preferred share portion of his portfolio (near 20% of the total) was down by some 15-20% over the past year. Apparently the advice he received was to "just sit tight, it will all eventually come back".

About a year ago our research suggested Canadian banks were going to need to raise capital to stay current with the new regulations. It also came to light that they would likely be doing this in the preferred share market. 

This meant that a fairly significant amount of supply was going to be added to the rate-reset preferred share market. 

As it happened, in order to make this supply attractive so that it would sell, the banks offered some very attractive dividend yields on this new supply (higher yields than the existing yields on similar rate-reset preferred shares). Nice for those who had room in their allocation for more preferred shares, but not so nice when the whole rate-reset market of preferred shares that had been previously issued at lower dividend yields had to be re-priced lower, to be in line with all the new issue supply. 

That was a devastating hit for unsuspecting advisors and their clients.

Needless to say, being out in front of the curve on this was certainly helpful as we made efforts to limit our exposure to this debacle (especially in the rate-reset preferred share market).

We still do not think that rate-reset preferred shares are out of danger, especially if and when banks need to raise more capital.

A client recently said to me: "Scott, my business is my hobby, I come to you so that you can look after my money and I can focus on my hobby." And I replied: "well, my business is my hobby too, so we make a good fit".

It is nice that a new grocery store might be someone's hobby (and all the best of luck with that), but I would rather be focused on my client's portfolios and guiding them through the "minefields" of investing. 

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Wednesday, April 27, 2016

The Latest 

On Tuesday, on our weekly webinar, we showed a number of indicators that historically have preceded recessions in the US.

(you can listen and view more on that here: )

The probability of a recession is rising, the current cycle is coming to its inevitable conclusion and only a few indicators are yet to turn lower.

One of the final pieces to the puzzle will be the US Federal Reserve: as it has been in the past, they have raised interest rates forcing short-term bond yields to rise and flatten the yield curve and subsequently tip the economy into recession:

This may happen in June or perhaps in September, when they determine that, despite slowing economic growth and an uncertain consumer, the prospect of inflation and robust employment growth outweigh all the other signs (declining corporate profitability and business outlook) and leaves them little choice, because their dual mandate of full employment and price stability will be the final determinant. 

The big problem is the fiscal austerity that has come with political deadlock and the polarization of the two parties away from the compromising middle.

So it will not, ultimately, be the central bank who bears the responsibility (as they will have little choice), but the failure of the US political system (or the politicians themselves, failing to find a way to work through their differences for the benefit of the economy). 

We may have our issues in the Great White North (like cold winters, that give us snow and freezing temperatures in late April), but we have managed to at least free ourselves from political gridlock, where whether we like it or not, things are getting done at the federal level.

Unfortunately, our economic wherewithal is still somewhat closely tied to the largest economy in the world that lies to our South, so a recession there (although it likely won't be as long and as deep this time around), will be impactful on Canada. 

We should prepare ourselves. It is likely only a matter of time.

We will prepare our client portfolios appropriately.

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Tuesday, April 26, 2016

There Is A Rising Probability Of A US Recession And It May Come Sooner Than Many Think.

A South Florida Real Estate agent that I know just told me that she has not seen anything like this since 2006: "The market has just shut down"! she told me. I know it's anecdotal, but it gave me time to think on the long drive back yesterday and there are lots of things that are "adding up".

My business partner Paul made one of his top picks on BNN's Market Call Tonight (last night) as 30 year Government of Canada bonds. A safe place to park money when risk assets start to falter.

Paul talked about lots of things, especially the preferred share market, so it is worth tuning in, if you have a moment (click on the link):

So it is webinar Tuesday at High Rock where we will (as we do each week) update our clients on our thoughts on the global economy, financial markets and anything that we think could impact the management of their wealth. Certainly this will include our thoughts on the the coming US recession and will be one of our key topics.

We do post the recorded version on our website, so if you are interested to hear what we have to say, please feel free to tune in at or about 5pm EDT at :

Friday, April 22, 2016

I Am Really Tired Of The Argument About Advisor Fees

First and foremost, the investment industry argument is that if advisors do not get paid well, there will ultimately be fewer of them and that could lead to a lack of "retirement saving advice" which could hurt retirees. 

Really? Seriously?

Check it out:

That is courtesy of Rob Carrick (from yesterday's G&M):

Old fashioned style stock brokers (commissioned salespeople in reality) who charge a per transaction commission have an inherent conflict of interest in trying to "sell" as many transactions as possible, especially new issues (IPO's) that have a hefty commission incentive paid by the issuing company.

Ever wonder why your "broker" highly recommended a new issue and a few months later turned and suggested that it was time to get out? A commission grab (both on the buy and the sale). I saw it all the time from colleagues in the "advisory" business (border-line "churning").

Finally the regulators (as of July 15 this year) are going to force these folks to show the total annual dollar value of all of these types of costs that the client is charged.

Then there was the "advisor" who sold Deferred Sales Charge (DSC) mutual funds. No cost up front to the client, the advisor received 5% commission on the sale from the mutual fund company, plus a trailer commission each year. The client had to hold on to the fund for 7 years or face a penalty when selling.
The mutual fund also charged an MER of something in the vicinity of 2.5% annually.

Ever wonder why those did not work out so much?

I say good riddance to those folks. 

The industry encouraged them because the investment dealers and banks got 50-60% of the "advisor's" commissions.

I say welcome transparency!

However, it is not yet "total" transparency.

There are still "hidden" costs associated with mutual funds and ETF's that, as of yet, do not have to be declared.

Do the math on an extra 1% - 1.5% of additional costs that you may or may not be aware of (on top of whatever you are paying the advisor). It adds up over time. For retirees, I think they might rather have the additional cost savings? What do you think?

I / we believe in "total" transparency, so at High Rock, we are a step ahead of where the regulators suggest we need to be and state, up front, what your total costs will be. That is one of the many things that make us different and better.

If a bunch of over-charging "advisors" leave the business, because it is not lucrative enough for them (or the banks and investment dealers that they work for), we are happy to take up the slack. We are in the business of helping people, getting appropriately compensated for doing so and independent of the large institutions (with their targets for revenue and "asset gathering". )

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Thursday, April 21, 2016

What's New And Exciting!

I do tend to go on and on about the state of the global economy and financial markets and portfolio management. I hope that it makes some sense to all of you who honour me by taking the time out of your valuable day to read the words that I write here and view the charts that I present (and perhaps enjoy whatever humour I can bring, or not).

I eat, drink and breathe this stuff (some might respond with the phrase: "get a life"), but this is, in fact, my life.  Those who do put their faith in me / us (because I do not do this alone) to guide them through the minefield that is wealth management are, for the most part, quite appreciative of this guidance.

 One of the scariest parts of the whole wealth management process (because it is more than just getting decent returns on your portfolio, although I do not want to detract from the importance of growth) is the planning process.

It is not a simple task to gather up all of your very personal and private financial data and present it to someone who you don't necessarily know so well. It is certainly a human emotion to fear their judgment. Fortunately, I have had the privilege to work with some wonderful families over the past number (15 or so) of years who did, way back when, check their fears and test the waters and found them somewhat less scary after all. 

The fact that almost all of them are still putting trust in me to guide their financial livelihood is a great compliment. An even greater compliment is the referrals that they, from time to time, send my way. I get to meet some wonderful people in this business. A good number of these folks, after so many years, have become good friends.

Since my former business partner and I agreed (to disagree and...) to go separate ways (another story coming your way soon, for those of you who may be interested), I have literally received hundreds of calls from those with whom I was no longer permitted to work with.

What is exciting (for me anyway) is that the time is slowly approaching when my handcuffs will become unlocked, I will no longer be in "exile" and there will be an opportunity to look after (guide, assist) all of the wonderful people I was able to meet during that phase of my career. 

And when I say "look after", I mean that in the truest sense. We do not take on new (or former clients) just to shuffle you in, invest your money and rarely, if ever, hear from me again. It is one of the many aspects of High Rock that makes us different and better: Fiduciary Duty which is more than a simple "standard of care".

I can't wait to get you all (those of you who will still have me, of course) back into my life!

So stay tuned.

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Monday, April 18, 2016

Searching For Positives

And not finding many...

Where to start?

US Economy:

On Friday, Industrial Production for March was reported to have declined more than expected:

Later on Friday, Chinese Q1 GDP was reported at an annualized +6.7%.

However, on Saturday (somewhat under the radar), the quarter to quarter data was released at +1.1%. In an article by Bloomberg Intelligence, they suggested that something was not adding up and that there was a discrepancy between the quarter to quarter data and the annualized data:

(click on the chart to enlarge)

Finally, the much ballyhooed OPEC and Russia oil production cap meeting ( that pushed oil prices higher last week) ended in failure because Saudi Arabia and Iran cannot agree. Certainly the politics of this is not lost on many: Saudi Arabia is not happy with the nuclear accord granted to Iran, so there is, for the moment, not much hope for any real or perceived agreements. Oil prices have fallen 4% (or thereabouts) and may test the lower support level of the recent, but tenuous up-trend channel:

The C$ is weaker, global stock prices are weaker, but perhaps less than some might have thought, so despite the potential for more uncertainty and greater volatility, the hope for something better in the future remains in the psychology of financial market participants.

Earnings (with only about 10% of S&P 500 companies having reported) are coming in at better than the significantly lowered expectations (so that might also be seen as a positive for some).

We shall talk about all this and more (including our strategic portfolio adjustment ideas) on our weekly client webinar tomorrow. The recorded version will be released at or close to 5pm EDT at 

Feel free to tune in for a listen...

Friday, April 15, 2016

Dear Scott

I got mail:

"Dear Scott, I received my quarterly report, thank you. I only have one question: My portfolio is up over the last year, all my friends say that their's is not. How do you do it? Can I refer you? Sorry, that was two questions..."

Actually, I don't do it. We have a team (interestingly, my former business partner didn't like the term "team", another story for another day, however...) who works diligently to try and determine the best portfolio strategy for each of our clients.

Not only that, my own money (and the rest of our team's money) is invested in the exact same models as is our clients, so I (and we) have a vested interest in the performance of our models.

For each individual and / or family we do a Wealth Forecast (prepared by our Certified Financial Planning Professional) to determine their current financial situation and how their goals, risk tolerance and time horizon dictates what strategy and combination of our investing models best suits their situation, now and into the future, through retirement for the remainder of their lives.

We do not invest for anyone until we have made that determination (because how could we ever begin to assume that one set strategy was right for everyone?). Some advisors just go about gathering clients and their assets and popping them into a pre-ordained strategy that is pretty much the same as every other client. 

But everybody's circumstances are different and therefore their investing strategy should be tailored to those differences.

That is why we are not advisors. We are a portfolio management company: a team of varying (and accredited) skill sets that work closely together to identify appropriate strategies for ourselves and our clients. Many advisors do not have the same combination of accreditations (ask your advisor what their accreditations are, just to be certain). 

Disk jocky's, journalists, former politicians, meteoroligists, psychics, etc. may even have a title like VP alongside their name, but unless they have CFA (Chartered Financial Analyst), CIM (Chartered Investment Manager) or CFP (Certified Financial Planner) among others, they are not accredited to properly look after you with active portfolio management (and many advisors don't).

Active portfolio management. That is the difference maker.

It has been a tough year (since last April) for investing because stock markets hit their highs in May and fell thereafter. 

Having more than normal cash in your portfolio and perhaps less stock market exposure has helped. This has been no secret, because I go on and on (and perhaps on, even more) about that on this blog, on our weekly webinars and anytime a client asks about the over-weight "cash-equivalent" in their portfolio or in their portfolio reviews or just in general conversation (another difference we bring: our clients can talk directly to the people managing their portfolios, anytime).

The Canadian dollar move from $.83 US to $.68 US and back to $.78 US has left heads spinning (and for those with $US in their portfolios some pretty wild swings). Our benchmark (as most of you know) for equity markets is the MSCI All Country World Index and it has had a total return (including dividends and currency adjustment) over the last year of about - 6%.

So it is understandable if portfolio values might be lower.

However, our active management strategy (and a few very good  value additions along the way in our tactical model) has benefitted our models and our and our clients portfolios.

So, I say to you (client who thanked me): thank you for putting your trust in us, because it is a major leap of faith to do so and something that we do not take lightly.

Oh and certainly feel free to refer "us"! 

(Although I will also say: we will be limiting the number of households that we look after in order not to compromise our level of service, but at the moment, we have some room for new families and individuals who appreciate our philosophy and methodology).

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