Friday, August 12, 2016

Apparently There Is No Internet Access Here:

For anyone who might be geographically challenged, that is the Wind River, north and east of Whitehorse, Yukon Territory and a little south and west of Inuvik, the Beaufort Sea and the Arctic Ocean.

For the next 2 weeks I will be enjoying the challenges of class 2 whitewater, dining on Arctic Grayling (a freshwater member of the Salmon Family) caught on a fly, doing some "bad" campfire singing and experiencing the vast beauty of the Canadian Arctic and if we are lucky, the Aurora Borealis.

Likely, the state of the world and financial markets will survive without my commentary (for the next couple of weeks, anyway) and our clients, all well-positioned to deal with any potential volatility, will remain in the very capable hands of our High Rock team.

If you are looking for reading material in the interim:


for something a little different:


“In his journey to understand why, exactly, he can’t hold a tune — while having the ears and taste to appreciate great singing and songwriting — Tim Falconer takes us on a deeply absorbing journey into the worlds of brain science, singing coaches, music psychologists, ethnomusicologists, and into his own keening, music-loving heart. Bad Singer is a fun, fascinating, beautifully written, and strangely moving tale of a melodically-challenged man who yearned to sing. And it has much to say about the mystery of how music moves all of us, good and bad singers alike.”
— John Colapinto, author of Undone and member of The New Yorker staff band

Yes, Tim will also be on our expedition (helping with the vocal harmonies)!

Enjoy your summer!

Thursday, August 11, 2016

I Love Vancouver (And Appaerntly I Brought Some Toronto Weather With Me)

It has been too long since I have visited this wonderful city and the last time I was here we breezed through way too quickly.

Yesterday, I had the wonderful experience of sitting down with clients to listen to their stories and get a first-hand appreciation of their life here.

The conversation is not complex: lovely, intelligent folks, active with young children (soccer, hockey, etc.) and in the challenges that modern day parenting presents (especially with social media concerns), active in the community and active in their professional lives:

Their key concerns: can we save enough to have a retirement lifestyle that is comfortable and have some left over for our kids.

As we always do, we check in on their goals and how those goals translate into their wealth forecast. Most importantly we also take stock of the progress that their wealth forecast is making since the last time we reviewed it, approximately 6 months ago (monitoring) and are there any lifestyle changes that need to be taken into consideration: additional costs, additional income, additional savings?

Where is their total net worth (including their recent home purchase, because they got tired of waiting) now, relative to where the wealth forecast had projected it to be.

Do we need to make any adjustments to their investment strategy to accommodate these changes and /or the current investing environment?

Based on our view of the current state of financial markets and the recent successes of our tactical model, we might recommend a little more (5%-10%) increased allocation to the tactical model and a similar reduction in the global equity model (with some stock indexes at record highs).

Asset allocation up-dating and re-balancing: It is extremely important and should happen at least every 6 months, if not sooner and it should be in conjunction with your long-term goals and objectives relative to where you currently sit in relation to those goals. 

Are you on target to meet your goals?

Our clients are all on target to meet their goals because that is what drives the investing process, if there are changes to be made, they are quickly identified and executed.

That is managing wealth. 

And it is so great to hear the stories about the kids and vacations and professions that are and should be the true focus of a family's life because they have their financial house in order.

Feedback, ideas, questions, concerns...

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Wednesday, August 10, 2016

Stocks Too Expensive? There Are Other (Less Risky) Investing Options.

It is no secret, stocks are expensive. In fact we've been stating that for well over a year. They got a little cheaper after Brexit, so we bought a little bit, but once again at record highs, this is not the place to be buying just because (it appears that) everyone else is.

But those who would decry our more defensive strategy suggest that we are therefore missing out on the latest rally. 

That is just not the case. In fact we are out-performing the benchmark and taking significantly less risk in doing so (reducing our clients exposure to the vulnerability of the stock market).

(for more on this: listen to our client webinar from yesterday) at:

"Buy and Hold" strategies may be appropriate for some investors, if they are comfortable with the market swings that come with waves of volatility.

But adding a "tactical" element to our models offers some alternative ways of achieving portfolio growth for our clients without having to fully participate in expensive equity markets.

There is plenty of expertise that we apply to our methodology, something that makes us unique (our "secret sauce").

For some further insight read Paul's most recent blog:

And this is what helps to hold us out from the crowd and keep our clients from becoming lemmings headed for the proverbial cliff.

Looking forward to seeing Vancouver clients this week!

Feedback, questions, ideas, concerns... (no such thing as a stupid question)

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Monday, August 8, 2016

Market Emotions Are Running High
Earnings and Earnings Expectations Are Not

After stronger than expected employment growth in July in the US, stock markets got rather happy:

And on the CNN Money Fear and Greed Index, greed is running hot.

Behind the scenes, where the (perhaps boring) fundamentals reside, it is not so very pretty:

For the 1st quarter of 2016,  S&P 500 companies reported a decline of 6.7% in earnings growth. With 86% of companies having reported for the 2nd Quarter, the "blended" (actual results plus expected results for remaining 16%) declined by 3.5%.

Valuations (and other metrics for measuring them) aside, if companies cannot grow their earnings, why are their stock prices growing?

There is more:

For the  3rd quarter of 2016, analysts have (again) lowered earnings estimates to a 6th consecutive quarter of declines with an anticipated decline in growth of 1.7%.

4th quarter estimates have also been lowered to + 5.37%, which would bring the year to an estimated decline of 0.3%.

At the beginning of the year earnings growth were expected to increase by 6%.

S&P 500 stock prices (now at record highs) are positive by close to 7% this year, with negative earnings growth.

There is a disconnect here.

Sorry folks, if you are looking for value, it is not in the stock market.

In a discussion with a new client on Friday he said "nothing seems to make sense anymore...", he will not get an argument from me. When it doesn't make sense (and according to the great economist John Maynard Keynes, things can remain illogical for some time into the future), stay away!

Unfortunately, the "short positions" in stocks may have to be resolved (bought in) in the interim (which was certainly happening on Friday), so there is some further upside potential, but don't get caught up in the emotion!

Finally and completely off topic, congratulations to my friends, Glen and Nick Hoag who have helped bring Canadian Men's Volleyball back to the Olympics and started out with an upset over the US team yesterday!!

Can those guys ever jump!!

Feedback, questions, ideas, concerns...

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Friday, August 5, 2016

Catch 22 For The Fed (Again)

Big employment gains in July south of the border, upward revisions to June's data and wage growth more than expected.

Unemployment remained at 4.9%.

Remember that we are watching for the convergence of these 2 numbers as one of our indicators of the potential for a US recession. With better than expected employment data, many market participants are quite enamoured with equity markets, driving them higher on this news. We are somewhat more reluctant to rejoice, however.

Based on Fed Funds Futures,  the expectation of a US Federal Reserve interest rate increase at their September 21 meeting has jumped to 18% from 9%.

If the fed raises interest rates and flattens the yield curve (as they did in 2007), that too will be a bond market signal for increased recession potential.

Meanwhile, north of the border, The Labour Force Survey showed that Canada lost 31,000 jobs in July (mostly in Ontario) and the unemployment rate increased to 6.9%. This puts the Bank Of Canada in a difficult position.

The Canadian $ dropped on this news:

There may be more pressure on the BOC to lower interest rates. Diverging monetary policies (in this direction) will favour the $US.

Feedback, ideas, questions, concerns...

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Thursday, August 4, 2016

Recession Watch

The US economy grew at only a 1% rate in the first half of 2016. This continues to lag US Federal Reserve and most economists projections which have been woefully optimistic.

One of the indicators that we use to monitor the stage of the economic cycle is the gage of current unemployment relative to its 3 year (36 month) moving average:

Historically when these two sets of data converge it signals the beginning of a recession. In April the Unemployment Rate stood at 5% and the 3 year moving average stood at 6%.

Currently the Unemployment Rate for June stands at 4.9% and the 3 year moving average is at 5.8%. With the moving average declining at a rate of about .1-.2% per month, it will be a matter of a few months before it is at 5%. so if the unemployment rate begins to move higher, at or above 5%, over the next few months... recession becomes a very real issue.

On Friday we will see the latest (July) US employment data and we will be watching the unemployment number closely.

As we mentioned in our webinar on Tuesday: recessions, historically are not good for the stock market:

So we do not necessarily think that it will be the different this time, with stocks over-valued by many different metrics:
(see Paul's recent blog for more detail on this topic... )

Perhaps the dividend paid on some stocks is, at the moment, currently better than the yield on most bonds, but if those dividend paying stocks correct just 10%, then that will wipe out 3 or 4 years of dividends, so one must be careful of that particular argument (to justify buying stocks at these levels) as well.

Feedback, thoughts, questions, concerns...

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Tuesday, August 2, 2016

I'm Back (and Frightened)

I spent last week in the US (and aside from having terrible internet service) watched, with my jaw hanging open, the "reality TV" show that has become American Politics. 

What is scary is that nobody trusts anybody. The discussion surrounding both of the key candidates (at many levels) is "who lies the least?"

Here is what I heard (in anecdotal conversations): (accompanied by the expected shake of the head) "I just can't vote for Hillary, so I have no choice but to vote for Trump" or  "Obama got nothing done, we need change" and the standard: "Trump is nuts".

Whatever the outcome, what will leave a lasting mark on US society is the divisive nature of this campaign. Although it is not new, it is becoming more and more polarized to the extremes.

And this has to be a concern for the consumer who carried the US economy in Q2, because businesses are postponing decisions for growth (all of this evident in the Q2 GDP report).

As we have often suggested: uncertainty is the underlying force that has the potential to derail the global economy.

  • UK manufacturing shrank the most in 3 years following the Brexit vote.
  • Oil prices have dropped over 20% from their recent highs and closed yesterday below $40.
  • The Canadian economy dropped 0.6% in May.
  • Central banks are stuck, as all of their stimulus efforts have not had the desired effect.
  • Global debt levels are at record high levels.
  • European banks are failing their stress tests.
  • 163 S&P 500 companies have reported Q2 earnings and while earnings "upside surprises" are above the average, the expected earnings growth rate is a negative 3.8%.

Continue to "hope" for the best.
But prepare for the worst.

Today is webinar Tuesday for High Rock clients, where we will discuss all of these issues and more that impact our investing decisions on behalf of our and our client portfolios (because at High Rock, we invest our money in the exact same models as our clients).

We will post the recorded version at or about 5pm on our website:

Feel free to tune in.

Feedback, questions, concerns... email me:

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