Wednesday, August 26, 2015

What Now?

Expect The Unexpected!

Equity Markets are cheaper:

S&P 500 is down 12.5% from its highs (May 2015).
Canada (S&P TSX) is down 15.5% from its highs (Sept. 2014).
Japan down  10.5% (Jul. 2015).
UK down 15% ( Apr. 2015).
Euro down 16.5% (Apr. 2015).
Australia down 13% (Apr. 2015).

So we have our correction.

Volatility hit levels not seen since 2009 on Monday (near 55 on the VIX) but closed back below the weakest levels in 2010 and 2011 yesterday (at 36 on the VIX).

Historically, higher volatility spikes early on, but volatility levels remain lofty for a period of time following the big spikes, but gradually decrease.

The S&P 500 should see some further buying support at last Octobers lows near 1820-40, if that holds, then we could possibly move back to the 2000 - 2100 level (as the next move).

Otherwise the up-trend line from the 2009 bottom will be the next test of support at or near 1700.

The 2007 high near 1600 follows that.

Until the up-trend line is broken, we are still in a long-term (secular) bull market.

Key Catalysts will be:

What will happen to the Chinese economy, will it be able to restructure and return to growth?

Will the US economy lift off in the 2nd half of 2015?

Both of these resolved in a positive way should help commodity prices eventually find support.

This will assist developing economies.

Inflation will likely remain low for some time to come.

 At this point we have not seen what the collateral damage has been and if there will be "knock-on" effects after the equity market melt-down.

Certainly the trillions of $ of realized and/or unrealized losses will leave investors a little less wealthy, but the impact on the market psychology will take a little while to determine.

So we shall be watching closely.

Remember, that these are all short-term phenomenon and despite all the doom and gloom that may be foisted upon us by the media in the next little while, we have to stay focused on the long-term:

Most importantly your future goals and managing the risk of not achieving them. 

Stay Tuned.

Tuesday, August 25, 2015

It Pays To Be Patient

If you had cash to invest, yesterday was a brilliant day in the equity markets.

If you didn't, I suspect it was a bit gut-wrenching.

I believe that properly building an investment portfolio should take years (not days) to complete.

In the short-run, you may lag behind the "market", but different asset classes will have their "moments" when investors/traders give up on them because they are not performing and hit the sell button that sends them to very reasonable price points and if you have been patient, provides a great buying opportunity.

There have been 2 very decent buying opportunities in the equity markets over the past year:

Oct 15, 2014 and yesterday. 

If you look back over my blog since its inception and have perhaps had the chance to listen to our weekly webinars, we (my business partner Paul and I) have been relentlessly (almost ad nausseum) beating the drum on how and why equity markets were expensive.

So we have been patient, until yesterday, when opportunity permitted us some great purchase opportunities for our clients.

I feel sad for those investors who's advisors put their money in to the market at any price, without some analysis of market trend, because not only did they miss yesterdays opportunity, but they also likely had to sit and watch while the value of what they owned (at higher price points) slipped further into the red.

That is where having a good, patient discretionary portfolio manager can be a real advantage: when opportunity arises, they can act quickly (of course within the parameters of your pre-established investment strategy) to adjust to changing market circumstances. That is added value. That is what you are / should be paying for.

An advisor who has to call you to get permission to make an adjustment may not be able to get to you in time.

Sometimes it pays to be patient and have cash ready for an opportunity when it arises and it may take months and sometimes years to get "fully" invested. Yesterday was a good day for those folks.

It is webinar Tuesday at 

Feel free to tune in to our recorded version at or about 5pm:

We will talk about the current state of financial markets and the global economy and other wealth management issues.

See you then!

Monday, August 24, 2015


I have been through many market "sell-offs" over the 35 odd years that I have been participating in financial markets and it amazes me how similar they all are.

For months and months upon months, markets remain over-valued (one extreme) and all of a sudden everyone comes to their collective senses?

Makes me shake my head in wonder.

In the early going, the most exposed traders, those who have gambled using borrowed money (leverage) are the first to liquidate (because they have to) as the assets that provide the collateral for the loan, fall to levels where the lenders demand more money to protect the loans. Traders must then sell more liquid assets to cover the required payment, further driving prices lower.

So we will get (quite quickly) to the other extreme.

Then we will need to assess the "collateral damage", both financially and psychologically on market participants.

There will be some potential for large highly leveraged institutions and hedge funds to suffer significant losses and that may exacerbate the situation, however, lessons learned from 2008 should likely limit this (although, there are many who, overwhelmed by their lack of good sense may get stung again).

There are under-currents in the global economy, as we have been suggesting consistently that have been less than positive and these may become more front and center as the weeks progress.

The S&P 500 will open another 3% (approx.) lower this morning and has blown through most minor support levels. There is strong support at last year's lows at 1820-1840.

It is August, so liquidity levels are less than normal and those traders who wish to capitalize on investor fears will be doing their very best to use the volatility to their advantage.

Have you heard from your advisor?

Traditionally, this is the time when advisors show that they care about you (or they don't). If they aren't calling to discuss your concerns, they don't really care.

Interestingly, it is also a time when discretionary portfolio managers can also add value.

Non-discretionary managers have to call you and ask you if they can place a trade (or even cancel an order). A large, non-discretionary practice has to call hundreds of families.
This can be daunting and leaves some clients (who do not get the first call) at a disadvantage.

In any event, remember that, like the swinging pendulum, we will see extremes, but eventually cooler heads will prevail, finding value and moving markets back to equilibrium.

Friday, August 21, 2015


One of our on-going Themes for 2015 and one that we talk about regularly on our weekly webinar is that Bond Markets lead other financial markets. On Tuesday we pointed out the historical correlation between the US High Yield Bond Market and the S&P 500 as an example of one of the many reasons why we continued to be very cautious and defensive with client portfolios:

It appears that the S&P 500 finally got the message yesterday and sellers emerged.

Volatility spiked to levels we saw during the Greek Crisis in June and it does not look like this is the end of renewed volatility as we head into September (historically the most volatile month of the trading year):

We do expect some initial buying support to enter the market at or near 1980-2000 in the S&P 500, however there are mounting uncertainties in the global economy and this still over-valued equity market index may face further downward pressure if longer-term selling (profit-taking) materializes. 

We think that there will be buying opportunities, but patience is required. We want to see clear signs of better value and new money entering the market before we would be comfortable to commit client capital.

Further, we are concerned about some of the deflationary forces (from commodity prices) that have been emerging and the Bond Market's are telling us that further caution is warranted for the time being.

We have also been rather vocal about the new low return environment that we are now in and this increase in volatility will contribute further to that.

Remember, that this is part of the ongoing cycle and over the longer-term, this will fade and we will return to growth.

Diversified portfolios that have been regularly and properly re-balanced will come out of this in a year or so to continue thier growth trajectory. 

Wednesday, August 19, 2015

Shelter Costs Are Rising

US consumer prices were little changed in July as a whole.

However, what is buried inside this number is of some interest:

Shelter costs, which account for approx. 1/3 of the Consumer Price Index rose by .4% after an increase of .3% in June.

A rental vacancy rate at a 22 year low is driving rents higher: they were up .3% in July.

One of our add on "Themes" for 2015 is that the US Consumer (who has historically represented close to 2/3 of the US economy) demographic is changing structurally: Baby Boomers, the once "big spenders" are focused on retirement and not out-living their savings and that the now biggest cohort, the Millennial's, do not have the earning power, have significant student debt, expensive rent and generally different spending priorities.

So expectations of a rebound in consumer spending to drive the US economy may be over blown.

Add to that the increase in the value of the $US for emerging economies, China, Europe and Canada (and the current sate of their respective economies) and the potential consumer for US exports diminishes as well.

In July, US consumers were upbeat, increasing spending on automobiles and at restaurants, but it is difficult to see how that will be able to continue to drive spending down the road given what is going on in the global economy.

The "wealth effect" of better asset prices (since 2009) has not been significant as the "wealth gap"  (between the wealthy and the middle class) has widened and consumer spending has not rebounded to the same degree as in previous economic recoveries.

With that in mind, the majority of economists suggest that a 1/4% increase in the Fed Funds rate by the Federal Reserve will have a limited impact on the consumer and expect that this will allow them to move in September.

Interestingly, investors are split on the Fed's move.

If the Fed does move in September, then markets may be in for more of a shock.

Stay tuned!

Tuesday, August 18, 2015

Commodity Prices, China and "Emerging Markets" ...

Are all in this mornings financial markets news headlines.

Certainly these issues are front and center for their implications on developments for the global economy.

The key question (and there appear to be many opinions on the answer):

Is China in control? Are they being proactive or reactive? 
This all remains to be seen, in time.

Emerging economies are getting caught in the fall-out (Chinese  Yuan devaluation and equity market sell-off) there is currency, bond and equity market volatility and investors are moving away from that risk as a result.

Ever wondered what the (MSCI) Emerging Markets (Equiy) Index is comprised of?

  • Remeber that it is companies, not countries that comprise this index.
  • There are 836 mid and large sized companies which are domiciled in 23 different countries:
  • Top 15 companies:

click on this table to enlarge

  • Many of these companies are recognizeable names.
  • Many have a more global scope than the country in which they are domiciled.
  • But the importance of owning an "index" is the diversification provided by owning many companies (836 in this case).
So even though "emerging economies" are in the headlines and are struggling in the global economic environment, the companies that are contained in the index may have very diverse sets of circumstances working for and /or against them.

When the indexes are sold as a whole, many very solid companies may be taken lower in price as a result, but in time as value is recognized they will "bounce" back in price as investors uncover the value that was created. This unfortunately, may take time to happen. 

So it is important to remember that the purpose of owning this index (or any index for that matter) is for long-term growth and from time to time there may be short-term downward pressure on prices, but that eventually, as the good companies remain solid, they will bring the index back to realistic growth levels.

Today is "Webinar Day" at 

We will post a recorded version of it at approx. 5pm (EDT), so feel free to tune in at:

and now that I am on the "bandwagon"


Monday, August 17, 2015

The Dog Days Of Summer

The rise of Sirius (the dog star) late in the night sky in the constellation Canis Major, has historically been identified with the hottest and most humid days of summer and hence the expression: "Dog Days".

Most folks are in "vacation mode" (in the Northern Hemisphere anyway) and traditionally financial markets experience low volumes of activity.

It is a great time, before the rigours of "back to school" kick in and we get sidetracked by Blue Jay fever (even I have jumped on the bandwagon) to take stock of your situation and assess where you are as we enter into the last phase of 2015.

Best way to do this?

Lounge in your beach chair, cast out your fishing line, hoist the main sail, line up your put (or whatever you may be relaxing with) and as you do that, give thought to all of the things in life that are important too you.

Take all those important things and determine what it is that you need to do to make sure that all those important things remain as your life's key goals and objectives.

Family, professional, charitable, financial, health, travel and any other priorities that you might have.

If you can, write them down and list them in order of the timing in which you might want to achieve them.

Then, put them away (for now) and go enjoy the last few weeks of summer. We can pull them out again in September and start to work on how you are going to make them all happen.