Thursday, June 30, 2016

Happy Canada Day!


Ours is a great country! 

Ranked 6th of 157 in the 2016 World Happiness Report (issued in March) that considers 6 categories: 
  • GDP per capita: 19th (Quatar was #1)
  • Social support: 14th  (Iceland was #1)
  • Healthy life expectancy 17th (Hong Kong was #1)
  • Freedom to make life choices: 8th (Uzbekistan was #1)
  • Generosity: 16th (Myanmar was #1)
  • Trust (absence of corruption): 16th (Rwanda was #1)

The top 5:

1) Denmark
2) Switzerland
3) Iceland
4) Norway
5) Finland

Draw your own conclusions, but I didn't read anywhere about short winter days, long summer nights and snow shovelling as all being factors (for happiness), which are likely significant in at least 5 of the top 6!


There is, apparently, an area of "temperate Mediterranean climate" on the southern tip of Vancouver Island that might interest some of us who are not so thrilled by snow (and darkness), yet still wish to remain in Canada.

Of course for those who don't need to be here all year, there are temporary habitats to be found at the southern end of the North American continent to provide respite.

However, a recent survey by Ipsos Reid (for Historica Canada) suggests that about 2/3 of Canadians prefer to vacation at home and Beautiful British Columbia seems to be the premiere destination.

So I think its time for me to take a trip to BC. I'll be there in August (in Vancouver) for a couple of days before heading off to extend my hours of daylight in the Yukon Territory.

And I will also be visiting Calgary in July, to be a spectator at the Calgary Ironman 70.3, where daughter Miranda will be competing...

http://www.mirandatomenson.com/

(for some great Canada Day reading click on the links below)



http://worldhappiness.report/wp-content/uploads/sites/2/2016/03/HR-V1_web.pdf


Have a wonderful Canada Day Weekend!

Feedback, comments, questions, ...
scott@highrockcapital.ca

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bianca@highrockcapital.ca

Wednesday, June 29, 2016

Like Clockwork


Financial markets have become accustomed to depending on central bank intervention and stimulus to calm the volatility. Expectations of lower interest rates and / or quantitative easing as the panacea for financial market uncertainty is also, potentially as big an error in judgment as were the "bookies" odds on Brexit.

In the beginning, when it was a less expected event, Quantitative Easing played a unique role in supporting asset prices. However, central bank intervention has become so built-in to the market psyche that now a failure of central banks to act (with stimulus) is taken as a negative and leaves financial markets vulnerable to volatility if they (central banks) do not act or act in a way that was less than what was expected.


Clearly, the Fed orchestrated higher prices for the S&P 500 by growing their balance sheet through the 3 rounds of QE. Over the past year and a half the Fed's balance sheet stopped growing and markets became more volatile: cause and effect.

It has become quite clear that the European Central Bank and Bank of Japan's experiment with negative interest rates has not been as effective in re-igniting economic growth and inflation as had been hoped.

Dependence on central banks will wane as it becomes clear that their effectiveness is limited. That will pose some significant issues for risk assets when they cannot provide the hoped for growth. Those who are over-exposed will be subject to more significant drops (like last Friday's) in the value of those assets, especially if and when the global economy follows the UK into recession.


In a Bloomberg survey (above) economists are split on whether the recession will take hold in 2016 or 2017.

Central banks will continue to do what they can to come to the monetary aid of the global economy, but they cannot do it without government coordinated fiscal stimulus (and for that you need responsible government and quality leadership).

The bounce in financial markets (the "relief" rally) should be looked at as an opportunity to re-think your exposure to risk assets, try not to let it give you consolation.


Taking all questions....

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Tuesday, June 28, 2016

Communication


Hi Scott and Bianca

First off thank you Scott for the message you left me re: the results of UK referendum and its impact on the global market.

Bianca thank you for your follow up message this morning. It is comforting to me to know that I have a financial team that is always on top of a situation and is quick to keep clients informed.

I look forward to listening to the recorded version of client webinar in the morning.

Wishing you both a relaxing, stress free July 1st  weekend.

Be Well

 This wealth management business is a people business and no two clients or families are alike, so, yes, there may be a place for the "robo-advisor" as long as you are receiving the personal attention that you expect.  If a personal touch is more appealing and you want a better than "robo" client experience, there is that option available to you as well. Its nice to have a choice. 

We think that communication is a very important part of the client experience, despite the fact that we (at High Rock) are a discretionary portfolio manager (operating within very specific investment policy guidelines) and able to make portfolio adjustments as we see fit, which we have and do. 

However, for many clients we find that it is comforting to them to be able to have direct access to their portfolio manager. There are not too many portfolio managers out there who are willing to speak directly with their clients on a regular and direct basis, especially in times of crisis.

Hopefully your advisor is calling you directly to help ease your anxiety and answer your questions, but if she or he is not directly in charge of how your money is being invested, then she or he is hoping that the manager(s) (in charge of your portfolio) is (are) doing all the right things by you.

Today at 4:14pm EDT we will communicate live with our clients via webinar and it is a forum where they can, if they wish, ask any questions that may be important to them in regard to the management of their wealth (this is above and beyond the personal individual contact). For us, all questions are important, especially because, as our experience has taught us, if one client has a question, there is a great likliehood that other clients have similar questions.

At approximately 5pm EDT we will post the recorded version on our website at http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html for those who cannot attend the live call. So feel free to listen in.

While we are not certain as to how the whole Brexit issue will unfold into the future, we hope that we can provide some insight into how we expect to seefinancial markets respond to the uncertainty and what, if any opportunities will present themselves in both the short and longer term for our clients (and ourselves).

I am always excited to get reader feedback...

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Saturday, June 25, 2016

The Great Brittish Experiment


There is lots being written today about what this decision (to leave the European Union) means for the UK, Europe and the world, so I will defer to the political /social experts to sort out all of that and the future uncertainties on those fronts.

Yesterday financial markets responded with their opinion, sending the Brittish Pound to record lows and equity markets down some 8% in Europe and Japan and 3-4% in the UK and the US.

What does it mean on an economic scale? The world has stepped closer to a global recession:

We are now awash in a world of uncertainty. When uncertainty strikes, confidence suffers and businesses postpone investment plans and consumers postpone spending plans until they have a better feel for their financial future. This in turn, shuts down the wheels that turn the economic machine.

Monetary policy has proven an ineffective motivator of confidence and fiscal policy (ravaged by the 2008 financial crisis and "great" recession) has been going the wrong way in many countries. Austerity does not motivate economic growth.

The problem is that there is more global debt now than there ever has been and low interest rates that have fuelled much of this debt are low and headed lower which inspires even more debt. The great "de-leveraging" that was expected post 2008 became "unfinished business".

So we will watch as the experiment plays itself out. Unfortunately, the "populist, anti-establishment upprising" will be given momentum and there may not be enough time to wait and see the results of the Brittish situation before other nations make their own decisions and even more uncertainty lies in that direction.

Especially if the US moves in that direction.

A reader writes: "What’s is your contingency in this unexpected turn of events?"

As I suggested in yesterday's blog, we were not expecting this particular outcome, however we have been on guard for increased volatility in financail markets and prepared our High Rock models well in advance by increasing our holdings of cash, cash equivalent investments and Candian Government bonds. At all times our first priority is to protect our clients (and our own) capital.

There will be, at some point of time in the future, some good opportunities, but if you are fully invested, you cannot take advantage of those opportunities, you just have to sit, wait and hope that the cycle evolves quickly so that you can get back to growth.

The S&P 500 is back to levels it attained in the fall of 2014. The benchmark All Country World Index is back to levels it was at in the fall of 2013. It will probably take your standard 60% equity / 40% fixed income model a few more years to get back to its historical average annual returns (oh and remeber, historical returns are not in any way a guarantee of future returns...). If you are patient, you can wait it out. Or you can look to adding a more tactical approach to the management of your wealth and investment portfolio.


Feedback, questions, concerns (I would love to hear from you)....

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Friday, June 24, 2016

2am EDT And It Is "Shock and Awe" For Financial Markets


We did not think that this would be the outcome, necessarily, but our key theme for 2016 was that it would be a year of volatility so we decided that it would be prudent to be defensive and carry over-weight cash positions in our and our client portfolios. I found out yesterday that someone had referred to this strategy as incompetent. Really?

Well those that follow this apparently incompetent blog can make up their own minds I suppose.

Brexit has happened and the British Pound has plummeted (by 9%) in unprecedented fashion on the news, dwarfing the confident up-tick that it had yesterday. I do feel sorry for the "bookies", there will be some interesting reckoning for them.


Meanwhile equity markets have plummeted in similar fashion:


S&P 500 futures are down approx. 5% at this moment (the limit). I fear that when European markets open shortly they will be down more (Japanese markets are down approx. 8%).

Uncertainty rules and cash (and cash equivalent and government bonds) is / are king! 10 year US Government Bond yields have fallen some 20 basis points (prices are way up) .

The great thing is that through all of what is to come (and that is very uncertain at the moment), there will be some excellent buying opportunities made available to those who have cash on hand. Imagine that for incompetence?

Here is a short note from a client I got a few moments ago (only 11pm on the west coast):

"Being a salesman, I can tell the difference between selling and substance, you have never sold…  But if you ever do want one to sell your brand, let me know ;-)"  

He is rather happy about his cash position, I think.

We shall monitor developments here on this blog in the days and weeks to come, so tune in for an update if you wish.

Now I will go off to sleep, knowing that our clients and I will sleep better.

Feedback:

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Thursday, June 23, 2016

The Post-"Brexit" Referendum World

Things financial look like they have already seen the results of the UK referendum to depart or remain in the European Union.  If you have been following the media, the polls and the odds-makers, the choice was basically down to a sovereignty (leave) issue and an economic (stay) one.

In the polls it was too close to call. The gambling odds favoured the stay camp.

The British Pound is, this morning, at it's best levels since December, up more than 6% from its lows last week (indicating that financial markets are going with the "bookies"): 


Global stock markets are higher as well. Relief is in the air, this morning, but the polls don't close until 10pm UK time (5pm EDT) later today.

It will be behind us soon and will be one of the many uncertainties that financial markets have been facing.

If, as the sentiment appears to be indicating, the status-quo is maintained, the focus shifts back to the global economy which in a number of major advanced economies remains mired in deflation or low inflation and economies are not yet showing the expected results of the massive amounts of monetary stimulus in Europe, Japan and China.

Further, the path of the US economy remains a major question mark. The US Federal reserve wants to "normalize" interest rates, but cannot, at the moment, because the economic data does not yet warrant it.

And, even if the data permits it (as we have suggested numerous times on our weekly webinar over the last number of weeks http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html ), a flatter yield curve (higher short-term rates or lower long-term rates or a combination of both) pushes the US economy closer to recession (as was the case in 2007):


And of course, there is the US presidential election campaign and who knows what twists and turns that situation holds for us.  A"Reality TV" show like no other!

And of course, if equity markets rally, as they have already this morning (S&P 500 is closing in on 2100, only 35 points or 1.6% away from its all time highs) with earnings and expected earnings levels entering their 5th consecutive quarter of negative growth, then the fundamentals will continue to be out of line with market prices and equities remain very expensive on those metrics.

If the bookies are wrong? I do not even want to think about the consequences of the UK leaving the European Union and the domino effect on all of Europe and the global economy, but the volatility meter would spike because the added uncertainty would send investors into a flight out of risk assets.


Thanks for all the great feedback, please keep it coming...

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Wednesday, June 22, 2016

Wealth Interrupted: Protection Against Identity Theft, Fraud And Insolvency


A reader writes: "So I was talking to my friend today and she mentioned that she literally had 50K stolen from her bank account. She had a GIC, cashed it, and was about to make a downpayment for her condo. When she checked her account from the time she cashed it to the time she checked (about 2 days), the money went missing. The bank froze all her accounts and did an investigation where it was revealed that a bank employee actually used my friends drivers license to steal her identity and her money.

Of course, it was all refunded to her. After a police investigation and the bank investigation. But it did bring a topic to mind - Identity theft.

Maybe you can write about the controls that are in place to ensure that investments are not 'stolen'. Also, you can tie that into the insurance that is available in the event of losses, the role of the ombudsman etc."

 I always wonder about the folks that perpetrate these crimes, as in : how is it that you think that you're not going to get caught?

Anyway, it is a great question, because given all the new regulation around anti-money laundering and "proceeds of crime" issues as well as the "know your client" rule, we are asked to give up a great deal of personal data and information just to prove we are who we say we are, as well as our personal finances, objectives, risk tolerance, etc. 

And then all of that information, while protected under privacy laws, is in someone else's hands, usually in a computer data base which as we read about regularly can be hacked into and stolen.

The investment industry has rules and regulations to protect client data (as we all are aware) it is not only in a computer data base, but in most large institutions there is also the physical data (mounds of paper-work filled out and signed) that also represents a risk.


Individual firms will also have there own internal security systems (and firewalls) that they have to maintain and upgrade to stay ahead of the "genius" criminal element.

In my time at Raymond James, I can say that there was a very heavy emphasis on cyber security and while other institutions were experiencing difficulties, to the best of my knowledge, Raymond James never did have a breach and were very efficient in identifying potential problems and notifying employees of their courses of action.

This is one of the reasons that we use Raymond James Correspondent Services for our High Rock client account custody (back-office).

With apologies (in advance) to Canada Post, the regular mail can get "lost", so we always use a courier that can be tracked (to protect that data as it physically flies about the country).

In my time as a branch manager, there were a few instances that I was made aware of,  where client emails were "hacked" and the criminal element used the email to ask to have money sent to a (different than the usual) bank account. If I recall correctly, the "fake" client was on a vacation and that was the excuse for a different bank account for the money to be sent to.

Needless to say, any money sent would have to be verified by a follow-up phone call, but we had to make sure that we were paying attention.

The Canadian Securities Administrators (CSA) has a number of suggestions for "protecting yourself" against fraudulent activity https://www.securities-administrators.ca/investortools.aspx?id=736

However, if you do not get satisfaction from the institution or the advisor, you can also go to the Ombudsman for Banking Services and Investments (OBSI) https://www.obsi.ca/en/home
for any dispute resolution.

You also want to ensure that the institution (like Raymond James) where your accounts are held is a member of the Canadian Investor Protection Fund (CIPF), so that if they do become insolvent, your accounts are covered for up to $1,000,000.
More here: http://www.cipf.ca/


Questions? Feedback?...

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Tuesday, June 21, 2016

The Skinny On Canadian Bank Risk

It is webinar day at High Rock today, so I am working away on prepping the power point slides on the latest economic news and financial market charts and returns and all the interesting metrics that we follow in order to allow us to make the best possible decisions on getting ourselves and our clients the most efficient risk-adjusted returns (maximum growth / minimal risk).

We will post the recorded version at or about 5pm on our website : http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html

In the meantime, my very astute business partner and the guy responsible for the lions share of company "bottom-up" research (I do the lions share of "top-down" or macro research) at High Rock has written some great pieces on Canadian Banks:


I would highly recommend having a look at these, it does put a lot into perspective.

Together we have been breaking new ground on affordable wealth and portfolio management, while continuing to provide clients with a high level of service for the ultimate client experience that you likely will not find anywhere else.

In addition, we are also here (with many, many years of experience in financial markets and wealth management and with lots of widely recognized credentials) to help improve financial literacy for those who want help doing so...

So please feel free to ask questions and send feedback because it does provide me / us with excellent topics (beyond what you might find in the media) to discuss...

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Monday, June 20, 2016

Behavioural Finance: Mental Accounting


Another great question from a reader: 

"Can I have 2 separate accounts, one for investing in your portfolio models and one for my house money?".

We can make the assumption that at some (at the moment unidentified) point of time in the future, there is the desire to purchase a house. I won't get into the debate about whether a house purchase makes sense or not because that becomes the realm of a wealth forecast and is a highly personal (and perhaps emotional) decision. There are plenty of risks involved in home ownership and our job is to identify them and quantify them in the context of a family's goals and needs (which allows them to make an informed decision). It is however, their decision.

Back to the answer to the original question:

Of course you can, but why would you?

It is natural human behaviour to want to categorize different classes of the same basic asset: money.

It however, doesn't really matter:

If you have a $500,000 "investment account" that earns an annual total return of 5.5% (before fees and taxes)  and a $250,000 "house account" that earns 1% annually, then you actually have $750,000 that earns 3.9%.

But people like to separate "risk" money from "safe" money, because the pain of loss is greater than the pleasure of gain. It is, according to Richard H. Thaler (one of the foremost experts on Behavioural Finance), part of "the set of  cognitive operations used by individuals and households to organize, evaluate and keep track of financial activities."


The theory behind "Mental Accounting" can often lead to decisions which may have irrational and detrimental impact on their consumption decisions and behaviour.

If you have a $500,000 investment portfolio earning 5.5% (or more) annually, why would you rush to use that money to pay down a line of credit or mortgage that has a cost of 2.5-3% just because you don't like debt?

And vice-versa: if you have a mortgage or line of credit at 2.5-3%, why would you put money in a (safe) savings account earning less than 1%. Especially if it is the held at the same institution because they are thrilled that you are paying them 2.5-3%  (to borrow from them) on one account and they are borrowing from you at 1% on the other.

Basically, all money is "fungible": whether you "worked" for it or "found" it (unexpected windfall), it is the same and its use all has risk associated with it.

If you spend it, you don't save it.

If you want it to grow, then you have to ensure that its growth is at a rate above the growth in the cost of the things that you will need to eventually purchase with that money (inflation). You also need to ensure that the risks of getting that growth are suitable.


Need help with that concept? (or other feedback)

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Saturday, June 18, 2016

Thank You Readers, Friends, Clients 


It is really exciting to get the feedback that you continue to send. I do really appreciate it all because it tells me what you are interested in reading about and I can go about the business of doing just that.

I am not, nor was I ever trained as a "professional" writer (and my Chief Compliance Officer often reminds me of this when he corrects my grammar and punctuation). So I may not have the wit and charm that others may bring to the blogging world. 

However, I have been trading and managing risk and wealth for over 35 years now and have lived through lots of economic and market cycles (and seen lots of crazy volatility) over this period of time. Oh and I hold a Chartered Investment Manager designation as well. My business partner Paul, is a Chartered Financial Analyst and our other partner (at High Rock), Bianca, is a Certified Financial Planning professional. Between the three of us we have some pretty strong skill sets that we combine to offer a very solid wealth management team.

But my job and my passion are really about helping people. I have all of the time in the world for that and I have a fantastic platform from which to do it. It has taken me years to find the best possible way to offer a truly client oriented strategy that tailors very specifically to the needs of each family that we work with.

However, it is your questions and feedback that gives me continued insight into all the many different goals, objectives and needs that various families have. This fuels my research (our research) and provides me with interesting topics to explore and report back on. I am of the mindset that, many of you likely have similar questions and hopefully I am (in this blog) covering issues that are important to you all. If not, please, there is no such thing as a "stupid" question when it comes to financial literacy (because they do not teach you this very important topic of personal finance in school, unless you are a business/finance major, if then) and it is so important to seek the help and advice of someone (or in my case, a team) who has the skill set to give you the correct direction.


So, thanks for being in touch and for those who want to participate, don't be shy! 

 and...
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Friday, June 17, 2016

Preferred Share Index Dive Gets A 5!


With apologies to all the judges of such events.

As we have suggested on numerous occassions on our weekly webinar and on this blog, after last years fixed-rate reset preferred share debacle, that particular asset class has slipped into a new category of potential volatility.



Case in point, yesterdays plunge:


From the recent high's to yesterdays bottom, a drop of more than 5%. That is approximately a whole year worth of dividends (in this asset class) or thereabouts. Clearly the volatility level has risen and investors need to clarify their exposure to this asset class.

This is not the sleepy, decent yielding, low volatility investment that it may have been a few years back and as with all things that change, we need re-assess our exposure to it relative to our risk tolerance.

Looking at the 2 year Total Return Analysis (including re-investment of dividends) it is not a pretty sight:


According to the Bloomberg Analysis, (using CPD as a proxy), the annualized return (daily basis) over the last 2 years has been worse than  -9%. 

Will it comeback?

We don't think anytime soon because Canadian banks need to contuously raise Tier 1 capital and as was the case last year they utilized the fixed-rate reset preferred share market. But this market was overcome by the supply and it forced banks to "sweeten" the deal by offering more attractive dividend yields to move it. 

The whole secondary market in these preferred shares was re-priced lower to accomodate the new yields (hence the negative return). This could happen again, if and when the supply is increased with new issues and if and when it overwhelms the market demand (regardless of the yield or interest rates).

Capital requirement rules for systemically important banks changed in 2013 and they have a sliding scale each year from 2013 to 2020 to hit and maintain annual targets for Tier 1 capital ratios according to their Risk Weighted Assets.


This is by no means a recomendation to take (any buying or selling) action, but a suggestion to get in touch with whomever advises you in these matters and to discuss it with them.

The point is, for the forseeable future, the basis of the preferred share index has changed and we need to take note.


Great feedback folks! Thanks! Happy to take all questions...

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Thursday, June 16, 2016

Fed Holds On Rates: Risks AreToo High


"There are also more long lasting or persistent factors that may be at work that are holding down the longer-run level of neutral rates" said Fed Chair Janet Yellen in her post meeting press-conference.

And there is the heightened risk of a UK vote to leave the European Union which could have potentially devastating economic circumstances not only for the UK but for all of Europe and the global economy. This will take place next Friday, June 23.

Federal Reserve governors have also suggested that there is a lower probability of 2 interest rate increases for 2016 (there are now 6 of 17 that expect only 1 rate increase in 2016, up from 2 of 17 in March):


Volatility, as we have always held as a key factor in global monetary policy, is the enemy of central bankers and the likliehood of higher interest rates in the current environment is just not prudent from their perspective.

If the UK votes to leave the EU (and the polls are currently favouring that situation), there could be a very significant repricing of assets. 

That could prove to be a rather difficult time for a fully-invested portfolio.

The US Federal Reserve very much wants to find a reason to "normalize" interest rates, but they cannot find the justification because the risks are too high.

The message is clear here: risk assets are vulnerable. 

Cash (and cash equivalent assets) and safe government bonds (of a longer duration) are prudent and defensive assets to be over-weight of in a portfolio.

Equally, risk assets (like equities) are good to be under-weight of.

You can always get back in to a market if volatility subsides. It may be a lot more difficult to get out if it doesn't.


Thanks for all the feedback, please keep it coming....

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Tuesday, June 14, 2016

The Things That People Say...

I read a blog over the weekend that actually suggested that interest rates were going up and that this would be good for preferred shares. Seriously?

Well as I suggested in Friday's offering, bond markets lead other financial markets and record low yields are likely not a harbinger of higher interest rates (as uncertainty drives investors to safer assets such as government bonds, pushing their prices up and their yields down):


In fact, mortgage rates may be heading lower if the bond market direction is any indicator (and it usually is because banks set their mortgage rates based on bond market yields).

Equity market traders caught on to that signal finally, and as we had predicted, volatility spiked:


It is nice to have more than average amounts of cash (or cash equivalent investments) in your portfolio when volatility spikes, probably helps you sleep better.

As uncertainty over the June 23 UK referendum to determine whether to stay in or depart the European Union builds (polls now show the "leave" camp with a slight edge), we can expect volatility to continue to build.

This will not sit well with investors who have too much risk in their portfolios (in many cases, over-priced risk). 

At High Rock we invest in the exact same models (and securities) as our clients. Want to hear more about our thoughts on our strategy?

Today is webinar Tuesday at High Rock, where we will discuss what is going on in the global economy, in financial markets, including our views on the preferred share market and anything eles that we feel is important in the management of our and our clients' wealth.

We will post the recorded version on our website at http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html at or about 5pm EDT.


Your feedback is always greatly appreciated...

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Friday, June 10, 2016

Brace Yourselves!



Bond markets lead all financial markets and global bond markets are hitting record low yields (and yield curves are flattening). There is a message being sent about the global economy and stock markets (especially in the US) have yet to get it.




Volatility has been subdued since it jumped in January and February of this year and easy monetary policy on a global scale has given equity investors a false sense of hope.

We continue to hammer home the over-valued nature of equity markets relative to their fundamentals, yet traders and investors continue to drive equity prices higher in hope that others will join them in pushing equity prices up (S&P 500 got to within a stone's throw of its all-time highs this week). 

Emotionally and psychologically, nobody wants to see equity prices move lower, because in most cases it means that their portfolio values will also go lower. That means that many advisors will likely tell you to sit tight and ride it out. 

In the long-term this may make sense. A balanced and diversified portfolio of 60% equity and 40% fixed income fully recovered from the financial crisis (after about a year and some) and went on to get back to average levels of growth about 3 years later.

If you are emotionally and psychologically prepared to do that (wait it out), then that is what you can do.

If you are not, or need your portfolio to provide a steady stream of income, you need to make sure that you have enough cash on hand to ride out the storm (if and when it happens).

Cash (and low yielding cash equivalents) is always a problem for investors (and some advisors) because they think of it as sitting "idle". This can be a huge error in judgement if you force that cash (new money into a portfolio) into over-valued assets. This is what has been happening, especially in US equity markets. 

Cash can be defensive. Especially if you pick the right time to put it to work:

Candian equity markets were over-sold in January and February (and few were willing to take a good look at that value because of the prognosis for oil) and if some of the cash found it's way into those assets, they performed well. So if you had re-balanced during that time (at High Rock that was one of our recomendations on BNN in December), that may have been an appropriate time to put cash to work (and we did!).

That is what our clients pay us to do.

That raises the question of "market timing". 

Many investors are warned about the disadvantages of market timing (and there are academic studies that prove over longer periods of time that this strategy is less productive) and are encouraged to take a more passive approach. 

However, employing market expertise to apply a more active strategy can also be effective in the short-term to add value and cushion the potential downside of an equity market sell-off.

I am not suggesting to go to all cash. Only to consider a higher (over-weight) allocation to cash: Our global equity model is close to 50% cash, which would put a 60% equity 40% fixed income portfolio at or close to 25% cash (if some of that equity allocation was also placed in our tactical value model). In the meantime there are other parts of the portfolio that are working:

One of our top picks on BNN a number of weeks back was 30 year Government of Canada bonds. Up about 5% since then. Annualized (over 60%) that is a pretty significant additional return to client portfolios.



There is a place for short-term timing and active portfolio management in a portfolio.

That is something that you pay fees for.

Be careful out there: Brexit anxiety is picking up. Volatility might spike.




Thanks for all the continued feedback...


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