"But The Economy Is Doing Just Fine"

That is the message folks are being told by their investment advisors, the media and their central bankers and is what I am getting in anecdotal conversations I have with prospective clients. Our High Rock clients know that we are a lot more conservative than the aforementioned, but they pay us to be more than just stock market "cheerleaders".

As economist David Rosenberg said in his Breakfast With Dave market and economic commentary yesterday: "The rose-coloured glasses crowd can be expected to explain away the further inversion of the yield curve as they did in 2000 and 2007" (see charts above and below).

"And yet, I see every Tom Dick and Harry on bubblevision telling the masses just how solid the U.S. economy is performing. We had real private final demand growth of 1% in Q1 and real GDP is converging on this stall-speed pace in Q2. What an economy! Oh yes - the most oft-cited reason for the bullish view on the macro backdrop? The ultra-low unemployment rate". (please see my blog from a few weeks ago about the "hype" on employment data).

And while I am on the topic of investment advice (and perhaps the media too), there is another book to be read, if you all are out promoting my thesis of alternative (non-bank or large financial institution) wealth and portfolio management (or just interested in another honest perspective): John De Goey's STANDUP to The Financial Services Industry. 

"This book argues that the advice investors are getting is quite likely to be wrong even though the advisor who is giving it wants to do well by the client." 

"This might be the first book that shows advisors to be simply the friendly face of an industry inclined to get clients to think in specific, revenue maximizing ways."

"Advisors might be better seen as unwitting accomplice intermediaries between some sophisticated corporations and trusting Canadian consumers".

I wish that I could write as succinctly as John does. At least my heart is in the right place.

As for central banks: today the Bank of Canada will announce their latest interest rate decision. In all likelihood they will continue to keep rates on hold, as expected, although if they want to be proactive on the upcoming economic slowdown, they may want to consider lowering them. It will be interesting to hear how they will paint the current economic outlook. Last time they cited employment growth as being important for future consumption, so they too may be caught up in the lagging indicator of employment growth, even though wage growth is moving in the opposite direction. We shall see. The bond market (yield curve inversion) in Canada is telling us something different:

And as we always say: Bonds lead all financial markets.

David Rosenberg agrees: "it is the bond market that is telling the tale of global economic underpinnings".

In the media, bad news usually sells. In the financial world, it is good news that seems to sell, so it may be best to follow John De Goey's advice and ask the tough questions.