Lots On Our Radar Screen This Week

The next round of European Central Bank stimulus is on tap for Thursday and the impact on global financial markets will depend on whether or not the ECB lives up to expectations: a .20% cut in deposit rates and a 20B Euro expansion in QE.

Financial market reaction will be based on on how much of this is built in to current pricing (if it is expected, then it is likely built in) and if there are any surprises and new announcements from ECB President Mario Draghi.

Interestingly, European equity markets are currently testing selling resistance at the down-trend line that began last April (the best levels since August's "melt-down").  A break to the upside in prices could extend the current positive move from the early October lows as buyers may then feel more comfortable. 

It could possibly put the "Santa Clause" rally back on the table (if this spills over to other global equity markets). Euro equity markets have been one of the best performers this year to date, better by about 10%.

Janet Yellen (US Federal Reserve Chairwoman) addresses the US Congress' Joint Economic Committee on Thursday. She will also speak to the Economic Club of Washington on Wednesday. Currently bond markets have priced in close to an 80% likelihood of the Fed raising rates in December.

Friday is Employment Data Day in the US and Canada and is always widely watched for the latest clues to the direction of the economy. Although we will pay closer attention to revisions to previous months data and wage inflation behind the scenes.

OPEC meets on Friday. This could in fact prove to be a pivotal meeting if the those oil producing nations are at all interested in stabilizing oil prices.

In the meantime, tomorrow will bring the latest update on US manufacturing. In Canada we will see Q3 GDP data (although Q3 is well behind us).

We have brought up the "diverging monetary policy" issue before, but there are many implications for a continued and aggressively stimulative monetary policy in Europe while the Fed turns to a tighter monetary policy: most importantly it is the value of the $US. A weaker Euro is positive for the European export economy. On the flip side, a stronger $US becomes restrictive for the US economy. 

US corporate profits have continued to slow and the fundamentals for future revenues and earnings become a greater drag on US equity prices if economic growth continues to struggle.

Despite weaker profitability, US large cap equity markets (S&P 500) have advance by 2.5% thus far this year. The smaller Dow Jones Industrial Average is flat on the year. The broader Russell 2000 index is also flat on the year.

The global economy also continues to struggle as China and other developing economies are slowing. We won't see any significant data on China until next week, but the Trade data due on Dec. 7 will be widely watched for clues as to the state of the Chinese economy.

We shall expand on all of this at our weekly webinar tomorrow.

The recorded version will be available at 

http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html

Giving Thanks!

I had the very good fortune to have had the experience working on trading desks in New York back in the 90's (was it really that long ago?) and to have met some very bright and fantastic folks along the way. Many have remained friends to this day.

I had a particularly good commute (as NYC commutes go), leaving my home, Baxter House in Port Washington (north shore of Long Island) and walking to catch the 5:36 am train to Penn Station every day. I was usually at my desk by 6:30. It was an energized city in an energized time (for me).

The Thanksgiving tradition from that time is something that will endure for our family: Bond markets closed at 1pm on Wednesday and after my 3 daughters finished school, my family would jump on the train to come join me in the city.

My uncle and his family lived on the upper west side, W81st and Central Park West, where it happens that some of the character balloons for the Macy's Thanksgiving Day Parade were inflated. We would bunk in at the Excelsior Hotel for the night, a half block west on W81st. 

We would arrive early Wednesday evening to see the likes of Spider Man, Clifford The Big Red Dog and Buzz Lightyear laid out flat surrounded by large tanks of helium gas and the all night crew that would make them into the larger than life characters for Thursday's parade.

In the meantime it was off to Wolman Rink in Central Park to go for a skate. If you haven't done it, night skating in Central Park is like something out of a movie, it always felt surreal and with that there was a unique sense of peace in the heart of that very noisy city.

Then it was off to dinner at a restaurant on Columbus Ave and by the time we  got ourselves back to the hotel, those balloon characters had started to take life. The girls, aged four, six and eight were tired but thrilled.

We got the wake up call at 5am on Thursday, and down to W81st we would drag ourselves to see all the floats fully inflated and ready to go. This was the parade for us, walking amongst all the participants and handlers looking for Snuffelupagus as they prepared for the call to "join the parade!". It was a magical time. 

We have been back many times to celebrate (having since moved back to Toronto) but when we don't get to NYC, we still try to keep "US" Thanksgiving because of the wonderful memories.

In 1995, while I was working at the World Trade Centre (where our trading desk was located on the 104th floor of the North Tower), I received a job offer to return to Toronto, which I accepted.

To this day, I remain thankful to the gentleman who "brought me home" and for all the others that I worked with at the time who decided to find other places to work over the course of the next 6 years.

Happy Thanksgiving!

Geo-Politics Back In The Mix

Add this to the economic uncertainty: following terrorist attacks in Paris and Mali, Turkey (A member of NATO) and Russia are now at odds.

Greater uncertainty means traders / investors tend to move to safer assets from riskier assets, at least temporarily.

Add in the US Thanksgiving holiday and less liquid markets and there is potential for some volatility.

US Q3 GDP was revised higher this morning from 1.5% to 2.1%.

However, behind the scenes, much of this revision can be attributed to a build-up in inventories. Consumer spending was revised lower.

Something we have been watching closely (I mentioned it on BNN a couple of weeks ago and in our last couple of Tuesday webinars)  is the relationship between rising inventories and weakening sales. Historically, a rising ratio of inventory to sales has been correlated to past recessions.

At the moment, the US Fed is on track to raise interest rates at their December 15-16 meeting and markets have priced in a 70% probability. 

At the same time, credit market conditions (lending) are tightening up ( becoming more restrictive) and this has potential ramifications for the record levels of outstanding global debt, including record amounts of "sub-prime" lending for automobile purchases in the US. No wonder automobile purchases have been the main catalyst for consumer spending (along with restaurant spending).

A couple of weeks ago when Michael Hainsworth (BNN: "The Close" http://www.bnn.ca/Video/player.aspx?vid=748970) asked me about a "Santa Clause" rally, I suggested that either Santa had come early or it might be called the "Trick or Treat" rally, but I felt that with all that was going on in the world, it would be unlikely.

Now there is more going on in the world, so look for expensive equity markets to test buying support.

For a more in-depth look into all that is impacting the global economy, financial markets and wealth management, tune in to our weekly webinar. We will post the recorded version on our website at or about 5 pm today:

http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html

The Global Perspective

There is lots going on in the world as we head into the US Thanksgiving holiday. 

You may ask why we focus so much on the global situation (and a lot about what is going on in the US) and not so much on Canada when we discuss the global economy and financial markets in this blog.

We do live in Canada so we do have to focus on personal financial matters from a wealth management perspective and we do have a reasonably high degree of regard for the Bank Of Canada (so we do listen and follow their perspective), but we invest globally and a good portion of the diversification that we suggest includes monitoring all that is happening in the world.

Our global equity benchmark is the MSCI All Country World (ACWI) Index: 

• 2483 companies
• 46 countries
• 23 developed markets
• US = 51.5%
• Japan = 7.9%
• UK = 7.0%
• France = 3.3%
• Canada = 3.2%
• Switzerland = 3.2%
• Germany = 3.0%
• Australia = 2.8%
• (Euro Area ex UK = 16.2%)

• 23 emerging markets
• China = 2.6%
• S. Korea = 1.5%
• Taiwan = 1.3%

• Multiple Sectors
• Financials = 21.9%
• Information Technology = 13.6%
• Consumer Discretionary = 12.8%
• Health Care = 12.4%
• Industrials = 10.3%
• Consumer Staples = 9.5%
• Energy = 7.4%
• Materials = 5.3%
• Telecommunication Services = 3.7%
• Utilities = 3%

Needless to say, that is very broad diversification. 

A few years ago it was made quite clear to me that Canadian Investors who owned equities had close to 70% of their investment portfolios tied up in Canadian equities (referred to as "home country" bias).

From a global and diversified perspective, the index suggests 

about 3% should be Canadian.

With the under-performance of Canadian equity markets over the last year (S&P TSX is lower by over 8%, year to date) the broadly diversified portfolio has proven extremely effective.

The US equity market is better by approx. 2% so far this year (in comparison) and the ACWI is better by 1.3%.

Of course, our objective in managing our client's money is to beat the benchmark index (over longer time frames).

As I often say, different asset classes perform differently at different times in the economic cycle. It is rarely clear as to the future timing on this, (see last Fridays blog and previous blogs on the success of economists and analysts predictions: not very good), so it is best to be exposed to multiple asset classes and use re-balancing to take profits when an asset class's growth takes it to an over-weight position in a portfolio.

More on what is going on in the world tomorrow on our weekly webinar.

The recorded version will be posted on our website at or about 5pm.

http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html

Predictions For 2016

Here they come! It is that time of the year when the economists, analysts and journalists start to get clarity in their crystal balls for the coming year.

Few get it right. 

If we look back to the predictions for 2015, our theme was to "expect the unexpected", that was pretty close to the best prediction you could get.

The US economy was expected to drive global economic growth and carry the global economy. Meanwhile, every major forecast for US economic growth was continually revised downward over the course of the year and the global economy continued to stagnate.

The fallout from continuing lower oil and commodity prices held inflation at levels well below central bank target levels.

Expected interest rate lift-off from the US Federal reserve in June or September did not happen. Canada cut rates twice, German short-term yields went negative.

Equity markets (as measured by the MSCI All World Country Index (ACWI) are basically flat. The US market which is about 52% of the ACWI was also little changed.

Government bond yields in Canada are slightly lower on the year, in the US, slightly higher, but neither significantly as was expected. Many called for US 10 year yields to be at 3% or higher by now.

With many asset classes flat on the year and some lower, holding more cash (or an interest earning money market fund) in a portfolio has been a good option.

The best performer on the year was the $US (especially vs. the $C) so if a Canadian investor had a $US component (even cash) in their balanced and globally diversified portfolio, then that was likely the key driver for positive returns.

Balanced Portfolio returns on the year are going to likely end up slightly positive, but pulling the longer term averages lower.

We have been in a lower return environment and will likely remain there for a while longer. This was also one of our themes for 2015.

For 2016?

Risks to the global economy remain.

Short-term thinking by corporate CEO's (using cash for manipulating share prices higher with buy-backs) and demographic shifts in consumption habits will continue to depress revenue and earnings growth.

The restructuring of China's economy to increase domestic consumption is a wild card. Thus far, the slowing of both imports and exports continues without signs of easing up (shipping indexes are at the lowest levels in years).

Steering the "new" Chinese economy is akin to steering a mega-tanker ship: rather difficult and taking a long period of time. Add a relatively inexperienced crew and there is a recipe for disaster.

The Chinese economy is itself an anchor on the global economic ship and will either keep it from moving forward or drag it down further. The engine is the US economy which without being at "full-steam" cannot pull the global economic ship forward. 

Basically, watching China and its global  economic impact is going to be as important in 2016 as watching the US Federal Reserve was in 2015.

Thus far, I have seen predictions on both sides of the extreme:

check them out at the link below.

http://www.bloomberg.com/news/articles/2015-11-20/14-predictions-for-2016-from-the-brightest-minds-in-finance

This one stands out for me....

Ruchir Sharma, head of emerging markets and global macro, Morgan Stanley Investment Management:

"We are now just one big shock away from a global downturn, and the next one seems most likely to originate in China, where heavy debt, excessive investment and population decline are combining to undermine growth, while relatively low debt countries from Eastern Europe to South Asia are better positioned to weather the inevitable next turn in the cycle".

I am not likely to be considered for the list of the "brightest minds in finance", however there are plenty of hurdles to overcome to see growth return to the levels of 2009to 2013 for investor portfolios.

In a balanced and diversified portfolio spread across many different asset classes, any of those asset classes may unexpectedly out-perform or under-perform.

Balance and diversification and an over-weighting of cash to take advantage of future opportunities (if and when they arise) is the best strategy for 2016 portfolios. 

Do not expect above average returns until an improvement in global growth allows revenues and earnings to grow again.

Keep the discipline, do not get drawn in to chasing returns at the expense of greater risk.

US Stocks Are Expensive

And they might get more expensive (in the short-term). But it does not mean that you should invest in them anyway.

Why?

As we discuss regularly on our weekly webinar, valuations are stretched: The 10 year average price to earnings ratio is 14.1.

The 12 month forward price to earnings ratio is currently at 16.1. In May, when the S&P 500 peaked it reached 17.

Not only that, with 90% of companies reporting earnings for Q3 and 74% beating expectations, earnings actually declined by 1.8%.

That makes for the second quarter in a row that earnings growth will have been negative (and that hasn't happened since 2009).

Expectations for Q4 2015 earnings are a decline of 3.6%.

In fact, for the year 2015 expectations are now for a decline in earnings growth of .3%.

What makes them more expensive, is that corporations have continued to reduce the amount of shares available (with share buy-backs) therefore making earnings per share look better than they might have in previous years.

In other words, earnings have in fact declined more on a $ for $ basis.

Behind the scenes, revenues have declined more than earnings.

This means that S&P 500 companies have been forced to cut costs more. They have not been investing in future growth.

What investors/traders are doing right now is buying risk assets hoping that they will continue to move higher (get more expensive) and that will provide them with growth regardless of what the fundamentals (revenue and earnings) are suggesting.

Remember gold in 2011 at 1920?

Markets will rise as long as there is buying. When the buying stops?

It is musical chairs. Make sure you have a chair. Or cash.

It Is Financial Planning Week In Canada

"Created by Financial Planning Standards Council (FPSC), Financial Planning Week is dedicated to raising awareness of the importance and benefits of financial planning with a qualified professional, encouraging Canadians to take control of their future and achieve their goals through sound financial planning, and ensuring that Canadians have financial hiring literacy so that they are armed with the information they need to find the right financial planning professions".

http://www.fpsc.ca/about-fpw

What does this have to do with investment portfolio strategy?

It is not possible to have a proper portfolio strategy unless you have a plan.

A portfolio strategy has to be built to focus on your goals, the time horizon necessary to achieve those goals and a complete understanding of the risks necessary to achieve those goals. Paramount, is your ability (which is not always clear and may require deeper investigation) to tolerate risk.

All of this is brought out in your financial plan.

And this plan has to be prepared by a qualified professional.

If you want to know if your advisor is a qualified CFP (Certified Financial Planner), go to the website above, click on the tab on the top right titled 

"FIND A PLANNER OR CERTIFICANT"

and type in their name.

At High Rock, we have a CFP that prepares our client's "Wealth Forecast" (the financial plan), before we structure a portfolio strategy. After we present the Wealth Forecast, we then develop, in conjunction with our client(s), a strategy that is in keeping with all of the tenets of the plan.

A portfolio strategy without a corresponding Wealth Forecast (the plan), is like driving without a steering wheel, it has no sense of direction.

Oh and by the way, the planning at High Rock is inclusive in the completely transparent fee. 

More on our website:

http://www.highrockcapital.ca/about-high-rock.html

And....

It is Webinar Tuesday at High Rock, lots to discuss on financial markets, portfolio strategy and wealth management.

Tune in to our recorded version at

http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html

Should be available at or about 5pm today.

Reaction and Over-reaction

Our thoughts are with the people of France and the friends and relatives of those who were victims of terrorism in Paris on Friday.

It is human behaviour to react and to over-react and while terrorism on this scale is abhorrent, we must all step back and allow ourselves to remain rational and keep our perspective.

Interestingly, financial markets appear, for the moment, to be behaving with less volatility than incidents in the past have suggested that they might.

Will there be economic repercussions on the back of the Paris attacks? Probably, however it is just one more level of uncertainty being added to the already high level of uncertainty that exists in the global economy at the moment.

Despite higher levels of employment and lower gas prices, US consumers are not spending significantly and there is a large question mark hanging over the upcoming holiday shopping season.  

Japan has slipped into recession.

The politics of terrorism and the discussions surrounding the next steps will increase the amount of rhetoric and extreme positioning of politicians who wish to use it to their advantage and that will only serve to heighten tensions. 

The "fear factor" may be enough to keep consumers closer to home and less comfortable about spending, preferring to put off major purchases until they feel more confident.

Will that enter into the US Federal Reserve's thought process?

Perhaps, and more uncertainty for investors, as we approach the Dec 16 Fed announcement.

Until now the Fed and governor's speeches have been preparing us for "lift-off" and for the moment, we will have to continue to expect that the Fed intends to raise rates by 1/4%, although that may change as circumstances change.

Best to not make any crucial decisions until we are able to get a clearer picture.

Tomorrow is webinar Tuesday at 

www.highrockcapital.ca

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

Feel free to tune in. If you have any questions you might like us to address:

scott@highrockcapital.ca

Uncertain Times

Diverging central bank policies: The US Federal Reserve is talking about raising interest rates (4 governors were speaking of it yesterday in their respective speeches) and the European  Central Bank is talking about more monetary stimulus.

Confusing?

When financial markets are confused and uncertain, investors sell risky assets and move to safer assets.

US consumers are saving, not spending.

Volatiltiy is rising again.

Commodity prices are falling, copper hit new lows yesterday (levels not seen since 2009) as demand is falling in China:

Oil supply is at its highest level in years and oil prices are falling too, traders will likely test the August lows to see where buying support will be found.

Commodity price deflation is holding inflation rates down.

On one hand you have a US economy that has been improving, but not enough to pull the global economy along. On the other you have a slowing Chinese economy (and other developing economies in its wake) that is an anchor to the global economy.

The question we are all asking is: can the US economy continue forward momentum with the anchor dragging?

The Fed is anxious to get rates off of 0% and fears getting stuck there. But what might be the consequences in a world awash in debt, with asset prices declining?

It is a precarious place to invest. Risks are high.

Taking risk off of the table is the prudent thing to do.

Sell expensive (over-valued) assets, pay down debt, stay close to cash for awhile to play it safe. There will be time in the future (as the cycle plays itself out) when prices are lower and risk will be too. Then we can all have another look.

For the time being however, for the short-term, we will remain in a low return environment, when taking risk does not pay.

Robo World Still Needs The Human Touch

It is an appealing thought: take the worry (and work) out of investing your money by handing it off to a less expensive, on-line option that automates the process.

However, regardless of process, the money still ends up in the hands of a portfolio manager. 

And regardless of what I suggest, most of you have easy access to your portfolio (on-line view), which means that you will likely look at it on a fairly regular basis (if not daily). So you will want to ultimately understand what is happening to your hard-earned money. Especially when it appears to be going in the wrong direction.

The positive aspect is that for young folks, it is reasonably priced (but check the "all in" to make sure), so it may be a good place to start out.

However, there is a serious drawback: investor education.

You cannot learn about personal investing and money management unless you engage a (human) professional and have an open dialogue with them that will address your very specific financial situation. 

Financial literacy is not a mandatory subject as part of the education system, so when you get out into the "real world", the learning curve may be rather steep. 

You cannot learn about your financial matters simply by reading journalistic interpretations of what is important (although some of the insight can be useful). 

You certainly cannot learn from a mutual fund / stock salesperson who has a serious conflict of interest (despite the "advisor" title).

If you have the ability to engage your portfolio manager, who does actually have your best interests in mind, then you can begin the steep climb up the curve.

One of our clients said the other day: "I have lots on questions, but they might be stupid". No such thing.

If your portfolio manger doesn't have the time to answer your questions, they don't care. Find one who does.

It is important to have a plan (wealth forecast) and an investing strategy that is tailored to your goals. It is also important to understand what can be accomplished and why. So the learning part, while perhaps somewhat overwhelming in the beginning, is very important.

Knowledge is power. Especially when it comes to your money.

In Remembrance

by John McCrae, May 1915

In Flanders fields the poppies blow

Between the crosses, row on row,

That mark our place; and in the sky

The larks, still bravely singing, fly

Scarce heard amid the guns below.

We are the Dead. Short days ago

We lived, felt dawn, saw sunset glow,

Loved and were loved, and now we lie

In Flanders fields.

Take up our quarrel with the foe:

To you from failing hands we throw

The torch; be yours to hold it high.

If ye break faith with us who die

We shall not sleep, though poppies grow

In Flanders fields.

Lots Of Things To Think About

There is plenty going on in global economics and financial markets these days: forces are pushing and pulling in multiple directions. 

A new government in Canada and likely changing tax regime, record levels of household debt and, by many standards, housing prices that may be unrealistic.

What are the implications for your future?

How might all of this impact your financial plan or wealth forecast (do you have a wealth forecast yet?, if not why not?)?

Every Tuesday at High Rock we hold a live webinar for our clients where we discuss the key issues of the last week and the coming issues for the next week and how all of it ties in to our portfolio strategies, our disciplined and long-term thinking.

We record this call and post it on our website at or about 5pm for those who cannot join us for the live call.

http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html

So feel free to tune in and discover what it is that you might be missing out on!

The Elephant In The Room

I have been spending quite a bit of time focused on near-term economic issues recently as we try to get some understanding of how financial markets will react to what is turning out to be a sort of global "economic crossroads".

At the moment, it is focused on US monetary policy vs. that of the rest of the developed and emerging economies around the world.

It will be consequential because there are lots of long-term implications that can and may result.

If the US Federal Reserve starts to raise interest rates, the repercussions will be felt on a global scale.

Canadian household debt is not immune and Canadian household debt is at record levels. For some reason (perhaps low interest rates for the last 7 years), Canadians have developed a sense of complacency that has them borrowing well beyond their income levels (1.65 times).

A true lack of financial literacy has come to the fore and the worst of behavioural errors in financial judgement is pending:

Asset prices do not go from the lower left (on a chart) to the upper right (as we always hope that they will go) without a correction.

Assets that pay you to own them (provide income): stocks, bonds and rental property are assets that you can stay with over longer cyclical ups and downs (as long as they are not over-encumbered by borrowing to own them).

Assets that don't pay you to own them:  principle residence, vacation property and cars (which in fact have significant costs to ownership) and gold or other commodities, art and jewelery will be more vulnerable.

If asset prices fall, the costs to "carry" these assets does not, including the cost of the debt (mortgage payments). If asset prices fall and at the same time interest rates rise, many will find themselves seriously underwater (as the costs will out-pace their income, if they can remain employed) and this will begin a "snowball" effect unprecedented in this country (think US housing crisis 2008).

It is not yet clear if the Trudeau government has weighed the possibility of this happening and built it in to their planning, however it is clearly becoming the "elephant in the room".

http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/housing-crash-would-sink-young-canadian-homeowners-study-finds/article27169891/

Not Much To Keep The Fed From Raising Rates Now: Fasten Your Seat Belts

What happens now?

• The $US gets stronger (other currencies weaken).
• Anyone with $US debt obligations will not only have to pay more (of their own currency) but borrowing will get more expensive.
• This will not be helpful for struggling emerging economies.
• This will likely not be helpful for the global economy.
• Global volatility in financial markets will rise.
• Cash (and cash equivalent securities) and long duration government securities will be the safest place to be for the time being.
• As we have suggested on this blog for some time, a defensive investing posture (less risky assets) will be helpful.

Why?

Not only were the headline US employment numbers stronger than expected, but wages jumped as well, which indicates the potential for wage inflation. this will be enough for the Fed to raise rates in December.

The Canadian labour force data was also better than expected, but the increase in employment was mostly part-time.

Bank Of England Steps Back From The Ledge

"Monetary policy must continue to balance two fundamental forces - domestic strength and foreign weakness"

So says Bank of England governor Mark Carney as the BOE Monetary Policy Committee lowered both economic growth and inflation forecasts.

So the Bank Of England will not be raising rates anytime soon.

Is that because the potential fall-out and volatility from a Fed rate increase in December (now given a 58% chance) is adding to concerns over what happens in the emerging economies where the BOE has placed a higher risk of a more abrupt slowdown?

Will the Bank Of England's decision be a factor in the Feds next decision?

Fed chair Janet Yellen has stated that a December rate increase is still on the table.

Tomorrow is US Employment Data Day (October data) and may figure in to that decision so financial markets will be watching closely.

• The headline (Non-farm Payroll) number is expected to have grown by 180,000 to 190,000.
• The unemployment rate is expected to have slipped to 5.0%.
• Average Hourly earnings to have grown by +.2%.
• But the participation rate to have remained at a multi-decade low of 62.4%.

In Canada the Labor force survey is expected to show an increase of 10,000 new jobs.

A "diverging" global monetary policy could cause more volatility said Mohamed El-Erian, chief adviser to Allianz and chair of President Barak Obama's Global Development Council in an article in the financial Times of London earlier this week:

“Together with pockets of concern about the consequences of a less united and less market supportive central banking community, that is likely to trigger more frequent bouts of heightened equity market volatility.”

So, is the Fed preparing us for more volatility?

or will they step back from the ledge as well?

Maybe it is not so "built-in" as some might suggest.

Stay tuned!

http://www.highrockcapital.ca

Whoops!

We put little credence in economic forecasting and for good reason, very few are able to get it right.

As we (on this blog and at High Rock) predicted at the beginning of the year, 2015 to date has been no exception.

Our key theme for 2015 was to "expect the unexpected".

According to Bloomberg, "forecasting benchmark interest rates has proven quite difficult this year".

Of 28 major central banks around the world, analysts have missed the mark on 20 of them (71%) by under (or over) estimating how low (or high) rates would go.

Falling oil prices leading commodity prices in general lower and the negative impact on developing economies, slowing growth in China, under performing developed economies, high levels of debt and higher financial market volatility have all taken their toll.

Now add in the significance of pending S&P downgrades of major US banks (that have too much risk on their books) and the need for other global banks (including Canadian banks) to shore up their capital structure and we get a broader sense of the uncertainties that still exist.

All of this should really be a wake up call for investors to have a close look at the risk profile of their investment portfolios.

Low interest rates and low returns can drive investors to chase higher portfolio growth by increasing their risk profiles.

After 6 1/2 years of above average returns, it is easy to fall into the trap of wanting or demanding that this continue.  Investors need to guard against complacency. The August equity market meltdown should have raised the yellow flag.

Expect the Unexpected!