What Keeps Us Up At Night

We like to think that we are professional "worriers": we worry about stuff so that our clients don't have to, so that they can go about leading and enjoying productive (our leisurely), positive lives.

That is what comes from our on-going assessment,  mitigation and monitoring of risks to our long-term wealth forecasts and our investment portfolios. We want to be optimistic, but only cautiously so. Over-optimism is clearly an emotion that only increases risk. However, optimism, especially in financial markets, is what is sold to less suspecting buyers, so we have to always be on guard for that (beware the advisor with the latest and greatest!).

So what are we worried about?

1) The economic impact from the Covid 19 is far from certain and the Q3 bounce-back from the huge dive in Q2 GDP growth will stall out in Q4 and onward.

The Bank of Canada's Business Outlook Survey - Autumn 2020 and Canadian Survey Of consumer Expectations - Third Quarter of 2020 , released earlier this week, clearly outline high levels of economic uncertainty for the future.

The U.S. Federal Reserve's Beige Book (reports by the various regional Federal Reserve Banks) released yesterday, suggests a similar level of uncertainty, including the potential impact of the upcoming November 3 presidential election:

Which, according to the electoral college polls (which matter most vs. the popular vote), remains unclear with enough "toss up" states that make it too close to call.

2) We fear a disputed U.S. election result and the potential for civil unrest that this might create.

3) Surprise, surprise! We think that stock market valuations are expensive and as a result there is a greater risk to the downside, if , as and when investors become disappointed with the current economic or political outlook.

The last time we saw the price to earnings ratios at these levels was way back in the "dot-com Bubble" of 2001-02. Currently stock prices are very "bubblicious". When stock prices rise and portfolio valuations move higher, some might feel better. We do not. We become even more concerned, especially when we feel it is not warranted.

Sell greed, buy fear.

4) Government debt loads are soaring and will continue to do so and at some point in time additional revenues will be required just to cover the expanding interest costs. Taxes are not going down and tax breaks for the wealthy (if you have an investment portfolio my friends, or own a home, for that matter, consider yourself in the "land of the wealthy") will come under greater scrutiny (capital gains taxes for one!).

Sleep well my friends (we have your backs)!