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Canadian Blue-chip Industrial Forum

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Msg  66200 of 67677  at  11/11/2019 7:58:12 PM  by


Market Call

November 11, 2019

Teal Linde's Top Picks: Air Lease, Facebook and Rogers

BNN Bloomberg


A Market of Contradictions

Evaluating future market direction is never an easy task, but in recent months it has become increasingly difficult due to the stunning number of contradictions we are seeing in economic conditions and data. Here are some examples:

According to the JP Morgan Global Manufacturing PMI, the global manufacturing sector contracted for the sixth consecutive month in October. Manufacturing weakness is generally associated with recessions, as manufacturing historically has led the overall economy. On the other hand, the NAHB Housing Market Index, which reflects U.S. homebuilder confidence, hit a 20-month high in October and is well into expansion territory. Generally, homebuilder confidence drops towards contraction territory prior to a recession, suggesting one is not around the corner.

U.S. consumer spending is poised to grow in 2019 at its lowest year-over-year level in six years, while U.S. consumer optimism as measured by the Conference Board’s Present Situation Index hit its highest level since November 2000 in August.

Central banks are cutting rates and reintroducing quantitative easing as if an economic recession has already begun. All of this is taking place while unemployment rates are essentially at 50-year lows in the U.S. and Canada.

While plummeting bond yields traditionally suggest that the bond market fears a recession, record highs for major North American stock markets suggest that not only one is likely nowhere in sight, but that economic growth should accelerate in the coming quarters.

These economic cross-currents represent a potential fork in the road for markets and it is difficult to know which direction they will ultimately choose to go. As a result equity investors should proceed with some caution.


John De Goey's Top Picks: BHAV, SBEA and ZST/L

BNN Bloomberg


My sense is that we are in the bottom half of the ninth inning of economic expansion. As such, I am hoping there are no problems until 2020, but I’m also planning to take profits (2019 has been a good year) and re-position portfolios to make them more conservative at the first opportunity in January. There are a number of reasons why I believe there will soon be a need to “play defence”. These include:

  • The yield curve inversions that began in Q2 of this year (both sides of the border), which often portend a market downturn six to eight months thereafter.
  • The Shiller CAPE index at the third highest point in history (meaning stocks are “expensive” based on historical metrics).
  • The fact that this is already easily the longest stock market expansion in history.

I agree with Ray Dalio that easy money is being pushed on to the public, but isn’t creating real economic growth because those who are getting it want to invest it rather than spend it. This is creating a “pushing on a string” dynamic: asset prices are being artificially inflated, but there’s very little impact on the real economy. I’m looking at using inverse products (things that go up when markets drop in value) for a large portion (but less than half) of my clients’ portfolios in early 2020. I firmly insist that this is a case of risk management, not market timing.

Notwithstanding my earlier comments, I don’t purport to know exactly when markets will peak. I’m simply saying that, in my view, there’s considerable risk to the downside and limited opportunity to the upside today. People who stay in equities, but move to low-volatility or dividend-paying or value products and strategies are still likely to lose money if there’s a meaningful pullback. You need to build an ark when there’s a potential storm on the horizon. Forecasting showers isn’t good enough.

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