Market View

Quarter 2, 2019

What WorkedWhat Didn't
Gold StocksEnergy Stocks
Canadian DollarBase Metals
Technology StocksCannabis Stocks

Equity Markets% Change (in Cdn$)
S&P/TSX Composite2.6%
S&P 5002.0%
TSX Energy-2.9%
TSX Financials3.5%

Bond Markets% Change (in Cdn$)
FTSE Canada Universe Bond Index2.5%

June 2019

The financial markets are often compared to roller coasters as both can provide chills and thrills over time. Recently, we’ve been thinking that the current markets remind us of another favourite playground ride, the MerryGoRound. For the past year or two, investor’s fascination with a short list of aggressive equity names, including the FANG companies in the US, and the marijuana companies in Canada, is eerily similar to the years 1995 – 1997. During the late 1990’s, investors became obsessed with all things technology to such an extent that eventually a true bubble was formed. The tech obsession rose past all reasonable levels and eventually burst in the year 2000. The current focus on technology, social media and marijuana, smacks of the late 90’s and reminds us that the MerryGoRound has almost come full circle. Will the infatuation grow to the same levels? Will the end result be a similar decimation of market prices for the affected companies? No one knows but the similarities are disturbing. Fortunately, we have long memories and as the money we look after is not ours, we do not have the emotional attachment that can lead to decisions based on emotions instead of reason.

Our role in helping you shepherd your capital includes advising on investment objectives. One phenomenon we are seeing more of lately is recency bias in client investment objectives.  The last serious investment market downturn, the Financial Crisis in the US, was ten years ago. As a result, we are seeing some of our clients projecting the market experience of the past few years, which has been quite strong, and using that when determining their investment objectives. These same people are the ones who felt they wanted to be more conservative right after the market downturn of ten years ago. No one can see the future but conservative “then” and aggressive “now” seems likely to be wrong twice. The simple solution is to determine your investment objectives based on your requirements and not on what the market has done, or not done, recently. As you can tell from this and previous editions of our Commentary we feel valuations are stretched and risks are increasing.

Forecasting when a major downturn might occur is a mug’s game. With the US Fed in rate reduction mode due to weakening global growth, a ten year span since the last recession and an “unstable” US political environment, it would seem prudent to assume that sooner rather than later is the best path to avoid serious and permanent financial damage. We do not expect that anything is imminent as this is the third year of the US political cycle. Mr. Trump will no doubt be in re-election mode and thus accommodating to the financial markets. Other than focussing more of our research efforts on the US and international areas, due to a Canada that seems shut for business, we will continue as prudent value investors.

Have a safe and happy summer.

Updated Mailing Address

 In June we moved from our long-time home at 4 King St West to:

 130 Adelaide St West, Suite 3401

Box 106

Toronto, Ontario M5H 3P5

All our phone numbers and email addresses are the same.

Other Markets

  Fixed Income   June 2019   March 2019
Cdn 91 day T-Bills 1.66% 1.65%
U.S. 91 day T-Bills 2.15% 2.41%
Cdn 10 year Bond 1.47% 1.55%
U.S. 10 year Bond 2.00% 2.41%
  Commodities (in U.S.$)   June 2019   March 2019
Oil 58.47 60.14
Natural Gas 2.31 2.66
Gold 1413.70 1298.50
  Currency   June 2019   March 2019
Cdn/USD 1.3088 1.3348
Cdn/Eur 1.4885 1.4973