Lessons

PUPPY modified

This week Wall Street lost a thousand points in mere minutes on Monday and by Friday hosted the biggest two-day rally in six years. Oil crashed by 10% in a single day, then finished the week gaining 16% in two sessions. On Tuesday the mainstream media was wall-to-wall doomerism, screaming “Stocks CRASH.” On Friday they still couldn’t get enough of the whacko who lit up two reporters. The stunning financial recovery was boring.

This is a world in which Ashley Madison and Donald Trump matter. The economy and bond yields don’t stand a chance. It’s no wonder most people are financial illiterates who end up with maybe a house and a mortgage, while expecting the government to send them cheques.

Remember the four things this pathetic blog told you when the markets took a dump?

  • Corrections are normal. Corrections are good. They blow off steam, prevent bubbles and reset markets at more realistic levels. Despite that, people always react the same way, because fear is greater than greed.
  • Nothing about the US changed. America’s job-spewing recovery continues, corporate profits are good and growth is robust. In fact we now know that economic expansion has exceeded all expectations.
  • China will fix itself, but it’s the US that really matters.
  • Commodities are oversold. Prices are below levels experienced during the GFC when the world was contracting, and yet today the world is growing. “It’s hard to see how this will not snap back.” I said. And it did.
  • Create a balanced, diversified portfolio and ignore any storm that comes along. Having both fixed income and growth assets, plus the right geographic mix (little maple, even less China) will mitigate losses. So when the TSX was down 11%, this portfolio was off a faction of that.

Most people will never have this kind of portfolio, never max their TFSA, never find the discipline to invest, never get investment help, never understand markets or financial events, and never try. When reversals come and the media shouts at them, they’ll bail, take a loss and blame others. Most people have a one-asset strategy, embrace debt and ape their parents. In fairness, the biggest goals for the majority is to have a family and a nice house.

So, is it any wonder society’s self-dividing into the 1%, and the rest? If this week taught us anything, well exemplified by the comments on this blog, it’s how incredibly naïve and myopic many can be, even in an age when a few clicks will teach you anything.

Well, there’s more on the way.

The volatility is not over, and the coming weeks will bring more big swings on equity markets and in emotions. China has stemmed the wave of selling, but remains a manipulated market (what else would you expect in a socialist paradise?). The US central bank will raise rates in either September or October, depending on the next round of data. As the first hike in almost 10 years, and marking the start of a cycle of tightening, it will be consequential.

And poor Canada has its own swamp to crawl out of. On Tuesday we’ll get the latest economic data, and it won’t be pretty. The betting is the country contracted in the second quarter of the year by about 1%, on top of the 0.6% negative growth in the first three months. The loonie has fallen against the US dollar by 12% since the beginning of the year – a far worse record than the Chinese yuan. And while the snap-back in oil prices by Friday was welcome, the serious damage has already been done.

Calgary house sales are still running 26% behind last year. Retail sales at the West Edmonton Mall have tanked, and car sales in the West are sagging. The dollar volume of commercial real estate transactions in Cowtown has fallen 57% from last year. And the next round of labour stats for Canada is expected to be grim.

Says Capital Economics: “Further declines in commodity prices, droughts and weaker business confidence indicate that the economy is struggling to escape the mild recession that began in the first half of the year. We still expect the economy to return to positive growth in the second half of the year, but the recovery is going to be even more modest than we feared a couple of months ago.”

Many economists still expect the Bank of Canada to cut its key interest a third time next month, even as the Fed is clearly heading in the opposite direction. That would throw more misery on the loonie, as well as the trading on Bay Street. Thus the yawning gap between the US and us grows right along with the divide between the wealthy and the wannabes. If folks think real estate will save their butts as the economy contracts and rates inevitably rise, may Allah be with them.

By the way, a lead story generated by Bloomberg at the end of the week was about Canada being a bigger threat to the US than China. Maybe Stephen Colbert was right all along?

There is a way out, of course. And it’s not just voting NDP. Do what your neighbours are not – become liquid, balanced and diversified. Between now and Christmas you’ll see why.

Not yet

SONS1 modified

HA HA Garth- You and all the peon’s that listen to your financial ‘advise’ are losing it all! Get physical gold and silver you stupid bitch.

Normally I delete one post in a few hundred. Normally I tell you why.

But over the past few days I gave up and just hit the KILL button, and obliterated a mess of comments like the one above. They came from the usual rabble – people who hate America and want it crushed. GIC-lovers and fear-biters who crave a market crash to justify their own wussiness. Anti-1%ers and proud members of the socialist horde who love it when the investment portfolios of others are smouldering. And, of course, the under-employed, basement-dwelling Millennial masses who would like Boomers to retire in the penury they richly deserve for stealing all the houses and hoarding all the jobs.

Well, tough.

In case you didn’t hear the news, equity markets in Toronto and New York soared again Thursday. We’ve just had the best two-day rally since way back in 2009. You can tell how powerful this is by the fact the stock market no longer leads the 6 pm TV news or is plastered across every newspaper’s web site. When things go well, you don’t hear about it. When they suck, it’s a prelude to oblivion.

Not only did stocks recover in a dramatic fashion (adding about a thousand points in two sessions), but there was an unprecedented rise in the value of oil – ahead 10% in a single day. Crude’s now heading back towards the $45 level, just days after it looked destined for thirty bucks. In concert, commodity prices in general romped to better levels, and Canada’s prospects perked a little.

At the heart of all this?

No surprise. It’s the steadily recovering US economy. So I hope this week was a reminder to everyone of this blog’s premier advice (after the relationship counseling, of course): never bet against America. Those who did, shorting US equity markets, were creamed. People who gave up their nerve and sold into the storm on Monday lost a whack of money. There was never any doubt, as this pathetic blog told you, that the positive fundamentals remained in place.

So now we know the American economy shot the lights out in Q2. Annualized economic growth was a ribald 3.7%, blowing past all of the expert estimates. This comes atop growth of 2.3% in the first quarter. That was enough to ignite stocks and restore confidence around the world, since the American economy is the undisputed engine of the global economy.

There was more, too.

Consumer confidence is heading higher. This is no surprise with an average of 211,000 new jobs appearing in the US every month. As I told you, 13 million of them have been created in the last 65 months, the most impressive record in a generation. At the same time cheaper energy has reduced household costs, and American families – unlike ones here – have steadily reduced their debt levels, so the costs of servicing that debt drop. Now consumer and business spending is on the increase.

Corporate profits have been consistently robust. Jobless benefit claims are declining. Sales of resale homes in the US climbed in July for the sixth time in seven months. New home sales are at the highest level in eight years. And now the stock market has enjoyed the strongest back-to-back advance since the current bull market was born six years ago.

Stocks have recovered in Europe and in China, where the index soared 5.3% amid more moves by the interventionist government to stabilize markets and restore investor confidence. And now the next question is when the Fed will begin its program of raising interest rates. Whether it will occur is not even a debate. Only when.

The betting had been for September 17th, prior to the wild swings on equity markets. Now traders figure there’s a 30% of that happening, but about 100% odds of the pop taking place by the end of the year. Maybe October, or an outside chance of December. The exact timing is less important than the event itself – an historic one, after 10 long years of cheap money policy.

So, not much has changed.

America motors ahead. The recovery is intact, and strengthening. The bull market for equities continues after steam was blown off and values corrected. The days of cheap money are still numbered. Expect higher bond yields and more costly mortgages here by Thanksgiving. This is likely the low water mark for interest rates and the high water mark for house prices.

It also reminds us of how many souls there are capable of being led around by the nose, quick to panic, devoid of confidence and willing – if not wanting – to believe the worst.

There’s a reason wealthy people stay that way. And why others get DELETED.