Still bullish, but…

RYAN  By Guest Blogger Ryan Lewenza

For some years now I have maintained a fairly consistent bullish view of the equity markets – more recently as a Portfolio Manager at Turner Investments and previously in my old role as Chief Canadian Equity Strategist at Raymond James. This view has served our clients well with our portfolios delivering solid returns for investors. And I continue to have a favourable view of the global equity markets given improving economic momentum, rebounding corporate profits, bullish technical trends, benign inflation readings, and supportive central banks. That said, my bullish view is not set in stone and will change as these tailwinds turn to headwinds. As the influential economist John Maynard Keynes once quipped, “when the facts change, I change my mind.”

So what could cause us to change our view?

From my perspective, the three biggest risks to the equity markets are: 1) high equity valuations; 2) rising geopolitical tensions and/or a policy error; and 3) rising interest rates. Today I focus on the third – higher interest rates and how they affect the equity markets.

To show how interest rates impact stock prices we need to dig into some mathematical formulas and financial market relationships. So this might hurt a bit, but it should be educational and rest assured Garth will follow up this post up with some funny and biting commentary about some sketchy real estate agents and entitled millennials.

With the US economic expansion now in its ninth year and some central banks now starting to hike rates, I believe we are in a slow transition from ultra-accommodative monetary policies to more restrictive policies and that this should help drive interest rates higher over the next few years.

Currently, the US 10-year Treasury bond yield is at a low level of 2.35% with economists forecasting it to rise to 3% by Q1/19. While we don’t see rising rates derailing the bull market in 2018, we do see higher interest rates ultimately leading to a peak in the economy and stock market. To understand this we need to look at some formulas and relationships.

10-Year Treasury Yield is Forecasted to Rise to 3% by Q1/19

Source: Bloomberg, Turner Investments

Let’s start with equity analysis 101 and the dividend discount model (DDM). The DDM assumes that the value of a stock is based on its future dividends and then discounting them back to the present value. There are two main DDM models – the Gordon growth model which assumes a constant dividend in perpetuity and a two-stage DDM model which assumes an initial higher growth phase followed by a long-term low growth phase. For simplicity (and to try to limit readers from heading for the exits), let’s look at the Gordon growth model.

Below we show the formula which is the dividend divided by the difference between the cost of equity (Ke) and the long-term dividend growth rate. An example will help. Say you have a stock that pays a $1 dividend, and that dividend is expected to grow 6% over the long-run. The last input we need is the cost of equity (Ke) and it is based on the risk-free rate (10-year Treasury yield) and a risk premium. Stay with me!

If the cost of equity is currently 9% based on the 10-year Treasury yield of 2.35% (risk premium being 6.65%), then the stock value based on the Gordon growth model would equate to $33.33 ($1/ (0.09 – .06)). If the risk free rate (10-year Treasury yield) rose 1%, pushing the cost of equity up to 10%, then the stock would now be valued at $25.

Hopefully, I haven’t completely lost you, but all I did was illustrate through a mathematical relationship a stock’s fundamental value based on different 10-year bond yield levels.

Gordon Growth Model for Valuing Stocks

Source: CFA Institute, Turner Investments

Another way to understand the relationship between stock prices and bond yields is by comparing historical stock valuations (P/Es) with bond yields. Below is a scatter plot of the S&P 500 P/E ratio and the US 10-year Treasury bond yield at various times over the last 60 years.

Note how the P/E ratio generally rises as the 10-year bond yield increases. This makes intuitive sense since as the economy accelerates and the stock market rallies, bond yields typically rise. But note how around the 5% level this positive relationship begins to break down with P/Es then contracting as the US 10-year bond yield continues to rise. Historically that 5% level was the dividing line where it typically resulted in a peak in the economy and stock market. I believe in this current environment that the 5% level is likely to be lower this time, probably closer to 3.5%. So based on this analysis I don’t think we need to worry about the stock market until the 10-year yield gets into that 3 to 3.5% range, which, based on current economists’ forecasts, looks more like a 2019 story than 2018.

Relationship between Stock P/Es and Bond Yields

Source: Bloomberg, Turner Investments

Finally, there is another widely used tool for comparing the stock market to bond yields called the “Fed Model”. It came to prominence in the 1990s and it attempts to compare the relative valuation between the stock market and bond yields. Specifically, it compares the earnings yield of the S&P 500 to the US 10-year Treasury bond yield. To determine the earnings yield of the S&P 500 you simply take the inverse of the P/E ratio for the S&P 500. Currently, the trailing P/E ratio for the S&P 500 is 21x resulting in an earnings yield of 4.6%.

Subtracting the S&P 500 earnings yield of 4.6% from the US 10-year Treasury yield of 2.35% results in a premium of 2.25% for stocks and captures the relative attractiveness of stocks compared to bonds. But as the US 10-year yield rises (and possibly the earnings yield declines as stocks continue to move higher) the premium will narrow resulting in bonds becoming more attractive versus stocks. As this happens, investors will look to reduce their equity exposure and add to bonds, possibly resulting in a peak in the stock market.

So, there are a few different ways to look at the relationship between interest rates and the equity markets. For now, low interest rates are bullish for the equity markets and support our continued bullish view. However, as bond yields move higher, this will begin to reduce stocks relative attractiveness and likely result in a peak in the stock market. The key now is trying to determine exactly when this will occur so we can make the necessary adjustments. Where is my crystal ball when I need it most?

The Fed Model

Source: Bloomberg, Turner Investments
Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

91 comments ↓

#1 Michael King on 11.25.17 at 4:24 pm

Excellent column, thank you. I’ll be keeping my eye on the 10 yr Treasury yield.

#2 don't you love active investing? on 11.25.17 at 4:26 pm

. For now, low interest rates are bullish for the equity markets and support our continued bullish view. However, as bond yields move higher, this will begin to reduce stocks relative attractiveness and likely result in a peak in the stock market. The key now is trying to determine exactly when this will occur so we can make the necessary adjustments. Where is my crystal ball when I need it most?

………..

:)

Bogle is cringing. Bogleheads are shaking their heads….they may need a walk after this blog

#3 TurnerNation on 11.25.17 at 4:32 pm

Someone mentioned last blog they’d stopped chartiable giving. I largely do not.
Most charities seem scammy. Putting it this way: how many people do you know helped by a charity?
Me: 0.00. Maybe I move in the wrong circles.

The yearly hospital ones seem more worthy until you wonder how many six-figure managers, execs and consultants feed at that same trough of giving.
Also Canadians are too weak to ask of their elected reps: Wait we’re paying 1/2 of every dollar earned into taxation so why must every single hospital yearly resort to begging – while our tax dollars are handed away overseas and unaccounted.
(I guess if you do this T2’s Diversity Hammer will come down and squarely hit your head.)

#4 Figmund Sreud on 11.25.17 at 4:34 pm

the three biggest risks to the equity markets are…
__________________________________

Yes, … but have you considered this, … partial summary snip:

Average statistics camouflage what is happening in the economy, which could lead to dangerous miscalculations, most importantly by policy makers. For example, looking at average statistics could lead the Federal Reserve to judge the economy for the average man to be healthier than it really is and to misgauge the most important things that are going on with the economy, labor markets, inflation, capital formation, and productivity, rather than if the Fed were to use more granular statistics. That could lead the Fed to run an inappropriate monetary policy. Because the economic, social, and political consequences of an economic downturn would likely be severe, if I were running Fed policy, I would want to take this into consideration and keep an eye on the economy of the bottom 60%. By monitoring what is happening in the economies of both the bottom 60% and the top 40% (or, even better, more granular groups), policy makers and the rest of us can give consideration to the implications of this issue. Similarly, having this perspective will be very important for those who determine fiscal policies and for investors concerned with their wealth management. …

The whole thing here:
Our Biggest Economic, Social, and Political Issue — The Two Economies: The Top 40% and the Bottom 60%
https://medium.com/@zachwahls/our-biggest-economic-social-and-political-issue-the-two-economies-the-top-40-and-the-bottom-9e51ab9e5df

Best

F.S. Comox, BC.

#5 Doug t on 11.25.17 at 4:34 pm

Beware the ides of March
Something wicked this way comes
Be the first to the exit

RATM

#6 FOUR FINGERS WATSON on 11.25.17 at 4:42 pm

I hope you didn’t strain your marginal propensity writing that post.

#7 Mark's deflation theory on 11.25.17 at 4:49 pm

Things you need to consider:
1. The US dollar Index is at a 4-month low at 92.67.
2. Oil prices are expected to rise to US$65bbl post-OPEC meeting next week.
3. Using Mark’s deflation theory, higher interest rates causes debtors to scramble for their Canadian dollars, increasing an upwards demand for C$ (higher loonie).
4. Garth is getting jaded that his website suffered a bug and glitch, & accidentally approved a very racist and xenophobic comment from a German Nazi yesterday.
5. Trump wants a lower US dollar, so he probably posted that xenophobic comment whose username sounds like a racist slur in a German tone.

#8 Stan Brooks on 11.25.17 at 4:49 pm

With the central banks in charge of the monetary policy the interest rates serve one purpose only:
Maximum extraction of wealth from the population for the benefit of the banks/the loan originators.

With maximum debt and disappearing jobs to sustain that extraction model rates have to stay low, with variations according to individual circumstances of each currency issuing entity.

In addition government deficits become the norm for a very long time, increase in taxes and balanced budget – delirium tremens.

In short – you will see continuing strength in equity markets, maybe some temporary correction in the US market (significant correction not very likely), inflation, low rates and disappearing jobs, downward pressure on wages.

Mandatory increases of minimum wages are delusional and will lead to reduced work time and disappearing of benefits coming from that.

Total labour contribution to services and manufacturing will continue to deteriorate and be bound on the upper side, so higher minimum wage will lead to lower working hours, longer wait times and lower quality of services.

In that sense liberal’s ideas of higher taxes are idiotic (but hey, what do you expect from such bunch of randomly ideologically selected people lacking any professional credentials and expertise, including the french villa guy)

Cheers.

#9 Debtslavecreator on 11.25.17 at 4:49 pm

Long Dow / US shares as long as 20 K holds on a weekly close – if /when we have a month end closing above 23700 then I will set my get out level at a bit below 22k
Gold will likely have one more washout decline with a Long term bottom likely in place late January

I think the fed raises 2 times next year but not until mid year

Dow likely 38-40k in q1 2020 with one 10-15% decline on the way there

But will it matter if the T2 gang raises cap gains to 75% and raises dividend taxes

TFSAs and RSP of course are great accounts to avoid this but watch out for brazen actions by broke govts to target “speculative” investments in registered accounts

May the bulls run hard !

#10 DG on 11.25.17 at 5:00 pm

The current Cyclically Adjusted PE Ratio (CAPE Ratio) for the S&P 500 is above 30 which historically suggested negative returns over a long term horizon (10 years). Do you see a risk of negative returns for someone buying into the US marked at the moment?

#11 VICTORIA TEA PARTY on 11.25.17 at 5:07 pm

EMPTY HEADS YIELD EMPTY RESULTS

Looking out for your investments, like monitoring your health, is a key factor that cannot be left only to your “investment” analyst.

So, you also must be actively involved in doing your own research and discussing issues with people you trust outside the industry.

I’ve been investing in the securities markets now for close to the last half century.

Seen a lot, done a lot.

Boy oh boy. What a ride.

Regardless of your arithmetic capabilities today’s basic offerings are worth storing away.

In investing in the stock and bond markets I also keep an eye out for the 10-year US Treasury note moves to try and determine future US monetary policy; that and watching the business TV networks!

I also look to our Canadian central banker and ask to myself: “What are you gonna do? And when?

I prefer to look to fundamental analysis moreso than to technical analysis which I sometimes liken to witchcraft.

But the longer I stay in the market the more I pay attention to the sources I trust, including this blog’s market commentaries. Your “ride” should be a lot smoother and happier if you keep reading this blog.

So, pay no attention to young nimrods, fresh out of stock market school, who may have the nerve to tell you that your half-century of stock market experience is so “yesterday” because “I’ve got this brand new stock market app!”

Don’t go there.

Meanwhile, I’ve given up predicting what the markets may do. It doesn’t matter in the very long run.

As for the current situation it is most interesting to see these huge daily moves amidst such amazing government/private sector debt levels.

Truly unbelievable.

If things get really crappy then watch for a repeat of central bank interventions we all witnessed in late 2008 and early 2009.

#12 Stan Brooks on 11.25.17 at 5:11 pm

And to sustain this model governments have to revert to fear, ideological warfare, witch hunting, confiscation from the weak/not the rich/elite, promotion of non-existing conflicts and problems to solve, like the carbon tax for example and the Human Right Tribunal non-sense.

The small Business tax hike is just the beginning, then come pension plan ‘optimization’ like the pension ‘target’ plans and laws introduced by BM.

CPP expropriation by increased contributions and understated inflation will provide some funding for federal employees, RRSP grab in one form or another is a given with the goal of ‘providing Canadians with better benefits’, the same lies that the current liberal government is using to confiscate from the middle class shamelessly stating that it is taxing the rich.

The guy with the fancy socks is here just to play his drama (he is drama teacher after all).

The ruling class is an elite club and you ain’t in it.

Your role is to work whole life for that glass condo and if lucky for the cardboard particles home and the tasty GMO food comprised primarily of glucose-fructose syrup and fillers, not to ever be able to retire and depart this world naked and stripped of all your assets.

#13 Gravy Train on 11.25.17 at 5:12 pm

As the influential economist John Maynard Keynes once quipped, “when the facts change, I change my mind.”
— Ryan Lewenza

Here’s one of my favourite quotes:
“Markets can remain irrational longer than you can remain solvent.”
― John Maynard Keynes

#14 Cecil Henry on 11.25.17 at 5:18 pm

Um. So When exactly is the crash coming???

(And how bad will it be?)

I suspect that’s what a lot of people are thinking.

Because if the last 7 years were ‘good years’, then its going to be hell when the bad years return.

#15 I’m stupid on 11.25.17 at 5:30 pm

I dotted blue line must be the ugly stick. It determines who’s attractive.

#16 akashic record on 11.25.17 at 5:39 pm

No worries Ryan, you are not alone. No one knows shyte.

http://www.zerohedge.com/news/2017-11-25/citis-shocking-admission-there-growing-fear-among-central-bankers-theyve-lost-contro

The next line from the Citi strategist should scare the living daylights out of anyone: it is a direct admission that central bankers have now lost control.

“That seems to be a growing fear among a number of central bankers that we have spoken to recently. In our experience, they too are somewhat baffled by the lack of volatility and concerned about the lack of response to negative headlines…. Our guess is that sooner or later in the process of retrenchment they will end up going too far – though that will only be obvious with
hindsight.”

#17 Stan Brooks on 11.25.17 at 5:39 pm

#10 DG on 11.25.17 at 5:00 pm
The current Cyclically Adjusted PE Ratio (CAPE Ratio) for the S&P 500 is above 30 which historically suggested negative returns over a long term horizon (10 years). Do you see a risk of negative returns for someone buying into the US marked at the moment?

————————–
You read too much John Hussman.

Historical stats does not make any sense as it is derived at lower debt levels.

With higher debt levels and lower growth levels the only way ahead is low rates, higher inflation, negative real returns from bonds which leaves lower returns from equities pretty much the only alternative.

Combined with automation and disappearing jobs, so lower government revenues, permanent deficits, equity markets look like the only viable alternative.

You don’t need Stanford PHD to derive that.

#18 Zapstrap on 11.25.17 at 5:44 pm

I got a haddock.

#19 Newcomer on 11.25.17 at 5:50 pm

Thank you, Ryan. You made a difficult thing easier for me to understand.

#20 For those about to flop... on 11.25.17 at 6:01 pm

Lost but not leased..pm
#247 for those about to flop.

The Trafalgar house is interesting…
Not sure when built…but it appears to be of the style built for Hong Kong expatriates in late 1980’s early 1990’s.

These are approaching 30 years of age, hence what is the depreciation ?

May soon see these be demolished for the new generation of homes.

////////////////////////

Hey Lost,good guess,that house is 27 y.o.

As far as being demolished,who knows but the street average is 56 so it’s not ancient in that regard.

Also one more point on that Thinkpol article, I briefly touched on it this morning but this time will show an example.

If the point of the article was to shock then I was surprised that the lowest ROI they showed was around 1.5% annualized.

I have cases like the one below where they could take a 500k loss but no mention.

I also have a case that is not on either of the original list or the Foreign buyers list and could apparently qualify for both if my Intel is correct.

These guys are chasing over 5 million for a block of land,might have to find an investor to find a way to build a house and try and get 7/8 million for it…

M43BC

1650 Waterloo Street, Vancouver paid 5.39 ass4.74 now asking 5.19

Jan 12:$5,900,000
Jun 20: $5,698,000

Change: – 202000.00 -3%

https://www.zolo.ca/vancouver-real-estate/1650-waterloo-street

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAwMDVEWA==

#21 smoke 'em if you got 'em on 11.25.17 at 6:03 pm

Why aren’t you guys buying weed stocks? Are they not going up enough? Lots of people smoke the stuff.

#22 Ryan on 11.25.17 at 6:10 pm

Thanks for sharing

Do you feel corporate class mutual funds have a place in non -registered accounts ? Taxed favourably outweigh the higher Mers?

Have a nice evening

#23 Smoking Man on 11.25.17 at 6:17 pm

Surviaval of humanity boils down to 3 things.

1 Water
2 Food
3 Getting off.

Everything else in between is an attempt to get more of 1 2 or 3.

Dr Smoking Man
PhD Herdonomics

Put it on the fridge.

#24 westcdn on 11.25.17 at 6:21 pm

I agree that interest rates affect equity prices. As rates increase, equities become less attractive. However, if someone believes an object will appreciate more interest rates (linked directly to inflation rates over the longer term – let the Central Banks play their games) then they have a high inclination to borrow and buy (leverage).

In my view, Central Banks want manageable inflation of about 2% to protect debt from “jubilation” and they do not want wage cost inflation. They are walking a thin tightrope. Equity assets are tiny to debt assets (~10%) so Central Banks will be oriented to protect debt obligations. How will they accomplish their goal? The best way I see is to ensure there is always economic slack so the plebs are willing to accept stagnate wages to pay cheap debt.

I get choked when overpaid “legends in their own mind” try to “manage” me. I see a few problems that must be dealt with now and defer dealing with legends in their own mind groupies.
1. Excessive speculation from cheap debt
2. Pension financials
3. Wasted taxation policies

Number 1: Higher interest rates are needed but limited to 3% (my guess) over inflation rates. I want a mandatory 5% withholding on the sales price of real estate to be remitted as a tax installment. People will have to prove primary residence to get it back. I would reintroduce a renter tax credit in return for pertinent landlord information. I would not allow personal residences to be a business and disallow any related rental expenses.

Number 2: Introduce a gross up on pension incomes. Let’s start with 10%. OAS benefits depend on income taxes paid during your life similar to CPP. Means testing would remain in place. No income taxes paid – no OAS. I also would disallow any annual corporate pension contribution for an individual above $120,000 (geared to inflation) as a business deduction. Individual CPP contributions would become a deduction from taxable income rather than a tax credit.

Number 3: Freeze Government programs and wait to see who squeaks. I would definitely try to make government less expensive which means fewer people. My first attack would be on the safety meme – I have never believed in the nanny state.

I have little respect for cheaters or slackers despite how clever they are. I tend to rant Ryan. I certainly don’t want anarchy as a solution. I stand to be corrected and will move on.

#25 Ryan Lewenza on 11.25.17 at 6:24 pm

DG “The current Cyclically Adjusted PE Ratio (CAPE Ratio) for the S&P 500 is above 30 which historically suggested negative returns over a long term horizon (10 years). Do you see a risk of negative returns for someone buying into the US marked at the moment?”

I track the CAPE but I don’t put a lot of weight on it. The basic thinking of CAPE is that when it’s above the long-term average of 16.5x the market is overvalued. It’s been above that level basically since late 2009 so anyone basing their outlook/exposure to equity markets on this metric alone has missed a pretty incredible ride (300% and counting!). Also a high CAPE doesn’t imply negative returns, rather returns below the long-term average of 9%. So maybe we see lower average returns over the next 10 years, say 4-5%, but it doesn’t mean we’re going to see negative returns over the next 10 years. – Ryan L

#26 TRUMP on 11.25.17 at 6:30 pm

Beware…..

The CIC Cheater-In-Chief “Bill Morneau”….

On the prowl.

#27 JSS on 11.25.17 at 6:31 pm

This was an amazing article.
Always wanted to know this stuff, but couldn’t find a good explanation of this. Waited a long time. Thanks!

#28 Ryan Lewenza on 11.25.17 at 6:38 pm

“Thanks for sharing Do you feel corporate class mutual funds have a place in non -registered accounts ? Taxed favourably outweigh the higher Mers?

We do not invest in mutual funds given there high MERs and poor track records. Sure some funds outperform from time to time but in general they underperform their benchmarks. Given these two factors we stick with low cost ETFs. But if you had to invest in a mutual fund yes I would go with the corporate class version given their tax advantages. – Ryan L

#29 Deplorable Space Dust on 11.25.17 at 6:43 pm

#23 Smoking Man on 11.25.17 at 6:17 pm

Surviaval of humanity boils down to 3 things.

1 Water
2 Food
3 Getting off.

Everything else in between is an attempt to get more of 1 2 or 3.

Dr Smoking Man
PhD Herdonomics

Put it on the fridge.
..
You forgot booze and art.

#30 Leinnay on 11.25.17 at 6:54 pm

Great post Ryan.

“as bond yields move higher, this will begin to reduce stocks relative attractiveness and likely result in a peak in the stock market. The key now is trying to determine exactly when this will occur so we can make the necessary adjustments.”

By adjustments do you mean overweighting the bonds portion of the portfolio? What’d happen to the 60/40 ratio of the balanced portfolio?

You see, I understand when you do adjustments to the equity portion by tilting one region or even sector; but when it comes to the fixed income portion, how would these adjustments look like? I can see rotation to longer bond durations happening and also moving the preferreds to perpetuals.

I would appreciate any input you can provide. Thanks.

#31 Money, power and the American dream Documentary 2017 on 11.25.17 at 6:59 pm

https://www.youtube.com/watch?v=YCQ6FWACorA

#32 Patience Is A Virtue on 11.25.17 at 7:24 pm

@Smoking Man

As my neuroanatomy Prof described the basic brain reflex, humans are dedicated to the 3 Fs
1) Feeding
2) Fighting
3) Mating

You neglected #2. Anatomically speaking of course.

#33 Smoking Man on 11.25.17 at 7:32 pm

Getting the visa to escape communist
today.

This was in my head.

https://youtu.be/fJ9rUzIMcZQ

#34 For those about to flop... on 11.25.17 at 7:38 pm

CONFIRMED PINK SNOW.

Couple of cases for the Burnaby Boys on the blog

The details…

Paid 1.55 July 2016

Sold 1.61 July 2017

So they got more than what they paid for it but it wasn’t enough to cover costs and missed opportunities.

From the outside looking in it appears to be a 50k loss.

6393 SPERLING AVE BURNABY paid 1.55 ass 1.51 asking 1.68

https://www.zolo.ca/burnaby-real-estate/6393-sperling-avenue

https://www.zolo.ca/index.php?sarea=6393%20Sperling%20Avenue,%20Burnaby&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=RDAwMDBZQjdYNQ==

CONFIRMED PINK DRAW.

Second case is a borderline Pink Draw but I will present it anyway.

The details…

Paid 1.41

Sold 1.54

Didn’t get asking just like the last guys, but it appears that after expenses they might have had enough left over to pay the movers.

Dunno,maybe only enough for one Bitcoin…

M43BC

4368 Cambridge St. Burnaby paid 1.41 ass 1.36 asking 1.58 sold on June 12

https://www.zolo.ca/burnaby-real-estate/4368-cambridge-street

https://www.zolo.ca/index.php?sarea=4368%20Cambridge%20Street,%20Burnaby&ptype_condo=1&ptype_house=1&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzVkxKWA==

#35 Lost...but not leased on 11.25.17 at 7:41 pm

#20 for those about to flop

Again, thanks for all your time and effort providing data

IMHO the RE market is a dog’s breakfast. Re: Thinkpol…There are outliers that aren’t in tune with the RE market and will be part of an ever- shrinking pool of “greater fool” buyers that may pay more than what the current market would otherwise command.

It appears that the potential buyers will pursue whatever RE assets are put on the open market.

This runs the spectrum of a 100+ year old bungalow on a small lot to a relatively new McMansion of which their is no defineable geographic locale…ie that 6000 sq.ft. newer house “X” could be on Vancouver West Side or Whalley area of Surrey.

It’s a no brainer that when the $HTF, buyers will be very discriminating and cherry picking the BEST deals under the given market circumstances.

Evidence suggests “vulture tours” of buyers (coming soon to a RE market near you) ready willing and able to pick off “greater fools” errors in judgement.

#36 Stats freak on 11.25.17 at 7:54 pm

Key-riced, Ryan!
I love numbers, but you scrambled my brain a bit on this one.
Just let us know when it’s time to freak & run for the equity exits, ok?

Kiss kiss ;)

#37 A different point of view on 11.25.17 at 7:57 pm

Crescat Capital latest quarterly report.

https://www.crescat.net/crescat-capital-quarterly-investor-letter-q3-2017/

“The PBOC also revised its assessment of 2015 off-balance sheet bank debt upward by about 100%. The problem in China is that shadow lending has been growing literally out of control and outside the direction of central planners. We believe this is the largest credit explosion in any major country ever relative to GDP, indicating that China’s banking assets are vastly mismarked, and overstated. In our view, China has an enormous hidden non-performing loan problem that essentially renders the entire Chinese banking system insolvent, more than wiping out all its equity capital and potentially leaving more than one billion Chinese depositors to bear substantial losses. China certainly was the growth engine of the world for the last few decades, but that growth is about to come to an abrupt halt. At this stage, in our view the China credit bubble is as ripe as it gets to burst”

All good things eventually come to pass.

#38 Loonie Doctor on 11.25.17 at 8:07 pm

1) Related to tonight’s post. Thanks for the education Ryan. I am currently overweight equities and under weight bonds. I have my fixed income portion of my portfolio largely as preferred shares, reits, and US junk bonds. I plan to gradually transition to more bonds in the RRSP part of my portfolio when the steep rise in yields tapers off a bit since interest bearing bonds are the most tax inefficient part of my portfolio. Most of my portfolio is non-registered and when complete, I should be closely in line with your/Garth’s recommendations in terms of fixed income:equities with the interest income in my RRSP and the more tax efficient parts outside. Realizing market timing is difficult or impossible, I do appreciate your giving some markers to look out for in this post. Thanks.

2) Regarding the carry over comment #3 by Turner Nation about charitable giving. I totally agree with you about being careful about where you give. Some charities have large infrastructure costs. You should ask what the admin costs are and how much makes it to the boots on the ground when donating a significant amount. The government is my least favourite charity and gets most of my giving. I also don’t give to Universities or Hospitals with a blank cheque anymore. I used to, but I have seen the waste first hand when you do that. It usually goes to the politically hot pet project du jour. I do, however, believe that giving is part of smart financial planning. Directing money away from the government towards things I more directly believe in feels really good and makes a difference. For me, I give significant amounts to my hospital, and I can specify directly where that money goes. The lingo is mission specific funding/donation. That is what we do – I have the benefit of working in the hospital so can see that what I give is followed through on. I wonder what the relationship between taxation rates and philanthropy is? I suspect I know the answer.

#39 Ryan Lewenza on 11.25.17 at 8:17 pm

Leinnay “By adjustments do you mean overweighting the bonds portion of the portfolio? What’d happen to the 60/40 ratio of the balanced portfolio?”

We don’t make significant changes around shorter term pullbacks but if we believe a bear market is imminent then we would look to make some changes to the portfolio. First we would consider making a tactical change to our asset mix possibly lowering the equity/bond weight to 50/50. As we discussed in a previous post we don’t make major calls like going all to cash, but we will tweak the asset mix on a tactical basis. Then we would look at making changes to our security holdings. In bonds we would consider selling high yield bonds, and look to add government bonds, likely longer dated ones. In equities we would sell higher risk equities like small cap and emerging markets. We could also consider switching our equity ETFs for either higher yielding dividend based ETFs (this way we’re getting a higher dividend yield while equities are weak) or low vol ETFs which will hold up better in a down market. So if our view changes from bullish to bearish we will tweak the asset mix and the individual ETFs. – Ryan L

#40 akashic record on 11.25.17 at 8:24 pm

Things naturally turn into a sphere.

Muir: “People Are Going To Be Wiped Out” By Short-VIX ETFs”

http://www.zerohedge.com/news/2017-11-25/muir-traders-dont-understand-risks-shorting-vol

#41 Mark on 11.25.17 at 8:28 pm

“3. Using Mark’s deflation theory, higher interest rates causes debtors to scramble for their Canadian dollars, increasing an upwards demand for C$ (higher loonie).”

Careful here. “higher interest rates” in such an instance would not be higher BoC policy rates, but rather, higher credit spreads against the sort of loans that are widespread in the economy, ie: RE loans.

For example, say that confidence is lost in the Canadian housing market and loans that back it. Interest rates on mortgages would surge overnight, as investors would be reluctant to write new mortgages without demanding very large risk premia.

However, those investors would sit in cash or would sit in short to medium term GoC debt instruments.

Hence, “interest rates”, as expressed in the BoC/GoC curve would probably collapse (and the BoC probably would be cutting at such point in response to macro factors). But rates in such instance would be sky high for mortgage borrowers.

In such an instance, you could easily have (as happened in the USA 2008/2009), very low interest rates on “risk free” investments such as government bonds, but money could be very scarce for risky investments (like mortgage backed securities). The CAD$ would skyrocket because consumers, who tend to be mortgage borrowers, would have little to no ability to consume, and would either be paying higher rates, or would face the prospect of a mortgage renewal at a higher rate. Discretionary consumption would thus crawl to a halt.

Can the BoC/GoC stop spreads from expanding in a well-past-the-peak asset class in significant physical overcapacity? Probably not. Hence, you’re right, it will be a world of pain for mortgage borrowers as the RE downturn accelerates, as they will be forced to pay higher interest rates in a fundamentally more “expensive” currency to acquire (due to currency appreciation wage deflation/stagnation, etc.).

#42 akashic record on 11.25.17 at 8:30 pm

For Smoking Man ONLY.
Other blog dogs don’t attempt. Seriously.

https://www.youtube.com/watch?v=GFEvAXzCnPk

#43 mike from mtl on 11.25.17 at 8:33 pm

If yields are supposedly ‘rising’, why dial back on the preferreds?

It went from 20% to 18% now 15% in the span of one year? What gives? Expect BoC to cut again? NAFTA being broken, Oil falling, bank meltdown, I can see so very likely as well.

#44 Brian from Windsor on 11.25.17 at 9:00 pm

Hi Ryan,

Just a note of thanks. I enjoy reading your analysis and always take away something of value. Appreciate you taking the time to share your insight.

#45 BS on 11.25.17 at 9:19 pm

The Fed Model graph shows stocks were attractive in the 70’s, unattractive in the 80’s and 90’s and then attractive from the early 2000s on. The 2000’s have been a mixed bag otherwise the opposite has occurred. Time to throw that model out.

The other problems with models is they assume investors are rational. A reasonable person would have sold their tech stocks in 1997 when they became way overvalued right before they quadrupled. Simpler to just stay invested.

#46 akashic record on 11.25.17 at 9:20 pm

AI or not AI?

https://twitter.com/LUCYXXXBAB

#47 BS on 11.25.17 at 9:28 pm

Timing the markets is a fools game.

Paul Krugman won a Nobel Prize in Economics. His market forecast in November 2016:

It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?

Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.

Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.

The DOW is up 28.5% since Krugman made that statement.

http://canadafreepress.com/article/paul-krugman-one-year-ago-trumps-election-has-the-markets-plunging-and-they

#48 CanadianOne on 11.25.17 at 10:03 pm

#27 JSS on 11.25.17 at 6:31 pm

This was an amazing article.
Always wanted to know this stuff, but couldn’t find a good explanation of this. Waited a long time. Thanks!
_______________________________________________________

Today’s topic reminds me of the days when I did this one youtube course online as “non-credit” course :)

For those who seek to gain more information/knowledge, I found http://pages.stern.nyu.edu/~adamodar/ to be of great use. They are some awesome reads/explanations out there like today’s topic by Ryan.

Cheers
M40AB

#49 akashic record on 11.25.17 at 10:08 pm

#47 BS on 11.25.17 at 9:28 pm

The DOW is up 28.5% since Krugman made that statement.

Ideology terminates the ability to look at the world with your own open mind and draw your own conclusions, no matter how far they deviate from the average.

Ideology is the tool to get the masses serve other people’s interest.

For Krugman the Nobel Prize did not give inoculation, he became and remained infected.

#50 For those about to flop... on 11.25.17 at 10:16 pm

CONFIRMED PINK SNOW.

This relatively affordable house in Coquitlam was a failed flip.

The details…

Paid 1.3 May 2016

Sold 1.25 August 2017

So it probably seemed like a safe bet at the time, but the result after known expenses and a couple of percent for opportunities lost puts it roughly around the 140k area in the loss column…

M43BC

Sold on August 5th
1607 Balmoral Avenue, Coquitlam paid 1.3

Mar 29:$1,468,000
Jul 25: $1,099,000
Change: – 369000.00 -25%

https://www.zolo.ca/coquitlam-real-estate/1607-balmoral-avenue

https://www.zolo.ca/index.php?sarea=1607%20Balmoral%20Avenue,%20Coquitlam&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzWE5XRA==

#51 For those about to flop... on 11.25.17 at 10:29 pm

CONFIRMED PINK SNOW

This house is yet more confirmation of what I have been stating on the blog for the last nine months,the cheapest detached houses in Vancouver are having trouble being sold.

Case after case in my neighborhood relatively affordable houses have struggled to sell and anyone who tries to get Spring 2016 prices,plus 10/15% gets told to go sit in the corner and think about what you did wrong.

Anyway back to this case.

The details…

Paid 1.32 July 2016

Sold 1.31 August 2017

And so the numbers look pretty innocent as long as your not the one footing the expenses which probably gave these guys a 100k kick up the backside.

Hopefully the realtor had their fluffy bunny slippers on while delivering the blow…

M43BC

3186 Wellington Avenue, Vancouver paid 1.32 sold on August 26

Jun 7:$1,398,000
Aug 9: $1,299,000

Change: – 99000.00 -7%

https://www.zolo.ca/index.php?sarea=3186%20Wellington%20Avenue,%20Vancouver&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAwMzRVQw==

https://www.zolo.ca/vancouver-real-estate/3186-wellington-avenue

#52 Big Daddy on 11.25.17 at 10:34 pm

Disagree that the US is in the ninth year of expansion. A bull market only started on Nov 8 , 2016 when Trump was elected and since then profits have induced an expansion. Prior to that we only had Obama splashing the balance sheet with trillions in new debt and massive govt hirings through proxy carpet baggers….not a genuine broad based expansion. You have drank the same bathwater as the CBC has been regurgitating about an expansion of GDP under Trudeaus time. Trudeau has hired 300,00O special religious and ethics into government jobs and slpashed the balance sheet with 200 billion in new debt. This is not a real economy. The expansion under Trump is only months old and has years to run because it’s real corporate activity not the Obama Trudeau phony model.

#53 akashic record on 11.25.17 at 10:39 pm

Crypto currency … serious or not?

https://www.youtube.com/watch?v=C9CvHLn2xPU

#54 Smoking Man on 11.25.17 at 10:58 pm

https://youtu.be/EYyarcp5LtU

I’m loving you

#55 Interstellar Old Yeller on 11.25.17 at 11:04 pm

Meaty blog post, Ryan. Loved it. I firmly believe the crowd that Garth attracts can handle this stuff, and would be glad to see more in the future.

Have a great weekend, all!

#56 Karma on 11.25.17 at 11:55 pm

Well said Lewenza. And what you’re preaching is also applicable to real estate investing.

#57 Newcomer on 11.26.17 at 12:01 am

#47 BS on 11.25.17 at 9:28 pm
….
The DOW is up 28.5% since Krugman made that statement.
———

Krugman is, first and foremost, a professional entertainer. He is also a party Hack. He said similar things when Bush was elected. As for his Nobel Prize, keep in mind that Bob Dylan got one for literature and Obama got one for peace, before he had served a day in office.

#58 Tony on 11.26.17 at 12:09 am

Only two things will make interest rates rise in America. One the total decimation of the U.S. dollar or two endless helicopter money in America. Outside of those two we’re looking at falling interest rates not rising interest rates. Canadian interest rates have already normalized, the rate increase slated for this December will be the last rate increase in America. I’ve always noticed anytime a rate increase is slated in America the jobs report always comes out negative so the jobs report in December for the month of November will be negative or many jobs less than forecast. As for the stock market anyone know any of the elite central bankers and their plans going forward?

#59 Tony on 11.26.17 at 12:14 am

Re: #52 Big Daddy on 11.25.17 at 10:34 pm

What expansion in America? Corporate profits in America have been falling since November 2013. If you factor out cost cutting and buybacks corporate profits have been falling since 2007.

#60 For those about to flop... on 11.26.17 at 12:44 am

CONFIRMED PINK DRAW.

These Trudies unlike their namesake found a way not to blow a heap of cash.

The details…

Paid 1.4 January 2016

Sold 1.49 August 2017

And so they will probably lie at the annual pillow fight with the people over at Harper Court and tell them that they made 90k profit but that would be fibbing

Put a pink pillow case on because this is a textbook Pink Draw…

M43BC

7192 Trudy Court, Burnaby paid 1.4 sold on August 21st.

Mar 15:$1,790,000
Jul 26: $1,555,000
Change: – 235000.00 -13%

https://www.zolo.ca/burnaby-real-estate/7192-trudy-court

https://www.zolo.ca/index.php?sarea=7192%20Trudy%20Court,%20Burnaby&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzVlFKRg==

#61 For those about to flop... on 11.26.17 at 1:05 am

CONFIRMED PINK SNOW.

Here is another affordable house by Greater Vancouver standards that couldn’t even rustle up 1.2 million out of supposed rabid real estate masses.

The details…

Paid 1.19 February 2016

Sold 1.18 September 2017

So once again not the biggest bloodbath ,but with known expenses a hit to the hip pocket for around 70k.

Coquitlam detached are up on average 10% y.o.y but that statistic didn’t bail these guys out.

They were looking at the Edgar part and then got J. Hoovered…

M43BC

942 Edgar Avenue,Coquitlam paid 1.19 ass 1.19 sold onSeptember 7th

Jun 22:$1,299,000
Aug 10: $1,199,000
Change: – 100000.00 -8%

https://www.zolo.ca/index.php?sarea=942%20Edgar%20Avenue,%20Coquitlam&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzWDhGMA==

#62 For those about to flop... on 11.26.17 at 1:40 am

CONFIRMED PINK SNOW.

O.K so this is a condo in Richmond that I reached out to the realtors on the blog and got the cold shoulder.

This is the 5th or 6th condo I have found in just one complex in Richmond to have taken a loss.

Actually did pretty well compared to some of the others and I’m surprised they managed to get 840 out of someone.

Paid 806k February 2015

Sold 840k November 2017

And so just like the other people in the complex and a lot of my Richmond condo cases in general,they are multi year holds with nothing to show for the investment but all you hear is condos are going crazy.

If this condo was in Coal Harbour then they could have possibly bagged 3/4 hundred k profit with the current euphoria in some parts, but it’s not ,its in Richmond and they are probably just lucky that they either didn’t have deep enough pockets or the realtors couldn’t convince them to buy the 3 million luxury condominiums out there that a few people got stuck with.

There are people better on the blog that are better at breaking it down but I will go with a 25k loss after expenses,could be more with opportunities lost in the meantime but this is just meant to ballpark it to give a rough guide.

As I stated once before I just club things on the head like a Neanderthal and drag it back to the cave for the tribe to chew on…

M43BC

Sold on September 18
6011-5511 HOLLYBRIDGE WAY ,RICHMOND. Paid 806 asking 860

https://www.zolo.ca/richmond-real-estate/5511-hollybridge-way/6011

https://evaluebc.bcassessment.ca/property.aspx?_oa=RDAwMDBOQjRWQg==

#63 Gentle ,Loving Kindness on 11.26.17 at 1:48 am

I find this to be the scariest risk .It is ALWAYS legal for President Trump to order a nuclear strike whenever he wants against whoever he wants. The time from the order to strike to missiles in the air, would be minutes. Subs, silos and bombers are always on standby, waiting for the order. Congress could not, nor generals, intervene in time. Gwynne Dyer is one of the most respected political analysts in the world.

https://www.thespec.com/opinion-story/7960212-dyer-u-s-president-could-order-a-nuclear-strike/

#64 att on 11.26.17 at 7:57 am

For every financial advisor who predicts a bull market you can find another who predicts a bear market. Only one will be right. Rebalancing a diversified portfolio is supposed to make us immune from this kind of noise. At least that’s what your boss said.

#65 NoName on 11.26.17 at 9:21 am

#59 Gentle ,Loving Kindness on 11.26.17 at 1:48 am

I find this to be the scariest risk .It is ALWAYS legal for President Trump to order a nuclear strike whenever he wants against whoever he wants. The time from the order to strike to missiles in the air, would be minutes. Subs, silos and bombers are always on standby, waiting for the order. Congress could not, nor generals, intervene in time. Gwynne Dyer is one of the most respected political analysts in the world.

https://www.thespec.com/opinion-story/7960212-dyer-u-s-president-could-order-a-nuclear-strike/

Funy that you worry about that, but no mention that former and present day komunist have lot more nuckies pointed our way at any given time.

All time unhinged nuke button pusher is KJU, followed closely by Kruschev and Kennedy. During cuban crisis there were 1 in 3 chances that one of the parties (russia) would use big kaboom. this what we have today is nothing…

now go and practice duck and cover.
https://www.youtube.com/watch?v=q899D06W53k

#66 Ryan Lewenza on 11.26.17 at 9:25 am

Mike from mtl “It went from 20% to 18% now 15% in the span of one year? What gives? Expect BoC to cut again? NAFTA being broken, Oil falling, bank meltdown, I can see so very likely as well.”

Yes we’ve recently trimmed back our pref weight a bit and that’s just because they’ve rallied so much over the last year and half and the dividend spread has compressed. Last year the spread over government bonds was one of the largest since the financial crisis and with the rally it’s narrowed considerably. So we trimmed into the strength but we still have a good 15% weight since we see rates moving higher. – Ryan L

#67 crowdedelevatorfartz on 11.26.17 at 9:34 am

@ Floppie

Wow.
More and more sales at “breakeven” or a loss.
The pink mist is being replaced by a pink flood.
$840k for a condo in Richmond….God bless greaterfools.
2018 could be a Pink Tsunami

#68 Ryan Lewenza on 11.26.17 at 9:36 am

BS “The Fed Model graph shows stocks were attractive in the 70’s, unattractive in the 80’s and 90’s and then attractive from the early 2000s on. The 2000’s have been a mixed bag otherwise the opposite has occurred. Time to throw that model out.”

That’s exactly right for the 70s through 90s. Bond yields rose to 18% in early 1980s then fell consistently over the next two decades. That was a great time for bond returns since you were getting high coupons then price appreciation through the higher bond pries (prices move inversely with IRs). If you bought a long-term US government bond in the early 1980s and held it through the 1990s you made a killing. Now you also made a killing holding stocks during the 1980s and 1990s which is why that period was so great for balanced portfolio investors. Yes the 2000s were more of a “mixed bag” with US stocks flat through the 2000s and bonds outperforming which is why you never just use one model. We include technical analysis into our calls and positioning and using this you would have underweighted US and overweighted Canada. – Ryan L

#69 Ryan Lewenza on 11.26.17 at 9:57 am

Big Daddy “Disagree that the US is in the ninth year of expansion. A bull market only started on Nov 8 , 2016 when Trump was elected and since then profits have induced an expansion. Prior to that we only had Obama splashing the balance sheet with trillions in new debt and massive govt hirings through proxy carpet baggers….not a genuine broad based expansion.”

The unemployment rate dropped from 10% to 4.7% and the S&P 500 rallied over 250% under President Obama. That’s a pretty good measure of success in my books. I agree debt doubled under Obama but it also doubled under President Bush to pay for his unfunded tax cuts and war. Now we have Trump and deficits and debt are going to rise even further in part because of these huge tax cuts that will not be paid for from higher economic growth. It’s fine if you don’t like Obama and believe his was a poor President (I definitely don’t) but you have to also acknowledge the Republicans have a terrible track record with US deficits and debt. There’s lots of blame on both sides. With respect to your view that Trump’s policies are going to save the US and bring in a whole new era of growth and prosperity, well I’m doubtful (over the long-term) so we’ll just have to see how this plays out. The question then is will you be able to recognize you were wrong if his polices/direction don’t create the recovery you currently envision. I know I’ll be able to say I was wrong if in 3 or 8 years from now the US is back to it’s old days of huge growth, low taxes and lower debt levels. – Ryan L

#70 crowdedelevatorfartz on 11.26.17 at 10:11 am

You know its “over” when the “flippers” are fleeing BACK to China………

https://www.google.ca/url?url=https://thinkpol.ca/2017/09/27/tech-investors-in-us-canada-scammed-out-of-millions-as-ponzi-operator-flees-back-to-china/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjLwPXtwdzXAhVLslQKHWEdA64QFggZMAE&usg=AOvVaw3lcnZIi2savPN1dqtH-JjV

#71 Gravy Train on 11.26.17 at 10:50 am

#69 Ryan Lewenza on 11.26.17 at 9:57 am
Excellent reply, Ryan. I was about to step into the fray, but you saved me the trouble!

I’m always amazed that some investors can make investment decisions based solely on ideology, intuition, and instinct, without looking at facts, evidence, publicly-available economic statistics and indices, and using critical thinking skills.

#72 Capt. Serious on 11.26.17 at 11:00 am

Wow, the Fed model seems horrible. Early 1980s were the best time to invest in equities for two generations. Of course the PE10 was less than 10, something we can only dream of now. And people had just gone through the 1970s when equity returns sucked. Which is a long winded way of saying when prices are low and confidence low, future returns are high. I’d argue we have the opposite situations today, and equity returns are likely to be low over the 10-20 cycle we care about for long term investing. The Gordon equation more or less tells us this. Save more kids.

#73 Spectacle on 11.26.17 at 11:43 am

Re::
” #23 Smoking Man on 11.25.17 at 6:17 pm
Surviaval of humanity boils down to 3 things.

1 Water
2 Food
3 Getting off.

Everything else in between is an attempt to get more of 1 2 or 3.

Dr Smoking Man
PhD Herdonomics

Put it on the fridge. “”
———————- actually….
The actuality is that important “space between”: Fear, and the avoidance of the plethora of personal Fears.
It drives investing as much as everything else we decide on in life.

For example, the new mongering about climate change/global warming ( or even real estate FOMO) to control the (fear) decisions of the sheeple.

Interesting that FOMO, or Fear of Missing Out is much used ploy to flog mold saturated drywall boxes!

Thoughts smokey?

#74 Gentle ,Loving Kindness on 11.26.17 at 11:52 am

#65 NoName
I remember those times well. They were also scary times. But humanity survived because there were adults in control. People that would take council from their generals and intelligence agencies. To-day, the POTUS, is a man who takes council from no –one, is easily angered, and has an ego that must win arguments at all costs. The current command chain to strike is the POTUS only, there is no legal way for an adult to intervene. That was my point.

#75 Spectacle on 11.26.17 at 11:54 am

Excellent exposure of Christi Clarke support of damming corruption, ponzi scamms crowded elevator…

Here are some additional organic gas Clarke should try to sponsor::

World’s Biggest Fart – The Hippo – YouTube
YouTube‎ · ‎curiositytube

Note:: this is for entertainment value only, not intended to solicit investment or support for the deeply corrupt BC gov and or ongoing initiatives!

#76 westcdn on 11.26.17 at 11:57 am

When I began to save and invest in 1978 with my first solid professional job there were few savings vehicles to choose. Brokerage fees were $200 per trade. Mutual funds were the only game in town for me for equities. They even paid me my annual dividends but that was gone by 1987. I choose the DSC plans within my RRSP. I became fee sensitive when mutual fund dividends disappeared. I became very MER aware.

I don’t think I was ever overpaid during my working career. I estimate only $2M of employment income during my 40 years. It was tough to save 5% but I got help. My employer had an employee savings plan that would match my salary contributions up to 5% and was fully invested with me after 1 year. I could not believe the number of people in the company that didn’t use the plan.

So by late 1987, I had $30,000 saved in my RRSP and company saving plans. Then things started to get interesting. My X inherited $30,000 which we put into government strip bonds maturing in 5 years. Mortgage rates were falling like a stone and I maintained my monthly payments as I was used of it. House was paid off in 10 years. We then bought a rental property and sold for a good profit in 1996.

In 1993, the stripped bonds were maturing and the DSC were zero on my mutual funds. Then came the internet and a cold call from a bank investment advisor. I was excited to have a 24.4 K modem and opened self- directed investment accounts. Brokerage fees dropped to $30 per trade and soon to drop further. I took the cash from the stripped bonds and mutual funds and began buying shares. I managed to miss the dot com bubble and have never looked back despite making mistakes although 2008 was a watershed experience for me. It cost me a lot. My former guy in the basement like to tease me that my X had aligned with a multi-millionaire – oh well, good for her.

Now come blockchain and cryptocurrencies. I just haven’t decided how to play the game but there are opportunities. Do I regret not buying bitcoin at $3,000? Yes but the story of blockchain technology is only beginning.

https://blackswanalert.com/2017/11/26/freeing-hamstrung-commodities-traders-with-blockchain/

Some say Artificial Intelligence is a threat. So are nuclear bombs. Pick your poison.

#77 Russ on 11.26.17 at 11:59 am

Newcomer on 11.26.17 at 12:01 am

Krugman is, first and foremost, a professional entertainer. He is also a party Hack. He said similar things when Bush was elected. As for his Nobel Prize, keep in mind that Bob Dylan got one for literature and Obama got one for peace, before he had served a day in office.
=================================

The Nobel Peace needed to be rushed to Obama and awarded before he took the country to war in the Middle-East…

#78 Ace Goodheart on 11.26.17 at 12:18 pm

Raise the debt ceiling. What is the point of having a ceiling, if it is raised on a whim? The single biggest problem in modern economics is the ability of governments to borrow at will against the value of fiat currencies.

It becomes a cycle. Borrow off the value of the currency, inflate the price of everything, transfer the wealth into the hands of a very small group of people, and then tax it all back to the middle class through income taxes.

We have hundreds of millions of people essentially being stolen from, because the value system they use to receive payment for their work and purchase necessary items, is rigged.

When governments took over currencies and made them “legal tender” they took away the autonomy and freedom of the individual person. All of a sudden, everyone had to have a career, a full time job, you were supposed to be in debt for your entire life, with “retirement” being the only time you would actually own all your stuff.

The more billions and billions that they put against fiat currencies, the less they are worth.

There is an interesting situation going on right now, where if one looks at the rather meteoric rise of “bitcoin” and compares it to the US national debt clock, a chilling similarity arises. This weird crypto coin is increasing in value roughly in step with the addition of debt to the US national total. As the US government borrows against its national fiat currency, this odd little internet invention appears to gain value.

We haven’t actually had a “meter” to gauge what governments do to our savings (other than to watch what happens occasionally down in South America when another Latin American country has a currency crisis) until the advent of the crypto-currency world. Now we do. We have an internet currency, which has a finite pre determined number of units, and which a government cannot borrow against the value of. Watching what happens with this crypto coin in relation to global fiat currencies is shocking.

It appears that we need to basically ban government deficit financing. They should be required to balance the books at the end of the year. Otherwise, we appear to be in trouble. Unless of course you purchased a thousand or so bitcoins back in 2009. In which case you are not really in all that much trouble…..

#79 Spectacle on 11.26.17 at 12:47 pm

Not to worry, Stay Calm, Shop On.

” Gentle ,Loving Kindness on 11.26.17 at 1:48 am
I find this to be the scariest risk .It is ALWAYS legal for President Trump to order a nuclear strike whenever he wants against whoever he wants. The time from the order to strike to missiles in the air, would be minutes.

……most respected political analysts in the world.”

https://www.thespec.com/opinion-story/7960212-dyer-u-s-president-could-order-a-nuclear-strike/

I can understand GLC. I grew up in kindergarten learning how to duck for cover under a child’s school desk in the event of a Total Nuclear Inferno . While my global citizens and even my parents , all friend to drumsticks , I however miraculously might survive Armagedon. As a bonus, teachers and films showed me how I could put myself out, should I burst into flames under the desk. Simply rap myself in a blanket , tuck, and roll. Have a nice snack and a nap! It’s a beautiful worl after all…

10 Chinese companies do business with North Korea to the tune of $12 Billion dollars a year. China has diplomatic influence , and no matter what Fears the controlling governments play us with, it’s not going to happen like that. Follow the money, money is safety, money is security; at least in this case.

#80 Mark on 11.26.17 at 12:49 pm

Excellent post Ryan, really appreciate the explanation of your macro analysis.

If you’re thinking a bear market sometime in 2019, what are you factoring in for the probability of a subsequent recessionary period? I’m wondering how would that affect your strategy?

#81 Lost...but not leased on 11.26.17 at 1:11 pm

# 62 For those about to flop

Those Hollybridge condos look like they are part of the Richmond Oval area. Recall the developer ASPAC paid premium of over $140 million.

They were quite pricey and I recall very high strata fees.

Your data seems to indicate that buyers are armed with information and bidding wars are passe’.

One anomaly is from realtor Steve Saretzky on his recent video. Apparently a realtor in the valley is creating bidding wars for pre-sales!?

#82 Wrk.dover on 11.26.17 at 1:39 pm

#23 Smoking Man on 11.25.17 at 6:17 pm
Surviaval of humanity boils down to 3 things.

1 Water….

————————————

They conveniently put a little bag in aircraft seat back pockets for when you look out the window at altitude taking in the view of Lake Ontario with its multi-hue colours originating from the millions of homes, cars and trucks on its watershed to the north, and realise that during your stay, you had bathed in that and brushed your teeth with it and maybe even swallowed some of it!

Lake Ontario is not your grandfathers lake, how much worse will it get during a 30 year condo mortgage?

That’s a lot of dog walks draining in there too!

What do you want from life? Just money?

#83 jess on 11.26.17 at 1:43 pm

Time IS money and apparently energy

but ….coal to diesel?
But for each tonne of the liquid, six and a half tonnes of water must be piped from an aquifer more than 70 kilometres away and more than three tonnes of carbon dioxide are released into the air. These are major concerns for a country that is already desperately short of water and increasingly criticised as the world’s biggest emitter of greenhouse gases.
https://www.theguardian.com/environment/2009/nov/15/china-coal-industry-mongolia-shaanxi
====================================

the ghost town ordos inner mongolia ….bitmain 39k/mo to run the machines
6m.tera hashes/sec
coal-powered energy, electricity-hungry bitcoin operation
Located in a decaying industrial park on the outskirts of town, the mine employs about 50 and consists of eight single-story, warehouse-like buildings, each 150 meters (492 feet) long. Seven of them host 21,000 machines that, together, represent nearly 4% of the processing power in the global bitcoin network. The other hosts 4,000 machines dedicated to litecoin, an alternative digital currency that’s been rising in price in recent months.
https://qz.com/1137683/the-paradise-papers-suggest-chinese-tech-billionaire-lei-jun-is-connected-to-the-worlds-biggest-bitcoin-miner/
================
https://motherboard.vice.com/en_us/article/ywbbpm/bitcoin-mining-electricity-consumption-ethereum-energy-climate-change
https://motherboard.vice.com/en_us/article/ypkp3y/bitcoin-is-still-unsustainable
Do most transactions actually need to bypass trusted third parties like banks and credit card companies, which can operate much more efficiently than Bitcoin’s decentralized network?
https://qz.com/1055126/photos-china-has-one-of-worlds-largest-bitcoin-mines/

#84 NoName on 11.26.17 at 1:55 pm

#74 Gentle ,Loving Kindness on 11.26.17 at 11:52 am
#65 NoName
I remember those times well. They were also scary times. But humanity survived because there were adults in control. People that would take council from their generals and intelligence agencies. To-day, the POTUS, is a man who takes council from no –one, is easily angered, and has an ego that must win arguments at all costs. The current command chain to strike is the POTUS only, there is no legal way for an adult to intervene. That was my point.

just imagine HRK instead of DJT.
https://twitter.com/wikileaks/status/782906224937410562

#85 Technical analysis? on 11.26.17 at 1:59 pm

All this is a waste of time when a weekly moving average crossover system will get you in and out when needed.

#86 espressobob on 11.26.17 at 2:04 pm

Investment analysis & portfolio management is for those in the business. So why a 60/40 spread between equity & fixed?

Fundamentals may seem right in hindsight even though the herd has other ideas.

Diversification, rebalancing and a contrarian approach has been working well, even before the GFC.

#87 earthboundmisfit on 11.26.17 at 2:17 pm

Iwas great at math. Then Satan introduced the alphabet.

#88 Blacksheep on 11.26.17 at 2:24 pm

Flop # any,

“The details…

Paid 1.32 July 2016

Sold 1.31 August 2017”
——————————-
Solid, simple, reporting format Flop.

Thank you.

#89 Gravy Train on 11.26.17 at 3:56 pm

#85 Technical analysis? on 11.26.17 at 1:59 pm
“All this is a waste of time when a weekly moving average crossover system will get you in and out when needed.”

Just out of curiosity, when stock prices fall below your weekly moving-average crossover system, do you buy or sell? And how much? All of it? :)

(You’re not a long-term investor, are you?)

#90 TurnerNation on 11.26.17 at 4:20 pm

#38 Loonie Doctor interesting. Ironically the people I see most which need charity – the five beggars or so I pass on the street each day – do not want help with food, water or shelter. They want just money for drugs.

They loll on the sidewalks like on Bay St. outside the prestigious and stuffy National Club. Perhaps one might temp to prod them into action with a cowboy-booted ‘nudge’ but…
Also they infest downtown TTC subway stations and nearby.

I want to yell at them, stand up man! Only animals lie and bay on the ground as they do.

#91 JAMES ANDREW on 11.27.17 at 7:51 am

DELETED