We the North

DOUG  By Guest Blogger Doug Rowat

Trudeau (the original, not the sad-sack current) once said that living next to the US was like sleeping with an elephant: “No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt.”

Similarly, our equity market does just fine if the elephant is happy and sleeps quietly but, of course, gets crushed if the elephant is miserable and restless. It’s also hard to win a fight with an elephant. Our main equity market has a collective market cap of only C$2.5 trillion versus the S&P 500 at US$24.2 trillion, so our odds of outperforming longer term are low. Indeed, over the past 30 years, the S&P 500 has generated a 10.2% annualized total return versus only a 7.3% total return for the S&P/TSX Composite. Over 30 years, this amounts to a cumulative outperformance of more than 1,000%.

However, every so often, an opportunity presents itself where the likelihood of our market outperforming increases. We believe we’re at such an inflection point, which is why we maintain a modest overweight to the Canadian equity market versus the US.

One of the tools that we employ with respect to our active portfolio management is relative strength analysis. Relative strength is a straightforward concept: it’s one market level divided by another. And by plotting this ratio out over time we can visually see trends developing with regards to outperformance and underperformance.

No market underperforms forever, so one thing we look for are potential relative strength ‘bottoms’. The S&P/TSX Composite has underperformed the S&P 500 now for the better part of eight years and a bottom is forming. In other words, it may have gotten as bad as it’s going to get for the Canadian market. It’s worth noting also that the last time the Canadian market underperformed for this long—during the 1990s—the WTI oil price averaged only US$20/bbl, at times dipping below US$11/bbl.

S&P/TSX Composite vs S&P 500 – A relative strength ‘bottom’ for TSX

Source: Bloomberg, 30-year monthly chart

In addition to bottoms, we also look for relative strength breakouts. This occurs when a well-established downtrend is broken to the upside. Such breaks often signal a trend reversal. Why? Because a broken trendline often indicates that market sentiment has shifted or that core fundamentals have changed. Ideally, we’d like a cleaner break of the downtrend, but nevertheless, the lengthy relative strength downtrend for the Canadian equity market has been broken to the upside—another positive signal for the Canadian market:

S&P/TSX Composite versus S&P 500 – A relative strength breakout for the TSX

Source: Bloomberg, 30-year monthly chart

In addition to relative strength analysis, we also consider valuations. And on most metrics the Canadian market is inexpensive relative to the US. As an example, the below chart compares the price-to-book (P/B) ratio between the two markets. Canada’s P/B discount to the US is currently DOUBLE its historical average.

Canada’s price-to-book discount to the US continues to widen – now double its 10-year average

Source: Bloomberg. White line = S&P/TSX Composite P/B, orange line = S&P 500, yellow line = differential, white line (lower chart) = average differential

Finally, we don’t only provide our clients with exposure to the S&P/TSX Composite, we also place an emphasis on other areas including, for example, a substantial weight to pure Canadian REITs. Canadian REITs have handily outperformed the S&P 500 over the long term:

Bloomberg Canadian REIT Index (white line) versus S&P 500 (orange) – 20 years

Source: Bloomberg

So, a combination of all of the above gives us conviction that our Canadian equity holdings are likely to outperform the US equity market over at least the next 12–18 months, hence our overweight position.

However, this is only a forecast and part of the art of portfolio management is to never make absolute wagers—exiting the US equity market entirely, for example. Such strategies are reckless. While we favour Canada, we still have a meaningful weight to the US because our forecast could easily be wrong. Further, as the earlier performance numbers suggest, it usually doesn’t pay to bet against the US market for long.

If you’re sleeping next to an elephant, you always have to keep one eye open.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

 

81 comments ↓

#1 BlogDog123 on 03.09.19 at 12:51 pm

Thanks for the analysis, Doug.

How about emerging markets?…

#2 DON on 03.09.19 at 1:38 pm

This elephant seems to have a little indigestion and is closer to taxing home owners.

“It was a black Friday for Chinese exporters, stock investors and homeowners, with a series of negative official figures released on the same day.

China’s General Administration of Customs said exports were down by a fifth in February year on year as the trade war with the United States took its toll on the world’s second-biggest economy.

China’s stock market also had its worst day in five months on Friday, with the benchmark Shanghai composite stock index shedding 4.4 per cent. Investor sentiment remains fragile, indicating that optimistic forecasts of a sustained bull market may be premature.

In addition, China’s top lawmaker, Li Zhanshu, told a National People’s Congress session on Friday afternoon that the legislature was considering a law that could for the first time authorise the government to collect taxes from homeowners.”

https://www.scmp.com/economy/china-economy/article/2189290/black-friday-china-exports-shrink-stocks-plunge-and-homeowners

Thanks for the analysis Ryan and especially the disclaimer at then end. Cheers,

Enjoy the rest of the weekend.

#3 winnie on 03.09.19 at 1:48 pm

REIT of choice?

#4 DON on 03.09.19 at 1:51 pm

@Crowded

I had a similar experience in the Hudson’s Bay (downtown van). I was dressed business casual and just happened to be on lunch waiting for a friend in the furniture area. A couple walked up to me and starting inquiring about the coffee table behind us. They didn’t even ask if I worked there, so I started telling them about table (wood type etc etc) and then the sales lady who had notice walked up and took over, the look on their faces was priceless. Meanwhile my friend is howling in the background, but I did loose a sale to the Nice lady at the Bay. At least it wasn’t an potty break and I was apologized to.

#5 jess on 03.09.19 at 2:21 pm

https://uk.reuters.com/article/uk-europe-moneylaundering-factbox/factbox-european-banks-hit-by-russian-money-laundering-scandal-idUKKCN1QP1MW

#6 n1tro on 03.09.19 at 3:07 pm

#76 Vision on 03.08.19 at 9:15 pm
#73 Millennial Realist on 03.08.19 at 9:02 am
Anyone who must reference slavery has lost the argument. Better luck next life. – Garth

——————
Question: If I am a white female, can I play the victim card or am I part of the problem?
++±++±++++++++++±++++++
Victim if compared to a minority woman.

Ex. Quinn Norton fired from job at NY Times over some racist tweets (forwarding?) against blacks while Sarah Jeong is absolved by the same NY Times of racist comments towards old white men like the one below

https://www.ccn.com/wp-content/uploads/2019/03/sarah-jeong-racist.jpg

Apparently if you use the excuse that you were just responding to trolls by using the same vitriol it is ok.

https://www.bbc.com/news/world-us-canada-45052534

#7 Johnny D on 03.09.19 at 3:14 pm

But Doug, what of our energy industry? With little pipeline capacity and now Enbridge Line 3 tied up longer and probably gonna get torpedoed by Minnesota, our oil producers are cutting back further expansion… This also ties into the problem that activists, both local and foreign, seem to have more control over our economy than our own government. At what point does your optimism fall to the growing amount of negative news surrounding the Canadian economy?

#8 Penny Henny on 03.09.19 at 3:36 pm

Rememberancer net worth calculator math.
You have $500,000 cash on Monday and your net worth is $500,000.

On Wednesday you take your $500,000 cash and use it as a down payment on a $1 million house your net worth is now zero. Zero you say?

Well yes says Rememberancer, you have $500,000 equity but the $500,000 mortgage cancels out the equity.

Rememberancer knows what math is but he is kinda mixed up on what ‘net worth’ means.

#9 Doug Rowat on 03.09.19 at 3:40 pm

#7 Johnny D on 03.09.19 at 3:14 pm

But Doug, what of our energy industry? With little pipeline capacity and now Enbridge Line 3 tied up longer and probably gonna get torpedoed by Minnesota, our oil producers are cutting back further expansion… This also ties into the problem that activists, both local and foreign, seem to have more control over our economy than our own government. At what point does your optimism fall to the growing amount of negative news surrounding the Canadian economy?

—-

We’re 10 years into the current bull market. At some point in early 2009, during some brutally negative news cycles, investors started to take a chance on equities.

A positive thesis can’t be perfectly airtight and without risk, and waiting for such means that you’ll never buy on weakness or rotate from an outperformer to an underperformer.

Besides, I explained that it’s a modest overweight.

—Doug

#10 Doug Rowat on 03.09.19 at 3:48 pm

#1 BlogDog123 on 03.09.19 at 12:51 pm

Thanks for the analysis, Doug.

How about emerging markets?…

A similar thesis:

https://www.greaterfool.ca/?s=plant+a+tree

–Doug

#11 PBrasseur on 03.09.19 at 3:52 pm

I disagree, the market anticipates bad things for socialist Canada, that explains the difference.

I believe the market is right, not you.

#12 jess on 03.09.19 at 3:55 pm

Aqueduct’s global water risk mapping tool helps companies, investors, governments, and other users understand where and how water risks and opportunities are emerging worldwide.

https://www.wri.org/our-work/project/aqueduct/

==============

Investors were told the funds – and therefore risk – would be spread across hundreds of companies but, according to Companies House records, LCF loaned money to 12 – four of which have never filed accounts, nine are fewer than three years old, and nine had loans from LCF in 2017.

Much of the cash was loaned to companies that then “sub loaned” to others. Bondholders have raised concerns about connections between the directors of companies that received money and those who ran LCF.

LCF paid an agent, Brighton-based Surge PLC, 25% commission – which amounted to £60m – to run the marketing campaign.

A series of web adverts promising 8% returns from secure ISAs were released and in addition a comparison website – run by a company with links to Surge – would compare the 1% and 2% return ISAs from high street banks with the investments at LCF.

LCF was authorised by regulator the Financial Conduct Authority (FCA) – but the FCA said the authorisation was to provide consumer financial advice, not the sale of bonds or ISAs.

The FCA subsequently ordered the advertisements should stop running.

London Capital & Finance: £236m firm collapses
By Tom Palmer BBC News Online

#13 AK on 03.09.19 at 3:59 pm

“Trudeau (the original, not the sad-sack current)”
=====================================
Indeed. The market has started to price in his exodus from politics. Good riddance.

No it hasn’t. – Garth

#14 Remembrancer on 03.09.19 at 4:34 pm

#9 Penny Henny on 03.09.19 at 3:36 pm
Rememberancer net worth calculator math.
You have $500,000 cash on Monday and your net worth is $500,000.

On Wednesday you take your $500,000 cash and use it as a down payment on a $1 million house your net worth is now zero. Zero you say?

Well yes says Rememberancer, you have $500,000 equity but the $500,000 mortgage cancels out the equity.

Rememberancer knows what math is but he is kinda mixed up on what ‘net worth’ means.
———————————————————–
Oh snap! You got me. I’d better go back to Accounting 101 class…

Wait a minute, had a thought. Hey Google: Define Net Worth

“In accounting, net worth is defined as assets minus liabilities. Essentially, it is a measure of what an entity is worth. For an individual, it represents the properties owned, less any debt the person has. For a company, net worth is the value of the company.”

Well damn. In your scenario, it seems like taking on $500K of debt zeros out your $500K of equity and your net worth is $0.

Now, if you used that $500K to buy a $500K house then hell ya, you have $500K of equity, though perhaps less liquid and it’ll cost you 4.5%-ish to get your $477.5K back (minus the land transfer and legal costs on the way in and legal costs on the way out etc etc).

So, to summarize:
Mon: net worth $500K
Wed: net worth $0

Garth, great blog, do you track how many read your articles before going straight to comments, like a time on page metric?

#15 Shawn Allen on 03.09.19 at 4:35 pm

Thank you for the answer on GST

HST is applicable to advisory fees. – Garth

**************************************
Thank you, that seems fair.

What might not be fair is the lack of GST on a lot of financial services but that is a whole ‘nother complex matter.

Being in Alberta I sometimes forget about HST.

The different tax rates across the country make for quite a bit of work in tracking that and then filing in 10 provinces.

Many national firms must also pay income tax in 10 provinces. It’s work. Drives up costs. Than goodness for software.

#16 Popeye The Sailor Man on 03.09.19 at 4:40 pm

As the years of work left get shorter, and the term life and work death benefit exceed my remaining gross pay left.

I ALSO SLEEP WITH ONE EYE OPEN!

#17 Shawn Allen on 03.09.19 at 4:45 pm

Why Have 10 Provinces?

Off -topic but I just mentioned the issue of collecting sales tax in 10 provinces (plus territories) and paying income tax in 10 as well. Costly!

What say we change the constitution and abolish provinces and just have Canada? One for all and all for one!

Think of the cost savings!

The provinces are an accident of history. Especially, the runty ones like my native Nova Scotia.

Alberta of course was merely carved out of the North West Territories and gifted province status by the rest of Canada. Few will be aware that it was not until 25 years or so after the 1905 creation of Alberta that it was given the rights to resource revenue. Similar for Saskatchewan and Manitoba. I don’t think any of those three ever had colony status before being made into provinces. That is, they never joined confederation like the other seven provinces actually did.

#18 Doug Rowat on 03.09.19 at 5:32 pm

#12 PBrasseur on 03.09.19 at 3:52 pm

I disagree, the market anticipates bad things for socialist Canada, that explains the difference.

I believe the market is right, not you.

The chart data is historical. Without an analysis of the charts, which you haven’t provided, the ‘market’ is literally telling you nothing about the future.

No one cares what you “believe”.

–Doug

#19 Penny Henny on 03.09.19 at 5:53 pm

#15 Remembrancer on 03.09.19 at 4:34 pm
#9 Penny Henny on 03.09.19 at 3:36 pm
Rememberancer net worth calculator math.
You have $500,000 cash on Monday and your net worth is $500,000.

On Wednesday you take your $500,000 cash and use it as a down payment on a $1 million house your net worth is now zero. Zero you say?

Well yes says Rememberancer, you have $500,000 equity but the $500,000 mortgage cancels out the equity.

Rememberancer knows what math is but he is kinda mixed up on what ‘net worth’ means.
———————————————————–
Oh snap! You got me. I’d better go back to Accounting 101 class…

Wait a minute, had a thought. Hey Google: Define Net Worth

“In accounting, net worth is defined as assets minus liabilities. Essentially, it is a measure of what an entity is worth. For an individual, it represents the properties owned, less any debt the person has. For a company, net worth is the value of the company.”
/////////////////

Asset= $1 million dollar house
Debt= $500,000 mortgage
Net Worth= $500,000 (less selling cost on house)

See! Easy peasy!

#20 PBrasseur on 03.09.19 at 5:57 pm

@Doug

Want to bet on Canada, knock yourself out buddy, I’ll pass!

What the market has been saying for years is I’m right.

#21 Proud Canadian and CAFE member on 03.09.19 at 6:10 pm

DELETED

#22 Need New Glasses on 03.09.19 at 6:10 pm

#19 Doug Rowat – At first glance I perceived the PM making that snarky comment.

#23 crowdedelevatorfartz on 03.09.19 at 6:38 pm

Another excellent analysis Doug.
Thanks for your info and your “free” time.

#24 JD on 03.09.19 at 6:44 pm

Off topic, but this is for the Omniscient for the most part. There are days (like yesterday) that I’m disheartened at the cruelty of some of the comments here and yet do not call it quits because, despite the often harsh (and at times quite disrespectful) tone of the Omniscient himself, I’m fully convinced that he cares for collective good, and that a lot of the words in the comments section stem from ignorance, desire for a few seconds of anonymous screentime and general complexity. On this last note, take a look at this to appreciate where complexity can take you:
https://www.psychologytoday.com/us/blog/animals-and-us/201903/should-self-driving-cars-spare-people-over-pets

#25 crowdedelevatorfartz on 03.09.19 at 6:47 pm

@#130 Don
“Yah replace him with someone that’s on their iPhone all day every day.”
+++++

ahahahahahaha. Good one.

But dont forget.
When you nuke the lazy, stupid, experienced Boomer…..you can hire a lazy , stupid, inexperienced Millenial at half the salary…..

Win!

#26 I remember ... on 03.09.19 at 6:53 pm

#4 DON on 03.09.19 at 1:51 pm
@Crowded

I had a similar experience in the Hudson’s Bay (downtown van).
————————————————————-

back in the good old day’s … people coming up to me with cash at the gas pump because they thought I was the gas jockey.

Better have another look at #22 Garth … it’s gotta go.

#27 espressobob on 03.09.19 at 6:54 pm

While I’m not a fan of the TSX composite I must admit holdings in a Canadian dividend ETF has provided a decent tax eficient yield flow, Reits on the other hand have been a sweetheart.

Still though, the TFSA as a growth oriented account is weighted by global market cap. This has proven quite profitable for some time. If something works why fix it?

#28 AlMac on 03.09.19 at 7:00 pm

Thanks for your analysis and views Doug. This is the kind of post I flag and review a year or so later. If the price of oil is range bound (perhaps you see some upward moves from the lower end of the range), what other sectors do you see that will lift the Canuck index relative to the US?

#29 SW on 03.09.19 at 7:04 pm

Er…comment #22. You might be having a little joke but, please have a bit of decorum, dear.

#30 SW on 03.09.19 at 7:15 pm

Mr. Rowat, re trolls: I don’t know what to say. I invented the internet (along with a bunch of other people) and it seems to have made the world a worse place. Sigh.

Your article is excellent, as always. Thank you.

#31 millmech on 03.09.19 at 7:21 pm

Garth
#22 needs to be removed

Now deleted. My apologies for it having been accidentally published. Now you have a little more insight into what I routinely filter out. Yuck. – Garth

#32 n1tro on 03.09.19 at 7:32 pm

#22
Wow. Garth filter not turned on?? Hope people see what kind of abuse the GF authors goes through and why we are always at the brink of having the comments shut down.

Sadly it slipped through. I am sorry for the incursion. – Garth

#33 Doug Rowat on 03.09.19 at 7:34 pm

#21 PBrasseur on 03.09.19 at 5:57 pm
@Doug

Want to bet on Canada, knock yourself out buddy, I’ll pass!

What the market has been saying for years is I’m right.

The ‘market’ said Canada was the greatest thing during almost 10 years of the commodity boom, but the relative strength chart quite clearly showed a trend reversal starting in 2010-2011. The chart is suggesting a similar trend reversal now.

You provide zero evidence that the downtrend will continue. Do you believe no trend ever reverses?

And the “bet” on Canada is a modest overweight, nothing more.

–Doug

#34 tccontrarian on 03.09.19 at 7:40 pm

Good analysis Doug! Relative valuations between asset classes is always a sound way to gauge likely scenarios going forward. It’s a blend of probabilities and artful execution of buying/selling strategies to try to capitalize on the mispricings the often exist in the markets.
************

“So, a combination of all of the above gives us conviction that our Canadian equity holdings are likely to outperform the US equity market over at least the next 12–18 months, hence our overweight position.” D.R

Agreed! So you DO try to ‘time’ the market. Going from ‘underweight’ to ‘overweight’ IS a form of timing, isn’t it? It’s the only way to outperform the market IMO
***

“However, this is only a forecast and part of the art of portfolio management is to never make absolute wagers—exiting the US equity market entirely, for example. Such strategies are reckless. While we favour Canada, we still have a meaningful weight to the US because our forecast could easily be wrong. Further, as the earlier performance numbers suggest, it usually doesn’t pay to bet against the US market for long.” D.R
——
Hmmm…
Looks like you don’t trust your previous analysis. But you manage other people’s money and I don’t – so, I have more liberties to ‘bet’ against the US market (for 12-18 months).

Also, Emerging markets are way undervalued compared to US markets – and historically, valuations regress towards the mean. I have “zero” exposure to US markets (other than a small short position in ETF QQQ), and significant exposure to other markets (India, Turkey, Russia,… etc).

TCC

#35 Ray on 03.09.19 at 7:45 pm

#22
I assume you are First Nations heritage. I’m Irish,my wife is from Scotland.

#36 Nonplused on 03.09.19 at 7:49 pm

“If you’re sleeping next to an elephant, you always have to keep one eye open.”

Helpful tip boys: never, ever say that to your wife.

——————

The TSX will always under perform the S&P because the truly ground breaking companies like Apple or Microsoft end up on the S&P. Canada is a country of oil men, miners, fishermen, farmers and loggers. While resources are vital to the world economy, they are not as high value add as innovation and manufacturing.

Oh sure some dreamers like Nutely and Turdeau think “no problem, we’ll just become innovators”. Not too likely, we just don’t have the scale. The US has 10 times as many scientists and engineers as Canada does, and when we do develop some good ones they get a TN Visa and head south. It’s always been that way, and it always will be.

I read an article some time back comparing wealth to population density and wouldn’t you know it the money is always found in the largest cities. Why is this? The article concluded it was because putting all the minds in one place allowed for greater collaboration and thus innovation. Thus, there will never be a technical revolution occurring in rural Alberta. Even though a lot of smart people came from rural Alberta many of them are living in Houston now, enjoying better salaries, lower taxes, and cheaper housing.

To see how it all works you just need to read about the Avro Arrow. Canada simply doesn’t have the scale to stay at the forefront of technology or retain the scientists and engineers who are. Not anymore. Unfortunately, the brightest people are also usually the most mobile. They have to be.

It’s not like anything smart never came out of Canada, we get credit for Kerosene and the smart phone for example. But who still has a Blackberry? I don’t think I know anyone.

#37 Remembrancer on 03.09.19 at 7:51 pm

#31 SW on 03.09.19 at 7:15 pm
Mr. Rowat, re trolls: I don’t know what to say. I invented the internet (along with a bunch of other people) and it seems to have made the world a worse place. Sigh.
——————————————————
Technology is merely an enhancer, the same way a sharp pointy stick evolved to a Barrett 50 Cal sniper rifle, town cranks on speaker’s podiums and whiney or offensive letters to the editor evolved to blog commenters – same human nature at work. True, one worrisome aspect is the speed and ease that idiocy can congregate and self-reinforce as well as recruit the impressionable…

#38 Fairmont emp on 03.09.19 at 7:54 pm

#22
What the….. What is wrong with people?

Thanks Garth for all the monitoring you do all the time. Can’t believe the people that are out here. And we are suppose to be a friendly bunch of Canadians?!

#39 young & foolish on 03.09.19 at 8:05 pm

Proud Canadian and CAFE member (and nasty Anti-Semite!)

#40 young & foolish on 03.09.19 at 8:09 pm

Thanks Doug, I also appreciate the analysis … plus we get the dividend tax credit here when investing in our maple equities!

#41 espressobob on 03.09.19 at 8:10 pm

Hard to believe there is still primordial slime oozing up through the sewer grate posting a anti semetic rant. Individuals like this should have a cat scan to see if the grey matter between their ears exists.

I’m sure # 22s contents wouldn’t fill a thimble.

#42 Ustabe on 03.09.19 at 8:18 pm

Now deleted. My apologies for it having been accidentally published. Now you have a little more insight into what I routinely filter out. Yuck. – Garth

Never complain, never explain. Sometimes they aren’t intelligent enough to speak in code or use dog whistles and simply say the quiet parts out loud.

Just another example of why the current iteration of the CPC will not be forming a government anytime soon despite the Liberals seeming inability to stop shooting themselves in the foot. The feel they need that vote, eh?

#43 Ardy on 03.09.19 at 8:26 pm

Doug and/or Garth,

With the utmost respect, what is the incremental return between a static 60/40 portfolio VS. a dynamic weighting? I mean no disrespect, but does the weighting gambit justify the extra management costs.

While I don’t view this as timing the market, I am attempting to rationalize the active management side of things.

-RD

#44 DON on 03.09.19 at 8:31 pm

#33 n1tro on 03.09.19 at 7:32 pm

#22
Wow. Garth filter not turned on?? Hope people see what kind of abuse the GF authors goes through and why we are always at the brink of having the comments shut down.

Sadly it slipped through. I am sorry for the incursion. – Garth
*************

No need to apologize we are big boys and girls here, nevertheless Thank you for putting up with the crap.

If you ever need a moderator, i work for investment and marriage advice.

#45 DON on 03.09.19 at 8:33 pm

Got it wrong is my first post Doug (not Ryan).

Have a good weekend. Thanks for the free analysis and thoughts.

#46 Doug Rowat on 03.09.19 at 8:35 pm

#35 tccontrarian on 03.09.19 at 7:40 pm

“So, a combination of all of the above gives us conviction that our Canadian equity holdings are likely to outperform the US equity market over at least the next 12–18 months, hence our overweight position.” D.R

Agreed! So you DO try to ‘time’ the market. Going from ‘underweight’ to ‘overweight’ IS a form of timing, isn’t it? It’s the only way to outperform the market IMO

Our clients wouldn’t pay us if we didn’t provide active management, but it’s more of a gradual tilting of the portfolio towards areas that we favour versus market timing.

And we always maintain balance–rarely, if ever, would we abandon an area of the market or an asset class entirely.

–Doug

#47 Smoking Man on 03.09.19 at 9:30 pm

T2 is that stupid. Identical messages of support.

http://warrenkinsella.com/2019/03/the-feminist-pmo-wouldnt-be-stupid-enough-to-use-female-liberal-mps-to-publish-personal-message-of-support-would-they/

#48 Rea Goldberg on 03.09.19 at 9:46 pm

Doug, I’d still pay you for non-active management. ;)

#49 Sail Away on 03.09.19 at 9:49 pm

Doug, I see you have faith in Canada’s continued real estate juggernaut.

Is Garth letting you overweight REITs under the “enough rope to hang yourself” strategy?

Let’s track the results…

#50 JWD on 03.09.19 at 10:42 pm

#37

Hits the nail on the head. Knowledge, innovation and funding. The US dominates. That said, the odd exception exists. Shopify. Have a look at that chart. Surprised it hasn’t been purchased by Amazon already.

The REITS chart is impressive. I’ll bet most people would never have guessed that one. 5-10% weighting

Great post Doug.

#51 David Driven on 03.09.19 at 11:05 pm

DELETED

#52 Bottoms_Up on 03.09.19 at 11:21 pm

#15 Remembrancer on 03.09.19 at 4:34 pm
—————————
Remind me to never take math lessons from you.

House is $1,000,000
Mortgage is $500,000

Therefore net worth is $500,000 (less closing costs)

#53 akashic record on 03.09.19 at 11:50 pm

#36 Ray on 03.09.19 at 7:45 pm

#22
I assume you are First Nations heritage.

What makes you assume that?

#54 One million is nothing on 03.09.19 at 11:51 pm

But Doug!

You’ve missed the point that the Canadian dollar, via most others, will be hitting new lows continually going forward. It’s the only thing that will keep most Canadians (and governments) out of bankruptcy court, when the domestic monetary expansion reverses. Historically if you buy assets priced in a depreciating local currency, while “cover your butt” is the appropriate expression to use. When everboby prices “assets”- real estate, mortgages, government debt, low productive employees, unneeded immigrants – the easiest way out of the mess is to depreciated the value of the economic counting units those items are priced in.

Being a CFA, I hope you’ve had the ocassion to read Edwin Lefevre book. One of the best lesson in it is “I make all my money by my sitting, not by my thinking” – You make the big money by getting on the right trend and riding it for a few years. Avoiding the Canadian Dollar as much as possible for a few years is a prime example.

https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator

#55 Al on 03.09.19 at 11:59 pm

Let us know in few years how this market timing worked out Ryan.

#56 Karlhungus on 03.10.19 at 12:03 am

Strange that you correlate future returns based on country market cap. Basically you are saying the larger the market cap the better chance for future returns when in reality, usually the small cap companies outperform

#57 Salutations Sally on 03.10.19 at 12:09 am

#13 Jess, thanks for sharing that map, re water mapping/risks, quite interesting!

#58 Dear blog people on 03.10.19 at 12:22 am

I’m looking for a large heloc and was wondering if anyone could recommend a place with the best rates or an advice on how to negotiate.
Thank you.

#59 BCWally on 03.10.19 at 12:41 am

Good post Doug, and yeah who can be sure of market direction right now?
I was just wondering…my mother who is a senior on fixed income complained of some large increases in food costs recently. I attributed that to a lousy Canadian dollar value although we got a boost this week with the jobs report.
Considering the seniors who populate the blog, is it possible to do a piece on what point the central bank would likely step in with a rate increase to defend the dollar?
With multiple reasons to raise rates (which would help the seniors and young adults in this nation a great deal, although with risk of recession and job loss for the juniors)
I’m curious on what point the central bank would consider the overly indebted “collateral damage”
Seems to me there is no easy way out to solid financial management in Canada.
It was your comment on the REIT’s that got me thinking about this, which of course did well with stalled interest rates.

#60 Russ on 03.10.19 at 1:04 am

hey Garth,

Will you email me the #22 comment?

Being on the other coast I often come in late and miss some of the interesting stuff

#61 Smoking Man on 03.10.19 at 1:21 am

I’ll be there. They want me to speak. I’m not a speaker , I’m a writer.

https://www.visitlaughlin.com/event/ufo-megacon-the-immersion-event/35643/

#62 Dolce Vita on 03.10.19 at 1:52 am

“…over the past 30 years, the S&P 500 has generated a 10.2% annualized total return.”

1969-2018, or near 50 years, the S&P 500 Compounded Annual Growth Rate (CAGR) was:

8.9%

Toronto RE CAGR same period, using an avg. price trendline from TREB avg. prices 1969-2018:

2.9%

Repeat of your idea:

Take avg. price of a Toronto home back in 1969, about $50,000, and invest that cash amount in the S&P 500 and compare to the 2018 avg. Toronto home price.

$50K investment from 1969 to 2018 at 8.9%:

S&P 500 = $2,130,665

Toronto RE = $787,300 (TREB avg. home price 2018)

S&P 500 investment yields 3X that of the home.

In the long term it’s a “no brainer” as some say, The Market (S&P 500) outperform’s Toronto real estate THREE times over.

The RUB is, you can live in a home in the meantime but not in the Ethereal Land of The Market.

#63 expat on 03.10.19 at 8:04 am

Judging by the number of people who poo poo Dougs Idea, I’d say its time to load up.

We know from history and fact that pigs get slaughtered. You folks have been hanging on to an old trade for awhile now.

FANG?
REITs?
QQQ?

Did you know at some point you have to get off the bus?

You know – cycles and all that.

What led the last bull doesn’t lead the next one
That sort of thing…

But it was a nice run wasn’t it?

Stay the the course they say….(Why do they say that? – So you can hold as they sell).

Trends break and new trends form.

TSX looks great from my perspective.
Commodities, biotech, Green Tech they will lead the next wave in my opinion…

#64 David Driven on 03.10.19 at 8:39 am

Now the the fog of war has dissipated somewhat and climate facist Obama isn’t spending billions on wacko propaganda, do you still seriously believe that any of that crap was true? Brainwashing millennials and other idiots did a lot of harm to people’s mental health.

https://wattsupwiththat.com/2019/03/09/stop-the-anti-climate-science-totalitarians/

Wake up, grow up, stop sucking the teat of carpet baggers like Gore and Obama….or the professional liars like Trudeau, Suzuki and Soros. Trump is going to apply a vlaw hammer to your head and wrench out the rotting spikes that have turned your life upside down …..God love him.

You are sick. Go away. – Garth

#65 David Driven on 03.10.19 at 9:37 am

DELETED

#66 Doug Rowat on 03.10.19 at 9:45 am

#50 Sail Away on 03.09.19 at 9:49 pm

Doug, I see you have faith in Canada’s continued real estate juggernaut.

Is Garth letting you overweight REITs under the “enough rope to hang yourself” strategy?

Let’s track the results…

Residential and commercial real estate are two very different beasts. And I’ve highlighted many times on this blog that Canadian REITs perform exceptionally well during periods of rising interest rates.

–Doug

#67 crowdedelevatorfartz on 03.10.19 at 9:48 am

Less than 3 weeks to go before “B” Day in England…

Still no deal in sight after the Prime Ministers endless, fruitless meetings and votes.

And after all is said and done what message will this send to any company considering set up shop of expanding their business in England?

“Amid the political chaos, many company chiefs are aghast at London’s handling of Brexit and say it has already damaged Britain’s reputation as Europe’s pre-eminent destination for foreign investment.

Will the London Financial district melt away to a friendlier , more politically stable location in the EU?
Easier said than done with the rise of Far Right extremist parties in France, Spain, Germany and nutjob Leftist loons in command in soon to be bankrupt Italy.

One wonders if England crashes out of the EU without a deal and the predicted ensuing “disaster” doesnt happen……?
Will the EU “experiment” be toast….?

Interesting times.

https://www.reuters.com/article/uk-britain-eu/brexit-in-peril-as-may-faces-heavy-defeat-idUSKBN1QR085

#68 Doug Rowat on 03.10.19 at 9:51 am

#57 Karlhungus on 03.10.19 at 12:03 am

Strange that you correlate future returns based on country market cap. Basically you are saying the larger the market cap the better chance for future returns when in reality, usually the small cap companies outperform

I was implying that the US is a more innovative country and has more profitable corporations.

And I was trying to continue with my elephant analogy, jeesh.

–Doug

#69 crowdedelevatorfartz on 03.10.19 at 9:52 am

A second brand new Boeing 737 Max has crashed shortly after takeoff.
The pilot reported similar issues with speed and control of the plane as did the Indonesian 737 Max crash last Fall.

https://www.reuters.com/article/us-ethiopia-airplane/ethiopian-airlines-flight-crashes-killing-157-aboard-boeing-737-idUSKBN1QR07V

#70 Analogy on 03.10.19 at 10:36 am

#68 Doug Rowat – The analogy is more than correct, and your narrative was well presented.

#71 Paul on 03.10.19 at 11:51 am

#14 AK on 03.09.19 at 3:59 pm
“Trudeau (the original, not the sad-sack current)”
=====================================
Indeed. The market has started to price in his exodus from politics. Good riddance.

No it hasn’t. – Garth
————————————————————————————————
Garth, aren’t you supposed to be off for the the day? Like the moth to the flame. Lol

#72 crossbordershopper on 03.10.19 at 11:52 am

canadians have local bias. they only know their back yard, understandable, but we are nothing compared to the usa, and other world markets.
sure canadian stocks have bounced a bit, off lows, still relatively cheap compared to others, great. who cares.
multinational oil companies are all leaving or already gone, high taxes ,high regulations, high real estate prices, labour issues with hiring etc in Ontario. and you get a slow growth socialist save the world country.
not one for growth, then you add in low fertility, and you need immigrants, old, rich , young and stupid, who cares, come to canada, and work at walmart with your masters in chemistry from india.
i have no idea why people come to canada, just go to america, save yourself a lot of time and trouble, and in terms of investing same thing,
after you get bored and tired of the junior resource stocks, no growth companies you will be attracted to the shinning light on the mountaintop.

#73 Remembrancer on 03.10.19 at 12:20 pm

#20 Penny Henny on 03.09.19 at 5:53 pm
#53 Bottoms_Up on 03.09.19 at 11:21 pm

Congratulations, I’ll acquiesce and heartedly recommend you both as this month’s winners in the greaterfool.ca sweepstakes and admit the following facts as immutable:

(all figures +/- assorted transaction costs of course)
Mon: $500K in cash, balanced 60/40 ETFs, whatever
Wed: $1M house w/ $500K mortgage + $500K equity

#74 TurnerNation on 03.10.19 at 12:34 pm

The Flopster may have found out the Internet is one big Honey Pot trap. Me I’ve never visited any site I’d be embarrassed others finding out.
Well excepting this pathetic weblog ;-) :-)

#75 pBrasseur on 03.10.19 at 1:18 pm

@Doug

You provide zero evidence that the downtrend will continue. Do you believe no trend ever reverses?

Trends reverse when something fondamental change.

Has something really changed in Canada? Is private investment suddenly coming back? Are crippling regulations being eliminated? Is the fiscal environment at last becoming more competitive. Has the household debt problem been corrected?

None of this is happening, and in many case consequences are still to be felt.

Sure in the short term markets can do anything, but that’s not investing that’s speculating. However in the end, in general (and that’s what you look at since you don’t invest in individual stock) things don’t look promising to say the least for this country.

#76 Portfolio Management on 03.10.19 at 1:58 pm

The key in this current environment is having a balanced diversified portfolio. This alone minimizes the risks on a long term basis. Trends need to be identified in this process of evaluation, and adjustments can be made if needed. Nothing is material until a format can be established with current data. This is what Doug has accomplished with no absolute guarantees, but will adjust throughout time for a positive end result, and one needs a fee based advisor to accomplish this all; otherwise you just gambling from day to day.

#77 Tony on 03.10.19 at 2:53 pm

Like you said the TSX is heavily influenced by the U.S. indexes. I always try to tell Mark or The Real Mark that but he never gets it.

#78 Doug Rowat on 03.10.19 at 3:46 pm

#77 pBrasseur on 03.10.19 at 1:18 pm
@Doug

You provide zero evidence that the downtrend will continue. Do you believe no trend ever reverses?

Trends reverse when something fondamental change.

Has something really changed in Canada? Is private investment suddenly coming back? Are crippling regulations being eliminated? Is the fiscal environment at last becoming more competitive. Has the household debt problem been corrected?

None of this is happening, and in many case consequences are still to be felt.

Sure in the short term markets can do anything, but that’s not investing that’s speculating. However in the end, in general (and that’s what you look at since you don’t invest in individual stock) things don’t look promising to say the least for this country.

Now you’re getting the hang of it.

But, as I’ve clearly said, we have an underweight to the US, not a zero weight. We could be incorrect about Canada’s relative performance prospects. You, however, won’t touch Canada with a 10-foot pole (Remember: “I’ll pass”) and presume certainty with your outlook. Talk about speculating.

So, who would you believe, the upfront portfolio manager who admits he could be wrong (and is willing to hedge) or the anonymous poster who thinks they’re perfect?

–Doug

#79 Interstellar Old Yeller on 03.10.19 at 4:41 pm

Love the picture you chose for this post, Doug. That was a great game.

#80 Smoking Man on 03.11.19 at 12:51 am

DELETED

#81 Smoking Man on 03.11.19 at 1:12 am

When your hammered out of your mind and its Sunday.

Crank this on the ear buds
https://youtu.be/RmtP8X4ZErs