Gordon Pape spoke in the opening remarks. His talk was called “The Crystal Ball: Where now for the Markets”. He is the editor and publisher of two newsletters of The Internet Wealth Builder and the Income Investor. His site is here.
Gordon Pape is a renowned investor and best-selling author. He will provide an overview of what has happened in the market in 2018 and what lies ahead for the test of the year and into 2019. That is where we have been and where we are going.
No one can predict where the market is going. There are just too many variables. The markets can change overnight. They can be changed by a simple twit. No one has seen such a wild card as Mr. Trump. He can move markets but this may not reflect where they will go over the longer term.
Mr. Trump is an important factor. People say he is unpredictable, but he is not. If you look at what Trump said in the 2016 election. The goals and principles he laid out he has been doing. We do not need to agree with him or what he is writing, but he has been consistent in trying to do what he set out to do in running for president.
What is unpredictable is how investors are going to react to what he does. We need to consider this. So far, the US market have been positive. It is near a record for the S&P500. The S&P500 has been going straight up since the bottom of 2009. There were some drops, but not of 20%.
The picture of the TSX is not as pretty. We are up over the past 10 years but we do not have a long run up. There has been a couple of bear markets where it dropped 20%. The TSX has really struggles and it will continue to struggle.
Why is Wall Street so much more successful than Bay Street? Most of the bull market happened under Obama. His policies and the Fed policies strengthen the S&P500. They prevented the long recession from going into a depression. Trump can take credit for some of the policies that extended the bull run. His tax refund, his deregulation and his protectionism has been beneficial to the US economy.
The tax changes boosted corporate profits and that has had a positive effect. The deregulation has encouraged more business investments. Both of these have contributed to the 4.1% growth in the second quarter. This is the best that the US has experienced in many years. The moves by Mr. Trump has continued the boon started by Obama.
Trumps trade policies (protectionism) are controversial and may be contributing to the US boom. There is a lot of uncertainty and US businesses are not looking to other countries. The Fraser Institute says investment in Canada is the lowest in 40 years. People are investing in the US because they do have access to the US’s big and booming market.
Companies are more hesitant to invest in Canada, Mexico, China or anywhere outside the US market. This will continue until things simmer down. But where does that leave us? In the short term, there is no immediate change. The US growth will remain solid in the third quarter. Corporate earnings will show impressive gains. Job creating will remain on track. There is no sign of a recession on the horizon. The result is that US stocks will move higher.
We are climbing a wall of worry with interest rates going up, higher personal debt ($4T non-mortgage), labor shortages (unfilled jobs at the end of May was 6.6M), protectionism and rising inflation (in goods and wages). It is important to consider that every rate increase will put pressure on consumers and business as they have high debt.
Corporate debt is at 6.3T and the US government deficit will top $1T. (By the way the deficit is what is added to the debt each year.) Lots of Trillions exposed to rising interest rates and as rate rise they are going to be problems down the road.
The US is not pulling in the workers that are needed. There is a lack of qualified employees. Trump is creating more and more jobs. The economy is already begging for more skilled workers than available. The 6.6M jobs unfilled are from burger flippers to software engineers. This is only going to get worse as the US is anti-immigration so they will not be importing people to fill these positions. This will lead to higher prices for consumers and labor shortages will raise wages.
Protectionism is currently promoting investment in the US. In the long run this will cause higher prices for consumers. This will only get worse if Trump continues to impose tariffs on China and NAFTA falls apart.
The bull market is not over. However, it is best to move to a more neutral position, but not all cash. Get some fixed income. He does not believe in going all cash at any time. It is best to favour US stock over Canadian stock. Avoid long term bonds. Raise some cash on a gradual basis. Have money in your RIF because of future problems. Take advantage of bargains after the bull market ends.
Canada is in a rough spot. This is not just because of Trump. We have a lousy energy policy. We cannot take advantage of the tremendous natural resources in Alberta. We cannot get our resources to market. This is very negative for the Canadian market.
The need to raise cash needs to be balanced again the tax consequences of selling stocks. Think about what will happen if we had a pull back like happened in 2008. Do changes gradually. Make sure to take advantage of any pull back. There could be such an opportunity in 18 to 24 months.
On my other blog I wrote yesterday about Trican Well Service Ltd (TSX-TCW, OTC-TOLWF) ... learn more. Next, I will write about Great-West Lifeco Inc. (TSX-GWO, OTC-GWLIF) ... learn more on Wednesday, September 26, 2018 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.