May 2019 Newsletter
To say Q4 2018 was a bad 3 months in the markets is an understatement. It was, in fact, the worst quarter since 2011.
The markets bottomed on December 24th and 26th, but most of our investments have risen in price since then. Considering the timing of the market bottom coincided with the end of the calendar year, all performance reports look bad.
Fed Chairman, Jerome Powell, said in early December that interest rates would go up several times in 2019. That statement, combined with the auto pilot shrinking of the U.S. Balance Sheet, sent the markets tumbling. He then reversed his position.
Damage done. Pain inflicted. More gray hair!
In my opinion, we are not heading for a recession anytime soon. We are in a low interest rate environment, inflation is below 2%, GDP is in the 2% range, earnings are strong, and surprises are mainly positive. The U.S.-China Trade War will likely settle this year, North Korea isn’t firing rockets, and Trump has seemingly been cleared of working with Russia in the latest report by Mueller.
There is a concern about the inverted yield curve. This is a scenario where long-term rates are lower than short-term rates. Often this is a precursor to a recession. I don’t think it is today.
Canada has some economic challenges that the U.S. does not have. We don’t have the capacity to get our oil and gas to markets because of a lack of pipeline capacity. China has now prohibited Canola exports from Canada, which we suspect is their way of retaliating for the detention of a Chinese executive whom the U.S. wants to extradite. The scandal surrounding the Liberal government and SNC Lavalin will likely be in the news until our federal election this fall.
The challenges and crises change day to day, but the formula for successful investing always remains the same: determine your goals and objectives, build a plan, implement the plan, monitor and fine tune as necessary, and stick to the plan.
After 25 years of helping clients build their wealth, I find the most difficult part of my job is ensuring that we stick to the plan when we go through periods such as Q4 of 2018. We will recover from the most recent downturn. In many cases, we have already recovered losses, and have even made some gains.
I recently went through an exercise with Strategic Coach to define the 8 major characteristics of my clients. They are:
4. open to new ideas,
5. big picture thinking,
7. accountable and
I know these character traits reflect you.
It is my hope that I also reflect these traits. Dan Sullivan, who owns and runs Strategic Coach, says you will never again have a bad client if you only take on clients who reflect these 8 major characteristics.
The exercise of identifying the 8 major character traits can be used in different scenarios. For example, if you are looking to hire a new Service Manager, think about the 8 major traits of the best Service Manager who has ever worked for you. That is the person you are looking for.
I have recently been meeting with many clients to review the effect of Q4 on their portfolios, and although 2018 performance was negative, the long-term returns are in the range that we strive for (6% to 8% per year). This observation reinforces the importance of sticking to our plan.
Additionally, we had a couple of interesting meetings this past quarter. Our team met about using insurance to fund the tax liability on death of both husband and wife and how we can use a joint last-to-die insurance product that builds cash value and provides a large lump sum death benefit. Jason Middleton, one of our Insurance Consultant for Richardson GMP, also assisted in these meetings.
If you would like to learn about how insurance may be used to help in your retirement and estate planning, please call me.
Lastly, since October 17th, 2017, I have been talking to clients about the Ninepoint Alternative Health Fund. This Fund currently has a focus on U.S. Cannabis companies which I think are going to enjoy a robust year (or two) of growth as the U.S. moves towards legalization. If you have any interest in learning more about this investment, I would be happy to speak with you.
Thank you for the privilege of working with you and your family, and I look forward to the opportunity to do more.
Wishing you a glorious and healthy spring!
Director, Wealth Management, Portfolio Manager
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.