The S&P 500 is near a record high level, yet only up 1.6% from a year ago!
The U.S. Federal Reserve just lowered interest rates as they are concerned about a slowing economy which has surely been affected by the China/U.S. Trade War.
Even though we have low interest rates in Canada and The U.S., it is a different story in Europe where negative interest rates are the norm. Denmark has just introduced negative interest mortgages for residential real estate. Imagine, the bank pays you to buy a house and have a mortgage!
There is $15 Trillion of debt in the world with negative interest rates, so there is an argument that North American interest rates are too high.
Lowering interest rates in both The U.S. and Canada is a strategy to fix the negative yield curve which is often a precursor to a recession, and, may spur additional spending and capital investments.
Many people think a recession is imminent, yet I listened to a speech from Benjamin Tal (Chief Economist at CIBC) and his opinion is different. His view is we are mid cycle and the interest rates cuts are necessary and more are to come.
The percentage of investors who are bullish on the stock market is now less than 30%, whereas the historical average has been 38.5%.
68% of S&P 500 companies are now trading above their 50-day moving average, up from 25% in early August.
Negative investor sentiment and strong share price momentum auger well for a rising market in my opinion. The 70% plus of investors who are out of the market are waiting for the markets to be much higher before they invest. Reminds me of the adage of buying high and selling in a crisis when prices are low.
The conference I referenced earlier was hosted by Greybrook Realty Partners. Part of the conference included a panel discussion on Canadian Real Estate. My summary of the one-hour discussion is as follows:
Toronto, Vancouver and Montreal markets are strong and are expected to remain strong.
Toronto and Vancouver will always remain unaffordable.
The strongest sectors are multifamily and industrial.
Toronto is not overbuilt because of ongoing immigration.
We recently invested in the Greybrook project to develop the northeast corner of Avenue Road and Yorkville. I am hopeful that we get the opportunity to invest in future projects with them.
You may be interested to know that their plan is to sell condos in this building starting at $3,000 per foot, and the average condo will be 2,500 sq. ft.!
Cannabis companies have seen huge decrease in their share prices over the last 3 months. Reasons contributing to this include Bruce Linton being fired as CEO of Canopy Growth, fraud at Canntrust, vaping deaths and injury, mergers and acquisitions held up by Department of Justice in U.S.
I think this decrease in share price has presented a buying opportunity for names such as Canopy that was as high as $76 per share and today is trading below $30. Remember that Constellation invested $4 Billion U.S. in Canopy at $48 per share.
Chinese proverb: Crisis = Danger + Opportunity
It is hard to make an investment when we are in the middle of a crisis, yet it takes a crisis to create a buying opportunity.
We have a significant amount of money invested with Turtle Creek Asset Management. Their investment process is unique, and they need volatility in order to buy shares in the companies they own at better and better prices. If you are confident in your investment, then a lower purchase price increases your margin of safety and potential rate of return.
The management team at Turtle Creek has proven to me their ability to stick to their process, even when there is a lot of fear in the media.
It is our privilege to work with you and help you with your Financial Affairs.
I promise you we will always act in your best interests, give you consistent Investment Advice and the best service we are capable of.
Please call or email if you need anything, and I wish you a happy Fall Season on behalf of myself and Team.
Sincerely yours,
Fred Banwell