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Canada’s Heavy Immigration Is The Last Pillar Preventing A Recession

Canada’s booming population growth is the only thing separating the country from a recession. There’s been a lot of talk about Canada’s massive growth in gross domestic product (GDP). There’s also been a lot of talk about Canada’s population boom, driven largely by immigration. However, few people seem to be discussing what the combination of the two means. When looking at GDP per capita (i.e. in the context of population), growth is falling at a rapid pace. In fact, lower growth has only typically been observed around recessions.

GDP Per Capita

The term is simple enough to figure out, but the reason it’s more important than a straight GDP read is less obvious. Gross domestic product (GDP) is a measure of a country’s aggregate economic output. That is, a measure of the total value of goods and services created/provided in a country. GDP per capita is the value of those goods and services, divided by the number of people. By just dividing GDP by the population, you get a much better view of the numbers.

A country may have large economic growth, but it doesn’t mean a whole lot if the population is growing faster. By itself, GDP is the world leader equivalent of a d*ck measuring contest. The primary benefit is being able to compare your economy to another. If GDP per capita is falling though, it means your population may be suffering from an eroded standard of living. Now what do you care more about? That your economy is bigger than a country you’ve never been to? Or whether you and your neighbour are seeing the benefits of economic growth?…CLICK for complete article

Is There Any Reason To Be Bullish About Netflix?

Netflix stock is down 30 percent from its high, and earnings are about to come out. Whether this is a buy or not comes down to what analysts think of a no-holds-barred streaming war with some fierce competition.

Netflix’ FAANG days are rather lackluster of late. It’s been outshined by Facebook, Apple, Amazon and Google for a year now.

Netflix, though, has been the dimmest star in this universe.

In mid-July, it failed to impress with Q2 earnings. The numbers were worse than expected and the stock moved into definitive bear territory on data showing that a short-fall it new subscriber estimates, and on the premise that growth outlook is shrinking amid a sea of competition….CLICK for complete article

Greta Thunberg’s Not-So-Little Carbon Footprint

If you’ve heard of the phrase “carbon footprint” chances are, you’ve heard of Greta Thunberg. The impassioned 16-year-old climate activist is now the subject of countless news articles, angry tweets, and not surprisingly, a whole host of uncharitable memes.

A polarizing force, you either love her for her devoted climate fervor or you hate her for the public spanking that she unleashed on world leaders for not taking the impending climate doom seriously enough. She has shamed politicians and individuals and has unapologetically called on the world to panic along with her.

Regardless of your personal thoughts on what Greta believes is a climate catastrophe, it’s rather plausible that Greta believes what she’s saying. But let’s look at her carbon footprint—the amount of greenhouse gases produced to support her activist lifestyle….CLICK for complete article

Pound Continues To Slide As No-Deal Brexit Looms

The pound is taking a pounding versus the dollar, euro and other currencies as the possibility of a no-deal Brexit looks increasingly likely.

Under new Prime Minister Boris Johnson, the government has strengthened its stance on a no-deal Brexit, which it has said is “now a very real prospect”.

The pound – which was trading at about $1.50 versus the dollar before the EU referendum in June 2016 – has fallen by 2.4% since Monday, when a spokesperson for Downing Street said that the UK would not enter talks with Europe unless the so-called Irish backstop is scrapped.

This week’s selloff shows little sign of a rebound, with options markets implying more pain on the horizon. Three-month implied volatility, a contract that expires just before the Oct. 31 Brexit deadline, jumped to the highest since before March 29, the original date for Britain to leave the European Union….CLICK for complete article

Trade War Cycle – Wash, Rinse, and Repeat

Global financial markets continue to face ongoing uncertainty surrounding U.S.-China trade tensions, slowing global economic growth, yield curve inversion, and central bank policies. Despite all the uncertainty, markets remain resilient and this is a sign of strength. Let’s look at trade tensions and their ripple effects on the economy and how central banks are collectively combating the global economic softness.

U.S.-China trade tensions continue to be a key area of uncertainty for the markets. Since implementation of the first tariffs back in July 2018, a pattern has emerged in the trade war saga. A picture is worth a thousand words and the Trade War Cycle illustration below captures succinctly the repeating pattern witnessed by investors over the last year. This chart provides a simple mental model for tracking the trade war situation amid all the noise, and more importantly, gives us a way to detect deviations from the current cycle of behaviour.

We remain of the view that trade tensions will be prolonged due to deeper issues surrounding technology, although there is hope of an interim deal in the coming weeks or months as high-level trade delegates from both countries are expected to resume discussions in October. As a gesture of good faith leading up to October, the U.S. has delayed putting tariffs on certain Chinese goods (electronics and clothing) until December 15th and China has begun to purchase soybeans and pork from U.S. companies. But don’t hold your breath, we have seen this movie before.

Global Economic Growth

The ongoing trade tensions between the world’s largest two economies have no doubt weighed on global economic growth and business confidence. The global manufacturing sector (as tracked through Manufacturing PMI) has seen weakening data, especially in Europe, and companies have delayed or reduced their investments in capital projects due to trade uncertainty. Companies have also begun shifting a portion of their production capacity away from China by setting up factories in neighbouring countries, such as Vietnam and Indonesia.

However, the manufacturing sector does not represent the whole economy. In most developed countries, and increasingly more so in China, the services sector is a significant driver of the economy. The good news is the global services sector (as tracked through Services PMI) is holding up well. Furthermore, unemployment rates in North America remain at record lows and consumer spending is still strong.

Yield Curve Inversion and Recession Fear

There have been plenty of news headlines and media attention focused on yield curve inversion in the U.S., which occurred at the end of August 2019. Yield curve inversion occurs when short-term interest rates exceed long-term interest rates and has been a reliable precursor to recessions. The caveat is that there is a time lag between initial yield curve inversion and when a recession hits the economy. Counter to intuition, yield curve inversion has been a good intermediate-term buy signal for stocks. Over the past seven economic cycles, even after the U.S. 2-year to 10-year yield curve inverted, the median gain for the S&P 500 has been 21%, with a recession arriving a median of 19 months down the road. It is important to note that history speaks to probability, not certainty. Hence, it is wise to keep an open mind to different outcomes. But if history is any guide, yield curve inversion does not imply an immediate end to a bull cycle.

So why is there a time lag between initial yield curve inversion and a recession? There are two main reasons. First, when the yield curve inverts, financial conditions tighten because it’s not profitable for banks to borrow money under short-term rates and lend out under long-term rates. But banks don’t stop lending overnight, financial conditions tighten over time. Underneath the hood, credit spreads (an indicator of company defaults) are still tight, meaning the risk of defaults is relatively low. In addition, U.S. initial jobless claims remain stable. A spike in initial jobless claims could signal trouble in the labour market, which eventually impacts consumer income and spending. Second, when the yield curve inverts, central banks generally step in to lower short-term interest rates in an attempt to stimulate the economy. This is exactly what is happening now and lowering the cost of borrowing can generate a positive impact for the markets.

Central Bank Policies – Don’t Fight the Fed

The playbook in this bull cycle has been “Don’t fight the Fed”, meaning invest in a way that aligns with the current monetary policies of the U.S. Federal Reserve (and global central banks). When central banks are lowering interest rates (in easing mode), it can provide a powerful tailwind for businesses and the markets.

Case in point, the U.S. Fed cut interest rates by 0.25% to the 1.75%-2.0% range on September 18th and there is a 70% chance of another 0.25% rate cut by year-end*. The European Central Bank (ECB) also lowered rates further into negative territory on September 12th and relaunched quantitative easing (QE) of 20 billion euros per month (with no end date). For now, the Bank of Canada (BoC) and Bank of Japan (BoJ) have kept interest rates unchanged in their latest meetings.

In summary, financial conditions continue to remain relatively healthy and inflation is under control, allowing central banks to be accommodative while waiting for a resolution on trade tensions. No doubt, a U.S.-China trade deal would be a positive catalyst for re-accelerating global growth.

*Source: Bloomberg

Ethan Dang, CFA, MBA is a Portfolio Manager at McIver Capital Management at Canaccord Genuity.

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The 5-Laws Of Human Stupidity & How To Be A “Non-Stupid” Investor

This past weekend, I was digging through some old articles and ran across one that needed to be readdressed on “human stupidity” as it relates to investing.

The background was a study done in 1976 by a professor of economic history at the University of California, Berkeley. Carol M. Cipolla published an essay outlining the fundamental laws of a force he perceived as humanity’s greatest existential threat: Stupidity.

Stupid people, according to Cipolla, share several identifying traits:

  • they are abundant,
  • they are irrational, and;
  • they cause problems for others without apparent benefit to themselves

Of course, if we look at the world around us today, watch or read the diatribe produced by financial and news outlets, or pay attention to politics, it certainly seems that since the advent of the “smartphone” and “social media” the percentage of “stupidity” has clearly risen. (Either that, or we are just more aware of the massive amount of “stupidity” around us. Thankfully, it seems to be contained primarily in Florida.)

We can’t really do much about the seemingly rising level of “general stupidity,” however, we can apply Cipolla’s five basic laws of human stupidity to investing and the mistakes investors repeatedly make over time….CLICK for complete article