Asset protection

The Lucrative New Tech Hijacking Your Privacy

We’ve come a long way from being able to superimpose Trump’s hair on our own heads. We’ve also come a long way from wearing masks and sunglasses in public for reasons of fashion or healthcare. Now, it’s about dodging facial recognition.

Protesters in Hong Kong are doing exactly this to avoid facial recognition technologies, with some even employing lasers that cameras can’t process or recognize.  But it’s not just amid mass protests in Hong Kong that everyone should be worried about facial recognition technology. It’s used everywhere from airports and shopping centers to all that lies in between.

Proponents hail the crime-solving and potential crime-prevention benefits, but the sacrifice is great.

Privacy advocates say it could lead to automatically identifying and tracking anyone, not just criminals, and it can be used for violations of privacy….CLICK for complete article

It’s a Wonderful Time of Year to Face Financial Ghosts.

What are your ghosts?

Ghosts of the past are notorious for creeping into the present, especially when holidays roll around.

If you’ve unpacked an ornament from 30 years ago or got lost in a memory while watching A Charlie Brown Christmas, then you understand.

The ghosts of Financial Mistakes Past are sometimes not so kind. In other words, they’re not mindful of seasons; they aren’t warm and fuzzy either. Rattling chains of the ghosts of financial mistakes can be uninvited guests for years to come.

December is the month to objectively review your financial history – expose the good and bad – then, outline tactics to sever ominous chains and sprout wings to the beneficial for 2020. Oh, watch for financial disciplines or lack of them that may conjure the ghosts of financial future.

Just because I partner with others on personal finance challenges doesn’t mean I don’t own my share of mistakes. Thankfully, my Ghosts of Financial Mistakes Past lose their power to frighten me, especially as I too assess my consistent progress to slay them. As a financial professional, let’s just say I remain ‘fiscally aware’ throughout the year. Hey, it’s my job.

This month, as you prepare your favorite meals from recipes that have been in the family for decades, watch a timeless film, (White Christmas is my favorite), and go through old photographs, take some time to unwrap financial gifts and pack away the mistakes.

Here are three ideas to get your started. CLICK for complete article

This 1-Minute Animation Puts $110 Billion of Wealth in Perspective

Just over a week ago, Bill Gates reclaimed the familiar title of the world’s richest person after seeing his net worth jump to the $110 billion mark.

The recent gains can be attributed to a surge in Microsoft’s stock price, after the tech company surprised the market by winning a $10 billion cloud contract from the Pentagon. This also pushed Gates past fellow Seattle billionaire Jeff Bezos, who currently holds a $108.7 billion fortune.

With these numbers topping a hundred billion dollars, they can be difficult to comprehend. Luckily for us, Twitter user @betty__cam put together a short animation that simplifies things.

$110 Billion, Visualized

The following one minute animation starts with the median household wealth in the United States of $61,937, working its way up to the Bill Gates fortune of $110 billion…CLICK for complete article

5 Warning Signs of Market ‘Euphoria’

The U.S. stock market, as measured by the S&P 500 Index, is up 23.4% this year and recently reached a new record high, but five signs of investor euphoria suggest growing risks, according to Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. She endorses RBC’s year-end 2019 target of 2,950 for the index, 4.7% below the Nov. 12 close, according to a recent story in Barron’s.

Calvasina discussed these five signs in a note to clients:

  1. Asset managers have bullish positions in U.S. equity futures similar to the highs before the financial crisis, risking a big negative reaction to bad news.
  2. U.S. stock valuations are near their late 2017 highs.
  3. Earnings forecasts for 2020 are too optimistic.
  4. Stock prices anticipate a phase one U.S.-China trade agreement, but business confidence remains seriously damaged.
  5. The S&P 500 has risen nearly 32% above its Dec. 2018 low, similar to previous rallies off lows in 2010, 2011 and 2016 that paused.

Significance for Investors

“We haven’t learned anything in the current reporting season that justifies euphoric positioning and peak valuations,” Calvasina wrote. “Reporting season has been better than feared, but the overall tone around demand/macro, tariffs and cost savings all sounds very familiar–it’s what companies have been saying all year,” she added.

On the other hand, money market fund assets are $3.4 trillion, a 10-year high and still rising, undercutting the “euphoric positioning” narrative. Several strategists see this as a bullish indicator, per The Wall Street Journal.

Calvasina predicts that a pause by the Fed in cutting interest rates limits the upside for equity valuations. If 2020 earnings disappoint, as she anticipates, stock prices should sink….CLICK for complete article

The Skeptical Investor

Despite the risks, this market is driving higher. Watch McIver Capital Management’s Skeptical Investor video where Portfolio Managers Ethan Dang and Matt Ehrenreich discuss the resiliency of this market.

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.

CLICK HERE to receive the McIver Capital High Net Worth Newsletter direct to your Inbox or to request account or client information from the Mcilver Capital Management team.