Mike's Spotlight

A Very Uncomfortable Question

As you know, the MoneyTalks team are full on supporters of Special Olympics. Some will say I’m a pain in the ass about it. Thankfully many others appreciate hearing about the opportunity to help out.

I know that I can go on and on about the importance of helping individuals with intellectual disabilities and their families so I promise I will be brief and ask only one question. If someone you know had a child with Down Syndrome, autism or Fragile X …maybe a niece, nephew or grandchild – would you be more interested? Would you take a couple of minutes and bid on a silent auction item or donate or get the business you work for to sponsor?

My bet is yes, which is why is why I invite people to take a minute and think about these families and individuals. The difference you can make in their lives is huge. Obviously, I think that they deserve our help – many of our MoneyTalks listeners, clients and analysts agree.  I hope you do too.

And in addition to an easy online donation option – there is a fantastic opportunity to bid on some really cool stuff! You can donate and/or bid at the Special Olympics auction by going to newmontgoldcorp.com – bidding ends on Thursday at 7:30pm.

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Help with Special Olympics

I promise not to keep hounding you but I also appreciate that sometimes life gets too hectic and things get overlooked.  And this is simply too important.

I’ve asked for your help with Special Olympics in the past – but this year is different.  Not just because we have added another 450 plus children and adults with intellectual disabilities, but also because we have seen two major sponsors move to the United States.  And that leaves a significant hole in Special Olympics ability to deliver a range of programs. From Active Start – for little ones as young as two years old – to our healthy athlete program that fills the gap for people with intellectual disabilities in our healthcare system.

Healthcare by the way is a big story unto itself.  Most people assume that people with Down Syndrome, Microcephaly and other intellectual disabilities get the same level of healthcare as the rest of the public. Unfortunately, they’re mistaken.

Let me give you one quick example.  In the last medical screening we did at the provincial games we found that 25% of our athletes have eye sight problems, 36% needed follow up dental care and 77% had foot and leg problems that required further medical attention.

I am sure that ignoring the unique problems associated with the diagnosis of people with intellectual disabilities is not done on purpose but it has happened nonetheless and Special Olympics goes a long way to rectify this massive inequity.

I’m not going to keep going on. Besides my writing’s simply not good enough to do justice to how deserving these athletes and their families are of our support.  As a parent and grandparent I couldn’t be more happy to help and I hope you will too.

As the Chair of the Newmont Goldcorp Invitational Golf Tournament I’m asking individuals and business to purchase $1500 Tee Sponsorships (which include your signage on a hole and are 100% business expense deductable) or sponsor our “Adopt an Athlete” program (and it’s a fully tax deductible.)  But that’s not all – we also need quality Auction Items for our online auction.

If you or someone you know can help please let us know. Nothing but good will come from it. Please feel free to contact Mark Longhurst in my office for more information and details. He can be reached at mark@mikesmoneytalks.ca or 604.505.3341.

Thanks for your time,

Mike

Are You Prepared For The Melt-Down?

A recession is coming, that much we should all be able to agree on. Sure, we can debate the exact timing, but the reality is the global economy is going to have a significant melt-down soon.  And when the economy falls into a recession the stock markets go down with it. It may be starting today, or start next week, or not until next year, but make no mistake, it is coming.

Not only are we sure it is coming, we are convinced that the next recession will be much deeper and far more caustic than previous recessions. We say this because the next recession will be truly global. We believe that the coming recession will make the 2007–2009 period seem like a cake walk…..CLICK for complete article

March Madness

Global financial markets had a tremendous start to the year and continue to hold up well in March. Positive drivers for the markets have been the U.S. Federal Reserve’s pivot to a more accommodating stance, indications of a potential U.S.-China trade deal, corporate stock buybacks and so on. On the other hand, slowing global growth, rising recession fears, and Brexit uncertainty continue to hang on the wall of worries for investors. We will revisit these concerns below.

Given the extent of the rally from the Dec 24, 2018 lows, it would in fact be healthy for the markets to take a breather here and digest the gains year to date without reaching levels of madness. From a charting perspective for the S&P 500 (bellwether index), the area of 2800 to 2820 is of most interest and importance. This range serves as a key area of battle between buyers and sellers. Recent attempts to break above or below this range have only seen prices get pulled back into it shortly after. We could see prices consolidate and trade sideways here for a bit longer. At the same time, this area is important because a sustained break above or below this range could move the S&P 500 higher to challenge its previous all-time high at 2940 or lower to retest the 2650 level. In short, we are at an inflection point, reflecting the mix of positive and negative macroeconomic factors.

Let’s briefly revisit the key concerns and see how they have developed.

Concern #1: Slowing Global Economic Growth

  • Update: 2019 Forecasted Real GDP Growth*: U.S. = 2.4% (was 2.5%); CA = 1.5% (was 1.9%); EU = 1.2% (was 1.5%); Japan = 0.7% (was 1%); China = 6.2% (unchanged); India = 7.2% (unchanged); World = 3.4% (was 3.5%)
  • Takeaway: Forecasted economic growth has moderated for certain countries and regions, such as Canada and Europe, but the world’s two largest economies, U.S. and China, which make up about 60% of world GDP are still growing at a solid pace. Hence, our eyes should be on the U.S. and China to monitor any signs of significant slowing.

Concern #2: Fear of Global Recession

  • Update: 2019 Recession Probabilities for major economies*: U.S. = 25%; CA = 20%; EU = 20%; Japan = 40%; China = 15%; India = 0%
  • Yield curve inversion, which occurs when short-term interest rates exceed long-term interest rates, has been a reliable precursor to recessions. 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. Over time, this leads to more friction in the financial system and slower economic growth.
  • Takeaway: The recent concern surrounding recession is based on the fact that the U.S. 3-month to 10-year yield curve has inverted. This makes great news headlines. However, the U.S. 2-year to 10-year yield curve, which is more widely tracked by market practitioners, has yet to invert. Furthermore, banks don’t stop lending overnight, financial conditions tighten over time. Many years of empirical data shows that even after the U.S. 2-year to 10-year yield curve inverts, the median gain for the S&P 500 is 21% in 19 months before a recession hits.

Concern #3: Tighter Monetary Policy (central banks hiking interest rates)

  • Update: The U.S. Federal Reserve remains dovish, signalling no U.S. interest rate hikes in 2019. The same goes for Canada, Japan and the Euro Zone, where no rate hikes are expected this year. On the contrary, the market is now projecting a higher likelihood of a rate cut in all the countries and regions above for the rest of this year.
  • Takeaway: This is the least of the key concerns at the moment. Accommodative central banks are a tailwind for the markets. Slower rate hikes are favourable for businesses (lower cost of borrowing) and consumer spending (more disposable income).

Concern #4: Heightened Trade Uncertainty (U.S. vs. China trade war)

  • Update: The meeting between President Trump and President Xi has been delayed at least until April. If President Trump wants to win the next U.S. election in 2020, he is likely to release pressure on the trade conflict to maintain confidence in the U.S. economy. China has a GDP growth target of 6% to 6.5% for 2019. It needs a trade deal to help reach that growth target.
  • Takeaway: Trade uncertainty remains a pending issue, but it’s in the best interest of both sides to reach a trade deal. Hence, trade conflict is likely a transient issue when viewed through the lens of politics and game theory.

*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.

Best Start Since 1987

It is always darkest before dawn. The fourth quarter of 2018 was full of market uncertainties and concerns, such as U.S.-China trade tensions, that gripped the global markets. Financial markets are forward-looking, forecasting machines; as a result, many of the risks were being priced into the markets during the corrective phase. From peak to trough of the correction, the S&P 500 declined about -20% and the TSX dropped about -18%. Despite the negative market sentiment, the underlying macroeconomics and fundamentals remained sound and stock valuations had returned to a more reasonable level. After the correction low was put in on December 24, 2018, investors went shopping on Boxing Day and delivered 5% and 3% gains for the S&P 500 and TSX respectively in a single day. The ensuing rally has been relentless, producing a V-shaped recovery and bringing the S&P 500 and TSX within 5% of their all-time highs. This rally has been impressive even by historical standards, producing the best start to the year since 1987.

Just as uncertainties and fear took hold of the markets last Fall, we have seen those concerns alleviated by various developments in 2019. Let’s take a look at the key concerns and see how they have been addressed.

Concern #1: Slowing Global Economic Growth

  • Counterpoint: 2019 Forecasted Real GDP Growth*: U.S. = 2.5%; CA = 1.9%; EU = 1.5%; Japan = 1%; China = 6.2%; India = 7.2​
  • Takeaway: Despite slower economic growth compared to previous years, major global economies are still growing at a good pace on aggregate and corporate earnings remain strong.

Concern #2: Fear of Global Recession

  • Counterpoint: 2019 Recession Probabilities for major economies*: 15% to 25%
  • Takeaway: Although economic recession probabilities are not insignificant, they are relatively low for 2019. Yield curve inversion, which has been a reliable precursor to recessions, has not occurred.

Concern #3: Tighter Monetary Policy (central banks hiking interest rates)

  • Counterpoint: U.S. Federal Reserve reversed their aggressive stance on interest hike rates from December 2018, expressing a patient and data dependent approach. In Canada, just one rate hike is expected in 2019, while Japan and the Euro Zone are expecting no rate hikes this year.
  • Takeaway: Accommodative central banks are a tailwind for the markets. Slower rate hikes are favourable for businesses (lower cost of borrowing) and consumer spending (more disposable income).

Concern #4: Heightened Trade Uncertainty (U.S. vs. China trade war)

  • Counterpoint: If President Trump wants to win the next U.S. election in 2020, he is likely to release pressure on the trade conflict at the maximum point of leverage to maintain confidence in the U.S. economy.
  • Takeaway: Trade uncertainty remains a pending issue and is the biggest risk for global markets, but it is likely a transient concern when viewed through the lens of politics and game theory.

*Source: Bloomberg

Given the extent of the rally from the Dec 24th low, it would not be unexpected to see a short-term pullback or consolidation develop in the markets. However, from a charting perspective, most North American stock indices have now moved back above their respective 200-day moving average, which is an important technical development and a sign of strength in this recovery. The odds of a retest of the December 2018 lows have decreased. 2019 is proving to be an interesting year for the markets, like every other year!

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.