I trust you are enjoying a wonderful summer. Virginia and I have been away (when not relaxing on our back deck or canoeing nearby) and will be on the Danube this September. For now, everything is so beautiful here at home, we are fortunate to be right where we are, with family and friends visiting while the days are long and sunny.
Today’s letter celebrates significant financial growth this year, and offers a window to how values may move ahead in the next few quarters of 2019 into 2020. We cannot ignore certain warnings, with the underlying question of when recession may show on the horizon and what that could mean. 
So I welcome you here, dive in to this mid-summer discussion and please do two things: raise any questions, needs, concerns you may have in mind, and also share this letter if we can be of help to someone you know. We’re grateful always to be serving your financial comfort and security for Life!
Recession or Continued Expansion?
From the depths of the worst-ever global meltdown of 2008-2009 people started fearing recession early in 2011, again in 2015, also in 2018, and so it continues. News media vent so many fears that have little or nothing to do with us: proof is evident on a daily basis. Remember though… Recession is not the normal state of the world. Most years are not recessionary. And when recession occurs, much of the economy is not then in recession.
Consider the technology meltdown of 2000-2002: those seasons were mostly good for us. Government spending continued. Health spending rose. Consumer staples stayed secure. Banks and insurers fared well. Most of the economy was favourable through that period. More challenging was 2008-2009 because it was the worst-ever and it was global. Yet even then much of the economy was growing. For instance our Canadian Real Estate and Global Infrastructure paid great rewards. Life income mandates recovered four-times faster than world markets. Naturally we’ve had a happier journey than news media were ever suggesting.
Fact is, this economic expansion is now the longest ever. We’re in an extended late-cycle that is breaking old records (for duration though not growth). Lower interest rates may fuel this expansion into 2020 or 2021. Like Mark Twain’s quote, rumours of death (for this economic cycle) have been greatly exaggerated. Don’t make the mistake of thinking fear is a friend; it’s not! Late-cycle is one of the most profitable times in which our investments grow. Early and late cycle are when our “neighbours” are most shy about investing yet these two periods are far more prosperous that the intermediate years.
Expansion Continues … for Now.
- Markets grow longer and farther after a particularly deep correction (2008-2009).
- Markets expand more safely when pressure is released: eg. 2011, 2015, twice in 2018.
- Markets blossom on the instant fertilizer of low interest rates, again at historic lows.
- A decade of slow-growth means the economy has more time to reach full capacity.
- Increased regulation of financial markets has reduced risk of major crises.
- Depending on services over products smooths the economic journey.
- Domestic demand offers safer growth than depending on exports.
On this last point I was recently surprised to learn, 76% of China’s GDP (gross domestic product) comes from domestic consumption and especially services rather than export to other countries. Trade barriers and tariffs are limited in their damage when for example the U.S.A. buys only 19% of China’s exports …which on their own are only 24% of China’s GDP. So if the U.S. stopped all trade with China, it could hit China’s GDP near 5%. Spin-off effects would make news but China can certainly outlive the current White House.
In Canada?
Here in Canada corporate earnings seem on the rise. Employment numbers have gained strength. Inflation remains tame. Trade frictions are easing. Any increase in trade-flows, whether materials, energy, manufacturing, will sustain modest momentum. Our service economy limits potential downside. Housing and household debt are separate discussions but moot with all-time-low interest rates. Recession fears are well beyond the nearest horizon.
But more: our investment focus continues to blend Canadian and Global holdings in both fixed-income and equities. One example of this is Dina DeGeer’s leadership of the Bluewater Canadian Growth Fund with only 29 holdings portioned half in Canada, half globally, in low-debt high-earnings strategic companies that continue growing free cash flow. Another is Steve Locke’s MF Unconstrained Income Fund with 55% of assets allocated globally for a richer range of high interest coupons. Focus like theirs has proven a great bonus to our ongoing mandates for income-growth from dividends, infrastructure, and real estate.
Ask me … whatever keeps you up at night.
We hear every question under the sun and these repeat because they are the things that worry people, day or night. What is on your list? … Or consider the following: which of these are crying for help? For yourself or people you know personally? Circle or place a mark beside the ones that stand out for you and let’s be sure we touch on these together.
- Affording the Lifestyle and Leisure you want?
- Risks of aging: how to ensure your money lasts?
- Part-time retirement … even in your 30s, 40s, 50s?
- Illness: fitting money to personal health & comfort?
- Dealing with debt: single, family, at any age of life?
- When adult kids need help again: 30s, 40s, even 50s?
- Family cottage, toys & taxes: how to keep, when to sell?
- Business plans for a lasting life-income & family estate?
- Giving it away …and seeing the smile on their faces?
- Cutting income & probate tax: making life less taxing?
- Insurance renewals: when cost goes through the roof?
- Certified Financial Plan, securing your income and life?
- Who will make health decisions if you’re incapable?
- Executor: who to choose, how to prepare them?
- Expanding life and purpose at any age & income?
Enjoy Summer.
Yes enjoy the very best of summertime. Also reach me with questions and needs that are front of mind for yourself, friends and family.
Our enduring purpose now and always is to safeguard Life and Wealth, sustain Comfort and Confidence, for you and the ones you hold most dear.
Yours in Financial Security for LIFE!
Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7. 1-877-937-3500
Brian@SovereignWealth.ca
Author: A Lifetime Of Wealth — And How Not To Lose It (2013). Protecting Life, Loved Ones, and Future Dreams (2013). Your Business, Your Retirement: Halton Retirement Study (2015).
** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to GLC, RBC, CIBC, Mackenzie, Franklin Templeton. Opinions reflected in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to consult alongside your legal and accounting firms to advance your financial security and unique goals. We are grateful always to receive your comments and questions.