It’s extra challenging to write relevant updates in a summertime as markets fluctuate daily on lower volumes, and values rise or fall but generally show higher values by October than we had in May/June. Ever-changing events in 2022 have the world on edge – yet somewhat hopeful. Less worry in a seventh wave, our third year of covid variants. Seventh month of Russia’s haphazard war in Ukraine. Peak inflation and rising interest rates, yet vigorous employment numbers, rising wages, still-strong corporate earnings, increased travel and entertainment, lower prices for oil (25%) and wheat (40%). On the latter point, as I write this nine or more ships have left Ukrainian ports, each carrying near 27K tons of grain, with 16 similar ships immediately ready to depart (with an ultimate view of moving 20M tons to ease hunger made worse by the conflict – and 95% of Ukraine’s available fields now planted for future harvests). Much is hopeful. This is perhaps the most important paragraph here today … along with brief tidbits from our recent questions and conversations. Noting too, our portfolios in July promisingly rose 5% to 9% above June 30th values.
Recent Questions & Conversations.
1. House prices: best estimate I find is that while transactions are down 40% the actual prices of real estate may level off -12%. Yet with reduced construction, continued immigration, and a normalizing or easing of interest rates next year, prices seem pressed to rise again in due course.
2. Inflation: reaching 8-9% especially reflected acute disruption in manufacture and shipping of computer chips and any other products this year from Asia due to covid, also Russia restarting WW1 bringing chaos to grain and energy markets. Half a year from now those prices will be built-in, so if the prices stayed level, inflation could be 0%. Actually, best estimates are 3.8% in 2023 and then reducing.
3. Interest rates rose to avoid entrenching high-inflation through a spiral of wage, manufacturing, and retail costs. That tackled bond markets (down 10-15%) and growth stocks (down 25-75%). Perennial focus on dividend and other high-income (review LIM) was mainly stronger as our accounts increased yield during that time.
4. Recession: unlikely for Canada this year. More likely in Europe, and China may have just 2% gain by year-end. U.S.A.: if solely measured by two quarters of negative GDP growth there was perhaps a timid recession in first half 2022 (unless we adjust first-quarter loss due to front-loaded inventory build-up in Q4 2021 followed by covid/transport disruptions in Q1 2022.)
- Other indicators confirm or disqualify recession: job-losses, decreasing personal income, measures of retail sales and manufacturing production.
- Not: falling stock markets or house prices which result from other factors (less effective in causing recession).
- Treasury yields cited by media as indicating recession are an advance warning – the negative curve as we have today (especially 10-year over 2-year rates, or 10-year over 6-month rates) tend to suggest possible recession 12-18 months later.
- Duration of a bull market excites talk-show hosts but is irrelevant, especially as given disagreement whether the current ‘bull’ continues since 2009, or it ended in a vast 6-12 week covid reset and gained new birth in spring 2020. Duration is a talking point but not a guide.
- It helps to realize that strong investment gains occur late in the business cycle, only surpassed by early periods during the initial rebound from recession. (Sadly those are the two strongest growth periods which nervous investors most miss.)
That’s a lot in a short space today. Anything you want to review let me know – let’s chat. Any questions for yourself or family/friends or in regard to recent investment statements, let us know. Remember too, our reviews include not just your investments but also insurances (life, health, disability), even benefits with your employer, and retirement benefits. Everything is on the table because our financial plan aims to continually guide and protect your Life and Wealth – your lifestyle and loved ones.
In client statements you see “advisor name” Whitney Hammond who is founder and principle of SWM since 2005 and has been my dear friend and closest colleague since 1997. As I shared in April, this reflects a gradual transition to my retirement in three years or so, while continuing to serve your needs personally and along with Whitney and our team always. In my mind I’m here for you forever – but no one is ‘forever’ so as we discussed this with Whitney, a business coach, and then some clients and staff, this seemed a safe and fruitful way to proceed. Thank you to everyone as you have given your heartfelt endorsement to our plan.
Yours always in Financial Security for LIFE.
Introduce us whenever you know someone needing help. Happy Summer-time!
Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7. 1-877-937-3500
Brian@SovereignWealth.ca.
Certified Financial Planner, Certified Retirement Coach
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 Canada Life, CIBC, Dynamic, Mackenzie Financial, RBC / PH&N, and more. Opinions in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to coordinate with your legal and accounting advisers to further your financial goals in home and business. We are grateful always to receive your comments and questions.