MARKET WATCH
Last month I mentioned that many long-term market trends appear to be reversing. For example, U.S. and growth stocks dominated for more than 10 years, while most other investment classifications (value, international, emerging markets (EMs), commodities and precious metals) fared relatively poorly. However, the potential for rising interest rates (see below) and signs of a strong economic recovery appear to be turning the tables on previous top performers.
Although many of last decade’s laggards continue leading the way in 2021, Europe’s slower COVID-19 recovery and the rapid rise in infections in India - the world’s third-largest importer of oil - may have temporarily paused this reversal.
In April, growth stocks, which recently lagged, strengthened, while energy, which traded lower for most of the month, is almost back to even in April. However, Canadian energy stocks remain a very impressive 31% higher on the year.
With the Chinese and U.S. economies looking very strong, should European infection levels continue falling, and if India is able to stem the tide of its infections, things will be in place for stellar global GDP growth. This growth could be especially bullish for EM stocks, which remain cheap, and energy prices, which should see a marked increase in demand from the increased global GDP and return of tourism.
But not all of this year’s trends have tarried. Most commodities and value stocks enjoyed positive returns this month and show no signs of abating.
I remain cautiously optimistic, but also aware that nothing is certain when it comes to the global pandemic.
|
|
CANADIAN BUDGET BREAKDOWN
Due to the pandemic, the Trudeau government tabled its first federal budget in two years last week. As expected, the national deficit reached historic proportions, registering at $354 billion for the 2021 fiscal year. Although this massive amount of debt may be an issue in the future, times of fiscal crisis require dramatic government action to support the economy. On the bright side, Canada’s debt situation is better (Slide 5) than most of the G7 and expected GDP growth has recently been revised upwards (Slide 6).
As with most things in life, there are potential opportunity costs, even when it comes to higher economic growth rates. That potential cost (aside from the aforementioned debt levels) is inflation. Inflation rates have also been revised upward (Slide 7), but it’s difficult to know what the future will hold. As a reminder, when inflation is higher than deemed optimal, central banks often raise interest rates to reign them back in. This hasn’t happened yet, but the Bank of Canada is signalling rates could increase next year, as opposed to the originally expected 2023. And as anyone looking at buying a house knows, the five-year fixed mortgage rate has increased from approximately 1.5% a few months ago to roughly 2.25%. Should inflation surge more than expected, we may look back and consider 2.25% as a very good deal.
On the portfolio side, we are well-positioned (Canadian stocks, value, energy, EMs, and gold) to harness any inflationary effects.
|
|
THE ENLIGHTENED ENTREPRENEUR
|
|
BOOKS
The Almanack of Naval Ravikant by Eric Jorgenson: A comprehensive summary of Naval Ravikant’s most popular ideas, including health, wealth, and happiness. Highly recommended for those early in their careers or focused on wealth-building.
River God by Wilbur Smith: I once read more Wilbur Smith books than any other author. I especially loved his Egyptian series. Two decades later, I thought I should revisit the series to see what I think. Happily, River God, the first book, is as good as I remember. I’m already excited to read the next one and learn more about ancient Egypt once again!
Poor Charlie’s Almanack by Charlie Munger: Warren Buffet’s lesser known, but no less brilliant, business partner, is responsible for popularizing the use of mental models as a method of analysis and decision-making. When I first read Charlie Munger’s wonderful coffee table book, it changed the way I looked at the world. Revisiting it after so many years has been a breath of fresh air.
|
|
ARTICLES
Effort by Ava: “People like to say that lives on social media look unattainable and perfect, but whenever I see something that’s beautifully curated all I can see is the sweat: the money expended, the surgery and fillers, the workouts, the interior designers, the carefully selected objects, the hours spent setting up and filming and taking photos. I think the effort is what’s most interesting. I like people who try very hard, and I like people who attempt to conceal their effort, but I especially like people who let all their effort show. We are all Frankenstein monsters—patchwork quilts of past experiences—trying to pass ourselves off as whole and cohesive things.”
How People Get Rich Now by Paul Graham: It’s commonly believed that Ronald Regan’s move to the right in the ’80s is responsible for today’s levels of income inequality. Paul Graham argues there may be more to it than that. If this topic is of interest, you may also want to read Morgan Housel’s brilliant essay, How This All Happened.
Too Much, Too Soon, Too Fast by Morgan Housel: “Some things scale well. Double their size and you get double the output (or more). Other things don’t, and my God is it important to know which is which.”
The Shortness of Time by Farnam Street: “If we see someone throwing money away, we call that person crazy. Money has value. Wasting it seems nuts. And yet we see others—and ourselves—throw away something far more valuable every day: Time.”
How mRNA Technology Could Change the World by Derek Thompson: An exploration into how mRNA technology could go well beyond the current crop of vaccines to tackle modern day scourges, such as malaria and cancer.
Gifted and Genius: Crucial Differences by Arthur R. Jensen: “In conclusion, giftedness, a normally distributed variable, is a prerequisite for the development of genius. When it interacts with a number of other critical characteristics, which also are normally distributed, exceptional achievement is produced. Exceptional achievement, however, is a variable that is no longer normal; it is highly skewed, with genius found at the tip of the tail.”
Now is the Time to Smash Barriers to Interprovincial Trade by David Parkinson: Canadian interprovincial trade is woefully lower than it could be. In an attempt to protect select industries, numerous regulations, restrictions, and licensing requirements have curtailed provincial trade by an estimated $80 billion. Tackling this issue was part of the federal Liberal platform during the 2019 election. However, that was before the pandemic. David Parkinson advocates prioritizing this issue again to provide a massive shot in Canada’s economic arm.
|
|
PODCASTS AND DOCUMENTARIES
King of Kings (Part 3) by Dan Carlin: The conclusion of Hardcore History’s fascinating King of Kings series. This episode includes Xerxes, the Spartans, Immortals, Alexander the Great, scythed chariots, and a number of the greatest battles in history. At 12 hours in length, this three-part series requires a commitment, but it’s well worth it!
American Experience - FDR by PBS: Franklin Delano Roosevelt took office in the depths of the Great Depression and ushered in an unprecedented spending plan known as the New Deal. It not only gave hope to the American people, but also breathed life into the economy. This success, along with his substantial charisma, enabled him to be the longest serving president in U.S. history.
On the personal side, FDR was as determined as they come. Struck by polio, he was unable to use his legs, though most Americans never knew. Between leg braces and an iron grip on his son’s arm, he devised a method of moving akin to a casual walk. His complicated relationship with his formidable wife, Eleanor, a pioneer for women’s rights, was also fascinating.
An honest look at a unique man, while providing a stark look at America during the Depression and its recovery. Great documentary!
Why the Jews?: Thought-provoking documentary on the social, scientific, economic, and artistic accomplishments of Jewish populations.
|
|
SELECTED INSIGHTS
“There are as many opinions as there are experts.”
- FDR
“Take a method and try it. If it fails, admit it frankly, and try another. But by all means, try something.”
- FDR
“Sometimes you have to play a long time to be able to play like yourself.”
- Miles Davis
“The correct lesson to learn from surprises is that the world is surprising.”
- Morgan Housel
|
|
Matthew Lekushoff
416-777-6368
matthew.lekushoff@raymondjames.ca
|
|
This provides links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James Ltd. Member-Canadian Investor Protection Fund. Unless otherwise mentioned, all market returns are sourced from Thompson One. |
|
|
|
|
|
|
