MARKET WATCH
August is usually a quiet month. Summer holidays are in full swing with many attempting to soak up those last carefree weeks before September.
But someone forgot to tell the stock markets. This August, especially the second half, has been particularly volatile. The main catalyst has been the U.S., China trade war. Both sides escalated, then de-escalated, the situation with verbal barbs, increased tariffs, and promised accommodations. This activity has been particularly concerning for most investors, considering trade wars often lead to slower economic growth and less global trade.
Most global markets have been trading lower than on August 1, but rebounded strongly off of yesterday and today's (Thursday) gains. Energy companies were initially hit hardest, but have rallied the most these last two days to cut their monthly decline in half. On the other side, Canadian equities, bonds, and gold have all moved higher this month. While the former two have increased slightly, gold has been very strong, rising 8%. It's currently trading near its six-year high, which is an important psychological barrier. Should it breach this level, it could move much higher.
Looking forward, I expect China and the U.S. to continue playing games with each other. Both are proud and stubborn. Yet, both know this trade war is hurting their economies. And the longer it continues, the more each will suffer. But President Trump likely needs the deal sooner. He, in part, won the 2016 election on the promise of a Chinese trade deal to bring back American jobs. Entering next fall's election without a deal could cost him votes in critical swing states.
Given the circumstances, we are maintaining a balanced approach. We own bonds, REITs, and gold to protect against volatility and a potential downturn. For growth, our investments in Canada, energy, and emerging markets should benefit from their low valuations. We also complement these with a few U.S. holdings and an international one as well. Combined with our religious rebalancing process, we are well positioned for the future.
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NEWSLETTER FREQUENCY AND FORMAT
As a reminder, I've decided to adjust my newsletter frequency to once a month, in order to make each one more robust, and to free up time to write more in-depth blog posts (to be shared through this platform and on social media).
I have also added a new feature in the footer of this newsletter where you can be linked to my previous letters.
As always, please feel free to let me know your thoughts (good or bad), as I'd like you to get as much out of these newsletters as possible.
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IN THE REVIEW QUEUE
How Adam Smith Can Change Your Life
by Russ Roberts:
Adam Smith's famous book
The Wealth of Nations
is considered by many to be the foundation of modern economic thought. However, his first book,
The Theory of Moral Sentiments
, was intended to be read before The Wealth of Nations. Although acquiring wealth was important, Smith also believed a person's primary concerns should be focused on how to be happy, how to be a good person, and how to make the world a better place----- the main points of The Theory of Moral Sentiments.
How Adam Smith Can Change Your Life
is about this first book. Given its relative obscurity, Roberts wanted to shed some more light on its ideas and felt a summary, of sorts, would be an easier introduction to Smith's ideas----- perhaps encouraging some to read the book itself.
I enjoyed How Adam Smith Can Change Your life. It's a quick read, its ideas are worth examining, and I found it interesting that celebrity- and status-seeking were also prevalent motives over two centuries ago.
The Power of Vulnerability
by Brene Brown:
Brene Brown is a shame researcher and an expert on vulnerability. Talk about being popular at dinner parties.
The Power of Vulnerability
is a collection of speeches delving into how shame contributes to the struggles of many, and how vulnerability (among other things) can ease that burden. Despite the heavy content, Brown's storytelling, empathy, and sense of humour make it a surprisingly easy listen. But it isn't for everyone.
If you are intrigued, Brown's viral 2010
TED Talk
provides a taste upon which the audiobook expands.
The Ecology Book: Big Ideas Simply Explained
by DK Publishing:
I love reference books, especially those by DK Publishing. I own five of their books (politics, philosophy, sociology, mythology, and now ecology) and intend on acquiring more. I thought it would be fun to read my latest acquisition cover to cover. After doing so, I'm not sure I'd try it again, but it's a great reference book and worth adding to your collection if ecology interests you.
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FROM THE WEB
The No.1 Reason Why Oil Isn't Trading Over $100
by OilPrice.com:
Although oil prices are higher in 2019, they currently trade at lower levels than recent historical averages, largely due to the dramatic increase of U.S. production. As the title suggests, if this were not the case, energy prices would likely be considerably higher.
Trump Kills the Tea Party
by Peter Schiff:
Peter Schiff's article is about hypocrisy, disappointment, and concern. An investor and libertarian, Schiff explains how during the Obama administration, members of the Tea Party hounded the president over "irresponsible" spending and expansion of the U.S. deficit and debt. This outrage occurred despite the near universal agreement that increased spending would prevent the global economy from imploding----- at least during Obama's first term.
Fast forward to the present day. President Trump has had a strong economy, but runs even larger deficits. The Tea Party, however, has been quieter than a church mouse during Sunday Mass. Schiff rightly points out that Republican hypocrisy in the name of party loyalty seems to have trumped (pardon the pun) the values they once claimed sacred. Schiff also explains why he's concerned about the U.S.'s current trillion-dollar deficit, and how it could hurt the economy in the future.
While as a fiscal conservative, I find this Republican double standard shameful, I also like how this article points out the dangers of the increasing U.S. debt levels. Should U.S. debt levels continue to increase, we will continue to own bonds and gold (and might increase these holdings), as protection from potential economic instability.
The article's main focus is on the recent right-leaning
Fraser Institute report
,
which found the average Canadian household pays 44% of its income in taxes. After reading the report, it seems like the institute took some liberties: using the average (as opposed to
median
)
household income to
artificially inflate
the level of income and, therefore, taxes paid, given how
marginal tax rates
are calculated; including corporate taxes, but omitting RRSP contributions (that lower taxes); and lacking in overall transparency for their calculations.
Towards the article's end, Lagerquist mentions a
2017 report by the left-leaning Broadbent Institute
. This report claimed the average Canadian family's tax rate was only 24%. By my calculations, the report seemed to understate the median income by about $20,000 per family and to have used erroneously low tax brackets (I used the
Simple Tax website
to confirm)----- both of which would make the taxes paid look lower than actuality.
I thought this article was worth sharing because it both highlights how much tax we pay, and exposes the inherent biases of many articles and reports. As citizens and taxpayers, it's important to discuss government's role and whether or not current tax rates can be considered reasonable.
The Invention of Money
by John Lanchester:
Why are the dollars in your pocket or the numbers attributed to your bank account worth anything? This New Yorker article illustrates how the current monetary system is partially based on a system that was created more than 400 years ago.
Universal Laws of the World
by Morgan Housel:
"If something is true in one field, it's probably true in others. Restricting your attention to your own field blinds you to how many important things people from other fields have figured out that are relevant to your own. Here are a few laws----- some scientific, some not---- from specific fields that hold universal truths."
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FOR THE VISUAL MIND
The Countries With the Highest Housing Bubble Risks
by Visual Capitalist:
A reminder of how expensive Canadian real estate is relative to the rest of the world.
Icarus
by Bryan Fogel:
A friend recommended I watch Icarus (a documentary on Russia's doping scandal) and promised I would love it. He was right! The characters, cinematography, and storytelling are superior. I'm recommending it as enthusiastically to you as my friend did to me. Here is the
trailer
for a sneak peek.
I Can't Handle This Right Now
by Bo Burnham:
Comedians have always used their craft to discuss important issues. Lately, I've come across examples of how the art form is evolving in refreshing ways. This video is a prime example. It's funny, entertaining, and surprisingly emotional.
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SELECTED INSIGHTS
"Our flawed neighbors are the mirror that allows us to see our own imperfections and ideally to remedy them."
- Russ Roberts, paraphrasing Adam Smith
"The Universe is full of dots. Connect the right ones and you can draw anything. The important question is not whether the dots you picked are really there, but why you chose to ignore all the others."
- Sam Thomsen
"The qualities most useful to ourselves are, first of all, superior reason and understanding ... and secondly, self-command."
- Adam Smith
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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.
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