Bill’s Blog | September 6, 2024
I hope you had a wonderful summer with family and friends. My wife and I took a couple of trips and enjoyed Vancouver Island and the Fraser Valley. There is so much beauty in our backyard to appreciate and enjoy.
So, what are the main themes and concerns to consider for the last few months of the year? I will cover the big four themes to be aware of and possible solutions.
I have written for several years now, that we are in a war cycle, and even though the stock markets have fundamentally ignored the wars and the potential new ones (South China Sea growing conflicts), we need to be prepared if things escalate. Having properly diversified assets in multiple baskets can help prevent significant losses. Also, having basic essential supplies (2 to 3 months) is wise in these uncertain times. Finally, having a solid network of family and friends is necessary if things become more challenging.
Beyond war, the second theme is the upcoming elections near home (USA, BC and possibly Canada). Big government means low economic productivity, endless tax increases and new regulations. Governments that continue to run massive deficits create inflation and devalue our currency. Inflation is a theft created to rob you and me of our hard-earned dollars. The BC election will have a significant impact on our lives and our cost of living. If you want less money, huge taxes and unaffordable housing keep voting socialist governments. The US is deeply divided and the election may create social unrest as many experts have warned. It is best to avoid US travel until the election settles. Let us hope serious social unrest is not the case, and time will tell as November is only a couple of months away.
The third theme is the growing debt levels of governments, individuals and corporations worldwide and at home. The costs to pay for these debts by the government will mean more taxation. Yes, there are times to take on good debt (productive debt), however, much of the debt is bad debt and places huge burdens on the debtors and creates instability in the economy. We see growing debt defaults across Canada in many sectors and the USA. For years I have encouraged clients and business owners to be very careful with debt. Being debt-free is part of real financial freedom. Take the issue of debt seriously in your personal life, and make the necessary changes to reduce or eliminate debt. If you need help with debt issues, seek out professional guidance.
The fourth trend to follow is the declining interest rates and inflation. Central banks only reduce interest rates when the economy has dramatically declined, and unemployment has risen (both have occurred in Canada). Central banks look out for their commercial bank friends when they see increased debt defaults. Also, they watch out for the debt costs of government borrowing.
Many experts believe we are in a stagnation period similar to the 1970s. Stagnation is defined as high inflation, a struggling economy and higher unemployment. Inflation has moderated, but food prices are still up 24% from 2020. Housing affordability for millions of Canadians is still a serious problem. Rents are up 30 to 50% in many markets. Many essentials are significantly higher than just a few years ago. Generally, the stock market will correct when rates go down. Lastly, inflation/deflation is not a one-way train. We are currently experiencing disinflation, but it is very possible we could have another surge in inflation in the next year or two.
Here are some solid ideas to consider. Having cash or cash equivalents and guaranteed products (life Insurance contracts) is a good idea for a portion of your wealth.
Both gold and silver have had another excellent year with 20% plus gains so far. Many Central banks have been massive buyers of gold for the last few years. Silver is in its fourth year of huge deficits, and in 2024 it will be 250 million ounces short of market demand. On pullbacks build a position in both gold and silver.
Having cash-flowing real estate with limited or no debt is a great diversifer. However, many landlords are struggling with inflation and some are overcharging for rents. I recommend being careful when purchasing real estate right now, as many parts of the market are highly overvalued compared to the historical norms. 60% of Canadian mortgages will be refinanced by 2026, with a 30 to 35% increase in monthly payments (based on a recent RBC report). The increased payment costs will become a major problem for many homeowners. Also, with growing inventories of homes in many markets, it will become more difficult to sell, so keep this in mind if you need to sell.
A diverse basket of stocks and bonds that are actively managed with the skillset to hedge the portfolio. Passively managed funds do not do well in a falling market. Be very selective and careful as the markets are very volatile.
Carefully chosen investments outside the stock markets, like private REITs with long-term proven management.
Many life insurance strategies are tax-efficient, excellent for estate planning, and provide solid long-term returns and guarantees.
Lastly taking a small position in speculative assets you have carefully researched can add diversification and potential upside gains/or potential big losses! Do your due diligence and do not invest what you cannot afford to lose. Lastly, I strongly recommend never to borrow for speculative assets, as it is too risky.
In summary, the overall markets will be volatile over the remainder of the year. AI boom has moderated, as the daring Nivida appears to be correcting and other semi-conductors will follow. The stock market overall has had a great year and solid returns. Mid-term bonds 2 years plus are finally getting a bid. Yes, there are still solid opportunities, but one needs to be selective and proactive with your investments. I recommend being cautious in the current market with rates about to drop. Knowing asset and market cycles and applying this to your investment decisions is critical. If you need guidance please reach out to me.
PS Mark Taucar of Accilent Capital Management Inc. (Active Discretionary Portfolio Manager) will be in the Vancouver/Fraser Valley region from September 29 to October 4. Mark has over 25 years of experience building portfolios and managing them. Mark focuses mainly on pre-retirees or retired individuals who want their wealth preserved and provide stable incomes. If you would like to meet with Mark and discuss him potentially managing your portfolio we can set up a coffee meeting. Also, if you are an existing client of Marks and would like to meet, I can arrange that for you. Please let me know as soon as possible.
All the best in the fall of 2024
Bill Westmacott, is a solution provider for life insurance strategies (BC) and investment ideas.