Quarterly Commentary – October 2023

We’re almost there!

I just returned from a conference where the global economy, investment markets, and the geopolitical situation were key topics.  The timing of the conference could not have been better!  There were 550 attendees who are part of the top financial advisors from around the world. The credibility of this group attracts some of the greatest minds in the financial world to come speak/share their research, opinions, and recommendations.

Over the 4 days, these were the general thoughts/themes presented:

• It’s not the best of times, but it’s far from the worst of times.

• A recession is likely, but just as likely to be minor.

• Even companies with strong balance sheets and cash-flow statements have seen their stock prices soften, but they’re poised for a solid price recovery as interest rates/inflation stabilizes and retreats.

• The geopolitical situation in Ukraine, Israel, and Gaza is tragic, but has extremely little effect on the global economy.
  • If investment markets move due to geopolitical actions, the movements are relatively minor and short-lived.
• For the most part, big business has made the right decisions with cash and cash flow to manage interest costs and keep their cash positions strong.
  • Very little is being spent on capital projects (i.e. new buildings and infrastructure), more is being spent on R&D to find efficiencies is production and processes.

One of the speakers was Dr. David Kelly.  He has a Ph.D. in economics and is the Chief Global Strategist for J.P. Morgan Asset Management.  He is a pretty big deal in our world and for good reason.  Not only did he take us deep into the technical factors of the global economy and the markets, but he has the gift of making the complicated easy to understand.  Here are the notes I took from his presentation:

• Inflation will keep sliding downwards towards 2%, and he believes it will be below 2% by this time next year.
• With inflation in continued decline, rates will begin to fall by this time next year and fall quickly.
• “Rates go up an escalator and come down an elevator.”
• The economy and households have been resilient because we haven’t spent too much on “things” (cars, etc).
• This will keep the mortgage industry and real estate markets fairly stable.
• Some companies that are carrying large amounts of debt will fail under the pressure of high interest rates, but the large majority of the North American economy is resilient and poised to handle all of this well.
• The unemployment rate is flattening and will begin heading upwards soon.
• This will allow for wage inflation and price inflation to decline, which is good for corporate profitability.
• GIC and CD rates (CD’s are the US version of a GIC) are at their peak and will begin falling shortly… history shows the markets always rally shortly after the peak.
• Start moving out of cash and into well-priced investments.
• “Buy when everyone is feeling scared.”
• “You can’t hurt yourself when you fall out of a basement window!”

I fully appreciate the last 18 months have not been fun in the investment markets.  But, we know these times come and go, just as the growth periods do.  The difference is that the growth periods are generally twice as long as the down periods, and the average of the up and down is a healthy net gain.  This is what we lean on.  We know that we will be rewarded for weathering periods like the last 18 months.

Looking forward, we believe the signs are strengthening that we are at/near the end of this cycle of rising interest rates.  As the central banks have desired, inflation is cooling, economies are slowing, and this begins to set the table for reduced interest rates.  Which, as mentioned earlier, is the precursor for the next period of growth.

Overall, I am very comfortable with the holdings we have in our portfolios.  They have weathered the downturn relatively well, and we are positioned to participate in the growth to come.  And while we wait, there is a steady flow of dividends and distributions being paid into the accounts.

I hope this information is helpful and useful.  Please feel free to reach-out with any questions and we will keep a strong effort to stay on top of the ever-changing investment environment.

All the best,

Bryson

Estate Planning Misconceptions

In this 5-minute webinar, we explore an important but often misunderstood area of financial planning.

Learn More