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Freedom!

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Posted by Brent Woyat

on Monday, 26 March 2018 16:10

Trade freedom has been dominating the headlines and adding to the growing economic risks and market volatility. Trump’s tariffs on steel and aluminium imports have prompted fears of a trade war, albeit with a low probability and with some comfort offered with the exemption clauses. This does, however, remind us that negotiating with the US is difficult and that NAFTA negotiations have yet to be resolved. A more important and difficult issue is that of intellectual property rights in relation to China. For now, markets seem to be looking through the bravado because it is mutually beneficial for all sides to avoid a trade war which would negatively impact global economic growth prospects. This week we quantify trade freedoms to validate that seemingly prosaic position.

Using data from The Heritage Foundation, we see there have been notable reductions in trade barriers across the world over the past twenty or so years. Figure 1 highlights the Trade Freedom Index – for the world and four major economies. The Index is a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services. Trade freedom for the world has improved from under 60 per cent in 1995 to just under 80 per cent in 2018. The US along with Canada and Germany are close to 90% on the trade freedom score. In the case of China, there has been significant improvement from 20 per cent in 1995 to over 70 per cent in the latest measure. The rhetoric really does seem to be misplaced.

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If Trump wants to bash China, maybe he should be focusing on investment freedoms (constraints on the flow of investment capital, and financial freedom which is a measure of banking efficiency and independence from government control). Measures that track investment freedoms have deteriorated over the past twenty years. We suspect that common sense will eventually prevail and that the market is correct to heavily discount the prospect of a trade war and focus instead on the improving fundamentals.

The US economy created 313,000 new jobs in February which was the biggest gain since mid-2016 according to the non-farm payrolls, a key leading indicator of economic activity. Jobs created in January and December were revised up to 239,000 and 175,000 respectively. The unemployment rate was unchanged at 4.1% last month. Average hourly earnings, which had spooked market fear of heightened inflationary pressures, rose by just 2.6 per cent year-on-year in February down from 2.8 per cent in January (which in turn was revised down from 2.9%). The inflation scare seems to have passed, but growth remains buoyant with the University of Michigan Consumer Sentiment Indicator coming in strong and with the economy projected to grow by some 2.8% annualised in Q1 2018 from 2.6% in Q4 2017 according to the Atlanta Federal Reserve GDPNow model.

The economic fundamentals are important and we validate that in Figure 2 which highlights the close relationship between the S&P 5000 Index performance versus an economic composite indicator since 1998. The economic composite indicator is a blend of the Michigan Consumer Sentiment Index, the initial jobless claims and the CRB Spot Index. As George Michael might have said, “I think there's something you should know…”, we should be focussing on the fundamentals and discounting the rhetoric for now.

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Brent Woyat, CIM, CMT

Investment Advisor, Portfolio Manager

Canaccord Genuity Wealth Management

T: 604.699.0869 | F: 604.643.1802

www.brentwoyat.com

All information is given as of the date appearing in this document and Canaccord Genuity Wealth Management (CGWM) does not assume any obligation to update it or to advise on further developments related. All this information has been compiled from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do CGWM assume any liability.

All views expressed in this document are provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities. The statements expressed herein are not intended to provide tax, legal or financial advice, and under no circumstances should be construed as a solicitation to act as a securities broker or dealer in any jurisdiction. All views are intended for general circulation to clients and do not have any regard to the specific investment objectives, financial situation or general needs of any particular person.

Forward-looking statements and past performance are not guarantees of future results. To the fullest extent permitted by law, neither CGWM nor its affiliates or any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained in this document. Canaccord Genuity Wealth Management in Canada is a division of Canaccord Genuity Corp. Member – Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada



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Personal Finance

The Way to Survive Hyperinflation

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Posted by Martin Armstrong - Armstrong Economics

on Thursday, 22 March 2018 06:22

Martin Armstrong gives advice to a Venezuelan gentleman whose pension payout no longer can buy him a hamburger. A circumstance no longer an impossibility with the pension crisis unfolding as we speak in Canada & the US . Great advice for those expecting a pension -  R. Zurrer for Moneytalks

Venezulea-Hyperinflation

COMMENT: Mr. Armstrong; I just wanted to comment that I am from Venezuela. My father came here to visit me in Florida where I live with a Green Card. Everything he saved in life for his retirement is now worthless and it does not even pay to travel back to collect his pension. The hyperinflation is a collapse in the confidence of government as you have explained. Those who saved for their retirement and had pensions, lose everything. They will be paid the amount that they were promised, but it will not even buy a single night’s dinner and soon a beer.

Thank you for your contribution to society. I wish more people would listen to you. Experience is the root of knowledge. Opinion is the root of bias. You have proven that

JE

REPLY: To survive hyperinflation requires the holding oftangible assets and never cash or pensions. The way pensions can be devalued is through inflation over the course of time and circumstance. What I paid into Social Security will never come back to me in terms of real purchasing power and that is without hyperinflation. I have stated before, I met with the Treasury back during the Reagan Administration and said these insane levels of interest rates will triple the national debt in less than 10 years. They simply responded; Yes but we will be paying back with cheaper dollars.

All promises of government are simply eroded with inflation. That is why Southern Europe fell into such chaos. The currency doubled instead of declining when the joined the Euro. That is why Europe has been a failure under this political-economic philosophy. The Euro first crashed, and then doubled in value. Southern Europe was used to deflation always reducing their debts. Suddenly, their debts doubled. And people cannot figure out why the Euro is in such trouble?

I do like your saying though. It is spot on.

....also from Martin: When Timing is Everything – The Failed Graf Zeppelin Venture

IBEUUS-Y-TEK-TO-2020-1-22-2016



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Personal Finance

Martin Armstrong: Asset Allocation & Diversification

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Posted by Martin Armstrong - Armstrong Economics

on Wednesday, 07 February 2018 06:28

Asset-InvestmentQUESTION: You do not believe in wide diversification?

ANSWER: No. Wide diversification is only required when the investor does not have a clue about what is going on in the markets. We have asset allocation models for Institutions who simply believe they must have some diversification. The main objective is to limit the areas they will take losses on because of diversification. Why buy government bonds when you know we are at a 5,000 low? I am sorry, but sometimes the allocation to a particular segment should be ZERO!

 

....also from Martin:

Will the Market Make New Highs Again?



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Personal Finance

Inside Warren Buffett’s Brain

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Posted by VisualCapitalist.com

on Monday, 29 January 2018 06:49

f3bcb052-8a80-43ad-b851-d5404860b10dWhat springs to mind when you think of legendary investor Warren Buffett?

For some, it’s his humble Omaha origins or his long-lasting obsession with Coca-Cola. For other people, it’s Buffett’s impeccable investing track record and extraordinary wealth that make a lasting impression.

While these are all legitimate connections to make with the Buffett name, perhaps he is most synonymous with the discipline of value investing – the style and mindset Buffett has made famous over the decades.

Today’s infographic provides a deep dive into Warren Buffett’s brain, and it explains everything about his investing philosophy, along with the framework he uses to evaluate potential opportunities.

It’s the second part of the Warren Buffett Series, which we’ve done in partnership with finder.com, a personal finance site that helps people make better decisions – whether they want to jump on the cryptocurrency craze or follow Buffett’s more traditional path to financial success.



Read more...

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Personal Finance

Back to the Norm - Equity vs Real Estate

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Posted by Brent Woyat

on Tuesday, 23 January 2018 18:29

At the end of last year, the Federal Reserve Bank of San Francisco published a paper* on historical rates of return of major assets. The particularly interesting aspect of this paper was the exhaustive lengths that team went through to assemble a truly impressive database of returns across developed nations stretching back almost 150 years. After the extraordinary returns seen last year from US equities, we think it is worthwhile to take a moment and recalibrate expectations around what might be considered “more normal” in a long-run historical context.

It turns out that the long-run average equity return has been just over 10% since 1870 across developed nations (Figure 1), and it is something closer to that which we should be expecting this year, rather than a repeat of the 22% returns seen last year.

More than that, however, the report shows that the proportion of investible assets across developed countries is roughly 25% in equities (Figure 3). In the US, however, that proportion is much higher at roughly 40%. The equity gains seen last year will therefore likely fuel consumption going forward disproportionately in the US rather than other developed nations.

Perhaps the other notable deviation from the normal is the UK, where the proportion of investible assets held in real estate is 27% compared to the average which is just 20%. The UK real estate market has been held back significantly since BREXIT, and that will no doubt be yet another factor holding back the UK consumer as wealth effects remain muted.

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The report also shows that average returns from real estate and equities have been roughly similar, but equity volatility has been twice that of real estate (Figure 1). Part of the difference can be explained by the way in which the data has been collected - a more comparable method (year average returns for equities rather than year-end returns) would lower equity volatility by roughly one fifth. We suspect that real estate markets by their very nature also hide true price discovery on a real-time basis because transactions are so infrequent, and that is one reason why REITS are so much more volatile than real estate price indices.

Nevertheless, real estate investing seems to make sense for many households over and above equity investing for other practical reasons too. It is much easier to lever investment into real estate than equities, and there are obvious non-price utility gains from owning real estate, often combined with favourable tax treatments to gains from real estate (particularly if a primary residence).

In addition, the study by the San Francisco Federal Reserve noted another interesting comparison between equities and real estate, which has been the low level of co-variance or correlation between real estate investments across different countries as opposed to equities. For investors looking to reduce the correlation of returns within their portfolios, international real estate compares well in this report, and is something to which we plan to examine more closely in the future.

For now, we can’t help but recognize how this year has started in much the same way as the last one ended. US equities are up more than 5% in the first few weeks of the year. As bullish as we are on the coordinated global growth outlook, we suggest that this pace of return can’t last forever, and that investors should be recalibrating expectations back down towards longer-term averages.

Brent Woyat, CIM, CMT
Investment Advisor, Portfolio Manager
Canaccord Genuity Wealth Management
T: 604.699.0869 | F: 604.643.1802
www.brentwoyat.com

All information is given as of the date appearing in this document and Canaccord Genuity Wealth Management (CGWM) does not assume any obligation to update it or to advise on further developments related. All this information has been compiled from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do CGWM assume any liability.
All views expressed in this document are provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities. The statements expressed herein are not intended to provide tax, legal or financial advice, and under no circumstances should be construed as a solicitation to act as a securities broker or dealer in any jurisdiction. All views are intended for general circulation to clients and do not have any regard to the specific investment objectives, financial situation or general needs of any particular person.
Forward-looking statements and past performance are not guarantees of future results. To the fullest extent permitted by law, neither CGWM nor its affiliates or any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained in this document. Canaccord Genuity Wealth Management in Canada is a division of Canaccord Genuity Corp. Member – Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.



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