Wealth Building Strategies

Wealth Building Strategies

Seeking Value in an Expensive World

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Posted by David Rosenberg - Chief Economist & Strategist, Gluskin Sheff

on Wednesday, 29 November 2017 06:42

japan-canadaWell, it’s hard to believe that it’s been a year since Donald Trump got elected, and at least the good news is that we’re still alive. All kidding aside, the question I’ve been fielding ever since November 8th of last year and to this day is how we are investing around Donald Trump, and the answer has not changed one iota, which is that we are not investing around Trumponomics at all.

That often raises eyebrows because we all know that the U.S. stock market indices have continued to hit new record highs almost daily, but I would claim that this has had little to do with the President. Actually, if you had owned the basket of Trump stocks the so-called experts told you to own after last year’s election, you would have woefully lagged behind.

And of course, it goes without saying that the top performing sector by a country mile, and I am talking about technology, was the area we were all supposed to avoid since Silicon Valley would pay the price for not supporting The Donald. And yet the tech universe is up 40% for the year and has nearly doubled the rest of the market. There may be some hope out there that we will see tax reform south of the border, but there are an array of other factors influencing investor sentiment right now. Ongoing supportive global liquidity growth and the vast majority of companies beating their profits and sales estimates are among the reasons.

That said, excessive valuations and the Fed now coupling its rate hikes with balance sheet reduction I think are going to produce some speed bumps for risk appetite in coming months. Between that and the tapering by the ECB and the fact that the Bank of England joined the Fed on the rate-hiking front, are all very likely going to generate a less calm and more choppy market. Though this actually would be a good thing in terms of opening up some buying opportunities, taking advantage of these opportunities will require having some dry powder on hand. 

In terms of our highest conviction calls, given that we are coming off the 100th month anniversary of this economic cycle, the third longest ever and almost double what is normal, it is safe to say that we are pretty late in the game. The question is just how late, and we did some research looking at an array of market and macro variables, and concluded that we are about 90% through, which means we are somewhere past the 7th inning stretch in baseball parlance but not yet the bottom of the 9th. The high-conviction message here is that we have entered a phase of the cycle to be very mindful of risk, to be bolstering the quality of the portfolio, to be focusing on strong balance sheets, minimal refinancing risk and companies with high earnings visibility and predictability, and with low correlations to U.S. GDP. In other words, the exact opposite of how to be positioned in the early innings of the cycle where it is perfectly appropriate to be extremely pro-cyclical.

So it’s either about investing around late-cycle thematics in North America or it is about heading to other geographies that are closer to mid cycle — and that would include Europe, segments of the Emerging Market space where the fundamentals have really improved, and also primarily in Japan. These markets are not only mid cycle and as such have a longer runway for growth, but also trade relatively inexpensively in a world where value is scarce, and for the most part, still have friendly central banks keeping liquidity conditions flush.

I would have to say that if there is a market that has broken out of a 25-year secular downtrend, and where the economic and political tailwinds are significant, it is in Japan. I get told all the time that Japan’s population is declining, but we are buying companies, not bodies, and the bottom line is that even with this declining population, earnings momentum is on the rise and profit margins in Japan are on an impressive expansion phase, and not nearly priced in. In fact, Japan is one of the few markets globally that is not trading at premium multiples relative to its history and is an under-owned market both globally and locally. 

Turning to Canada, there is some visibility here in the oil price given: the high degree of OPEC compliance and the strong likelihood of an extension to the output cut agreement; the drawdown in US inventories; declines in global storage; solid world demand especially from oil-hungry emerging markets; and a geopolitical risk premium coming back into the market because of the uncertainties now over the Iran deal which sits in Congress and these tensions between Iraq and the Kurds. The shape of the curve doesn’t lie and the recent move from contango to backwardation is an added sign of how tight the crude market has become. The beauty here is that the Canadian E&P stocks are not priced for where oil is today, and over the near term there is more upside potential than downside risk. So they look attractively priced here, once again in a world where inexpensive assets are in short supply. And given the correlations between energy and the Canadian banks, this is good news for this sector as well.



Wealth Building Strategies

Six Themes That Will Drive the Next Five Years

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Posted by Robert Huebscher - Advisor Perspectives

on Tuesday, 28 November 2017 06:47


Those looking for an optimistic forecast for U.S. equities can turn to Northern Trust. Bob Browne, its chief investment officer, identified six themes that will drive the capital markets over the next five years. Taken together, they translate to 5.9% annual returns for U.S. stocks over that period, which includes 2017.

Browne spoke at the Schwab IMPACT conference in Chicago on November 15. He oversees much of the $1.1 trillion under management at Northern Trust.

Browne predicted that developed markets, exclusive of the U.S., will earn 6.8% and emerging markets will return 8.4%. Because U.S. markets have returned so well this year, with equities returning approximately 17% year-to-date, he said we are “stealing future returns” in 2017.

How does he get 5.9% returns with PE ratios starting at approximately 20?

Browne said that revenue growth would contribute 4.3% annually (consisting of 2% from inflation and 2.3% from nominal GDP growth), 1.9% from dividends and 0.9% from enhanced margins and stock buybacks. Those numbers add up to 7.1%, but he applied a 1.2% “haircut” to account for valuations (PE ratios) “normalizing” to get to 5.9%.

Browne is not predicting a recession in the U.S. over the next five years.

He said the emerging market returns will be higher mostly because of stronger revenue growth at 6.7%.

Here are the six themes that Browne said should matter to investors:

....continue reading HERE



Wealth Building Strategies

The Bonfire Burns On

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Posted by John Mauldin

on Monday, 27 November 2017 07:06

Leverage, American Style
Against the Crowd
Liquidity Lost
Mobbing the Exits
Home for Christmas, then Hong Kong

“Life invests itself with inevitable conditions, which the unwise seek to dodge, which one and another brags that he does not know, that they do not touch him; but the brag is on his lips, the conditions are in his soul. If he escapes them in one part they attack him in another more vital part. If he has escaped them in form and in the appearance, it is because he has resisted his life and fled from himself, and the retribution is so much death.” 

                                                                       – Ralph Waldo Emerson, “Compensation”

Bonfires are fun to watch, but they eventually burn out. Human folly apparently doesn’t, so we just keep adding to the absurdities. The volume of daily economic lunacy that lights up my various devices is truly stunning, and it seems to be increasing. I shared a little of it with you in last week’s “Bonfire of the Absurdities.” Since it’s a holiday weekend and I was traveling all week, today I’ll just give you a few more absurdities to ponder. And this shorter letter will lighten your weekend reading load.


First, let me thank everyone who took my advice to register early for my next Strategic Investment Conference, March 6–9, 2018, in San Diego. Hundreds of you are now confirmed to attend. I know many more intend to do so. Sadly, we can’t accommodate an unlimited number of you. I can’t say when we will reach capacity, but I hope it is soon. I am in negotiations right now with a very familiar name whose economic views are, shall we say, different from mine. Our idea is to debate those differences in front of an audience. Fireworks will likely ensue. But, to get this to happen, I need some numbers to line up. You can help by registering for the conference now. Click here for more information.

Now, on with the absurdities.

Leverage, American Style

When I asked my “kitchen cabinet” of friends for instances of the absurd, Grant Williams sent a monumental slide deck. I guess I should have expected that, as the absurd is one of his specialties. My computer almost melted trying to download the deck, but it finally finished and was worth the wait. Here is just one example of craziness.

This chart is straightforward: It’s outstanding credit as a percentage of GDP. Broadly speaking, this is a measure of how leveraged the US economy is. It was in a sedate 130%–170% range as the economy industrialized in the late 19th and early 20th centuries. It popped higher in the 1920s and 1930s before settling down again. Then came the 1980s. Credit jumped above 200% of GDP and has never looked back. It climbed steadily until 2009 and now hovers over 350%.

Absurd doesn’t do this situation justice. We are mind-bogglingly leveraged. And consider what the chart doesn’t show. Many individuals and businesses carry no debt at all, or certainly less than 350% leverage. That means many others must be leveraged far higher.

Now, the usual economic pundits tell us that the situation is safe and under control and that we all have plenty of cash and cash flow to be able to handle this load of debt. Worrying about debt is so 1900s, they say. And they may have a point, in that many of us are able to use debt in responsible ways. But how about that $1.2 trillion in student debt?

While lending has been a very lucrative business in recent decades, it’s hard to believe it can last. At some point we must experience a great deleveraging. When that happens, it won’t be fun.

Against the Crowd



Wealth Building Strategies

One Of Richard Russell’s Last And Most Shocking Predictions Is Now Unfolding

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Posted by Richard Russell via King World News

on Wednesday, 22 November 2017 06:48

KWN-Russell-I-11232016"I believe a great speculative third phase lies ahead for this bull market. The coming third phase will see the stock market climb far higher than even the bulls think possible.

The question is: is it too late to enter the stock market? In the third phase of a bull market, usually more money is made than in the first two phases combined. Thus, I foresee the possibility of large gains if a third and final speculative phase is ahead. My advice is that you assume an initial position in DIA or SPY on any weakness."

Richard Russell died November 21 2015 - the Dow closed that day at 17,799.

....read more of reasoning HERE


also from King World News:

What Is Happening In The Residential Real Estate Market Is Remarkable




Wealth Building Strategies

Reefer Madness Could Make You Rich

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Posted by Sean Broderick - The Edelson Institute

on Monday, 20 November 2017 06:08

Cannabis stocks have zig-zagged for months. It’s been a regular roller coaster! Now, the next breakout is here. Just how high could this next round of reefer madness take us?

Dude … pretty darned high!

Here’s a chart of the Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ) (OTC Grey: HMLSF). It’s a basket of 37 leading cannabis-related stocks operating in North America.


You can see that HMMJ is on a wild ride. After soaring into August, it slumped all that month. It didn’t make new highs until September. Then it was off to the races until October, until it went into consolidation. Again!

But now … well. Now, it’s time to shatter that ceiling.

The most recent thing to light a firecracker under cannabis stocks is the news that broke on Monday.

Alcohol goliath Constellation Brands is guzzling nearly 10% of Canada’s premier marijuana company, Canopy Growth. It only cost Constellation $190.9 million. Such a deal!



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