Monday, October 17, 2016

Q4 Outlook

Looking forwards, having changed her mind a many times, Janet Yellen is most likely to raise interest rates by a quarter percent in December. I can't recall so much anguish about such a little move, ever. It’s not the size of the move but the message it sends to the economy, markets and banks all over the world.   A change in direction means that what started as a dire situation in 2009 with the financial crisis has finally run its course. Of course, it’s only a guess, as much of economics is still as uncertain as quantum mechanics or human psychology. No one has really figured out how it actually works. No wonder they are handing out Nobel prizes each year, hoping some one will do.

In the mean time, investors have to navigate the uncertainty and find ways to make their life savings provide enough income. The days of leaving your money in the bank and hoping to get a return are long gone, not to return any time soon. Last time we faced something like this was 1929 and it took decades before interest rates started to rise meaningfully. Japan has been at it for 30 years trying to nudge the economy with little success. We may do better but that's still a guess.

Our approach to look at business corporations through stock market as a better way to stretch your money has been successful so far and it proved itself again this quarter. What looked like a runaway success investing in gold and oil turned out to be volatile short term euphoria earlier this year. Our avoidance of the resource sector and focus on dividend paying utilities, banks, telephone companies and preferred shares still served us well.  Note that the TSX composite is still hovering nearing its high of 15,000 back in 2007, that is a flat performance except for the dividends in nine years.

We can’t find reasons to change our basic strategy at this time and so we stay the course.

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