We have seen some big intraday swings this week and we like it. In our opinion it means that there is a battle going on between buying and selling. We also think that it means a change of direction which has been down recently. Further, while there are some excesses in the market we are not seeing any major spikes up in prices from oil, to the markets, to bonds, to the VIX. Inflation is reasonable and the pace of interest rate hikes by the US FOMC is steady and well telegraphed. There is little doubt in our mind that should economic conditions deteriorate in the US that they would keep rates steady or look at lowering rates.

Distractions:

There is an interesting theory circulating around the media that Trump tricked Saudi Arabia into keeping oil output high in order to lower prices. There was promise of Iran sanctions however when the sanctions came through there was an exemption for some of Iran’s largest buyers. Saudi Arabia then said that they were reducing output. Trump has been criticizing OPEC and high oil prices saying that they should be much lower. Is this a calculated move? Perhaps. Either way, we know that oil prices are now considerably lower (at one point 20% below the October 2018 peak) and this bodes well for companies that require energy. It should also help to keep inflation in check and cause the US FOMC to be patient in their attempts to raise interest rates as their mandate is full employment (achieved) and price stability which means to keep inflation around 2% (2.5% October 2018).

Looks like Theresa May will be out of a job soon as the discourse over the terms of a BREXIT deal don’t seem to appeal many in the government. There is talk that her own party may look to have her removed. This is likely a risk-on sentiment as a deal will be further away and it will introduce greater uncertainty into the markets.

Canada and China look to ink a free trade deal however the USMCA trade deal specifies that if a member enters a free trade deal with a “non-market” country, the others can quit in six months and form their own bilateral trade pact. Trudeau is saying it bring transparency while it can also be used as leverage against Canada in our opinion.

Those are the distractions. Now for the facts.

The Facts:

Tuesday:

  • Germany: Inflation rate 2.5% from 2.3% previously
  • US: Redbook YoY Sales flat at 6.1%
  • UK: Unemployment Rate 4.1% from 4%
  • UK: Average earning excluding bonus 3.2% from 3.1%

Wednesday:

  • Germany: GDP Growth Rate QoQ -0.2% from 0.5%
  • China: Retail Sales YoY 8.6% from 9.2%
  • China: Industrial Production YoY 5.9% from 5.8%
  • UK: Core Inflation YoY steady at 1.9%
  • US: Mortgage applications -3.2% from -4%
  • US: Inflation Rate YoY: 2.5% from 2.3%, Core Inflation YoY 2.1% from 2.2%

Thursday:

  • US: Initial Jobless Claims 216k from 214k
  • US: Retail Sales 0.8% from -0.1%
  • Canada: ADP Employment Change -23k from 28.8k
  • Canada: New Motor Vehicle Sales 177.8k from 185.2k

Friday:

  • US: Industrial Production YoY 4.1% from 5.6%
  • US: Manufacturing Production YoY 2.7% from 3.8%

Conclusion:

Vehicle sales in Canada seem to have peaked in 2017 and the peak level for this year was roughly in line with last year. It seems like a top to us and given the amount of debt Canadians hold, a rising interest rate environment and tougher lending rules in the mortgage sector we see little opportunity to have an above average economic performance relative to the US and Germany. The UK seems to be in a little trouble with unemployment ticking up slightly, financial companies moving employees out of the country to France and Germany and a backdrop of BREXIT uncertainty.

The US is slowing on the industrial and manufacturing production fronts but still positive. Mortgage applications are down and have been slowing. Retail sales and jobless claims are strong with the markets having sold off, we see value in the US. Our concern is Germany having negative growth this quarter and are keeping a keep eye on it for further signals of a recession. 

Our focus is still the US, followed by Germany and we avoid Canadian equities where possible.

Weekly Wealth Tip:

Expenses are the one thing that most people can avoid and reduce immediately. We can take a number of immediate measures as discussed previously however what about the hidden fees that you don’t see?

Your portfolio is one area were you can save considerable amounts of money. $1k, $2k, $6k, $10k annually.

Many bank mutual funds and funds that independent advisors use have fees that are well over 2%. Some as high as 3%. Plus some have deferred sales charges which you will pay up to 6+ years after the purchase of these funds. Those companies that have deferred sales charges (DSC’s) will remain nameless for now… If an investor wants to leave TK Dale Wealth, we will not punish them for leaving and think they should be able to do so without undue stress.

A 1% reduction of fees on a $100k portfolio is $1,000 per year. Sure no big deal when you aren’t paying the extra $83 per month out of pocket. Instead it slowly erodes your investment portfolio from the growth it would have otherwise had if the fees were lower.

$600k and a 1% annual fee reduction is $6,000 per year or $500 per month.

Would you pay $500 out of pocket if asked to?

Further what if you could keep the $6,000 and compound the return over the next 10, 20 or 30+ years? This can have a significant impact to many people’s retirement.

We save many people money in fees, provide top tier service and actively manage their investments for them throughout the year. Why continue to pay the extra fees for less service. Let’s talk today!

Until next week.

Trevor Dale, CFA

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