In relationships the three most powerful words are “I love you”. The markets only needed two words to feel loved this week and those words were “just below”.

“Just below” refers to the US Federal Reserve Chairman referring to how close they are from a neutral interest rate. They said they are currently just below that rate. We believe they are going to raise rates in December with two more in 2019. The narrative out from the Fed for most of year and October specifically was that they were “a long way” from neutral rates which inferred three or more rate increases in 2019.

Neutral rates refer to being neither stimulative nor stunting to economic growth. They felt that the economics had warranted rate increases out of the emergency stimulus that was put in place about 10 years ago. 

This week, most of the Canadian banks reported earnings and will touch on that in our conclusion.

As always there are distractions, the facts, conclusions and our weekly wealth tip. 


Net sales at US malls and brick and mortar stores fell 4%-7% year over year on Thanksgiving and Black Friday. This doesn’t mean the US consumer isn’t buying.The buying was actually pretty good with online sales rising 20+% according to some firms.

US President Trump said he expects to raise tariffs on $200B worth of Chinese goods to 25% from 10% on January 1st. This is the week of the G20 meeting where the two leaders are expected to have a dinner meeting accompanied by delegates. Perhaps the US is turning up the pressure only to pull back and get some sort of a deal. Trump will be looking to get a win before the house turns democrat and he has less allies in Washington. 

Soy beans imports from China are down drastically to a fraction of of the $12B they bought last year. China typically buys about 60% of US soy exports. In place, Argentina and Brazil have been buying up some of the reduced priced product. To some extent Canada has reaped a benefit by selling their soybeans to China at a premium to what they would normally sell them for. Interestingly, many of the US soybean producing states came up republican during the midterm elections.

Russia and Ukraine have had some recent naval skirmishes where there is a dispute about who fired first however several Ukrainian naval vessels were taken captive by Russia as they were fired on by the Russians and the Russians were treating the Ukrainians for their injuries. Russia also planned to deploy more surface to air missile systems to Crimea.

Those are some of the headlines.

The Facts:


  • US Dallas Fed Manufacturing Index 17.6 from 29.4 previously
  • UK Finance Mortgage Approvals 39.697k from 38.712k
  • German lfo business climate, current conditions and expectations all decreased


  • US Redbook retail sales YoY 7.9% from 6.2% (an all time high)
  • US Case-Shiller Home Price YoY 5.1% from 5.5%


  • US mortgage applications 5.5% from -0.1%
  • US QDP Growth Rate QoQ 3.5% from 4.2%
  • US New Home Sales MoM -8.9% from 1% (definitely broken trend)
  • Germany: GfK Consumer Confidence 10.4 from 10.6


  • US Initial Jobless Claims 234k from 224k
  • US Core PCE Price Index YoY 1.8% from 1.9%
  • UK Mortgage Approvals 67.09k from 65.73k
  • Germany Unemployment Rate 5% from 5.1%
  • Germany Inflation Rate YoY 2.3% from 2.5%


  • Canada GDP Growth Rate QoQ 0.5% from 0.7%


The data shows slowing GDP growth in the US, Canada and last week we saw German GDP growth go negative QoQ. The US consumer was looking better with an increase in retail sales and mortgage applications however new home sales declined and the initial jobless claims ticked up.

The overall take is that the data is forcing the US Fed to be less aggressive on its interest rate increases and that was a major driver for the market rise on Wednesday. The G20 meetings are also being closely watched as there are expectation of trade discussions and hopes of easing in trade tensions.

We believe any easing of trade tensions with a backdrop of more accommodative interest rates will be positive for the markets, reduce uncertainty and spur business and consumer activity.

If trade tensions are dragged on then uncertainty will remain, supply lines will continue to be shifted and there will be economic loss as efficiency is lowered during these times of change.

Even if the trade tensions with China are sorted out then there is still Germany, Japan and other countries that the US is trying to make changes with.

We will wait and see what this weekend brings and reassess next week.

We listened to the bank earnings calls of Scotia, RBC, CIBC and TD this week. Analysts had lots of questions about provisions for credit loss and question about how the banks are expecting to get growth of around 10% for commercial real estate when GDP growth is around 3%. Generally speaking the answers were that companies were starting to invest in themselves through real estate and capital spending. Provisions for credit losses will be watched very closely with credit card losses being the leading indicator for credit troubles. People will pay their mortgage first as they value having a place to live and pay their credit card last. As a result, credit troubles usually show up in the credit card portfolios first.

Weekly Wealth Tip:

If you’re looking for a great book on punctuality I highly recommend the book never be late again: 7 cures for the punctually challenged by Diana DeLonzor. It’s a fun read and really insightful. Prior to reading the book I was on time most of the time but sometimes I just didn’t care or I prioritized putting one activity over another. I was also rushing to get one last thing in before leaving. This book goes in to the thought process and was incredibly insightful not only into why I’m late but myself but also my thought process behind being late. So if you have a punctually challenged person in your life, this book may be a great Christmas gift.

So what does this have to do with money and investing? Being early, late or on time to an idea like rising rates, democrats taking the house, trade tensions easing and other themes and thesis that are playing out have everything to do with timing.

There was no way to know that Jerome Powell was going to put “just below” in his speech to the Economic Club of New York and if you had sold prior you would have missed out on a spectacular day in the markets. You might have also missed some of the prior pain.

The point is this. You need to get there in time and you can’t do that by being late. I believe that in 3 to 5 years that the markets will be higher than where they are today even though we are coming off of a very low interest rate environment and one of the longest bull markets in recent history.

While I won’t get everything right, I know that cash earning below interest inflation rates and being taxed is a definite way to lose money even though the dollar figure balance doesn’t go down. Just because you don’t see the eroding effects of inflation doesn’t mean that it doesn’t exist.

The point is this. Stop being late. Save and put that money to work.

Invest in yourself to get a higher income, save that money, and put it to work in an investment. Do it now and don’t be late.

Until next week,

Trevor Dale, CFA