Win by losing

Lots to talk about. First, I call BS on Canada’s “win” over inflation. Win by losing, I’d say. I’m not alone on that – see David Rosenberg’s quote below. I take a look at a few winning, and losing sectors in this environment. And then, a very important announcement at the bottom of this blog. You don’t want to miss this one!

 

Don’t trust the government predictions

Remember “transient inflation” back in 2021?

 

As you know, back in 2021 & 2022, ValueTrend didn’t buy into that line being delivered by the Liberal tax n spend USA & Canadian governments. I warned you to hedge your portfolio against inflation buy owning (then, very cheap) commodities.

Its not like anyone warned them:

The Fed:

Here are this years predictions by the Fed. Note the accuracy (not!). Concluding lines from their summary of overall Economic Activity:

Feb ’24: “The outlook for future economic growth remained generally positive, with contacts noting expectations for stronger demand and less restrictive financial conditions over the next 6 to 12 months.”

April ’24: “The economic outlook among contacts was cautiously optimistic, on balance.”

May ’24: “Overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks”

My take: 3 months and a whole new set of predictions. Don’t trust government predictions, policies, or rhetoric. Especially coming into an election!

Canada’s “good” news on CPI

Have you noticed that even though Canada announced lower CPI in May, it still hurts to buy food, shelter and fuel? Real inflation is hitting the lower & middle class in Canada. CPI is lower because nobody is buying anything! Why’s that?

Could be because Canada has:

  • Higher unemployment vs. USA,
  • lowest productivity in G7,
  • lowest GDP growth & GDP/ capita in G7,
  • highest dept/capita in G7,
  • 2nd highest marginal tax rates in G7,
  • Slowest healthcare in the G7
  • Worst housing crises in developed world

The middle class and poor are buying less. Unemployment rises as sales are down.  The economy get crushed (per above bullets), making it look like inflation has been beat. Prices are still high at the grocer, pump and rent, but CPI looks good! .. More on this below, as we look at some sectors.

Canada’s Dunning-Kruger problem.

Former BoC governor Stephen Poloz warns on low business investment, lost productivity

This, after a BNN report of venture capital and new entrepreneurs now leaving Canada after the new Liberal Capital Gains announcement:

“Every economist will tell you, all things equal, raising the capital gains inclusion rate, it’s not the best time in the context for investment” Steven Poloz

Canada wasn’t like this before Trudeau, and it won’t be like this after he’s gone:

Canada has a renowned (and large) commodities industry – the current surge in commodity pricing should be massive for us. Instead, our industry is being crushed by a WOKE Liberal reality-free agenda;

“Goods exports slipping at a -5.1% annual pace at a time of firming commodity markets is truly shocking. First, the current account deficit widened to -C$5.4 billion (-C$21.5 billion at an annual rate) from -C$4.5 billion in the fourth quarter — fast approaching -1.0% relative to GDP. This was the seventh consecutive quarter of red ink, and the fact this has happened against a backdrop of rising commodity prices is very discouraging, since it speaks to the country’s ongoing loss of competitiveness on the global stage” David Rosenberg

 

Earnings driven market?

BearTraps notes:

“Since the huge speculative rally from last October’s nearby low, there has been no change at all in consensus 2024 EPS forecasts and the 2025 estimate has gone up – stop the presses! – by a total of 2%.  Some earnings boom.”

“I keep hearing this has been an ‘earnings-driven’ market. Sure.  EPS is +6% YoY and the S&P 500 is up +26%.  A 3-point multiple expansion from Oct-May is a near-2 SD event and at ~21x on the fwd. P/E, this is the top decile overvalued equity markets of all time”

Years of MMT has created a wealth divide

Spending money like a drunken sailor, keeping rates artificially low = inflation

Low rates, + money supply = Those with assets (houses, investment portfolios, etc) became wealthy. Those without those assets – not so much. Higher groceries, rent, and gas – along with a slowing economy… but thanks to spendy governments, the wealthy are not feeling the pain.:

Lifestyles of the rich & famous: AMEX & FERRARI

VS….

Middle class benchmarks: HOME DEPOT & FORD MOTOR CO.

What you need vs. What you want

Government spending money like a drunken sailor, keeping rates artificially low = inflation.

Slowing economy on almost every metric (see above bullets) = slowing economy.

Stagflation (slowing economy, higher inflation) & the “Buy what I need, not what I want” middle class consumer:

CONSUMER STAPLES UPTREND VS….

CONSUMER DISCRETIONARY FLAT

 

 

Manipulate market prices – go to jail. Except the government!

Strategic Petroleum Reserves “SPR”. Being used to manipulate oil prices.

This week:

– Crude –4.1ml vs -6.5ml 
– US released 485K barrels from SPR, a slowdown from the ~1ml last week

 

Very important announcement!

I just interviewed Larry McDonald of BearTraps. This man is one of the top traders in the world, and has a network of 600 top financial minds contributing to his BearTraps research (to which we subscribe). The man is a plethora of know-how and very much in demand.  I was privileged to to record a video interview where we spoke about positioning your portfolio for the here and now, and beyond!

I WILL BE ALL OVER POSTING THE LINK FOR THIS ONE NEXT WEEK. ITS AN ABSOLUTE MUST SEE!!

6 Comments

  • Always very interesting Keith! Thank you. I also really enjoyed your last video “Don’t invest like this”. Getting some signs of potential short term correction these days… I always find hard to believe how much the uptrends can last and extend. No sense to me. But I guess I’m biaised from my first experience trading the markets (I tested on paper during 1998, 1999. I was so good !!! I tested with a little real $ at the end of 1999 and early 2000 = I was really smart! Then I went all in the market in April 2000 ! I thought I would retire at 23… but I ended up loosing all my savings in that very long 2000-2001-2002 bear market. I learned how the market can be dangerous… maybe I got traumatized too much also. I’m always amazed to see investors pilling in tons of $ in an already overbought market. But it seems to work most of the time.

    Anyway, I believe a good correction could be healthy these days… still waiting…

    Reply
    • Its interesting to see that the set up is there for a correction – but like I always say (borrowed from Howard Marks)–Don’t predict, do prepare! So – we can keep the risks in mind, but we shouldn’t fight the tape. Use my basic rules of selling (read my book Sideways, or take my Online Course): On a weekly chart, a lower low AND a break of the 200 day SMA as the sign to do your first leg out of the market. If the market rallies and fails below the last peak, then you have the next sign to do another leg out. Etc..
      But before that condition, you stay largely invested. We are 20% cash right now (sentiment and seasonal trends are suggesting to hold a bit of cash), but will not sell more until the last high (5200 SPX) is violated. Then we will raise a bit more cash. If the 200 is broken, we get much more serious.
      Keep smiling!

      Reply
  • great stuff Keith. Especially like the recent blog on long bonds. Made a ton of sense to me. I had TLT for last year, but that hasn’t worked real well. Still holding. Added XLB today after BoC dropped rates. On political front, I have to say that Ontario health care has been outstanding for me. Diagnosed prostate cancer in Dec 2021, had prostatectomy in May 2022 … zero PSA after one year indicating we probably got it in time before it got out. The speed & effectiveness probably saved my life. Last Monday, had my first hip replacement. Already walking with a cane today & hip pain is less than before surgery. I am quite pleased & feel very very very fortunate with how our health care system has helped me. BUT BUT BUT … like investing, you have to be heavily informed & involved yourself & DO THE WORK! (review all ur lab tests, choose the best doctors for you, advocate strongly for yourself, question everything). Outstanding work by Dr Hamilton at Princess Margaret & Dr Avram at Juravinski Hospital. You do great work too though I am not always on the same political page but as a social liberal, fiscal conservative there is pretty much nobody that represents me very well. But that’s ok cuz I like to reach out for different perspectives since I learn more that way. But I feel lucky has hell to have been born in Canada.

    Reply

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