Portfolio Manager’s Weekly Commentary

Daryl Cooper

August 26, 2016

Gold, Silver and Bondz
Sweating it out for a winner portfolio
August 26, 2016

The Rio Olympics have come and gone and the Canadian team surprised even themselves with a wonderful medal haul. It provided many of us with hours of entertainment seeing our young athletes compete at the highest level.

One medal we didn’t win and then we did, and then again we didn’t, was the men’s 50km race walking. Our athlete, Evan Dunfee came in fourth but then was awarded third when the Japanese walker was disqualified only to have his bronze medal stripped when the Japanese won an appeal. I apologize in advance if I offend anyone but race walking has to be one of the silliest sports, at least to watch. Not taking anything away for the athletic ability it takes to walk 50km (reminds me of the stories my parents and their friends told us about when going to school back in the 40’s). But I digress, they walked uphill both ways. (Just kidding-geez, I may offend everyone before I am done here) ps: My Dad only had 200 yards to walk and he was still late most days.

The 50km race walk reminded me of this year’s stock and bond market, going hard and sweating it out but not really making a run for it. When you watch these people walk you can’t help but wonder when a hip is going to blow out. That is another vibe that the market has given off all year, wobbling back and forth yet hanging in there.

This kind of market malaise isn’t normal but has occurred in the past and eventually results in either breaking out of the walk into a sprint, or at least a jog, or a hip pops and down we fall. No one knows for sure as a gallant tug-of-war continues (now there’s an Olympic sport that would be fun to watch). But one trend that we see consistent has been the strength of the bond market.

Even with over one third of the worlds bonds now charging you to own them (negative interest rates) rather than paying you, they still remain popular. There are numerous answers as to why investors keep snapping up bonds and one is that they are considered safe havens and investors buying negative yield bonds are betting that they will go even more negative and thus capture a capital gain.

This trend in interest rates is likely to last a very long time and as such the market has no idea what to do so it sits and contemplates until a catalyst comes along to break this walk. The market will either pop up or pop a hip. Until then I would recommend one should stay invested but be guarded. An investor must stay in the asset classes that have the best momentum and be vigilant to avoid the weak. As world leading (sarcasm) ultra-spiritualist, JP Sears says in his Olympic video, https://www.youtube.com/watch?v=_Y9z_8fBF5U this is where the superior nations (asset classes) show clear dominance over the inferior ones.

 

The superior asset classes have been bonds, precious metals and North American stocks, in that order. When it comes to bonds we carefully select and continually scrutinize four bond managers. Stocks, we invest only in those that are attracting the most attention and therefore have forward momentum. Precious metals we have a position in both bullion and mining companies.  Gold and silver have been trending higher as they are an attractive alternative to bonds as safe havens. With bonds paying little to nothing in interest rates, hard assets like these have become more popular.

The race walk won’t last forever and thank goodness. But now more than ever one has to be extra vigilant and on top of the game because one day it will pop and the trends will be evident. Until then, we remain open to any eventuality and ready to defend and prosper.

Daryl Cooper
Portfolio Manager
I found this quote from billionaire George Soros to be quite suitable for this week’s blog, at least somewhat inspiring for the current market doldrums: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”

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