Portfolio Manager’s Weekly Commentary

Daryl Cooper

September 2, 2016

Embrace what is given and get ready for a September to remember
September 2, 2016

As we start the month of September we are reminded that summer is almost over and the fall season officially begins. I love the fall; the freshness of the crisp air, beautiful memories of life on the farm during harvest and even that excitement of back to school. It goes without saying it is my favourite season.

It is also back to work time for most market participants.  The big boys and girls that do the bulk of trading get back to work in earnest after Labour Day and this is when things get interesting. And so we believe September is the most volatile month for the world’s markets. So come to expect a lot more going on in the next 30 days than we’ve seen in a long time. This shouldn’t be viewed as bad, in fact we believe that given our current indicators we should embrace the volatility and take advantage of others fears if that materializes. Our indicators have remained as strong as the market has remained resilient.

In light of slow global growth we believe the market has remained strong due to Brexit, negative interest rates and so on. We also attribute it to “the world’s Central Banks unrelenting support to keep the markets buoyant”.  Who are we to not appreciate what is given?

This support has come in the form of Quantitative Easing (QE) (https://en.wikipedia.org/wiki/Quantitative_easing).  Even at Janet Yellen’s (of the US Federal Reserve) latest speech she said that she “might” raise rates in the US but would do whatever is required including QE #4 to avoid a recession.

Many pundits aptly point out, and it has been mentioned here, that this is unprecedented and the long term outcome is unknown. Skepticism abounds and so the stories we read can prove to be worrisome.  Surprisingly this Keynesian style policy has worked and stopped recession in its tracks while allowing the economies of the world to adjust to a new paradigm, (low to zero interest rates).  Our view is to not fight the trend and ride the wave, avoid the emotion and the noise and follow the trends.  Those trends are looking brighter.

A couple of key items that are probably of interest to many would be the price of oil and the US dollar:

Last Friday at Jacksonhole, WY, Janet Yellen gave little indication as to when the next interest rate move may be, but she did give some indication with a hawkish tone, stating “the case for raising rates has strengthened in recent months”. Economic data is pointing towards a stronger US economy as well as markets seemed to have shaken off the post Brexit jitters and will be important to pay attention to as to how interest rate policy decisions will affect commodity prices as they often move inverse to the US dollar.
Oil and most of the world debt is priced in US dollars so Yellen walks a fine line. Truth be told she has no idea if they will raise rates and no one does. All we can do is wait and see.

Crude Oil
Supply seems to be a key factor for both commodities price movement. US interest rate policy is important to pay attention to for further guidance as to where these commodity prices may go.

Crude oil closed at $44.70 on Wednesday down 3.5% on the day finding very strong resistance at the $50 level. The recent rally in oil this month has been primarily on the back of rumors that OPEC nations are considering a production freeze in their meeting next month in Algeria. This is not the first time a rumour like this has surfaced, and many analysts are skeptical that it will come to fruition as the Saudi Arabia oil minister believes no “significant intervention” is needed in the markets. Oil supplies are still increasing with the underlying supply-demand fundamentals being the prevailing factor in the commodity’s price movement.

Have a great long weekend and wishes for a warm and dry fall so the farmers can get the crop off and we city slickers can enjoy a beautiful extension of summer.

Daryl Cooper
Portfolio Manager
Director, Wealth Management

“Be fearful when others are greedy and greedy when others are fearful”.
– Warren Buffett

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