Portfolio Manager’s Commentary

Portfolio Manager, Daryl Cooper

January 19, 2017

Tuning out the noise of TYPCORS* and feeling comfortable with the RBI Bridging Formula
*TYPCORS –┬áTrump, Yellen, Poloz, Crude, Currency, OPEC, Russia, Shale

Friday, January 20, 2017 will go down in history as the inauguration of Donald Trump as America’s 45th President. Never have we seen America so divided. What is to come, whether Trump will, or even can, do much of what he says, will obviously impact the markets at home and around the world.

The “Trump trade” that boosted markets to all-time highs has stalled for the past few weeks as the markets digest what is to come. There are many industries that stand to benefit from a Trump economy, including banking, industrials, materials and technology. We have raised cash ahead of this day and will redeploy the assets over the next week or weeks ahead. All indicators are flashing positive and as such we follow the rules.

As reminder to our clients, our BUY discipline in our RADAR portfolios is:

  1. Equity action call is green
  2. Strong technical/momentum/relative strength
  3. Fundamental research supports the security as a buy or hold
  4. Intrinsic value is evident

Our SELL discipline is:

  1. Security loses technical/momentum/relative strength and then one of the two things occurs:
    • Fundamental research falls to a sell or remains a soft hold
    • Intrinsic value is negative

We saw a whipsaw of the USD to the Loonie the past few days. On Tuesday, the USD dropped against all currencies after Trump remarked that the USD was too strong. This is what we have been saying since the election; in order for Trump to “Make America Great Again”, he will need a competitive currency. Might we see another currency war? A race to the bottom like we did before? That would be forecasting and we don’t do that. Common sense would say that if Trump is to keep a handle on the US currency from going up, he will need to do something with Janet Yellen. Yellen said in a speech this past Wednesday in San Francisco, “now, it’s fair to say, the economy is near maximum employment and inflation is moving toward our goal”. In two days, the USD whipsawed from a huge drop to an even bigger rise.

And so the stage is set for even more drama. Will Trump remove Yellen as the Chair and replace her with someone less likely to raise rates? If he does indeed remove Yellen, she can still sit as a board member until her term expires in 2024.

On our side of the line, Bank of Canada Governor Stephen Poloz’s comments on Wednesday surprised many when he stated that an interest rate cut remains an option that he may use to protect our export trade with the USA given Donald Trump’s protectionist policies.

Oil continues a back and forth tug-o-war, while OPEC and Russia supposedly continue to cut supply, while at the same time, US shale drilling is increasing. Once again, the Trump effect takes centre stage as his pro-energy stance is in stark contrast to the Obama administration. The trading range of $50 to $55 remains intact with any break above $55, clearing a path to $62 or any break below seeing support at $46.

Regardless of the noise and all the drama that each day seems to bring, we remain thankful that we have a guidance system to know that whatever happens, we are always prepared for any eventuality to exploit the positives and avoid the big negatives. Two charts below explain why we do what we do, to make money when the sun shines and to protect against massive corrections.

Daryl Cooper
Portfolio Manager
Director, Wealth Management

The following two pictures represent what the Portfolio Management side of the RBI Bridging Formula is all about and that is exploiting strong markets and avoiding big losses:

Source: siacharts.com

Source: www.siacharts.com

Source: siacharts.comSource: www.siacharts.com