What's Next?

There are many opinions out there in today’s environment from bears to bulls to behavioural analysis trying to solve the trillion-dollar question – what is the direction of the markets? Are we heading for a recession not? Are we marching down the path to another 2008 type event? These and other worries are on our minds and there are very compelling arguments on all sides of the opinion.

We coined the phrase some time ago, “convicted opinion.” It basically means that one’s opinion about an event is so convicted that it basically blinds all other data points or inputs. This definition also holds a degree of promotional swagger in its delivery. Managers of companies have it when they forecast continued growth with their companies, the investment community and the media have it when they believe trees grow to the sky forever, and promoters have it when they become so fixated on a company or investment theme that it clouds judgment.

Life is not a straight line – never is – never will be. Even dividends go down sometimes. Consider 2008 and the dividend rate or payout from the S&P 500 as represented by the SPY ETF. Dividends declined.

Recently, General Electric (GE) cut their dividend to a penny. I believe they kept it at a penny just, so they could still be considered a dividend paying company.  Regardless of the reason, this is a glaring example of how dividends can go down over time in what was once a well branded blue chip company.

Trees do not grow to the sky forever

They are harvested, pruned, destroyed in forest fires, cut down and used for other purposes etc. The economy and the market are no different. History tells us that the economy has cycles – good times and bad times. This is a fact. The economic bell never rings at the top or at the bottom, but it does chime along the way. In February this year it chimed that markets were not parabolic, it chimed again in October. In hearing these chimes, we made risk adjustments to our models and reduced and/or adjusted risk. This is not a perfect science, nor is it an all in or all out discussion as money has to flow somewhere.

The question now is where? 

Safety comes in many forms and it is not an absolute measure for all persons. One person may see safety in a Royal Bank dividend and another may see it in a GIC (Guaranteed Investment Certificate). Our goals and objectives are to define this for each person and allocate accordingly. Some recent changes have included moving assets to better quality names with reasonable growing dividends while using caution (as noted above with GE – not all dividend payouts are created equal). In some cases, we have raised cash, in others, we have deployed capital to better credit positions. In all cases, changes have been made with a focus on risk management.

Bear or Bull

There are bears among us right now! It would be easy to pick on any name, but consider the recent action on the once loved semiconductor name Nvidia. Full disclosure, we owned this at one point either directly or indirectly in the past. The company has been on a slippery slope for some time period and announced recently that things are slowing. The stock also posted a recent 52 week low. From the earnings release, the outlook was moderated on a forward-looking basis. The chart below is a simple view of how fast things can change.  

The reality is that the price action and outlook for the company were somewhat bearish. There are other places where the funds coming out of these types of names are flowing to and this is where the bulls are running to.  Value has long been the forgotten part of the market and will garner some attention during this cyclical rotation.

Bottom Line

Things in the global economy are happening. The FED still seems to have the intention of raising rates. Until this goes away any man, woman, child or company with excessive debt will feel the pinch. That pinch can come in the form of slowing spending and/or capital expenditures. Spending less slows the economy.

Global trade remains on the table. There are tweets and chirps constantly out of the Trump camp and this remains an anything can happen type of scenario. At this point, it would be safe to say waiting for clarity is prudent.

We see some bears walking around and some bulls as well, so we remain cautious.


The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.