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On guard for thee
In my home town yesterday people lined the street in droves, wearing every tacky thing in their wardrobe – so long as it was crimson or had a maple leaf. Dogs sported red bandanas. The tourist horses sprouted little flags from their halters and harnesses. Down the main street a few old cars carried old politicians, the MP included. Then a band. And the cake. This year it was about ten feet square, hauled by a Jeep and covered in chocolate hockey players. The proud baker walked behind, her pony tail flipping. A thousand people marched with her to the park, where it met its Waterloo.
While we celebrated Canada Day, the world spun. The people in Greece has a crappy time. The prime minister there flip-flopped. First he sent a letter to the Euro gods says his country would accept a deal like the one he’d walked away from. Then he gave a speech condemning it and asking people to vote it down on Sunday. Meanwhile the economy disintegrated hourly.
American stock markets shot higher, now that it seems more certain Greece will blink. More importantly, the numbers just keep improving for the US economy. A private jobs report showed companies boosted their payrolls in June by 237,000 workers, the most in six months. This comes after 280,000 more positions were created in May. And when the official government report comes out Friday it’s expected to show 233,000 new hires.
This is the longest, strongest run for job creation in decades. It also came with news Wednesday that manufacturing expanded again in June, which demonstrates the internal strength of the American economy. Global demand may still be weak and the high US dollar is a barrier to exports, but it doesn’t matter. Consumers are happy with more jobs and higher incomes. They’re buying cars, houses, iPhones and dishwashers. Only the fruitloop doomers still insist the government’s lying and America’s in trouble. Americans disagree.
All this is remarkable for two reasons. Oil prices have collapsed (there was a huge drop on Wednesday), decimating the US shale fracking industry. And the Fed is about to raise interest rates for the first time in a decade. Both of those are negatives for the market, and corporate profits. But certainly not enough to dent a market that added almost 50% in just three years.
Yesterday I moaned a little about the situation here. US household debt is falling steadily, and here it bloats a little more each month. Our economy shrank for the last four months, and theirs expanded. The Fed will raise rates at least once this year, maybe twice, while the Bank of Canada head says our economy would have croaked without his recent cut. Canadians love houses. Americans own more stocks. Home ownership here is at a record high. There it’s at a 30-year low.
None of this I say to dis Canada. I adored the parade. The cake. The patriotism. I was beyond proud to sit in the House of Commons for nine years. I love my country.
But we’re probably going in the wrong direction, and the reward for that will be years of a subpar economy. This week’s oil tanking, plus raging wild fires in the western provinces, the mounting drought in BC, recessionary GDP stats and a 79-cent dollars are all sapping strength. The contrast with the US is stark. A few years ago our currency was worth more than the greenback, our arrogance was on display in Vancouver and you could buy a nice, distressed house in Phoenix for 70% off. My, how the tables have turned.
Well, this pathetic blog doesn’t run the country, so we have to deal with the hand dealt. Soon we’ll be swallowed up in a federal election campaign, the consequences of which could be dire. If you think the world looks askance at us now, just wait.
So, what to do?
For starters, the growth portion of your balanced and globally-diversified portfolio should be twice as weighted outside of Canada as within. These days about 17% Canadian, 21% US and 18% international is about right. And while having roughly a fifth of the assets in US$ is always a good idea, you can buy exchange-traded funds that give you American exposure but are purchased in loonies.
As for the fixed-income part – the safe stuff – put half in rate reset preferreds (paying 5% these days, with a big tax credit), and the other half in bonds. If you don’t understand why you should have bonds, revisit what took place Monday. When equities swoon (it happens), bonds usually go in the other direction. They stabilize and anchor a portfolio, tamping down volatility as well as your emotions. Just make sure you have the right kind.
Of course, given what may lie ahead politically, you should also flesh out your tax shelters. Today, for example, a couple can have more than $80,000 contributed to their TFSAs, but only a small fraction of people do. Make sure you’re among them. If you can’t afford higher mortgage payments, lock in now. But if you have money to invest, and the confidence to do so, then grow it until the mortgage renews, then make a big payment. If you don’t own real estate, wait. If you do, and all of your net worth’s in there, get out. If you work in the oil patch, find new work. But not as a realtor.
Despite the above, I say again, it’s a hell of a country.
My Canada Day was great. Far better than the MP’s.
Source: http://www.greaterfool.ca/2015/07/01/for-thee/
