Never assume that because we deal in precious metals, we believe the whole truth and nothing but the truth should be precious metals. I came from an organization that thought it was all people should ever hold, and it was an organization that constantly overlooked the validity of a balanced wealth strategy. Well, I left and started my own company, and here I am many moons later. Metals have been a godsend for most—a good companion investment to our existing paper portfolios, including stocks, bonds and cash. But as we leave the summer doldrums of 2022, it is essential to remember a few things about the economy.
The market has sent us a different message as of late. I admit that July saw a more significant one-month return than a good year's delivery. So far in August, it's held, but we always err on the side of caution. Even volatility has been nipped somewhat as everything is flat at the moment, having witnessed a pretty volatile year. Let's take stock as of August 12th, 2022, on where we stand year to date:
1. TSX -5.50%
2. Dow Jones -7.70%
3. S&P 500 -11.33%
4. Nasdaq -18.00%
5. Housing In Ontario -15.00% (15-20% Since February Peak)
6. Gold -1.73%
7. Silver -11.85%
8. Bitcoin -48.23%
9. Interest Rates Have Increased by 100% since January and are going higher again in a couple of weeks. Ouch.
The most recent labour print in the US was remarkable – 528,000 new jobs last month, full employment and rising wages. Corporate profits have been slightly above average during this reporting period, and bond yields have eased. Even some mortgage rates have come down.
Further to all of this, it is hard to believe that Ukraine is still standing. China did not shoot Pelosi down as many thought might happen, and Biden didn't fall over yet, having just received a legislative win. And in Canada, our job losses last month were attributable to people wanting to stay home. Many are not ready for the 9-5 structure of the office tower again just yet. So should we be worried?
The short answer for me and perhaps your lifestyle affords you different outcomes, but yes, I am worried. I worry because I have opened my eyes to witness the reality of what is happening at the street level in Canada. At street level in homes across Canada, but especially in Ontario, life is more challenging now. The cost of living is soaring, and we know already at least half the population is dangling on the edge of insolvency every month. Interest rates have shaken everything. Millions of hard-working Canadians convinced themselves that the cost of money would never rise so that they could shun saving and borrow liberally. The first interest rate hike or two was daunting. The third was horrifying. And now we have another less than a few weeks off.
Additionally, real estate is taking a knock (And to loyal readers, I told you it would and gave you the data and the reasons why late last year-I knew this was coming, and so did our readers). Nonetheless, the beautiful rose bush that was housing and our financial security has turned into a shrivelled dead plant. The no-brains path to riches just went over a cliff. Our society is in housing disbelief, with that negativity seeping over everything and quickly turning into outrage.
Then there's the rejection of lifestyle changes people assumed were permanent during the pandemic, like working from home and being unshackled from the workplace while slurping off your pay, benefits and pension. That thinking was as flawed as GameStop stock. Thousands of years of face-to-face human interactions are not erased by a greasy little virus in just 18 months.
And I will be among the first to say I am sorry for the families that went to "ruralville." Once again, a delusional Covid view of the world made people think they could exit the city – where jobs, friends, entertainment, culture and education concentrate, and move to the boonies just because they were cheap. Many are now trapped in devalued real estate and understand the enormous social price they paid. Not everybody loves mosquitos, bears and the sound of a rooster waking you up.
Finally, there's financial illiteracy. Never underestimate how little most people know about macroeconomics, financial markets, monetary policy, taxation or creating their wealth strategy. I often hear parents touting the virtues of a well-rounded school system that gives our children an excellent education and a wonderful feast of intellect to prepare them for their future. Still, the one thing we need more than anything else is missing from the equation system. Do you know why? Because they can't teach what they don't know. The Federal and Provincial stalwarts who run the system can't install this in our children's classrooms because they do not know how to. They all lack the know-how, and it is disgusting today that our children do not graduate from high school knowing what a balanced budget is or how to do their taxes. They don't even teach you how to open an account at the bank or the difference between saving, investing and any other basic concept that we all should know. I digress. But this is why we are forced to allow others to watch over the most important thing we have beyond our health and our children; our wealth.
The largest cohort of our population has never experienced inflation above 4% (it's twice that now) or dreamt mortgages could hit 6%. For their entire adult lives, real estate has only gone up. RRSP contribution levels have been dropping for years, and the spike in household savings rates during the pandemic was a total aberration. We're back to spending everything we make. Worse, too many people are listening to quacks tell them that the central bankers created inflation and that firing one guy will fix it.
The people's confidence (in doing anything other than ceremonially buying a pathetic little GIC or putting a few bucks into a useless mutual fund that will lose them money even if it is a positive gain) is in a deep funk. This attitude will take a long time to improve because life is about to get more complicated over the next few years. Higher interest rates, continued inflation and dismal housing values will continue toward the end of 2023. And a bitter commute back to the cubicle is upon us now.
But you can be different. You can take 10-30 minutes a week and review your wealth. Treat it like sleep. It is a necessary thing, and you cannot function without it. Align yourself with professional experts, not jacks of all trades. Banks offer jacks of all trades. It's useless when times get complicated because they are guessing plain and simple or using some investment abacus to try and foretell the future.
Get yourself an expert in each area you want to invest in. If you're going to own stocks, then get a stock expert. If you want to own land, then get a land expert. If you want to own gold and silver, call an expert company that has been in these markets and held the hands of every type of investor from new to old, big to small, white collar to blue, 9-5 to entrepreneurial and think of that expert as your built-in surgeon. Don't take your wealth to a GP because you certainly would not want a GP doing open heart surgery, would you?
Now, do you see how seriously I take your wealth and my own? But before we go, you probably want to know if this will end soon. Will this be a full-onset recession, or will it be something shallow, short, and sweet?
The financial markets will remain super volatile as we go through more central bank hikes, the US midterm elections, the European war, choppy corporate earnings and global inflation (Europe and the UK are not looking too healthy at the moment). Are we in a bear market, and the last few weeks were merely a sucker's rally? More than likely, yes, but who cares? Stay invested and trim the fat. Be balanced in your approach and seek the advice of experts who are the best at doing that for their clients. If you add assets like physical gold and silver, you do extend that balanced approach as long as you know why you are doing it and what to expect. No single investment is the answer to getting rich but being balanced and diversified means that risk is spread out on the downside and gives you an equal opportunity on the upside to see significant gains across the board.
We're maybe halfway through Canada's markets and housing sector softening. Rates have kicked affordability to the curb. Sellers will be hosting more price reductions. Desperation sales will occur, especially where prices surged and debt exploded. Sell now. Buy later. Or rent. I don't know what to prescribe; that is where you come into play. Be smart. Ask questions. Get educated. 10-30 minutes per week. 10-30 minutes only, and you have a start. It should be nothing to ask of yourself, given that your wealth is one of the most important things you have in life.
Yours to the penny,
Darren V. Long
Delta Harbour Assets Inc.