RF Newsletter #24

Bull Markets - Some Loved, Some Hated...

Lets start with the hated. North American Stocks continue higher and like I wrote in my blog post from February of this year, The Stock Train Rolls On. This is still an unloved bull market and stocks could keep moving higher as many investors remain on the sidelines.

US investors are still quite bearish when it comes to the overall market. According to the AAII Sentiment Survey optimism is very close to the bottom of its typical range, while pessimism is very close to the top. 28.3% of those surveyed are bullish (historical average is 38.5%) while 39.6% are bearish (historical average 30.5%). 

This doesn't mean that stocks can't experience a setback but it sure doesn't feel like a bubble as some of the headlines would lead you to believe. Like I've said before, a true bubble has a feeling of euphoria and mass participation. I don't think we've hit that point in stocks. Real estate on the other hand...

Toronto's real estate market is red hot with speculation and euphoria. No one knows for sure how this will play out but if it doesn't end with a "soft landing" it could have a negative impact on Canadian stocks.

This is what euphoria and the fear of "missing out" looks like in the Toronto real estate market...

Toronto real estate pep rally, I mean conference...



I think the people in the crowd above are being told that real estate only goes up! That seems to be the case in Toronto...



This house needs a little work but I guess its too good of a deal to pass up...

Congratulations your outrageous offer was accepted. You won!



Passive Investing - Trend or Bubble?

While on the topic of bubbles, there's a major shift going on in the way people are investing in the stock market. The move from over priced, under-performing, actively managed mutual funds to ultra low fee, passive ETFs is happening at break neck speed.

Passive investing now accounts for nearly 40% of US equity assets under management, more than twice the level in 2005.

Could this be another bubble? This article provides a good perspective of whats going on, The Passive Investing Bubble Is Real...

Personally, I'm not sure I'd call it a bubble. But I do know that passive investing has been a winning formula over the last few years as stocks experience an unfettered move to all time highs. However, there's no free lunch in the world of investing and at some point the passive investor's commitment will be tested.

This test will occur when investors experience another bear market like we saw in 2008. A sell off in major stock markets of 25% or worse will likely create some nausea among passive investors.

Generation Y or Millennial's make up a large portion of those who are choosing to use robo-advisors or a passive investment strategy. How will they react when they experience a 2008 type market where they see the value of their account fall 50% or more? 

How will the online/app based model of investing and their customers hold up in market turmoil? Will there be panic among investors and those on the other end who have never dealt with a frantic customer before? Check out a blog post I wrote called How Will The Robo-Advised React To Their First Gut Check?

Investing Trends

Medical Marijuana ETF - Soon it will be as easy to purchase as alcohol and as of last week it's easy for investors to get exposure to the industry. The first ever medical marijuana ETF was launched by Horizons under the symbol HMMJ trading on the TSX.

Oil Sands - Some are leaving and some are staying or should I say, are going all in. Who do you think is making the right decision? Are the oil sands a thing of the future or the past? What I'm talking about are the latest deals Canadian Natural Resources and Cenovus did to increase their exposure.

Car Stocks - Tesla (TSLA) just surpassed GM to become the most valuable car company in the US and its stock is at all time highs. Another car maker's stock that's in uncharted territory is Ferrari (RACE).

Range Bound Oil - The price of crude oil has been trapped in a range for the last year. It Rallies to the mid $50s then falls to the mid $40s. Repeat.

What's Happening?

  • Silicon Valley Tech Company Relocating To Calgary - CalgaryHerald
  • Printed Titanium Parts Expected to Save Millions...- Reuters
  • The Most Valuable Brand for Each Country - VisualCapitalist
  • Adidas, Futurecraft 4-D Footwear - WWD
  • Source Energy Said To Seek $175M IPO...- Bloomberg
  • The Highs and Lows of IPOs - RCM
  • The Retail Apocalypse is Having a Impact on One Corner...- BI