Ross Healy, chairman of Strategic Analysis Corporation and portfolio manager at MacNicol & Associates Asset Management
Focus: North American large caps

MARKET OUTLOOK

The S&P 500 in particular (my proxy for the overall stock market) remains range-bounded by two and a half book, which is roughly 2,650 at present (historically, a powerful technical floor) and its fair market or intrinsic value, which for at least the past 35 years has served as an absolute ceiling for the S&P, currently stands at 3,150. As long as it stays in that range, something that passes for a bull market is in effect. That intrinsic value has not changed in months and indeed earnings have been going nowhere, though current forecasts for the quarter suggest some weakness is in evidence.

A lot of ink has been spilled trying to parse negative interest rates, but the answer is very obvious and very simple. If there is zero net demand for money, the price of money will be zero – and that is what it is now. But worse: when a holder wants to offload his cash into some investment vehicle, the bank (or whatever) now needs to be paid to look after that cash. No surprise then that interest rates have to be, in essence, negative.

In this environment, of what use is more quantitative easing? None at all if you are trying to affect the economy, but bullish if you are trying to affect the stock market. Yet the Fed and other central banks persist in trying to push more money into the economy. As Larry Summers observed, when that is accompanied by a $1-trillion deficit, the authorities are pushing the U.S. into a fiscal black hole.

Trump is hoping that the deficit plus the QE (they don’t call it that, of course) will get him through to the election by holding up the stock market, as bear markets are “incumbent killers.”

In the short- to mid-term, the footrace is on. Can all that stimulus hold up the stock markets against the clearly weakening global economy and the resulting slowing earnings growth, not to mention the extreme valuation of all too many stocks?

Investor are fooling themselves if they believe that some of those valuations can hang in and even increase forever. But at market extremes that is what investors have done historically, and they’re doing it again.

Yes, there are places to hide that should protect capital, but the broad stock market is probably (and historically) not it.

TOP PICKS

SUNCOR ENERGY (SU:CT)

Even when the price of oil went to $24, Suncor never fell below its book value, so at 1.25 times book, price risks here may be temporary. I would like to buy a riskier oil play, but 12 months could be a long time. I will stay with safety and value.

BARRICK GOLD (ABX:CT)

Some gold or silver hedge is needed.

CASH

At this time of market, some protection against market downside is called for.

PAST PICKS: OCT. 12, 2018

BCE (BCE:CT)

• Then: $50.91
• Now: $63.91
• Return: 26%
• Total return: 32%

GOLDCORP (G:CT)
Acquired by Newmont on April 23, 2019.

• Then: $14.02
• Acquired at: $14.20
• Return: 1%
• Total return: 2%

BLACKSTONE MORTGAGE (BXMT:UN)

• Then: $32.31
• Now: $36.37
• Return: 13%
• Total return: 21%

Total return average: 18%

TWITTER: @svaInsights
WEBSITE: strategicanalysis.ca