We are well into the last quarter of the year and corporate earnings season is demonstrating some telling signs of the overall state of the economy. Some sectors are chugging along just as usual, but things do not look good for some sectors such as Cons Disc or Industrial. The adjusted EPS numbers continue to temper investors’ emotions and stopping them from dumping the stocks and anemic growth. Meanwhile, M&A deals have been roaring as the companies flush with cheap access to cash continue destroying shareholder value. M&A deals always increase late in the cycle as corporate boards flush with cash try to bump their falling revenues and earnings with desperate need to prop up stock prices. These moves are as predictable as they come.
On the central banks front, its business as usual. Lots of circular reasoning and lost credibility from the Broken Fed as they fail to raise rates again while passing hawkish and dovish comments every other day. In central bank world, devoid of any reason and completely disconnected from reality, everything appears normal. Current expectations remain that the Fed will raise the rates in December (based on bond market probability matrix). However, it was very interesting to note that Yellen used the words “high-pressure economy”, which is an indication that the rise in interest rates may not be as rapid as previously perceived and/or showing some doubt on even raising rates. Any increase in interest rates will bring immense turmoil into the markets as it has a cascading effect on bond markets, stock markets, currency markets and the commodity markets. All eyes will be focused on the Fed.
Other central bankers seem to be heading the other way as they are more in tune with the problems in their respective economies. The Bank of Canada, for the first time in a while gave some clear indication that the monetary policy could see further easing – potentially a rate cut from the current 0.5% in their October Policy Report.
I continue to watch from the sidelines and hoard cash waiting for the fat pitches. I am the least bit interested in staying fully invested here and make a measly 1% or 2%. I continue liquidating more of my riskier assets and purchase hard assets instead – which should provide some shelter and see benefit during the coming turmoil.
Outlook for November 2016
As things stand, there are a lot of headwinds facing the economy. Potential recession/depression troubles still exist. German and Italian banks are on the verge of collapse, barring a massive bailout from their governments. However, the stock market continues flying high thanks to a handful of stocks and investors continue ignoring all warnings. It is for this reason that gold and silver, typical safe havens, continue to be my focus. My gold and silver equity exposure is currently ~20%-ish which is close to my target range, so unless I see any screaming buys, I wont be swinging there either. Meanwhile, I continue to wait for better opportunities elsewhere in the market.
I decided to liquidated 1/3 of my portfolio and moved to cash in the summer. However, I have continued selling after that as I want to shed the weaker names in my portfolio. I still continue to hold DGI stocks, and am focused on reducing the overall number of holdings. The reasons have been shared in this post. As I already discussed in that article, I want to concentrate on a smaller number of holdings and the only space that I am bullish on is: hard assets. Over the course of last few months, I have initiated new positions in Franco Nevada (FNV.TO), Silver Wheaton (SLW.TO), Pan American Silver (PAA.TO), B2Gold Corp (BTO.TO) and Newmarket Gold (NMI.TO). Those have grown into sizeable positions now and I am comfortable with my overall portfolio.
As it stands, our current portfolio diversification is as shown below:
November is expected to be another slow month when it comes to dividend increase announcements. I am expecting only two announcements our portfolio.
- Inter Pipeline Ltd (IPL.TO) – last increase was 6.12% in Nov 2015
- Starbucks Corp (SBUX) – last increase was 25% in Oct 2015
What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.