Juggling Dynamite

Financial markets have many moving parts, and the new Trump administration unnerves the status quo on both sides of the aisle. Inevitably, both good and bad will result from all of this mayhem. We must be capable of cognitive dissonance and hold opposing assessments depending on the issue; many are not.

If asset bubbles continue to burst, many will be destabilized. Still, the economy will eventually be reinvigorated, bringing opportunities for those waiting to buy and invest at more favourable valuations.

The issue of political insiders enriching themselves on what would be illegal inside information for the rest of us has been blatantly outrageous for a long time. If DOGE adds this issue to its audit brief, daylight might finally prompt some much-needed curbs. If this happens in America, awareness will spread to other places too.

Autopilot co-founder Chris Josephs joins ‘Fox & Friends’ to discuss Elon Musk and DOGE targeting wealthy members of Congress. Here is a direct video link.

Another obvious area screaming for disruption is the widely entrenched practice of companies buying back their shares to boost earnings per share, enriching shareholders and corporate executives rather than investing in operations and capital expenditures that support the real economy.

Share buybacks were illegal in the United States from 1934 until 1982 because they were rightly considered stock market manipulation. They need to be illegal again, and we watch with interest.

Historically, when the S&P 500 has fallen 10% and the yield on the 10-year U.S. Treasury bond has declined 50+ basis points, the U.S. economy has been heading into recession about 70% of the time. We reached both milestones in March. The economically sensitive small-cap Russell 2000 index is down 17% since last November, and Canada’s resource and financial-centric TSX is down 6% since December 6, 2024.

It’s worth noting that the average stock market decline during past recessions has been 30%, and 34 to 86% when valuations begin from extreme highs, as in 1929, 1973, 1999, 2007, 2020 (below) and now.

While official unemployment rates are still not far above cycle lows, credit delinquency rates (90+ days late) are already near their highest levels in 20 years.

The recent University of Michigan Sentiment Survey registered the greatest level of pessimism on personal finances ever recorded–worse than 2008. Just let that settle in a minute.

Knock-on risks intensify with age. As of early 2024, individuals 55+ held approximately 80% of all stocks, a significant increase from 60% two decades ago.

Everyone hates to see their portfolios decline, but capital loss later in life is harder to recover emotionally, psychologically, and financially. Losses while needing to withdraw for living expenses can severely reduce the longevity of savings and the likelihood that portfolios never fully recover — a scenario known as sequence of return risk. Outliving one’s savings remains among the top retirement fears.

As the economy and employment contract from here, central banks will continue easing efforts, but inflationary fears around tariffs may slow the pace and degree, at least in the near term.

For those who hope coming cuts are bullish for risk assets, it bears noting that the bulk of price declines have always come while the Fed is easing, not before.

It’s hard to imagine how damaging ice storms can be without witnessing them. After six decades of living in the north, this experience was a first for me. Big trees become weapons of mass destruction. There’s still no power or internet in our area. After a full day of sawing, cutting, and dragging tree parts, we are ready for the woodchipper at our house. Many are still buried in debris.

Hundreds of thousands of people remained without power and schools were closed in some areas on Monday morning after many Ontario locales were hit by freezing rainstorms over the weekend. According to Hydro One’s power outage map as of Monday morning, there were still widespread power outages in a stretch of the province extending from Grey-Bruce to the Quebec border that the company services. More than 390,000 homes and businesses were without power. Well over 532,000 others have also had their power restored since the storm began, according to Hydro One. Hydro One estimated that some of the areas may not see power restored until Tuesday or Wednesday. Here is a direct video link.