Juggling Dynamite

Danielle was a guest with Jim Goddard on Talk Digital Network talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.

A self-proclaimed “Money Doctor” and author of the book “Jesus Christ, Money Master” has been charged by the U.S. Securities and Exchange Commission for bilking 60 seniors out of at least $19.6 million between December 2014 through January 2019. See: North Texan used religion to rope in Christian investors, steal millions, officials say

According to the indictment, the North Texas religious radio host and head of Gallagher Financial Group used evangelical language to coerce Christian investors into giving him money, falsely claiming to be a licensed investment adviser and promising investors they would receive guaranteed, risk-free returns in their accounts of 5 to 8% per year with his Diversified Growth and Income Strategy Account.

Gallagher allegedly used the money for personal and company expenses and to make Ponzi payments to investors, while providing his clients with phony account statements showing fictitious balances.

Unfortunately, stories like this are not uncommon. However, even beyond cases of outright fraud, most people are susceptible to believing too-good-to-be-true assertions when it comes to money and investing. And media–social, alternative and mainstream–are powerful tools in building public trust.

Over the last 30 years, I have known dozens and dozens of people who have repeatedly made costly mistakes in their personal finances, business and investing decisions and have still not learned the lessons.  Many lost heavily in the 2000-03 and 2007-09 bear markets and are today back holding high-risk products and securities at peak valuations under names like ‘Diversified Growth and Income Strategy’ because they think this time is different, or that the salesperson ‘advising’ them today is smarter or nicer than the ones they lost with in the past.

Even though stocks are priced to deliver flat to negative returns over the next decade from current levels, and guaranteed deposit rates like GICs and government bonds are paying less than 3% today, most are still hoping that somehow they will be able to compound their savings at two or three times that amount safely, over time.  They put faith in those who say that they can, even when all evidence screams to the contrary.  Ethical advisors who insist on telling people the truth rather than what sounds better are widely out of favor at the moment.

While outright scam artists like the “Money Doctor” or Charles Ponzi are not typical, financial advisors, managers and product producers who put their own short-term profits ahead of the longer-term best interests of clients and customers are the industry norm.  Credulous clients and customers continue to play a leading role in their damaging financial decisions over time.

Today North American yields are slightly higher as stocks rebound.  But one-day does-not-a-trend-reverse, and overall the Canadian 10-year Treasury yield has declined (as bond prices have risen) from 2.6% in October to 1.96% on December 31 and 1.75% today.

As shown below in my partner Cory Venable’s chart, the fall in yield since October 2018 has now breached the up-channel that had held during Trump’s tax cut euphoria since late 2016.  That was then.  Now, tax cuts are in the rearview mirror, global demand is disappointing left and right, and central banks are back to easing schemes.
Canada’s highly indebted households and businesses, amid weak housing and slowing global demand, are all reasons for the Bank of Canada to pause its hiking plans and prompt treasury bonds to rally.  However, Canada is far from alone here.

As pointed out by Bloomberg’s Lisa Abram0witz today, the market value of Bloomberg Barclays Global Aggregate Negative Yielding Debt index (shown below) has risen sharply since October.
There are now $9.2 trillion in global bonds with negative yields to maturity as holders pay for the privilege of parking cash in these securities.  Funds flow into treasuries during periods of risk-aversion, where the return of principle is considered more paramount than  return on principle. The rise in negative yielding bonds while stocks have rebounded year-to-date runs counter to the ‘all is well’ narrative.

As Brexit jousting and US-China trade negotiations drag on and on and on, global credit impulses are contracting along with spending and investment, and stock holders are whistling past the avalanche signs, as usual.

In today’s world of negative-return alternatives, the positive yields and security of North American treasury bonds remain relatively attractive, with prices likely to rise further as stock markets retreat, the global economy weakens, and central banks prove powerless to arrest the fall.