Investor Complacency and Risk: Where to Make some Money

Hey everyone and welcome to another weekly recap post for November 22, 2020. Today I want to talk about Investor Complacency and Risk. The past 20 days have been pretty crazy with the US Election drama and surging virus cases forcing new lock downs.  Some good news also emerged with the announcement from 2 drug companies of an effective Covid Vaccine.  Let’s talk about it.

But first, my disclaimer: this post contains affiliate links where the blog may receive a small commission on any sales from Silver Gold Bull, EQ Bank, Questrade and Tangerine.

US Election Drama

Trumps entire presidency has been a reality TV show gone bad so what did you all expect after his loss to Joe Biden?  Of course Trump was going to claim voter fraud and launch lawsuits, stoke tensions with the Left by firing up his followers and basically do what he always does: create as much chaos as possible.

Covid Surge

Covid cases are surging globally as more and more places start to lockdown once again.  Much of Europe has entered a lockdown, Australia, some hotspots in Canada (ie. Toronto), and Japan is talking about it.  

Of course, the virus is completely out of control in the US, Brazil, and India. 

On a more positive note though, we have a Covid Vaccine!  We just need to survive the winter.

Stock Markets At All-Time Highs Again

It’s hard to quantify the economic damage done by the pandemic.  At this point we’re probably talking 10s of Trillions of dollars…and counting.

The fact that we’re facing even more hardship this winter with more lockdowns and restrictions will only add to the astronomical amount of stimulus money governments will have to spend to keep the global economy afloat.

The markets surged on post-election stimulus hopes.  When those hopes were dashed, we got the vaccine news and that really moved the markets to all-time highs again. 

If the vaccine is truly effective (which is likely but not certain), then this removes one of the major uncertainties impacting the markets right now.

However, it will still be a long time to roll out the vaccine to the general population and get things back to normal so the economy can recover.

Central Bankers Are Warning Us Prepare for a Pullback

My own thoughts are that the markets seem overvalued once again this year and are due for a big pullback.

Why do I think that?  Well first off, there is just a massive amount of debt in the financial system right now.  Many people are living paycheck to paycheck and have no savings.  Mortgage deferrals and a lot of stimulus money is coming to an end.

Second, there is major damage to the economy.  The service, hospitality, transportation and tourism sectors have been hit hard.  Commercial real estate is in trouble.  Stores and restaurants are closing.  Downtown real estate has taken a big hit. 

My guess is that it’s going to take some time (ie. years) for these sectors to fully recover.  And I’m not alone. 

This week, Fed Chairman Jerome Powell said that we’re facing an uneven recovery with some sectors not participating at all.  Bank of Canada Deputy Governor Carolyn Wilkins gave a pretty stark warning when she said that the economic damage was deep and that without decisive action from all Canadians that damage could be permanent.

This is pretty scary stuff when Central Bank leaders are saying parts of the economy may never come back!

What I’m Doing with my Money

So I don’t believe market valuations are justified at all.  I’ve added to my cash pile on this run up and will continue to wait for another big pullback.  At this stage in the game I don’t think that the market offers huge upside, but I do think it offers a lot of downside risk.

Don’t get me wrong, I still want to buy some quality dividend stocks, but I’m not going to chase a crazy market to the moon to pick up a bit of yield.

I was buying a lot of energy related investments but they had a pretty good bounce off the bottom with the market run up as investors start rotating back into the cyclical recovery plays.

Shares in Suncor Energy (my largest position) surged 40% from where they were on Halloween!  TC Energy jumped 10%, Cenovus jumped 33% and IXC (global energy ETF) jumped 30%.  Those were big moves that just goes to show how oversold the energy sector was.  Looking back now, I wish I would’ve bought more.

Think Long Term and Build Wealth

If you’ve been thinking about investing in stocks or ETFs, now is the time to open a Questrade account and build some cash. I’m sure there will be lots of volatility this winter and you can take advantage and buy shares on sale.

Ultimately, investing in our financial future is a long term strategy. That’s why it’s so important to get started today and start earning passive income.

What I’m Looking forward To

Canadian Banks report at the end of the month.  I encourage everyone to read their outlook.  As I said above, the mortgage deferrals are ending and as is the stimulus checks in the US. 

I’ll be watching their loan loss provisions and seeing where they are making their money.  If it’s all in the capital markets, I don’t think that’s a very strong sign that economy is healthy.  I want to see their bread and butter underlying business of writing loans and personal banking bounce back.

Already JP Morgan sent out a warning that Q1 will be another bad quarter.  So I expect Canadian banks to be saying something similar. 

Finally, I’m keeping an eye on my gold investments.  Gold has had a big selloff with the market run up so I’m waiting to see if it falls further or holds support around $1850.  If there’s a big drop I might pick up some more bullion.   

Save, Invest, Build Wealth and Prosper

In case you’re wondering here’s where I park my money and some financial services that I use:

For my precious metals I use Silver Gold Bull because they price match and offer fast, insured, delivery.

For my Daily banking I use Tangerine. 

For my Savings I use the EQ Bank Savings Plus Account. Never heard of it? Click the link to check out my EQ Bank Savings Plus Account Review.

For investing I use a combination of TD Waterhouse (for legacy investments) and Questrade (low cost stock purchases and free ETF purchases).  If you haven’t done so already, check out my Questrade Review to see why it’s the best deal around.  Get $50 in Free Trades when you signup for Questrade through this link.

Thanks for reading this post on Investor Complacency and Risk.