I hope things are going well. I was in Toronto last week attending seminars and information sessions from the major insurance and fund companies. Topics included economic forecasts, understanding millennials, future trends predicted by a think tank, tax changes and tax strategies, social media and entrepreneurship.
There was a talk by the chief economist for IA Clarington. What sets Clement Gignac apart from other chief economists, is that he runs 6 billion of funds directly, and therefore has accountability for the calls and decisions he makes. I took notes which include –
- India is about to outpace China for GDP growth. They had 12% of GDP in 2016, the USA had 16%, and 35% for China. The measurements from China have to be viewed with caution as there is little third party verification of their numbers
- For the developed countries there is lower productivity growth, lower population growth, lower potential GDP growth and low interest rates for longer.
- Currently more than 1/3 of sovereign bonds have negative interest rates and 75% of these bonds are less than 1%.
- Quantitative easing is what has pushed this because of central banks providing easy access to capital.
- Austerity is nearly over. More economies plan to loosen rather than tighten. There is a resurgence of protectionism and anti-globalization.
- The two large drivers in Canada have been Oil and real estate. Oil is expected to moderate in 2017. Inflation expectations are influenced by the oil price. The Loonie moves almost directly with the price of oil. The break-even price for oil in Canada in 2016 was $37.
- Canada has the lowest debt to GDP ratio in the developed world and has room to take on additional debt to support necessary infrastructure. The government is very nervous about the price of real estate in Canada.
- World stock indices are becoming more correlated.
- Two catalysts that drive indices higher are liquidity and earnings growth, both are fading.
- The economist is overweight US bank stocks, Canadian preferred shares and has lowered the duration on bonds.
- The price earnings ratio of stock is currently 18 to 20. Historically this shows about a 5% rate of return over the next 5 years.
- There is little risk of the United States slipping into recession over the next year. He expects more interest rate increases next year by the Fed than the consensus view.
Clement’s final point was that the Longevity Risk is more important than the Market Risk. Longevity risk refers to the risk of outliving your money whereas market risk refers to rate of return.
I would be interest in what thoughts or comments you have about his report.