Economic doomsayers are obsessing over the state of the yield curve. For a better guide to whether a recession lies ahead, they may want to consider a less well-known indicator.

A measure known as the excess bond premium (EBP) gauges how cheery lenders are about the state of the economy. Right now, the EBP is strikingly upbeat. Its most recent reading indicates only an 11.5-per-cent chance of a U.S. recession over the next year.

The EBP’s sunny outlook stands in stark contrast to all the dark forebodings around the yield curve. That curve is essentially a way to represent how short-term interest rates compare with longer-term rates. As any home buyer knows, you usually have to pay considerably higher rates to borrow money for longer periods than for shorter periods.

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In recent months, though, the yield curve has flattened and is now only a fraction of a percentage point from inverting – that is, reversing its normal pattern and reaching a point where it will cost more to borrow money for two years than for 10 years.

Such inversions have occurred with ominous regularity before past U.S. recessions, so yield curve watching has recently become the favourite hobby of pundits, policy-makers and economists. If the curve does invert in coming days, many investors will take it as a warning bell and start scurrying for cover.

But before packing your own bags, you may want to consider the more positive message delivered by the EBP. This indicator is nowhere near as flashy as its yield-curve cousin, but is arguably more useful in today’s economy.

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-- Ian McGugan, Globe Investor reporter

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Stocks to ponder

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Enghouse Systems Ltd. (ENGH-T). This is a top performing stock whose share price is just 1 per cent away from appearing on the positive breakouts list (stocks with positive price momentum). The company will be reporting its third-quarter financial results later this week. Potential catalysts for the stock are acquisition announcements and an improvement in the company’s organic, or internal, sales growth. Markham, Ont.-based Enghouse is an enterprise software and services provider. Jennifer Dowty reports (for subscribers).

Maxar Technologies Ltd. (MAXR-T; MAXR-Q). Satellite company Maxar Technologies Ltd. continues to fight back against a short-seller that says the company’s aggressive accounting masks deep problems in the business — but so far, the shorts are winning, with the company’s shares hitting new lows last week. The falling stock price suggests that while Maxar and short-seller Spruce Point Capital Management wrestle over finer points of accounting, investors may now be taking a closer look at Maxar and becoming more aware that with the current business climate and its capital needs, the company is generating very little cash — which may put the company’s dividend at risk. David Milstead reports (for subscribers).

Roots Corp. (ROOT-T). Roots Corp. investors are crossing their fingers that the iconic retailer’s summer quarter is more impressive than the spring, which could help boost the stock that’s now trading below its October initial-public-offering price. Shareholders are also betting that a bigger marketing push, new products and further foray into the United States will drive shares higher in the coming quarters. Brenda Bouw reports (for subscribers).

The Rundown

Bull markets don’t last forever: Ten things that could foreshadow the end

The bull markets – in housing prices, equities, bonds, all of it – are going to end, and the aftermath will be financially painful for Canadian investors. The question is: when? Thanks in part to unprecedented global monetary stimulus by central banks, investors have enjoyed the longest equity bull market in history. The S&P/TSX Composite Index is higher by 185 per cent from March 9, 2009 and the S&P 500 has appreciated 424 per cent in U.S. dollar terms. Ultra-low Canadian interest rates have helped push national housing prices higher by 84 per cent during the same time frame. Brokers Scott Barlow worked with in the past were fond of reminding clients that previous strong growth can’t be extrapolated into the future forever. It’s also true, however, that market tops are much more difficult to pinpoint than market bottoms. Scott Barlow looks at a 10 things that can help you assess how close we may be to the inevitable end to the major bull markets we find ourselves in today. (For subscribers).

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Don’t use the longest bull market as a reason to sell

The S&P 500 has been climbing for nearly a decade and, in August, its upswing became the longest-running bull market in U.S. history. Does that mean it’s time to start looking for shelter from the decline that seems sure to follow? The answer may surprise you. For all the concern that has been expressed about this geriatric bull, a look back at history shows investors don’t do well by jumping out of stocks simply because a rally has grown old. Ian McGugan reports (for subscribers).

Tilray IPO blazed a trail few other cannabis companies will follow

Tilray Inc. chief executive Brendan Kennedy is a seriously smart guy. We’re talking Yale University MBA and the good sense to start investing in marijuana producers seven years ago, when legalized cannabis was something that only seemed possible after an evening in the basement with a bong. Mr. Kennedy just made serious money taking his company public on a U.S. stock exchange. Tilray sports a US$6-billion market capitalization, and a stock price that is up more than three-fold since making its debut on NASDAQ in July. As one of the first cannabis companies to go public on the easily accessed NASDAQ exchange, Tilray has won a dedicated following among U.S. retail investors. Yet few of Mr. Kennedy’s peers plan to follow the path that Tilray so successfully forged, according to lawyers and bankers focused on the sector. They predict the dozens of cannabis companies lined up to stage initial public offerings will head to Canadian markets. The bulk of the action will continue to be on the Canadian Securities Exchange (CSE), which set records for financing activity over the first half of the year by hosting 25 marijuana-related IPOs that raised a total of $1-billion. Andy Willis explains why (for subscribers).

This little-known indicator has something encouraging to say about the economy and markets

Economic doomsayers are obsessing over the state of the yield curve. For a better guide to whether a recession lies ahead, they may want to consider a less well-known indicator. A measure known as the excess bond premium (EBP) gauges how cheery lenders are about the state of the economy. Right now, the EBP is strikingly upbeat. Its most recent reading indicates only an 11.5-per-cent chance of a U.S. recession over the next year. Ian McGugan explains (for subscribers).

Four countries that offer safer bets when investing in emerging markets

Crippling financial crises in Turkey and now Argentina should come as no surprise. Inflation-ravaged emerging countries with massive foreign-currency debt have no safety cushion to withstand soaring financing costs stemming from tightening interest rates and years of bad fiscal, monetary and economic choices. For investors looking for safer emerging-world opportunities, here are some markets where central bankers get high marks for effectively managing monetary policy and meeting economic growth targets while keeping inflation in check and meddling politicians at bay: Chile, South Korea, Russia, and Lebanon. Brian Milner reports.

Others (for subscribers)

Tuesday’s analyst upgrades and downgrades

Tuesday’s Insider Report: Management executive sells over $3-million worth of this blue-chip stock

John Heinzl’s model dividend growth portfolio as of Aug. 31, 2018

Others (for everyone)

Amazon hits $1-trillion market value milestone

U.S. fund managers trim bank stocks on profit worries

Wall Street may no longer be able to shrug off Trump’s trade wars

Number Crunchers (for subscribers)

Ask Globe Investor

Question: I am a retired widow and a good proportion of my income comes from my $1.5-million portfolio, held with an adviser at one of the big banks. My strategy is to buy and hold stable stocks with steadily rising dividends, but my adviser continues to recommend inappropriate positions in such volatile stocks as cryptocurrencies and cannabis, or simply churning one stock for another. I dread talking to him because I must constantly remind him of my strategy and argue my case. We are no longer on the same wavelength. Could you suggest how I might go about finding a suitable new adviser?

Answer: If your adviser repeatedly refuses to follow your stated investing plan, it is definitely time to look elsewhere. First, ask yourself whether you really need an adviser. You seem to have a clear idea of your investing strategy and if you simply want to buy and hold blue-chip dividend stocks – and keep your trading to a minimum – going it alone may be well within your grasp. I have corresponded with countless investors over the years and the ones who took control of their own money rarely regretted the decision. If the idea of managing individual stocks scares you, consider investing in a low-cost dividend exchange-traded fund. Another option – available to investors such as yourself with a relatively large portfolio – is to find an investment counsellor, or portfolio manager, who charges a flat fee based on your assets. The fee-based compensation model – which many financial advisers also use – helps to reduce conflicts of interest inherent in a commission-based structure. Ask around for some names and then sit down with at least three potential candidates and explain your strategy and what you are looking for in a relationship. When you find someone who is a good fit, he or she can help you terminate your existing relationship. Also keep in mind that, with a $1.5-million portfolio, you have some leverage when it comes to negotiating your annual percentage fee. For more information and advice on selecting a firm, check out the Portfolio Management Association of Canada website portfoliomanagement.org.

John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Real estate investment trusts have been holding their own this year, a surprise to some who were expecting higher interest rates to take their toll. John Heinzl will look at three rock-solid REITs with above-average yields.

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Compiled by Gillian Livingston