News headlines are often driven by popular wisdom and this can be dangerous for investors without the time to verify the narrative. Here are three headline-driven investment myths in the current environment.
Myth No. 1
The bullion price is benefiting from Donald Trump-inspired policy uncertainty.
The new President, a volatile stream-of-consciousness specialist, is no doubt creating anxiety in numerous quarters. But a look at the numbers strongly suggests that gold is not part of this equation.
The first chart below highlights that the bullion price is just doing what it's been doing for the past five years – moving in the exact opposite direction of U.S. inflation-adjusted bond yields. (This is gold in its role as the anti-U.S. dollar – the greenback moves with real rates, gold does the opposite.)
In this case, real yields are represented by the yield on the five-year inflation-adjusted Treasury security (note that the yield is plotted inversely to better show the trend).
Myth No. 2
The takeover of retail by online shopping trend is accelerating.
Using data from the U.S. Census Bureau, the second chart below shows that the growth trend of e-commerce as a percentage of total retail sales, while as relentless and predictable as death and taxes, has not changed.
The inexorable nature of the pattern suggests (but doesn't prove) a great deal of strength in the trend but there's no inflection point indicating a more rapid takeover of online commerce.
As the continuing implosion of Sears Holdings' future viability highlights, the big change in recent months has been a capitulation by traditional retailers – an admission of existing trends that nullify the effectiveness of the old business model. The pace of e-commerce sales growth itself has remained consistent.
Myth No. 3
"Cord-cutting" and the death of cable television.
There is no more respected expert on the cable industry than 76-year-old John Malone, who has control of Liberty Media and Liberty Global (among numerous other media entities) after a long and illustrious management career.
In a recent interview with the Financial Times, Mr. Malone noted a complete lack of fear regarding cord-cutting and added, "It's a connectivity business and it's a video retailer … [Internet connectivity] is the competitive edge that the industry has."
Canadian telecoms are like the banks. It might take some time, but they will find a way to profit in changing circumstances. The growing popularity of Netflix and mobile media may well force a degree of "rightsizing" and reorganization for the major domestic cable companies. But very few Canadians, if any, are even considering cancelling Internet access and the country's population remains dispersed over a mammoth geographical area, making connectivity a vital service.
The sector retains the ability to generate oceans of free cash flow despite inefficiencies, enough to support hefty dividend yields of 4.76 per cent at BCE, 4.31 per cent at Telus and 3.08 per cent at Rogers Communications. With some occasional hiccups, this degree of financial health should continue to be the norm.
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