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The Financial Times’ (free to read) Alphaville site discussed the most important question for global investors in a Dec. 3 column in “Is the global economy “late cycle”?”

The end of the market cycle and the beginning of a sustained, painful bear market is a momentous occasion for investors, particularly those close to retirement. We have been told time and again that timing the market is impossible and not to be attempted under any circumstances, but this is little consolation for investors caught with holdings that included more downside risk than they expected, and take steep losses as bear markets begin.

Alphaville author Colby Smith was unable to come to a firm conclusion as to whether the rally is on its last legs and I’ll discuss why I think that is below. The evidence is mixed, as Mr. Smith points out,

“Lofty valuations, soaring profit margins, a flattening yield curve and a Federal Reserve tightening in the face of (admittedly muted) inflationary pressures… make an easy narrative. So much so that most analysts are already baking in the next recession.”

Furthermore, for the pessimist side of the ledger,

“Beyond the economy, George Gonclaves of Nomura says it’s not just the flattening yield curve (perhaps the most popular recession signal) that is pointing to the late cycle. Financial markets are as well. Take household net worth as a ratio of GDP and the total value of the S&P 500 as a percentage of GDP. Gonclaves points out that tracking the wealth effect from rising asset values says a lot about the business cycle. As his chart … shows, both of these ratios sit near record highs.”

But on the other hand,

“According to [UBS analysts Pierre Lafourcade and Arend Kapteyn], accelerating private consumption, investment growth and strides in productivity, among other gauges, suggest that the global economy is not yet late cycle.“

There will always be conflicting investing signals from both markets and the global economy – there has never been a time when all data pointed to the exact same conclusion. That said, I am expecting more forecasting confusion than usual as the closest analogue to the past decade is the 1930s when the global economy was completely different.

I highly recommend “How The Economic Machine Works,” a video made by hedge fund titan Ray Dalio, founder of Bridgewater Associates. Mr. Dalio argues that there are little debt cycles, occurring every five to eight years, and big cycles that take 75 to 100 years. The little cycles end in what economists call ‘usual post-War recessions’ where slowdowns act as corrections to excess credit and business expansion.

The scale of the 2007-2008 crisis makes it the end of a big cycle, in Mr. Dalio’s template. Historically, what follows is an extended debt deleveraging process that causes severe drops in economic growth as it did in the 1930s. But over the past decade, central banks have tried to prevent a similar downward economic spiral with unprecedented monetary stimulus.

The global economy is in uncharted waters to a significant extent. The recession of the early 1990s, for instance, will offer little precedent because that was a conventional small cycle correction. The 1930s doesn’t offer much help either because of globalization, technology, the importance of intellectual property as a profit margin generator, and many, many other factors.

There are recession indicators I’m following closely – notably corporate debt spreads and the shape of the yield curve. At the same time, because the global economy has rarely – if ever – been in a similar situation, I’m open to the possibility we won’t see the bear market coming until it’s happened.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Aphria Inc. (APHA-T). Aphria Inc. paid nearly $300-million to buy allegedly worthless foreign assets that had been owned previously by firms with apparent ties to a key investor in the cannabis grower, a short-seller report claims. The company’s stock plunged again Tuesday after falling on Monday and erasing the gains it made in the past year, after Gabriel Grego – who runs a fund in New York called Quintessential Capital Management and co-authored the report with Nate Anderson – presented the allegations Monday morning at a short-selling conference in New York. The authors have bet against shares in Aphria and stand to benefit when the stock price falls. The company disputes the claims and fired back in a statement Tuesday. Christina Pellegrini reports (for subscribers).

Kinross Gold Corp. (KGC-N). One stock that has been on the Stock Watch List of the Contra Guys for years, but never quite makes the cut is Kinross Gold Corp. There are numerous reasons for this. Their feeling is that for this miner to shine, the price of gold needs to jump. Although the corporate bottom line is improving, it has been choppy at best and the debt load is much fatter than they would like to see. The share count has done about a double since 2008 and at about 1.3 billion outstanding, a share consolidation might be in the cards, especially with the stock trading at a lowly $3.75 or so. A reverse split normally hurts a stock’s valuation. The Contra Guys explains (for subscribers).

The Rundown

Will Trump’s trade talk go beyond bluster? Investors have reason for optimism

Markets jumped Monday on news of a ceasefire in the great U.S.-China trade skirmish. Stocks and commodity prices should continue to get a boost if recent history is any guide. Donald Trump’s preferred approach to most matters has been to bellow and threaten, but ultimately to settle for largely cosmetic changes. He has done that in arms talks with North Korea, and in trade negotiations with Canada, Mexico and South Korea. Now he seems to be following the same playbook when it comes to staring down China. The U.S. President’s “shout loudly and carry a white flag” strategy makes perfect sense if you assume his primary motivation is to create headlines for domestic consumption, according to Anatole Kaletsky, chief economist at forecaster Gavekal Dragonomics. So far, Mr. Trump has shown little inclination to go beyond bluster and implement changes that would fundamentally rock the world order. Ian McGugan reports (for subscribers).

The 93.4-per-cent yield and other tales from Canada’s dividend investing king

Canada is losing one its most useful, modest and consistent investing voices. After close to 40 years, Tom Connolly is about to shut down his quarterly dividend investing newsletter, the Connolly Report. “I want to spend more time at the cottage and that kind of thing,” the 78-year-old resident of Kingston said. Plainly printed in black and white, each edition of the Connolly Report is a jumble of numbers, charts, musings and quotes from the likes of Warren Buffett and Benjamin Graham, the father of value investing. You want slick? Read Fortune. If you want salt-of-the-earth investing wisdom with direct applicability to the lives of everyday investors, try Mr. Connolly. Lots of investors have done just that. The Connolly Report has 150 print subscribers and there are another 800 who follow him via his website, The website will continue into 2019, even after the newsletter is shut down. Rob Carrick tells us more about Connolly’s successful strategy. (for subscribers).

What this $600-million value fund manager has been buying, selling and thinking about markets

Himalaya Jain started preparing his portfolio for a potential market downtown in the spring, selling down equities and adding some alternative investments as a hedge. “Over the summer, we started to become more cautious because of some of the risks that were starting to mount, chief among those were [rising] interest rates,” says the portfolio manager and wealth adviser at the Rosedale Group, a division of Scotia Wealth Management. Mr. Jain has also been warning clients that the markets may be heading into a period of lower returns, as compared with recent years. Still, he doesn’t believe we’re headed for a repeat of the 2008 global financial crisis. “We don’t see the risks as high to cause something like 2008,” says Mr. Jain, who oversees $600-million in assets with his business partner Gord Love. The Globe and Mail recently spoke with Mr. Jain, a self-described value investor, about what he’s been buying and selling and an iconic company he wished he owned. Brenda Bouw reports (for subscribers).

Hauling more Alberta oil will not be a bonanza for rail stocks

Canadian oil producers are desperate to get more oil out of Alberta, and they are turning to railways for help. What is the upside here for Canadian National Railway Co. and Canadian Pacific Railway Ltd. as they haul more crude? The question lands amid tremendous concern about the impact of low oil prices. As a result of years-long delays in constructing new pipelines, an oil glut is weighing on the price of heavy bitumen produced in the oil sands. But investors who are wondering if they should boost their exposure to railway stocks might want to temper their enthusiasm. David Berman reports (for subscribers).

As market volatility persists, this low-risk ETF may be right for conservative investors

Investors have suddenly turned cautious. It’s no wonder. The stock markets have been extremely volatile since the beginning of October and that shows no sign of abating. In times such as these, people look to fixed-income securities for safety and cash flow. But with interest rates on the rise, many bond mutual funds and exchange-traded funds are in the red as well. But there are a few that are actually making money in this environment. The returns are low, but at least they are on the plus side. Gordon Pape recommended this lower risk ETF: iShares Floating Rate Index ETF (XFR-T). (For subscribers).

How this financial analyst uses convertible bonds to generate impressive returns for his balanced portfolio

Felix Choo, a 40-year-old financial analyst, is focused on long-run returns without a lot of volatility – so he prefers moderate risks and a balanced portfolio. Yet, he has earned respectable returns of 7.6 per cent annually over the past 10 years. Larry MacDonald talks with Mr. Choo about his portfolio, particularly its position in convertible bonds (or debentures). (For subscribers).

Others (for subscribers)

U.S. yield curve reflects fundamental investor mindset shift

Twelve quality U.S. health care stocks for market uncertainty

The most important charts for investors in 2019

2018: ‘The year no one made money’

Tuesday’s analyst upgrades and downgrades

Tuesday’s Insider Report: CEO invests over $200,000 in this stock yielding nearly 5%

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Senior executive trades nearly $2-million worth of shares in this blue-chip stock

Trade war relief for metals, but bull-bear battle rages on briefly becomes Wall Street’s most valuable company

Others (for everyone)

The Globe’s stars and dogs for last week

Jamie Dimon: Buybacks are for times when stock is cheap

Trump-Xi trade armistice clears way for more market gains

How cynical should you be about the Trump-Xi deal? Watch commodities

How one Quebec single Mom, 32, taught herself the ins and outs of investing

Evolve’s cybersecurity ETF finds favour with advisers

Ask Globe Investor

Question: Most of the banks have reported their fourth-quarter earnings, but I have not seen a single dividend increase yet. Is this a bad sign?

Answer: Not at all. Most of the Canadian banks follow a predictable pattern with their dividend increases. Toronto-Dominion Bank, for example, tends to raise its dividend once a year when it announces fiscal first-quarter results in late February or early March. So the lack of an increase from TD is no cause for alarm.

Royal Bank, Bank of Nova Scotia and Canadian Imperial Bank of Commerce typically raise their dividends twice a year. All three banks hiked their dividends in August, when they released fiscal third-quarter earnings, so – assuming the semi-annual pattern continues – their next increases will also be announced with first-quarter earnings.

Bank of Montreal was the only one of the Big Five that is expected to raise its dividend during the current reporting season and it did just that on Tuesday, boosting its quarterly dividend by four cents to $1 per share. BMO also follows a semi-annual pattern and last increased its dividend in May.

Robert Sedran, an analyst with CIBC World Markets expects that Laurentian Bank and National Bank, both of which report on Dec. 5, will raise their dividends. However, because Laurentian’s payout ratio is already at the high end of its target range of 40 per cent to 50 per cent, “confidence in this call is lower,” he said.

It’s worth remembering that dividend increases aren’t official until they are declared by the board, and that banks – and other companies – may forgo dividend increases if their earnings hit a rough patch, as happened during the financial crisis. But for now, I see no reason that the banks will deviate from their established dividend-hike patterns.

--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

There is no shortage of strategists recommending increased exposure to defensive stocks, considering the declining global economic expectations. But the nature of some of the traditional defensive sectors is changing. Tim Shufelt will explain.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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