Gluskin Sheff economist David Rosenberg wrote a compelling essay for the weekend Report on Business that scared the pants off investors and non-investors alike. Mr. Rosenberg noted that markets are busily repricing assets for a global recession while ‘the world is awash in debt’ and constrained from responding to offset potential pain.
The economist also focused on global politics where Brexit, European extremism, another slate of American mass shootings, trade wars and Iran are, to him, indicative of ‘a society starting to come apart at the seams.’
The entire column reminded me of the 1970s when I grew up.
In the ‘70s, the economic stresses came from the same places, although the relative power of labour and capital was reversed. Then, labour had all the power and rampant wage growth crippled corporate profitability, sending equity markets steadily lower.
Monetary policy and central banks were a huge issues 50 years ago but again for reasons exactly opposite to now. Inflation, not deflation, was the biggest threat and borrowing costs were punitive. Ham-handed attempts at wage and price controls by the Nixon administration failed miserably.
Politically and culturally, the ‘70s had plenty of upheaval. Violent crime peaked during the decade, and major centres like New York City became dangerous cesspools as the photo essay “Death, Destruction, And Debt: 41 Photos Of Life In 1970s New York” highlights. The Iran Hostage situation and the oil embargo threatened the Americans’ inflated self-image on the global stage.
Television news played a role then similar to the internet now. North Americans who hadn’t owned TVs for very long were confronted with unsanitized video from the Vietnam War and student mass protests on the 6 p.m. news.
The news – which people actually trusted back then – must have caused, like the darker corners of the internet does, a sense of societal implosion. The extreme pessimism of popular movies of the 1970s – Charles Bronson’s Death Wish vigilante series, Martin Scorcese’s Taxi Driver, Stanley Kubrick’s Clockwork Orange and the Dirty Harry films – did nothing to alleviate the gloom.
The capital versus labour dynamic is where I believe the biggest similarities between the 1970s and now lie. The ’70s marked the peak of labour’s power to dominate market and business interests and now the pendulum has swung too far back the other way. We are merely seeing one extreme of a long cycle.
One of Ronald Reagan’s first acts as president was to fire striking air traffic controllers with plans to replace them with the military. This marked, at least symbolically, the turning point for labour power. The modern equivalent would see a president Elizabeth Warren or president Bernie Sanders enact significant anti-corporate, pro-worker policies.
No comparison of eras like this is going to work perfectly – multinational corporations were nowhere near as powerless in the 1970s as labour seems now – but there is enough there to provide a useful perspective. And speaking of perspective, one of the few benefits of age is the realization that the current time’s struggles are not completely without precedent, and thus inherently solvable.
–Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Alacer Gold Corp. (ASR-T). This gold stock has nearly tripled over the past two years, and the Contra Guys think there are more gains to come. Alacer is an unusual company in the mining field. It outlines a plan with a budget and time frame and it actually hits the targets. The Colorado-based company operates a mine in Turkey and trades on the TSX and ASX. (For subscribers).
Hydro One Ltd. (H-T). Hydro One Ltd. is on a tear and there is a good reason why: The Ontario government finally appears to have left the utility alone. The shares have surged 24.6 per cent over the past 12 months (not including dividends), ploughing through recent market volatility. David Berman explains why. (For subscribers).
Boralex Inc. (BLX-T). This stock appears on the positive breakouts list (stocks with positive price momentum). During the current stock market volatility, this is a stock that has provided investors with stability to their portfolios. Year-to-date, the share price has been steadily climbing higher and is up 21 per cent. With a current yield of 3.2 per cent, the company has a conservative payout ratio, suggesting its quarterly dividend is sustainable with room to grow. There are seven buy recommendations on the stock with an anticipated total return (including the dividend yield) of over 20 per cent. Quebec-based Boralex develops and operates renewable energy power generating facilities (wind, hydroelectric, thermal, and solar) in Canada, the U.S., and in France with the majority of company’s production stemming from wind power. Jennifer Dowty reports (for subscribers).
Three high-yielding stocks that just raised their payouts
John Heinzl loves dividends. Even more, he loves dividend increases. When a company raises its dividend, it isn’t just putting more money in shareholders’ pockets. It’s also sending a signal that the business is doing well and has the growing revenues and cash flows to sustain the dividend at the new, higher level. He looks at three stocks that just boosted their dividends: Capital Power Corp., A&W Royalties, and SmartCentres REIT. (For subscribers).
Four new ‘one ticket solution’ ETFs make debut as their popularity soars
The number of exchange-traded fund products that offer what’s known as one-ticket solutions to building a portfolio continues to grow in Canada amid their surging popularity. Four new such “asset allocation” ETFs started trading Tuesday on the Toronto Stock Exchange: three from RBC iShares, bringing the bank’s total offerings in the space to five, and one from CI Financial. Vanguard Group at the start of last year was the first in Canada to launch asset allocation ETFs, funds that provide a diversified portfolio of stocks and bonds that automatically rebalance to stay in line with an investor’s risk profile. They instantly grabbed the attention of retail investors, and were seen by some as a lower-cost alternative to pricier balanced mutual funds and even robo-advisers, which provide regularly rebalanced multi-asset portfolios. Clare O’Hara reports.
Market news as the Dow dropped Wednesday:
Others (for subscribers)
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Ask Globe Investor
Question: My partner (age 67) has given his ex-wife the total of his RRSPs as a settlement payout. This has left him with no retirement income, he has no pension, and gave up 48 per cent of his CPP. He still works and can save $2,000 per month. We have a mortgage of $300,000 on a small suburban home we purchased together. Is it smarter to put that extra $2,000 toward the mortgage or to start a new RRSP? My idea is to start a new RRSP to get the refund and put that back into the mortgage. Barring any health issues, we expect him to continue working to 70. What do you think?
Answer: On the surface, your idea sounds like a good one. Paying down debt, especially coming up to retirement, is always a good strategy. But there are a couple of factors to consider.
First, how much of a tax refund will be receive? That, of course, depends on his income level. If it is relatively low, then the amount of the refund won’t make much of a dent in the mortgage.
Second, is there any chance he might qualify for the guaranteed income supplement (GIS)? That will depend on total household income. If the answer is yes, then opening an RRSP would be a bad idea because any income from the plan (or a subsequent RRIF) would reduce the amount of the GIS payment. Better to pay off the mortgage, which will have no effect on income.
– Gordon Pape
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Compiled by Gillian Livingston