Dan Rohinton A Comment -- General Comments From an Expert A Commentary COMMENT Jan 03, 2025

He had been leaning more toward there being a cut. But it's not a surprise; bets were about 50/50 whether there'd be a cut or not.

If you look at the comments that came out, there's a wide range of potential outcomes -- from lots of inflation to a recession. In the end, the backward-looking economic data, such as inflation, looks reasonable. But the forward-looking data, like unemployment, doesn't look good at all.

He thought there might be some more weight given to the employment situation, given the uncertainty created by US trade policy. The BOC, consumers, and businesses are all dealing with uncertainty and that forces people to sit on their hands. A bit of relief on the interest rate side might help to provide better economic support.

He thinks so, when you think about what goes on in company boardrooms on capital budgeting. With so much uncertainty, how can you bring up a massive project for approval or invest in more people? Forces everyone to sit on their hands, as there's really nothing you can do. In fact, you're seeing companies go the other way with some layoffs.

Need a lot more certainty before you allocate capital. In the meantime, it's wait and see, which doesn't help the economy. 

The #1 question in this scenario is time horizon. If your time horizon is really short, investing in stocks doesn't make sense. If you look at market data, the odds of losing money in the stock market after 5 years is almost 0. So buy things that are undervalued with a time horizon that allows you to stick in there. 

This came up more in the past when GIC rates were really high. If you own a GIC outside of a registered plan, that's 50% tax. So your 3% on a GIC is instantly halved to 1%, below the rate of inflation, losing purchasing power. If you have 3-5 years, use this volatility to focus on some great compounders. This can set you up for a very long time if you buy right. In 5-15 years, you can really grow your money, and that's where the GIC argument falls apart. See his Top Picks.

Both segments will be affected indirectly by tariffs. They each provide a service and, while you can't tariff a service, tariffs will affect the economy, which impacts financial markets, which impacts life insurance and asset management.

Questions to consider during tariff uncertainty: How much debt does the company have?

It’s easier to understand how a company with no debt has a better ability to survive than a massively leveraged company. Balance sheet strength is important, always. But in a period of recession, when business and cash flow slow down, it becomes even more important. In a period of stagflation, where interest rates might rise even as the economy slows, balance sheet strength becomes even more crucial. The last thing you might want to own is a company laden with debt while rates move up. So take a look at the financial strength of the stocks you own. Obviously, a company with no debt and billions in cash on the books may be a safer bet than others. And, these companies do exist: a recent Bloomberg data screen notes 2,917 companies in North America with no debt at all.
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We're through the worst of it. It may go lower, but the downward curve will level off. He's recommending that clients gradually accumulate over the next few months. Have we seen the bottom? Maybe, maybe not, but we're close. 

Trump's behaviour is not predictable, but it is predictable in a longer-term sense. He makes all kinds of noise, and then settles for something that's quite reasonable. We saw that with the USMCA.

He had a few investors take assets out of the market earlier, which turned out to be a good move for them. But in his experience, it's better to have time in the market and not try to time the market. Timing involves two decisions -- when to get out and when to get back in. It's a difficult call, and you can miss the bottom.

His income fund is yielding 6.5%. If we have a recession, yields are going up and you'll make money investing in high-dividend-paying stocks like banks and insurance companies. These areas are not particularly vulnerable to a recession in the short term.

New investors should be cautious. You'll make more $$ over 5 years going after the big global growth stocks. But we can't tell exactly what'll happen over the next 6 months.

When he actually sits down with countries and hammers out a deal, it's often not far from where there were to begin with. These deals will be made. China's the tough one, but the most important, because it's looking to possibly replace the US as world leader in a couple of generations. 

China's also the world's biggest exporter. The US is a big customer, so China can't turn its back on the US totally.