November 8, 2010: Slingshots, Wile E. Coyote and US Estate Tax
There has been a lot of talk about how “inelastic” the US economy is. What does this mean and how does
it affect investment strategies?
As I was thinking about what inelasticity is I pictured Wile E. Coyote strapping a giant elastic band
around two rocks, pulling himself back to a cactus, waiting patiently for the roadrunner to come and when
the roadrunner does pass the coyote lets go and…… nothing. Poor Wile E. steps away from the elastic
band, stares at it, scratches his head, gets distracted, then SNAP! Wile E. gets sent into the side of a cliff.
This is basically the fear many economists have about the US and, more generally, the global economy.
The US Federal Reserve and central banks around the world built their slingshot, loaded it with money
and let go expecting the global economy to be sent forward. For some reason, the slingshot lost its
elasticity and now the central banks are staring at their slingshot, scratching their heads and wondering
what to do.
The fear we all share is that our proverbial slingshot is going to snap when we’re not looking and send the
global economy into the side of a cliff.
This is the conundrum in which we find ourselves. Individuals are worrying about personal debt levels,
and the government’s ability to provide social services. Most individuals are focused on eliminating debt
and building a nest egg. Most people aren’t spending a lot of money on non-essential items.
At a corporate level there is a lot of concern too. What new regulations are going to be introduced, and
how will those regulations affect their ability to do business? What new taxes are going to be introduced?
Where will new consumers come from, domestic or international? These are just a few questions. Until
these questions and many other questions can be answered businesses are going to build cash reserves to
buffer their uncertainty.
So right now we’re like Wile E. Coyote, scratching our heads and wondering what we need to do to make
that slingshot elastic again. Let’s make sure we’re not inside the slingshot when it finally releases because
hitting a cliff hurts.
Last week I was reviewing a client’s account and talking about estate planning. In our conversation we
talked about how US holdings could affect estate taxes. Depending on your worldwide net worth you
could be subject to US estate tax even though you are not a US resident or citizen.
If you own US situs (or located) assets you may have a US Estate Tax liability upon death. Property that
US real estate,
The assets of a trade or business conducted within the United States,
Shares in US corporation whether held in an account in Canada or outside Canada
Bonds, debentures, and other debt obligations issued by US corporations and US governments
unless they are specifically exempt,
Tangible property situated with the US (i.e. cars, art, etc.); and
US pension plans (including IRAs, and 401(k) plans).
Owning US assets or US situs assets is a proper money management strategy that allows for
diversification and long-term growth. At the same time we need to have a strategy to deal with these
assets before they go to your estate.
To learn more our Wealth Management Services has published a comprehensive article on the matter
which I would be happy to share with you.
November 1, 2010: Record Highs, -5%, and Capitalizing Interest
Happy Halloween! And a happy one it was.
We posted some terrific gains in our Canadian Valtech model and Canadian dividend model through
October. The Valtech and the dividend model are posting record highs!
On the global side we’ve seen similar strong results from our dividend approach while the Global Valtech
model is testing the upper end of a 1 ½ year range. The biggest set back for the Global Valtech model was
waiting for the initial buy signals. While the benchmarks have better overall results since March, 2009
their performance hasn’t been significantly different over the past year.
Some may think about the above comments and think, “My portfolio isn’t on new highs!” That’s true.
The reason for the new high is because of the downside protection the Valtech model provides. Like it’s
Global counterpart, the Canadian Valtech model underperformed many of it’s peers in 2009 because the
model held a lot of cash waiting for buy signals. 2010 has been a different story as the portfolio has been
fully invested this year. What sets the Valtech model apart is knowing where to exit the stocks if the
market starts to struggle. Ironically the downside risk for the model has been roughly the same as the
decline in the model between 2007 and March, 2009.
Looking at the fundamentals we still have positive yield curves in the US, Canada, and around the world.
Rarely will the markets decline significantly in a positive yield curve environment.
There has been a lot of discussion about what companies are doing with their net earnings. One train of
thought is that companies have been building cash reserves. The reason companies are building cash
reserves rather than spend money on new equipment, acquire other companies, increase dividends, buy
back shares or pay off debt is because of the uncertainty around bank lending. Once the international
banking regulations are clarified, banks will be in a better position to lend money once again. Once
companies know where they stand with their banker we will see an influx of spending in the areas
mentioned above. The result is an expected lift in the markets.
Last week the Globe and Mail printed two articles worth a google and reading. “Why You Should Be An
Investor, Not a Gambler” by John Heinzl. He talks about three types of players in the stock market,
“gamblers”, “anti-gamblers”, and “investors”. It’s a good article finished with some “stats to ponder.”
My takeaway stat is -5%. That is the difference in annualized return between the average US mutual fund
investor and the S&P 500 for the 20 years ended December 31, 2009.
The other article worth reading is “They Should Own Equities” which is an interview conducted by
Shirley Won with Ned Goodman. Mr. Goodman is CEO of Dundee Corp which owns the Dymamic
family of mutual funds. Mr. Goodman shares his views on index funds, resource stocks and gold.
Capitalizing interest. Would you like your interest income to be taxed like a capital gain? Put differently,
if you earn $1,000 in interest income would you rather pay $400 in taxes or $200 in taxes?
Interest bearing instruments are beneficial to a portfolio because they provide stability and certainty for
that part of your portfolio you want to know is safe. The downside about interest bearing instruments is
the interest is taxed as income and therefore taxed at your highest rate.
We typically have tried to place fixed income assets inside tax-sheltered investments such as RRSPs,
RRIFs, and then TFSAs. Universal Life Insurance policies have also been a good place to shelter interest
income because the interest is tax free in an insurance policy as well.
Recently we have started to use another concept for people who have non-registered money they want to
keep safe and don’t want to lose control of. The concept is generically known as a “Corporate Class Bond
Fund.” In fact Corporate Class Mutual funds have been in existence for quite a while but have recently
attracted attention again.
Our focus is with bond funds. Essentially a mutual fund company has the ability to create a corporate
structure around their mutual funds. In the case of a bond fund, the mutual fund company can “swap” the
interest income for capital growth. There are a number of ways the fund company can do this. What’s
important to you is your taxes are reduced by 50%.
If you’d like to learn more please feel free to give me a call.
October 25, 2010: Those Darned US Fundamentals and What Accountants Should Know about
RSPs and Small Business Owners
If you google “Eduardo Saverin Facebook Co-Founder Speaks Publicly” you will find a great article from
Mr. Saverin on CNBC.com. The article as a whole is a good read but I wanted to highlight one quote.
“What we must be most vigilant about is maintaining an economic system that continues to encourage
entrepreneurship and creativity. If we want our country to truly succeed in the 21 st century, we will need
the public and private sectors to also think in creative ways to encourage and further facilitate the creation
of new companies.”
Each week as we speak with clients the inevitable question of what we think the future has in store for us
comes up. If we simply state “we believe the market is still positioned to move higher” the follow-up
question is, “How can that be? Things are miserable out there.” Our response? You’re right.
“The Economist” focused on impending currency wars that are developing throughout the world and the
significant pension deficit that is building in the US public sector. The US consumer isn’t spending
money in the same way they used to. Finally, one of my favorite newsletters reminds us that there are
serious issues, still, with the subprime mortgage market and many US banks have significant risks to deal
with. How can we be modestly bullish?
Simple, there’s a ton of money out there and very little foolish spending. The US Federal Reserve and the
Bank of Canada continue to support the economy with wildly positive yield curves. Although there is
speculation about a gold bubble or a bond bubble, the likelihood of it occurring still seems off in the
future. We certainly don’t have a dot-com bubble or a housing bubble which is causing people to spend
Consumers in the US are building their savings and trying to get their mortgage under control. There’s
little talk about these same Americans wildly speculating on the next dot com or their house. American
business is building cash reserves and getting their “corporate house” in order. Because the US economy
is on tenterhooks’ there is little desire from US companies to take unnecessary risk. Furthermore, many
US companies are looking beyond their borders and expanding into high growth countries such as China,
India and Brazil. Although the US economy may be growing slowly, many US companies have the ability
to go where the opportunities are.
Dividend income for many good companies is considerably higher than buying a bond. As a result many
investors will move to good value, dividend paying stocks and live with the market volatility on the belief
the stock they’re buying is a good quality, going concern.
As said, we are modestly bullish but there are many scenarios that could cause a black swan event.
I’m liking this google thing. If you google, “Jamie Golombek rethinking RRSPs for business owners” you
will find a video from Mr. Golombek positing the idea that small business owners may be better off
minimizing their earned income and taking their compensation in the form of a dividend.
I’ve printed a copy of the article if you’d like a copy. Basically Mr. Golombek presents an argument in
support of keeping excess money in the company and investing in a corporate account versus an RRSP
account outside of the company.
What he shows is that a person who invests in all equity, a balanced portfolio or all fixed income is better
off keeping the money in the corporate account. There are some risks he hasn’t touched on but if you’re
an accountant or a small business owner you should definitely be reviewing this matter.
October 18, 2010: Re-Visiting Decisions and Testamentary Trusts.
An article from the Globe and Mail written by Dan Richards on October 11, 2010 titled “The Dangers of
Reviewing Your Portfolio Too Often” was recently published. In the article Mr. Richards refers to Daniel
Kahneman’s work on “prospect theory” and his theory that the “pain” of losses is about twice the
magnitude from the “joy” of an equal gain.
Mr Richards also refers to the author Nicholas Taleb who wrote “Fooled by Randomness”. Mr. Taleb
showed that a portfolio held for 20 years with a 15% average annual return and 10% volatility along the
way would have a 7% chance of losing money over the course of any given year, a 23% chance of losing
money in a quarter, a 33% chance of losing money in a month, a 46% chance of losing money from one
day to the next and a 50% chance of losing money in an hour.
Using Mr. Kahneman’s work let’s create a “stressometer.” It’s a cumulative gauge such that every time
you’re aware your portfolio is down the stressometer subtracts 2 points and every time you’re aware your
portfolio is up the stressometer adds 1 point.
If Mr. K reviewed his portfolio quarterly his score would be (-2+1+1+1) +1. After an average year Mr. K
would be up 15% and feeling good about it. On the other hand Mr. T reviews his portfolio daily, or 250
times in a year. Mr. T’s stressometer would register (115 days * -2 plus 135 days * +1) would score -95!
Mr. T would end the year with the same 15% return but feel horribly stressed. The moral, worrying about
your portfolio daily adds no value only stress.
The bottom line, making investment decisions is tough at the best of times. Develop two sets of rules, one
set for buying and another set of rules for selling, stick to those rules and don’t dwell on day-to-day
performance. Remember, evaluating your decisions daily will lead to frustration 46% of the time.
On that note my rules for the markets remain bullish. Yield curves are positive, more stocks are
advancing than declining in New York, the Baltic Dry Freight Index is stable as is the CBOE Volatility
Index. Many stocks are testing new highs with Nissan confirming a new high this week.
There are many reasons to be nervous. The US mortgage situation has not gone away and according to
different sources is on the verge of disarray once again. North American job growth is stumbling along at
best and there are a lot of regions in the US that are still suffering tremendously. Government debt
throughout the world is still a concern.
At this time, the markets rally on good news and after a brief sell off essentially shrugs off the bad news.
That’s a bull market!
Providing our clients with a financial plan, an Investment Policy Statement and an Estate Plan is going to
be a key goal moving forward.
Recently we’ve had the opportunity to meet with a couple of clients to discuss their estate plans. For a
variety of reasons the notion of testamentary trusts has emerged into the conversation. A testamentary
trust is created in a clients’ will and doesn’t take effect until after the client passes away.
Rather than giving the residual money to your beneficiaries directly you have the option of giving a
portion or all of an inheritance to the beneficiary through a trust. There are many reasons for creating a
trust. Some of the reasons we’ve discussed recently include:
1. Children are already in a high tax bracket and want to save money on taxes,
2. Parents’ are worried about the stability of a marriage and want to make sure the money stays with
3. Parents’ are worried their children will spend all the money and have nothing left to live on, and
4. One of the beneficiaries suffers from a disability precluding them from looking after their money.
There are a number of other reasons why a testamentary trust makes sense. If you would like to learn
more please contact me or go to our publications page at www.paulharrislowe.ca.
October 11, 2010: Preferred Shares and Financial Planning
I hope everyone had a happy Thanksgiving weekend and were able to spend time with friends, and family.
The S&P/TSX Composite Index continues to push higher. Indices internationally remain strong as well.
On the one hand the rally flies in the face of all the bad news we keep hearing about. At the same time
governments and central banks throughout the world are doing everything they can to reinvigorate their
From a very long-term perspective this is a classic first rally reminiscent of the rally from October, 1974
to September, 1976 or the rally from March, 1938 to December, 1938. In both cases the S&P 500 had
strong rallies in the midst of serious economic problems. Similarly, the prior two times were followed by
18% and 40% corrections.
Make no mistake, we are not out of the woods and the stock markets are still at risk of decline. We need
to be careful.
At the end of September our research department published an article titled, “Preferred Shares: Are
Current Valuations Sustainable?” In the article they talk about the key drivers behind the current rally.
They site low bond yields, a lack of supply, and strong recent performance as key reasons why preferred
shares should continue to rally. Risks to a bullish view include a sell-off in the bond market, wider credit
spreads, and resurgence in high-quality supply. Investors looking for yield will likely continue to support
the preferred share market. Investors looking for growth will likely continue to support the stock market.
The Financial Planning Standards Council recently released a survey linking financial planning to
emotional well-being. The study involved 7,300 English-speaking Canadians and found individuals who
completed a financial plan are experiencing significant benefits as compared to Canadians who haven’t
completed a plan.
Tamara Smith, Vice President for marketing and co nsumer affairs with the FPSC made the following
comments. “There is real empirical evidence that Canadians engaged in financial planning are far better
off than those who are not.” “Those lacking a financial plan are also twice as likely to feel their finances
are out of control.” “Canadians with comprehensive financial planning are almost three times as likely to
feel they do not have to worry about money as those who are doing nothing.”
Clearly a proper financial plan is not simply a gimmick. A prope r financial plan creates a commitment on
your part to set realistic goals to achieve. The financial plan accomplishes this by outlining how your
savings will grow in good times and bad thus allowing you to have the confidence to maintain a consistent
approach to managing your retirement nest-egg. Having confidence in your long-term strategy reduces
stress created by short-term fluctuations and reduced stress means better health.
“Comprehensive financial planning benefits people both financial and emotionally,” stated Ms. Smith.
The RBC Dominion Securities Wealth Management platform has long-recognized these benefits. If you
would like to learn more please refer to the “brochures” tab at www.paulharrislowe.ca to find our
publications on this issue. Or, better still, call and we will be happy to discuss the financial planning
concept with you.
October 4, 2010: Understanding Risk & What The Wealthy Worry About
Last Monday caught me focused on trying to put gold into the context of a portfolio. Although it
prevented me from getting my notes out it did give me time to create a spreadsheet that can create
virtually any asset mix using gold and precious metals, stocks, fixed income and real estate. The
spreadsheet is called the “German Guy” in honour of a German Baron (from 500 years’ ago) who I read
about but can’t remember his name.
Experimenting with different asset mixes drew my attention to the volatility, or risk, of different asset
classes and asset mixes.
What is risk? For most of us we think of risk as the probability of getting hurt in some way. Walking on a
high platform has the risk of serious injury or worse. Driving a car at an excessively high speed has the
risk of a car accident. Investing in the stock market has the risk of significant declines in our net worth.
For many people our emotional reaction to any of these risks is roughly the same. Wanting to avoid the
feeling of loss or injury we avoid walking in high places, driving at fast speeds, or investing in stocks.
Risk, in financial terms is a little different. It looks at what we can expect to happen, on average, and how
much the market swings around that average both positively and negatively. For example a five year GIC
paying 3.00% has almost no risk for the next five years. We know that a year from now we will have our
principal plus 3%.
Given the choice which portfolio would you rather have for the next five years?
A/ Expected average return, 5% with a range of returns from 1% to 9%. Or,
B/ Expected average return, 5% with a range of returns from -5% to 15%.
Most people, I believe, would choose portfolio A. How would you feel if portfolio B offered an expected
average return of 10% with a range of returns from -10% to 30%?
The “German Guy” model allows us to look at virtually any asset mix and help you understand how
different strategies would affect you. If you want to learn more about it please feel free to ask. My belief
is it will help us put risk and return into perspective.
In an article published by John Powell, Web Editor, Advisor.ca on September 30, 2010 he reports on a
RBC Wealth Management study that finds that 58% of people with a net worth in excess of $1,000,000
think their children will be seriously challenged when it comes to managing their finances and 49%
don’t have confidence in their childre n’s ability to manage their inheritance . While these same folks’
feel responsibilities to leave a healthy legacy almost 40% have said they really have made no plans to this
effect. Of the remaining 60% one has to wonder about the quality of their plans.
If this is a concern amongst millionaire’s how many folks’ in general feel the same way? As an
Investment Advisor these are concerns we need to address.
One way to deal with these concerns is to work with your Investment Advisor to create an estate plan and
couple that with a vision document.
An estate plan allows us to understand who is important to you in terms of family, charity, etc. It also
allows us to develop a framework that will allow you to transfer your estate in a manner that makes sense
to you. This may include minimizing taxes, probate, time delays, etc.
At the same time a “Vision Document” is a concept recently introduced to me. This document allows us
to integrate what’s important to you now with what is important to you in the long-term.
I’m sure if I did a mini-survey among our clients we’d get similar results as that above. As we push
forward it is my hope we can quickly change those numbers to reflect your concerns.
To learn more on estate planning please go to http://dir.rbcinvestments.com/paul.harris-lowe/page_48843.
September 20, 2010
I didn’t get this out last week but really liked what I wrote so I defer to last week.
September 13, 2010: GDP (One Last Time), and Estate Planning
Last week we touched on the concept of US GDP year over year changes versus S&P 500 year over year
changes. Below is the graph comparing the annual return of the S&P 500 to the annual growth of US
GDP. It is calculated on a quarterly basis.
As you can see it is a very volatile graph. What caught my attention was the sharp reversals each time the
graph rose above 40% which are marked with an arrow. As we discussed last week, the previous three
occasions generated positive results. We’ve only had three such events to consider so future predictions
are pretty sketchy.
Looking at the chart a little more closely you can see that the graph touched 20% or higher on several
occasions. In total we have 14 previous times when the S&P outperformed GDP by 20% or more.
The chart below looks at each of the previous 14 occurrences. The yellow rows are the three occurrences
when the S&P outperformed by 40% or greater. The salmo n rows indicate the time periods when the
stock market was considered to be in a “secular bear market.” The white rows are “secular bull markets.”
You will also see there are four times when the S&P declined one year later. After two years’ the S&P
had only been lower once but when you look at 1 year forward to 2 years’ forward the S&P declined 5
times. The S&P has never declined in both years.
Start Period S&P 500 S&P 500 1yr S&P 500 2yr 2yr to 1yr
T+1yr % Chng T+2yr % Chng % Chng
1 1954-II 29.20 41.00 40.41% 47.00 60.96% 14.63%
2 1958-IV 55.20 59.90 8.51% 58.10 5.25% -3.01%
3 1961-III 66.70 56.30 -15.59% 71.70 7.50% 27.35%
4 1963-II 69.40 81.70 17.72% 84.10 21.18% 2.94%
5 1967-III 96.70 102.70 6.20% 93.10 -3.72% -9.35%
6 1971-II 99.70 107.10 7.42% 104.30 4.61% -2.61%
7 1975-III 83.90 105.20 25.39% 96.50 15.02% -8.27%
8 1981-I 136.00 112.00 -17.65% 153.00 12.50% 36.61%
9 1983-II 168.10 153.20 -8.86% 191.90 14.16% 25.26%
10 1986-I 238.90 291.70 22.10% 258.90 8.37% -11.24%
11 1989-III 349.10 306.00 -12.35% 387.90 11.11% 26.76%
12 1991-III 387.90 417.80 7.71% 458.90 18.30% 9.84%
13 1995-III 584.40 687.30 17.61% 947.30 62.10% 37.83%
14 2004-I 1,126.20 1,180.60 4.83% 1,294.80 14.97% 9.67%
Four of the five times the S&P rallied in both years’ 1 and 2 we were enjoying a secular bull market. The
exception is 2004. The average two year return was 35%.
Three of the times when the S&P rallied first and declined in the second year we were in a secular bear
market. Currently we are considered to be in a secular bear market. The average 2 year total return is
5.90% after enjoying a 14% year 1 average return.
Three of the four times when the market declined in year 1 followed by a rally the market was enjoying a
secular bull market. Although the year 1 decline was over 13% on average, patient investors were amply
rewarded with an average return of almost 32% in year 2 for a total average return of 11.3%.
What can we conclude from this? The 2010 Q1 rally was as strong as the periods ma rked in yellow
suggesting year 1 should be a strong year. Considering we are in a secular bear market there is a good
chance the market will top out sometime in 2011 and decline into early 2012.
If the S&P declines for the next six months then that is actually a preferred outcome because we have
enjoyed much stronger overall results in those circumstances. Here’s hoping the statistics play out.
Looking at interest rates the Canadian markets seem to be tightening up in the short term but the overall
curve is still quite positive suggesting the Bank of Canada is simply trying to get back to normal. In the
United States the Federal Reserve seems to be tightening in the timeframe less than 1 year but beyond that
it is still very positive. It would appear the Fed is trying to create some wiggle room for future monetary
policy actions but they are still pumping money into the economy. This should be considered positive for
Estate Planning: Done properly estate planning considers much more than just your will. Common
elements include your will, your Power of Attorney, evaluation of insurance coverage while you’re alive
and in the event of your death, how your assets are currently owned, minimizing taxes at death and for
your beneficiaries, charitable gifting, and pre-planned funeral arrangements.
Another benefit of taking the time to complete your estate plan is it allows you to consider what is truly
important to you in the long-term. Quite often we get so caught up in current events we forget to consider
how our decisions today affect our long term goals. As your advisor, understanding what’s important to
you in the long run will help us make better decisions for you in the short run.
To learn more about estate planning please go to my website (http://dir.rbcinvestments.com/paul.harris-
lowe) and click on “brochures.”
September 7, 2010: Back To School
After one of the best summers I can remember it’s time to get back into the swing of things. Today I want
to touch on three concepts, NYSE Advance/Decline, GDP and dividend stocks. I’ll try to keep each brief.
The markets certainly finished the summer with a bang as the various indices posted some very nice gains
last week. The S&P 500 had a nice reversal week and the TSE Compos ite followed through on the
reversal week posted two weeks’ ago. These gains were largely on the back of better-than-expected US
ISM Manufacturing numbers. This is a positive sign that we may have decent rally over the next 3 to 6
Along with the number of individual stocks posting strong reversals last week what also caught my
attention was the NYSE Advance/Decline Line. This compares the stocks that advanced on the NYSE to
the stocks that declined. When the number goes up it means more stocks are rising than falling. Tracking
it historically it has provided some nice warning signals of impending turns in the overall market. Last
week it posted a new historic high. Good news for the bulls!
Gross Domestic Product, or GDP, measures a countries’ total output. The number is calculated by adding
Consumer Spending, Investment Spending, Government Spending and Net Exports (Exports less
Imports). Obviously GDP is a critical indicator for the long-term health of a countries’ economy.
In order for industry, as a whole, to grow it is important a country is able to grow their GDP from one year
to the next. Countries with high GDP, such as China, may have inflation problems but they also enjoy
high consumer demand and therefore businesses have a much better chance to succeed. Countries with
low or negative GDP, such as the United States in 2008, have the opposite problem. Deflation is a bigger
concern and it is very difficult for businesses to survive.
Governments strive for a happy medium. Inflation and deflation is both undesirable so governments will
try to keep their GDP growth numbers in a desirable range. Observing the annual rate of change in the US
since 1978 it would appear the US government would like to keep GDP somewhere between 3% a nd 6%.
Right now that number is at the low end of the range so my guess is the US government is going to
continue to try and stimulate the economy. Stimulus is good for stock market returns.
If GDP growth is accelerating then the stock market should do well. If GDP growth is decelerating or
GDP is shrinking then, you guessed it; the stock market will do poorly.
The research I have been reading has spent a lot of time focused on the long-term implications of US
government and Federal Reserve policy and its negative effect on US GDP. Again, by observation, we
can see that the rate of growth of US GDP (and Canada) has been decelerating since the late 1970’s.
Although I’m certain an economist with any sort of training can explain these observations away the
simple fact, in my mind anyway, is that it is going to be tougher for businesses to thrive until GDP can
start to grow consistently again.
What does this mean for you? There will be years’ when the stock market posts strong gains and other
years’ when the market posts significant losses. We need to be prepared to move to the sideline even if it
seems, or proves to be, premature because these markets are likely to give us tremendous buying
opportunities again. If we want to stay invested then get “p aid to wait” and buy good quality, dividend
With a natural segue into dividend paying stocks I wanted to touch on them briefly because the contrarian
hairs on the back of my neck are starting to stand up a little.
More and more we’re receiving marketing material talking about the virtues of buying dividend stocks or
funds. New issues tend to come out in the later stages of a market cycle. It may still be early but the fact
we’re starting to see “new” dividend funds being marketed is an early warning signal.
Let’s be clear. A dividend strategy, as a discipline, will work over time but it won’t work all the time.
The dividend strategy we’ve used has been my star performer since March, 2009 having recuperated all its
losses and making new all- time highs. In my mind, a big chunk of the easy money has been made. Don’t
get caught up in the marketing hype that seems to be rearing its ugly head.
In summary, we seem to be turning a corner for the positive as far as market returns are concerned. If this
does turn into a six month to one year rally we may want to be very careful after that because there are a
lot of issues the US and Canadian economies have to overcome.
August 30, 2010: Missed Earnings or Safest Bank?
Royal Bank’s quarterly earnings came out last week having missed their target by a fair margin. The miss
was largely attributed to our treasury department missing their trading targets. Overall earnings were still
Just today, Global Finance Magazine released their top 50 safest banks in the world
(http://www.gfmag.com/tools/best-banks/10533-worlds-50-safest-banks-2010.html) and top 10 safest
banks in North America (http://www.gfmag.com/tools/best-banks/10532-worlds-safest-banks- in-north-
america-2010.html). Royal ranked 10th in the world and number 1 in North America. Just as impressive
is the fact that six Canadian banks ranked in both the top 50 and top 10.
This leads me to my topic for the week, playing the earnings game versus playing the value game.
Royal Bank is unquestionably a premier name in the Canadian economy. Being ranked one of the safest
banks in the world is a clear testament to their long- held belief to protect depositor’s savings and investors
dividends. In the long run (i.e. 10 years or more) an investor can’t go wrong holding Royal Bank stock.
Since March, 1978 RY has always generated positive growth results over a 10 year timeframe.
That doesn’t mean Royal Bank stock can’t get expensive and experience flat or negative price movements
even if earnings continue to rise. Over that same 32 year timeframe RY has experienced 5 separate
periods where stock values declined significantly or traded sideways for a multi- year period.
When we look at Royal Bank’s earnings since 1994 we see a bank that has grown their earnings by a
factor of 5 during that timeframe. Although there has been the odd interruption in the earnings growth, it
is clear the company has a solid long-term strategy and the rise in stock price reflects that.
What happens is that the market (all investors combined) tends to overreact either to the upside or to the
downside. Royal Bank stock has risen by a factor of 7 since 1994. The implication of this is that earnings
growth on its own is not good enough. The stock needs to continually meet or beat targets or else the
stock will be sold because the market has priced the stock to overachieve.
As we move into the fall my analogies go towards hockey. Specifically I think of a Toronto Maple Leafs
vs. Detroit Red Wings game. I was born a Leafs’ fan and will always be a Leafs’ fan but realistically one
has to expect Detroit to beat Toronto by three goals (probably more if I wasn’t a Leafs’ fan). Should
Detroit win by more than three goals then people picking Detroit would be happy and would also expect
Detroit to win by more than three goals the next time the two teams meet. If Toronto lost by less than
three goals then Toronto fans would be disappointed and expectations would remain the same. If Toronto
won, then Bay Street would be closed and we’d have a Stanley Cup celebration.
Sadly, reality dictates that Detroit is a quality hockey club and we know over time they are going to win
more games than they lose. Periodically Detroit will incur a losing streak or win by a na rrower margin
than expected and some of Detroit’s “faithful” will switch allegiances. For those who stay true to the team
their patience will be rewarded. I wish I could say the same about Toronto.
It’s the same thing with a stock. As long as RY meets or beats earnings people will buy the stock
expecting the trend to continue. As long as the earnings expectations are reasonably achievable investors
will invest in the company. Periodically RY, like Detroit, will fall short of expectations or suffer a loss
causing the stock to lose some value. People who recognize the long-term quality of the company itself
will stay with the company and accumulate more when earnings misses or losses occur.
Our job is to recognize when stocks are expensive or inexpensive, not in the short term, when trader’s
emotions are volatile, but in the medium to long-term when investor’s are holding the stock because it’s a
It’s not a perfect science and we’re subject to the same voting machine described above w hich is why
we’re always striving to improve.
August 23, 2010: Is This France or Ford?
Immediately after writing last week’s note two events occurred that I felt worthy of mention.
First, BHP Billiton announced they are taking a run at purchasing Potash Corp. Long a favorite stock of
the Canadian media the 30% jump in stock price deservedly captured headlines in the Canadian press.
What didn’t capture headlines was the 10% jump in price that Glentel enjoyed at the same time.
Potash has not been a name I’ve recommended and often I’ve been questioned for it. At the same time
Glentel has been in many accounts since 2007 and we have been placing it in most accounts from 2009
Glentel is a quiet little company that has a strong retail network selling cell phones and cell phone plans.
The reason for their jump was a purchase of Diamond Wireless, a 128 store network in the US selling
Verizon products. The company also has a strong business division servicing public and private sector
customers with wireless solutions.
If we purchased Potash in the spring of 2007 we would have paid approximately $74 per share and for
GLN we would have paid approximately $7.75 per share. As of August 23, POT is at 160.20 or 116%
higher. GLN is at 19.40 or 150% higher. Furthermore the volatility for GLN has been dramatically lower
as POT rallied to 233.65 in June 2008 while Glentel had only rallied to 9.75. Since June 2008, GLN
gained almost 100% while POT is still down 31%.
Glentel’s dividend yield is currently 3.50% and they have raised their dividends over the past 3 years’
while Potash is at 0.26% and has been stable since lowering it in July, 2007.
Why point this out? Potash is a well-respected company and has a bright future with or without the BHP
buyout. If we take the time to look for good value quite often we can find it without getting caught up in
the hype and volatility of the media.
My second topic: Is this France or Ford (nee Roosevelt)?
I subscribe to a market commentary service “Casey’s Research.” Last week they sent a letter looking at
major events during WWII and how the market reacted.
On its own the letter was well written. The intent of the article was to point out that when the market is
expecting a “black swan” event we probably won’t get one. By definition a black swan event occurs when
it catches the market by surprise. If the market is expecting an event to occur it can’t be a surprise and we
don’t get a black swan event.
The writer, Verdun Vuk, commented that a professor of his once said that FD Roosevelt did help the
economy when FDR died. Looking at the stock charts of the time the DJIA did rally at that time.
In his article Vuk showed how the market collapsed in May, 1940 when Germany invaded France.
Many of you have seen the chart I keep comparing the current secular bear market (starting in 2000) to the
secular bear markets (SBM) starting in 1929 and 1966. We’ve talked about how the cycles are very
similar and we’ve looked at how the two earlier SBM’s diverge in the last 6 years.
From these discussions I’ve argued we are no longer in the 1930’s. In fact we’re in January, 1940 or June,
1975. What happens from here? Do we get a market collapse like we did in 1940? Or, do we get a rally
like 1975? But, what were the events leading up to the two market movements?
In May, 1940 France was invaded.
What happened in the fall of 1975? The market bottomed the week of September 12, 1975. The week
earlier President Ford survived an assassination attempt and the London Hilton hotel was bombed by the
IRA. On September 22 President Ford survived a second assassination attempt. Other events in 1975
included Patty Hearst being arrested September 18, the “Thrilla in Manilla” on October 1, another London
bombing on October 9 and the first airing of “Saturday Night Live” on October 11. If I had to pick a
black swan event out of this list it would be the assassination attempts on President Ford.
Why did the market choose to rally on this news? From past readings the Ford administration had been
implementing a number of controversial economic stimulus plans prior to the market bottoming in
October, 1974. In September, 1975 the market had declined approximately 17% from its high earlier in
the year. Third quarter earnings numbers were being released in September and, I suspect, were better
than expected. From a psychological perspective the combination of good earnings numbers and a very
resilient president gave investors the confidence they needed to invest the country.
By March, 1978 the market settled back to levels just above where the rally began in September, 1975.
The 1940 bear market stayed in place until April, 1942. After 1942 and 1978 the stock market never
Back to 2010. In the absence of a black swan event over the next few months my thinking is that we are
in a microeconomic market. Individual companies reporting good earnings and paying a good dividend
should do well while companies on the opposite end of the spectrum will struggle causing the overall
indices to be flat to down.
A negative black swan may give us the value we need to buy with long-term confidence and a positive
black swan should be treated as a profit taking opportunity. No matter what happens over the next few
months, the real bull market, when we can buy anything and look good for it, is likely still in the future.
August 16, 2010
“Would you accept a lift from a person who has a one- in- four chance of getting into a really bad car
accident?” This quote is from Mohamed El- Erian, CEO and Co-CIO of PIMCO on the probability of the
US entering into a period of deflation. His point, investors should take precautionary measures to avoid
the negative consequences of a deflation.
Yield curves have continued in the same trend as last week. In the US anything beyond 2 years is rallying
and anything maturing shorter than two years is either flat or rising modestly. In Canada the same notion
applies except we’re looking at the five- year maturity as our dividing line.
What does it mean? At the economic level the central banks’ behavior is being interpreted as trying to
avoid a “double dip” recession. Is deflation a risk? Mr. El-Erian is highly respected so I’d be foolish to
On the other hand, looking at past environments like this 1901 to 1920, 1929 to 1941, and 1966 to 1981
we can see the stock market faired much better in inflationary environments rather than a deflationary
environment. Therefore the central banks, in my mind, are going to do all they can to create inflation. It’s
like adding kerosene to a campfire on a cold, rainy night. You need the campfire for warmth but you may
have to add a lot of fuel before the fire catches. Once the campfire catches you may not be comfortable
but you’ll be warm. I believe central banks look at inflation in much the same way, we may not be
comfortable but at least we’re warm.
Going through the stocks last week we actually had one stock push higher and giving us the opportunity to
raise it’s stop loss level. On the other hand, a Canadian stock made a new low.
The best way to describe these markets is “selectively bullish.” In other words if we’re careful about the
stocks we select we should be OK. We need to be sensitive to taking profits and cutting losses because
the markets are so sensitive it won’t take much to turn a stock negative.
The big decision we have to make as investors is what to do with the cash raised from the sale of stocks.
Do we stay fully invested? There are certainly enough stocks showing positive signs to stay fully
invested. Or, do we move our proceeds to cash? Big picture models suggest the markets may not change
too much for an extended period of time and we may be more comfortable having a larger portion in cash.
A lot to consider. phl
August 9, 2010
I’ve tried taking a crack at writing this note a few times and found myself getting bogged down. Getting
lost in some detailed, heavy monologue is the last thing you want to read and the last thing I should be
That being said I did finish the book “This Time is Different,” by Reinhart and Rogoff. This book will
probably become one of the great books on understanding sovereign debt and banking crises. Bottom
line, as much we like to think what is happening today is unique, it’s not. Hopefully policy makers who
seek influence from this book will be able to avoid some of the traps we’ve fallen into historically. Those
traps, even though they’re obvious, are tough to avoid as we have to weigh doing what’s right
economically and doing what’s right politically.
Moving on and looking at the yield curves it’s interesting to see yields 2 years and on in the US are falling
while shorter rates are remaining stable. In Canada the same thing is happening from 5 years out. The
London Interbank Offered Rate (LIBOR), which is the market global institutions work has 3 and 6 month
interest rates falling relative to 1 year rates. The implication in my mind is that the Federal Reserve, The
Bank of Canada, and global institutions on the whole still see an economy that needs support. Basically
we’re seeing money get dumped into the economy and as long as that is happening the possibility of a
market meltdown is greatly diminished.
Going through my Top 60 Canadian and Global stocks I was pleased to see a number of stocks pushing
higher. The Canadian and Global Valtech models had a few stocks make new highs allowing me to raise
my stop loss levels on those stocks. There were a few others on the brink of making new highs. The
NYSE Advance/Decline Line is testing a four- year high which is positive because this ratio implies more
people are buying stocks than selling.
The big question, and only time will tell, is what is going to happen with the stock market looking
forward. For the past year we’ve been tracking the current secular bear market to the secular bear market
that started in 1929 and 1966. The current secular bear market started in 2000 and has had cycle peaks
and troughs that are very similar to that of the Great Depression. Unlike many of the fear- mongering
letters published the current phase is more like 1940 rather than 1937 or earlier. As much as this suggests
the worst is behind us it also suggests we could be in for two or three years of consolidating (sideways)
How do we play this when interest rates are low and the markets may not give us much? Dividends and
staying true to a laddered bond portfolio. The dividend models we built a year ago have been performing
very nicely. The Valtech models have been picking up dividend-paying stocks for the most part. Getting
paid to wait may be the best way to manage things over the next few years. When we have the
opportunity to take profit we take it. Keeping bonds in the portfolio may not reward us with huge retur ns
but they’ll protect capital.
July 8, 2010
Parting thoughts before I go for two weeks.
In reading this week and talking to clients there is a lot of discussion around the notion of putting gold into
one’s portfolio. Reading one newsletter I subscribe to, the writer claims Investment Advisor’s won’t put
gold into a portfolio because the IA doesn’t make money. My presumption is the writer is talking about
holding the actual metal in a safety deposit box or under the proverbial mattress.
Let’s be clear, there are products available that will replicate holding gold bullion that I find the writer’s
claims preposterous. My concern about holding gold is simple. Commodities in general are highly
speculative. Gold is the most speculative of all. It is a highly pliable metal so can’t easily be used for
something as simple as a knife and fork, hence the term silverware not goldware. Its industrial uses are
limited. Gold doesn’t pay a return, and actually costs you money for storage. It is mainly used for making
jewelry, coins and bars. Gold’s value is almost 100% psychological. That being said gold has been used
to protect wealth for thousands of years and, to that end, shouldn’t be discounted.
What struck me to write this before I leave on holiday is the recollection of an article I read 5 or 6 years’
ago. The article was about a German investor from the 15 th or 16th century who became one of the
wealthiest people in the country. I guess I thought of him as I watched Germany get completely
dominated by Spain in the World Cup last night.
The article came from one of the mutual funds and talked about this gentleman’s investment philosophy.
It was pretty simple, 25% into four categories, gold, equity, bonds, and real estate. Given the challenges
in the stock markets over the past ten years and the attention given to the gold markets I thought it would
be interesting to see how such a strategy would perform since January 1, 2000.
The portfolio was broken into the following four categories:
1. Gold (25%)
a. Near-Date Gold Futures (10%). Given the low interest rates near-date gold futures are fairly
reflective of spot gold prices.
b. Barrick Gold (15%). The biggest stock on the Gold Bug Index in the US, is a Canadian
company and has paid a dividend for the past 10 years.
2. Equity (25%)
a. S&P/TSX Index (15%).
b. S&P 500 Index (7.5%)
c. EAFE Index (2.5%)
3. Bonds (25%). TD Canadian Bond Fund. Used prices excluding distributions.
4. S&P/TSX Capped REIT Index. This provides investors with exposure to a wide variety of real estate
Using December 31 closing prices the portfolio would be rebalanced to the above criteria. All US
denominated assets were converted to Cdn$ using December 31 exchange rates.
Some interesting results came from this.
The overall growth in capital was 46% over the past 10 years or approximately 3.9% per annum.
Core inflation in Canada since December, 1999 to December, 2009 has been 1.89% p.a.
The current estimated income from dividends and interest is 3.0%.
The portfolio lost 3.5% in 2002 and 15.3% in 2008. This does not include income from dividends
The gold portfolio has been a net seller in 7 of the past 10 years and nearly recovered 100% of the
initial purchase price.
ABX has increased the dividends in the past 10 years. The position is about 10% smaller than
what it was in 2000 but the market value is approximately 86% above the Adjusted Cost Base.
The TSX index has roughly the same number of shares that it started with. In 7 of the 10 years we
sold shares. The current market value is approximately 67% above its Adjusted Cost Base.
We have added to the S&P 500 in every year increasing the position size by 150%. The current
market value is approximately 28% below its Cost Base.
We have increased the EAFE position by 115% having added to the position in 8 of the 10 years.
The current market value is approximately 17% below its Cost Base.
The TD Bond fund has grown in number of shares by 35%. Market value is currently 5.7% above
The Capped REIT is about 4% smaller than in 2000 having experienced steady profit taking from
2001 through 2007. In 2009 the position was increase by 50% and in 2010 it was reduced by 20%.
The market value is roughly 77% above cost.
Looking at the information three questions need to be asked. First, was this German guy on to something
500 years ago? Second, should gold be part of a portfolio? Finally, is it to late to make the necessary
Was this German guy on to something? I’d say yes. By diversifying into four broad asset categories that
don’t necessarily move in conjunction with each other our friend identified a long term strategy that
worked in the short term. By operating on the assumption that what goes up must come down and vice
versa our friend identified a disciplined method to take advantage of the markets without trying to time it.
Should gold be a part of a portfolio? The past ten years have been very favorable for gold. We need to
remember that the previous 20 years from 1980 to 2000 saw gold decline by 68%. Given that we have
been net sellers of gold over the past 10 years we would have been accumulating gold for the 20 years
before that and I’m not sure our average cost base would be as attractive had we started this test in 1980.
The last major rally lasted 11 years. The last year of that rally, March 1979 to March 1980 witnessed gold
go from a close of 240.10 to a peak of 850, a 1 year increase of 250%. Could that happen today? As
discussed earlier gold, in my mind, is one of the most speculative plays out there so who knows?
Is it too late to start? The strategy worked for our German friend many centuries ago. It worked in the
last 10 years. As we saw it’s not perfect. On two separate occasions the portfolio lost value. To me it’s
not a question of being too late but rather do we have the intestinal fortitude, and discipline, to buy into
sectors that have shown multi- year histories of underperformance and sell sectors that seem to want to
keep going higher. Is it too late to start? No. Does the strategy make sense for you? Call me when I’m
back from holiday.
Back on July 26. Paul
July 5, 2010
Second attempt and it’s still Monday!
There’s an incredible amount of negative sentiment out there at the moment.
Most of the material I’ve been reading has been negative and the major indices certainly look bearish. If
the S&P closes lower this week it will confirm a significant technical break to the downside. The
fundamentals, on the other hand, remain rather positive.
Looking at the interest rate markets, yields in Canada and the US with a maturity less than 1yr seem to be
rising. Meanwhile interest rates beyond 1 yr are falling. What this suggests, at least to me, is that the
Federal Reserve in the US and the Bank of Canada are trying to give themselves some room to move.
They have tried to shift their easy money policy out farther on the yield curve in order to allow short term
rates to rise. This way, when the economy is showing signs of a slowdown the central banks have some
room to move. That being said the yield curve is still incredibly positive across the board and supports
Out of curiosity I looked at the various commodities today. What caught my attention was the lumber
market. Levels are irrelevant for this conversation but lumber reversed its trend the week ended April 23.
The S&P reversed it’s trend the same week! Looking more closely aluminum, copper, cotton, oil, nickel,
and platinum also started a downward trend in late April.
What do they all have in common? Each of these commodities play a significant role in global industrial
production. Based on the charts it would appear demand for industrial commodities remains weak. That’s
not a positive sign for the markets.
On the other hand, food for the soul which includes cocoa, coffee, and sugar remain bullish. Work is slow
so let’s go to the local coffee shop and get a quick shot of sugar and caffeine to make us feel better. We
feel good in the short term but it doesn’t do our health much good in the longer term.
So how do we utilize this information to our advantage? For many people it’s tempting to jump ship and
move to cash. Similar to our candy and coffee friends above, moving to cash will make us feel better in
the short term but it won’t do our financial health much good in the longer term.
For dividend oriented clients moving to cash means switching a Canadian yield above 5% and a global
yield above 8% for an interest yield below 4% depending on time to maturity. Many of these stocks were
already deep value so moving to cash would mean we lose tax-efficient dividend income plus the potential
for long-term capital growth. From back-testing this strategy it is apparent that a dividend strategy doesn’t
necessarily follow the market as a whole so giving up a dividend strategy because we’re uncomfortable
with the market as a whole could be very costly.
For growth oriented clients the strategy I’ve adopted is to have a view on what I believe is going to
happen and then identify levels which confirm my view. Once my view is confirmed we take action. This
strategy, again, is not based on the market as a whole but on individual securities. If the market as a
whole is bearish then as we get sell signals on individual sto cks we move to cash. This prevents making
black and white decisions which could seriously affect our long-term results and allows us to gradually
move to the side if warranted or gradually rebuild if the market turns bullish again. An approach that is
gradual avoids making the mistake of jumping in prior to the beginning of a bull market or getting out of
the market before the market truly turns bearish. It requires patience but it works.
Right now the market certainly appears bearish. As discussed abo ve, the challenge is in how we choose to
manage the situation.
I’ll be on holiday next week. If you need to speak with me please feel free to call.
Charlie can be reached at 705-743-4636.
June 28, 2010
First attempt at a weekly review and thought’s about the market.
Last week attended an RBC DS conference. Attended sessions on high yield bonds, fixed income
strategies, equity outlook and, my favorite, compliance.
Matt Barach presented the equity outlook. During his presentation he identified ke y sectors he believes
should do well. What was comforting was his means of analysis pointed strongly to the
Telecommunications sector as being the sector of choice. This is not the first time in recent weeks’ I’ve
heard this theme. Considering our exposure to this sector in Canada and globally I took great comfort in
Brad Willock delivered a good presentation on the US economy and the markets in general. Matt Oechsli
delivered an interesting session on the best practices of investme nt advisors in North America.
After dinner Al Pearlstein delivered a great presentation. Al has been with the firm 60 years! He also
included a note in our welcome package summarizing his approach to looking after clients. What Al has
learned over the years’ is that market corrections happen more often than we care to admit. Therefore he
has adopted a defensive strategy to managing money for the long-term.
On Friday morning we had a presentation from STRATFOR. Peter Zeihan talked about the long-term
trends he believes are unfolding. He started from a historical perspective and moved forward. His
approach began by looking at low-cost transportation systems (water) and what countries have natural
advantages in this regard. The US is clearly the leade r. He then looked at demographics, much the same
as David Foot. China is not in as good a position as people might think. In Europe he believes Germany
is a great play (go Daimler and Deutsche Tel!) followed by Poland. Turkey is an upcoming major power,
then Brazil and Mexico (!?).
Prior to lunch we had a mutual fund panel including Fred Sturm, Richard Jenkins and Ben Cheng. Mr.
Sturm expressed concern about Gov’t debt, deficits and corporate interference. He does like corp balance
sheets and feels the free cashflow coming out of companies is very strong. He is concerned that the
market volatility is forcing us to become market timers and if this persists will cause us to trade ourselves
out of any gains. He believes currencies will remain weak, commodities are going to rise in price and that
we should keep a strong anchor in income generation. He also noted gold supplies have not risen in line
with the rise in price which he feels is going to create shortfalls.
Richard Jenkins feels there is great value in Europe and the US. He also noted “boomer” stocks have hit
all-time lows. Feels RIM is in trouble in the long-term.
Ben Cheng feels the payout ratios and many income trusts are too high.
Overall the conference was very good. I took heart in seeing some of the stocks I’ve been working with
consistently show up in the analysts recommended list.
I think the key message I took away about the economy and looking forward is that we are going to
remain bogged down by macro-economic fundamentals but micro-economic fundamentals are improving.
In other words this is a market where identifying quality investments are very important.
Looking at the world today I’m a little disheartened at the patterns developing on the S&P 500 charts and
the TSE Index. Although it’s premature the potential for reversal patterns to the downside are clearly
starting to show up.
On the yield curve front we’re seeing short term rates rise while long-term rates decline. Slowly it appears
the yield curve is starting to flatten. That being said we’re still a long way from seeing a negative curve
and to a certain extent the curve had to flatten because it was so positively sloped for the past year. My
belief is the central banks of the world are still trying to create an easy- money environment for companies
Looking at some off-the-wall crosses today I was a little disheartened. Frequently I’ll cross the S&P 500
with gold. Right now that is suggesting gold may resume it’s strengthening pattern against the stock
market. I also compared the S&P 500 with the 10-year Corporate Yield vs 10- year US Gov’t spread.
What that suggests is that corporate credit is going to tighten relative to the stock market. Again, a
Individually the stocks in our portfolio have mostly been soft. What is good to see is that stocks towards
the low end of their range have seen significant pickups in volume. This is usually an early indicator large
players are starting to buy in.
Overall the markets are likely to remain difficult. As the government support systems subside I believe
players will take a “wait and see” approach. In other words the market will likely stay on the sideline to
determine how the economy will fair on it’s own.
On the other hand there are sectors that are deeply undervalued and paying good dividends. Further
devaluations in these sectors are likely minimal and, if anything, the market will prefer to hold some of
these names with the expectation they’ll be paid a good cashflow and these stocks will emerge profitably
more quickly. Similarly there are companies that, despite tough economic conditions, have figured out
how to thrive and survive and are worth looking forward.
On the interest rate side it appears rates are range-bound in the medium to long term while short-term rates
will slowly notch higher as circumstances warrant. I still believe the best strategy here is a laddered
That’s it. I’ve pretty much exhausted my thoughts.