{"id":663,"date":"2023-09-06T12:00:09","date_gmt":"2023-09-06T12:00:09","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/?p=663"},"modified":"2025-05-15T14:54:40","modified_gmt":"2025-05-15T14:54:40","slug":"how-investors-can-navigate-uncertainty-like-central-bankers-should","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/how-investors-can-navigate-uncertainty-like-central-bankers-should\/","title":{"rendered":"Good News! How Investors Can Navigate Uncertainty Like Central Bankers Should"},"content":{"rendered":"<p><img fetchpriority=\"high\" decoding=\"async\" class=\"alignnone size-full wp-image-665\" src=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Night-Sky-in-Wyoming.jpg\" alt=\"Night Sky in Wyoming\" width=\"547\" height=\"364\" srcset=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Night-Sky-in-Wyoming.jpg 547w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Night-Sky-in-Wyoming-300x200.jpg 300w\" sizes=\"(max-width: 547px) 100vw, 547px\" \/><\/p>\n<p>Night Sky in Wyoming (Credit: Arthur Cauty)<\/p>\n<h2><span style=\"font-size: 14pt\">Navigating by the Stars on a Cloudy Night<\/span><\/h2>\n<p>The combination of clear mountain air and expansive night skies in Wyoming&#8217;s Jackson Hole may be responsible for the clearest account of Central Banking in recent memory.\u00a0 Chairman Powell was unusually forthright when he admitted that the Federal Reserve was,<em>\u00a0&#8220;navigating by the stars on a cloudy night&#8221;. <\/em>Talk about saying the &#8220;quiet-part&#8221; out loud!<\/p>\n<p>Rare candour indeed from a technocrat\u00a0that, along with our political leadership has created an inflation crisis unseen in almost 50 years.\u00a0 Appointed in Feb 2018, US CPI has rocketed over 22% higher during his tenure.\u00a0 No need to applaud.<\/p>\n<p><strong>CPI has increased 22% since Jerome Powell was appointed<\/strong><\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-666\" src=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/CPI-increase.jpg\" alt=\"CPI increase\" width=\"800\" height=\"459\" srcset=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/CPI-increase.jpg 800w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/CPI-increase-300x172.jpg 300w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/CPI-increase-768x441.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/p>\n<p>source: Stockcharts.com<\/p>\n<p>Tiff Macklem at the Bank of Canada started two years after Powell but has overseen an increase in inflation of almost 16% in just a little over 3 years.\u00a0 This isn&#8217;t a Powell bashing piece.\u00a0 Powell&#8217;s mea culpa is our own &#8211; we are all navigating by the stars on a cloudy night!<\/p>\n<h2><span style=\"font-size: 14pt\">Smokescreens, Not Just Clouds<\/span><\/h2>\n<p>Clouds aren&#8217;t the only thing that make it hard for investors to navigate &#8211; smokescreens were used in naval\u00a0battles to mask ship&#8217;s whereabouts, confounding the enemy and allowing tactical retreats. Nowadays, it&#8217;s harder to distinguish who is blowing smoke and why.<\/p>\n<p>Take for instance the recently announced\u00a0Clean Electricity Regulations (CER) proposed by the Federal Government in Canada.\u00a0 As I understand it, the intent is to drive Canada&#8217;s grid toward &#8220;net zero&#8221; carbon emission by 2035.\u00a0 Who would argue with that?\u00a0 But consider this &#8211; owing to abundant hydro and nuclear power generation, Canada&#8217;s grid is already a model of low carbon emission now &#8211; ranking second lowest in emissions among the G7:<\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-667\" src=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Emissions-intensity.jpg\" alt=\"Emissions intensity\" width=\"800\" height=\"405\" srcset=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Emissions-intensity.jpg 800w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Emissions-intensity-300x152.jpg 300w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Emissions-intensity-768x389.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/p>\n<p>source: Google Bard<\/p>\n<p>Canada&#8217;s grid emits just half as much carbon as the average G7 country!\u00a0 What&#8217;s that saying &#8211; &#8220;if it ain&#8217;t broke&#8230;.&#8221;?\u00a0 If governing is the\u00a0allocation of scarce resources (tax dollars) against competing interests than investing in\u00a0an area of leadership means starving other initiatives of investment.\u00a0 What could be more important than climate change? Healthcare.\u00a0 The chart below shows we rank dead last in G7 Critical Care Beds per capita.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-668\" src=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Critical-Care-Beds.jpg\" alt=\"\" width=\"800\" height=\"350\" srcset=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Critical-Care-Beds.jpg 800w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Critical-Care-Beds-300x131.jpg 300w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Critical-Care-Beds-768x336.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/p>\n<p>source:\u00a0\u00a0Canadian Medical Association Journal titled &#8220;Critical care capacity in Canada: How are we doing?&#8221;<\/p>\n<p>According to data provided by the CMA, Canada has the lowest number of Critical Care Beds per 100,000 people than any other G7 country.\u00a0 This number will fall even further when Stats Canada acknowledges that they failed to count approximately one million students still in the country.\u00a0 Like many of you, I&#8217;ve seen loved ones struggle to get the care they deserve. Or take productivity &#8211; Canada ranks worst among the OECD countries for real productivity per capita.\u00a0 Surely, this crisis also needs solving.\u00a0 To say nothing of the housing crisis!<\/p>\n<p>As laudable as climate initiatives may be, prioritizing them over addressing more existential crises seems like blowing smoke.\u00a0 How can we be\u00a0confident that a government that can&#8217;t count its population or provide adequate healthcare to its\u00a0citizens can be trusted to solve climate change?<\/p>\n<p>Investors need to see through this smokescreen.<\/p>\n<h2><span style=\"font-size: 14pt\">Investors Need Night Vision<\/span><\/h2>\n<p>There is an enduring lesson here for investors.\u00a0 Unlike our central bankers, who ran the economy onto the rocks of inflation by keeping the throttles wide open (and interest rates at 0%) in shallow rocky water. Or our governments that seem more concerned with virtue signaling than solving the everyday crises they have helped create, we need to develop night vision to help us navigate these times.<\/p>\n<p>For me that means two things:<\/p>\n<ol>\n<li>Being humble.<\/li>\n<li>Making small mistakes.<\/li>\n<\/ol>\n<h2><span style=\"font-size: 14pt\">1. Practice Humility in Position Sizing<\/span><\/h2>\n<p>In investing, humility can be expressed in position sizing.\u00a0 You&#8217;ve heard that diversification is critical for long term success &#8211; that&#8217;s not because diversification maximizes returns.\u00a0 Diversification minimizes the risk of catastrophic losses (see Powell&#8217;s track record).<\/p>\n<p>Today&#8217;s AI enthusiasts are probably getting ahead of themselves.\u00a0 As powerful as this technology is, betting more than a manageable\u00a0amount can lead to losses.\u00a0 There is a conceit that today&#8217;s leaders will be tomorrows as well, and that justifies ever higher prices.\u00a0 (Today, market darling Nvidia is trading at 116 times earnings!)\u00a0 What could possibly go wrong?<\/p>\n<p>Competition may be closer than we think.\u00a0 China&#8217;s Huawei shocked the world this week with a new cell phone that used a Chinese chip that features 7 nanometer construction.\u00a0 US sanctions on China were thought to have made this kind of advance impossible.\u00a0 Previously, only Taiwan Semiconductor had shown the capacity to fabricate such specialized chips at scale.\u00a0 Make no mistake, competition will come! &#8211;\u00a0<a href=\"https:\/\/www.reuters.com\/technology\/teardown-huaweis-new-phone-shows-chinas-chip-breakthrough-2023-09-04\/\">https:\/\/www.reuters.com\/technology\/teardown-huaweis-new-phone-shows-chinas-chip-breakthrough-2023-09-04\/<\/a><\/p>\n<h2><span style=\"font-size: 14pt\">2. Make Small Mistakes, Not Big Ones<\/span><\/h2>\n<p>I know I&#8217;m going to make mistakes &#8211; so I focus on trying to make my mistakes small.\u00a0 That generally means not adding to losing positions and sometimes it means cutting losses on positions that have gone against me.<\/p>\n<p>It also means sticking to a discipline.\u00a0 The simple fact is that no investment strategy outperforms at all times.\u00a0 Consider the financial stocks and the utility stocks in Canada.\u00a0 These high dividend paying sectors are the bedrock of the Canadian stock market &#8211; and yet they have struggled as interest rates have spiked:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-669\" src=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph2.jpg\" alt=\"\" width=\"800\" height=\"328\" srcset=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph2.jpg 800w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph2-300x123.jpg 300w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph2-768x315.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/p>\n<p>source: YCharts<\/p>\n<p>Several Canadian Banks are down almost double the average performance of the Big Six Bank shown above!<\/p>\n<p>Making small mistakes in the context of market setbacks means recognizing that one sure way to make a problem worse is to extrapolate short term performance into the future.\u00a0 Sure the Big Six Banks and Canadian Utilities are struggling this year &#8211; but that probably represents a better opportunity than a risk! Take a look at the Dividend Yield of Enbridge and CIBC:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-669\" src=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph2.jpg\" alt=\"\" width=\"800\" height=\"328\" srcset=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph2.jpg 800w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph2-300x123.jpg 300w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph2-768x315.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/> <img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-670\" src=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph22.jpg\" alt=\"\" width=\"800\" height=\"342\" srcset=\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph22.jpg 800w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph22-300x128.jpg 300w, https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph22-768x328.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/p>\n<p>Investors buying these securities today are getting a dividend yield close to the all-time highest of the past 25 years (no this isn&#8217;t a recommendation).\u00a0 If history is any guide, these out of favour bulwarks of the Canadian investment landscape will return to favour once the interest rates cycle is complete.\u00a0 Investors are being paid handsomely as we wait for these sectors to recover.<\/p>\n<h2><span style=\"font-size: 14pt\">Fog Is the Norm, Not the Exception<\/span><\/h2>\n<p>Powell is right to observe that the Fed is &#8220;navigating by the stars on a cloudy night&#8221;.\u00a0 His mistake (and potentially ours too) is to have not realized that those sailing conditions are the norm.<\/p>\n<p>A big benefit that smaller retail investors like you and me have over the big shots &#8211; we&#8217;re unlikely to believe in our own infallibility!<\/p>\n<p>Safe travels!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The combination of clear mountain air and expansive night skies in Wyoming&#8217;s Jackson Hole may be responsible for the clearest account of Central Banking in recent memory.\u00a0 Chairman Powell was unusually forthright when he admitted that the Federal Reserve was,\u00a0&#8220;navigating by the stars on a cloudy night&#8221;. Talk about saying the &#8220;quiet-part&#8221; out loud!<\/p>\n","protected":false},"author":193,"featured_media":665,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","footnotes":""},"categories":[93],"tags":[398,400,404,395,53,109,20],"class_list":["post-663","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights-news","tag-financial-sector","tag-global-markets","tag-government-policy-economic-impact","tag-healthcare-biotech","tag-inflation","tag-risk-management","tag-wealth-management"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How Investors Can Navigate Uncertainty Like Central Bankers Should - Evans Family Wealth<\/title>\n<meta name=\"description\" content=\"Central bankers admit they\u2019re lost\u2014how can investors find their way? 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