Romel Dhalla is the president of the Dhalla Advisor Corporation and can be reached at (204) 509-1020.
On the Money
Note: This is an opinion piece and should not be taken as investment advice, please refer to an investment advisor for making investment decisions suitable to you.
“Dr. Doom”, NYU Economist Dr. Nouriel Roubini, is calling for the world’s economic collapse, again. He’s been half right/half wrong about his calls – right direction, wrong velocity. This time, his thinking goes to the indebtedness of nations, calling it a “debt trap” – which is that governments will be forced to make major cuts to programs and that some nations will simply be unable to meet their debt obligations. He’s a bit late to the party as some countries have already defaulted, Ghana, Sri Lanka, and Russia have already defaulted in 2022, many more countries are teetering on the edge. Pakistan, a nuclear power, is said to have one month’s worth of FOREX reserves needed for debt, after that, they may have to raid citizens’ bank accounts with a special tax and likely get more money from the IMF (the 24th time in 75 years). Of great concern is that when a country defaults many “safe” havens that your advisor tells you to place money (largely because they HAVE to due to a highly restrictive regulatory environment) will actually lose value during these events, as many investors have exposure to global bond funds or bond exchange-traded funds (ETFs) that will start losing value as bond investors start panicking when this happens.
Bonds will lose (more) money this year, we know this. Most economists, as I’ve detailed in my previous article, are projecting a “soft” or “hard” landing (meaning a slight drop or a big drop in the markets and economy in general). Few are saying there will be upside – and to be fair – the US consumer somehow, someway, and often finds enough money to spend American out of recession. I think this money will likely appear from a record large portion of the economy Black Market, sadly, if it does show up. They will be the first to buy homes and other assets that will drop in value this year (and there will be a big drop).
So, where do you go in the meantime? For the next few months, short term guaranteed investments that will pay slightly more than your broker fees, is one place. Another, if you have the stomach, is to ride good value commodity stocks in developed commodity-based countries – again – go to your advisor for which specific stocks or funds to buy. Just make sure you cover sectors in energy/energy infrastructure, agriculture/fertilizers, and metals - think Teck Cominco, Uranium Stocks, and rare earth. Pepper this with Canadian banks and insurance companies (the majors only, folks). Stay away from US dollar investments – there’s a lot of risk in USD with the potential for Saudi Arabia to accept other currencies for its oil.
How much should you invest in the markets? I’d be AT LEAST 1/3 cash, if not 2/3 cash (short term guaranteed investments laddered 3 months to one year, not more than $100 per a GIC). I’d split another one to two thirds into the areas mentioned above – again, suitability is everything, so consult a professional to ensure you’re investing as per your own plan, risk tolerance, and stage in life.
Stay positive, it’s going to be very tough year!