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We had an interesting discussion in the newsroom this week about Bank of Canada policy and its potential to shape the future of domestic economic growth and interest rates. These topics can be theoretically fascinating but they no longer have anything to do with my portfolio strategy. For that, I only care about asset prices.

I have access to about a dozen Canadian economists offering a host of opinions on what the Bank of Canada should or shouldn’t do. I read them for context but what really matters is the Canadian WIRP (World Interest Rate Implied Probability) page on the Bloomberg terminal.

The WIRP page uses futures and options prices to calculate the likelihood of central bank interest rate hikes. The end result represents the aggregation of actual bets, using actual money, of market participants who risk financial loss if they’re wrong. (Right now, it is placing 56 per cent odds on another Bank of Canada interest rate hike by October)

The market positions of single investors have dubious or no predictive value. But combining all the investments into averages like WIRP can provide surprisingly accurate forecasts. Michael Mauboussin showed this was the case in his accessible white paper Explaining the Wisdom of Crowds during his tenure as Chief Investment Officer at Legg Mason.

There are enough U.S. economists that at least five or six heated arguments are going on at any given time. Examples of debate topics include the implications of a flattening yield curve, whether NAIRU [non-accelerating inflation rate of unemployment] exists, the money multiplier …. the list is as endless as the bickering.

My question to U.S. economists boils down to ‘Is the 10-year bond yield going up or not?’ As it stands, the 10-year – again with actual money and risk – includes the aggregate bets on longer term inflation and growth for the U.S. economy. The current 10-year yield would climb if U.S. growth prospects improved and this would have positive implications for S&P 500 earnings.

Asset prices can provide false signals and I do not believe markets are efficient in the sense that the Efficient Market Hypothesis states. I would rather, however, (loosely and temporarily) trust them than the opinions expressed in a single research report.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Fairfax Financial Scott Barlow picked the stock this week for his focus chart because it’s lurking just outside officially oversold territory with an Relative Strength Indicator of 33. An actual buy signal for Fairfax, if it comes, would be very interesting for potential buyers of the stock based on recent history. Over the past 24 months, RSI buy signals have provided lucrative entry points for Fairfax when they’ve come in pairs.


The Rundown

Outlook darkens for resource sector

More than 30 per cent of the S&P/TSX Composite Index is made up of commodity stocks. So when one of the finance industry’s most prominent equity strategists downgrades the mining sector because China – the global economy’s 800-pound gorilla where resource demand is concerned – is about see slower growth, there are few Canadian investment portfolios that are not at risk. Andrew Garthwaite, the chief global equity strategist at Credit Suisse and frequent winner of Institutional Investor’s annual award for best in the field, downgraded the mining sector this week to “underweight” – the strategists’ equivalent of an equity analyst’s sell rating. What makes that call all the more worrisome is that it comes after considerable damage done already in the commodity sector. Scott Barlow explains

Legal showdown nears as CRA asks for $110-million in unpaid taxes from TFSA holders

A battle has erupted between the Canada Revenue Agency and day traders who argue that they’ve been unfairly targeted to repay millions of dollars in unpaid taxes because of their use of tax-free savings accounts. A legal showdown nears as the CRA says it is owed $110-million in additional taxes from audits of the hugely popular saving and investing vehicles. Clare O’Hara explains

10 tax strategies for boosting your investment returns

Wouldn’t it be nice to add a guaranteed additional 1.5 per cent to 3 per cent annually to your after-tax investment returns? This is possible if you take steps to minimize the tax on your portfolio. Tim Cestnick looks at 10 strategies to consider to increase your after-tax investment returns.

The insiders that are getting rich off pot stocks

The boom in marijuana stocks has allowed insiders at the industry’s biggest companies to sell $250-million worth of stock in the past year – but if share prices hold, there’s still hundreds of millions more for them to make. The figure is based on a Globe and Mail analysis of insider-trading records for executives, board members, and major shareholders at the seven biggest Canadian cannabis companies from July 1, 2017, to June 30 of this year. David Milstead has all the details, which could help point investors in the direction of pot stocks that still have a lot of upside potential.


Ask Globe Investor

Question: Do you have thoughts on potential repercussions of Global X Funds being taken over by Mirae Holdings, which is a Chinese company? – Bob B.

Answer: Actually, Mirae Asset Global Investing is based in Seoul, South Korea. It has offices in Shanghai and Hong Kong, along with many other countries. Mirae is a global operator with $400 billion in assets under management. Its properties include, among others, Canada’s Horizon Funds. I see no reason for any repercussions from the Global X takeover.

At the time of the announcement, Taeyong Lee, President, Global Head of ETFs for Mirae said the deal connects “one of the most successful U.S. ETF firms to a prominent Asian-based global ETF manager, creating a powerful ETF platform. Through this merger, we expect to enhance our strong tradition of offering innovative investment solutions and that we will be able to continue to deliver high quality products and services." – G.P.

--Gordon Pape

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.


What’s up in the days ahead

Dorel Industries Inc. has fallen on hard times. Its profits are down and its share price has wilted 40 per cent over the past 18 months. Analysts, none of whom have a buy recommendation on the stock, are expressing no enthusiasm. So is all the bad news priced into the stock and may it be an opportune time for investors to buy? David Berman will share his thoughts.

More Globe Investor coverage

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Compiled by Darcy Keith

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