Time to Embrace Volatility

Here’s What We Know

February 11, 2016

The price of oil is currently worth less than the “barrel”

This is not sustainable. Extreme lows have the effect of a “tax cut” on the economy. When it costs less than half of what it used to at the gas station people naturally put the excess to work by either paying down debt or spending which creates a multiplier effect.

Worldwide: Although very painful in oil producing regions like Alberta and Saskatchewan, low oil prices are a stimulant for growth. We are unaware of a global recession that has occurred due to a deeply discounted energy price.

Many oil producing countries are in a position of having to sell securities to fund their budgets; at some point this ends and they start buying again. The IMF recently noted that Saudi Arabia, having to support their social programs, will exhaust Sovereign cash reserves within five years; again, this position is not sustainable. We think investors may be surprised by the positive implications for growth later this year as the immediate negative effects on commodity producers begins to fade.

China is growing, albeit significantly slower

However, they appear to be so far, successfully transitioning to a consumer-based economy from a predominantly export-driven model. Economic data is currently pointing to the stabilization of China’s growth (Bloomberg/Trilogy World Report January 2016) with some continued weakening of the Yuan expected. image2

Political Uncertainty Reins in the Largest Economy of the World

In the short term markets despise uncertainty. No matter the outcome in November, there will be certainty!

We survived a far worse period of market volatility in 2008-09 when there were significantly more serious concerns. A sustained rebound occurred when fear retreated (it will again) and rational behavior prevailed; significantly boosting the valuations of quality companies that were unfairly mis-priced along with those which deserved to be. In the meantime, your portfolios continue to generate dividends and interest income; reinvesting at discounted prices which accrue a “gift-like” quality in future purchasing power.

We see incredible opportunities for long-term investors who resist indulging their fear during turbulent times. We are making sensible, reality-based choices to help you reach your goals and avoid the psychological pitfalls of the market. As always don’t hesitate to call!

Warmest Regards,

The Wooding Group

Debra, Tom, Lindsay and Peter

Photos:

  1. Source: www.virtualcapitalist.com, prices from www.homedepot.com
  2. The Bund, Shanghai, China