2019 June 2019 Wrap-Up Danny Popescu 07/08/2019 624 Closed Good day, On the backdrop of what has been an odd first half of 2019, global stock markets rebounded in June as the US canceled tariffs on Mexico and the central bank’s sweet talk led to falling interest rates; the TSX Composite rose 2.52% while the S&P 500 rose 3.3% (in CAD). The Canadian Universe Bond Index rose 0.91% during the month; and with the Government of Canada 10 Year bond now paying 1.47%, the global bond market is pricing in very little growth. The top market news of the month was the European central bank’s hint of more easy money through lower interest rates and expanded bond buying. Not to be outdone, the following day, the US Federal Reserve indicated that rate hikes could come as soon as July and equities perked up on the growth expectation. However, the reaction was muted as it seems the stock market had already priced in the news, taking cues from the bond market all month. Currently over half of European government bonds now have a negative yield – meaning if you were to lend your money to the government, you’d have to pay them interest, which sounds like a clever way to tax you! In all seriousness, paying interest to lend your money makes no sense, so how does this inversion happen? It happens when bond traders bid up the price of the bond so high that the return becomes negative (hoping to sell the bond at a higher price than they originally bought it) as they believe the European central bank will buy the bonds from them to keep interest rates low (in this case negative) in an effort to generate growth. Clearly, this situation isn’t sustainable and should bond prices start to fall if yields reverse and rise, many traders and funds will be caught off-side with these negative bond positions. Instead of traditional publicly traded bonds, many of our firm’s clients hold private debt securities which have a low correlation to public equity and debt markets and have therefore avoided the situation. On the equity side of things, markets started strong in June when President Trump cancelled tariffs on Mexico and both European and US central banks indicated rate cuts would be coming soon. With interest rates now so low, the “hot” central bank money seems to be redirecting its way into equities with earnings yields higher than low yielding bonds. However, closer to the end of the month, the US central bank governors talked down rate hikes by implying they make cut rates by only 0.25% at their next meeting; the market was clearly expecting more, and equities sold off. Central banks seem to be painted into a corner, as historically they had much higher interest rate levels to cut from when economic slowdowns occurred. With little wiggle room as rates are already low, central bankers are trying to thread the needle perfectly, and if the S&P500 moves higher there may be less willingness to reduce rates, causing further volatility in equity markets. Although equity markets have been strong, we continue to play things defensively by focusing on quality businesses with strong balance sheets and coupling our equity allocations with alternative asset classes. Have a good weekend. Daniel Popescu CFP, CIM, FMA, FCSI President & CEO “I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc.” Disclaimer – This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. Laws and regulations are continually changing, and their application and impact can vary widely based on the specific facts involved and will vary based on the particular situation of an individual or entity. Prior to making any decision or taking any action, you should consult with a professional advisor. The information is provided with the understanding that Harbourfront Wealth Management is not herein engaged in rendering legal, accounting, tax or other professional advice. While we have made every attempt to ensure the information contained in this document is reliable, Harbourfront Wealth Management is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or as to the outcome to be obtained from the use of this information, and is without warranty of any kind, express or implied. The opinions expressed herein do not necessarily reflect those of Harbourfront Wealth Management Inc. The particulars contained herein were obtained from sources we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are not to be construed as a solicitation or offer to buy or sell any securities mentioned herein. Harbourfront or any of its connected or related parties may act as financial advisor or fiscal agent for certain companies mentioned herein and may receive remuneration for its services. The comments and information pertaining to any investment products (The Portfolios) sponsored by Willoughby Asset Management are not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units of The Portfolios is made pursuant to the Offering Memorandum or Simplified Prospectus and only to investors in Canadian jurisdictions. Important information about The Portfolios is contained in the Offering Memorandum or Simplified Prospectus available through Willoughby Asset Management. Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with investments in The Portfolios. Investments in The Portfolios are not guaranteed, their values change frequently, and past performance may not be repeated. Historical annual compounded total returns including changes in unit value and reinvestment of all distributions do not take into account sales, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Unit values and investment returns will fluctuate and there is no assurance that The Portfolios can maintain a specific net asset value. Harbourfront Wealth Management Inc. (“Harbourfront”) has relationships with related and /or connected issuers, which may include the securities or funds discussed in this commentary and are disclosed in our Statement of Policies Regarding Related and Connected Issuers. This policy is included in your new client package, on our website, or can be obtained from your investment advisor.