2018

The Next Financial Crisis

Good day,

While the sting of the 2008 financial crisis is behind us, prudent investors have learned from the experience and are well positioned to minimize the risk the next time around. Where there’s chaos, there are opportunities and significant wealth has been created by those who followed a disciplined investment approach ignoring the noise and focusing on company and market fundamentals.

This week, JP Morgan released a report of a model they created which aims to predict the timing and impact of the next financial crisis. While there are many unknown variables which could significantly throw off actual results, such studies can give us a general understanding of how the present financial environment could impact global economies in the upcoming months/years.

Here are some quotes of the study’s key predictions:

  • A US stock slide of about 20 percent
  • A jump in US corporate-bond yield premiums of about 1.15 percentage points
  • A 35 percent tumble in energy prices and 29 percent slump in base metals
  • A 2.79 percentage point widening in spreads on emerging-nation government debt
  • A 48 percent slide in emerging-market stocks, and a 14.4 percent drop in emerging currencies

JP Morgan goes on to state that the next financial crisis won’t hurt as badly as the last one but regardless, being prepared for any economic contraction and knowing how to capitalize on the opportunities that follow are key.

Most investors can’t move their money to GICs every time they see negative headlines as inflation and taxation will prevent them from protecting their lifestyles and meeting any financial objectives they might have.

It is our view that given today’s equity valuations, the stage in the economic cycle and a rising interest rate environment, it is prudent to have a meaningful weighting in high yielding privately held securities which are uncorrelated to publicly traded markets. To position us for the next market contraction and subsequent rally, we have and will continue to couple this approach with purchasing select equities with strong fundamentals experiencing positive trading trends.

Have a good weekend!

Danny

“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.”

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