Based on price earnings ratios, dividend yield, and book value, all three American stock markets are in expensive territory.    Outside of a few times we have added to our positions, we have been sitting on the sidelines for months, preferring to collect dividends and not speculate.  We continue to stay the course.

Trumps trade war with China in having unintended consequences.  He wants American firms to leave China and return to the U.S.  Many are leaving China due to two reasons; China has told every business that if they want cheap loans and favourable treatment from the government, they must sign over all information, plus give free access to all their computers.  Failure to sign the agreement means future trouble for the company.  Rather than returning operations back to the U.S., many of the companies leaving China are not going to America, but to Mexico where labour costs are lower and there is no Donald Trump.

Today, 11 European countries, the European Central Bank and Japan have negative bond yields.  Germany, Switzerland and the Netherlands all have negative yields on their 30-year term bonds.  That is, bond holders are losing money every day.  It is worth noting that during the Great Depression not one country had negative interest rates.  The lowest yield in North America was just under 3% at the time.  Today’s negative rates are warning us something is seriously wrong in the world of finance.

One casualty of negative rates is savings.  Without savings there can be no economic growth.  The longer negative rates are around, the bigger the fall in savings.  This means for many investors they will be forced to work longer to build up their retirement account.  Another issue with negative interest rates is it forces savers to speculate when they should not be. Specifically, someone who is retired and does not want to speculate should be able to find a decent return in cash equivalents, which they cannot do today. As a result, they will often be forced to move all their savings into the securities, increasing their risk substantially.

Something I do not understand is that during August on the Toronto Stock Exchange, roughly 1/3rd of all preferred shares set new trading lows for 2019 with a yield of between four to six percent.  All preferred have a fixed interest rate and are redeemed at issue price. If interest rates go down, then all preferred shares should go up in value (technically, the same is true for common shares that pay dividends). This is not happening in today’s market.  Do investors prefer ¼ of 1% in savings accounts or a 2% Guaranteed Investment Certificate rather than a 4% dividend? Something is not right.

We continue to stress hold only blue-chip shares that raise their dividends every year.  Most corporations are hoarding cash at the moment. So should you be.