Our little village of St Jacobs is roaring back to life following the pandemic and we are enjoying the first days of summer. Rumor has it that the hot dog stand next door to our office is up for sale so I recommend you get them while you can if you (like me) are a big fan of this street delicacy.
Is no news good news?
Market consensus is still heavily weighted with negative sentiment – war in Ukraine, recession fears, political instability, high inflation and interest rates – that remains embedded in the prices of the businesses we own in our mutual fund portfolios. It’s likely that valuations increased during the quarter not because of more good news but because of less bad news.
Our Global Supply Chain is Returning to Normal
After three years of unprecedented disruption, global supply chain stress returned to normal during the quarter. This means that the global network of manufacturers, wholesalers, shippers, and retailers that supply the world’s goods and services is now back in a relatively healthy/stable place. It also means we can expect supplies of goods and services to be strong. Unfortunately, government spending remains dangerously high, and this continues to fuel the demand side of inflation – and perhaps is why high inflation persists.
Be Careful with cash & Debt
We are watching these two financial instruments more closely than we were two years ago. We advise you to pay close attention to the excess cash you hold in your bank account(s). With inflation still running between 3% and 4%, any asset we hold that doesn’t yield this amount loses purchasing power. This is why we continue to recommend that you deploy into bonds, equities or the CI High Interest Savings Fund which is an alternative to bank accounts that is liquid, safe and yielding 4.89% (after fees).
We encourage you to seek input with respect to mortgage decisions. There are no easy answers but we know that higher rates mean there is more at stake when you make your financing decisions. We can help you identify your best options. Investia also has a relationship with an online mortgage company called Nesto. You may want to include them as you identify your options.
Summer Listening
If you tire of listening to the Beach Boys, I recommend an insightful podcast Garrett discovered a couple of weeks ago.
As you may know, we have been skeptical of the Environmental Social Governance (ESG) investment ideology from the moment it emerged in the marketplace.
ESG represents a set of standards for a company’s behaviour used by “socially-conscious” investors to screen potential investments. We believe this approach offers the false promise of a greener, more virtuous future brought about by using ESG filters. Research is now emerging that supports our belief that much ESG thinking is likely damaging to our environment. In their paper “Counterproductive Sustainable Investing: The Impact Elasticity of Brown and Green Firms” (February 2023) economists Samuel Hartzmark and Kelly Shue demonstrate that money invested in well-governed energy companies has a greater positive impact on the environment than investing in businesses that do not pollute. We continue to be strongly in favour of investing that contributes to societal good, and we are now more confident than ever that ESG investing is not the force for good that it claims to be.
In this podcast, economist Kelly Shue (Yale University) provides a fascinating glimpse into how ESG really works (or doesn’t, in this case) in reducing the environmental impact of our economic output.
thomsonallison.blog 