The Changing Winds

It looks like the tempest that subsided after Trump announced a delay in implementing his latest tariff threat on China has been replaced by yet another one. This volatility will no doubt continue until we gain more clarity on the outcome of the US/China trade talks, the public unrest in Hong Kong, mounting pressures in Kashmir, Brexit of course and whether or not we are heading into a period of the market doldrums (aka “recession”).

We have been hearing from many of you about your concerns with the threat of another downturn so we thought this analogy might help to explain the forces that are constantly at play in the global financial markets and alleviate some of those concerns.

The definition of the doldrums or recession is a state or period of inactivity, stagnation or depression. In nautical terms, it refers to a prolonged lull in the wind that causes sail boats to stall. The extreme of this natural occurrence takes place in the horse latitudes, subtropical ocean regions located 30 degrees north and south of the equator. In the northern hemisphere, particularly near Bermuda, sailing ships carrying horses from Spain to the New World were often becalmed. When water supplies ran low, these animals were the first to be rationed water resulting in many dying from thirst or being tossed overboard to conserve water for the crew. Explorers and sailors reported that the seas were strewn with bodies of horses which is the reason why this area of the Atlantic ocean is called the horse latitudes. Not all the horses were sacrificed of course. The majority of them survived the voyage to become the new mode of transportation and beasts of burden in the developing new world.

In addition to the cyclical nature of recessions, there are bull and bear markets to contend with. To help put these into better perspective for you, there have been an equal number (17) with the same average frequency (one every three years) of bull and bear markets since 1960. The difference is in their duration and their average returns. For bear markets, the average duration has been 11 months and the average market decline during this period was -27%. For bull markets, the average duration has been more than twice as long (27 months) and the average market increase during this time was +76.3%.

The movement of money is like the wind. Sometime it blows with gale force intensity in constantly changing directions. Other times, it can be a soft breeze or even disappear altogether while it decides what to do next. This time-out is known as a recession and it is a normal part of navigating the financial markets as the doldrums are in navigating the oceans. We may have to discard a few horses along the way ourselves, make a few ship repairs or even change course a bit but all of this is necessary to complete the journey and arrive safely at our destination of reasonable choice.

To gain a better understanding of these normal climate changes in the markets, we have also included in this mailing a guide prepared by the Capital Group that does a good job explaining the more cyclical nature of recessions and a one pager illustration of the danger of trying to time the markets.

David J. Angas
Linda Shick
C.J. Angas
Tatiana Enhorning
Bambeena Joseph

Scotia Plaza – Suite 5300, 40 King Street W., P.O. Box 415, Toronto, ON, Canada M5H 3Y2
T: 416-777-7110
F: 416-777-7020
david.angas@raymondjames.ca

www.raymondjames.ca/familywealthcounseladvisorygroup

Forward planning can reduce the stress and uncertainty of what lies ahead

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