Performance figures for each account are calculated using time weighted rate of returns on a daily basis. The Composite returns are calculated based on the asset-weighted monthly composite constituents based on beginning of month asset mix and include the reinvestment of all earnings as of the payment date. Composite returns are as follows:

Market Commentary: Time to be More Defensive

By Rob Edel, CFA

Highlights This Month

Read the pdf version


Nicola Wealth Portfolio

Returns for the Nicola Core Portfolio Fund were up 0.4% in the month of July.  The Nicola Core Portfolio Fund is managed using similar weights as our model portfolio and is comprised entirely of Nicola Pooled Funds and Limited Partnerships.  Actual client returns will vary depending on specific client situations and asset mixes.

The Nicola Bond Fund returned 0.4% in July, and is +4.5% year-to-date. Returns for the month were mainly driven by credit spread tightening which is now back to almost 12 month tights. Both lower quality and higher quality investment grade issues tightened as the credit market support was broad based. The Arrow East Coast Investment Grade Fund helped drive returns during the month as their active credit strategy benefited from the constructive credit environment. The Marret High Grade Hedge Fund also had strong returns. Marret has become more defensive in their strategy reducing leverage and focusing on BBB Canadian corporates as Canadian balance sheets are generally more conservatively managed than our neighbors to the South.

The Nicola High Yield Bond Fund returned 0.8% in July, and is +3.8% year-to-date. Currency contributed approximately 0.4% from returns as approximately half the fund has USD exposure. The high yield market marched forward with positive returns for the month, albeit at a slower pace with spreads contributing to returns. Higher quality BB rated securities outperformed lower quality CCC’s causing dispersion to reach one year highs, possibly signaling some value in lower quality issues. Despite overall positive returns in the market, energy names were weak during the month and continue to lag the overall market year to date.

The Nicola Global Bond Fund was +0.5% for the month.  The Nicola Global Bond Fund’s exposure to developed and emerging markets credits contributed to performance as credit spreads tightened around the world. Duration produced mixed results with PIMCO & Manulife’s U.S. duration detracting from performance while Templeton’s exposure in Asia ex-Japan contributed to performance.  Currencies positioned in the U.S., Mexico & Argentina helped performance, but was partially offset by weakness in Templeton’s exposure in Japan and Northern European currencies (Norwegian Krone & Swedish Krona).  Performance of our managers in descending order: Templeton Global Bond +0.7%, Manulife Strategic Income Fund +0.6% and PIMCO Monthly Income +0.3%.

The Mortgage Pools continued to deliver consistent returns, with the Nicola Primary Mortgage Fund and the Nicola Balanced Mortgage Fund returning +0.3% and +0.5% respectively last month. Current yields, which are what the funds would return if all mortgages presently in the fund were held to maturity and all interest and principal were repaid and in no way is a predictor of future performance, are 4.0% for the Nicola Primary Mortgage Fund and 5.5% for the Nicola Balanced Mortgage Fund.  The Nicola Primary Mortgage Fund had 22.6% cash at month end, while the Nicola Balanced Mortgage Fund had 14.2%.

The Nicola Preferred Share Fund returned 1.4% for the month while the BMO Laddered Preferred Share Index ETF returned 1.9%.  Five year Government of Canada bond yields moved slightly higher ending the month at 1.45%. However, intra-month yields spiked to 1.57% before falling lower to end the month. Inflows into preferred share ETF’s reached close to $40 million helping to support the market. The increased demand was noticeable with a pick-up in trade activity mid-month. On the supply side, activity was quiet with no new issues during July.

The S&P/TSX was up +0.3% while the Nicola Canadian Equity Income Fund was -0.3%. Health Care, Financials and Consumer Staples were the top positively contributing sectors. The top detracting sector was materials where we have an underweight in gold which was strong. Top contributors to performance of the Nicola Canadian Equity Income Fund were Air Canada, Aritzia and Cargojet. Largest detractors to performance were interfor, Methanex, and NFI Group. There were no new positions added or subtracted in the month.

The Nicola Canadian Tactical High Income Fund returned -1.3% vs the S&P/TSX’s +0.3%.  The relative under-performance was mainly driven by the Nicola Canadian Tactical High Income Fund’s positioning within the Materials sector (overweight West Fraser Timber & Methanex and underweight gold stocks) and within the Industrial sector (overweight New Flyer & SNC Lavalin and underweight Air Canada and the rails companies). Option volatility increased 12.8% during the month.  The Nicola Canadian Tactical High Income Fund was able to find opportunities to earn double-digit Put option premiums with high single-digit downside protection on select names.

The Nicola Canadian Tactical High Income Fund has an equity-equivalent exposure of 64% (64.6% prior) and remains defensively positioned with companies that generate higher free-cash-flow and have lower leverage relative to the market.  No new names were added this month.

The Nicola U.S. Equity Income Fund returned +1.4% (USD terms) during July, in-line with the S&P500.  Outperformance from Alphabet, Sherwin-Williams and Procter & Gamble was offset by underperformance from EOG Resources, Electronic Arts and Pfizer.  We exited Weyerhaeuser, Bristol-Myers Squibb, and Bank of America, and added a new name, Progressive Corp, a leader in the US auto-insurance industry.

The Nicola U.S. Tactical High Income Fund was flat (0%) vs +1.4% for S&P 500.  The Nicola U.S. Tactical High Income Fund’s relative under performance was due to being underweight in Info Tech (UW Apple), Communication Services (Alphabet added 33bps to the benchmark’s performance) & Financials (UW money center banks).

Option volatility increased 18.5% during the month, most of the increase occurred during the last few days of the month (Fed interest rate announcement).  The Nicola U.S. Tactical High Income Fund has been very selective in deploying capital.  We were still able to generate double-digit annualized premiums with double-digit break-evens.

The Nicola U.S. Tactical High Income Fund’s delta-adjusted equity decreased from 48.4% to 46.9%.  A new name added to the portfolio was Gentex.  Gentex Corp. is a global leader in designing and manufacturing interior and exterior auto-dimming mirrors.  The company also makes dimmable aircraft windows and fire protection products for commercial buildings (smoke detectors, fire alarms, etc.) The portfolio remains defensively positioned with a lower valuation multiple, and higher free-cash-flow and lower leverage relative to the S&P 500.

The Nicola Global Equity Fund returned -0.4% vs +0.8% for the MSCI ACWI (all in CDN$).    The Nicola Global Equity Fund under performed the benchmark due to an underweight in U.S. Equities and its defensive sector positioning.   The Nicola Global Equity Fund benefited from being overweight consumer staples and underweight energy, but was hurt by being underweight information technology and communication services.  Performance of our managers in descending order was Lazard +0.2%, Edgepoint Global 0.0%, Global Value -0.3%, C Worldwide -0.5%, BMO Asian Growth & Income -0.5%, Nicola EAFE: -1.1%.

The Nicola Global Real Estate Fund was +1.6% in July vs. the iShares (XRE) +1.5%. In excess of one-third of the global government bond market have negative yields and the yield curve is inverted. As it pertains to the Canadian REIT complex, the interest rate environment has become increasingly supportive. As a result, valuations have expanded. We have tilted the portfolio towards reasonably valued REITs with superior per-unit growth profiles. The portfolio has benefited from our largest publicly traded position Pure Multi-Family REIT being the subject of a friendly go-private deal with Cortland Partners. We recently added WPT Industrial REIT to the portfolio. Overall we think that conditions are good for real estate.

We report our internal hard asset real estate Limited Partnerships in this report with a one month lag.  As of July 31st, May 31st performance for the Nicola Canadian Real Estate Limited Partnership was -0.2%, Nicola U.S. Real Estate Limited Partnership +0.8%, and Nicola Value Add Limited Partnership 0.1%.

The Nicola Alternative Strategies Fund returned 1.6% in July (these are estimates and can’t be confirmed until later in the month).  Currency contributed 0.4% to returns as the Canadian dollar weakened through the month. In local currency terms, Winton returned 2.8%, Millennium 0.7%, Verition International Multi-Strategy Fund Ltd 1.5%, Renaissance Institutional Diversified Global Equities Fund 1.2%, RPIA Debt Opportunities 1.2%, and Polar Multi-Strategy Fund 0.7% for the month.

Overall, a strong month in terms of performance with positive contribution from every fund. Winton returns for the month were mainly driven by currency and fixed income. Currencies contributed more than half the gains with short positions in the Euro, British Pound, Aussie Dollar, and Swedish Krona all providing strong returns.

The Nicola Precious Metals Fund returned 5.7% for the month while underlying gold stocks in the S&P/TSX Composite index returned 5.4% and gold bullion was higher 1.0% in Canadian dollar terms. During the month we exited our position in the Sentry Precious Metals Fund and put the proceeds into the RBC Global Precious Metals Fund.


July in Review

Rather than dwell on specific events taking place last month, we thought we would use the quieter summer break as an opportunity to look at the global economy and markets from a longer term perspective.

Recap of the John Mauldin Strategic Investment Conference

In May, we made our annual pilgrimage to John Mauldin’s Strategic Investment Conference (SIC), which was held this year in Dallas.  Based on past experience, we find the speakers to be world class and exceptional value (don’t tell John Mauldin or he’ll raise the price!). This year’s version didn’t disappoint, and could have been the best ever.

Using our notes from the conference, supplemented with material from a few other experts we find insightful, we hope to highlight some of the challenges facing the economy and markets going forward and the resulting implications for investors.

Let’s not set our expectations too high, however.  One observation we came away with was even though the speakers are some of the most respected strategists and researchers in the investment world, even they admit to not knowing what the ultimate endgame will look like.  We have added some illustrations for reader comprehension and enjoyment, but none were sourced from material presented at the SIC.


In order to determine where you’re going, you first have to figure out where you are.

Perennial Conference leadoff man, David Rosenberg, set the stage (as he took the stage) making the case that the U.S. economy is already in recession.  The Gluskin Sheff Chief Economist and Strategist believes the Federal Reserve has over tightened by between 75 to 100 basis points, and because monetary policy works with a lag, the full impact has yet to be felt.

Annual Barron’s Round Contributor, Felix Zulauf also believes the Fed needs to loosen monetary policy, but he believes there is still time to avoid a recession, but only if the central bank eases right now.  While Rosenberg thinks it won’t be a deep recession, it will be hard to get out of given where interest rates and debt levels are.  Zulauf sees the next recession as being longer and more volatile.

Little hope for sustained economic growth as yields continue to head lower.

Generally backing up Rosenberg and Zulauf’s recession thesis, Lacy Hunt’s presentation held out little hope for sustained economic growth.  Hunt’s firm, Hoisington Investment Management, have been big holders of long term U.S. Treasury’s for years under the belief yields will continue to head lower.

Hunt sees interest rates heading back to the zero bound as slowing money growth precedes slowing economic growth.  His thesis revolves around debt and how higher debt levels lead to lower, not higher interest rates.  While deficit spending can initially be beneficial to economic growth, when debt levels are too high, incremental increases in deficit spending leads to only fleeting increases in GDP as higher debt causes the money multiplier to decline.

Mr. Hunt believes austerity and higher savings are the only solution.  Morgan Creek’s Mark Yusko also made the point that recent economic growth has been due entirely to debt, which is unsustainable.  Yusko threw in demographics and slower population growth as the main driver of slower economic growth, and like Hunt, prefers to be invested in bonds (and cryptocurrency).

Slower growth doesn’t have to mean a recession and current economic data isn’t that bearish.

Not everyone was negative on the current state of the economy.  Doubline’s Jeffery Sherman pointed out slower growth doesn’t mean a recession and current economic data isn’t that bearish. He thinks the bond market is overly pessimistic and 10 year yields could be 50 to 60 basis points higher than where they are (which was around 2.40% at the time).

Carmen Reinhart, Harvard Professor and co-author of the preeminent book on debt “This Time is Different”, agreed, conceding the second half of 2019 would see the economy slow, but no recession.  Reinhart believes the Federal Reserve will find it hard to cut rates with unemployment so low, a view that could be challenged in July with the Federal Reserve looking to cut the overnight rate.


A couple of economists we pay attention to who weren’t at the conference, Bernstein’s Phillip Carlsson-Szlezak and Strategas’ Don Rissmiller, both are also generally of the view that while the current economic environment has weakened, the cycle can still be extended.

Eventually we will have a recession, however, and what happens in the next recession is where the debate at the conference really started to heat up.  Consensus appears to be the first move by the Fed will be to lower overnight interest rates to zero and restart their quantitative easing program of buying government bonds. The bond market appears to be already anticipating this with yields falling for much of 2019.  Problem is, with Fed Funds (overnight interest rates) already at 2.25 to 2.50%, there isn’t much dry powder left for the Fed to use in the next recession given, on average, the Fed has cut rates 500 basis points during past recessions.


The “Japanification” of the U.S.

In conjunction with stubbornly low inflation, many refer to this scenario (zero or negative interest rates and central bank bond buying government debt) as the “Japanification” of the U.S economy.  Interest rates in Japan have trended lower for years with 10 year government bonds currently yielding negative 16 basis points.  As for quantitative easing, the Bank of Japan currently holds about 45% of the country’s total government debt, which is approaching a staggering 250% of GDP.  Japan appears to confirm Lacy Hunt’s theory regarding debt and interest rates, and if the model holds, Japan’s stagnant economy and perennially low inflation rate foretells a dismal future for the U.S. economy.

Wealth Management - Business Market Update for August 2019

Like with Japan, many believe fiscal policy will need to play a bigger role in the next recession.  This worries some forecasters, like Jeffery Sherman’s boss at Doubleline, Jeffery Gundlach.  Gundlach, who wasn’t at the conference but is a frequently quoted forecaster and strategist,  has recently expressed concerns over growing U.S. debt levels, particularly when the U.S. economy is strong and the unemployment rate is at historically low levels. Mr. Gundlach believes the U.S. budget deficit will balloon to record levels in the next recession and inflation and interest rates could spike higher as a result.  But as some commentators have pointed out, this hasn’t happened in Japan, yet.


Modern Monetary Theory

Modern Monetary Theory (MMT), which has gained a strong following amongst some left leaning politicians and economists, maintains government debt or deficits don’t matter for countries fortunate enough to issue debt in their own currency.

They can never default given they have the ability to create (print) an infinite amount of money.  In most recessions, a decline in private demand results in falling economic growth, but if the government steps in and it’s spending fills the gap, a contraction can be avoided.  But wouldn’t this result in higher inflation given the government is printing money?  Well, not if the economy is operating below capacity.  Once the economy reaches equilibrium and inflation starts to increase, the government can then slow the economy and tame inflation by increasing taxes.

Stephanie Kelton of Stony Brook University, who was not at the conference, is probably one of the world’s leading MMT experts (and advocate).  Professor Kelton describes MMT not as a program to be implemented, but a superior way of understanding monetary operations, in her humble opinion.

Rather than governments budgeting their spending based on how much tax revenue they have available, Kelton believes governments should determine what needs to be spent, then determine how much needs to be taxed or borrowed.

When expressed as an accounting identity, Kelton’s views become clearer.   Private sector savings plus the trade deficit always have to equal the government deficit.  This means if the private sector needs to save in order to rebuild its balance sheet, like what happened after the housing bust, the government needs to step in and offset this increase in savings.  If it doesn’t, the economy shrinks, which is a bad thing.


Private sector deficits are unsustainable, while government deficits should be the norm.

Stated another way, the government’s red ink is the private sectors black ink.  When the government runs a deficit, the resulting capital either flows to the private sector or the rest of the World (trade deficit). In Kelton’s opinion, private sector deficits are unsustainable while government deficits should be the norm.

In the early 2000’s during the Clinton Administration, the U.S. did have a budget surplus for a short period of time, but the result was the dot com bubble, followed by the housing bubble.  These bubbles formed because the private sector needed to become more levered in order to offset the declining government deficit.

Because the private sector is unable to print money, without going to prison at least, private sector debt needs to be repaid eventually.  With the power of the printing press, however, Governments can run deficits indefinitely, as long as inflation remains under control.  This is not in an insignificant point, and even though inflation remains low at the moment, there is no guarantee it will remain so.

Several presenters at the conference, including Carmen Reinhart, pondered whether inflation is merely dormant rather than dead.  Let’s face it; economists are still trying to figure out why inflation is so low despite the current economic expansion being the longest on record.

It sounds intriguing, in theory.  Don’t worry about the deficit.  Figure out what you need to spend, for the good of the society, and government debt will balance it out.  Under this regime, social programs like “Medicare for all” and “The New Green Deal” all become possible.  Sound too good to be true?  Of course it is, and most serious economists, including all the presenters at the SIC Conference, dismiss it off hand.  Kind of.


While we know MMT can’t be sustainable in the long term, it is eminently feasible in the short term. 

It is essentially the coordination of quantitative easing and deficit government spending.  The government spends money and issues debt, which is promptly purchased by the Federal Reserve using freshly created money.  MMT is the marrying of monetary and fiscal policy.  The government can spend as much as they see fit with the central bank standing by ready to buy all the debt that is necessary in order to keep interest rates very low, or better yet, zero.

Deficit spending will play a bigger role in the next recession.

While no one at the conference was willing to endorse MMT, nearly all believed, like Jeffery Gundlach, deficit spending will play a bigger role in the next recession.  They might not call it MMT, but it will essentially take the same form.  Bill White, former economic advisor at the Bank of International Settlements and currently a senior fellow at the CD Howe Institute (he’s Canadian, for what it’s worth), believes monetary policy is nearly at the end of its road.

With rates globally at or below zero, there won’t be much central banks can do in the next recession.  We can debate how we got to where we are, and White had some interesting comments on how policy makers got it wrong, but the reality is fiscal policy will be the only option.  He believes there is still room to increase deficits and debt, but long term it’s not sustainable.

White is generally on the same page as Lacy Hunt on this issue, debt is a headwind for future growth, and the more you use it, the less effective it becomes.  What’s the end game?  Well this is where it starts to get interesting.  He doesn’t know.  No one does.  According to MMT and using Japan as the model, it doesn’t have to end.  As White and others at the conference pointed out, however, the U.S. isn’t Japan.  Japan is a special case.  It runs a current account surplus, has (or had) a high savings rate, and is a very insular country in which most debt is held domestically.

Also, as White correctly observed, because Japan hasn’t had a financial crisis yet, doesn’t mean it won’t.  White believes, however, the U.S. has options given tax rates in the U.S. are actually quite low.  The U.S, for example, is one of the only countries in the developed World not to have a Value Added Tax (VAT).  Another option would be Social Security reform, which Carmen Reinhart mentioned.

While Professor Kelton refers to MMT as a better lens in which to understand the monetary system works, the focus or intent of what MMT is trying to achieve might not always be as benign as Kelton represents.  In her presentation, Carmen Reinhart reminded the audience that MMT isn’t just about central banks funding deficits; it’s also about central planning.

A government with a blank check can do a lot of good, and harm.  Who decides what programs get funded and who gets taxed to pay for it?  Politicians are notoriously poor allocators of capital and without the Federal Reserve providing independent non-political oversight of the monetary system, there would be no check on government spending and money printing.

One of the reasons the left is drawn to MMT is they see it as a means to fund desirable social programs and help address another of the hot topics at the conference, inequality and the wealth gap.  The rise of populism has been due in large part to the growing gap between the have and have nots.  Globalization, technology and automation have helped create a winner take all society, but monetary policy helped exacerbate the problem.


Monopolies and lack of competition increase perception that system is rigged in favour of upper class.

Lower interest rates bailed out Wall Street and bid up the price of financial assets, but did nothing for the middle class worker saving for retirement while working as a greeter at Walmart.  Capitalism and how it appears to be failing middleclass America was touched on by more than one presenter, but demographer Neil Howe and economist Woody Brock in particular.  Along with inequality, both discussed how monopolies and lack of competition have increased the perception the system is rigged in favor of a protected class.

Ray Dalio, head of the world’s largest hedge fund, Bridgewater, was not at the conference but has written extensively on the current sad state of capitalism.  To quote Dalio “most capitalists don’t know how to divide the economic pie well and most socialists don’t know how to grow it well”. Dalio believes capitalism needs to be reformed or risks being abandoned altogether.

While the idea that America could turn away from capitalism would have been considered ludicrous only a few years ago, the election of Donald Trump as president has highlighted the fact the current system is not working.  Case in point, according to a 2018 Gallup survey, 51% of Americans aged 18-29 have a favorable view of socialism.


The rise of China as a competing economy has provided the World an example of an alternative model to capitalism and democracy. 

China’s autocratic command economy shares some of the characteristics of MMT with a central body allocating capital as opposed to the market.  There is no separation between the government and central bank in China.  If President Xi wants lower interest rates, he gets them.  If China’s leaders want banks to loosen credit, they do it.

Need more investment spending to stimulate the economy? No problem, and no Congress to stand in your way.  Of course this is a simplistic view of what actually happens, and President Xi likely has more political barriers to overcome than we are inferring, but China’s authoritative command economy is able to make decisions more efficiently, and potentially more strategically.

Felix Zulauf commented in one of the panel discussions that China was one of the few governments with a long term vision, and they execute this vision according to plan.  According to Gavekal’s Louis Gave, part of the plan is for the Chinese Renminbi to become a reserve currency like the U.S. dollar.  China wants to be able to trade with other countries using their own currency, rather than the U.S. dollar.  They want their trading partners to hold their foreign currency reserves in renminbi rather than dollars, thus bestowing the same monetary flexibility the U.S. has enjoyed for decades on China as well.

By holding U.S. treasuries, countries are providing cheap, or even free, capital to America.  China sees this as a valuable advantage, while recent action by President Trump seems to imply the opposite.  Trump doesn’t appear to value trade, would like to see the dollar lower, and doesn’t see the link between the U.S. trade deficit and cheap funding for America’s growing budget deficit.

Not to get too technical, but it doesn’t make sense for the U.S. to try and ramp up government spending and the deficit at the same time they are trying to lower the trade deficit.  Remember the account identity referenced above.   The funding for the government deficit has to come from somewhere.  If there is no trade deficit, it has to be funded domestically with private sector saving.  This would not be good for economic growth.

But will China be successful?  It’s one thing to have a plan, it’s another to make the plan work.  To quote boxing legend Mike Tyson “Everyone has a plan, until they are punched in the face”.  Is China on the verge of getting knocked on their backside?  The sustainability of China’s model was heavily debated at the conference, especially given the rapid increase in its corporate debt levels.

Simon Hunt, author of “Frontline China Report Service”, a regular report of China’s economy, politics and financial outlook, sees zero chance of a credit crisis in China.  The government knows where all the debt is and is able to manage it.  Hunt sees the second phase of China’s economic expansion coming from the growth of rural cities.

Less optimistic was hedge Fund manager Kyle Bass, who is particularly negative on the prospects of Hong Kong and the Hong Kong dollar.  Based on China’s past actions, Bass doesn’t trust China and thus believes it’s uninvestable.  Louis Gave on the other hand, believes Chinese government bonds are attractive given China’s reserve currency ambitions and aversion to inflation.  As Gave points out, Chinese inflation was 25% before the 1989 Tiananmen Square crisis and contributed to the social unrest leading up to the student led demonstrations.  Social stability is a priority for China’s leadership and thus so is low and stable inflation.

China is also unlikely to lower interest rates in order to reflate its currency, like Japan did in the 1985 Plaza Accord that resulted in a massive asset bubble; Japan is still dealing with it to this day.  Chinese leaders view the Plaza Accord as a colossal mistake by the Japanese, leaving no chance China will do the same.  As a consequence China’s central bank is going to be more hawkish in a world where most other central banks, including the Fed, are turning ultra-dovish.

As Gave characterizes it, the People’s Bank of China is becoming the new Bundesbank (who are notoriously paranoid about inflation).   As for a trade deal between the U.S. and China, this was one of the few areas most speakers at the conference agreed upon.   The prospects of a deal are unlikely in the short term and longer term there will be a decoupling of the two economies given the strategic rivalry between the two super powers.

But what if growth in China slows?  What if all the investment spending on bridges to nowhere and ghost cities inflated growth for a period of time but was really hiding the fact China’s export driven economy was unsustainable?  Maybe the market is a better allocator than President Xi and his comrades?  Felix Zulauf believes this is the case and China will eventually need to let its currency depreciate in order to protect its domestic economy.  Under this scenario, Chinese bonds would not be good for foreign investors.  Domestic Chinese investors, yes, because interest rates will fall and lower yields mean higher bond prices.  Those gains would be offset by a depreciating renminbi for foreign investors however.


Where does all this leave us from an investment perspective? 

Presenters like Lacy Hunt believe debt levels are too high and hurting growth.  Modern Monetary Theory suggests debt levels could go much higher.  Once hooked on debt, however, excessive money printing will eventually lead to higher inflation and declining purchasing power.  This would be bad for all risk assets and would essentially be the same as a default.  Oaktree founder Howard Marks gave perhaps one of the most balanced presentations at the conference.  He doesn’t pretend to know why markets move in the way they do.  He suspects perpetual QE or MMT can’t work, but he can’t tell you why.  He sees interest rates as the dominant feature in the markets, with low rates forcing investors up the risk curve.  According to Marks, he has only changed his broad asset allocation outlook five times in his 50 year career.

Getting the odds in your favor is the key to successful investing. When the odds of high future returns are in your favor, be aggressive.  When the odds are against you, stay defensive.  In today’s market, with interest rates as low as they are and with government debt likely to increase, we would suggest the odds are increasingly stacked against investors.  Time to be more defensive.


This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information presented here has been obtained from sources believed to be reliable, but not guaranteed. Returns are quoted net of fund/LP expenses but before Nicola Wealth portfolio management fees. Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required provincial securities’ commissions. This is not a sales solicitation. This investment is generally intended for tax residents of Canada who are accredited investors. Please read the relevant documentation for additional details and important disclosure information, including terms of redemption and limited liquidity. For a complete listing of Nicola Wealth Real Estate portfolios, please visit All values sourced through Bloomberg. Effective January 1, 2019 all funds branded NWM were changed to the fund family name Nicola. Effective January 1, 2019 Nicola Global Real Estate Fund, Nicola Canadian Real Estate LP, Nicola U.S. Real Estate LP, and Nicola Value Add LP adopted new mandates and changed names from NWM Real Estate Fund, SPIRE Real Estate LP, SPIRE US LP, SPIRE Value Add LP.