We built Inukshuk Capital Management to serve the needs of clients looking for a unique approach – void of conflicts of interest, commission sales and pushed products. We began by putting our own money where our mouth is. With low fees and active risk management, we help families achieve financial longevity, that’s the bottom line.
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August 2024 – Reflections
In this issue:
- Global Equity Market Performance
- 2024
- 2007
- Rhymes But Doesn’t Repeat
- Compare and Contrast
- Rates
- Wrapping Up
- Health is Wealth
Global Equity Market Performance
Markets flipped the script from June to July. The tech-heavy S&P 500 underperformed every other market, up only 1.1%. MSCI Emerging Markets was third at 2.5%. And the two losers of June were at the top of the podium: MSCI EAFE up 3.3% and the S&P/TSX 60 closed the month with a huge gain of 6.1%.
That close was also an all-time high for the index. Matching the performance of our Canadian athletes at the Olympic Games who brought home a record-setting 27 medals.
Our systems remain fully long both the S&P 500 and the S&P/TSX 60.
If you would like to stay current on our measures of trend and momentum in the markets we follow, please click here .
2024
Equity markets have had a few wobbles so far this year. Our systems have been in uptrend mode for some time, although since the spring some of them have flashed a few caution flags.
Emerging Markets and the TSX are usually the first to give us warnings over the past seven years. And that is what has happened recently.
Our investment process uses the prices of broad market indexes and is rules-based. But that doesn’t mean we don’t pay attention to current political, financial and economic conditions. There are many to talk about. And everyone has an opinion. We’ve covered central bank policy and debt in past notes because it is straightforward to quantify. Opinions are more difficult.
This letter will focus on similarities we see in markets now, to those we’ve seen in the past.
2007
Some things about 2024 remind us of 2007. And 2007 was interesting.
Back then, it was clear years earlier that there were some problems in the mortgage-backed securities market. It didn’t matter until it did.
Last year a few banks collapsed in the U.S. We don’t know if that will matter in the future.
One of those to spot problems like this is Jim Grant, editor of ‘Grant’s Interest Rate Observer’, a market newsletter he founded 1983. As he once said: The thing with financial history is that it is very helpful except when it’s very unhelpful…
Grant is a financial historian. He was early calling the mortgage disaster. Personal experience has indicated that being early is something difficult to avoid if you don’t have a plan. That’s why we use systems. Our process allows us to not hit the sell button too soon.
On that note, let’s look at some history.
Rhymes But Doesn’t Repeat
Due to a combination of leverage and underestimating the risk in the assets of various credit pools and derivatives, two Bear Stearns hedge funds imploded in the summer of 2007. That was a very visible event that revealed some systemic problems in the financial system.
Prior to that, the equity markets had a bit of a hiccup in the winter/spring. The stock market had a minor panic as the Bear Stearns mess unfolded, but then recovered.
We are using the Nasdaq 100 as an example because it is one of the higher volatility indexes around and is not directly associated with the world of collateralized debt obligations and credit default swaps.
Here’s the Nasdaq 100 in 2007.
Here’s the Nasdaq 100 this year.
In both cases the stock market was performing well and had a few decent pullbacks around the same time of year. So far in 2024, no financial collapses have been reported.
Two months after Bear Stearns lost billions and credit conditions became even more stressed, the Nasdaq 100 made a new high for the year. And the S&P 500 made an all-time high October 11, up 15% from the spring lows.
We all know what happened next.
Compare and Contrast
Another similarity we see is the performance of the TSX relative to that of the S&P 500. Until very recently, the S&P/TSX 60 has been dramatically underperforming. By the middle of June, it was lagging by 15% over the past year.
Since then, it has outperformed by 8%.
The same thing happened in 2007 but not as rapidly.
Most of the recent relative move can be explained by the heavy technology weight in the S&P 500. In 2007 this behaviour persisted well into 2009. There are many reasons for that but one might be that our financial system wasn’t as heavily leveraged and none of our banks went broke.
Rates
Let’s look at interest rates in 2007 and now.
In 2007 the 10-year treasury note peaked at 5.3% in June before closing the year around 4.0%.
This year the yield made a high in April of 4.7% and is currently trading at 3.8%.
That’s a lot of similarities. We see them in the signals our systems generate then and now, as well.
Wrapping Up
Large markets like broad equity indexes, bonds and currencies contain information in their price. Billions of dollars move these markets. We don’t often know what is driving those decisions. And it’s usually the case that we learn many months after events unfold.
Signals derived from the price behaviour of markets like these can themselves give clues prior to any action taken by a systematic investor. Every system we run on different markets has its own ‘personality’.
As mentioned above, Emerging Markets and the S&P/TSX 60 are usually first movers. And they have signalled some caution in the past few months. In the spring and summer of 2007, they were doing the same.
The point is: we can have all the information available and recognize similarities to what has happened in the past, but we do not know what will happen.
So, we stick to the plan.
As the great Yogi Berra once said: You can observe a lot by just watching.
Enjoy the rest of summer and eat well. We will do the observing.
This is a note from last August that bears repeating.
Health is Wealth
Top 10 Summer Superfoods: Harvesting Health from Seasonal Bounty
There is a lot to love about summer – the weather is warm, and the produce is delicious. With a limited outdoor growing season, enjoy the bounty of local goodness in the produce section of our grocery stores and farmer’s markets at this time of year. Just as investors diversify their portfolios, so too can we diversify our health through the local produce that summer offers. Here is a list of superfoods of the season.
1. Cherries: Antioxidant Gems: Cherries offer a long list of antioxidants, including anthocyanin. Not only can they help soothe muscle soreness, but they also promote restful sleep, a crucial investment for well-being.
2. Nectarines and Peaches: Vitamin-Rich and Delicious: Nectarines and peaches bring a double dose of vitamins A and C to the table. They are a low-calorie fruit that is high in fibre, and they support healthy skin.
3. Berries Galore: Antioxidants at Their Peak: Blueberries, raspberries, and blackberries boast high levels of antioxidants. These juicy treats enhance brain health, combat oxidative stress, and nurture our heart’s well-being.
4. Tomatoes: A Lycopene Boost: Tomatoes, a summer staple on many plates, are rich in lycopene, a potent antioxidant linked to reduced risk of chronic diseases. From sauces to salads, these red wonders are a super food to be enjoyed in a variety of ways.
5. Cucumbers: Hydration Heroes: Crisp cucumbers, with their high-water content, become hydration heroes during the scorching months. Investing in their hydrating properties not only refreshes the body but also supports digestion and skin health.
6. Lettuces: Nutrient-Packed Greens: Lettuces in all their varieties—from crunchy romaine to nutrient-packed spinach—are a multi-vitamin all to themselves – offering vitamins A, K, C, E, folate, iron, potassium, calcium, magnesium, phosphorous. They contribute essential vitamins and minerals, making them a foundation for a balanced diet.
7. Corn: Nutrient-Rich Summer Staple: Summer wouldn’t be complete without fresh corn, a nutrient-rich staple. Packed with fibre, vitamin B6, and potassium, this versatile delight adds a healthy and delicious element to your plate.
8. Zucchini: Versatile Nutritional Powerhouse: Zucchini, the versatile powerhouse, boasts low calories, vitamins A and C, and minerals like potassium and magnesium. Its adaptability in the kitchen offers endless possibilities.
9. Bell Peppers: Colourful Capsaicin Boost: Bell peppers, in their array of colours, offer a boost of vitamin C and antioxidants. Their capsaicin content adds a flavourful kick while supporting overall health.
10. Eggplant: Purple Nutrient Powerhouse: Eggplants, with their deep purple hues, house a trove of vitamins and minerals. In addition to their great taste, they help with digestive health, bone health, blood sugar control and they are anti-inflammatory.
Create salads that combine lettuces, cucumbers, and bell peppers for a colourful nutritional feast. Add berries to morning yogurt or oatmeal for an antioxidant-packed start to your day. Grill zucchini and eggplant as delectable side dishes. Blend corn into salsas or salads for a burst of flavour. And of course, savour the sweetness of cherries, nectarines, and peaches on their own or in your favourite summer salad.
As summer winds down, be sure to enjoy the abundance of local produce. By investing in the vibrancy and nourishment this list provides you are not only investing in your well-being but also making a strategic choice to embrace longevity.
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