First Quarter 2019

After the very weak performance by North American markets in the fourth quarter, particularly in December, equity markets have rebounded strongly. In spite of this, we continue to remain cautious.

There is strong evidence that global economic growth is slowing. While employment data does remain robust, with North American unemployment rates remaining at near record lows, the World Trade Organization has reported that global trade actually shrank 0.3% in the fourth quarter of 2018. This economic slowdown is the direct result of the various trade wars that have been initiated by the Trump administration.

In response to decelerating economic growth, Central Banks have halted their previous strategy of gradually increasing rates back to some notion of economic normality. Both the Bank of Canada and the U.S. Federal Reserve have shelved further rate increases for the foreseeable future.

Federal governments, in Canada and the United States, have been piling up debt, with ongoing deficit budgets becoming the norm. In Canada, the federal government continues to ramp up spending, while in the U.S., significant corporate and personal tax cuts are widening the fiscal gap.

With interest rates being maintained at historically low levels, and federal governments needlessly running deficits in times of economic growth, there could be dour longer term consequences. When the economic cycle does turn negative, these governments will have little room to stimulate a recovery through either rate decreases or greater deficit spending.

On the positive side of the equation, the United States appears to be making progress in its trade negotiations with China. With these countries featuring the world’s two largest economies, the outcome of these talks is critical. The most recent economic data from China is quite positive, and would become even more so should they conclude a successful negotiation with the Americans.

Beyond this macroeconomic scenario, we continue to follow the companies we hold in our portfolio closely, and are always scouting for new additions. The companies that we own are all expecting a good year ahead in 2019, and express cautious optimism into 2020. We will continue to monitor macroeconomic events and company specific performance carefully as 2019 unfolds.

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