A safe place to invest? Nothing is certain, but here are some ideas - Cambridge Times | Canada News Media
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A safe place to invest? Nothing is certain, but here are some ideas – Cambridge Times

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At least once a week, I get a question asking me to recommend a safe place to invest.

I can understand why. We’re in the midst of a pandemic, the economy is in a (hopefully short) depression, interest rates are at record lows, and the stock market is highly volatile and looks overvalued. No wonder people are antsy.

How bad is it? Consider this fact. Something on the order of $12 trillion (U.S.) is invested in bonds with a negative yield. That means people are putting money into securities that will pay less at maturity than the original cost. A guaranteed loss from the outset. Why do it? Because they can’t find an alternative that offers a safe and profitable return. At least this way they get most of their principal back — or so they hope.


Many of what were once considered safe haven investments look less attractive these days. Here’s a rundown.

Bonds. Most of the bond market has performed well so far this year (high-yield issues being the notable exception). But that was simply a knee-jerk response to the sharp and sudden drop in interest rates — bond prices rise when rates fall. Unless we head into negative territory, there’s no room left to cut. If rates start to edge higher, bond prices will fall. It’s a knife-edge situation right now, and certainly not risk-free.

REITs. Buy real estate. They’re not making any more of it. That use to be the mantra for investing in REITs (real estate investment trusts). But the pandemic and the resulting economic bust has changed people’s thinking. Now they’re worried about whether tenants can pay the rent. Shopping mall, hotel and office REITs have been especially hammered. The S&P/TSX Capped REIT Index is down about 23 per cent year-to-date as of the time of writing.

Bank stocks. Canada’s big banks are safe and solid, right? Yes, they are — but their profits aren’t. Bank earnings were hit hard by the sharp economic slowdown, low interest rates and huge loan loss provisions. The S&P/TSX Capped Financials Index is down about 14 per cent for the year. Bank stocks could be a bargain at this level but there’s more downside potential if the depression deepens. An opportunity, yes. A safe one? No.

Preferred shares. It used to be that preferreds were considered to be just below bonds as a safe haven investment. That was in the days when straight preferreds were very simple securities. They paid a fixed rate of interest no matter what happened, so investors could rely on them for steady cash flow. The price varied with interest rate movements, but the income was always dependable.

Then the banks had what they thought was a brilliant idea. They started to issue rate reset preferreds after the Great Recession of 2007-2009. The initial interest rate was in place for five years and was then reset using a formula based on Government of Canada bond rates. Eventually, these new preferreds came to dominate the market.

When rates started to fall, investors could see the reset yields would be lower, and prices fell dramatically. The average annual loss for the S&P/TSX Preferred Share Index over the past three years is 6.4 per cent. Since Jan. 1, it’s down 7.7 per cent. No safe haven here.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Investment

Crypto Market Bloodbath Amid Broader Economic Concerns

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The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.

The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.

Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.

The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.

Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.

Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.

Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.

Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.

The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.

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