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Recession or not, fundamentals remain key to investing – Investment Executive

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It’s better to focus on investments than obsess about the state of the macroeconomy, says Dustin Haygood, client portfolio manager at Aristotle Capital Management.

He believes whether the economy has slipped into recession should be far less important to advisors than whether the companies in their clients’ portfolios have solid fundamentals.

“Be macro aware,” he advised, “but in the current market, it’s important to stay disciplined and long-term focused.”

Speaking on the Soundbites podcast, Haygood said quickly reacting to the news of the day is rarely a winning strategy.

“It’s incredibly hard to predict the timing of a recession. That’s not how we believe investors should spend their time,” he said. “Instead, anticipate the inevitability of recessions by building portfolios with high-quality companies that have proven they can withstand times of adversity, they can gain market share when competitors are struggling, and they have pricing power.”

As an example, he said he and his colleagues at Aristotle recently spent time looking at Tyson Foods Corporation of Springdale, Ark. — not for how it was dealing with large macroeconomic factors like inflation or war in Europe, but for how it is incorporating automation into its business and becoming more productive.

“It is important to understand competitive dynamics of industries and how companies are changing and improving,” he said.

Haygood noted that two consecutive quarters with mildly negative GDP growth technically puts the U.S. in recession. But it will be up to The National Bureau of Economic Research to make it official after it examines the numbers more closely.

If the U.S. avoids recession this year, he said, it will likely be due to stubbornly strong consumer spending.

American consumers saved almost $2 trillion during pandemic lockdowns, he pointed out. And they’ve been drawing on that during the Covid recovery to fill their shopping carts.

“Consumer spending is the main driver of GDP in America, and it has held up well this year, even with depressed sentiment and inflation which has eroded purchasing power,” he said.

And while consumers will eventually come to the end of savings-driven spending, an uptick in wages could help maintain healthy spending levels.

“Job openings right now well exceed the number of unemployed workers,” he said. “And if wage inflation starts to outpace price inflation, that would boost the purchasing power of households.”

According to Haygood, periodic economic recessions are a necessary way for economies to get rid of the built-up excesses created during expansionary periods.

“We of course don’t enjoy tough times in the economy. But, for this reason, it does make sense to embrace slowdowns,” he said.

Names he likes

In addition to Tyson Foods, he has been watching a couple of other companies closely.

Autodesk, Inc., of San Rafael, Calif., is a software company whose computer-aided design products address increasingly address inefficiencies in building projects.

“Autodesk is at the forefront of improving the communication between all the different parties that have a hand in running a building project from start to finish,” he said. “This makes the company very well positioned to benefit from the drive towards efficiency in the [construction] industry, and the increasing mandates for open standards to allow data to be shared across stakeholders.”

He also likes tire manufacturer Michelin, based in Clermont-Ferrand, France, which he believes will benefit from the global move away from internal combustion engines, in favour of electric power.

“Since electric vehicles are significantly heavier, due to their batteries, and produce a lot more torque, tires wear out much quicker, and that leads to faster replacement of tires,” he said. “We like Michelin’s premium position in the tire market and higher-end technology. That means they’re able to charge more for their tires, especially the larger diameter tires which are much more profitable and have a high loyalty rate among Michelin customers.”

Haygood has also kept close tabs on the housing industry, which he describes as “one of the most interest rate-sensitive parts of the economy.”

The good news is that despite evidence of a slowdown in housing, there remains a structural undersupply of housing in the United States. And new lending rules have added more stability to the system.

“The housing market, it’s on a much stronger footing than it was pre-2008 crisis,” he said.

Meanwhile, the biggest hurdle to economic growth — inflation — appears to be coming under control through the painful process of raising interest rates and unwinding the Federal Reserve’s balance sheet.

“It takes a lot of political willpower to tighten monetary policy, slow down the economy, and cause unemployment to increase. But, given what we’ve been hearing from Fed chair Powell lately, there’s some reason to be cautiously optimistic that the Fed will follow through on that path.”

**

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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Phoenix Copper Ltd upped investment in its Empire Mine with drilling ongoing – Proactive Investors USA

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Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF) increased its investment in its Empire Mine as drilling continues at the site despite the gloomy wider economy.

“The outlook has deteriorated, at least in the short-term,” said chairman Marcus Edward-Jones. “Copper and sterling have both been extremely volatile, and currently sit at around 30% below their highs for the year,” 

Investment in Empire increased to US$29.7mln in the six months to June, from US$18.6mln from the same period last year.

And the USA-focused exploration company added core drilling is ongoing at the copper mine.

Mineralisation was encountered at both its Red Star silver-lead deposit and its Navarre Creek gold project, with further exploratory drilling commencing at Red Star.

Net assets increased to US$38.2mln in the period from US$37.7mln, according to a statement.

However, Phoenix reported a loss of US$1mln “after charging an unrealised foreign exchange loss on sterling-denominated assets.”

Cash balance stood at US$9mln, while loans to operating subsidiaries increased to US$25.5mln from US$16.1mln, it said.

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Edmontonians lost $5.6 million to cryptocurrency investment scams: Police – Edmonton Journal

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Edmonton police say local investors have lost more than $5.6 million to cryptocurrency scams between fall of 2019 and the end of last year.

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EPS says it investigated 112 cryptocurrency fraud reports over that time. Complaints lost $50,000 on average or less to the scam, but the highest loss exceeded $1 million, police say.

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“Sadly, we encountered several complainants who lost their life savings to this scam,” says Det. Dana Gehring with the EPS Cyber Crime Investigations Unit.

“Unfortunately, once funds are invested or sent to another party using cryptocurrency, there is little we can do to retrieve them. While we always aim to apprehend those responsible, our best tool with this type of fraud is to educate on prevention.”

More than 90 per cent of the incidents referenced bitcoin, according to EPS.

More recent numbers for 2022 are not yet available.

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Police say in most incidents, investors were convinced to invest in cryptocurrency via what often appeared to be legitimate websites or apps but that are actually controlled by scammers.

Scammers befriend complainants via social media, phone calls, online advertisements and online dating platforms before encouraging them to make a small investment, police say.


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Police warn that at that point, scammers would often manipulate the data on their website or app to give the appearance of growth and encouraging victims to give them more money.

Eventually, the websites or apps disappear, leaving those victims without any means of recovering their money.

EPS says it recommends anyone considering investing in cryptocurrency to confirm the website or app is legitimate, be wary of anyone unknown approaching with investment opportunities, and to verify the investor or investment company registered with FINTRAC or the Canadian Securities Administrator.

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Divorce should prompt investment strategy review, say financial planners – Advisor's Edge

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“People don’t always realize the true impact of a divorce on their financial circumstances until much further down the line,” said Crowe, who is also a certified divorce financial analyst (CDFA). “The earlier you begin these conversations with your advisor, the earlier you can begin to understand what these changes look like, and can make any adjustments that may be required.”

Timely notice of an impending divorce is particularly important during periods of market volatility. “If we’re advised early, we can add liquidity to a portfolio and make it more conservative, so that you’re not in a situation a year later where you’re forced to sell at the wrong time in the market cycle,” Crowe explained.

Even in the midst of an economic boom, it’s hard to avoid taking a financial hit in the immediate aftermath of a divorce, said Eva Sachs, a Toronto-based fee-only divorce financial consultant who also holds a CDFA designation.

“You’re taking one household with a certain amount of income, and now you’re trying to run two households with the same money, which is really challenging,” she said.

One or both parties usually need to free up funds for real estate, either to buy their former partner out of the matrimonial home, or to purchase somewhere new to live, Sachs added.

But recent fluctuations in capital markets, combined with the downturn in the housing market, have added a fresh wrinkle to the complex process that determines the size of the equalization payment owing from the spouse whose assets grew more during the span of the marriage.

According to divorce laws, valuations for property division are tied to the date of separation, rather than the date a divorce is granted or a settlement reached. Those latter dates can often be months or years later, depending on how hotly the parties contest the matter.

“If the separation date was six months ago, that sets a certain value on the matrimonial home, but the reality today is probably quite different,” Sachs said.

The same goes for RRSPs or — taking an extreme example — investments in cryptocurrencies such as Bitcoin or Ether, which have lost two-thirds of their value in the past year.

Former partners can agree to delay a sale or stay invested together until markets recover or stabilize.  But “generally, that’s on a short-term basis,” Crowe said. “Even if the relationship is cordial today, it could change a week or a month from now.”

Sachs works with clients to create financial projections and forecasts based on their updated income, asset and liability levels. Longer-term, the outlook often varies depending on their age.

“If you’ve transferred a large amount out of an RRSP or a defined-benefit pension, then you have to think about how you catch up in terms of those payments. If you’re older, it’s hard because you’ve got less time to make up the difference.”

For those who deferred to a former spouse on money matters, it’s often the first time they have taken an active role in their finances, Crowe said.

“Overall, you will want to evaluate the suitability, risk, liquidity and asset allocation of the portfolio to ensure it is still aligned with your evolving goals and objectives,” she said. “Just having the conversation can be a really beneficial process for someone who is scared about their financial security after divorce. Getting into a position where you can make educated decisions about your financial future is a great confidence boost.”

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