When crises arise, we seem to find a way to resolve them
Published on July 9, 2019
I heard from a number of clients about last month’s newsletter, many of them to say they remember the historic events that mark their fiftieth anniversaries this year. One client went so far as to send me a link to a special airing on WNED-TV on August 9, 2019, “Woodstock: Three Days That Defined a Generation,” as part of WNED’s American Experience series.

It may serve as a good reminder of the turmoil that swirled around an event that indeed did define a generation. Fifty thousand people were expected to attend. Four hundred thousand showed up. There were sanitation issues and medical issues and the governor at one point considered calling in the national guard to break up what an older generation perceived as a security threat. What the younger generation saw was a tipping point in its resistance to an increasingly tone-deaf establishment.

History doesn’t necessarily repeat itself, but we are seeing what may well be a continuing divide between a younger generation that believes in climate change and income equality and social justice, and an establishment that either doesn’t believe, or isn’t moving fast enough to address the issues that are important to them.

Then, as today, emotions ran high as they face complicated challenges. Then, as today, we prevailed and we learned and we continued to move forward.

In the 1970s, Cleveland was the known as “the mistake by the lake,” with its river so polluted it at one point caught fire. Today, Cleveland is experiencing a renaissance, having reinvented itself as a cultural hub. Where once no one could walk downtown after six o’clock at night, today some of the hottest residential properties and many of the trendiest restaurants are downtown.

As humans, we are exceptionally good at creating crises — whether it’s the 1.6 million square kilometre garbage patch currently floating in the Pacific Ocean; or the hole in the hole in the ozone layer 25 years ago; or the insecticide, DDT, 25 years before that. Fortunately, as the recovery of the bald eagle as a result of the ban on DDT, and the closing of the ozone layer after the regulation of chlorofluorocarbons (CFCs) and halons, once found in aerosol spray cans and refrigerants proves, we are also good at resolving the crises we create. Soon, we’ll have a solution to today’s ocean garbage patch.

Regardless of the turmoil or the challenges, which in the moment feel increasingly complicated, entrepreneurial spirit continues to thrive, markets march forward and humanity prevails.

Although we are resilient, we remain risk averse by nature

Yet, even as we recognize our own resilience, we remain risk averse by nature, particularly as we get older. I see this among my clients, but it is a widespread phenomenon. According to Bloomberg data, in June 2019 the amount of debt with negative yields reached US$13 trillion. In other words, many investors in Europe, Japan and elsewhere in the world feel safer putting their savings into bonds where they will lose one percent, than keeping it in the bank. Even bonds that are in positive yield territory are yielding very little in the way of returns. Forty percent of global bonds are yielding less than one percent. Recently, even the US was considering one percent treasury bonds.

It’s hard to fathom feeling safer losing a little bit of money than risking greater losses it in the equities markets or, in some countries, keeping it in a bank. However, Baby Boomers are getting older and their memories are long. They remember the stock market crash in 1987. They remember the dot-com bubble bursting in 2001. And they most certainly remember the financial crisis 10 years ago. As this generation of investors ages, they feel as if they won’t have time to recover from the next financial crisis. So, from a capital preservation perspective, they are willing to lose a little to keep the majority of it.

At the same time, many are finding it difficult living on two percent or less returns. It’s why dividend yielding stocks are a happy compromise, especially for those on fixed incomes. Many offer four to five percent returns, and, unless there’s an absolute necessity to sell the stock, investors can ride the waves of uncertainty without worrying about the day-to-day stock price. It may be more equity exposure than some retired investors would have expected at their age, but they remain a stable bet.

The good news is that while we may be entering a period of slower growth, there does not appear to be another financial crisis on the horizon. Low inflation and consumer goods price stagnation should keep things on a slow but steady trajectory for the next little while.

The world is in good hands

The other good news is that as the older generations hand the baton off to the younger generation, I can honestly say that the world is in good hands. I took my son, Ben, and a friend to their graduation at Queen’s University earlier this month and I reveled in their enthusiasm. They are motivated and excited about their lives ahead. They are sure-footed about their careers. And they are seeking balance earlier in their lives, many by traveling.

Ben is heading to Asia in the near future. One of his stops will be Vietnam. Fifty years ago, soldiers were fighting in tunnels. Ben is an age where, had he lived in the US in 1969 he would have been drafted. Instead he will soon be walking those tunnels as a tourist. He’ll be able to walk a mile in another young man’s shoes without having to fire a shot. It’s a perspective we should all be fortunate enough to have.

Sincerely,

Stephen Sisokin

President

Information is General Only. This newsletter is for general information purposes only. It is not intended as specific investment, financial, legal or tax advice and you should not rely on it as such. This newsletter does not constitute the official version of Howard, Barclay & Associates Ltd.'s disclosure documents and may not always be the most current. This newsletter and information contained therein is provided “as is”. Howard, Barclay & Associates Ltd. does not warrant the accuracy, adequacy, timeliness, or completeness of this newsletter and information contained therein, and disclaims liability for any errors or omissions.

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