Recap & Outlook: Jobs and Central Banks
On the first Friday of the month, the US Department of Labor releases their well scrutinized employment report. Also, this week, the Bank of Canada and the Bank of England held their administered rates steady and adjusted their tone. Employment health in the US and global central bank reaction to the current economic environment are both very important to our medium-term investment outlook.
- After a strong January report, the February Employment report came in much weaker than expected. We are not concerned with one bad reading, especially after such a strong January. We did note that wage growth has reached its pre-financial crisis peak. Robust wage growth (see Figure 1) is good for consumer spending (two thirds of GDP). However, it also constricts corporate profit margins which can lead to stock market volatility.
- The Bank of Canada (BOC) lowered its economic expectations after warning of slowing business investment, housing activity and consumption. This has been a long-held Pathfinder view and one of the reasons why we own assets outside of Canada.
- In Europe, the ECB provided more liquidity to borrowers. ECB President, Mr. Mario Draghi, also downgraded their outlook for the Euro area. Yesterday, the bank indicated that there is some concern about a recession. This is why long-term credit stimulus and revised economic guidance was added. We have been concerned with slowing growth of the 19 nation European bloc for some time. Consequently, we have avoided this area in our portfolios for the most part.
“This means that” our current investment view has not changed. While we do not see the potential for a recession in the US at this point, other areas of the world are slowing. Given that markets have had a significant rally over the last 2 months and given the recent policy changes, it is reasonable to expect some volatility ahead.
This week, we made a few trades in the North American Blue Chip portfolio so please see the Trade Reports for more information. We continue to remain focused on our investment process: buying real businesses when they are cheap and selling them when our investment thesis matures and they become expensive.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
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