A Time To De-Risk

Cardinal Capital Management Inc.

March 9th was supposedly a red-letter day for stock market aficionados. It marked the sixth anniversary of the current bull market, which started from the depths of the despair prevailing in the market melt-down following the Lehman Brothers bankruptcy in 2008 – the fourth longest bull market in recent US market history, and one that the media would argue might be ending soon. The media neglects the fact that the longest bull ran for 13 years, from 1987 to 2000, and also fails to remind us of how low markets dove in 2008. We could argue that 2008 was a much worse market event than 1987, and so the bull rise out of 2008 might be better than the bull rise out of 1987, but that is speculation.

What matters to us is the US economy continuing to strengthen and it is in no way at a level where the Federal Reserve needs to slow growth in order to quell inflation. We do expect that the Federal Reserve will want to increase interest rates to a “more normal” level, and would like to do that sooner rather than later, but they are not going to jeopardize the recovery which they have fostered through years of Quantitative Easing by raising rates too much, too soon.

In Canada on the other hand, we see growth slowing largely because of energy investments and public sector restraint. We at Cardinal have been busy doing a kind of market timing that we believe in – Looking for Value. You may have noticed that we divested Magna and Saputo from our Canadian portfolios (at considerable profit for most clients) and may also note that we invested the proceeds in some fairly conservative names – BCE, Telus, Sun Life and Empire Corp. We don’t believe that markets are predictable, but we do hold strong opinions about when individual companies are trading well above fair value. The markets may still love Magna and Saputo, but if we feel they are overvalued, then we would rather seek other opportunities with less downside.

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