TO OUR CLIENTS: Your portfolios’

valuations have started out on a strong

note so far in 2019. It’s been broadly based, across the Asset Allocation Mod-

el, but especially in those sectors with the most undervalued securities. We

believe that the positive performance

will continue throughout the year, and across the broad base of your core

stocks. Many happen to have high single digit dividend yields, which will add to those potential further gains.

LOOKING FORWARD: For the most

part, the general markets are in a bullish mood. This despite the rumblings around the world of a

growing divide between the have and have nots. The markets don’t

care about morality, however, and only looking at what earn-ings growth is going to look like

up to 6 months out. Past that point, I dare say, markets aren’t

very good at what is to come next. We’ve remained optimistic with regards to the key sectors that we

are invested in and, as such, remain participated up to the maximum that our Asset Allocation allows. However,

we are keeping a close eye on market psychology, and are also maintaining a

full core position in insurance type

stocks that would run counter to a market downturn.

The U.S. national debt topped a record $22 trillion the second week of Febru-

ary, less than a year after it crossed the

$21 trillion mark, indicating a further deterioration in the nation’s finances.

Corroborating those figures, The Peter-son Foundation said the U.S. national

debt has risen by $1 trillion in the past 11 months, calling it “the latest sign that our fiscal situation is not only un-

sustainable, but accelerating.”

Across the world growth has also been based on debt and printed money, to the extent of hundreds of trillions, in-

cluding unfunded liabilities such as health care, social projects and pen-

sions. (Continued on page 2)

)

Dow Jones Industrial Average (DJ) 25,000 26,453 (5.50%) 7.17%

Standard & Poor’s 500 2,704 2,913 (7.17%) 7.88%

NASDAQ 7,282 7,655 (4.88%) 9.74%

Toronto Stock Exchange 15,541 16,673 (6.79%) 8.50%

London (FT100) 6,968.85 7,510 (6.94%) 3.88%

CDN $/U.S. $ 0.7621¢ 0.7705¢ 1.64% 3.99%

CDN$/Euro 0.6658¢ 0.6678¢ 0.30% 4.14%

Gas $3.81 $3.01 26.58% 29.59%

Oil (West Texas Inter) $53.79 $73.25 (26.57%) (0.02%)

Gold $1,325.20 $1,187.40 11.61% 3.43%

EQUITIES. The fall-out from the trade war between the world’s two largest economies, China and the US, is cause for concern. Chi-nese statistics in the last few months have fallen below expectations. In the US, retail sales fell to the lowest level since 2003 and other indications are showing a potential slowdown. It’s too early to tell but the mar-kets are a good leading indicator and we will be watching that closely. NEQUITIES. Notwithstanding the lack of eco-nomic consensus, we have come to realize how one-dimensional global asset markets have become. As of Q3 2018, the Institute of International Finance (IIF) estimated total global debt now stands at $244 trillion, or over 318% of global GDP. With this much debt in the financial system, the only variables meaningful for financial-asset valuations are the policies and behaviors of global cen-tral banks. For example, maintaining finan-cial asset valuations are now completely dependent on sustained central bank liquid-ity. Despite U.S. Federal Reserve Chair. Pow-ell’s public interest rate increase bravado, it is now patently clear that the U.S. Fed cannot raise fed funds to 2.5% and reduce its bal-ance sheet below $4.1 trillion without pres-suring U.S. equity markets…and Trump’s ire. FIAT CURRENCIES . Cue - the Panic. The Chi-nese understanding of the importance of gold started long before the formation of the United States and was more recently re-minded, of is importance, during the 1940’s hyperinflationary period as economic condi-tions deteriorated severely. The photogra-pher Henri Cartier-Bresson captured, in the famous picture below, a Chinese run for their savings. In December 1948, as the cur-rency became worthless, the Nationalist government decided to issue 40 grams of gold per person. As the photo shows, there was total panic to get hold of the lifesaving gold and many people were literally crushed to death during the mayhem.

(Continued on page 2)

Month in Review

Tax Free Savings Account (TFSA)

Cumulative Contribution :

2009 - 2019: $63,500

2019

TFSA Contribution: $6,000

RealGrowth Investment Counsel

Virtually nobody in the West understands the significance of this line. The line signifies the desperation of people after a period of se-vere mismanagement of a country’s financ-es. The whole world today is in a similar situation. After over 100 years of destruction of paper money through the buildup of mas-sive credit and money printing, the world may soon get to the point when people will be desperate to get hold of real money (gold). But at that point it will be too late. America has weaponized the power it gets from possessing the world’s chief reserve

currency, which allows it a monopoly to print currency to pay bills, fight wars or cut off others from using the dollar payment sys-tem. The American dominated SWIFT pay-ment system allows transactions in bank accounts regulated by U.S. or European fi-nancial institutions but is slowly being re-placed with alternatives. France, Britain and Germany for example have set up a Special Purpose Vehicle (SPV) called INSTEX to cir-cumvent U.S. sanctioned countries. Russia and China too are pursuing alternative forms of payment to circumvent US/Iranian sanctions. And, China has recently swapped oil for its currency with Russia as it interna-tionalizes its Yuan. INTEREST RATES. By unanimous decision at its 12/19/18 meeting, the Federal Open Mar-ket Committee (FOMC) hiked the fed funds rate by 25 basis points. In his post-meeting press conference, Chair Powell telegraphed two additional rate hikes during 2019 and characterized the Fed’s balance sheet runoff as being on autopilot and not subject to

(Continued from page 1)

(Continued on page 3)

The bubble can be expanded for a lim-

ited time by just issuing more debt and this is what we have seen since the 2006-9 financial crisis. The fake life support

that the world economy has received in the last 10 years has inflated asset mar-kets to the extent that the rich are getting

richer and the poor are landed with even more debt burdens. This frustration can

be seen in the streets of Paris, and in Italy, and the political divide in the United States. How Western capitalistic

systems are going to be able to compete with Dictator like political systems, such as in China for example, is up in the air.

Not only is Global government

debt at record highs — unsustaina-ble levels — so are corporate and personal debt. The only way the

world can deal with the next debt crisis is by printing money (a lot

more money) and issuing more debt. But you can’t solve a debt problem with more debt, at least

we don’t think so, not anymore, and not at these high debt levels.

Things could be great for many years to come, however, one has to prepare for a

potential downside that could be harsh. If and when the end game crisis hits the world, corporate profits will suffer.

Highly indebted companies may not meet their debt covenants, especially as interest rates rise along with inflation

and collapsing bond prices. So compa-nies could default on their debts as well

as property owners with debt. Commer-cial property will suffer as tenants won’t be able to afford the rents. It will be the

same with retail property, which will collapse as spending comes down. The

West, and especially the US, is over-stocked with retail space, with most of it at very high rents. As people lose their

jobs and interest rates rise to boot, the housing market could collapse.

JANUARY TURNAROUND. On

10/3/18, the date of Fed Chairman

Powell’s now infamous “long way from neutral” comment, the S&P 500 closed at 2,925.51. By Christmas Eve, the S&P

had declined a startling 19.63%, and on 12/24 alone, the Dow Jones Industrial

(Continued from page 1) Average plunged 653 points, its worst-ever Christmas Eve decline. Fueling

market uncertainty, the Federal govern-ment shutdown commenced at midnight on 12/22, the same day Bloomberg re-

ported President Trump was considering firing Fed Chairman Jerome Powell.

In a curious attempt to calm markets, Treasury Secretary Mnuchin tweeted on

12/23/18 that he had phoned the top six U.S. banking executives to confirm that,

despite the government shutdown, there

was “ample liquidity” in the financial system. Since investors hadn’t been con-cerned about bank liquidity before

Mnuchin’s tweet, markets accelerated to the downside on 12/24/18. Secretary

Munchin then made the exceedingly rare public announcement that he had scheduled a meeting of the President’s

Working Group on Financial Markets for the morning of 12/24/18. Nick-

named the Plunge Protection Team (PPT), the Working Group was formed after the 1987 market crash and is com-

posed of top officials from the Federal Reserve, the Securities and Exchange

Commission and the Commodity Fu-

tures Trading Commission…

Of all the manipulated markets, gold might be the worst of them all. Invest-ment gold represents less than 0.5% of

world financial assets. One might ask, ‘why then are daily traded gross gold volumes over 2x the S&P 500 volumes?’

According to the World Gold Council, gross traded daily gold volume is $280

billion, while daily S&P volume, by comparison, is only $125 billion. The reason has to do in part with Western

governments leasing out their gold. But if that is true and the East has been buy-

ing it up, then there is little chance the West will be able to get it back. Already, for example, they are refusing to give

Venezuela back their gold stored in the UK. And also we shouldn’t forget that the U.S. declined to give Germany back

all of its gold, the balance still being held at the N.Y. Federal Reserve.

ECONOMICS: A funny thing hap-

pened on the way to the forum. Recent (Continued on page 3)

Month in Review

RealGrowth Investment Counsel

change. By January 9, however, Fed Presi-dents Bullard, Evans and Rosengren (coincidentally, all 2019 FOMC voters) had weighed in against the necessity for further rate hikes. On 1/15/19, the Fed’s most ardent hawk (and final 2019 rotating FOMC voter), Kansas City Fed President Esther George, made it offi-cial, “It might be a good time to pause our interest rate normalization.” OIL AND GAS. If all the conventionally-fueled cars in the world were replaced with electric cars overnight, the global supply of lithium would be completely depleted in just ap-proximately fifty years. About three million electric cars are currently in use globally--just a drop in the automotive bucket. That being said, that number is projected to sky-rocket over the next decade, reaching a global fleet of approximately 125 million by 2030. However, that poses a new problem that virtually no one has addressed. There is not enough infrastructure to create all that electric energy to fuel those “environmentally friendly” cars. A few cars is ok, but more than a few is not doable. Power has to be generated, and that will be gas and or coal (depending on the country) power plants and it doesn’t end there. The whole electric grid system isn’t good enough to handle the increased needs. The world would need new lines, thicker (more petro-leum products) lines and all new connec-tions into our homes and businesses. There is also one smaller problem that exemplifies a larger issue with renewable resources, they are not completely renewable, and we still haven’t discovered the technology to get around that fact. Batteries only last a few years and then have to be disposed of and new ones constructed. In the meantime, the world still won’t turn without oil and gas resources driving our economies and feeding and clothing the world.

Continued from page 2)

(Continued on page 4)

have reached a peak, yet deficits and debts have not been reduced. Central

banks have very few options in their financial toolkit (i.e. rates already too

low) to manage a soft economic land-ing. In the last recession, 2009, govern-ments around the world stepped in to

bail out many banks and insurance companies. Remembering that they all had to borrow to do it, we’re not so

sure that they will be able to do the same thing during the next recession,

whenever that may be.

Trump recently signed a new spending

bill (more borrowed money) and de-clared a national emergency so he

could fund a wall between Mexico and the U.S. That, of course, would set a huge precedent and take money away

from other potential real emergencies. Money, we might add, that they don’t

actually have to begin with. At the same time he is also espousing encour-

aging words about China’s president, and a possible trade deal with China.

Both remain to be seen. If the emergen-cy bill is passed, that would not be

good for America. If the trade deal is

not completed, higher tariffs or not, that will also hurt business around the

world. It’s hard to know how a slowing world economy is going to cope with so many trade tariffs, and sanctions,

with interest rates already historically low and the markets at highs. It seems

like there is only one way to go, but the markets can and will do anything, so patience here remains a virtue.

retail sales data from the United States

were very weak, so much so that econo-mists didn’t believe the numbers. They

sure didn’t question the previous unem-ployment numbers that showed hun-dreds of thousands of new jobs which

magically occurred during the govern-ment shutdown where more than 800,000 people were put out of work.

That doesn’t count the jobs that relied on those government workers spending

money. The equity markets are com-

pletely unfazed. If the retail sales were good they would find a positive in high-

er earnings. Because the retail sales were bad, the markets were boosted by the hope the U.S. Federal Reserve would

stop raising interest rates. That is a clear sign of a bull market, but one we fear

may be at a tipping point. The following chart is a snapshot of

U.S. surpluses and (mostly) deficits. If the U.S. economy falls

into a recession, the “projected” deficits may end up being significantly

worse (see the 2008 reces-sion). The chart’s fore-casts are much too con-

servative. In fact, the ac-tual deficit in 2018 was

3.9% of GDP and esti-mated at 4.7% 2019. This during growth! The U.S.

government has brought forward a great deal of

demand for goods and services because of the tax cuts, and interest rates remain at all-time lows.

The deficits (and debts) remain stub-bornly high despite this, and at a time when unemployment is very low. Be-

cause of the stresses on the world econo-my, trade wars may be more common in

the future than most think, and there isn’t a lot of cushion in the system. Stagflation is a very real scenario for

many years to come and your Asset Allocation will benefit from this out-come.

CONCLUSION: It may not be today,

or even in the next couple of years, but the main thesis here is that the U.S.

economy and the global economy may

(Continued from page 2)

Month in Review

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WEB PAGE: www.realgrowth.ca Tel: (416) 486-7729

and will not give up its projected gas pipe-line that goes under the Baltic Sea direct from Russia to Germany. Add to this the variance of the stance be-tween the U.S. and the EU on Venezuela, where the U.S. wants to change the Leader by “hook or by crook”, whilst the E.U wants hands off. And don’t’ forget the U.S. attempt to “kill” the Chinese Internet giant Huawei and pushing other Western Coun-tries to do so. Now Trump is threatening to put on tariffs on German cars, to bring Germany in line. Angela Merkel (German Chancellor) ex-plains that many German cars are built in the U.S. and sold to China, so who would lose? The situation is becoming harsh, with Trump certainly annoyed that “they” will not do what he wants. This other problem - tied in to the first - is this continuing bulling by the U.S. of its long-term allies, including Germany, France, Turkey, and in so doing, pushing them to find new friends such as China and Russia. It also shows weakness, because real strength needs no “bullying”. Shakespeare said in the Hamlet play: "The lady doth protest too much, methinks". Trump thinks he can push everyone around, but it is hard to push the EU around and nigh on impos-sible China. No good can come of this. At RealGrowth we are concerned not only with the present financially, but with the long-term geopolitical situation that must affect long-term financial thinking. We consequently have securities that will pro-tect our clients in these circumstances and, in fact, benefit from further turmoil.

February 22, 2019

The World has become a more dangerous place since Donald Trump became Presi-dent of the United States. This is mainly because his policies seem to have been to isolate the U.S. from the rest of the World. The U.S. was until now and for the last 75 years (since World War II) the “policeman” of the World, controlling the major com-ings and goings of most political happen-ings. Now, various nations are either fol-lowing suit and becoming “Isolationists”, or “nationalists” such as in the E.U., where they are creating havoc to the Union of the E.U., or they are starting to become dicta-torial and are attempting to expand, or con-trol others, such as in the case of Turkey, Iran or Saudi Arabia. It is like a city where suddenly the police are no longer present, with looting and killings going on. Part of this decision to become Isolationist is due to the fact that the U.S. is losing its predominance and is not quite as strong militarily as it was. There also seems to be a definite break between the EU (say Ger-many) and the U.S. For one, the EU is determined to uphold its Nuclear Control deal made with Iran, that was hammered out and completed during the Obama era and included the U.S.. They want to continue doing business with Iran, and are finding ways around U.S. sanctions by using other currency settlement systems than the dollar to do so, to the determent of the dominance of the dollar as a reserve currency Now as we know, the Trump Administra-tion has pulled out of the deal, putting sanctions on Iran and black-listening any-body for dealing with Iran. Furthermore, Germany (for one in the EU) wants to keep good relationship with Russia (as I have said before is a natural geopolitical stance)

Pol i t ical Shor ts

PRECIOUS METALS. Harvard history Profes-sor Graham Allison, has advised that over the past 500 years there have been 16 in-stances when a rising power threatened to displace the incumbent power. Today, with Mr. Trump throwing down the gauntlet by triggering trade wars, and what has mor-phed into a tech war against the incumbent China, Allison reminds us that in 12 of those 16 cases, they ended in war. Maybe, we are hopeful, that the stats can change with this newest rise of Chinese power that is threat-ening to dislodge the U.S. as the world’s existing incumbent leader to a new statistic, which would be 5 out of 17, without a war, but one can never be too sure. For anyone who wants to own some gold as insurance, in case the statistic becomes 13 wars out of 17 power changes, now is the time to buy it. Not when the papers start writing about gold, or the markets crash, or the television broadcasts the upside panic in the gold market. By then it will be too late and, like the Venezuelans, you will not be able to get any gold at any price. Again, to-day is the time to get your gold because tomorrow could be too late. And if we are slightly off on our timing, all we have done is to buy lifesaving insurance too early. Until August 15, 1971, sovereign states could demand payment of debt owed by the U.S. in gold. De Gaulle did this for France and that is the major reason why Nixon ceased the gold backing of the dollar. Gold reserves are supposed to be just what they are called, reserves to back the cur-rency and the stability of the country. In spite of this, many countries like the US, UK, and Switzerland, have reduced their re-serves significantly. Many others like China, Russia, Turkey and many others have and are increasing their reserves, and at the same time reducing their holdings of U.S. dollar denominated bonds.