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Market sentinel Jonathan Baird and what he’s investing in now

Mind behind the Global Investment Letter talks markets, geopolitics and how volatility is here to stay for the 2020s

You might call Jonathan Baird a market sentinel of sorts. In the past six years, the award-winning fund manager has shifted from handling other people’s money to using the pen to keep investors abreast of what’s going on in the markets.

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Subscribers to his highly regarded Global Investment Letter include top money managers, do-it-yourself investors and, of course, family offices who want to see the world according to Baird.

Now retired from money management, Toronto-based Baird recently spoke with Canadian Family Offices about his journey, where the markets are headed and how family offices should manage wealth in an increasingly uncertain world.

How did you go from a Lipper Award-winning portfolio manager to publishing the Global Investment Letter?

My last stop as a money manager was a mutual fund startup called NexGen Financial, and that was around for about eight years, eventually bought by a French merchant bank. I decided to take my equity and move on.

I took a few months to decompress and then started writing posts on LinkedIn, expressing my views on markets. That ended up getting a very positive response, more than anticipated, leading me to launch the letter in 2017.

So here I am today doing this largely full-time with subscribers on all the continents, except Antarctica of course.

How would you describe the Global Investment Letter?

I cover all the major global markets—stocks, bonds, currencies and commodities—offering analysis and opinion. But I also share my investment positions and explain why I’m doing things, while imparting lessons I’ve learned as a money manager, especially when it comes to mitigating risk.

If you’re like me, with curiosity about what’s going on in the world, even geopolitically, investing is an interesting pursuit. My letter reflects that. As well, by definition, my writing generally takes a skeptical tone regarding broad-based consensus. It’s dangerous when everyone believes something is going to happen because, if it doesn’t, that causes major market moves in the opposite direction.

How do you see markets in a geopolitical context?

We’re living in the most tenuous investment environment in a long time. You might say it’s the most tenuous since the end of World War Two.

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Russia and China are clearly experiencing some high tension with the so-called ‘Western nations.’ Obviously, Russia is a rogue nation, and the issue of Taiwan is a very real one. I’ve been to China, and they have no sense of humour when it comes to Taiwan. They see it as part of China.

Yet, there’s the levels of debt burdening most developed nations that really ramped up in 2008, and rather than paying it down, we ended up going into an ultra-low-interest-rate regime where debt levels have remained quite high and monetary policy quite loose. Then, COVID caused another spike in debt, and nothing would have changed with interest rates if inflation hadn’t reared its head.

What is your view on interest rates today and going forward?

Since they increased, many people have talked about rates being punishingly high. Yet all they did was get back to more historical levels. But people base their perceptions on recent events and had become very comfortable with ultra-low rates.

Now, rates are again coming down, but my concern is that the decreases may be premature, and we might see a resurgence in inflation. If that happens, further cuts in interest rates may not materialize, in which case you will see a lot of market volatility.

Another interpretation of the big rate cut by the Fed [in September] is that we are headed for a recession. For a central bank to cut rates that sharply in one event, that seems like they see something coming.

How do you see markets going forward given your concerns about rates?

I’ve written on many occasions that the 2020s will be defined by their volatility. Even though volatility notionally presents risk, it can present great opportunities for investors, too. There is a chance for informed and active investors to do quite well in the next five years despite the volatility.

While the markets are performing strongly now, I still have reservations near-term. The fall has long caused more market drama than the rest of the year combined. I will especially breathe a sigh of relief once we get well past the November 5th U.S. presidential election because that in itself is likely to create a lot of volatility.

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Where are you investing today?

I am cautious on equities, though still bullish on certain segments of the market. That includes defence because of the deteriorating geopolitical scene, and the development of new technology that will replace weapons systems.

Health care is another because of the demands of rapidly aging demographics in developed countries and introduction of new technology and treatments.

One concern right now is the Magnificent Seven stocks. They are showing signs of relative underperformance compared with the rest of the S&P 500. That tends to be typical of the late stages of a bull market. That said, technology will continue to drive markets. It really always has. If you go back to the 19th century, railroads and the telegraph were new technologies driving economic expansion.

It also tends to lead to bubbles. Radio in the 1920s produced the bubble before the 1929 crash. The internet bubble was the king of them all. Although I think AI is a transformative technology, my concern is the volatility produced with these enormous index waves from a handful of companies, like the Magnificent Seven.

Right now, I am probably most bullish on gold. When interest rates are expected to drop, it gets a lift, but I like to think of gold as more a gauge of fear and uncertainty. And its current price is probably a reflection of geopolitical tensions.

On bitcoin, though, I am not a believer. It’s a purely intangible asset that could disappear without a trace. With stocks or bonds, you have assets behind them, even if they’re not worth 100 per cent of the value you’re paying. And real currencies are backed by governments.

What is your message to family offices?

Like any other investor, family offices must be aware of inflation and the passage of time. Together, these erode net real wealth, so family offices must make an effort to find strategies generating a return that keeps pace with inflation or, even better, outpaces it.

If I were running a family office, I also would make myself aware of what’s going on in the world. If it’s not the Global Investment Letter, then have something similar to that that can offer different perspectives.

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It’s also incumbent on family offices to be proactive and engaged regarding their investible asset mix, regularly questioning the strategies. This helps avoid complacency. In other words, ask yourself: ‘Is the asset mix responding to changes in the world?’  

But to truly keep engaged and be able to question whether your current strategy is appropriate, doing so constructively, critically and effectively requires you have the right information.

Responses have been lightly edited for clarity and length.

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