Scary as hell

Like most folks, Jason is pensionless. “Shoulda been a garbage truck operator,” he says. “At least then I’d have a DB payment coming in monthly.”

Alas, he went into insurance. Worked at various brokerages for 27 years and lost his gig 18 months ago. He blames AI, but he’s also 62 and we all know what that means.

He writes me. “Our little modest house is paid for. The wife and dog are sticking with me, and all together we have about $600,000 in RRSPs, tax-free stuff and Lisa’s LIRA. It’s all in a few mutual funds and GICs. Yes, Garth, I fully understand you’ll call me a loser, but I can’t wait to get that CPP and wrinklie pogey, as you call it.

“I also know I should invest this money – which is easy for you to say. But this market scares the hell out of me. Convince me otherwise.”

Actually Jason and Lisa are doing better than most Canadians. The house in SW Ontario has no mortgage. They carry no debt. And they have six hundred grand.

The problem is two-fold. No income. No confidence. So something’s got to change.

A rational strategy would be to dump the high-MER mutual funds plus the brain-dead, low-yield, fully-taxed GICs and build a portfolio out of low-cost, entirely-liquid and growth-oriented ETFs. Lately returns have been in the double-digit range, but harvesting a more sustainable 7% would give J&L about $3,500 a month and still maintain the principal. That compares with the $0 they now get from non-cashable GICs and fund units without distributions.

Once CPP and OAS click in, household income would increase by almost three grand a month. Not princely. Not shabby. And better than average.

Their principal investment amount would be kept largely intact, meaning a constant income stream, plus the house could be sold if things go squirrely. “But Lisa keeps some chickens out back,” Jason told me. “And I don’t think they’d be too happy in a condo. Me neither.”

The key, though, is confidence – trust in the long-term integrity and sustainability of financial assets and markets. Without faith in the future, emotion takes the wheel and money ends up being parked once again in a ‘safe’ place – paying little or nothing.

So, are markets going to crash? Is it too scary to invest? The wrong time to contemplate it?

Lots of people think so. Social media is saturated these days with doomer warnings, even as markets continue to chug to fresh record highs. Bubble talk is rampant as the AI revolution takes hold, tech moguls run America and fortunes are made in things as flimsy and ethereal as the prediction market.

Actually, there are warning signs. More than normal. Equity markets have been irrational and detached from everyday reality, like war and public financial struggles. Valuations are at the second-highest level in history, eclipsed only by the dot-com era – which ended in spectacular losses.

S&P stock valuations approach Dot-com mania

Worrisome as well is the concentration of wealth. Not only in the hands of Musk, Bezos and Zuk, but that small handful of companies now dominating the S&P 500. If a few IPOs go ahead – selling shares in SpaceX, OpenAI and maybe Anthropic – tech enterprises could account for a staggering 48% of the entire stock market.

Meanwhile an estimated $700 billion in new capital spending on data centres is adding serious debt to many balance sheets and extending the gamble that everyone is taking on AI – a technology with the power to upend the entire human labour market, for which government and society is unready. (Just ask the Pope about it.)

So, yeah, Scary as hell.

But wait. Curb the emotion. Stop being woke. Look at this in a realistic way.

The tech giants are among the largest, most profitable corporations in human history. Apple alone has a market valuation of $4.57 trillion US. Musk will soon be the world’s first personal trillionaire. Every day 3.56 billion people – almost half the humans alive – log onto Facebook or another Meta platform. Amazon single-handedly has become the globe’s retailer, shipping 25 million packages a day while its web division powers massive swaths of the online world.

These are real companies. Huge customer bases. Enormous earnings. Hugely profitable. Growing continuously. Why would you not want to own them? Especially as they push us forward into a more productive, efficient, cost-effective world of self-driving cars and planes, autonomous weapons and call centres staffed with polite robots?

Seriously, we’re in a profits picnic these days with corporate earnings set to increase in 2026 by high double-digits. Despite a crazy, rogue president that US economy is still expanding. Inflation and interest rates are relatively low and stable. Stock valuations may well be justified by the bottom lines of these publicly-traded enterprises, by technology and the huge potential that AI is unleashing.

This is not a re-run of the dot-com age, in other words, when zombie companies with cool URLs and CEOs on skate boards were mobbed by dumb, greedy investors. At least, that’s how it looks to those pouring money into the market at this very moment.

Well, you decide. If the tech moguls get it wrong, we have a mother of a correction ahead. If they’re right and AI rocks us into a new world, stocks are cheap.

You know what I told Jason. The greatest risk is not losing money but running out of it.

About the picture: “I’m answering your desperate call for canine pictures,” writes Fred in Sueey. “On a recent trip to Istanbul Türkiye I found these two guys getting a bit of kip after a long day of doing nothing. Dogs and cats are legally protected in Türkiye, animals here are recognized as living beings, not property. Keep up the good fight for financial education, it is much needed and appreciated.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.