Long time readers know we are avid fishers and take an annual fishing trip in July to the great expanse of the northern Canadian wilderness. Being cut off from civilization (and the internet!) in the middle-of-nowhere, accessible only via an old de Havilland Otter pontoon plane after a 24-hour drive northwest from Cleveland is all part of the allure. We call it fish heaven!

Of course, bad things can happen up there (recall some of our past exploits detailing forest fires and bears). This year was no different, we saw some insane lightning storms!

It gets real when you are out in the middle of a lake and a nasty storm rolls in, seemingly out of nowhere.

It’s doubly intense because, as a fisherman, you are faced with a very difficult dilemma; safety vs. catching a lot of fish. Some of the best fishing we have experienced happens right before a big storm strike. Fish can sense the change in the air’s barometric pressure on the water, they get very nervous and start to feed aggressively. When the fish are biting, who’d want to stop fishing? It makes sense to maximize your time fishing before a storm.

Our last excursion was no different; in one boat alone, we caught two northern pikes that were north of 40" in the twenty minutes prior to the granddaddy of all storms.

As fun as it is to catch these big boys, you need to be safe and respect the dangerous nature of inclement weather (especially when you are fishing in an aluminum boat out in the middle of the lake and your hair starts to stand straight up!). The safest course of action is to get to shore as quickly as possible when you see the first strike of lightning and remain on shore until 30 minutes after the last strike. Of course, you must fight against the urge to continue to fish, knowing the fish are biting. This is very hard to do! You have to discipline yourself, adhering to the rules and exercising wisdom; it’s a prerequisite to living to fish another day.

In a way, our recent fishing experience is similar to today's market environment. When U.S. equity markets are close to all-time highs, it is very hard to make the decision to get more conservative in investment portfolios, i.e., trimming equity exposure and adding to fixed income exposure at this juncture. However, we are employing that exact strategy for client portfolios today (see our Q3 Capital Markets Outlook for a more detailed overview).

Though the economy continues to grow, we can see some storm clouds developing on the horizon. While we can never predict the future with any specificity, we need to be mindful of the typical signs and indicators that appear around the time a business cycle expansion could end and the economy goes into recession. Remember: recessions cause uncomfortable equity bear markets (technically defined as peak-to-trough drawdowns of greater than 20%). It is better to prepare now, before the storm strikes. Preparing now and erring on the side of safety is better than doing it during the maelstrom.

The next recession and the eventual bear market, like any storm passing through when you are fishing, will end. The sun will peek out through the lingering clouds and you can get back to fishing with a higher equity exposure.

By the way, it is always a good fishing sign when your brother is at the end of the rainbow after a devastating storm.

For more information on this topic, please contact Russell Moenich.


Photos by Russell Moenich.