Cheap & cheaper

Late last week Dave got an email from his friendly, neighbourhood, slippery mortgage broker. (Not all brokers are like that, but read on…). So our guy has a home loan of almost $550,000 and Mr. Broker was kindly offering to reduce his current 2.99% rate down to just 2.04%, for the low, low, one-time-only fee of $25,604.

“He had a bunch of calculations on a spreadsheet about interest paid, interest owing etc.,” says Dave. But he wasn’t buying it.

“Apparently mortgage dudes have their own versions of Frankenumbers.   He offered to make this change for me and said I would be saving about $7,000 for the next 4 years (and I presume he would be getting about $6,000 for another mortgage commission).”

So being part of the GreaterFool enlightened class (and because our faithful blog dog is also a financial math teacher), Dave gave his guy a wee lesson in finances and morality.

Amount left on mortgage:  $545,891
Payments:  $2,647
Interest rate: 2.99%
Remaining principle after another 49 months:  $478,162
Amount paid by me:  $129,703

To get the new rate:
Amount:  $571,585   ($545,891 + the $25,604 penalty)
Payment amount:  $2,386
Interest rate:  2.04%
Remaining principle after another 49 months:  498,977
Amount paid by me:  $116,914

“So,” he concludes, “the broker wants me to save $12,800 in payments but add $20,800 to my mortgage!!?? Is there a regulatory body or College of Mortgage Brokers that I can complain to?”

Yes there is. Mortgage brokers are provincially regulated – and those regulators have teeth. For example, if Dave’s in Ontario he should squawk to the Financial Services Commission of Ontario. If in BC, the mortgage cops are at the BC Financial Services Authority.

This raises a couple of points. First, how do you become a licensed mortgage flogger? How detailed is the financial training that agents must absorb? How much experience do these folks need before they can start advising clients on acquiring and correctly financing the biggest debt of their lives? How long does it take to qualify to do this line of work, taking into account that each transaction involves hundreds of thousands of dollars?

Well, in Ontario, this is the process:

There are 3 steps to get mortgage agent licensed in Ontario:
1. Pass The Course – the mortgage agent course can be done in as little as 5 days for as little as $338.
2. Get Hired – you must join a mortgage brokerage first before you can get licensed.
3. Complete the FSRA Application – the FSRA (formerly FSCO) licensed mortgage brokerage applies to FSRA for your mortgage agent license.
And, you can do it all online while you’re locked down in quarantine. How cool and convenient is that? Not busy this week? Hey, you can be a mortgage agent by the weekend!

(You can compare this to a lowly financial advisor, required to write at least four examinations and take courses over 36 months plus go through a corporate registration period, who is then policed by a federal regulator with judicial powers, as well as being licensed provincially – all to invest some guy’s $12,000 TFSA.)

But wait. What’s this 2.04% ‘special rate’ being offered to our online warrior-teacher-colleague?

It’s excessive, is what.

There are currently brokers offering five-year fixed terms for 1.3%, if you can believe it. Even a bunch of banks are sub-2% these days. For example, TD’s giving its customers a half-decade loan at just 1.84%. Both CIBC and BMO are doling dollars at 1.93%. And if you look fetchingly at [email protected] you might even squeeze a few more basis points out of her.

Of course, events of last week started changing things. The Republicans lost control of the Senate and Trump lost his mind. There was an attempted insurrection as rightist ‘patriot’ nutbars stormed Congress to overturn a perfectly fine democratic election (so the courts say) and it’s now evident the sitting president will be impeached and later convicted so he can never again hold office. Big news.

The Republican Party has split after losing the House, the Senate and the White House which opens the way for four years Biden/Democratic big-spending. That will increase deficits, debt, engorge government, likely raise corporate taxes, hasten defeat of the virus, re-open the economy more rapidly and therefore fuel inflation and raise rates.

Yup. Coming. It was likely before January 6th. Now, in the aftermath, it’s a slam dunk. The bond market is already on the move. And that’s where mortgages are priced.

So, yeah lock in. Even break your loan if it makes sense. Just don’t be a rube.


On freedom

In 2020, the year of Satan, this blog published just over 66,500 comments. (There have been 704,938 posted since I lost my mind and created the site.) In addition last year 1,187 comments were deleted. Two people lost their ability to post for a few months, until they (a) apologized or (b) chilled. Four posters were permanently banned for being habitual liars, racists or seriously irritating me. (I figure life is too short to aid and abet losers.)

So, yes, this site practices censorship. In its own imperious wisdom it decides what’s worthy of publishing. Rejected are comments that would inherently question my judgement in allowing them, reflecting badly on me, my rep, my business, colleagues or those who trust my code.

As you know, during the pandemic (now worsening) I’ve routinely blocked strident words from those who work against the public good – anti-maskers, Covid deniers, vaccine trashers and the nuts who drag up quack Internet docs to embolden those infecting the rest of us.

At the heart of this lamentable need to stifle free speech has been one guy. You know who. The American president has used social media to promote conspiracy theories, attack fact-based realities and science, bolster radical groups and cults like QAnon and Proud Boys, question democratic legitimacy and repeatedly claim he won an election that states, legislatures, judges and the Supreme Court believe he lost. Social media helped him garner 75 million votes. It enabled the attempt by thousands of rioters to storm the US Capital, stop the counting of Electoral College votes, and seek to overturn the nation’s ballot results. Five people died that day.

During the event there were many sideshows. One of them is depicted below, showing Trump supporters destroying expensive media equipment belonging to Associated Press reporters who were covering the protest:

This says a lot. It shows the self-proclaimed ‘patriots’ trashing the tools of the media ‘traitors’ because they did not want their signal broadcast. It sure looks like censorship. So much for free speech. It reminded me of this…

That was May 10th, 1933. There were no TV cameras then. But there were books. For the past four years Trump declared the traditional media outlets as ‘fake news’ and ‘enemies of the people.’ He wished to feed his supporters unfettered messages through Twitter and other platforms, free of editing, fact-checking or any filter professional reporters might apply.

The social media guys let him do it. January 6th was the result.

So now Trump has been banned from Twitter, Facebook and Instagram. Meanwhile Google. Amazon and Apple have removed ‘free-speech’ apps like Parler from their online stores, saying that without any filters or code of conduct those new services will allow the continuation of false news and the promotion of violence and sedition.

The implications?

Well, it could all backfire with the Trumpers retreating further into their own radical, cultist echo chambers (like Parler) and coming out more strongly in the months to come, causing widespread disruption and grief for President Biden. Or maybe without the ability to talk to millions, impulsively with a single click, Trump will become an irrelevant relic. Mr. Market seems to believe the latter. At this point, that’s a reasonable conclusion.

In any case, questions remain. When is free speech unworthy of freedom? Should responsible social media companies – or pathetic blog proprietors – impose standards and ethical guidelines which justify silencing some voices? Is there a greater good that moral people need to protect? Or in a free society should we allow a riotous cacophony of voices and actions that will end up wherever they end up? Was the siege of the US Capital a triumphant moment of democratic outpouring, or an attempted tyranny of the misled minority?

Without Twitter, in other words, there may have been no Trump. Some people wonder just what we have wrought.


Lucky stars

DOUG  By Guest Blogger Doug Rowat

If you purchased Amazon stock at the start of 2020, my congratulations to you. After a more than 75% one-year return, no doubt some back-patting and celebrating are in order.

But the danger, of course, is attributing such a great one-time stock choice purely to skill. There’s no denying that an investor who purchased Amazon at the start of 2020 deserves credit, they did, after all, actually make the buy decision and might have even done a fair bit of research; however, true investing skill can only be established by demonstrating success repeatedly over multiple timeframes.

This is the key: if you’re a skilled stock picker then you’ll have the ability to make similarly accurate picks again this year, and the year after that, and the year after that. But for most investors, their long-term results will indicate an overall lack of skill, meaning that their positive short-term results are, in fact, just pure luck.

What most investors fail to recognize is that only a very small percentage of stocks actually drive the performance of an entire index. JP Morgan, for instance, calculated the distribution of returns going back to the 1980s for the Russell 3000 Index, a broad-based index containing small- and large-cap US equities, and determined that the vast majority of the index’s returns came from only 7% of its constituents—constituents that massively outperformed by many standard deviations. In other words, to consistently outperform, investors need to overweight these tiny slivers of index-driving stocks and do so repeatedly. Given these stocks always slim percentage of the overall index, the odds are overwhelmingly against an investor consistently doing this.

One only has to look at the drivers of the S&P 500’s performance last year to recognize the validity of JP Morgan’s research conclusions. The FAANGM stocks (Facebook, Amazon, Apple, Netflix, Google (Alphabet) and Microsoft) accounted for almost half of the S&P 500’s gains (see chart below). But it’s the S&P FIVE HUNDRED, right? Not really. Last year, it was basically the S&P FIVE or SIX. If you made a wager that didn’t include this small handful of stocks, your performance was crippled.

S&P 500 2020 performance almost cut in half without FAANGMs

Source: Yardeni Research; FAANGM: Facebook, Amazon, Apple, Netflix, Google (Alphabet) & Microsoft

In other words, stock picking is extremely difficult. And the error of always attributing a short-term investment success to skill is usually compounded because investors also have a tendency to attribute their failures not to their LACK of skill but instead to bad luck. This behavioural tendency is known as self-attribution bias where successful outcomes are a result of internal talent, but bad outcomes are the result of external factors, e.g., bad breaks.

I’ve discussed the failure of well-known market commentator Dennis Gartman’s ETF before on this blog. His namesake ETF was ultimately shut down in 2013 due to poor returns and lack of investor interest. But Gartman’s back-and-forth emails with a Globe and Mail journalist show the full effect of his self-attribution bias. First, Gartman:

Dear Mr. Taylor [the Globe and Mail journalist], I read your note on my performance a short moment ago, and I have one or two major problems with your comments. Firstly, I was never contacted by you regarding my performance, although your note says that I refused to speak with you. That is simply not true…. [M]y performance was stellar in my Canadian fund until two instances in recent weeks wreaked havoc upon me. One was the surprise purchase of Marvel Comics, which was my largest short, by Disney and the second was the massive one day collapse of Molson’s on a day when its earnings were stellar and yet the stock fell 11%…. Regards, Dennis Gartman

The implication, of course, is that Gartman’s an otherwise excellent money manager who just got unlucky. The Globe journalist rightfully calls Gartman out on this:

Dear Mr. Gartman: It’s an inauspicious start to our dialogue that you call me a liar though I am happy to supply you with my cell phone records, which will show that I did indeed call you twice last week and left a message. I’m not lying, so please don’t say or otherwise imply that I am. We’re not going to get along at all if you do….. As for your pair trades and your unfortunate short sale of Marvel, who cares? The numbers speak for themselves. Sincerely, Fabrice Taylor

There are two effective ways to combat self-attribution bias: 1) recognize the incredible difficulty and low odds of regularly picking the stock market’s outperformers, especially over time, and 2) track carefully your failures in addition to your winners. By being transparent with yourself about your bad investments you reduce the risk of being overconfident and misinterpreting luck for skill.

Placing equal emphasis on your bad investments will allow you to put your ego aside and recognize that you’re probably not nearly as talented as the returns on your Amazon purchase last year might suggest.

Face it: you got lucky. Stop stock-picking. For most, the Amazon lightning won’t strike twice.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.




House sales in Calgary jumped 40% last month. Yeah, Calgary. This comes while GTA deals surged 65% with more than a 50% real estate bump in Comrade Premier Horgan’s YVR.

This is significant. Not good, just pivotal. Scores of Canadian families are busy shovelling even more of their net worth into a single assets, and taking on unprecedented dollops of debt to do so. Your friends, neighbours and WFH co-workers are making two assumptions:

(a) Houses will always go up. The more they inflate, the more FOMO. And,
(b) Mortgages will always stay down.

Aren’t people cute? It’s called ‘recency bias’ – thinking that conditions existing now, or recently, will forever be in place, or shape the future. But as we all know, these are not normal times. Global pandemics, 1.5% loan rates, 16,000 deaths in nine months (almost 400,000 in the US), lockdowns, mortgage deferrals and WFH plus a $383 billion federal government hole are in no way routine. Plus, Trump’s out. Biden’s in. Most of what you saw in 2020 will look completely weird in 2023. Be careful about assumptions.

Like with rates. As a certain pathetic blog (that does not carry a spear or wear horns, except on stat holidays) told you, Dem Days will bring more pressure on the cost of money. As Republican senators went down to defeat in Georgia this week and the Trumpets tried insurrection in Washington, US 10-year yields popped above 1%, and will likely continue to swell. This is because the new Congress will spent trillions on Covid relief, direct payments to citizens, vaccine rollout, aid to the states and infrastructure.

All that will be financed with more debt (as in Ottawa), inevitably fueling bond yields. Plus we know the virus will eventually be defeated by widespread vaxing, leading to a boffo GDP later in 2021 – growth of 6% or more. Meanwhile there’s a mountain of cash building up thanks to lockdowns, quarantines, store closures, travel restrictions and WFH. Add it up and you get inflation. Lots of spending. Big demand. Stimulus cash flying around. A free-spending US president with a suppliant Congress. It’s coming.

Canadian yields follow the US more than 90% of that time, and it’s five-year beaver bonds which influence mortgages (not the Bank of Canada rate, which is just short-term). Current indications are that five-year home loans will be somewhere around 2.5% later in the year – or a point higher than now. Not so bad. But just the start, depending on inflation. So bear that in mind when taking on that mother of a mortgage.

So much for (b). Now how about (a)?

The betting remains that lots of people will lose their minds and pay historically high prices for real estate in the first six months of 2021. The pattern of 2020 will continue with detached properties, especially in the burbs and the surrounding hick cities where people wear baseball hats backwards, men dream of quads and spouses buy matching outerwear. The pop in values has been historic in places where houses were, for generations, affordable. The virus and WFH did that. The legacy will be a destructive one as housing affordability tanks.

But this is not a forever trend. While a plethora of fools drive valuations to the sky in the boonies, investors have been reigniting the urban condo market, because they (like the bond dudes) know what the future will bring. Recall we said here a few months ago, as prices and rents tumbled, that downtowns could bring investment opportunity? Well, per-foot valuations declined in many buildings by 20%, proving too tasty to resist.

Last month in the GTA 30% of all sales were condos, constituting an unbelievable 75% jump year/year. This happened in just a few weeks, since highlighted here. Look at the monthly change in deals through the course of 2020:

  • January +9.7%
  • February +26.2
  • March +4.2%
  • April -69.9%
  • May -58%
  • June = -13.6%
  • July = +4.7%
  • August = +9.2%
  • September = +7%
  • October = -8.5%
  • November = +0.8%
  • December = +75.9%

Unlike the suburban nesters paying a 30% premium for properties, downtown condo grabbers have been buying at a 20% discount. Combined with cheap mortgages and the certainty that renters, university students, restaurant workers, tourists and office workers will eventually be back, it’s a deal many cannot push away.

The vax is the key. As mortgage exec Ron Butler’s been quoted as saying:

“Nothing since the start of COVID in March of 2020 has effected the downtown Toronto condo market more than the recent announcement of a vaccine. As if by magic, deep concern over falling rents and likely falling values vanished. The fact that there is now a definite timeline for the return to urban living means condo owners and condo investors can choose to wait until the market returns to normal.”

Adds RBC: “Softer condo prices are now drawing more buyers in. Existing condo sales soared virtually everywhere in December. We expect condos’ growing affordability advantage over single-detached homes will boost demand in 2021.”

Now, not for a nanosecond is this a recommendation to go out and buy a condo as a rental investment. Being a LL sucks. Many units remain in negative cash flow. Tenants can still grow pot plants, try to flush iguanas down the loo, pee off the balcony and stop paying rent without being evicted.

But you can buy high, or buy low. One usually works out better.


The end

On Wednesday domestic terrorists laid siege to, penetrated and overtook the US capital. People died. Cops all over the place. Anarchy reigned. The last time Washington was assaulted was in 1814. And we did it.

Well, in the midst of this attempted coup of the American government, the stock market gained 400 points. Overnight it tacked on a bunch more. When it opened this morning, more surge.

Now, some people wonder… howcum? Are the money dudes on Wall Street completely tone deaf to the fact thousands of citizens stormed Congress and tried to overthrow it? How could this not have caused a market crash of Biblical proportions? And what the heck happens next? The guy who caused the mob is still in power, after all.

Here are some facts, and reasons investors watched the mob swarm over the seat of democracy and did not rush to cash. Instead they hit the big Buy button.

First, it’s over. The Trump era. He is a spent, discredited, disgraced, pathetic, divisive, destructive and now completely inconsequential force. Says my buddy Ed Pennock…

Yesterday’s events will have obliterated the brand value of “Trump”. No one will pay for the pleasure of using the name. That well has been poisoned. We read with interest that shareholders are starting to warn managements of making financial contributions to other Insurrectionist Republicans. What management will defy those wishes? Who will want to submit a proposal to hold their next AGM at Mar A Lago? There’s more than enough anger to go round.

After the bloody coup attempt, nobody who matters cares about the 45th president. He has no legacy. He cannot run in 2024. Ivanka, either. The millions who voted for him will dwindle, stray off, be repulsed or spend the next few years yelling at each other and the wall on Parler. Their influence on the economy or anything of consequence: zero.

Second, Trump has done a fine job of destroying a great political party. Republicans have been ripped apart after mindlessly serving a despot and mentally defective thug for the past four years. Shame on them. Now they need to retreat, regroup, refocus and try to restore trust. It will take time, during which Democrats will run free with their agenda.

Third, this week everything has changed. Trump lost the House, the White House and now the Senate. His phone call last weekend to Georgia officials, telling them to rig the vote count in his favour, helped seal the deal. Georgia voters on Tuesday sent two Dems to the Senate – an historic moment – and now the blues are in charge.

Fourth, this means Biden (affirmed last night after the attempted rebellion) can (a) goose vaxing and get the virus more under control – a pre-requisite to re-opening the economy, (b) pass a new stimulus package including healthy relief cheques to citizens and (c) govern in a fashion more predictable, consistent and efficient than that experienced in the last four years. Yes, corporate taxes may go up but no longer will there be policy announcements, out of the blue, in a midnight tweet WRITTEN IN CAPS!!

What has this meant?

Bond yields have spiked with the 10-year Treasury rate coursing through 1%, and expected to hit 1.25%. That is huge. It might bulge much more, on the expectation of romping GDP growth of as much as 6%. Or more. The third and fourth quarters of 2021 could be a rush.

The Dow and the S&P are in record territory as a result. So is Bay Street. Real estate is smoking in both the US and Canada (GTA sales up 65%, Van sales up 54%). Car sales are exploding. Check out the price of a two-by-four or a hunk of G1S plywood. This is raw inflation. The Biden presidency – at least in the first year or two – will be all about spending, stimulus, infrastructure and virus defeat. There may be a large amount of upside to the markets, along with the certainty of swelling consumer prices and rising interest rates a lot sooner than most people expected.

So this is why.

The cancer has been removed. Carved out in a few hours on January the 6th. The body survived it.

So in the midst of this tough winter of disease, lockdowns, quarantines, isolation, cold, conspiracy and now rebellion, recovery looks certain. We have the meds. We have the political will. We’ve had a catharsis. And we’re all so damn sick of drama.

Maybe we can even make a few things great again.


El Predicto

Covid 2.0. Trump. Lockdowns. Proud Boys. Vax cock-up. * Sigh*

And here we thought 2021 would be so… different. Wiggly and joylessly benign like a new pup. Instead we’re getting a wizened cur with hunks of red torso hanging from its chops.

But wait. The year’s only a few days old. Let’s have faith that vaccines, common sense and chastened leaders will make the next twelve months far better than the dumpster fire in the rear-view. In that spirit, GreaterFool, the home of world class steerage section epidemiologists, infectious disease gurus, virologists and immunization mavens, now turns its attention to what comes next for real estate.

Yes, and there’s a great deal to digest. Pay attention.

First, whither mortgage rates? There are two factors which, above all, drove the 2020 real estate miracle. One of them is the cost of money. Five-year home loans have sunk to 1.5%. Incredible. What now?

Well, we may know later tonight (Tuesday). If the Biden Dems sweep the Georgia elections then blues will control the US Senate. That pretty much guarantees more government spending, more Covid stimulus and bigger deficits. If it happens, US bond yields will likely increase, taking Canadian debt along for the ride. This will nudge home loan rates higher months earlier than expected.

If the reds keep the Senate (only one of two Republicans need win for that to occur) CBs will likely hold the course until this time in 2022 (or later). RBC says the first Bank of Canada hike will come in the second half of that year. However mortgage costs could rise sooner because, “Yields are expected to move progressively higher in 2021 as growth momentum both sides of the border accelerates.” James Laird, of, grees. “Expect bond yields to rise which will cause mortgage providers to modestly increase fixed rates, particularly at the end of 2021.” So, yeah, best to lock in.

The other big thing? WFH, of course, and its impact not only on sales and prices, but entire cities and regions. And not just in Canada. Can this continue even as vaccines roll out, workplaces repopulate and bosses demand that employees cart their backsides downtown?

The real estate cartel is certainly expecting so. Moody’s believes lower-density markets outside big cities will pop further, “driven by demand for properties with more space for working from home.” In the US, Redfin says this: “Areas with the fewest Covid-19 cases per capita are now seeing 60% faster growth in the number of people listing homes for sale than areas with the most cases per capita.” And that’s being replicated in Canada. For example in NS, where only two dozen mild cases of the virus exist today, real estate in Halifax and environs has plumped up to 40%.

And look what’s happened in Ontario, says Mortgage Broker News:

The secondary markets being buoyed by the urban exodus are not likely to remain affordable alternatives for long. Competition is already flaring up in off-the-beaten-path communities like Bancroft, Ontario, where the average home price in November 2020 was 24.3% higher than a year before, and in Woodstock, Ontario – population 40,000 – which saw its benchmark price for single-family homes leap 28.4% year-over-year in November.

But all this WFH exodus from the cities is having an impact not only on prices, but also on the number of ‘cheap’ houses that are available in the boonies, burbs and hick cities…

After 2020’s feeding frenzy, we expect the overall number of sales to suffer this year, not because of a lack of demand but because of a lack of available inventory. Long-time single-family owners who refinanced at today’s lower rates are sitting quite pretty and may have even less reason to sell. The booms seen in cities like Fredericton, Regina, and Quebec City took a major bite out of some of Canada’s few well-stocked housing markets. Without any data modelling to rely on, we still see sales holding their own against historical averages, but coming up somewhat short compared to 2020, probably by about 2-4%.

Meanwhile Covid madness has also been transforming the US. It’s expected that this year 14.5 million Americans will uproot themselves and move – mostly out of the smoke and into the hinterland. That’s the biggest exodus in 16 years and at the same time the homeownership rate in America is expected to top 70% – the first time that’s happened in a decade and a half (before the crash). Says Redfin: “Many employers will decide to stop expanding their offices in expensive cities like San Francisco, Seattle, Boston and New York and instead expand their satellite offices in more affordable cities like Phoenix or Atlanta. This will encourage even more office workers to leave expensive cities.”

And as the population shift happens – at least among the privileged WFHers who can afford to do so – the city’s condo stocks will continue to devalue until the vax lift kicks in. figures prices will keep falling for six months, then reverse. That will occur as vaccinations allow Airbnb to restore, when the uni students return, when immigration fires up again and as detached house prices soar, making condos the only viable option for newbie buyers.

So, what about prices?

Vancouver is “ready to surge,” says Royal Lepage, after a long stagnation. Up 9% on average. “We’re dealing with not just a few weeks of pent-up demand in Vancouver, we’re dealing with three years of pent-up demand,” says the firm.

Veritas believes mortgage deferrals coming to an end could drag down Toronto prices by 15%, but almost nobody agrees. CIBC is calling for a 3% increase. Lepage pegs it at 5.7%. Say the mortgage brokers: “We believe the national average home price will rise more than 10%, driven by demand for properties in smaller communities in Ontario, B.C., and Quebec, where prices have ample room to grow. Can Toronto put together another year of 10%-plus price growth? We wouldn’t bet against it. Too many people want to live there.”

Well, now you know.

My advice? No change. If you need a house and can afford one without gutting your finances or skewering your family, go ahead. Just don’t expect next year to look like last year.


The little big deal

Unless we completely fall off a cliff (not happening), stuff will be worth a lot more in twenty of thirty years. In the course of those decades it’s a sure thing Canadians will face a bunch more tax, since the legacy of Covid & Mr. Socks will be long-lasting, and ugly. Meanwhile life just gets more expensive every year and decent pensions are an endangered species.

These are among the reasons everybody needs to invest. Not save. Invest. And the first place to do this is inside a tax-free account. The TFSA.

Yes, this is more boring than arguing about whether or not Trump won (he didn’t), if you should get vaxed (of course) or how great Bitcoin is (it’s toxic). So just suck it up and read this post quietly, then go and find $6,000 to stick in your plan.

Correct – the max contribution for 2021 is six grand. To date the total of all allowable deposits is $75,500. In order to qualify for the contribution you must be a Canadian resident (don’t need to be a citizen), over 18 and not a complete idiot. The TFSA can be used to split investment income, since a spouse can fully contribute to a partner’s plan with no attribution back to the donor. In fact you can dump cash into the accounts of adult children, too, if you trust them.

Why do this?

The TFSA is a unique thing. Like an RRSP,  money grows free of tax inside the account. Unlike a retirement savings plan, there’s no immediate tax incentive for contributing. But neither is there tax payable on  withdrawals. Thus, after-tax money can multiply, creating taxless growth which is never reported as income when taken.

Most people don’t get this, believing the TFSA is but a glorified savings account used for shoes and new taps. But the greatest benefit is when you’re a wrinklie, collecting government pogey in the form of CPP and OAS. In that case TFSA income is not included on your tax return (like RRSP withdrawals) so it won’t flip you into a higher tax bracket or cause government benefits to be clawed back.

This is a very big deal. A 30-year-old moister starting with $6,000 in 2021 and putting in $500 a month for 35 years would have $969,500 by age 65 at an average return of 7%. That could provide an annual income of $68,000 (without ever being exhausted). Add in the govy cash (minimum two grand a month by then) and you get an income of $92,000, with no tax due. That might not be enough to live on in 2056, but it sure as hell is a good start.

In contrast, a $1 million RRSP would have to be converted to a RRIF at age 71, throwing off increasing amounts of income which is added atop other cash flow. That’s not a bad problem to have, but you’d certainly be sending more moolah to the feds.

The other big advantage of tax-free accounts is flexibility. Money taken out can be put back. Not possible with the RRSP. Any part of original contributions or accumulated growth can be withdrawn at any time, then restored – so long as it’s done in the next calendar year. So if there’s an emergency, fine, take care of it. Then re-contribute.

Now, in order to grow TFSA money it needs to be in growthy assets. Not GICs. Not in a high-interest account. Not a bond fund. As mentioned here recently, many are failing. Almost 40% of all TFSA money now sits in (yuck) cash. Earning nothing. Half of Canadians don’t know a TFSA can hold stuff like ETFs or equities. And fewer than one in 10 people have maxed out their accounts.

There’s no excuse for this in 2021. We know well over $100 billion idles in personal chequing accounts following Mr. Socks’ virus CERBfest last year. All people need do it shift it over into their TFSAs. plopped into some balanced funds, to seriously improve future prospects. But, nah, they’ll spend it going to Cuba when the lockdown ends. Then complain about poverty.

By the way, make sure the institution holding your TFSA has recorded a ‘successor holder’, instead of a beneficiary. Your squeeze will thank you.

Finally, let’s note the greatest single aspect of a TFSA is its democracy. Everybody gets the same contribution room gifted each January. Regardless of income, wealth, pension or station in life. In contrast, RRSPs reward the rich – the more earned, the more that can be dumped in the tax shelter. And the greater that contribution, the bigger the tax refund provided to the fat cats.

So which tax shelter did Justin Trudeau attack when he came to office? Yup, the one with the greatest element of parity, equality and fairness. Remembering that would be useful.


The forecast

Whap! This new year starts with an abrupt knock to the side of the head. Oh yeah, it’ll be a better twelve months than the last dozen. But 2021 will not be calm. Here are some of the things that you should prepare for, or at least watch in bemusement…

The first week of the year brings the final gasp for the Trumpers. Two run-off elections in Georgia on Tuesday will decide if Senate control stays red or goes blue. They are as bitter as the presidential contest was, as rife with untruths, threats and scaremongering. The polls show a race too tight to call, but in that state this is already a fail for the Republicans. If the Dems win in the same week Biden is officially endorsed by Congress (that happens Tuesday) Trump’s hold on the party may fade. Meanwhile his petulant refusal to concede and baseless claims of election fraud have raised $200 million in donations – sad little gifts from struggling common folk to an egocentric billionaire for his personal use. What a stunning outcome.

The threat here is to Biden, of course. Trump’s efforts to render his election illegitimate to tens of millions of people may make the battle against the virus more difficult. Longer. And that would delay economic re-opening, keep 9.8 million unemployed and likely impact markets. It’s a recipe for more volatility in the first few months, so be ready for it. But ignore it.

Given this, CBs are certain to hold the line on interest rates through all of 2021 and into the first half of the next year. If vaxing lags and lockdowns continue (over 20 million Canadians are now under the thumb) our guys might drop their benchmark rate a little – like 10 basis points. You will never in your lifetime see lower mortgage rates. If you do it means we have a depression.

There will be a federal election. Trudeau will win a majority. There will be a leadership contest in 2025. Chrystia will take it. This blog will have a cow.

This will be the year of the vax, then the angst of WFH. So far the vaccine rollout has been abysmal, with scant supplies, erratic clinic schedules, confusion over when people can get their shot and the lack of a national registration base or vax passport. Things will change. The military will be engaged. Citizens will clamour for their inoculations. By the summer or fall we will finally stop talking about the damn pathogen. Every. Single. Day.

But, guess what? As the virus retreats many employers will start demanding employees return to their workplace incarceration. No wonder. For many, WFH is a joke. Productivity’s fallen by a fifth, according to studies. Response time among Zoomie colleagues has eroded. As much as workers – especially those under 35 – love the work-life balance (likely 30/70) and enjoy being paid to walk the dog and do groceries, this is a temporary phenom, not a structural change across society.

As Toronto lawyer Howard Levitt points out: if the boss tells you to return, you must. WFH is a gift, not a right. If you refuse, you can be dismissed with cause. Or granted remote status, but with a pay cut. As for being vaccinated, as this blog spelled out some time ago, you either roll up the sleeve or dust off the resume.

“Companies with employees who have to work in close proximity to co-workers, customers or others can be required to vaccinate or be fired. There is no freedom of conscience or privacy rights which precludes this, and arguments to the contrary are legally bunk.”

Lots of real estate news this year, too. Because Covid will rage mercilessly until the thaw, the trends of 2021 will continue for several months. Those include roaring sales and rising prices, especially in the suburbs. A further decline in the value and appeal of urban condos, especially anything under 600 square feet. More drops in rents, which have already crashed 20% in DT Toronto in the last eight months. Historic high prices will be achieved by mid-year for detached homes in almost all major Canadian markets, expect in the Republic of Kenney.

After that, as downtowns slowly repopulate, herd immunity is gradually established, the city lockdowns come to an end and mortgage rates bounce off the bottom along with bond yields, the nesting, get-out-of-Dodge mentality will fade. Many people will wonder what the hell they were thinking with they moved to Barrie or Squamish.

As for investing, several smart people reckon US stocks will gain 20% in 2021. If the virus is actually pushed to the margins a global recovery will hike commodity prices, allowing the TSX to finally outperform. Bond yields may fall further in the winter woes, pushing prices up, but this is unlikely to hold. Unloved REITs could have a great year as commercial RE restores. When rates begin the inevitable creep higher, preferreds will benefit. But there are risks. The hoodies are out of control, as recent tech IPOs and BTC witness. Their naiveté and bravado presage a significant (but likely temporary) blow-out.

BTW, this is a Year of the Ox. That last one was in 2009, when we eventually burst from the credit crisis funk into a decade-long romp. Keep that in mind. Roaring twenties?



RYAN   By Guest Blogger Ryan Lewenza

It’s that time of year again when we reflect back on the year and assess our personal and financial hits and misses. This year will clearly be different from others given the pandemic that has engulfed our lives and caused much pain, stress and hardship to so many people. Despite this, and that everyone wants to close the books on this fire dumpster of a year, we should still take the time for some self-reflection, which could position us for a much better 2021.

In today’s blog post I’m going ‘reflect’ by reviewing some of my key calls and recommendations made in these missives to see how I did, what I missed, and what I can improve on as an investor for the upcoming year. This is a ritual that I’ve done for a number of years in an aim to be better at my job as a financial advisor and portfolio manager.

In my outlook blog post dated January 3rd, I incorrectly predicted that the US/global economy would strengthen in 2020 and saw “low odds of a recession”. Obviously the pandemic blew up this thesis with the US/global economy experiencing the worst recession in modern history.

I also predicted that stronger corporate profits would propel stocks higher this year with the Canadian, US and emerging markets (EM) performing the best. I got the earnings call wrong but got the stock market direction correct with the TSX, S&P 500 and emerging markets returning 5.9%, 17.3%, and 16.9%, respectively, including dividends. I‘m particularly pleased with my call for the S&P 500 and EM equities to outperform this year.

Next up were my March blog posts where I predicted that the equity markets would recover from the big sell-off and would prove to be a buying opportunity. From my post “Anatomy of a bear market” dated March 16th:

  •  “Are we 50%, 75% or more through this bear market? Time will tell but I do believe we have already endured a good chunk of this bear market and I believe strongly that we will get through this and we’ll look back at this time as a buying opportunity.”
  • This proved prescient as the equity markets bottomed on March 24th and have been on a one-way ride to the upside ever since. While many other investors and pundits were letting their emotions get the best of them and recommending going to cash, we stuck with our disciplined investment approach by riding out the storm and even tried to take advantage of the decline by rebalancing client accounts and adding to equities around this pivotal market bottom.

In my April 24th blog post “REITS are on sale”, I highlighted how attractive REITs had become after the big sell-off. I highlighted the attractive yields and valuations from the sector in the post. Specifically, I wrote:

  • “Life is highly uncertain right now, which can help obscure the long-term value of assets. But I believe there is value surfacing in the REIT sector. Timing this stuff can always be difficult in the short-term, but longer term, value usually delivers good returns for patient investors. Until then, clip those great dividend yields.”
  • Since that blog post, REITs have risen over 12% with much more upside potential in 2021.

As we progressed into the summer I provided a market update in my blog post “Second half”, dated July 3rd. I made a short-term prediction for the equity markets to consolidate through the summer months but then rally into year-end. I was pretty spot-on with this forecast with equity markets consolidating in the summer/fall period and then rallying strongly in November and December. From the post:

  • “First, I believe the equity markets could consolidate through the summer months and trade in a range. For example, I see the S&P 500 potentially trading in a broad range of 2,700 to 3,300 through the summer months. Of course I’ll take the gains if the markets giveth, but I think it would be healthy for the equity markets to consolidate their recent strong gains over the historically weaker summer months. This would allow the markets to rebuild “internal energy” and set us up for a nice year-end rally.”

And finally, from my October and November blogposts I predicted that Biden would win the US election, leading Trump to contest the election and potentially trigger a short-term sell-off similar to that seen during the Bush/Gore 2000 contested election.

Following this expected short-term weakness markets would then rally into year-end given the strong seasonal period for equities from November to May. I got the election call correct (this time, I failed miserably in the 2016 election) and that the stock market would rally into year-end, but was off the mark on the short-term weakness call following the election results. Good enough for government work as the saying goes!

As I look back on this very challenging year I’m quite pleased with the results overall, both in terms of the recommendations I made on this blog and the solid performance results we delivered for our clients. In assessing my results my biggest miscalculation was the severity of the virus and the economic toll it would have on the global economy.

Initially, I believed the outbreak in China would resemble more of the 2003 SARS outbreak than the devastating 1918 Spanish flu pandemic. Hopefully I won’t have to go through another of these terrible pandemics in my lifetime, but if it does happen, the lesson learned from this experience will be to be more circumspect and deferential to the potential impacts of these viral infectious diseases. But despite this, I’m proud of how we preformed this year and help navigate our clients through this difficult and historic time.

Summary of Key Calls and Recommendations

Source: Turner Investments
Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.



The plan

New Year ’s Day. The old calendar is trashed. Nobody will regret seeing the butt-end of 2020.

But wait. How did the worst year in a generation (or two) treat investors? What’s the score coming out of this satanic mess of a dumpster fire annum?

As you know, 2020 started off all shiny and hopeful, then collapsed in a virus-induced funk. Stock markets were whacked as the economy shut down, culminating in the fastest bear market descent in history. Equities plunged more than 30% in just a few weeks, and capitulated on March 23rd.

Meanwhile governments started turning on the spending spigots, central banks crashed interest rates as never before and immediately began quantitative easing operations. That meant gobbling up government bonds to inject oodles of liquidity into the economy, avoiding a 2008-style freeze-up, and also suppressing bond yields to keep loan costs in the ditch.

This blog’s advice at that time was to keep your perspective.

On the day we now know the market hit the bottom, here’s what was published:

First, governments and bankers are going nuts trying to mitigate this. They have only started. There is absolutely no fiscal or monetary discipline at play here. Society will be awash in liquidity, complete with unprecedented corporate bailouts and social support payments. Remember that the US president is up for election and our guy leads a minority government. Expect no brakes.

Second, pent-up demand will be stunning. That house, haircut, new car, spring outfit, Harley, garden tractor, puppy, kitchen reno or vacation that you’ve lusted for will soon be available. The spending will be epic, despite job losses.

Third, pandemics pass. So do oil wars. You know this. We all know it.

Finally, we are nearing capitulation. Just read the comments on this blog over the last few days. The number of people forecasting millions of bodies and years of 1930s-style depression is stunning. The bottom comes when most folks shed hope. It seems we’re not far off.

Not exactly prescient (nobody knew then the virus would still be with us in 2021 and the spending boom would have to wait for a vaccine), but close enough. The advice was to stay invested, have faith that stimulus measures would work, not go to cash, grow a spine and ignore the noise.

Now, more than nine months later, the pandemic is worse than ever but financial markets have fully recovered even as bond yields stay depressed and the economy’s being shut down once again. Yes, stimulus worked. All $20 trillion of it around the world. Plus we now have vaccines and can forecast with more certainty how 2021 will play out. The US presidential circus is behind us. There’s a massive tech boom sweeping markets and society – spurred on by the pandemic. And an entire new generation of hoodie investors has been gushing money into financial assets.

Ah yes, there are risks. And you should expect a boatload of volatility. Biden may raise corporate taxes. Covid is mutating and could take longer to corral, doing serious employment damage. The airlines might fold. China might invade Taiwan, now that it gelded HK. Trump could still flip out and totally poison the new admin. And the hoodies could push valuations to video-game levels and hasten a mash-up on Wall Street.

Despite that, there’s giddiness in the air. Listen to the latest from veteran analyst Ed Pennock:

One-Third of workloads are on the cloud. By 2022 that will be more than 50% Amazon, Microsoft, and Salesforce leading the way. 5G is finally upon us. That’s another monumental “Refresh Cycle”. And the Internet of things. With that in front of us, we can’t see anything but another good year for stocks. Perhaps even very good. Then add to that,the Productivety explosion brought on by this WFH.  Add Machine Learning and AI. This is the biggest train we’ve ever seen.  It’s leaving the Station. Get on Board. Enjoy the Ride.

Well, nobody knows what comes next. Just like a year ago. That’s exactly why you should have a properly-weighted, balanced, ETF-based, diversified, global and liquid portfolio and stick with it. Rebalance when those weightings are dislodged. Otherwise keep your mitts off. The 60/40 plan that we detailed here returned 7.5% in 2020, or slightly more than planned. The five-year average is 8%. The ten-year is 7.4%.

There’s already enough in the world to worry about. Don’t screw this up.