Blog dog Dan has way too much time on his hands.  Must be a teacher. “With the help of a javascript and a perl script,” he writes, “I extracted these stats from the comment section of greaterfool for the entire month of June, 2020. Yep, it includes every posted comment for the entire 30 days. It never ceases to amaze me the amount of blather you must weed though daily.”

So last month, Dan discovered, there were 5,366 comments posted on this pathetic blog by 1,204 unique users. (Consistently about 1% of visitors leave comments. The rest know better.) That chewed up just under 3 million bytes (and hours of my life, gone forever). Here are the top 10 posters, by number of comments:

235, Sail Away
165, crowdedelevatorfartz
127, IHCTD9
121, TurnerNation
117, Faron
95, Ponzius Pilatus
78, Nonplused
65, Howard
65, Flop…
58, Wrk.dover

And by the amount of space consumed, the wordiest five (byte count): Sail Away (117,261), Crowdedelevatorfartz (93,243) IHCTD9 (73,431), TurnerNation (71,430) and Ponzius Pilatus (63,922).

Okay, so now we have a better idea of the readers who jobless, unemployable, retired, socially shunned or whose family moved out in disgust. As mentioned here last week, before I went on strike for the weekend, this site’s steerage section has been a cacophonous swamp in recent months, a condition rendered worse by that damn bug.

And that segues into the latest set of predictions. Six of them. These appear to be the defining characteristics of the period lying ahead which, it now appears, could be a lot longer than any of us thought when the snow was still around.

Jobs are easier to erase than create.
It will take years, a decade maybe, before employment returns to the level of February, 2020. Standard and Poors says Canada’s economy will be considerably reduced even after Covid is gone (if that ever happens). In the US, a key Washington agency states unemployment will stay elevated into the 2030s. Yeah, ten years. This blog estimated weeks ago the rate would be above 10% at Christmas. That may be optimistic. The implications for housing are very real. Ditto for Trump.

Rates will be in the ditch for ages.
The big banks have five-year mortgage rates down to barely above 2% now. But inflation keeps falling and the economy shrank 12% in a single month (the decline in 1931 was 10%). It now appears US rates will not rise about their current near-zero level for five years Maybe six. Our guys won’t dare change the cost of money here before the Americans do. So while house loans stay cheap (but credit will be tighter), this crushes savers. HISA accounts, GICs and bond yields will pay nothing, so risk-averse people better hope they already have a huge pile of dough or risk running out of it.

The virus has legs.
Comparatively speaking, Canada has done well. But reopening is slow, cautious, tentative and far too slow to gas the economy or restore small business. Social distancing is becoming the norm. Mandatory face coverings are coming into effect in major cities like Toronto and Ottawa. When my corporate partner announced in early April that its Toronto bank tower offices would not reopen until May 31 it looked extreme. Now it’s July. Still empty. Getting half the people back by September seems a stretch. And what if the schools stay shut? Globally Covid is getting worse, not better. The economic cooling is unprecedented. This is the time to stay liquid and flexible. Above all, eschew debt.

Trump’s toast.
So the latest surveys suggest. As the virus rips through red states, the president’s approval rating declines. His weird, hellfire, us-vs-them speeches surrounding July 4 didn’t help much. Now his son’s GF is infected. A Pew poll found people in counties (Florida, Texas, Arizona – Republican fortresses) where the virus is spreading are 50% less like to vote for Trump. Older voters, 65+, are the same, saying by a wide margin Washington should prioritize protecting people instead of reopening the economy. That’s the opposite of what Trump’s been doing. So as the virus leaves big blue cities (NY, Boston, Chicago) and assaults the Sunbelt and rural US, it’s bad news for the president. Can he survive the triple threats of a public health, record jobless numbers and civil unrest? Unlikely. But it’s four months until election day. Things change.

Real estate is for greater fools.
Low mortgage rates fuel real estate. Unemployment kills it. This is the battle to be waged over the coming months. Big banks have deferred $180 billion in mortgages, but that will end and listings increase. Credit is being tightened. CERB money will peter out. Realtors will coo over surging sales, but this is in comparison to the disaster that was April. In reality, things are more dire. Accepted offers last month in Vancouver were the lowest in 15 years at just 560. Contrast that to over 800 last June, or 1,500 the same month four years ago. “Into 2021 a whole new kind of methodology will prevail,” says analyst Dane Eitel, “the fear of overpaying for a depreciating asset.”

Money’s pumping into financials.
How can stock markets jump more than 40% from March when the virus-whacked economy sucks? This mystifies many people who point to lower corporate earnings, laid-off workers, weak export demand and soggy consumer spending. But it continues. The principal reason is simple: money is flowing where it has the best chance of a return. With interest rates in the ditch, and likely staying there for half a decade, fixed income assets pay diddly. But the pandemic will eventually subside, economic activity will rebound and traditional growth assets will grow again. It seems like a safe bet, despite inevitable volatility. Massive government and CB stimulus will continue. Trump will do anything to win. If you don’t have enough put away to retire on, saving won’t get you there with 0% rates. What choice, but to invest in the financial markets? More gains ahead.

Well, there you go. The future in 730 words. No need to blather. It’s a lock.

About the picture: “Hi Garth. I saw this today as I drove down the street in Burnaby. If you can use it in your blog…..feel free. If you use it, please mark me as an avid fan…. Anonymous :)”


Are you ready?

  By Guest Blogger Sinan Terzioglu


A recent bank poll found a third of Canadians, 45-54, have no retirement savings. About 20% have under $50,000.  On average Canadians have saved around $200,000, but most estimate they’ll need $750,000 to fund a comfortable retirement.  Depending on lifestyle and years of retirement to fund, $750,000 may not be nearly enough.  As life spans increase, more and more Canadians will be living their later years with health conditions, continual inflation, and personal debt that continues to build.  They’re heading towards a retirement crisis. Are you?

Everyone’s goals and circumstances are different, so retirement planning is not a one-size-fits-all scenario.  The same bank poll found more than half of Canadians didn’t know if they’d have enough savings for retirement. This is a huge risk we’re not taking seriously enough.

Most have no employer pension plan to force savings, so they must create and consistently contribute to their own pension-like portfolio. This should begin with setting aside (ideally through automatic direct deposits) at least 10-15% of income into tax advantaged accounts like RRSPs and TFSAs. When those are full, funds should be directed towards non-registered accounts.  While these accounts don’t have initial tax advantages they can form an important part of your retirement income plan.  Withdrawing from non-registered accounts first allows the funds in tax deferred RRSPs to continue to grow, pushing out the tax burden.  It also maximizes the tax advantage of TFSAs.

Many believe real estate is the only retirement plan required.  Housing in many Canadian markets has done very well over the last 30+ years, leading to believe that will continue.  But this ignores valuation and personal/family balance sheet risks which could be financially very destructive.  Only a generation ago, housing costs were recommended to be no more than three times your income. In Toronto today, a house costs over 10 times the average family after-tax income.  In fact, Canada has the highest median home price to median income ratio in the world.

I recently had a discussion with a couple in their mid-30s about their retirement goals.  They were thinking of purchasing a house, and planned for this to be a large part of their retirement savings.  They were trying to identify an upper price range that would allow them to be comfortable day to day, and still allow saving for retirement.  They have a young child with another on the way so they would like more space and a yard.

Their net worth is $500,000 with $250,000 in RRSPs, $25,000 in TFSAs and the rest in cash ready for a down payment.  Their jobs are stable but they don’t expect significant income growth throughout their careers. They collectively earn $200,000 and have no employer pension plans. Houses in their desired area are in the $1,000,000 to $1,250,000 with rents of similar properties at $3,000-$4,000 a month.  Taking an investor view, this would work out to a cap rate of 3-4%, barely ahead of inflation and significantly lower than historic real estate returns.

This couple’s parents had bought homes 30 years ago for $300,000 which are now valued around $1,300,000.  This works out to a compound annual return of 5%.  They, like many, have come to believe these historical returns are an expected outcome of real estate ownership.  Property has risen traditionally by the rate of inflation, which in North America has been 2-3% over the last number of decades.  I explained it is very unlikely residential real estate would again outpace inflation by such a wide margin. If values were to stagnate or contract that would result in significant lost opportunity costs for their family.

Assuming they paid $1,000,000 and put down 20%, amortized over 25 years at 2.65% their monthly payment would be $3,650.  Add to that property taxes, insurance, maintenance and the monthly outlay reaches $4,500-$5,000 plus the significant land transfer tax they would have to pay.  While their after-tax income would comfortably cover monthly costs they’d be taking on a significant financial risk.  First, because the valuation is so high there’s little margin of safety.  If real estate prices contract by 10-20% (very possible) the value of the property would drop by $200,000, wiping out their equity and cutting their net worth by half.  If they continue renting, invest the $200,000 plus the additional savings from lower rental costs and achieved a 6% annual rate of return this would grow to between $400,000 and $500,000 in 10 years.

After much discussion about their lifestyle, comfort and retirement goals, my advice for this couple was to hold off on the purchase, or consider less expensive options.  We spoke about more affordable areas where they might find the space and yard at a price that was manageable for them.  This is becoming increasingly possible with remote work options today.  If they decided they must be in their desired area, we discussed renting for 5-10 additional years to build up their net worth before purchasing.  By delaying an expensive housing purchase they would be able to prioritize early retirement contributions, giving the funds more time to grow over their working years instead of trying to play catch-up closer to retirement.  By building up their assets first they would have more flexibility, lower financial risks and importantly for them, less stress and worry when buying later.  It would also allow them to comfortably fund their children’s educational savings early on.

When thinking about your long term retirement goals, first understand what you will require on an after-tax basis, indexed to 3% inflation.  Work backwards to develop a savings plan allowing those goals to become a reality.  Understanding retirement cash flow requirements will make prioritizing savings much easier.  As Garth says, you can always rent a roof over your head but you cannot rent cash flow.  Ensure you are always on track to build up enough liquid assets so that your money works for you so one day you no longer need to work for money.

When you have enough in liquid financial assets that consistently produces monthly cash flow to cover fixed and variable expenses you’ll have achieved financial independence.  This will give freedom and choices.  The pandemic has proven just how important financial risk management is.  There is no such thing as job security now.  Costs will continue to rise. Financial savings should be your number one priority.  After that, if you can afford to purchase real estate, go for it. But never, ever make the mistake of thinking it is the only retirement plan you need.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.   



Second half

RYAN   By Guest Blogger Ryan Lewenza


“It’s tough to make predictions, especially about the future.” – Yogi Berra

I love this quote from famed baseball player Yogi Berra. Over the years I’ve had to make a lot of investment calls and this quote has often come into my mind as I make these predictions, recognizing just how hard it is to consistently make the right calls. This is why I tell clients that if I can go 6 for 10 in our calls and investments that that’s a decent batting average and we can likely deliver on our stated return objectives. Well, since I’m a glutton for punishment, it’s time to pull out my crystal ball and provide my expectations/predictions for the second half and highlight what I expect will be the key drivers of the markets for the remainder of the year.

Here it goes…

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. After all the crap we’ve had to endure this year wouldn’t that be nice!

Our Expectation for the Second Half

Source:, Turner Investments

The first big driver of the equity markets in the second half will, no surprise, be the US/global COVID infection and death rates. We’ve seen a marked increase in US infection rates, in large part driven by surging infection rates in some of the southern states like Texas, Arizona, and Florida. Florida alone hit over 10,000 new daily infection cases this week. Either the virus is moving south or this is the fallout from those state’s looser restrictions and quick reopening plans.

Below is a chart of the number of new reported COVID cases in the US, which after peaking in April, has surged higher in recent weeks. The daily rate has increased to 40,000/day and Dr Fauci this week predicted the potential for 100,000/day of new cases. This is not a good trend at and something we’ll be monitoring closely.

New Reported COVID Cases in the US

Source: NY Times
Next up will be the economic data. We’ve seen a nice turnaround in some key economic releases over the last month and as the economy continues to reopen I see a continued improvement in the labour market and other arears. This week we got the critical US nonfarm payrolls report, which showed 4.8 mln jobs were added in June, and the unemployment rate dropping to 11.1% from 14.7% in March.

Additionally, we saw a huge turnaround is the US manufacturing sector with the ISM manufacturing index jumping from 43.1 in May to 52.6 in June, now indicating expansion in the manufacturing sector. The rebound in the auto sector would have contributed to this nice turnaround in the manufacturing sector with total US domestic auto production falling to 1,800 cars in April, just a tad below the average of 230,000 cars per month.

While it won’t be a straight line, I see the economic data generally improving in the second half and into 2020, which if correct, will be supportive of the equity markets. The key risk to this is the virus and infection rates, so this is no slam-dunk call.

US Unemployment Rate and ISM Rebound in June

Source: Bloomberg, Turner Investments

The third potential driver of the US equity markets in the second half will likely be the US election in November. We covered this in detail in our last blog, where I showed that the S&P 500 has historically done better under a Democratic president (57% average return over the 4-year term), than a Republican president (26%). So if the polls turn out to be right this time and Biden wins, then based on history, this could be a positive thing. That said, I expect some market volatility as we near the election in November, given the uncertainty around who will be the next US president.

S&P 500 Performance under Different Presidents

Source: Bloomberg, Turner Investments

The last key thing I’ll be focusing on will be any additional government stimulus announcements. There is talk of a second round of fiscal stimulus in the US, with proposals for another one-time $1,200 payment to individuals, Trump’s pushing hard for a payroll tax, and some are shooting the idea around of a jobs/infrastructure bill.

I believe all the government stimulus (monetary and fiscal) is one of the key drivers of the equity markets right now. Below I illustrate this overlaying the Fed’s expanding balance sheet and the S&P 500. The Fed’s balance sheet has exploded from US$4 trillion to start the year to now US$7 trillion. For those bad in math, that’s an increase of US$3 trillion in stimulus in just a few months. Incredible! What’s a trillion dollars between friends? And given the strong correlation between the Fed’s balance sheet and the stock market, this may have something to do with the roughly 40% recovery since March.

Fed’s Balance Sheet and S&P 500

Source: Bloomberg, Turner Investments

There you have it. I see US infection rates, economic data, US election and government stimulus as the major drivers for the US equity markets in the second half. It’s going to be a bumpy ride but I see the potential for more gains coming later this year when all is said and done.

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 descent

This won’t take long.

It’s been an interesting few days. Canada’s BD on Wednesday. US this weekend. Muted, tentative and confused in both nations. We’re on a journey. Destination, fuzzy. Public sentiment is alternating between fractious and fearful. I titled yesterday’s post ‘Polars’ for a reason. Opinion is splitting quickly, deeply. This damn pandemic has made the cleave worse. It may take a long time for us to regain a sense of purpose. And stop fighting.

The left wants to rewrite history, erase historic injustices, bring racial and gender equality to every corner of life and force unity of thought. It’s assumed the ethical high ground. That’s behind the ‘white silence = violence” meme. Climate change. Universal Basic Income. BLM and BIPOC. As monuments, place names, statues, the RCMP and Canada Day itself are attacked and soiled, we inch closer to the book-burning which swept others into power, pre-war, through the elimination of memory.

The right wants what Trump represents, or tries to. Patriotism, protectionism and power, stressing state over self. Police agencies, first responders and the military are revered and supported. History is seen as a foundation, not a shame. Law and order is celebrated, majority rule is accepted and capitalism embraced. A new nationalism has emerged, tearing away at global ties. Liberty is a virtue, freedom means the right to think independently and protestors should never make choices for you.

Normally a national crisis brings people together in a common cause. Not this one. The first global pandemic of our times has deepened the divisions. To my regret, this has been reflected on this blog, some days to the point of destroying it. Covid has truly frightened many, changed their habits and massively impacted their lives. For others, the virus poses an attack not on society but their value system and their hero, Mr. Trump, who may end up its highest-profile victim in November. Thus, infections are brushed aside as the result of excessive testing and deaths are diminished because they’re just a bunch of old people. The World Health Organization, public health officials, Fauci, Tam and others are routinely undermined.

Well, this is interesting. A tale of two nations. The data below is from John Hopkins University, and measures new daily cases of Covid 19.

New daily infections, Canada

New daily infections, America

Some may look at this and conclude, Canada = compliance. America = resistance. That’s simplistic and facile. Or is it?

The virus doesn’t kill a lot of people but it makes many sick. It certainly has slayed the economy, which hurts those running for reelection in 2020, just as it’s rendered more popular leaders who give away historic amounts of public money, shackling society with future tax and debt. It will be years before we have a valid perspective on this experience.

Meanwhile this site has come to mirror the distemper, prejudice and intolerance of our times. And I hate it.





Another few points heaped on the Dow Thursday, going into a historic July 4th weekend. Stocks have confounded the Debbie Downers, Karens and Chicken Littles among us by flipping a bird to the virus and romping higher. Since the March low the S&P 500 is up 43%. Even poor Bay Street has swelled 40%.

Despite the best efforts of public health officials to scare the crap out of investors, the gains have held. Looks like they will, too. If you were waiting for a new low, big fail.

Now, did you catch the latest US jobs stats? In June the American economy recaptured 4.8 million lost positions, with the unemployment rate tumbling to 11%. Big win. Analysts had predicted more than a million fewer new hires and a 12% jobless level. That’s why markets shot higher at the opening bell, and why the American president immediately hit social media with this message:

So it’s four months today that Americans are scheduled to choose the next president or keep the existing one. Never before has an incumbent faced double-digit unemployment, a broad-based social protest movement or a public health emergency which has (so far) killed over 132,000 citizens. Trump’s approval numbers, naturally, have been tanking. People are pissed. That’s why many are marching in the streets and a whole lot more are afraid for their health and angry the pandemic has gripped their country (as opposed to, say, Canada).

The jobs rebound still leaves millions out of work

Source: New York Times

It remains a possibility there will be no election. Not if a second wave hits, physical voting is deemed too dangerous and mail-in balloting too wonky and untested. Is that why Trump refuses to be masked? Some people wonder. But that’s as irresponsible a question as asking it Joe Biden has dementia. In the next 120 days, expect political circus and the clash of polar opposite views.

Speaking of Biden, he’s 10 or 14 points ahead in most polls, and strong in states with big weightings in the Electoral College. That gives him 85% odds of winning and explains his recent low profile. Politics 101 says, “if the guy you’re running against is imploding, just shut up.”

Mr. Market is now ruminating on the chances of a triple-header, with Democrats winning the House, the Senate and The White House. What might that mean?

Higher corporate taxes, as the Democrats roll back a part of Trump’s big cut of a few years ago. That’s estimated to dampen profitability about 5%. Ouch, but not fatal. Biden’s also expected to spend a ton of money on infrastructure programs, and the market likes that. It means big government stimulus in an area that creates a boodle of employment moving dirt and pouring concrete.

Biden’s viewed as more predictable than Trump, which is not hard. Markets like a steady hand on the tiller, since it allows for long-term tax and strategic planning. Death-by-Tweet would be a thing of the past.

The unknown is this, however: would Biden embrace or ignore the wild-eyed radicals on the Democratic left, like Bernie Sanders, Elizabeth Warren or the dreaded (if fetching) AOC? After all, implementation of the Green New Deal would be a huge negative for investors, while medicare-for-all would send shock waves through the mammoth medical and insurance complex.

And, meanwhile, how will Trump fight and claw his way towards reelection? Will it be constructively through a big stimulus bill that helps deal with a second wave of Covid, or destructively by inciting civil war with BLM and its growing supporters, shredding and defaming Biden or even seeking a vote delay?

Beats me.

But the virus. Maybe it has a plan.

There were 50,000 new infections in the US in a single day this week. A record. A dozen or more states have paused or reversed reopening steps. That makes some people think the giant jobs gain in June may well be just a snapshot in time, not a harbinger.

In short, we have no idea what lies between Independence Day and Election Day. And while the markets are likely to be choppier, more volatile and sometimes just weird, investors get this: (a) pandemics are temporary. They pass. (b) The US central bank has the market’s back, ready to pull out every stop necessary to prevent disaster. Downside is limited. (c) We know Trump already. But same with Biden. No shocks there. (d) The worst of the virus, in terms of economic destruction, is over. (e) Never bet against America.

In other words, stay invested. You will feel jolly and fat, come Christmas.




Somewhere I have a picture of Dorothy I snapped in the tunnel buried under the front lawn of Parliament Hill, connecting Centre Block and East Block. She’s beaming, holding a little flag, standing there all cute amidst the asbestos-coated steam heating pipes and dodgy electrical conduits. Love it. And her. It was a great night.

We were on our way to my office after the big concert up above on Canada Day night. That was twenty-eight years ago. The first time I lost my mind and ended up in the House of Commons. It was the 125th anniversary of the nation, and I was feeling smug. Just met the Queen. Randy Bachman had just played my Fender Stratocaster on stage. Over a dozen rock stars had performed the version of the national anthem I’d financed with corporate donations. Dorothy and I were headed for an epic party, where this bevy of rockers would line up to sign my axe.

Still got it. Here it is.

So after the first political gig I wrote a few books, got a network TV slot, then headed out. Dorothy became my roadie. We spent eight years travelling the country, as I delivered an average of 200 lectures annually on investing, real estate, the economy and the future. Crystal ballrooms to church basements. Fort St John to Wabush, St. Johns to Vancouver. Two or three provinces a day, jumping between Air Canada and Canadian planes seamlessly because all the gate personnel knew us. We knew them.

Later I returned to Parliament (that was a brawl), went back on TV, wrote some more books, started a television production company, created eight network series, launched the first online streaming broadcast, owned a few stores, pubs and eateries, then a decade ago started a national financial advisory practice, which evolved into one of the largest in the country. Oh yeah, and a blog.

Here’s the point: I know Canada. Dorothy knows, too. The 49 years of our union have been a tale of travel, experience, revelation and joy. Now in the time of Covid we reflect on this – the freedom of movement, lack of fear, social embrace and civility of our land – and are grateful. We’ve been blessed. Canada gave us that.

Crawling out of quarantines, lockdowns, self-isolations, confronted daily with social distancing, masks, suspicion and de facto martial law, many wonder what happened to the country. There are no parades this July 1st. No fireworks. Fewer flags. Nary a gathering. Parliament Hill’s front lawn is empty. Many people chose to work today so they could take Friday off, creating a long weekend. Just another stat holiday.

That’s a mistake. The country may be a little bent, not broken. The post-pandemic future will be different, which does not mean worse. All the grousing, sniping, bitching and carping on this pathetic blog cannot wipe away the reality of our great fortune. There is peace, plenty and promise in Canada. These days the contrast with the US, our deeply divided neighbour, puts this in focus. The simple fact we’re winning a viral war through cooperation and respect says much. Life may not look as steamy and perfect as it did to me in that tunnel years ago. But a new perfection will emerge. We’re all blessed to be Canadian.

Now go find a Mountie and hug her.


The toll

First to go, Bandit and I noticed on a morning walk a month ago, was a slow fashion store. (I had to ask Dorothy what the hell that meant. Now I know.) Then her fav bookstore went down. An art gallery up the street has disappeared. So have the horse-drawn carriages. On the weekend the main coffee hangout on the corner opposite my office posted big “CLOSING” signs (above). Everything half price. Fixtures for sale. Fail.

Such is the toll of the virus on a tourist-based economy. As Air Canada and Westjet go, so goes the economic fate of thousands of small businesses. Hotels. B&Bs. Restaurants. Tour operators. Here’s what the entrepreneurs running the local coffee shop had to say to the community:

CLOSING DOWN  The uncertainty associated with the impact of COVID-19, especially in relation to its effects of tourism along with the considerable expense load that we carry, has forced us to make this decision. We are so very grateful to the amazing staff both past and present who joined us in establishing our unique business style. We tried to create a type of oasis where our customers were surrounded with tasteful and cheerful merchandise while enjoying the atmosphere of an old fashioned cafe. We would sincerely like to thank all our many customers for their continued support, it has been extremely rewarding to receive so many genuine compliments, literally on a worldwide basis. Sad day.

Sad indeed. The pooch and I walk every morning into the aroma of their roasting coffee beans. No such pleasure soon. Plus an empty storefront. Another one.

So the latest economic stats are grim. The Canadian economy shrank close to 12% in April, on top of a 7% dive in March. May probably saw a small (3%) uptick, so it’s safe to say we have about 16% less GDP than we did back in the halcyon days of Feb. By comparison, during the darkest days of the Great Depression – 1931 and 1932 – the economy withered by 10% annually. And here we are with a 16% tanking in a hundred days. Gulp.

This is the worst. Ever. All 20 sectors of the economy took a drubbing. Accommodation and food was obliterated with a 42% collapse, after a 37% drop the month before. It just doesn’t get any suckier. Entertainment and sports, down 25%. Construction, 23%. But online shopping up 17%.

Now, look at this. It’s a snapshot of Covidian chaos as of Tuesday morning. Things seem under control in Canada but are suddenly raging south of the border. Given the integration of the two economies, Trump and the inability of Americans to corral this bug, it suggests recovery may take a lot longer than new all hoped.

Seeing red: the virus erupts in 29 US states

Meanwhile many people you know are direct victims of this economic contraction, as they carry fat debt. Even as the virus was ravaging jobs, mortgage debt grew substantially in May – a new record high. And why? Not because of a ton of real estate sales, but rather thanks to deferred mortgage payments, which added to the overall debt load. The better part of a million households are not making loan payments, and haven’t for several months now.

The result: $1.08 billion in new debt added every four weeks to the steaming pile of $1.68 trillion, since folks choose not to service mortgages worth $180 billion. Payments they cannot or will not make are simply thrown on the heap – money that’ll have to be paid in the future. Mortgage growth of over 8% (annualized) during May was the highest in a decade. What an awful validation of the financial illiteracy of a nation of debt-snorflers.

So if Trump blows the virus challenge, US GDP tanks and true recovery takes a few years, what to do?

Play defence.

This is exactly why this tedious blog has yammered for years about the logic of having a balanced, diversified and liquid portfolio. It’s designed to dampen volatility and, unlike most husbands, be predictable. When darkness descends and markets fall, it protects you. When times are good, it joins in. Just look at the experience thus far in 2020.

Beyond this, pull in your horns. No big purchases. No investment condo. No leverage. Do not let 2% mortgages seduce you. Don’t defer debt, but pay it down instead. Take advantage of a localized real estate surge, based on pent-up demand, to unload. These are the days to crave maximum liquidity – wealth in negotiable securities, not tied up in a property that could soon take ages to flog.

Oh, and go buy something from the dude on the corner. There, but for the grace of dog, go thee.



The rethink

Covid log date 6.29.20.

It’s now been more than a hundred days since the giant office towers emptied into the Bay Street canyon below, as furloughed workers scurried furtively underground. Their last subway ride. For many, the final time rubbing shoulder-to-shoulder against a stranger. Without a mask. At that moment they were employees for whom ‘going to work’ had meant, well, going to work. Not going home.

But that was then. The changes since have been breathtaking. This week came more signals the world these souls knew, so distant back in February, is kaput – or soon to be. Witness the following words, part of a memo sent to the worker bees of a major financial outfit with offices in the cores of most big Canadian metropolises.

The question is: can we be effective at work without needing to be in the office all the time? Based on how the last few months have gone, the answer is a resounding yes. Looking ahead, my hope is to build an environment for my team that incorporates some of the flexibility we have gotten used to into the post-pandemic work world, whenever that arrives. Think in terms of a greater emphasis on results and output rather than evaluating people by their presence in the office or the hours that they work.

Can you imagine the big poohbah telling you that six months ago? Offices are optional. Hours uncounted. Remote is fine. Flex is the new religion. Stay in your skivvies, if you want, but remember to dress above the waist for Zoom. Results matter. No need to haul your butt downtown. Ever, maybe.

This all makes perfect sense for corporations. Dump the office overhead. Pare down the infrastructure. Let people stay at home and buy their own hand sanitizer. The bottom line actually gets fatter. Employees are less stressed. Child care issues resolved. The dog loves it. No commute. No traffic. No smelly transit buddies. No deathly elevators. Just a thick web of IT people hanging it all together. Yes, they work from home, too.

So will Covid turn out to be a long-term employment game-changer, for both corps and the folks who toil for them? If so, big ripples. Downtown cores, somewhat depopulated of commuters, will not sustain the thousands of small businesses who located there solely to suck off the foot traffic. Falafel and sushi booths, dry cleaners, dental clinics, office supply stores, and endless retail outlets, many located in the underground pathways that used to be clogged with people in business attire.

Urban condos? The impact could be huge over time. Fewer jobs in the canyon, so why would you compromise paying hundreds of thousands to live in 500 square feet of concrete? And besides making high-rise lifts totally terrifying, the virus is impacting the entire market. “The pandemic health concerns, coupled with reduced employment and hiring activity, has resulted in less immigration and reduced in-migration into the GTA,” says a report from “These consequences of the pandemic have significantly reduced rental demand at the same time as supply is increasing via short-term rentals and high-rise apartment completions.”

Meanwhile Airbnb has collapsed, throwing a ton of units on the market and depressing rents. “I live and own a downtown Toronto condo,” writes Greg.

A recent Toronto Star article stated my building was Airbnb’s 3 biggest revenue source for a single building. Since the state of emergency was declared short term rentals have been banned. The operations of the building, lobbies, concierge desk, elevators and common spaces have dramatically improved since, this building as I imagine most condo buildings were not designed to be hotels. The current state of the building is 46 units for sale, 146 for rent. The management office recently issued a memo saying to expect delays when registering new tenants due to the high volume.

Covid has also put the ice on immigration, while Ontario (and BC) still have an anti-foreigner buyer tax – which doesn’t look so genius anymore. And guess what happens when the pandemic eases and the Landlord/Tenant board gets back into operation, allowing owners to punt all those scuzzy renters who stopped paying? More supply on the market. Already rents are falling as available rental listings overwhelm demand. Rents are about 3.5% less than a year ago, and declining monthly.

And then there’s this: the pandemic flight to the boonies. Why pay $2.4 million for an okay house in mid-town Toronto (to have a 20 minute drive downtown) when you can get a mini-mansion for half that amount in Kingston, Grimsby or Kitchener – and work remotely? Why pay $800,000 for a 750-foot, two-bedroom condo on the 34th floor of a teeming downtown hi-rise when that will buy you a townhouse with a garage and an actual backyard in Burlington or Ajax?

It’s already happening, say the realtors. Sales in Halton are up 22% and in Durham by 8%, while falling 13% in Toronto. Same seems to be occurring in YVR, as activity flourishes in the Fraser Valley, on the Island and in the OK. It’s taking place in the States, too, as more New Yorkers and Bostonians head for the burbs.

After all, if you have to work from home, then home should be, like, awesome.

Bosses who talk nice to you, and valid reasons to ditch urbanity. Plus you can hide behind a designer mask. Nice work, bug.


Rate sex

Four months of virus, now. Ten million cases globally. The bug eating Texas and Florida. The White House losing control. Air Canada, Westjet ditching distancing. Masks everywhere. Condo units flooding the GTA market. Second wave with more hoarding threatened. No hockey in Vancouver. Locusts in India. Civil unrest in America. Toronto finances crumbling. Eight million on the dole and a million mortgages unpaid. Elevators as death traps. A US election that’ll rock the world.

Did I miss much? This is a year we’ll ne’er forget. And it’s not even July.

But enough doom, blog dogs. Let’s leave the gore and desperation for the MSM. For even in the darkest night there burns a flicker of hope. Many, actually. Today we’ll celebrate the unexpected gift just bestowed upon us by those two evil powers, Covid and the CRA.

It’s called the prescribed rate of interest. Yes, exactly. I’m aroused too. Here’s how it works…

Every few months the revenue guys set a new rate, based on three-month T-bills. Because the cost of money has been crushed by the Bank of Canada in response to the virus, the rate (effective Wednesday) plunges by half, way down to just 1%.

So what?

So you can now loan buckets of money to your married spouse, common-law partner or other family members at a rate which is absurdly low to accomplish income-splitting. Even better, if you set this loan up over the next three months (the rate could be hiked again later in the year), then the 1% is permanent for the life of the borrowing. It’s fixed, not variable. So imagine having that in place six years from now when the rate is, say 5%. Big win.

How does this income-splitting, prescribed-rate thing work?

Simple. If you and your squeeze earn different levels of income with one of you in a higher marginal tax bracket – or perhaps one person at home looking after the spawn – create a loan. Money is borrowed (at the ridiculously low rate of 1%) by the partner who is taxed less, then invested. Because it’s a loan, not a gift, all gains or income flowing from the investment portfolio belong to the borrower and are taxed in his/her hands. In other words, no attribution back to the person who actually made and owned the money. If the dough had been handed to the less-taxed person to invest and came as a gift, all returns or profits would be attributed back to the donor, and taxed at his/her higher rate.

There’s more. The interest, as piteous as it might be, is tax-deductible. So a stay-at-home mom, for example, can have a portfolio financed with a spousal loan and deduct the cost of that borrowing from the investment income. The same can be accomplished for minor children through a family trust. Loan the trust money. It pays 1% per year to get it. The funds are invested with the kids as beneficiaries. They get the benefit of the investment income and likely pay no tax. Or the trust can be used to finance their education (such as private school tuition) pay summer camp fees or buy them drums and amps.

Remember how beneficial dividends can be, by the way. A family trust could earn more than $53,000 per year, per kid, and pay not a nickel in income tax, if that is the beneficiary’s sole source of income. Same with a spouse who is out of the workforce, engaged in child care.

To make this loan arrangement work, there must be documentation in place which will withstand CRA scrutiny. Have a written promissory note drafted and ensure there’s a physical, actual, real exchange of interest by January 30th of each year. That payment is taxable in the hands of the lender and (as mentioned) deductible to the borrower.

Moving income and assets into the hands of a less-taxed family member through this type of loan can save your household a bundle. Just like establishing a spousal RRSP, into which the higher-earner contributes and reaps the tax break, but the money belongs to the spouse who can eventually withdraw it at a lower rate. Ditto for the strategy of the common expenses (food, accommodation, dog food) being paid by the person who earns the most while the other partner does all of the investing.

This, by the way, is completely opposite to the way 90% of most marriages work. Especially those suspicious, secretive husbands and wives who keep their finances separate and suffer financially (and emotionally) as a result. (Why did you get hitched if you don’t trust?)

Finally, the virus.

It’s not going away, as planned. Some US states are even suspending or reversing reopening measures. Trump ain’t helping. Economic activity will be further impacted. Mr. Market’s taking a dim view of it all. Volatility is returning. Assets values will be under pressure after a meteoric rise. The period between now and the American election (if there is one) could bring big opportunity.

What a wonderful time to loan all your money to your heartthrob. Just remember the 1% must be paid in cash not cuddles.


Oracle wisdom

DOUG  By Guest Blogger Doug Rowat


There are many famous Warren Buffett stories, but perhaps my favourite is the one told by his first wife, Susan Buffett.

As the story goes, one day when Susan was sick she asked Warren for a bowl for her bedside because she was feeling nauseous. Warren banged around in the kitchen and eventually came back with a colander. Frustrated, Susan explained that this wouldn’t work because it had holes in it. Warren returned to the kitchen, banged around some more and returned with the same colander but this time on a cookie sheet.

Such is the impossibility of trying to decipher the mind of a genius.

Though much has been written about Warren Buffett, perhaps those who have deciphered him best, at least in terms of his approach to investing, are David Clark and Mary Buffett (Warren’s daughter-in-law).

Their many books on Warren contain great insight into his techniques and approach to the market. While too numerous and complex to detail in their entirety, one surprisingly straightforward factor that contributes to his investing success is simply this: he buys old companies.

Why? Because Warren likes companies that have predictable products and predictable profits. And a brand-name product or service that’s been around a long time, preferably decades, gives a company a durable competitive advantage, which usually results in better and more consistent performance. Warren’s famous explanation of why he likes Wrigley’s chewing gum, which was first introduced in the 1890s, perhaps says it best: “I don’t think the Internet is going to change how people chew gum.”

David Clark and Mary Buffett detail his preference for old companies in their book The Warren Buffett Stock Portfolio:

Why is OLD so important to Warren? It has to do with the product or service the company is selling. Take Coca-Cola for an example. Coke has been manufacturing and selling the same product for well over a hundred years. It spends very little on research and development and has to replace its manufacturing machinery only when it wears out. This means that the company gets maximum economic use out of its plants and equipment before it has to replace them.

Old also goes to the nature of the product. Do you think that if Coke has been selling the same product for the last hundred years, it will be selling the same product ten or twenty years from now?

Now, I don’t highlight this passage to recommend buying Coca-Cola stock—my preference for broad-based and diversified ETFs, as well as my Raymond James compliance department, prevents me from making this recommendation. However, I do highlight the passage to emphasize the importance of considering a company’s age before investing in it. It’s certainly not a complicated strategy, but nevertheless, all things being equal, buying older is better.

Indeed, when I looked at the components of the S&P 500 and ranked them all by ‘years of incorporation’ and simply split the Index in half, the oldest half has outperformed the youngest half over both the past five years and the past 10 years. Unsurprisingly, these older companies have also been less volatile. (Looking at periods longer than 10 years gets problematic as the number of data points gets scarcer as too many younger companies actually don’t have 15-, 20- or 30-year trading histories.) What’s even more remarkable is that the youngest half contains a large proportion of high-flying information technology and consumer discretionary stocks such as Netflix and Amazon. Yet collectively, the old fuddy-duddies, like Johnson & Johnson and Kroger, still came out on top overall. In fact, virtually all of the top-10 oldest companies were incorporated prior to 1900 (some prior to the Civil War!).

The youngster in the top-10 was Eli Lilly, but even this company was still incorporated over a century ago in 1901. (To put 1901 into perspective, there were fewer than a million phones in use in the US and carrier pigeons were still sometimes used to send messages.) So, clearly, in terms of business models, any companies that’ve been around for a hundred years or more must know a thing or two about creating and offering successful products and services.

I further examined how this older-is-better approach has infiltrated (albeit somewhat unintentionally) our own portfolio management at Turner Investments. In particular, with our Canadian equity exposure. For many years now we have taken a non-benchmark approach to the Canadian equity market, overweighting an ETF that minimizes volatility and dramatically limits energy exposure. However, as it turns out, this ETF also contains companies that are much older on average than those in the overall S&P/TSX Composite. Unsurprisingly, the ETF that we selected has strongly outperformed:

Better with age

Source: Bloomberg, *measures years of incorporation
Click to enlarge

So, Warren Buffett, as usual, was right. Older is better.

Companies, it seems, are like fine wines: they get better with age.

And finally, this came in my junk mail this week. Could there be a surer sign that Covid-19 is becoming a normalized part of our lives? I hope that they’re all actually smiling under those masks…

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