The envelope, please

1. Justin Trudeau is the prime minister after the Oct. 31 election. What percentage of the vote did he receive in order to form government? (a) 71.4% (b) 33.1% (c) 52.3%
You don’t need a majority of voters supporting you to form government in Canada. You don’t even need to get the most votes. Trudeau trailed Andrew Scheer in popular support. He’s PM and Scheer is soon to be unemployed. Go figure.

2. The composite benchmark house price in Toronto hit its highest-ever point during which month? (a) Nov 2019 (b) April 2016 (c) May 2017
The average detached house price crested two years ago, but the composite benchmark price hit a new all-time high just last month. It was $815,000, up almost 7% year/year. In 416 the benchmark was $903,700, according to real estate board stats. And realtors never lie.

3. When does an RRSP have to be cashed in and taxes paid, or converted to a RRIF (registered income fund)? (a) At age 65 (b) on your 71st birthday (c) by December of your 71st year.
When you turn into a crusty old wrinklie, RRSP contributions end and retirement savings must be cashed (tax is due), turned into an annuity (bad idea with low rates) or converted to a RRIF (retirement income fund). A small amount is then withdrawn yearly and added to your income. The conversion must take place by the last day of the year in which you turn 71. But if you have a younger spouse, contributions can still be made to his/her plan.

4. What’s the tax rate on capital gains? (a) 100% (b) 33.3% (c) 50%
When you buy something outside of a tax shelter and make bank – a stock, ETF, baseball card, ounce of gold or real property – it’s a capital gain. Half is tax-free. The other 50% is added to income for the year and taxed at your personal rate. Since the top marginal rate in Canada is around 53%, the maximum tax on a capital gain is 27%. For most people, it’s closer to a 15% hit. So this is a good way to make money, unless Justin messes it up in the next budget.

5. What’s the average detached house price in Canada’s second-biggest market, Montreal? (a) $789,540 (b) $1,123,560 (c) 259,000 (d) $350,000
Hard to believe the difference in price between Canada’s #1 and #2 markets, just five hours apart by car. What costs over $1 million in the GTA can be yours for $350,000 in Montreal, where prices are up 6% and sales have increased 11% over the past year. Montrealers are complaining about a property bubble, too. Sheesh.

6. What is the maximum contribution to an RESP in order to score the government’s 20% grant money? (a) $7,000 (b) $2,500 (c) $750
It’s free money, of course. The feds will top you up 20% of a contribution to an annual max of $2,500. There are also some provincial grants available, so check that out. Plus, you can go back a year at a time to claim missed grants. In total, subscribers can sock up to $50,000 into one of these plans, where it grows tax-free. Do it.

7. When did the TSX on Bay Street hit its highest-ever level? (a) Nov 3 2016 (b) Dec 23 2019 (c) July 17 2019
That would be now. Bay Street is on a roll, with the index at a record point, ahead 19.95% so far in 2019, for a 12-month gain of 28.69%. This is despite a collapse in weed stocks, and a lacklustre performance of late by the banks. The Canadian market was clearly under pressure and undervalued a year ago. Remember: never exit an asset class. Here’s an example why.

8. What’s Elon Musk worth? (a) $14 billion (b) Nothing. He owes more than he has (c) $23 billion
He’s the longest-serving CEO of a car company, but Musk is also the guy behind PayPal, SpaceX, a red Tesla convertible in orbit, the failing solar roof-tile enterprise (among other things) and is on the SEC’s hit list of troublesome people who enjoy giving regulators the finger. How can you not like him? And he’s worth $23 billion.

9. What’s B20? (a) Boeing product (b) Cannabis edible (c) stress test
It’s real name is the Residential Mortgage Underwriting Practices and Procedures Guideline, issued by the bank regulator (OSFI). Yes, it contains the mortgage stress test designed to protect the integrity of the banks’ mortgage portfolios. They were under assault from the Bank of Mom, with too many moisters being gifted down payments thereby avoiding mortgage insurance. No more. Now everybody must prove they could handle a rate increase. Good thing. One’s coming.

10. When bond yields rise what happens? (a) An inversion (b) Bond prices fall (c) Stocks rise
There’s an inverse relationship between bond yields and prices. So as yields go up bond prices fall. Normally higher interest rates depress equity values so by owning bonds an investor can achieve balance and less overall volatility. The best way for most people to own bonds is through an ETF.

11. What’s the maximum TFSA contribution for 2020? (a) 5,000 (b) 6,000 (c) $6,500
It stays at six grand for 2020, due to our relatively low inflation rate. When the Trudeau government chopped the annual contribution from $10,000 it also indexed the limit, so there may be a small increase in 2021. If you wish to feel inadequate, compare our TFSA to the British equivalent, the ISA. The current annual ceiling there is the Canadian dollar equivalent of over $34,000.

12. Who did Bill Morneau marry? (a) Mrs. Morneau (b) Jane Philpot (c) Nancy McCain
Nancy McCain is heir to the privately-held family fortune (McCain Foods) which is currently estimated to be $4.51 billion. Bill owns about two million shares in his family’s company, Morneau Shepell, worth about $40 million, and declaring $140,000 a month in dividends. Power couple. But he feels for you.

13. Since pot was legalized in October of 2017, how much have investors lost on cannabis stocks expressed as an average negative return? (a) 14% (b) 57% (c) 38%
It was a classic bubble. Some people who got in early and cashed out fast, made a bundle. Most others have seen the average weed issue fall by 57%. Now there are health concerns about vaping, while edibles are hitting the market even without regulatory testing. Weed sales have been way below expectations and as long as Trump’s around, the US won’t be joining the party any time soon.

14. When does Stephen Poloz quit as head of the bank of Canada? (a) January (b) June (c) 2021
He’s gone at the end of a seven-year term this summer. Less flashy than Mark Carney, who went on to lead the Bank of England and will soon be working with the UN to prepare the global financial sector for climate change, Poloz has been workmanlike, low-key and successful at keeping Canada growing. The cost has been an asset bubble puffed up by cheap money.

15. What’s the difference between a TFSA beneficiary and successor holder? (a) Children cannot be a SH (b) Beneficiaries get paid faster (c) A SH inherits the account
A beneficiary to a TFSA gets the money or assets contained in that account when the holder croaks. But the account is deemed to have been cashed at the moment of death, so tax could accrue on growth before the bene receives it. A successor holder in effect takes control of the tax-free account at the time of the owner’s death and assumes ownership. No tax. To pull this off, you need a spouse.

16. Why are preferred shares preferred? (a) Dividends are paid first (b) The dividend tax credit (c) Issued by regulated, blue chip companies
Preferreds are a hybrid of stocks and bonds. Technically they’re equities, but the dividends are fixed and they’re more stable than common stocks. They are preferred because dividends must be paid out to owners before a single cent is paid to those who hold the company’s common stock. These days prefs deliver close to 5%, plus offer the dividend tax credit.

17. What’s a basis point? (a) Part of credit scores (b) One 100th of 1% (c) A bond measurement
One percentage point is made up of 100 basis points. If you have a credit score of 100 you probably like the Trailer Park Boys.

18. Capital gains on houses are tax-free if: (a) You have owned it for at least a year (b) only if the PR Exemption is claimed (c) It has never been a rental
There is no set time limit on ownership of residential real estate to qualify for tax-free profits. It’s what the CRA thinks it should be, on a case-by-case basis. That’s how they catch flippers, speckers and renobombers. As for renting out a place, that may not affect the PR exemption unless it alters the basic use of the property or involves renovations. In any case, no exemption will be allowed unless you apply for it through your annual tax return. This has been the case since 2016, when the recording of all transactions became mandatory. Guess why.

19. The limit on bank deposit insurance is: (a) $100,000 (b) unlimited (c) Up to $700,000 per institution
CDIC will cover an account at a single institution for up to $100,000. But this is only for cash or cash-equivalent assets like HISAs or GICs. No stocks, mutual funds, ETFs, bonds or other negotiable assets are included. However you can have accounts at several banks, all insured. And CDIC will actually cover seven different kinds of accounts to the maximum at any one bank.

20. How long, in dog years, is the average stock bear market? (a) 13.2 (b) 2.3 (c) 8.1
Since WW2 the average bear market (a drop of 20% or more) has lasted 14 months, while corrections (a decline of 10% to 20%) have taken an average of five months to recover. If we assume one year equals 7 dog years, the average bear lasts a little over eight DYs. But your canine doesn’t care. And neither should you.



The tree

Dorothy and I married in the third year of university. It would have been first year, but she refused. I kept at it.

Money was scarce, of course. I parked cars overnight at a downtown hotel for hookers, and studied course materials by flashlight in the booth. The professional women were generous with tips, friendly and polite. Their clients scuttled off like big bugs afraid of the light. Xavier Hollander was working that hotel during my time. I liked her, but may not have shared that with my new wife.

The greens grocer near our flat took pity and saved the not-so-great heads of lettuce for us, at 10 cents each. That helped. Ironically the only time in the 48 years together we were robbed happened that Christmas, when we had nothing. Only a leather sports jacket I really liked, and she had a small pearl ring I was able to afford, thanks to you-know-who. Both gone. A cop came and looked sad, but that was it.

Our tiny apartment backed onto the elevated subway tracks. You could sit on the toilet, wash your hands at the same time and watch the commuters blur past. Ten bucks for a holiday tree was out of the question so I cut one out of folded newspapers and taped it to the wall. No gifts. Dorothy and I still remember and cherish that tree. Now we could afford a whole damn forest. But wealth is not about money. The best lesson.

Merry Christmas.




Growing a hide is a key element of blogging. This site apparently gets millions of visits. There are 633,000 comments posted. Most people are okay. Some are despicable and their words never see the light. Others worm their vicious, flesh-eating way through my protective coating. Sometimes they even elicit a reply.

Today is one such (rare) occasion.

On the weekend, an oft-visiting A-hole left these words in response to a post about 2019 market returns: “Pretty sad. It’s x-mas time and every one bragging about how they made a killing on the stock market. How about bragging about how you helped out at the food bank or the salvation army. Pretty sad, indeed.”

So, here is a partial report on what my colleagues and I have been up to of late. No bragging involved. This is just what regular people do routinely while others are blogging about their moral superiority.

In Ontario we donated enough cash to fill this car with stuff that less fortunate, homeless and down-on-their-luck folks could use. (Note: not a Porsche.)

Loaded in there are 300 packages of new hoodies, winter gloves, toques and bundles of thermal socks. They were delivered to three shelters in urban Toronto – The Scott Mission, The Yonge Street Mission and New Hope. In addition another 400 pair of thermal socks went to a charity that distributes them to homeless people on the streets of that city. Here’s what one of the shelters had to say in response: “THANK YOU! Winter is always a challenging time, particularly for our newcomer residents who are often unprepared for the Canadian cold. Your efforts and kindness is truly appreciated and we are sure will be incredibly beneficial to our residents.”

Here are some of our Bay Street colleagues just before the packages were delivered. Nobody was required to support this effort. Everyone did.

In the east we donate money to a (unfortunately) growing food bank. A few months ago we footed the bill for plumbers to install fixtures that another food bank desperately required to deal with the needs of its clients.

For the past year several community groups have been provided with unconditionally free office and work space in our building to house staff and volunteers and carry out their valued work. One of them specializes in providing recreation and leadership guidance to under-privileged and indigenous kids from across the region and Canada. There’s a special focus on helping young women achieve their potential.

Finally, it might be worth mentioning the free financial advice (and canine appreciation) provided by a certain pathetic blog 365 days of the year. No ads. No sales pitch. The hope is that by empowering people to seize control of and manage their money, to understand what investing is, minimize tax and ensure their family is cared for, that they will advance. Then we all do better. More independence. More freedom. More joy. More success. Less struggling. Fewer assholes.



Too much

John’s a lucky guy. At 32 he’s got a $1 million house (no mortgage) plus $800,000 in cash and liquid investments. Yup, inherited. He and his fiancée are getting married in 2020 and with a combined income of $90,000, hope to save a third of it annually. No debt.

“Your blog is a national treasure,” he says. “Thank you for your insightful and colourful commentary.” And that MSU earns him our pre-Yule attention. Here’s the ask:

“I’m concerned about the everything bubble and it’s really hard for me to know what to do. I’m a value investing aficionado and voracious reader, and I have people coming up to me and asking for advice. I don’t know what to tell them because I’m unsure myself about what to do. There aren’t many bargains out there. I am in a very fortunate position and am grateful for everything that’s been given to me. But I don’t want to mess it all up. What do I do?”

Is this a dangerous time to be invested? Should a 30s dude with the better part of two mill just sit on cash for a few years until the future reveals itself? After years of big gains have we reached some kind of financial zenith? Is the reckoning or a big reset inevitable?

Well, wow, 2019 has been outsized. Global stocks added about $10 trillion in worth. Commodity prices jumped. Even bonds piled on the profits. American stocks have gained 30% when you include dividends. Toronto’s up about 20%. Emerging markets made bank. And look at the FANG stocks – Apple up 77%, FB ahead 57%, Google gained 30% and Netflix added 24%.

A boring, more predictable, lower-vol balanced & diversified portfolio added 13%. Lately every asset class seems to be on the rise, and right around the globe – even in China, Russia, Greece, Ukraine or Brexit-addled Britain.

Why? Rampant speculation? The last great gasp of greedy capitalism? Or is this all justified. A precursor of what’s to come?

Well, John. Look at some of the drivers behind the gains. Like Trump. He’s the most pro-business, pro-growth, pro-profit president in memory. His legacy might be high inflation, an increased wealth divide, climate change denial and a society more prejudiced, divided and dumbed-down than ever, but, man, he’s crack cocaine to investors. Lower corporate taxes, less regulation and beating up the Fed have all helped fuel markets and drive unemployment to record low levels. Consumer confidence brims, so in an economy where 70% of the GDP derives from household expenditures this is the result. Half of Americans love Trump. Half hate him. He’s a personal boor and impeached. But he sure makes people spend.

Speaking of the Fed, 2019 saw central banks turn on a dime from being hawks to doves. Rising benchmark rates, surging bond yields and that scary inverted yield curve thing ended when the Fed dropped the cost of money three times and decided to jam more stimulus into an economy that didn’t need it. Jobs were plentiful and markets at record highs, but the gas was poured on anyway.

Meanwhile corporate profits have continued to drive the price of financial assets. After a few years of record earnings, expectations were low – and they were shattered. When companies make money, stocks go up. Duh.

More stimulus came through fiscal measures (governments) at the same time monetary stimulus (central banks) was happening. China stepped up and took aggressive actions to mitigate the damage caused by Trump’s trade war, for example. Growth in that country next year is expected to top 6%. And speaking of that, the US president has done the inevitable, scaling back on his nationalist, protectionist, America-first rhetoric as he seeks more trade agreements prior to the November election. Witness the new NAFTA.

Meanwhile the uncertainty surrounding Brexit is lifting, following the thumping Tory election victory this month. More turmoil will ensue, but the rules are becoming clearer. Just what investors wanted. Together with the Washington-Beijing thaw, the two major clouds over the global economy are lifting, or at least brightening. And, as mentioned Mr. Market thinks Trump will be re-elected.

So, John, these are some of the reasons everything’s going up.

But all is not ponies and hugs. You may not be pickled in debt, but legions of people are. Governments can’t balance their books any better, either. Ottawa’s sliding deeper into the red and Trump will have a $1 trillion deficit soon. Global debt is at record levels, just like Canadian households. Rates that have been too low for too long have certainly helped inflate asset values and turn reasonable people (and countries) into loan-snorting addicts.

So the inevitable conclusions are (a) stay invested but (b) be careful.

It sounds like you’re now a ‘value investor’ who seeks out beat-up stocks to speculate on. Two words of advice: stop it.

You’re a teacher with an inherited wad of dough, not a financial analyst who – in a pricey market – shouldn’t be making those kinds of bets. Markets may be setting up for years more of eye-popping results, but along with that will come high volatility, emotional angst and the chance of making some spectacular mistakes. Besides, with a NW of $1.8 million at age 32, why would you be flipping equities, sucking up risk and looking for supersized returns? Just build a boring ETF-based portfolio with lots of balance and look forward to having $14 million by the time you retire.

She’ll love you even more for not being a cowboy. Trust me.



How did we do?

RYAN By Guest Blogger Ryan Lewenza

As we’re just about to wrap up another year, I’m about to begin my year-end routine of reviewing all my different recommendations and investments that I made over the year to assess how I did. I started doing this about five years ago and would strongly encourage all our readers to do the same. By going back and analyzing your calls/trades you can see which ones worked out and which ones didn’t.

When I make a trade in my personal account or for our clients I always write down the key points of the investment thesis and then I go back to see if it played out the way I thought it would. While it’s great to review the winners and feel that accomplishment of being right, I believe it’s even more important to focus on the trades that didn’t work out, so you can learn from your mistakes and try to improve your results going forward. Quoting from one of my all-time favourite musicians, Johnny Cash, “I learn from mistakes. It’s a very painful way to learn, with without the pain, the old saying is, there’s no gain.” Who can argue with the “man in black”?

So today I’m going to review the main recommendations I made in these blogposts over the last year to assess how I did, and what I can learn from my mistakes.

Let’s start with our outlook on January 5th. The key calls from that post included:

  • Trump and China would likely hash out a trade deal. From the post, “I think it’s going to be a bumpy ride with occasional setbacks but I am hopeful that a deal will be consummated this year.” Outcome: The US and China finalized terms of a Phase 1 deal and should be signed in early January.
  • I predicted the US economy would slow but avoid a recession. “Sure the US economy is likely to slow from the roughly 3% growth seen in 2018, as the fiscal stimulus (tax cuts and increased government spending) rolls off, but we see the US economy still growing at a decent 2-2.5% in 2019.” Outcome: The US economy slowed from 2.9% in 2018 to an expected 2.3% (still waiting on Q4), bang in-line with our forecast.
  • The Fed would slow the pace of rate hikes in 2019. “As such, the Fed is expected to hike rates only 1-2 times this year, which we believe is the correct path.” Outcome: The Fed cut rates instead of hiking them.
  • Equity markets would recover and post positive returns. “When all is said in done, I believe markets will post stronger results in 2019 as investors realize the global economy is not falling off a cliff and the major headwinds in 2018 (Fed rate hikes and Trump’s trade war) will turn out to be important tailwinds for the markets in 2019.” Outcome: Global equity markets were up huge this year driven in large part due to Fed rate cuts and the US/China trade deal.

On February 16th I wrote a post called “Short the banks?!” where I pushed back against the famed investor Steve Eisman who was on BNN and in the media talking up his big short on Canadian banks. His thesis is that after a 20 year housing bubble it will inevitably burst, leading to huge write-offs for the banks and steep declines in bank share prices:

  • In the post I concluded with, “We’ve written ad nauseam about our concerns over Canadian housing, buy don’t misinterpret these concerns for some deep seated worry around our banks. We don’t foresee a 2008-like US housing crash and, as we’ve laid out in this blog post, we believe the banks remain very strong and should be core holdings for long-term investors.”
  • Outcome: As of December 15th TD returned 13.7%, BNS +13.6%, RY +16.5%, BMO +18.3%, and CM +11.7%. While the banks underperformed the broader TSX this year, they still delivered solid returns in 2019.

On April 13th I wrote a post on the merits of dividend stocks. I highlighted their great historical returns, their preferential tax treatment, and how low interest rates and aging demographics adds support for dividend stocks. From the post:

  • “In summary we love dividend-paying stocks and it’s why they are an important part of client portfolios. Every one of our current equity ETF holdings in client portfolios pay a dividend and in fact we’ve been increasing exposure to dividend growers since that’s where you get the best bang for your buck.”
  • Outcome: Our Canadian dividend ETF was our best performing Canadian equity ETF this year and it outperformed the TSX by over 2%, as of December 17th.

In my April 26th post “What comes next”, I reviewed the factors that helped push the equity markets higher and highlighted the improving US economic momentum and the better-than-expected US corporate profits. Additionally:

  • “In summary, the markets have had a great start to the year and while in the shorter term we could see some consolidation, I believe the fundamentals (improving economy and positive earnings growth) could propel the equity markets even higher this year with the S&P 500 and TSX hitting new all-time highs. Here’s hoping!”
  • Outcome: The TSX and S&P 500 are trading at new all-time highs.

Finally, on July 9th I predicted in “Divergence” that: 1) the Fed would only cut rates once this year, and 2) the Bank of Canada would not follow the Federal Reserve and cut rates. From the post:

  • “Because I believe the US economy is in better shape than the market currently is pricing in I believe we’re likely to see just one rate cut from the Fed this year versus the three that the market is currently pricing. Given this I believe the BoC will be more patient and very likely remain on hold for this year.”
  • Outcome: The Fed cut three times this year versus my prediction for one cut and the BoC remained on hold.

Below is a table summarizing my key calls for 2019 with the results. I am very happy to say that I went 7 for 9 this year on my major calls. I like to say to clients “that I’m not going to get every call right and that as long as I go 6 for 10, I can fairly confidently deliver a 6-7% return with a balanced portfolio”. This year I exceeded that, which is in part why our clients are having a record year.

Looking back at 2019 my one bad call was calling for “one and done” from the Federal Reserve with respect to the rate cuts for this year. Following this I went back and looked at previous Fed cuts during a slowdown and learned that the Fed cut three times in two previous instances (in the 1990s). Now I’ll know this for the future and maybe not make this mistake again.

So while you’re getting some much needed R&R with friends and family over this holidays break, take a moment to do what I do and review your investments and try to learn from the ones that didn’t pan out, in an effort to learn from your mistakes and be a better investor for 2020.

I wish all the blog dogs a happy holidays and prosperous 2020!

Results of Key Calls This Year

Source: Turner Investments
* Trade deal is not yet finalized but likely will become January
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 shock

Scotiabank offers a “Power Savings Account” with a premium rate of interest. It’s 0.02%, but to gain that a balance of $5,000 is required. Under five grand on deposit, the rate changes to 0.00%. Chequing accounts at all of the banks, where most people cycle through the bulk of their income, pay nothing.

High-interest accounts? The best rate at any of the Big Six banks is 1.6%. The best bank GIC is 1.8% for a three-year lock (TD, RBC, BMO) while the top payer is Oaken at 2.7% – which takes your money and lends it out as high-ratio mortgages to people you hope to never meet.

The point? Cash is trash, it seems. Savers have been nailed to the cross of Accommodative Monetary Policy, as central banks keep rates low enough to spur economic growth. The latest inflation number for Canada is 2.4%, the highest in a decade and 25% above last year’s number. It also tops the Bank of Canada’s benchmark rate of 1.75%, which means we essentially have a negative interest rate policy.

The implications are legion. Mortgages are too cheap, encouraging rampant debt accumulation, pushing up the value of assets bought with borrowed money and hurting society as a result. What’s the benefit of owning an expensive house when you owe a fortune on it? Also, why pay off a 2.5% mortgage when the inflation rate is about the same? After all, it’s almost free money.

Dawn in Saskatchewan talked with me about that issue this week. Her home is worth $150,000 in a small community and she has $60,000 remaining at 2.39%. She’s been making accelerated payments and annual prepayments, doing everything possible to eliminate debt – at the same time she has zero liquid assets and is 15 years from retirement with no defined benefit pension. The money you’re using to retire a 2% debt could have made 13% in a balanced portfolio this year, I said. When the big R comes you’ll need income more than anything else.

Of course, the inflation numbers understate everything. Food, insurance, gas, home heating fuels, clothes, cars, drugs, kibble – it all costs more than 2% above last year’s levels. The carbon tax alone has impacted much. Savers are being crushed yet again. The old maxims of trashing debt and packing cash into things like savings bonds are junk. Those CSBs are actually gone. Now you have to trust some weird, online outfit with your savings just to make more than the cost of living. And meanwhile all interest is taxable outside a RRSP or TFSA.

A negative real central bank rate is a big problem as inflation rekindles. It’s surpassed the BoC’s target which means a rate cut in 2020 is not in the cards. That would just encourage more borrowing, more spending, asset inflation, a lower dollar and greater imbalance. But a rate hike – normal procedure to cool off rising prices – would be a bitter blow to those legions of Canadians who can barely make existing debt service payments, while corralling economic growth.

Meanwhile the US economy and markets are about to melt up as Mr. Impeached does everything possible to win re-election in November. That could include a China trade deal, more deregulation and quite likely a personal tax cut. The American deficit will erupt, equities surge, wages pop as labour shortages spread and commodity prices jump as the stimulus spreads globally in a post-Brexit world. Yup, more inflation. Washing over us. How will our bank handle it?

This is the big nasty that we’ve been warned about. A rate shock. Once inflation here moves above 2.5%, on its way to three, the Bank of Canada cannot maintain its current 1.75% level. So next year could contain exactly the opposite of what many people think – loan, mortgage, credit card, HELOC and line of credit charges that get fatter, not thinner.

Will that reward savers?

Nah. Fuggedaboutit. The big banks have been under profit pressure lately (check out the quarterly earnings). Higher rates will increase their spreads helping restore the bottom line. Besides, the bankers know they don’t need to give you interest on your chequing account or pad the HISA rate since your behaviour won’t change. When 80% of all TFSA money is in savings accounts and GICs, the die is cast.

Our central bank wisely resisted dropping rates when the Fed cut earlier this year. Three times. But the damage was already done. A nation pickled in debt has continued adding to its pile of obligations. Real estate values have been edging up again. The savings rate sucks. Families and households owe more money than the size of the entire economy. And now we seem to be approaching a policy crossroads.

Governor Poloz, the head banker dude, is gone in a few months. Trudeau will anoint a new one. Many will be surprised.

About the picture: Another pic from the latest version of the Vancouver Police Department’s dog calendar. It showcases members of the force’s K9 unit, who have also become Twitter influencers. Order your copy here for fifteen bucks plus shipping. And remember: dog cops don’t care what your excuse is. Grr.




One year ago this blog’s comment section was overwhelmed with gnashing and moping as equity markets swooned. We were just days away from the bottom of the Santa Slaughter that carved 20% out of all-stock portfolios. By the last day of 2018 US markets had shed more than 6% and Bay Street gave up 12%. Balanced portfolios were off for the year by just 3%.

Lots of people gave up, despite the advice of a certain pathetic blog that it would go away. A year ago today (Dec 19) the Dow lost 358 points and closed at its lowest level in a year as the Fed raised its key rate and investors clamored to take risk off the table. It was the worst December performance since 1931, and came after a year of record highs.

Here were the eight rules we told you to follow as the blood flowed…

(a) Always have a balanced and diversified portfolio
(b) Never sell into a storm.
(c) Ignore volatility. It’s noise.
(d) Never exit an asset class.
(e) Don’t try to time the market. You can’t.
(f) Ignore those who tell you to (i) go to cash, (ii) buy gold, (iii) buy Bitcoin, (iv) buy GICs or (v) run screaming
(g) Invest in quality ETFs in the correct weightings, rebalance once or twice a year and ignore whatever the hell the Dow is doing.
(h) Never watch BNN. Like, never.

One reader with much money invested (four million) couldn’t take it, sold assets at a loss, went to cash and parked in a 2% GIC. After I told you that story, lots of comments rolled in supporting the decision.  Proof that fear is the greatest motivator.

Of course since then the Dow has swelled by 5,000 points, or more than 21%. When you add in dividends, US markets have gained almost 30% in 2019. Even Bay Street has roared back. Boring balanced portfolios are fatter by about 13% this year and the millionaire stuck in the GIC has paid a handsome price for getting the willies. The return was $80,000, fully taxable as interest, versus a potential $800,000 profit (tax-efficient) if left in the portfolio.

Now, let’s consider 2019. The bond market produced an inverted yield curve, meaning short-term rates were higher than long ones, suggesting investors saw a recession looming. But that didn’t happen. The Fed dropped the cost of money three times, which Chicken Littles said confirmed we’d have a storm. Nah, nothing. The Brexit crisis roiled. Hong Kong boiled. Wars in Syria and Yemen while Turkey went rogue and the climate change debate became an emergency movement. And Trump, jeez. He ratcheted up the trade wars and said the stock market would crash if he was impeached. Last night it happened. Investors yawned. The market hit a new high.


Well, the last guy to get impeached said it best in four words: “It’s the economy, stupid.”  That’s what markets and investors have been seized with, not a political process which won’t remove the president, just sully him. Wall Street (and Bay) believes Trump will be re-elected in November. His expansionist, inflationary, deregulatory and pro-growth, pro-business, more-jobs agenda will continue. No pesky Democrats breaking up Amazon and Apple, forcing social responsibility upon corporations or saddling the economy with trillions in debt forgiveness and new social spending.

Meanwhile the economy is mocking the doomers. American unemployment is the lowest in half a century. Corporate earnings have beat expectations over and again. Three Fed cuts are adding stimulus. Consumer spending and confidence are at record levels, largely thanks to jobs. GDP growth is just fine. China trade tensions are easing and tariffs relaxed. Commodity prices are rising as the global picture brightens. Brexit will get done and stop being an uncertainty, fostering new investment. And Trump will do whatever it takes to get re-elected – using a booming stock market and economic growth as his proxies.

So, here ya go: no market risk from impeachment. Everybody’s had time to absorb this news and get over it. The Senate will not convict. Trump’s staying. For years. Economic growth, employment, corporate earnings, consumer spending – none of these things will be impacted. And although we’re now into the 11th year of recovery and growth after the last downturn, lots more to come.

Will there be more corrections, more wailing?

You bet. Like always. But remember more than 70% of the time markets rise because the world grows. Rarely do corrections of 10% to 20% lead to bear markets. And even when everything hits the fan, recovery’s assured within a relatively short time. The only losers are those who let fear take hold. Emotion is not your friend.

Remember the rules.

About the picture: A highlight of new year is always the latest version of the Vancouver Police Department’s dog calendar. It showcases members of the force’s K9 unit. Order your copy here for fifteen bucks plus shipping. And remember: when barked at, lie prone and still.



Of sheds and men

Ottawa is such a riotous place that we have yet another report today on what may be about to shake the real estate world. But first, a glimpse into the wonderful world of amateur (and illegal) landlording, also from the nation’s capital.

This Kijiji listing has appeared, looking for a nice “professional working male” who is daft enough to move into some lady’s garden shed in the burbs. Gail writes:

– $50. per night, minimum a week – $ 450. /2wks – $ 4wks _ $675. mo.4wks, Inclu. Private Parking

Of course if this were in Vancouver, Gail could sell it for $899,500. Anyway here it is, inside and out:

$     $     $

Yesterday regional finance ministers beat on Morneau for more money than the $81 billion Ottawa will transfer to the provinces this year. What will Bill do? Cave, of course. There are Quebec separatists in Parliament and Wexiters organizing in AB. Several provinces are suing over the carbon tax and every single government wants more health care cash. No doubt the Trudeau minority government will pony up more – then have to cover that with increased tax.

As we told you yesterday the federal finances are already deep in the red, suggesting the prime minister fibbed during the election. Just weeks after the vote we learned about a massive job loss in November (over 70,000 people punted) and a way bigger hole in the budget (another seven billion in deficit). The projections Morneau gave us Monday did not take into consideration massive new spending announced during the campaign (expanded child payments and the shared equity mortgage, among more), and certainly not the new billions provinces will get.

But does anyone care?

Well, this is interesting. It’s a poll done by Bloomberg asking the elitist, rabid, right-winger, capitalist, Porsche-driving overlords who populate that site to weigh in on the financial plan the government unveiled this week. They’re not buying it. Maybe you shouldn’t either. Man those tax shelters!

$     $     $

More Bill. The PMO gave our finance guy a mandate letter recently telling him to review the mortgage stress test to make it “more dynamic.” That’s been interpreted in real estate circles as a defanging of the rules which have kept up to 20% of young buyers on the sidelines, depressed sales and jacked the price of lower-cost homes. You may recall this was the Cons’ position during the election. Not their finest hour.

Details have yet to emerge on how the test will be neutered, but meanwhile comes news people may once again be able to mortgage $1 million+ houses with small downpayments. You may remember that dearly-departed F, the elfin deity, put the kybosh on this seven years ago as a way of cooling off the market. Prior to that buyers could finance a seven-figure house with just 5% down and a CHMC-insured home loan. After the change, the minimum deposit was made 20% and no taxpayer-backed mortgage.

Now, reports broker/blogger Rob McLister, Genworth has applied to the feds for permission to insure million-dollar-plus mortgage when a buyer has but 10% down on a property worth up to almost $2 million. The good news is that the buyers would have to pay their own loan insurance (costing maybe 4% of the face value), so CMHC wouldn’t cover. The bad news is this helps cause house price inflation.

The target market: young, highly-paid professionals (doctors, lawyers, dentists, people who publish free financial blogs) with fat incomes but little saved, who are happy to shoulder one mother of a big borrowing. Genworth and others see this as a beachhead for the creation of a privately-insured mortgage market in Canada, taking some pressure and risk off CMHC or the banks. Good thing, since taxpayers today are on the hook for the vast majority of all residential loans.

By the way, what do you need to buy a $1.75 million house in Toronto with 10% down?

Cash of $175,000 plus enough to cover land transfer tax of $62,950 and $6,300 for insurance, then monthly payments of $7,500 (plus insurance and property taxes), requiring an income of a bit less than $270,000. And that would buy you an unrenovated bung in midtown.

Or, you can call Gail.




Not a chance, of course. In the summer of 1993 it was a slam-dunk that Kim Campbell would win the PC leadership contest and become Canada’s first female prime minister. Contender Jean Charest tried to unseat her from that throne. He failed.

Then there was pathetic me. Not a chance of winning, but I went through the entire, months-long, coast-to-coast process just to make a point. We were turning into a nation of debt slaves. Something must happen. Politicians had to care.

At the time the federal deficit was a withering $39 billion. Brian Mulroney had just brought in the massively unpopular GST, then walked out the door leaving voters to eviscerate his party, and Kim. (Of course, Jean Chretien kept the tax, blamed the Tories, and reduced the deficit to zero because of it.)

My contribution? I hauled a giant Debt Clock into the arena where the convention was being held, then gave a speech dissing my colleagues, Trudeau (the old one) and the party for being a bunch of grasshoppers. Naturally I lost. Big. As expected.

Well today the national debt is $700 billion. After climbing out of a massive deficit hold in 2008-9 thanks to the financial crisis, we’re back into deficits. On Monday Bill Morneau fessed up to a shortfall of $27 billion this year (seven billion more than stated in the election), which will be larger next year. This is even before new promised spending takes place.

But here’s the thing: nobody cares. Yet again.

In fact today politics has so changed that those seeking office brag about how much more they will spend and how much less they will tax. It’s as if we’re a clutch of morons believing money just appears when required. Why shouldn’t we have free education, health care, drugs and retirement plans, or a guaranteed annual income, money for having children and affordable housing? And a tax cut?

An idea called MMT – Modern Monetary Theory – is all the rage on the US political left. It’s been embraced and promoted by rebel Congresswoman AOC as well as heavyweight Dems such as Bernie Sanders and Elizabeth Warren. It says, simply, deficits are harmless, healthy and promote economic growth and expansion especially when interest rates and inflation are low. Governments can just print money, distribute it fairly and – voila – people will spend more and create prosperity. Sort of like that debt jubilee described here a few days ago. Money for nothin’, and the cheques are free.

So long as economic growth outpaces bond yields, the argument goes, governments can stay in the red, keep rolling over the growing debt and society will get richer. Obviously this is the new Trudeau/Morneau mantra. Our federal leaders have given no date for the budget to be balanced, refuse to answer that question, ignore the critics asking for a deadline and assume that you – the voter – couldn’t give a damn.

This is a departure. Harper got deep into deficit, but crawled out. So did Chretien and Martin. Even Mulroney and Mike Wilson were obsessed with balancing the books. But now, as we roll into 2020, crickets. More spending Fewer people paying tax. Don’t bother your pretty little head with the details.

Okay, so what can go wrong? How can the country behave in a way that would cause misery, penury, bankruptcy and serious spousal grief if it was you?

Well, it probably can’t. And MMT is dangerous, since its viability is based on unique conditions.

For example, if interest rates swell – even modestly – the cost of servicing a massive pile of debt goes up fast, eats into government revenues, creating a death spiral. Politicians can’t refinance maturing debt at rock-bottom levels, gutting budgets as debt payments crowd out social spending. The economy is whacked.

MMT contains endless risk. Growing debt levels mean the bond market demands bigger premiums, so governments pay more. If politicians just fire up the printing press to increase the money supply, inflation takes off, popping yields more. Annual deficits and growing debt ultimately fuel rates, making that debt unsustainable. Taxes inevitably shoot higher. That’s why deficit financing has been used historically only as a tool to boost a weak economy or get through a crisis, such as the GFC in 2008-9. When things recover, governments dial back and strive to have revenues cover expenses, or build up a cushion for the next bad patch.

But that was then. This is now. The economy’s fine (says Bill) yet the red ink augments. Deficits are tools no longer. They’re structural. Normal. Routine. During the federal election campaign, did you hear any leaders arguing for less, or promise to balance the books, to restore balance for the benefit of your kids and their spawn?

Nah. It was all about who could buy the most ballots. And that guy won.




Banker angst

The finance minister says it’s all okay. Canada will be a northern paradise. The best employment picture in the G7. Only Andrew Scheer will lose his job.

But Susan isn’t so sure. She’s not buying the everybody-gets-a-pony message in this week’s economic update. In fact as a banker, she’s scared. The finance sector layoffs have already started after a disappointing set of earnings for the Big Six. And, as you know, the banks want to dismantle their costly and elaborate web of physical locations, shedding front-line workers and forcing customers to find an ATM or go online.

  (This is precisely how I obtained my sweet little stone BMO branch – so there is an upside…)

Bank of Montreal just announced that 5% of its workforce, or more than 2,000 people, will be laid off. RBC’s chief exec is warning of a few rough years. The fintech industry is snapping at the bankers’ heels. And loan loss provisions are up sharply – more than 50% at the CIBC and a third at TD and Scotia, for example.

Susan has some serious questions, therefore. But wisely prefaces them with a MSU.

If it wasn’t for your wise advice, I would neither have saved the amount of money that I have, nor learnt anything about investing.  My savings rate is approximately 60% of my salary, but every year I earn the same amount as I save.  This would not have been possible by investing in GICs, and I’ve tripled my investment money in the last 8 years.

Here’s my question.  My industry, Finance, is laying off thousands in the coming year, both in the US and in Canada.  I fear a job loss in the next few months or weeks.  What do you recommend I do to prepare for it?

I’m particularly stumped at what to do about my DB pension.  While I want to break it out into a LIRA, I’m afraid I will lose a substantial portion of it to taxes as I have no RRSP room.

You save two-thirds of your salary? That’s deserving of an Order of Canada, or at least a life membership (and your own parking spot) at Costco. Hopefully you’ve been stuffing your TFSA (since the DB pension restricts RRSP room accumulation) and building up a nice non-registered account chock full of growthy ETFs and enough fixed income to let you sleep at night, should the axe fall. (Sounds like you might have been too aggressive of late, however – so dial it back.) We have no details on your personal life, but you gotta be a frugal gal. Perfect, when your employment’s dodgy.

The pension? Big decision.

If you leave the funds where they are, inside the plan, there’s little to fear in terms of stability. The banks aren’t going bust. Ever. They are systemically important, and federally essential. Outside of government pension money and your dog’s love this is about as secure as it gets.

But there are still valid arguments for commuting the pension, leaving the plan and managing this money on your own. For example, if you stay in, every payment received in retirement will be fully taxable at source. No way to mitigate that. If you don’t need the income, you must still take it. That could push you into a higher tax bracket, which sucks. On the other hand, if you take possession of the cash and it sits inside a registered fund, you can dip in whenever you want and thereby better control your own marginal tax rate in retirement.

Second, by commuting you seize control. Instead of relegating investment decisions to an unknown and unseen pension administrator, you make your own decisions. That can be immensely satisfying. Third, you can tailor the investment strategy to your own needs, goals and personality. Pension managers’ primary mandate is to ensure funds are available to meet future obligations, while you might be more concerned about growth and getting a Porsche (to drive to Costco). Fourth, when you croak the money belongs to your estate, not the pension plan. You can pass it on to spouse, family, friends, charities and pets.

Now, what about the tax hit when commuting?

Typically a portion of a commuted pension can be rolled into a LIRA (locked-in retirement account – just like an RRSP, but not cashable until you reach retirement age). The remainder is given as cash,  taxed in that year as income. The Hoovering can be cut if you have RRSP room available but, sadly, poor Susan has none.

What to do?  Nothing. Take the money. Pay the tax. Move on. Remember if you stayed in the plan 100% of every cheque for the rest of your life would be taxable, so all you’re really doing in commuting is paying it now. It’s also wise to optimize when the cash is received. Most employers will offer an option of taking it immediately when leaving the pension plan, or a few months later within a new calendar year. Obviously taxes will be lower in a year of unemployment.

The biggest reason people don’t commute is, of course, fear. They think staying inside the corporate womb is somehow safer than taking charge of their own destiny. In some cases, (like this) that may make sense. For the 2,000 GM workers losing their jobs in Ontario this week, for example, it makes none.