Be it resolved

Bandit decided to throw up at 4 am on New Year’s Day. A surprise, since he didn’t even have that many Shooters last night. In any case, the hours spent sitting holding his paw provided time to finish your list of 2020 resolutions.

So be it resolved that you will…

  1. Try to borrow nothing.
    Easy credit is the crack cocaine of our society. Most people are addicted and loan servicing costs are bleeding families dry. If the economy turns this year, the indebted could be pooched.
  2. If you do, make it tax-deductible.
    Using real estate equity to build a non-registered portfolio can give you more net worth and a tax-deductible mortgage. But never do this without a plan, an escape hatch and some trusted help.
  3. Max your TFSA.
    Today. Six grand. Get it in there.
  4. Seriously reconsider paying down your cheap mortgage.
    First, why trash a sub-3% home loan with valuable after-tax dollars that could earn two or three times that amount invested? Second, shoveling more of your net worth into a single asset is gambling. Diversify.
  5. Don’t try to time markets. Invest when you have money.
    Financial assets are expected to melt up early in 2020, then anything could happen. So stop looking. Invest when you have money. Do it correctly. Stay invested until you need the dough. How hard is that?
  6. Adhere to the Rule of 90.
    Try restricting the percentage of net worth in residential real estate to 90 less your age. In other words, buy what you can afford, no matter what the year brings.
  7. Got a kid? Get an RESP. The right kind.
    Schooling costs a bundle and not only does RESP money grow tax-free, but the government will give you funds every year. Where else can you get a guaranteed 20% return? But steer clear of the pre-packaged plans peddled by the baby vultures, and stay invested in growthy stuff.
  8. No stock-flipping in 2020. Go with ETFs and balance. Set it & forget it.
    Equities romped 30% last year, which is no guarantee of the future. And some assets (like weed stocks) crashed despite the market gains. When big-time fund managers can’t beat the index, why would you? Hubris.
  9. Spousal loan. Spousal RRSP. Get serious about income-splitting.
    Taxes are going up in Canada. Again. The T2 government’s return to power guarantees this, so fight back. Having a lower-income partner allows great opportunity to split income by contributing to a spousal RRSP (up to your own limit) or loaning him/her money for a non-reg investment at the CRA rate of just 2%. No attribution then.
  10. Take capital gains early, thwart Morneau.
    There’s a budget coming in February or March. Ottawa’s swimming in red ink and the masses expect more bread. One result may be a hike in the cap gains inclusion rate. If you’ve planned on cashing in some profits this year, sooner might be better than later.
  11. Lock in your mortgage.
    Rate cuts are so 2019. Given Trump and the Fed, the China trade deal and the November election, central bank easing is on hold. Loans are still dirt cheap. So lock a rate.
  12. Don’t let your parents get a reverse mortgage
    The cost is ridiculous and interest snowballs on borrowed amounts. This is a wealth-destroying vehicle. Marketers should hang their heads in shame. Get your folks to sell, invest and rent a far nicer place. And leave boodles for you.
  13. Get a will. And POAs. Name beneficiaries and a SH.
    Everybody needs a will, so get one. Power of Attorney forms need to be exchanged between spouses, at a minimum. Ensure your RRSPs have named beneficiaries but your TFSA has your partner listed as a successor holder.
  14. Don’t buy insurance unless you need it.
    Universal life, whole life and a host of other insurance products are costly and offer questionable investment benefits. Canadians are grossly over-insured, probably due to guilt. Get over it. Just insure against specific risks and usually a term policy is enough.
  15. Never retire without a non-registered account. And make it joint.
    RRSPs play an important role, but don’t retire with all your funds in vehicles which goose taxable income. A non-registered investment account’s a key part of controlling taxes, and need never be converted to a RRIF. Make it joint with your spouse so when you kick the funds become his/her property, instantly. No delay or probate.
  16. Lease your car. Instead own stuff that appreciates.
    All regular cars turn worthless. So why tie up tens of thousands in one? Rent things which depreciate. Buy things that appreciate. Also easier to write off auto expenses when you lease.
  17. Rent proudly. Invest bravely.
    Our real estate culture has enslaved a lot of people, forcing them into high leverage and a risky future strategy. Renting is a completely valid alternative, stabilizing costs, eschewing debt and freeing income for investing. Ignore what your mom says.
  18. Never buy real estate with anyone you’re not sleeping with.
    Seriously. Buying property with friends, co-workers, other couples or relatives is a completely bad idea. The entry costs may be less. The exit costs can be deadly.
  19. Retiring? Commute your pension.
    Lots of pension plans are in trouble. More will be as rates stay low and demand increases. If you can get out, taking the money, controlling it yourself, do so. The tax burden can be cut. Plus the asset belongs to you and your heirs, forever.
  20. Get a dog. Non-judgmental love, loyalty and sincerity. You need this. We all do.
    Life is not about accumulating money. Wealth just makes it easier. Being loved, and needed, makes it worth living. Start here.



The stampede

The common wisdom on The Street is Trump’s a cinch in November. Confidence that the growth-at-all-costs president will win in the coming election is part of the reason investors think markets will melt up in the next few months.

After all, it’s the economy, stupid. Unemployment’s at a 50-year low. Corps are making big bucks. Stocks at record levels. Consumer confidence and spending are strong. Residential real estate is stable. Wages are up. The trade war with China is easing. Inflation’s running cool. Interest rates have come down again.

So, how could Trump lose? Even if he is a paleo?

But wait. What’s the thundering sound? Hey, it’s a stampede of Millennials!

Some people think moisters and women will punt the president, causing him to lose by up to ten million votes. As a research paper called ‘The Ok Boomer Decade’ spelled out this week there’s already evidence a sweeping move to the left is taking place among the under-40 crowd. The numbers are actually stunning. In the 2018 mid-term elections 68% of 18-to-24 year olds voted Democratic. The result was almost identical for those aged 25 to 29, and stayed at 59% among the 30-to-39 cohort. Republicans only regained the edge among voters over 50. Boomers.

The pendulum is shifting, we’re told. This new decade will see a relentless move left as the largest demographic (Millennials) turns desires and entitlement into votes. Surveys show people under 30 don’t fear socialism, want bigger government, increased social program spending and are willing to live with seriously higher taxes to get it. Taxes on others, of course. Like the Boomers, the rich, homeowners and corporations. It’s why Elizabeth Warren and Bernie Sanders have been embraced. This is what AOC is all about. And MMT – modern monetary theory.

So the 2020s may bring war on inequality. The 99% chasing the 1%, using government to level the field. It’s already emerging in Canada, as you know. BC’s socialist government and its tax war on real estate is a good example. Trudeau’s slashing of TFSA contributions, the attack on small business financing and the new uber-tax bracket hitting incomes over $200,000 also fit the pattern.

Those drifting left, doubting capitalism, feeling shut out of the housing market, hating the gig economy and struggling to form families don’t care much about federal government deficits or balanced budgets. No wonder poor Andrew Scheer’s message went fallow. In the world of MMT believers, the government tells the central bank to print enough money to achieve social justice – universal health care and education, a debt jubilee, state-built affordable housing and a guaranteed annual income. Since the debt is owed to the people, it’s not bad. Why repay it?

Now layer Greta on top of inequality, social justice and elastic monetary policy, and the shift left continues. People under 30 believe overwhelmingly in the reality of climate change and are happy to use the term ‘emergency’ to describe it. More justification for a tax attack on those lifestyles which they feel contributed to the crisis. Carbon-emitting cars and planes, over-sized houses, excessive consumption and the hoarding of assets. Don’t be surprised in the decade ahead to see capital gains taxes on Canadian real estate, a top tax bracket touching 60%, a wealth or inheritance tax and carbon taxes far above current levels. Poor Alberta.

Now, none of this is overnight stuff. Trump may well snuff the lefty Dems in eleven months. The Canadian Cons may wisely go centrist and topple Trudeau. Boomers are not a washed-up asset class yet.

But we’re not blind, either. A year ago MMT was just a worn, discredited, far-out economic theory espoused by people who keep ferns. Now it’s at the heart of a US presidential race. Greta is a cult hero to millions. Every incident of extreme weather fuels a movement. The political polarization of the developed world is coming down to divisions of age, class, even gender. In democracies, when a majority feels put down, delayed, disenfranchised or pissed, radical things can happen. There are now more Mills than Boomers, an imbalance which grows daily.

So if Trump fails in November, this will be why. If he wins, it could be a generation’s last huzzah. His kind will be gone.

What to do in terms of your own life? You assets?

Tune in next year. I’m taking tomorrow off to work on the bunker.



The security blanket

In a day or two you’ll get the Greater Fool FFPs (Fearless Foolish Predictions) for 2020. Here’s a preview. One of them will be a market melt-up, for at least the first few months of the year. No recession. No shocks. Except Trump, maybe.

How best to take advantage of economic growth, rising asset values with stable inflation and interest rates?

The TFSA, silly. It’s the gift that keeps on giving. Your security blanket – but only if you know the correct strategy. Sadly, 80% of all tax-free moolah in Canada remains in GICs and HISAs meaning most folks will miss this opportunity. Don’t let that include you.

Come Thursday you’ll be able to stuff another six grand into your plan for the year. This brings the accumulated TFSA total contribution room (since it was invented) to $69,500. For a couple that totals $139,000. Add in two adult children, and it becomes even more – potentially over $275,000 for a household. All growing free of tax. And unlike RRSPs, no tax when redeemed.

There are some awesome advantages of the TFSA.

Like, flexibility. Money can come out, then be replaced the next year. No such luck with an RRSP where room is used up and never replaced. For example, this coming week everybody over 18 (or 19 in certain backward provinces) has the ability to put in all missed contribution room from past years + replace all the money withdrawn in 2019 or earlier + this year’s $6,000. So there’s no excuse for having a non-registered investment account, for example, when TFSA room is sitting idle and unfilled. Move it.

The fact TFSA withdrawals are not counted as income and all the growth in the account remains untaxed makes these perfect for retirement planning. Imagine a couple turning their current $139,000 TFSAs into $700,000 in twenty-five years, then drawing out annual cash flow of about $45,000 at the same time they collect average CPP and OAS. That would give an income of almost $80,000, sans tax. For life. No clawback of the government pogey.

Growth is key. TFSAs should always be packed with growthy stuff like ETFs mirroring the S&P, Dow, TSX, Nasdaq or emerging markets. Over the past decades an average return of 7% has been a reasonable expectation for a balanced portfolio, so a 25-year-old contributing $110 a week to a TFSA (and doing no other investing her entire life) could reasonably expect to end up with $1.26 million, a million of which was taxless growth. That would throw off an income of more than $85,000 a year – plus social benefits and the proceeds of whatever crappy corporate mutual fund-based RRSP she was given. How’s that a bad outcome?

If you thought spouses were just handy for a wide range of emotional and domestic services, good news! The TFSA can also help you income-split. Higher-income earners can gift money to their partners to invest in a tax-free account with no attribution back to them (unlike with a non-registered account). The lower-income (or no-income, stay-at-home) spouse can still qualify for spousal tax credits while earning great tax-free returns. Ditto for adult children. Gift them money for their TFSAs. No attribution. But, technically, it becomes their money so you have to be nice.

Speaking of kids, TFSA withdrawals are never taxed and never considered income – unlike what can happen with an RESP, where a portion of the funds attracts tax. So having your offspring open tax-free accounts and keeping them funded for educational costs makes good sense. If they don’t go on to uni, no problem.

Retired and over 71? Then RRSPs must be converted into RRIFs – even if you don’t need the dough. Why not use registered retirement income fund money to fund your annual TFSA contribution, or that of your spouse (or both)? That way you exact a little meaningful revenge with the forced cash flow earning returns Bill Morneau will never see or touch?

Remember this, too: declare your spouse the ‘successor holder’ of your TFSA, not the beneficiary. That way your plan becomes theirs when you croak. Seamless. TFSAs do not enjoy the same exempt status as RRSPs so foreign dividends may attract withholding tax. Plus, don’t overcontribute, or the CRA will send you a nasty letter and demand ransom. Of course, contributions in kind are okay – you don’t need actual cash to fill the plan each year.

So, in summary: if you do nothing else, do this. Open a plan. Fill it. Invest the money, don’t save it. Never spend it. Never miss a year. And don’t be coming to this pathetic blog in 30 years, moaning about poverty. I won’t care.



The decade

DOUG  By Guest Blogger Doug Rowat


Ten years ago, and one year after the financial crisis, I was wondering how much longer I’d have a job in the investment industry, Sidney Crosby had yet to score the Golden Goal at the Vancouver Olympics, Tom Brady had only (“only”) three Super Bowl rings, Donald Trump was becoming best known as the host of Celebrity Apprentice, Amazon was primarily an online bookseller and Jeff Bezos wasn’t half as rich (or jacked) as he is now, self-driving cars were only talked about by sci-fi nutjobs, everyone took taxis (“What the hell’s an Uber?”) and Taylor Swift was a huge pop star (fair, some things stay the same).

So, it’s been a decade of remarkable change and we’re now only a few days away from entering a new one. Given the industry where I, thankfully, still work, below are what I consider the 10 most important business stories from the past 10 years.

Don’t agree with my list? Come at me, bro.

10. The 2011 Japanese earthquake and tsunami. How does a natural disaster make the top business-story list? Because it was so devastating that it rocked global equity markets and crippled one of the world’s largest economies. Following the March 11, 2011 earthquake and tsunami, which caused an estimated US$150 billion in damage and killed roughly 20,000, Japanese markets fell nearly 19% in less than a week. We always show the below picture to new clients. It’s an impossible scene taken shortly after the disaster—a cruise ship ON TOP of an apartment building. It’s a reminder that market outcomes are unknowable and that attempting to time them short-term is pointless.

Japanese tsunami aftermath: expect the unexpected

Source: Google Images

9. The race to a trillion. Throughout the decade it was a tight race between Amazon and Apple to become the first publicly listed company to achieve a market valuation of US$1 trillion. Finally, in mid-2018 Apple won, boosted over the milestone by a stellar quarterly earnings report. Apple didn’t technically launch its iPhone this decade, but it was certainly the enduring and otherworldly success of this smartphone that allowed it to finally break the trillion-dollar threshold. As this decade comes to a close, Apple’s market cap sits at almost US$1.3 trillion.

8. US bond yields and bond returns continued to fall. This decade couldn’t buck the multi-decade trend of declining bond returns. Once again, US bond returns slid while US equities had another monstrous decade. Still think you’re going to fund your retirement by holding only bonds?

Another decade, another drop in bond returns

Source: Bloomberg, Turner Investments

7. Brexit. Typically, portfolio managers discount political turmoil, especially when it’s taking place overseas. However, the Brexit debacle has created so much uncertainty that it’s had a profoundly negative effect on UK and European equity markets, causing both to massively underperform US and global benchmarks since the original June 2016 Brexit referendum. Naturally, any properly diversified global portfolio still needs UK and European equity exposure, but timing the recovery for these markets is nearly impossible. In the end, you simply have to have a sense of humour. The best Brexit joke I’ve so far come across? Q: How did the Brexit chicken cross the road? A: I never said there was a road. Or a chicken.

6. The current US economic expansion became the longest in history. The financial crisis was almost certainly the worst economic disaster that we’ll see in our lifetime, but we’ll likely never see a US expansionary period like the one we’re in right now either. The US economy has grown for 126 months and counting, setting the new duration record earlier this year (see chart). Before you conclude that the good times must therefore soon end, consider Australia—it hasn’t had a recession in almost 30 years. Duration alone is never evidence of what will come next.

The current US economic expansion (126 months) is the longest in history

Source: NBER

5. The underperformance of Canadian equities. Remember when the Canadian oil sands were all the rage? So much for that. Over the past decade, most oil-price benchmarks went nowhere. The main North American oil price benchmark, WTI, actually declined 23%. As a result, our S&P/TSX Energy Index managed only a 0.5% annualized total-return over the past 10 years. It was, essentially, a lost decade for oil & gas investors. Canadian equities overall still managed a decent 6.9% annualized total-return (thank you Canadian banks), but this paled in comparison to global equities, which averaged 10.1% annually. For Canadian investors, the 2010s perfectly illustrated the dangers of overconcentration and home-country bias.

4. China. In the 2010s, it became impossible to ignore the most populous and fastest growing country in the world. China began the decade by overtaking Japan as the world’s second largest economy and then book-ended the decade by becoming embroiled in a massive—and still unresolved—trade war with the US. Throw into the mix violent and much-longer-than-expected pro-democracy protests in Hong Kong and China is likely to continue to be a focus for investors in the 2020s. But should you eliminate exposure to China heading into the new decade? Definitely not. With 1.4 billion people and an economy that’s rapidly urbanizing, it’s inevitable that China will soon become the world’s largest economy.

3. The European sovereign debt crisis. I’ve been to Greece. It’s beautiful. But how could a country so tiny become the focal point of a global financial crisis? However, it did. And ‘contagion’ became the market’s new favourite buzzword in 2011. Greece’s failure to repay its debt, which many felt would spread to other countries throughout Europe, combined with its upwardly spiraling bond yields, sparked a crisis that caused global equity markets to sharply decline in 2011. Could a debt crisis reemerge in the coming decade? Possibly, but the current Greece 10-year bond yield, which amazingly was as high as 37% in 2012, is saying that we’re out of the woods for now:

Greece 10-year bond yield – past decade

Source: Bloomberg, Turner Investments

2. The US Federal Reserve (finally) raised interest rates. It was a long wait—nearly 10 years—but the Fed finally increased its benchmark overnight rate in late 2015. It was the first of nine rate increases. While a nine-hike tightening cycle seems impressive, it took the overnight rate to only 2.50%—significantly lower than the previous four tightening cycles, which each brought the overnight rate north of 5%. To paraphrase Bruce Springsteen: high interest rates are going boys and they ain’t coming back.

One of these Fed tightening cycles is not like the others

Source: Bloomberg, Turner Investments. A rate-hike cycle is defined as a period of multiple increases in the Federal Funds benchmark overnight rate. Any rate cut ends the cycle. Market returns not annualized. Total return.

1. Donald Trump. He forced all the experts, myself included, to re-evaluate everything they thought they knew about economic and foreign policy. Do you remember when the S&P 500 traded negative for nine consecutive days just prior to his election in November 2016? Remember how the market sold off sharply overnight once the final results were in? How wrong we all were. Since Trump’s victory, the S&P 500 has returned 16.3% annually on a total-return basis, easily eclipsing the 12.3% annual total-return of the previous years this decade. And, despite dire predictions to the contrary, volatility has been more than 30% lower versus the long-term average as well. Who would have thought? Donald Trump, Mr. Tranquility.

Trump, the calming influence: CBOE Volatility Index: long-term average (white line) vs Trump presidency average (green)

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



Let the dogs out

Friday was the last day to sell a security, have it settle and be able to claim a loss again gains. If you weren’t aware losses could be deducted from profits in order to reduce taxes, well, now you do. If fact, it gets even better…

Losses (usually from dog stocks your idiot BIL told you were ‘sure things’) can be carried back three years and applied against taxable wins – so taxes paid in 2017 or 2016 could be reclaimed. As well, capital losses in Canada can be carried forward indefinitely, then used to offset past or future capital gains. Sweet.

This ability to creatively use losses is a powerful argument for dumping any of the crap investments you’ve been nursing along for years. I’m constantly running into people (usually men) who can’t bear to sell something for less than they paid – so they hang on to the pooches for an agonizing period of time, during which there’s at least a 50% chance things will get worse. It’s a guy thing. If you eventually break even it’s like the bad decision never happened. Virginal once again!

Of course, it’s been hard to find losing securities in 2019. Unless it was one of the weed stocks, like Aurora. That bow-wow was sitting at close to $14 in March, now finishing the year at $2.60 – a plunge of 80%. The entire cannabis sector has been a boneyard of failed expectations, more evidence buying individual stocks is a hedonistic gamble and speculating on new and unproven companies can be financial suicide. The looming vaping crisis and the destructive potential of edibles could bring a lot more heartache to those who bought into Justin’s failed social experiment.

Despite the weed debacle, Bay Street ends 2019 on its own high. The TSX has gained 20% (plus dividends), and sits 25% above where it was a year ago – during the Santa Slaughter. That’s when my suspender-snapping, Porsche-driving, bowtied, omniscient, stones-of-steel portfolio manager colleagues moved to increase their weighting in stuff like a low-vol Canadian equity ETF that’s steadily gained all year, now ahead 22%. It’s a timeless lesson. In a storm you buy, never sell.

So here we are staring into 2020. US markets have soared about 30% despite trade wars, Boeing and impeachment. The coming year will bring a US presidential election (markets think Trump will take it), probably more trade agreements, plus enhanced global growth, inflation and even higher interest rates. All that’s good, given the fact it’s already the longest period of economic expansion in modern history. You will remember that 12 months ago the headlines were all doomy as bond yields inverted and everyone hunkered down for a recession.

It didn’t come. Now with robust corporate profits, the lowest US jobless rate in history, an easing of the China trade tensions and Brexit coming to a conclusion, things look kinda peachy. So stay invested.

But wait. Isn’t it a lot more likely, with markets so high, we could have a correction if a surprise comes along?

Yes it is. After gains of 20% or 30% investors could be tempted to take risk off the table if they see things heading south, even temporarily. If Trump loses in November, if the China deal blows up, if the Senate waffles on the impeachment trial, if Hong Kong is invaded or a string of climate-related disasters threaten global growth, expect consequences.

How much? How long?

A few pullbacks (a drop of 5%) should be absolutely expected. A correction or two (declines of 10%) are entirely possible. Remember that two-thirds of the time a drop of that size does not foreshadow the coming of a bear market (a plop of 20% or more) and even if a bear arrives, it can depart fast (as happened exactly a year ago). The most important thing to remember is to park your emotions and resist the temptation to bail when the numbers turn red. Of course, you should also have a balanced approach to investing. No equity-only portfolio. No individual stocks. Forty per cent fixed-income assets (bonds, preferreds). Diversification (use ETFs, have some REITs, not too much maple etc). And be tax-smart, putting boring bonds in an RRSP,  growthy stuff in your TFSA and dividend-producers in the non-reg account).

So declines are a fact of life. But remember 70% of the time markets advance. Thus never be too fearful, nor too greedy. If you end up with a cur of a security – the result of an emotional mistake – dump it. Unlike ex-spouses they’re good for something beyond regret.



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.