Preferreds, Part Deux

DOUG By Guest Blogger Doug Rowat

It was a speech that normally no one would have cared about given by a Bank of Canada deputy governor who probably 99% of the population hasn’t heard of, but it may amount to the most significant speech that we’ll hear this year and likely offered the clearest signal yet that interest rates are going higher in this country.

In her June 12th speech to a Winnipeg business school, Bank of Canada Senior Deputy Governor Carolyn Wilkins laid out her evidence supporting Canada’s current economic strength noting, in particular, that “growth is not being driven by just a few key industries” but rather is broad based across many regions and sectors. She further highlighted that “decisions must be taken” by the Bank of Canada to adjust to our stronger economy. The market interpretation was immediate: Canada can do just fine with lower oil prices and the Bank of Canada is now actively considering raising interest rates. The market reaction was equally swift: the loonie rallied and Government of Canada bond yields soared.

If there was any doubt about what Wilkins was intimating, it was erased the next day when Governor Stephen Poloz appeared on CBC Radio and said the following: “people need to be thinking about what their finances would look like were interest rates to be a little higher when they renew their mortgage.” In central bank speak, which can be opaque and indecipherable (Alan Greenspan once famously said “I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant”), this amounted to pure clarity: the Bank of Canada would soon be raising interest rates.

However, the statements of both Wilkins and Poloz shouldn’t have surprised the market. Strong Canadian economic growth has been in place for some time (GDP growth has averaged 3.5% over the last three quarters far outstripping most other developed nations) and the US Federal Reserve has now raised interest rates four times in the past 2.5 years versus two CUTS for the Bank of Canada.

Such a divergence of interest rate policy between our two nations is extremely rare and never sustainable. The Bank of Canada simply cannot resist the Fed for long stretches without inflicting economic damage. Historically, the Bank of Canada and the Fed benchmark interest rates actually have almost a 90% positive correlation. We knew something had to give and now it appears that it will. Below is how the market odds have shifted in the past year with respect to whether the Bank of Canada will raise interest rates at its December meeting:

Odds of a Rate Hike at the Bank of Canada’s December Meeting

Source: Bloomberg, Turner Investments

So what to do now? Well, from a portfolio perspective, as I said in a post here back in October, buy Canadian preferred shares. We have a substantial weighting to them in our client portfolios and while they’ve gained 36%, including dividends, since their January 2016 lows, we think that the rally is far from over (potentially far from over, as our compliance department would be quick to point out).

Most Canadian preferred shares have their dividends indirectly pegged to Government of Canada 5-year Bond yields, so, generally speaking, when bond yields move higher so do Canadian preferred share prices. The chart below shows the relationship. Specifically, the correlation sits at a strong 73%. The red circle, by the way, indicates the speech from Carolyn Wilkins and the subsequent comments from Stephen Poloz—a further shot of nitro into a nicely purring preferred share engine.

Canadian Preferred Shares vs Government of Canada 5-Yr Bond Yield

Source: Bloomberg, Turner Investments

So, you can retreat into pessimism, which is a favourite pastime for many commenters here, deny the strength of our economy and ignore the fact that interest rates are moving higher. Or you can recognize that the record-low-interest-rate world that we’re living in is about to come to an end.

In other words, you can take the path of blind status-quo pessimism or the path of clearly illuminated reality. Come to the light, folks.

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

113 comments ↓

#1 paulo on 07.01.17 at 4:10 pm

Doug good article:
what do you think about Scotia Banks call for 2 X.25% increases this year with another .25 early in 2018 ?

#2 tkid on 07.01.17 at 4:16 pm

Why have TSX ETFs, such as XIU, been kicked in the nads this past week? Is it just the market having a dither, or is this more of ‘interest rates are going up so therefore stocks are worth less?’

#3 David McDonald on 07.01.17 at 4:35 pm

You and Garth predicted a higher Canadian dollar by mid year and voila although the rapid rise is a bit mysterious. I have been buying Preferreds since Garth said they were on sale. True some are still down from my entry point but I don’t get too worried because of the 5% yield. You guys have an amazing track record.

#4 Cici on 07.01.17 at 4:38 pm

I hope you’re right…I want my preferreds to soar and I want to be FIRST tonight!

#5 Cheekmonster on 07.01.17 at 4:53 pm

Great article, do you have a few examples of Canadian preferred shares that you can recommend?

#6 you're trying too hard , Doug on 07.01.17 at 4:59 pm

‘In other words, you can take the path of blind status-quo pessimism or the path of clearly illuminated reality. Come to the light, folks.’

…..

either that or Garth is rubbing off……

#7 Freedumb on 07.01.17 at 5:05 pm

So, you can retreat into pessimism, which is a favourite pastime for many commenters here.

—————————————————————–

Not for me, no sir. I’m the most positive, happy, beautiful, humble man you’ve ever met…sort of. I mean we haven’t actually met, but you’d love me like a brother or a chocolate sundae or nail’s on a chalk board, it just depends on what you prefer. I have mastered humility. Thank you for being one of my imaginary friends Doug.

#8 john on 07.01.17 at 5:06 pm

So on the more meaty and deeper analysts than your article, what funds would you recommend and why?

#9 Canadian GDP on 07.01.17 at 5:09 pm

Strong Canadian economic growth has been in place for some time (GDP growth has averaged 3.5% over the last three quarters far outstripping most other developed nations) and the US Federal Reserve has now raised interest rates four times in the past 2.5 years versus two CUTS for the Bank of Canada.
…….

what happens with;
a) a rising Canadian dollar
b) OIL at $45
c) real estate slowing down significantly

?

#10 The Technical Analyst, CSTA, CPD on 07.01.17 at 5:11 pm

Should have a disclaimer on this stuff:

The Risks

The risks of preferred shares are very similar to those of corporate bonds. Preferreds are also sensitive to interest rates but unlike bonds, these securities either never mature or will return principal only after 30 or 40 years. As interest rates rise fixed-income securities, such as bonds and preferreds, will fall in value. An investor can be stuck with a security that does not mature. However, in the relatively benign interest rate scenario that most economists envision, in which the rise in long-term interest rates is reasonably contained, preferred stocks with their higher coupons should perform relatively well compared to their bond equivalents.

Credit risk is also a concern. Troubled companies can suspend preferred dividend payments and in a bankruptcy, preferred shareholders will suffer market losses much like common shareholders. Many preferred shares carry credit ratings but there are plenty of others that are unrated. In our view, banks and insurance companies should benefit from a steepening yield curve that should bolster their earnings power.

Preferred stocks like most corporate bonds have call provisions which give the issuer the opportunity to redeem these securities early, generally no earlier than five years after issuance. Issuers call securities when they can be refinanced at cheaper levels or when the issuer has excess capital on its balance sheet. If the investor has purchased the preferred at a price in excess of that call price, he/she would have a loss.

http://www.investopedia.com/advisor-network/articles/010417/investing-preferred-stocks-interest-rates-rise/

#11 Debtslavecreator on 07.01.17 at 5:12 pm

Of course the economy is printing solid GDP and employment and other numbers but it’s fake Doug
Under the hood the economy is merely reflecting the historic debt bubble RE madness and it is only a temporary spike in debt fuelled spending , income and asset inflation
It’s completely unsustainable and is going to run out
The most probable scenario is a sudden and stunning economic air pocket that is very likely to hit in Q3
I am an optimist but charts don’t lye
When one checks under the hood this economic strength is temporary and fake and poor quality
It is what it is
The BofC will more likely than not panic along with god ECB and FED and drop rates and start QE by March /April next year if not sooner
This is simply how our junk neoliberal economic system matures and completes its inevitable collapse

#12 Smoking Man on 07.01.17 at 5:15 pm

Lefty Mutts, who would have known?

#13 Penny Henny on 07.01.17 at 5:16 pm

As some of you might remember I just completed a sale of a sad Etobicoke bungalow two weeks ago and now I have some serious cash to invest.
Currently 400k invested couch potato style but no bonds, maybe 25k in preferreds (CPD).
So now I have 800k more to put to work for me.
My thoughts are for the short term dump 200k in HISA paying 1.5% + $300 signing bonus.
Take another 150-200k and plop in down in rate reset preferreds. I’ll need a 40-50k float, so what to do with the other 400k and when do I deploy it?
My thoughts were to wait until the dogs days of August and plop 200k down and hope for some sales and then wait to deploy the other 200k depending on what the markets are doing.
Situation is retired. No pension. 52 and married. Fear of losing money is much higher than fear of missing out on some gains. House paid for. Also the money in the HISA will let me ride out close to 4 years of market downturns.

#14 TurnerNation on 07.01.17 at 5:18 pm

I’m drowning in guilt today. Thinking of quitting my job for that guaranteed minimum income (tax free natch, so each dollar is worth 1.5x to me).

Good bye Canada, hello CIAnada country: Strategy of Tension. Canada Day is cancelled:

https://theeyeopener.com/2017/06/rsus-canada-150-statement-causes-tension-among-the-board/

“On June 26, a statement titled “Countdown to Colonialism 150” was posted to the RSU’s Facebook page. The post stated that Indigenous peoples have been on this land for much longer than 150 years and that Canada 150 “means we are celebrating 150 years of colonization.”
“Moving into this week please be critical of what you are celebrating—or please don’t celebrate at all,” the statement read.”

#15 Penny Henny on 07.01.17 at 5:32 pm

Oh, let me clarify. When I said the fear of losing money was high I only meant that in far as timing. I wouldn’t want to put it all in at once only to find out later I invested it all at the top of the market. My plan is some soon and some later and maybe some later after that. Allotment is 1/3 Canada, 1/3 USA and 1/3 Rest of world.

#16 Penny Henny on 07.01.17 at 5:33 pm

I guess I could always buy a few rental properties in Welland and become a LANDLORD!

#17 JSS on 07.01.17 at 5:41 pm

Doug, can you please recommend a preferred share ETF?

#18 IB on 07.01.17 at 5:44 pm

Blog dogs: if you had 100k USD, would you convert them to CAD now or wait?

#19 earthboundmisfit on 07.01.17 at 5:48 pm

Just a ****hair shy of breaking even on ZPR. Meanwhile, the dividends ……

#20 the Jaguar on 07.01.17 at 6:01 pm

‘An Indignity” is really the only way to review the dog photo. People who dress up pets in that way should be imprisoned. Not you Doug. You’re too cute to go to jail.
Comments might be a bit thin today, Doug. Don’t despair, as I suspect most of the regular blog dogs are half in the bag, celebrating the nation’s birthday. A supersonic jet of some type just flew over my city. I may need a change of underwear. Thank heavens I had my wine glass secured on a cork coaster.
Nothwithstanding the tedium of graphs ( all financial planner types seem to love these..), I agree we can expect at least two and maybe three interest rate increases this year. Good. Tired of all the sheeple and their house porn. Let them feel the worm turn. Their sense of entitlement and self satisfaction is about to come crashing down if they over extended themselves.
Like an overdressed tart at a cheap cocktail party it’s time to look in the mirror and admit that life is more than window dressing.
In the distance I can hear First Nations drumming. Thank you for your authenticity today. Happy Canada Day Doug.

#21 Entrepreneur on 07.01.17 at 6:01 pm

I don’t know DR but I will ask my realtor what to do as they have been entrusted by the government. I am sure they would know what to do. I have full complete faith in the whole system as they are so honest and truthful.

Reality was out the window a long-time ago.

#22 Mark on 07.01.17 at 6:12 pm

“deny the strength of our economy and ignore the fact that interest rates are moving higher.”

So relying upon data, such as the month-over-month deflation, an extremely rapidly surging CAD$, and very weak employment opportunities, particularly in the scientific and professional sector, is suddenly a bad thing? The TSX indices are also another data point, as is the bond market, showing profound weakness in Canada’s economy. Commodity prices are pretty horrible as well, with little revival in capex to be seen. RE prices are falling nationwide after the apex reached in 2013 — sales mix changes no longer able to create an allusion of rising prices.

The GDP numbers are just one data point, and a data point that is more often than not revised. It would be nice to think that the Canadian economy is doing well and is on the upswing, but an overwhelming majority of the data points say something quite different.

#23 Mark on 07.01.17 at 6:17 pm

“Blog dogs: if you had 100k USD, would you convert them to CAD now or wait?”

I would come up with an asset allocation you want, including that of your cash component, and then gradually, over the next few years, convert a small portion to eventually achieve your target allocation.

I personally have around half my cash allocation in USD$, half in CAD$.

#24 Mark on 07.01.17 at 6:24 pm

“Why have TSX ETFs, such as XIU, been kicked in the nads this past week? Is it just the market having a dither, or is this more of ‘interest rates are going up so therefore stocks are worth less?’”

Its mostly a story of the oil sector (ie: XEG ETF if you want to look up the charts). In the past 2 weeks it has shed approximately 7% of its value. Basically a matter of the rising CAD$, and lower energy prices. The energy sector makes up ~21% of XIU, so a 7% loss takes over 1% off of the index alone.

Historically the TSX performs much better in a true rising interest rate environment, particularly at the long end of the curve. But that’s not really happening, or at least not now.

#25 InvestorsFriend on 07.01.17 at 6:28 pm

Odds versus probability

#140 A Reply to #65 InvestorsFriend on 07.01.17 at 1:21 pm
“Odds is the right word.

*******************************

I could not figure out if you agree that odds is the right word or not. A bunch of analysts and market participants may have a consensus perception of the odds of a rate hike. But they have no ability to know the probability. You are right it is a binary thing.

I think calling market consensus a probability is misleading and I think you were agreeing with me. Not sure.

Most rate reset preferred shares looked reasonably attractive a month ago and probably for most of the past two years or more. I bought some in that period. I am not about to add today after they already rose a good bit.

#26 Pepito on 07.01.17 at 6:29 pm

A serious question, Doug. What exactly has been the driver in the increase in GDP growth in the last 3 quaters? Has this data been made public?

#27 Doug Rowat on 07.01.17 at 6:37 pm

#11 Debtslavecreator on 07.01.17 at 5:12 pm

Of course the economy is printing solid GDP and employment and other numbers but it’s fake Doug
Under the hood the economy is merely reflecting the historic debt bubble RE madness and it is only a temporary spike in debt fuelled spending , income and asset inflation
It’s completely unsustainable and is going to run out
The most probable scenario is a sudden and stunning economic air pocket that is very likely to hit in Q3
I am an optimist but charts don’t lye
When one checks under the hood this economic strength is temporary and fake and poor quality
It is what it is
The BofC will more likely than not panic along with god ECB and FED and drop rates and start QE by March /April next year if not sooner
This is simply how our junk neoliberal economic system matures and completes its inevitable collapse

When you watch the fireworks tonight, you’re convinced one is going to land on the hood of your car, aren’t you?

–Doug

#28 Doug Rowat on 07.01.17 at 6:51 pm

#1 paulo on 07.01.17 at 4:10 pm

Doug good article:
what do you think about Scotia Banks call for 2 X.25% increases this year with another .25 early in 2018 ?

Thank you. I wrote this post mid-week. The latest GDP numbers yesterday (3.3% growth past 12 months and expansion in 14 of 20 sectors) only bolster the case for a rate increase. Yes, 2 rate increases are definitely now possible this year.

–Doug

#29 Doug Rowat on 07.01.17 at 7:02 pm

#20 the Jaguar on 07.01.17 at 6:01 pm

‘An Indignity” is really the only way to review the dog photo. People who dress up pets in that way should be imprisoned. Not you Doug. You’re too cute to go to jail.
Comments might be a bit thin today, Doug. Don’t despair, as I suspect most of the regular blog dogs are half in the bag, celebrating the nation’s birthday.

Thank you for your authenticity today. Happy Canada Day Doug.

I’ll be joining them later tonight. Happy Canada Day to you too.

–Doug

#30 Freedom First on 07.01.17 at 7:12 pm

The black lab kinda looks like James Bond.
……………………………………………………………..

I am still liquid and diversified and overweight cash.

There will be crystal clear bargains to be had as RE market ejectulates more and more wealth.

This will present worthy future paydays.

I made the same call here when oil was at 140 and dropped to the low 40’s and into the 30’s. I said I sold at 140 here at that time, as I also stated here when I started nibbling at oil&gas when it hit the low 40’s and dropped into the 30’s.

Also shared other movements here over the years that I did.

I am really quite a disciplined conservative investor for the past 40 years, but huge drops in every market, including housing, do present themselves. I like to look at them as gifts from above.

I have no fear and no greed and no debt. Also, no dependents, child support, alimony, or nagging. Although, proudly, I can truly say I have loved all of my girlfriends.

Happy Canada day!

ps don’t forget the lollipops.

#31 Mark on 07.01.17 at 7:22 pm

“what do you think about Scotia Banks call for 2 X.25% increases this year with another .25 early in 2018 ?”

http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

The 1-3 year paper is indicating there is some plausibility of 1-2 increases (there has to be some time premium as well, keep in mind!), but more than that is likely completely off the table. The problem with the bank economists and their public-facing ‘research’ and prognostications is that you can’t be quite sure if they’re “talking their book” or not. The banks certainly have the power to enter into trades on their proprietary account if they believe that the bond market is going to head a certain way. So they may very well be guiding the public into beliefs that support market demand for the opposing trade.

Canada, unfortunately, has so few independent investment dealers remaining, and research departments that act in support of them, so those that are affiliated with the big-5 end up receiving a disproportionate amount of media coverage. And thus their ‘public’ views often become the public narrative, even if completely separated from reality. Its rather like the problem of Canada’s new media re-printing Realtor press releases almost verbatim with no critical analysis of things like the sales mix. Allowing RE insiders to cash out over the past few years at valuations not supported by comparables to a few remaining gullible buyers.

#32 Van Isle Retiree on 07.01.17 at 7:31 pm

OK, some clarity required here. I have seen correlations posted previously on the blog, but I am suspicious about the wording that you put with them. In today’s post, you refer to a 90% correlation between the Bank of Canada rate and the Fed rate, later you refer to a 73% correlation. But correlations are always reported as values between 0 and 1. Do you actually mean a correlation of 0.90 and 0.73? If so, then I must qualify what you say in the post.
A correlation of 0.90 does not mean that one variable predicts the other with 90% accuracy – rather it means that 81% of the variance in the predictability of one variable is account for by the other variable. Similarly a correlation of 0.73 means that 53% of the variance is accounted for by the other variable. (To determine how well one variable predicts the other, square the correlation, then multiply by 100. As you can see, as the correlation decreases, how much one variable predicts the other decreases exponentially.)
Have no doubt, correlations of .90 and .73 in “real world” variables are impressive indeed. I only wish to ensure accuracy in how you are interpreting the statistics.

Van Isle Retiree (OK, and stats nerd – now you know)

#33 oncebittwiceshy on 07.01.17 at 7:37 pm

Hey Doug, # 11 Debtslavecreator has a valid concern regarding the sustainability of our GDP numbers, especially if we understand the magnitude of the FIRE industries contribution to those numbers.

Canada has a number of big problems coming up and the bursting of this housing bubble will be the catalyst for a number of headwinds facing our economy.

The biggest problem will obviously be unemployment but as Mark has pointed out (I know, I know), the degree of household spending that will be withdrawn from the market cannot be understated. This will start a cycle of unemployment that will be challenging.

Rising interest rates will be the GDP killer as the largest component of our GDP is consumer spending. There won’t be too much spending when so many FIRE industry jobs are lost and homes devalued.

Once the rest of the world becomes aware of our housing implosion you might also see an exacerbation of bond selloffs in Canada, in particular.

http://www.marketwatch.com/story/global-bond-yields-march-higher-as-easy-money-era-shows-age-2017-06-29

That selloff could trigger more selloffs as the “bond vigilantes” pull out of this “safe haven”. The result of that would be interest rate increases in the mortgage market that may be very surprising.

Rising interest rates are a godsend to pension plans and insurance companies because they lower their liabilities. Too many plans have their eyes on return and not enough on their liabilities. This will be some consolation, I guess.

Will they lower rates again, after? Probably. Will it help? Too little too late but they haven’t left any room for anything else, have they?

The probable recession that ensues will probably make every other recession we’ve ever had look like an uptick. But I’m being optimistic. Happy Canada Day!

This recession will make any of our past recessions look like an uptick.

#34 Spectacle on 07.01.17 at 7:48 pm

Hey Dogs,
In particular.
” Penny Henny on 07.01.17 at 5:33 pm”
I guess I could always buy a few rental properties in Welland and become a LANDLORD!”
Yay you won, but love the traction your going to get on your currently invested portfolio.

I must agree with you on the temporary caution on investing, implying a peak of the market.

We know about guessing market peaks, ( thanks Garth…) but we are there at that point , and in a volatile investment arena.

Like your short term high ( snickering along with you here) interest rate of 1.5 . But it’s safe in the short term..

And you will stay far away from anything to do with real estate, unless it’s in a bankruptcy and possession company: this is going to get very ugly , very fast in real estate.

Hugs Dogs, M

#35 Gentle ,Loving Kindness on 07.01.17 at 7:53 pm

Look at XIU.t on a 5 year timescale, the trend is growing by about 3% per year. It started at the bottom of the trend channel in 2012, hit the top of the channel in mid-2014, and then hit the bottom of the channel at the end of 2015. In March 2017 it reached the top of the channel and is now looks to be heading back down to the bottom, and will probably around $19 in the summer of 2018. I would not be an investor of XIU.t, and am not a bull of the TSX going forward.

#36 Tony on 07.01.17 at 8:02 pm

If interest rates actually do rise in Canada and America I’ll play it safe and try to short a handful of zombie companies that should never have survived albeit only because of low or zero interest rates.

#37 Tony on 07.01.17 at 8:09 pm

Re: #4 Cici on 07.01.17 at 4:38 pm

From what I’ve read they’re supposed to lie about the second quarter GDP in America very soon. The information is firmly backed up by the bank shares going upwards and the golds going downward when the opposite should have happened with the American dollar croaking the past few weeks. It looks like a sure thing for preferred shares at least in the short term of around one months’ time.

#38 Nero on 07.01.17 at 8:16 pm

#13 Penny…..Well done!!!
Have some fun with it! :)

#39 Tony on 07.01.17 at 8:20 pm

Re: #30 Freedom First on 07.01.17 at 7:12 pm

I didn’t foresee the one about the bankers rigging the oil and stock market back on February 11th 2016. Thus I was late and never saw oil drop to the 20 dollar level.

#40 Ron on 07.01.17 at 8:22 pm

Preferreds are interesting, but every time I think about investing, I wonder, why not just buy Big 5 common shares instead?

Big 5 commons will also benefit from growing net interest margin that comes with rising rates, plus I get the appreciation I wouldn’t get with preferreds. There is, in Warren Buffet’s parlance, a deep moat around the Big 5, and they have never ever cut their dividends.

What am I missing?

#41 VanDammeCouver on 07.01.17 at 8:35 pm

Really the economy is strong? What exactly are you referring to Doug? Debt?

#42 Balmuto on 07.01.17 at 8:51 pm

A lot of positives for the Canadian economy right now. The tech sector is doing well, and getting better thanks to Trump’s immigration policies:

“A big draw for start ups is a jump in potential graduates as U.S. President Donald Trump’s policies divert foreign students to Canada. Sensing an opportunity to wean his economy away from a reliance on commodities, Prime Minister Justin Trudeau is offering fast-track visas to high-skilled workers and increasing funding for innovation.”

And it’s starting to pay off:

“The tech innovation ecosystem in Toronto has just been blowing up,” said Bilal Khan, founding managing director of OneEleven, a startup accelerator backed by OMERS and Royal Bank of Canada, that’s played home to successful Canadian tech companies including Wealthsimple and Big Viking Games.

And opportunities abound for those with the right skills:

“Talented job applicants are receiving multiple offers from competing companies, a precursor to increased salaries, according to OneEleven’s Khan.”

https://www.bloomberg.com/news/articles/2017-06-30/trudeau-vs-trump-lures-silicon-valley-and-students-to-toronto

#43 Doug Rowat on 07.01.17 at 8:58 pm

#32 Van Isle Retiree on 07.01.17 at 7:31 pm

A correlation of 0.90 does not mean that one variable predicts the other with 90% accuracy.

Of course, it’s a relationship, not causation. However, the US is the world’s largest economy and our largest trading partner. What the Fed does is going to have extraordinary influence on the Bank of Canada. In this case, I would say that, over time, what the Fed does is actually predictive of the actions of the Bank of Canada.

–Doug

#44 Mark on 07.01.17 at 9:04 pm

“Once the rest of the world becomes aware of our housing implosion you might also see an exacerbation of bond selloffs in Canada, in particular. “

The response in the US was heavy demand for US Treasuries when their housing collapsed, while ‘risky’ private sector debt, particularly in industries and sectors that are heavily leveraged to consumer consumption sold off quite severely. Deflation implies very strong demand for risk-free assets, in particular, Treasuries, and gold.

I listen a lot to Bob Hoye on the topic at TalkDigitalNetwork, and used to read a lot of Mike Shedlock, particularly in the 2006-2008 era in which almost everyone thought the USD$ was on a path to $0, Gold $5000, and the stock market to the moon. Shedlock, in particular, took a lot of heat for predicting extreme demand for the USD$ as USD$ was severely underweighted in domestic portfolios, and as the natural consequence of the deflation of the US housing bubble. Hoye argues that gold, along with government debt, represent the ‘senior currencies’, and are in demand when other commonly held risky assets are defaulting. Thus applying this logic to Canada, as the housing collapse accelerates, CAD$ government debt and the CAD$ itself should do very well now that consumer borrowers are very restricted in their ability to borrow and spend, and must increase their savings rate to repay debt that has undergone spread expansion.

I would not be an investor of XIU.t, and am not a bull of the TSX going forward.

Well how many 10-year-periods do you know of, historically, that the TSX has been flat (9 years and counting since the last peak of 15,200 in 2Q2008)? That’s the problem I have here with discarding the TSX. Its P/E more closely resembles that of an emerging market. The Canadian economy, while probably not growing as fast as the recent “news” would have us believe, is still able to provide reasonably robust earnings. The cyclicals have mostly been beaten to hell.

You can basically sit back in XIU, collect an almost 3% cash tax-preferred dividend these days (which is handsomely more than most other investments pay these days), and eventually there will be upside. The whole situation reminds me of the TSX circa 1999, with the obviously overvalued techs (Nortel/BCE) omitted — not a bad thing to hold going forward. Not investment advice, of course, but I wouldn’t write Canada or the TSX off quite yet.

#45 joblo on 07.01.17 at 9:39 pm

oh yeah, magical economic growth, inflation, so up interest rates go. So next we should see wage growth. Ya right.

#46 Ace Goodheart on 07.01.17 at 9:55 pm

Happy Canada Day!

No worries about financials today.

Drink champagne. Celebrate. Fireworks.

Cheers to all!

Greatest country in the world!!!!

#47 oncebittwiceshy on 07.01.17 at 10:13 pm

Mark: “The response in the US was heavy demand for US Treasuries when their housing collapsed, while ‘risky’ private sector debt, particularly in industries and sectors that are heavily leveraged to consumer consumption sold off quite severely.”

Mark, by this rationale Greece should have been swamped with demand when it imploded. The fact of the matter was the U.S.A. was seen as a safe haven because the USD is the world’s reserve currency. Canada was seen as a safe haven because it “escaped” the global crisis.

The phenomenal amount of Canadian bonds that were purchased by other countries during the GFC was unprecedented.

“If not a full-blown systemic risk, Canada’s leverage to
foreign portfolio investors is a notable vulnerability for the country’s capital markets and debt issuers;”

“Nonresidents now hold just over 40% of the publicly available GoC bond stock—more than double their pre-crisis share”

“we estimate that the domestic value of FX reserves allocated to Canada has tripled to $300 billion since the
crisis.

https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/government-credit-04feb2016.pdf

“Meanwhile, underlying demand risks faltering, partly in response to Canada specific concerns, but also courtesy of policies being pursued by foreign governments. More supply and less demand results in
lower prices for affected assets, including the Canadian
dollar, rates and credit.”

I tend to agree with him. Lol

#48 TWO FINGERS WATSON on 07.01.17 at 10:18 pm

BINGO !!!

#40 Ron on 07.01.17 at 8:22 pm
Preferreds are interesting, but every time I think about investing, I wonder, why not just buy Big 5 common shares instead?

Big 5 commons will also benefit from growing net interest margin that comes with rising rates, plus I get the appreciation I wouldn’t get with preferreds. There is, in Warren Buffet’s parlance, a deep moat around the Big 5, and they have never ever cut their dividends.

What am I missing?

#49 Mark on 07.01.17 at 10:39 pm

“The tech sector is doing well, and getting better thanks to Trump’s immigration policies:”

Not so fast. In order for those companies to move to Canada, they have to get their foreign (ie: non-US) workers through the TFW program in Canada. This means they must foment the delusion of a Canadian tech worker shortage (when most Canadian tech jobs receive hundreds of applications from very qualified individuals, and even top grads find extreme difficulty finding quality jobs!). So yeah, you’ll probably see a lot of that in the usual sort of propaganda publications, claiming shortages of Canadian tech workers, but the Canadian job boards and opportunities for high-end Canadian tech workers, particularly in IT, are pretty dead.

The Government of Alberta, for instance, recently used its power to deny TFW issuance to Alberta employers looking in a number of tech-related occupations. Instead, referring those employers to organizations and databases such as those run by APEGA and other related organizations, for their STEM and tech needs. The industry didn’t like this, and occasionally you see the usual sort of industry lobbyists making grandiose claims of shortages of workers in the Fort McMurray area despite hundreds of thousands of laid off oil and gas workers.

Talented IT workers are not only not receiving multiple offers, but a good many of them struggle even to receive one offer, or to have their resumes picked out of piles of literally hundreds of others. Which strongly implies employer complete disinterest in hiring talented workers.

But hey, don’t believe some random guy on the Internet that posts in blog comments forums. Look at Statistics Canada data for the Professional, Scientific and Technical Services category:

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/labr74a-eng.htm

After peaking in 2013, Canada’s tech workers actually earned less in 2016. Roughly 6% less in real dollars. Hardly much of a boom when the rest of the workforce advanced by over 4% in real dollars in the same interval.

#50 A Yank in BC on 07.01.17 at 10:52 pm

Doug, in general..does that same reasoning make a case to be bullish on American preferred shares as well?

#51 Smoking Man on 07.01.17 at 11:15 pm

I feel it, after today’s T2 ridiculous words. Deplorables all across canada are rising, connecting, becoming active.

Twitter is the new MSM, another addiction for me.

#52 Smoking Man on 07.01.17 at 11:19 pm

50 A Yank in BC on 07.01.17 at 10:52 pm
Doug, in general..does that same reasoning make a case to be bullish on American preferred shares as well?

Ill take this one Doug.
Duh, rates go up, prefers go up.

I think you knew the answer but want a b list celebrity to answer you.

Well this z list celeberty just did. Your welcome

#53 Speculator is panicking? on 07.01.17 at 11:28 pm

I noticed this listing in Markham:

32 Everette Street, Markham

https://www.zolo.ca/markham-real-estate/32-everett-street

It was sold on March 28 for 1,200,000 and it’s back on the market on today for 1,195,000… Is the speculator panicking?

#54 A Reply to #13 and #15 Penny Henny on 07.01.17 at 11:45 pm

“… so what to do with the other 400k and when do I deploy it? … Fear of losing money is much higher than fear of missing out on some gains….

“When I said the fear of losing money was high I only meant that in far as timing. I wouldn’t want to put it all in at once only to find out later I invested it all at the top of the market. My plan is some soon and some later and maybe some later after that.”

Consider dollar-cost averaging or value averaging over ten years.

https://en.m.wikipedia.org/wiki/Dollar_cost_averaging

https://en.m.wikipedia.org/wiki/Value_averaging

“Buffett has said many times that the best way for the majority of people to invest is to dollar-cost average into a low-cost S&P 500 mutual fund.”

https://www.fool.com/investing/2016/09/04/3-pieces-of-warren-buffett-wisdom-for-an-expensive.aspx

#55 Stock Picker on 07.02.17 at 12:02 am

The Pref call was a good one…..bought CPD at $11 and still holding @ $14. I hold a variety of individual -refs as well ……through the Poloz Dip…..and now righted at par and paying handsomely. Thank you. Happy Canada Day…..I love the fact that Trudeau is eating crow after saying Canada was no longer a country…..and to see proud nationalism reign for a day opposed to his ghetto plan for ethnic “diversity” and bloc voting schemes.

#56 Rich Young on 07.02.17 at 12:12 am

TIME TO PULL YOUR MONEY OUT OF THE MARKETS… engulfing weekly candles on many stocks. I’ve started my SHORTFOLIO with Short TSLA and looking at shorting W as well. The TECH Bubble will blow. The record margin debt in the market will see others follow. Good stocks, dividend stocks will all get pulled down as MARGIN CALLS galore engulf this bubble market. REAL ESTATE is a bubble but STOCKS ARE AN UBER BUBBLE

#57 Balmuto on 07.02.17 at 12:28 am

#49 Mark on 07.01.17 at 10:39 pm
“Look at Statistics Canada data for the Professional, Scientific and Technical Services category:

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/labr74a-eng.htm

After peaking in 2013, Canada’s tech workers actually earned less in 2016. Roughly 6% less in real dollars. Hardly much of a boom when the rest of the workforce advanced by over 4% in real dollars in the same interval.”

That’s a very broad sector, “Professional, scientific and technical services”. According to Statcan:

“The main components of this sector are legal services; accounting, tax preparation, bookkeeping and payroll services; architectural, engineering and related services; specialized design services; computer systems design and related services; management, scientific and technical consulting services; scientific research and development services; and advertising, public relations, and related services.”

That’s far too broad a category to be representative of the tech sector. And the kinds of jobs referred to in the Bloomberg article would pay well in excess of the $28.11 an hour average for that Statcan category. But the flip side is that those jobs require skills and experience that likely aren’t available in sufficient quantity from the domestic pool of candidates. Hence the wise move by Trudeau to facilitate the sourcing of such candidates from abroad.

#58 Anderson on 07.02.17 at 12:43 am

Why should we invest in preferreds now and not wait until the interest rates go up?

The way I see it, yields won’t go up until a reset and the increase in interest rate will bring the stock price down.

#59 waiting on the westcoast on 07.02.17 at 12:44 am

I see Mark is trying to get 150 posts for Canada day… ;-)

Doug – great article – thx for taking one for the team today!

#60 Cloudy on 07.02.17 at 12:57 am

Hey Doug I asked this last week but didn’t get an answer. I’m curious how many ETFs you would recommend for a portfolio with $20,000, $50,000 $100,000 etc? Too many and it seems rebalancing can be costly but not enough and you don’t grab a wide section of the market?
Thanks!

#61 paulo on 07.02.17 at 1:12 am

#44 mark:
i have a number of Chinese friends from well to do families in mainland china, mostly real estate owners.
interestingly almost all are selling there positions (homes) and heading to the exit door. my take is they have figured it out and know its time to get out.

#62 Ronaldo on 07.02.17 at 2:35 am

#18 IB on 07.01.17 at 5:44 pm

Blog dogs: if you had 100k USD, would you convert them to CAD now or wait?
——————————————————————-
How much have you gained on them since you acquired them?

#63 CJBob on 07.02.17 at 7:37 am

So, you can retreat into pessimism, which is a favourite pastime for many commenters here, deny the strength of our economy and ignore the fact that interest rates are moving higher.
______________________
It’s got to be tough for the T2 haters as well who are constantly talking about how he is driving the economy into the ditch. The numbers say otherwise.

#64 Richman on 07.02.17 at 8:19 am

Real estate makes up a huge proportion of the Canadian “economy”. If rates go up, down real estate comes and back down the economy goes. It’s a really nice catch 22.

Poloz doesn’t know what to do so he just listens to U2 and then mumbles some stuff about rates doing “their job”.

#65 Howard on 07.02.17 at 8:29 am

Apparently Trudeau’s Canada doesn’t include Alberta.

I figured that when most people ilst Canada’s provinces and territories, they mentally scan the map west to east or east to west. Pretty much impossible to miss anything that way.

Maybe the dim bulb Trudeau doesn’t know how to read a map? Maybe he failed basic geography in addition to basic math?

#66 Lahdeedah on 07.02.17 at 9:28 am

Here’s some RE humor for your Sunday:

On one facebook page for realtors, one realtor posts an article about the house have-nots getting angry and hoping for a crash. Zero stats to substantiate that thesis, just lots of teeth gnashing anecdotes personal accounts of missing out. But the follow up comments are pretty golden.

Realtor #2 here we go again. all these articles. there really influencing buyers and the process to buy. I get this question all the time from buyers. They.re worried if they buy the investment they just spent lots of money and time on will be worth less in the coming months.

Realtor #1 (original poster) So you are not buying into a potential crash?

Realtor #2 umm no

Realtor #2 i don’t believe it will happen, and my buyers and seller need to know this as well. I can back it up with opinions that support my position, so my buyers keep buying and my sellers keep selling.

There you have it, folks. In all it’s non-spell-checked glory.

#67 Lahdeedah on 07.02.17 at 9:29 am

Here’s some RE humor for your Sunday:

On one facebook page for realtors, one realtor posts an article about the house have-nots getting angry and hoping for a crash. Zero stats to substantiate that thesis, just lots of teeth gnashing anecdotes personal accounts of missing out. But the follow up comments are pretty golden.

Realtor #2 here we go again. all these articles. there really influencing buyers and the process to buy. I get this question all the time from buyers. They.re worried if they buy the investment they just spent lots of money and time on will be worth less in the coming months.

Realtor #1 (original poster) So you are not buying into a potential crash?

Realtor #2 umm no

Realtor #2 i don’t believe it will happen, and my buyers and seller need to know this as well. I can back it up with opinions that support my position, so my buyers keep buying and my sellers keep selling.

There you have it, folks. In all it’s non-spell-checked glory.

#68 A Reply to #22 Mark on 07.02.17 at 9:33 am

“… relying upon data, such as the month-over-month deflation….”

What are your data sources, Mark? The latest CPI inflation (April 2017) is 1.6% (the target rate is 2.0%).

http://www.bankofcanada.ca/rates/indicators/capacity-and-inflation-pressures/

“… sales mix changes no longer able to create an illusion (not allusion) of rising prices.”

#69 Welland Ontario on 07.02.17 at 9:36 am

I took a look at that small city and its no place to buy or live. The Real Estate is historic right out of the 1950’s and renovations are not to be seen. The downtown is depressing to say the least, and the citizens look sad. I do not have a dollar to spend there, as even the coffee is bad. Go yourself for a weekend of torment as they should be giving the rooms away.

#70 Howard on 07.02.17 at 9:40 am

** “We don’t aspire to be a melting pot,” Trudeau told the cheering crowd. **

Well isn’t that nice. In that case, why even bother having official languages? Why bother having laws to which everyone adheres?

Am I the only one sick the death of hearing the word “diversity”? Where is the diversity of THOUGHT in Canadian universities?

#71 crowdedelevatorfartz on 07.02.17 at 9:57 am

@#154 Blah de Blah blah
‘Xennials. Born 1977-1983″
+++++

Just dont want to be lumped in with Gen X or Millenials because…..you’re special
A Xenophobic perennial whiner

#72 crossbordershopper on 07.02.17 at 9:59 am

i dont want to question the millionaire money manager, but a preferred is kinda bs. you get a lousy dividend, ifyou guys think that 4% dividend is a good investment, then you all must have millions of dollars to just sit around.
you have long term interest rate risk, which is very sensitive to rates. which is volatility and that is bad.
but you get your fixed rate, or reset mumbo jumbo, peanuts, 3% above 1.3% like pocket change.
and it never rises, unlike good paying common shares that raise their dividends over time, you only get what you get.
credit risk is a real problem, over the long term, many companies that issue pref’s other than utilities, insurance and banks but that is a major problem
this dividend tax credit, in the right place is good, but i find people who have income have income, employment dividend etc, so they are small marginal tax benefit, where capital gain is much better.
so, here we are. i think skip pref’s. i personally can offer you 5% secured against my house, anytime, loan to value, there is a much better opportunity in the private market, much better, these retail investments are bottom of the barrel returns and its all schewed to the company benefit. if they call it, or company specific credit risk or rate changes, because they are long term fixed rate investments. worst of all worlds,, all that for a dividend tax credit.

#73 SW on 07.02.17 at 10:20 am

Thanks for the interesting article, Mr. R.

#74 Statistics 101 on 07.02.17 at 10:26 am

#32 Van Isle Retiree on 07.01.17 at 7:31 pm
#43 Doug Rowat on 07.01.17 at 8:58 pm

“Of course, it’s a relationship, not causation.”

Correct. Correlation does not imply causation.

https://en.m.wikipedia.org/wiki/Correlation_does_not_imply_causation

Van Isle Retiree, I think you may be confusing predictability for covariance. (See links below.)

https://en.m.wikipedia.org/wiki/Covariance_and_correlation

https://en.m.wikipedia.org/wiki/Correlation_and_dependence

Are you a retired statistician?

#75 HaHaHa on 07.02.17 at 10:32 am

All these numbers put out about job growth etc. Honestly what is the difference now from a year ago? From Poloz, Yellen, Carney all say the same thing now. Interest rates to rise. A giant Ponzi scheme indeed. Time to shift and move money again. No wonder average people are turned off.

#76 Doug Rowat on 07.02.17 at 10:38 am

#50 A Yank in BC on 07.01.17 at 10:52 pm

Doug, in general..does that same reasoning make a case to be bullish on American preferred shares as well?

US preferreds on the whole don’t have the same positive relationship to bond yields. They’re just structured differently. If you think interest rates are rising, Canadian preferreds are a better option.

–Doug

#77 crowdedelevatorfartz on 07.02.17 at 11:02 am

A bit of water dumped on the economic campfire?

https://ca.reuters.com/article/businessNews/idCAKBN19L190-OCABS

#78 VICTORIA TEA PARTY on 07.02.17 at 11:28 am

WEIGHT IN GOLD…

…is what your advice is worth to me for sure.

Especially the preferreds which St. Garth of Let the Good Times Roll recommended last year.

Been loading up ever since and the results are amazing.

More to come, unless “it” all falls apart, to wit: I notice New Jersey and Illinois are broke and the US is running out of “mad” money.

That federal loot runs dry at the end of summer and no one in Congress has bothered to notice because they are so busy chasing Russian ghosts.

Perhaps that’s related to Garth’s comments of last week.

Remember where he described an apparent US plan to force Canada to increase our bank rate several times over the next two years?

Why? To bring the Canadian and US currencies closer in value to allow US corporations to make greater profits in their exports to us, and thus “Make America Great Again?”

You’re welcome Mr. President.

Anything else your faithful colonists north of the 49th can do? Like deploying our troops into ACTUAL battle in Iraq/Afghanistan? You know the DND’s phone number, right? Make the call! And have a nice day.

Meanwhile in the nutty BC political landscape here, only God knows what will happen in the next year or so with a BC legislature tied at 43 seats apiece (Liberal– NDP/Green) with one seat left over for Speaker (NDP/Green).

Debates on money bills should be fun.

Glad we sold our house here last year and moved our money OUT of our province to buy those ETFs and preferreds and so on.

Rememeber, higher interest rates will affect real estate here one way or another.

Also, should this new government decide to borrow more money on world markets, then those rate costs will be going up, up, up.

And taxpayers will be on the hook, especially those who voted the current outcome.

Good for you.

#79 A Reply to #154 Lah-dee-dah on 07.02.17 at 11:29 am

“… there is a newly defined demographic you Boomers can whine about. Xennials. Born 1977-1983. I be smack dab in the middle of that. Analog childhood, digital adolescence/adulthood. Aka the Best generation. Truly a rare breed.”

The economist and demographer Daniel Foot wrote a book in 1996 called Boom Bust & Echo: How to Profit from the Coming Demographic Shift. Those born between 1946 and 1964 were the baby boomers. Those born between 1964 and 1982 were the bust generation. And those born after 1982 (the boomers’ children) were the echo generation (now called millennials). Gen X, a subgroup, were those born between 1964 and 1970.

The book is obviously dated, but well worth a read.

#80 Leo Trollstoy on 07.02.17 at 11:36 am

“The tech innovation ecosystem in Toronto has just been blowing up,” said Bilal Khan, founding managing director of OneEleven, a startup accelerator backed by OMERS and Royal Bank of Canada, that’s played home to successful Canadian tech companies including Wealthsimple and Big Viking Games.
And opportunities abound for those with the right skills:
“Talented job applicants are receiving multiple offers from competing companies, a precursor to increased salaries, according to OneEleven’s Khan.”

Spot on

I’m glad that experts in the field agree with me. But then again, I base comments on evidence

Kudos to prospering Canadian IT workers. I know my friends are getting multiple offers and all they do is rotate thru the big 5

#81 Penny Henny on 07.02.17 at 11:44 am

#68 Welland Ontario on 07.02.17 at 9:36 am
I took a look at that small city and its no place to buy or live. The Real Estate is historic right out of the 1950’s and renovations are not to be seen. The downtown is depressing to say the least, and the citizens look sad. I do not have a dollar to spend there, as even the coffee is bad. Go yourself for a weekend of torment as they should be giving the rooms away.
///////////////////////

You are only seeing part of the picture. The west side is nice. I’m in a beautiful neighbourhood (yes built in the 50’s). Decent walk score. People here are great.
There are new subdivisions with great homes if that is what you are into, but then you are driving distance to go anywhere.

#82 paul on 07.02.17 at 11:45 am

#63 CJBob on 07.02.17 at 7:37 am

So, you can retreat into pessimism, which is a favourite pastime for many commenters here, deny the strength of our economy and ignore the fact that interest rates are moving higher.
______________________
It’s got to be tough for the T2 haters as well who are constantly talking about how he is driving the economy into the ditch. The numbers say otherwise.
—————————————————————–
He’s not driving he’s a passenger with his fingers crossed !

#83 The Technical Analyst, CSTA, CPD on 07.02.17 at 11:48 am

#18 IB on 07.01.17 at 5:44 pm Blog dogs: if you had 100k USD, would you convert them to CAD now or wait?
——————————————————————-

If you call a conversion company (trade desk), you will get much better conversion rates if you convert in $60k or $100k amounts. You’ll convert at VERY close to market value (0.3 spread) vs converting at 2-2.5% spread.

As far as converting it. I would go for it and convert it all. At our trading desk we are holding only .004% in USD right now and have been advising converting USD to CAD since the beginning of 2017.

Due note: USD is oversold right now, but CAD is the STRONGEST currency in the G8 these past 2 weeks.

#84 VS on 07.02.17 at 11:52 am

Hi Doug; what is your vision of the oil price; 6-12 months? Thanks

#85 MF on 07.02.17 at 12:09 pm

I hope you are correct Doug. My CPD is hanging on the edge of breaking even and being positive for the first time in two years. Can’t wait to sell it away forever. My take on interest rates is they are only rising so that they can be lowered again when the next crisis hits. This goes for all the central bankers, not just Poloz, who realize they are totally out of ammo for the next crisis.

I also think the 5% yield is paltry. Yes it’s better than a GIC but you still need hundreds of thousands to make the 5% useful in the real world. I know it hardly justified the drop in cpd’s face value for a lot of us.

MF

#86 LP on 07.02.17 at 12:20 pm

#65 Howard on 07.02.17 at 8:29 am
*************************************

or maybe he was standing on a stage, hot and sweaty in a suit on a muggy day, in front of thousands of people, before cameras beaming the broadcast out to maybe hundreds of thousands more, thinking on his feet and lo – he made a mistake. How dare he?

#87 Victor V on 07.02.17 at 12:23 pm

#40 Ron on 07.01.17 at 8:22 pm
Preferreds are interesting, but every time I think about investing, I wonder, why not just buy Big 5 common shares instead?

Big 5 commons will also benefit from growing net interest margin that comes with rising rates, plus I get the appreciation I wouldn’t get with preferreds. There is, in Warren Buffet’s parlance, a deep moat around the Big 5, and they have never ever cut their dividends.

What am I missing?

==============

Diversification.

#88 tkid on 07.02.17 at 12:33 pm

Thank you Mark, Gentle Loving Kindness, Doug:

https://www.youtube.com/watch?v=o0GNZYoCoMw

#89 jas on 07.02.17 at 12:44 pm

Friends,
Can you list (symbols) some of the broadly diversified and liquid preferred ETFs on TSX?

#90 Ron on 07.02.17 at 12:56 pm

#86 Victor V on 07.02.17 at 12:23 pm
#40 Ron on 07.01.17 at 8:22 pm
Preferreds are interesting, but every time I think about investing, I wonder, why not just buy Big 5 common shares instead?

Big 5 commons will also benefit from growing net interest margin that comes with rising rates, plus I get the appreciation I wouldn’t get with preferreds. There is, in Warren Buffet’s parlance, a deep moat around the Big 5, and they have never ever cut their dividends.

What am I missing?

==============

Diversification.

==============

Diversification is a nice mantra, and it makes sense applied ‘horizontally’ across issuers, industries and geographies. I’m not convinced it makes sense ‘vertically’ across the capital structure.

If you like a company, why pussyfoot? Either in or out.

#91 conan on 07.02.17 at 1:12 pm

I thought it was a good Canada Day speech by T2. He missed Alberta, but he made up for it after. He almost tripped on the top stair, and that would have been a much bigger story.

https://youtu.be/LwQS5Vh44Xs?t=9638

#92 Doug Rowat on 07.02.17 at 1:47 pm

#56 Rich Young on 07.02.17 at 12:12 am

TIME TO PULL YOUR MONEY OUT OF THE MARKETS… engulfing weekly candles on many stocks. I’ve started my SHORTFOLIO with Short TSLA and looking at shorting W as well. The TECH Bubble will blow. The record margin debt in the market will see others follow. Good stocks, dividend stocks will all get pulled down as MARGIN CALLS galore engulf this bubble market. REAL ESTATE is a bubble but STOCKS ARE AN UBER BUBBLE

Writing in all-caps will definitely make your predictions come true. Has to, the letters are bigger.

–Doug

#93 Trump's Leadership on 07.02.17 at 2:07 pm

“Although he has only been in office a few months, Donald Trump’s presidency has had a major impact on how the world sees the United States. Trump and many of his key policies are broadly unpopular around the globe, and ratings for the U.S. have declined steeply in many nations. According to a new Pew Research Center survey spanning 37 nations, a median of just 22% has confidence in Trump to do the right thing when it comes to international affairs. This stands in contrast to the final years of Barack Obama’s presidency, when a median of 64% expressed confidence in Trump’s predecessor to direct America’s role in the world.

“The sharp decline in how much global publics trust the U.S. president on the world stage is especially pronounced among some of America’s closest allies in Europe and Asia, as well as neighboring Mexico and Canada. Across the 37 nations polled, Trump gets higher marks than Obama in only two countries: Russia and Israel.”

http://www.pewglobal.org/2017/06/26/u-s-image-suffers-as-publics-around-world-question-trumps-leadership/

#94 Welland Ontario on 07.02.17 at 2:52 pm

#80 Penny H – The homes listed for sale in Welland are overpriced compared to better locations. This is being sold rather than bought to get out of dodge. The number of listings for homes and especially businesses is in the hundreds. Why is that as it should be obvious?

#95 Livin Large on 07.02.17 at 3:04 pm

Ron,

I don’t think you’re missing anything with the “buy the big 5” concept. It has worked very very nicely for me for a couple of decades.

Yes, I took a 50% capital kick in the pills around 2010-11 but the 2001 split and about 6% pa div appreciation since 2011 along with the SP growth since 2015 means I have a rather nice income and capital appreciation stream right now without commisions to pay and a decent beta#.

Certainly not even remotely sexy but never once missed or cut a dividend.

#96 BMO Laddered Preferred Share Index ETF (ZPR.TO) on 07.02.17 at 3:47 pm

Why are BMO Laddered Preferred Share Index ETF (ZPR.TO) monthly dividends declining and not increasing. From this article it appears these monthly dividends should be going up, they’re not they’re going down. Why is that?

#97 Triplenet on 07.02.17 at 3:56 pm

A 1% rate increase will cost you $150.00 per month if you are carrying a 300k mortgage. (avg.)
A 2% rate increase will cost you $300.00 per month – ceteris paribus.
If you’re carrying a larger mortgage…be very aware.
Governments and sovereign debt are not exempt.
The velocity of the average dollar is now very compromised. Government and private.
Compounding all this are the collateral ramifications. Credit cards, vehicle loans and Helocs will compound the pain.
Never mind property capital value loss.
I assure you our Fed finance officials are not as excited as Doug is, with Grandpa and his savings account returns.
Inflation concerns…..do the math. Poloz is inflation watching and analysing….that’s his mandate.
….unless of course we get trumped.

#98 Lahdeedah on 07.02.17 at 4:06 pm

#78 A Reply to #154 Lah-dee-dah on 07.02.17 at 11:29 am

Your numbers are wrong. Gen-X-ers are 1960 to 1980. You must have mistyped. And Millennials are defined as 1980 to 2000. A 20 year span, offspring of the Boomers. There are other less popular interpretations of this, but for the sake of social science research, our professors defined it this way. At the end of the day, the existing parameters are always being redefined by the next theorist, case in point. And it fits. I’m not a Gen-X-er, and I’m not a Millennial. Hence, Xennial. Sorry if that gets your panties in a knot.

Here’s a link to the article, referencing Professor Dan Woodman. Its all over the nets, not just this writeup. You can Googlechecksit.

http://didyouknowfacts.com/theres-now-a-name-for-the-micro-generation-born-between-1977-1983/?utm_content=inf_55_3493_2&utm_source=TSE&utm_medium=cpc&utm_campaign=TSECPC&tse_id=INF_892d28005b8711e790011d41b85aaeb5

#99 Stan Broock on 07.02.17 at 4:50 pm

#27 Doug Rowat on 07.01.17 at 6:37 pm
#11 Debtslavecreator on 07.01.17 at 5:12 pm

Of course the economy is printing solid GDP and employment and other numbers but it’s fake Doug
Under the hood the economy is merely reflecting the historic debt bubble RE madness and it is only a temporary spike in debt fuelled spending , income and asset inflation
It’s completely unsustainable and is going to run out
The most probable scenario is a sudden and stunning economic air pocket that is very likely to hit in Q3
I am an optimist but charts don’t lye
When one checks under the hood this economic strength is temporary and fake and poor quality
It is what it is
The BofC will more likely than not panic along with god ECB and FED and drop rates and start QE by March /April next year if not sooner
This is simply how our junk neoliberal economic system matures and completes its inevitable collapse

When you watch the fireworks tonight, you’re convinced one is going to land on the hood of your car, aren’t you?

–Doug

—————————–
Doug,

You did not answer /to Debtslavecreator’s/ legitimate and very logical post.

There is no economy left in Canada expect financials, housing, some services and commodities.
Due to depressed commodities (which is cyclical and unlikely to change any time soon) everything that we see as ‘boom’ in the housing and the financial sector is pretty much debt driven.

Any expectation that the current debt curve is sustainable, leading to some real economy ‘growth’ is just an illusion.

There is extra 100 billion + pumped into the economy annually due to subsidized debt (aka CMHC) and deficit spending.

Due to inflation in housing (that sucks all the financial resources of households) and depressed wages there is an illusion of lack of inflation as measured with the official CPI, which is a joke.

Bottom line:
1. Any meaningful rate increase in CAD will be temporary and will be quickly reversed, including QE (an absolute certainty) and potentially NIRP which will destroy the CAD.

2. Any remains of economy will disappear as it will become evident that Toronto is not the new Silicon Value, that making chips, exporting heavy dutied lumber and heavy expensive dirty oil can not sustain a modern economy.

3. Trying to appear original by not replying to legitimate and very logical questions while attacking character, not content, will not make you popular or earn professional respect.

#100 Doug Rowat on 07.02.17 at 4:56 pm

#95 BMO Laddered Preferred Share Index ETF (ZPR.TO) on 07.02.17 at 3:47 pm

Why are BMO Laddered Preferred Share Index ETF (ZPR.TO) monthly dividends declining and not increasing. From this article it appears these monthly dividends should be going up, they’re not they’re going down. Why is that?

This is a fair point. However, I addressed it in my previous post on preferreds.

http://www.greaterfool.ca/2016/10/page/2/

I believe the negative pressure on preferred share dividends will be relatively minor and temporary.

–Doug

#101 Ron on 07.02.17 at 4:57 pm

#94 Livin Large on 07.02.17 at 3:04 pm
Ron,

I don’t think you’re missing anything with the “buy the big 5” concept. It has worked very very nicely for me for a couple of decades.

===================

I vote we move Big 5 stocks to the 40 side of the 60/40 Balanced Portfolio® and call it a day.

What do you say, Doug?

#102 Stan Broock on 07.02.17 at 5:06 pm

#79 Leo Trollstoy on 07.02.17 at 11:36 am
“The tech innovation ecosystem in Toronto has just been blowing up,” said Bilal Khan, founding managing director of OneEleven, a startup accelerator backed by OMERS and Royal Bank of Canada, that’s played home to successful Canadian tech companies including Wealthsimple and Big Viking Games.
And opportunities abound for those with the right skills:
“Talented job applicants are receiving multiple offers from competing companies, a precursor to increased salaries, according to OneEleven’s Khan.”

Spot on

I’m glad that experts in the field agree with me. But then again, I base comments on evidence

Kudos to prospering Canadian IT workers. I know my friends are getting multiple offers and all they do is rotate thru the big 5
————————–
The big 5 fear the Finteck without understanding its true nature and potential.

One of my contracts/end cost with a big 5 top member was for five digits number a day so I know how they work and operate in details.

If not for their monopoly/oligopoly status sponsored by corrupted politicians these entities would not exist in the today’s world.

#103 MF on 07.02.17 at 5:09 pm

#95 BMO Laddered Preferred Share Index ETF (ZPR.TO) on 07.02.17 at 3:47 pm

I have noticed CPD’s monthly dividend go down since I bought it as well. I purchased this ETF around May 2015. That declining dividend is most likely due to the rate reset preferred shares, who, after a certain amount of time reset a the current rate (which is lower now than it was in the past). The declining dividend occurred at the same time the face value went down. Bad combo.

MF

#104 MF on 07.02.17 at 5:15 pm

#92 Trump’s Leadership on 07.02.17 at 2:07 pm

After 8 years of having a weak US leader who pandered to its enemies and threw its allies under the bus, that result is to be expected (and ignored).

MF

#105 Penny Henny on 07.02.17 at 5:20 pm

#93 Welland Ontario on 07.02.17 at 2:52 pm
#80 Penny H – The homes listed for sale in Welland are overpriced compared to better locations. This is being sold rather than bought to get out of dodge. The number of listings for homes and especially businesses is in the hundreds. Why is that as it should be obvious?
???????????????????/

Yes the prices have really run up in the last year. Overpriced at this point? Yes probably.
But the city does have all the required amenities which makes it very livable. What areas do you know of in Southern Ontario that offer better value?

I would be curious to know more.
thanks

#106 A Reply to #103 MF on 07.02.17 at 6:07 pm

“… a weak US leader who pandered to its enemies and threw its allies under the bus….”

Haven’t you just described your beloved Donny Trump?

#107 mark on 07.02.17 at 6:08 pm

http://canadiancouchpotato.com/2015/03/23/are-preferred-share-indexers-dumb-money/

They have a pretty good research paper on your preferred shares that everyone likes here.

BMO laddered preferred shares are still in negative territory since inception.

Plus the distributions on dividend has been cut again!

Yup dump money i would say.

https://www.google.ca/search?q=bmo+zpr&rlz=1C1AWFA_enCA735CA735&oq=bmo+zpr&aqs=chrome.0.0l6.5148j0j7&sourceid=chrome&ie=UTF-8#q=zpr

#108 Keith in Calgary on 07.02.17 at 6:29 pm

On July 4th President Donald Trump will be in his home, the United States of America, while Obama will be in a muslim country.

You just cannot make this stuff up.

#109 Larry Ellison on 07.02.17 at 11:08 pm

#79
There is no tech scene in Canada. Maybe you call startups that pay horrible with no benefits a tech scene. Those startups make no revenue and live off loans. Not exactly something to celebrate.

#110 Larry Ellison on 07.02.17 at 11:11 pm

#89 Ron
Google “Mark Cuban diversification” for a YouTube video he makes that point well just like you stated. I agree 100% either you are in or you are out.

#111 Larry Ellison on 07.02.17 at 11:12 pm

What will become of Ontariowe and it’s ENORMOUS debt if interest rates rise?

#112 Prince Polo on 07.03.17 at 8:51 am

I like the people who, after reading the free advice, post in the comment section asking Garth/Doug/Ryan for specific ETFs to trade. LOL.

You want the ticker symbol? You gotta pony up da cash, brah!

#113 Cliff Dunlop on 07.03.17 at 12:02 pm

Back then, we bought our house for 72000, over about 5 years it went to $260000 and a year later we sold it for $130000. Still made a “profit” but not an obscene one and not in a few months after we purchased like today’s expectations for instant wealth by greedy children.