Entries from February 2019 ↓

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If the pointy heads at CIBC are right, you’ll soon have more graphic proof why every portfolio needs US bucks in it. Trump or no Trump.

As regular inmates will know, the advice here (long-standing) has been to hold about a quarter of your investments in Yankee-denominated assets. Simple reason. The loonie is a flighty currency, wobbling in value as the American dollar rises and falls, commodity prices fluctuate and the Bank of Canada diddles with monetary policy. There was a time when the loonie was at par with the greenback and this pathetic blog told readers to go forth and plunder US real estate, which was then in the crapper. But, alas, those days have passed.

Now we’re on the flushing end of things, and our 75-cent buck (says the bank) is heading for 71 cents or less – the lowest in a decade and a half. Since Canadians have blown their brains out on mortgages, loans, credit cards and HELOCs, the logic goes, economic growth will have to come primarily from exports and business spending. But given higher wages and taxes in Canada (than the US) this will be a challenge. That, says CIBC, will keep rates lower in Canada, leading to the weak dollar needed to make our corps more competitive.

So, down she goes. Maybe back to levels not seen since the 1998-2003 period – a decline over two or three years. “Don’t be surprised to see dollar-Canada sport a 1.40 handle again in the next five years as the Bank of Canada is pressed to set interest differentials at a level that will give us the currency we might need to bring exports back to life.”

And, yes, that would be a good time to sell the house in Phoenix I told you to buy.

            

Despite my recent efforts to breath some life into the twitching corpse of RRSPs, no pulse. Sure, this is a great way to chop taxes, coddle the affluent and shift the burden from one part of your life to another, but the mudda of all shelters has been usurped by the TFSA. A BMO poll finds over half of people would rather have a tax-free savings account, even though there’s no tax deferral associated with it, no refund for selling yourself assets you already own and no easy income-splitting or mat leave financing.

Worse, a third of us don’t know the difference between an RRSP and a TFSA. That could explain why almost 60% of moisters lack retirement savings – even though older Millennials are now just two years away from turning 40. Yes, another consequence of house lust, and a society in which real estate is the goal of life.

Why’s the TFSA trending? That’s easy. It’s liquid. Cashable. No tax to pay so no hesitation to take the money and buy a new sink.

Proof? Here are the latest government stats for TFSA contributors aged 25 to 29:

Total contributions for the year: $3.72 billion
Total withdrawals for the year: $2.55 billion
Total number of withdrawals: 3,431,710

That should be all the proof you need that these things are being used as de facto bank accounts – savings vehicles to finance consumer spending – not investment vehicles held for the long-term. And that’s why the RRSP is dying – just as a retirement crisis is coming.

               

Finally, chew on this as we head into February’s final weekend.

It’s less than a year before our banks will be forced, by law, to set aside a significant chunk of your savings account, as opposed to (like now) lending it out to finance some loser’s new Ram truck (nuts optional). Starting next January the bank cop, OSFI, will enact Liquidity Adequacy Requirements, forcing banks to set aside money to cover withdrawals depositors might make within the next 30 days. The reserves required will be higher by up to 200% and act as a buffer against, well, a run on the bank.

As you may know, a run of even modest size could wipe out a bank’s stash of cash quickly. I mean, have you gone to the local branch lately and asked for five grand in folding money from your savings account? Once they stop laughing, you have to leave. No funds.

The good news is that such an event’s unlikely, since most Millennials have never been inside a bank. Also we now have ‘bail-in’ provisions that will convert certain securities into bank equity should the curtain fall. No, deposits are not included.

So there’s nothing to worry about. Until there is.

Sad

My, my. In Canada, you say? Political assassination?

Eyebrows flew when our top civil servant (Privy Council head Michael Wernick) told MPs on Thursday he thinks somebody could be offed during the coming election campaign.

“I worry about the rising tide of incitements to violence when people use terms like ‘treason’ and ‘traitor’ in open discourse. Those are the words that lead to assassination. I’m worried that somebody’s going to be shot in this country this year during the political campaign.”

This little shocker took place during the biggest political scandal to hit the Trudeau government. Likely no coincidence. Rumours are flying this isn’t just about trying to save the corporate butt of SNC Lavalin, nor a tiff between T2 and his former justice minister Jody W-R. It goes deeper, say the wags. The hasty retreat from Ottawa of cabinet minister Scott Brison is part of the story. So is BMO (where Brison landed). And Gerald Butts, of course – Trudeau’s fixer and No.1 political hack who just took a bullet of his own. Fraud. Bribery. Obstruction of justice. Political overreach. Yikes! Canada is supposed to be nice. That Trump stuff is so icky.

Anyway, amid this unfolding mess an election campaign is about to start. Scheer is trending. Trudeau descending. Jagmeet missing. But it’s a long eight months until voting day, and lots can happen.

Probably no surprise that as chaos reigns, the next federal budget date has been announced. March 19th. Expect Bill Morneau to reveal some shiny things to take moister eyes off the tawdry underbelly of politics and focus that gaze squarely on their own navels. The two centrepieces will be a plan to help pay for everybody’s prescription drugs, plus a set of reforms to “give some optimism” to Millennial homebuyers.

The drug plan comes at an awkward time, since it’ll be expensive and the T2 government is already drowning in red ink. If you remember back to 2015, the Libs promised a temporary deficit of $10 billion for two years, followed by a budget that ‘would balance itself.’ Well, the deficits have added up to about about six times that amount, with another $18 billion this year and a projected $76 billion in new debt over the next five years. Now we’re about to get more spending.

And the moister house strategy? Yup, it’s coming. Maybe 30-year mortgages again. Perhaps removal of the $1 million CHMC price cap. Likely some changes to the stress test, or an enriched tax credit to help cover closing costs. Whatever it is, the logic is flawed. The best way for first-timers to buy houses is to make them cheaper – which Mr. Market is doing. The best way to thwart that is political interference.

But here we go again. The only question is whether the kids will fall for it, voting back a government that’s adding huge dollops of debt, jacking up spending over revenues, and guaranteeing they’ll be paying fatter taxes down the road. Likewise, will the wizened, pill-popping wrinklies cheer politicians who subsidize prescriptions with their own tax dollars?

Of course. This is Canada. We’re special. All of us. Why should we expect the government to live within its means, when so many voters have decided to be reckless? Here’s some new evidence: HELOC borrowing has mushroomed again. We now owe not only $1.2 trillion in mortgages on our houses, but also another $243 billion in floating-rate loans against our home equity. And remember that about a third of this money is not being repaid. Not a sous. Borrowers have been making interest-only payments or actually increasing the HELOC size to cover interest.

It makes you wonder what kind of personal finance crisis we might be in if the economy tanked. Or someone got shot.

Well, this is going to be one interesting year. Royal LePage is saying that nice houses in Vancouver will lose more than $400,000 in value this year – yes, that’s coming from a real estate company. The oil patch is a mess, and low prices have seriously nicked national revenues. The federal government has failed its fiscal test and is clearly on the path to significantly higher taxes, if returned to office. And all this has happened when there was no recession, robust global growth and an economic renaissance happening with our largest trading partner.

Now, scandal and assassination talk. Did you see this coming?