The decade

DOUG  By Guest Blogger Doug Rowat

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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.

 

73 comments ↓

#1 Haus Edlinger on 12.28.19 at 10:18 am

Re.: The European sovereign debt crisis…

Not sure how great or bad Europe is doing, but if a tiny social democrat country such as Austria can sell out a 100 year bond, there has to be some confidence in the long term outlook of this continent?

#2 Zio Cane on 12.28.19 at 11:27 am

Europe has been around for thousands of years, they will be fine. Who are we to judge them anyway as we have only been around for a few hundred years.

#3 Shawn Allen on 12.28.19 at 11:32 am

Question on deferral of taxes via restricted stock units

#44 Loonie Coder on 12.28.19 at 12:53 am
#11 Keyboard Smasher on 12.27.19 at 4:50 pm
#20 Shawn Allen on 12.27.19 at 6:10 pm

Re: Phantom restricted shares defer/avoid taxes

——————————-

Please do elaborate. If you’re talking about restricted stock units (RSUs) which mirrors a company’s stock price but are not real (no voting, no dividends) shares – my understanding is they are paid out in cash, added to income and taxed at your marginal rate. I’m curious how taxes are deferred/avoided with RSUs.

*********************************
Taxes are deferred with Restricted Stock Units because they are received as RSUs by directors and managers in a given year as compensation for that year. But they are not taxed until “exercised” (turned into cash) some years down the road. I am clear on all the tax rules but I looked into it a few years ago when I saw some directors were voluntarily taking their director fees in RSUs instead of cash. That definitely deferred tax.

And why were RSUs invented? Before that there were stock options. Those used to be taxed only at exercise but I believe the rules were changed to tax the value of the options at the time of grant (which is far above zero even if granted at the current stock price). The rule change meant tax now rather than tax later. Voila, RSUs were invented, no?

#4 Shawn Allen on 12.28.19 at 11:42 am

Nonplused on refineres and cash as trash

Nonplused at 28 yesterday gave a great explanation of why Alberta does not and probably should not have more refineries. He warned of assuming the experts got it wrong.

Then at 31 he claimed taxes and deficits were far higher now. Actually Garth explained a week or so ago that the largest Federal deficit was $39 billion and occurred early 90’s. (Probably $50 billion inflation adjusted).

He also explained that money should be spent now as it is eroding in value fast. Well, virtually the entire financial system disagrees vehemently with that. Long term interest rates would not be so low if the experts thought that cash value was eroding fast or was trash. (And see Flop’s visualization link yesterday, one of the charts showed the items that have deflated a lot in price)

Is nonplused guilty of lecturing knowingly on a topic he is no expert in? (Again, I think the refinery discussion was excellent)

#5 Shawn Allen on 12.28.19 at 11:55 am

Restricted stock options

I meant to say above I am NOT clear on all the tax rules…

#6 MF on 12.28.19 at 12:49 pm

#2 Zio Cane on 12.28.19 at

Europe doesn’t really have a future. It’s past (which is mostly of violence anyways) is irrelevant. The future is Asia and North America. That’s who we are to judge.

MF

#7 MF on 12.28.19 at 1:13 pm

Good post. Minor points to add:

-I especially agree with the interest rate part. The past decade will be remembered by asset inflation caused by poor central bank policy. It might even be remembered as the decade where we lost trust in central banks because we realized they are just making it up as they go along.

-as for Trump, everyone could tell he was going to win. Hilary was a weak competitor, and there was fatigue surrounding the Democrats under Obama after 8 years. The only people who couldn’t see it were those who still believed in “polls”.

-as for China, the decade was mixed. First half they were the saviour that bought our raw materials in 2008. Second half it became clear all their statistics are manipulated, we just chose to believe the story all along because it gave hope. The next big thing is India.

-Brexit will ultimately be a good move. Britain will forge new trade deals to its benefit and will watch from afar as the EU lurches from crisis to crisis. Might be a little rocky for a few years though. The EU not only has economic headwinds to deal with, but also festering social and political issues they will never go away and only get worse. The collapse will be slow and maybe not even noticeable. It could be 1 year or 10 years or longer but it’s inevitable IMO.

MF

#8 AGuyInVancouver on 12.28.19 at 1:22 pm

It makes me puke to see a rude, boorish waste of space like Trump occupying the same space as Barack Obama. While Obama was an example of the best America can produce, Trump is the worst.

#9 Stan Brooks on 12.28.19 at 1:30 pm

#6 MF on 12.28.19 at 12:49 pm

Europe doesn’t really have a future. It’s past (which is mostly of violence anyways) is irrelevant. The future is Asia and North America. That’s who we are to judge.

MF

The delusions of the brainwashed plebs – debt slaves told that they are richer than the masters…

Eastern Europe is already surpassing Canada in terms of living standard.

Greece total debt is 124 % private debt + 182 % of GD public debt.

We are at 266 % private debt + 90 % public debt, surpassing Greece in total debt with 40 %+

And they had a debt crisis worth noting…. Sure.

Poor stupid broke sheeple.

There are 2 events worth mentioning in the last decade:

1. The bailout of the broken banks
2. 10 years + of negative real rates.

Do not worry about Europe debt slaves… It will do just fine. It is not a project of a country with 150 years ‘history’.

Cheers,

#10 Stan Brooks on 12.28.19 at 1:35 pm

https://en.wikipedia.org/wiki/Economy_of_the_European_Union

EU GDP: $18.705 trillion (nominal; 2019)[2]
Increase $22.761 trillion (PPP; 2019)[2]

Canada GDP:
Increase $1.731 trillion (nominal, 2019 est.)[4]
Increase $1.900 trillion (PPP, 2019 est.)[4]

8 % of the EU economy in terms of purchasing power.

MF: A mouse with a sense of grandiose.

Go back to your hole.

#11 Russ on 12.28.19 at 1:48 pm

Good list there Doug.

It is too bad that the Japanese tsunami also set back nuclear power adoption. It is the best practical power generation alternative to fossil fuels, especially if located near the consumers.

I have a minor correction to your 2nd paragraph statement. To wit, in a few days we are heading into the final year, 2020, of this decade.

I know corporate America wants to be first at everything but have a look at your calendar. The month doesn’t start on “0”, the first day of the month is a “1” as the first year of the next decade will be 2021.

There is no year zero!
https://en.wikipedia.org/wiki/Year_zero

Cheers and Happy New Year, R

#12 Glengarry Girl on 12.28.19 at 1:59 pm

I find it interesting how an economic analysts of the past decade doesn’t focus on massive market manipulation, epic stimulus and money printing, the FED control of record low interest rates, government intervention of policy and its reckless creation of the Housing Crisis, and how the World Bank has leveraged us and turned the masses into debt slaves….just sayin

#13 NoName on 12.28.19 at 2:24 pm

I was loitering in my echo chamber
than I came across this tweet. I laughed so hard that I got tears in my eyes…

For a moment I was wondering whats happenings wit many of my old co-workers considering the fact that 90% make significantly less money now than 5 yrs ago, how do they experience inflation, probably different than some in this comment section.

Than I got courious about that inflation video YouTube video…

https://mobile.twitter.com/RampCapitalLLC/status/1210655886043209729

#14 Stan Brooks on 12.28.19 at 2:28 pm

I am not sure if it is the fluoride in the water or the ganja, but I spoke recently to a friend of mine working in late 60-es, early 70-es as the ‘pension’ of 800 bucks can not cover living expenses (corn-flake home 80 kms from the big smoke + a car) noting that the people in Europe must be really poor as they sit in the restaurants and cafes, enjoying 6 + weeks of vacation, nice weather and real food, quality healthcare, instead of busting their behind at 2 or 3 jobs for that mortgage.

It sounded really, really delusional.

Cheers,

#15 Sail Away on 12.28.19 at 3:05 pm

Yep, it’s been a fantastic decade for us evil capitalists. Such opportunity!

It’s nice to be positioned so money is most relevant as a game piece: move here, move there, wait… wait… wait… enter! Or exit. Or wait some more.

Warren Buffett’s snowball theory in action- cresting the hill is hard, but the downhill accumulation is fantastic.

#16 Donny Fitzsimmons on 12.28.19 at 3:15 pm

Democrats. Obama are socialists, useless people that all his and their policies made everyone poorer. Just like Trudeau, Morneau Liberals today do.

They keep using the same tax, spend, debt pile up strategy and young naive, new people coming in which are so easily fooled. I have figured this out 20 years ago and people will continue to become poorer and their state, government is doing it to them. They will live in the same manner as their poor homelands going back to square one.

#17 Reality is stark on 12.28.19 at 3:27 pm

Brexit will be fantastic for the British people. My sources tell me that 50 % of the golden financial services jobs in London will be gone in 10 years.
The British pound will lose 50% of it’s current value.
The British people deserve to wallow in poverty.
After all as the typical Canadian would exclaim “poverty is better for everybody”.

#18 Doug Rowat on 12.28.19 at 3:45 pm

#12 Glengarry Girl on 12.28.19 at 1:59 pm
I find it interesting how an economic analysts of the past decade doesn’t focus on massive market manipulation, epic stimulus and money printing, the FED control of record low interest rates, government intervention of policy and its reckless creation of the Housing Crisis, and how the World Bank has leveraged us and turned the masses into debt slaves….just sayin

—-

Did someone forget to invest in the S&P 500 this past decade? Too busy disapproving from the sidelines?

—Doug

#19 Figmund Sreud on 12.28.19 at 4:03 pm

1. Donald Trump. […] 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.
________________________

Yes, … a cartoon first:

https://image.cnbcfm.com/api/v1/image/106311521-157720646894312242019_presidential_returns.png?v=1577206533&w=1910

… source:

Trump stock market rally is far outpacing past US presidents

https://www.cnbc.com/2019/12/26/trumps-stock-market-rally-is-far-outpacing-past-us-presidents.html

Anyway, … shirt happens: … someone drops U$1-trillion per quarter and it sure it floats somewhere: … to someone’s bank pals!

Best,

F.S. – Calgary, AB.

#20 Sydneysider on 12.28.19 at 4:09 pm

#4 Rise of China is definitely high on my list too. People in Canada, in particular, don’t seem to grasp how large a proportion of humanity is involved in that effort, versus how many are followers of le Trudeau.

But the strangest story of all, not on your list, is the emergence of the climate change movement, right on the nail as far as timing is concerned.

https://en.wikipedia.org/wiki/Millenarianism

Perhaps I have been reading Jung too much, but I was also struck by the timely emergence of the proverbial Beast, #1 on your list, that presages the Last Trump (sic):

” And there was given unto him a mouth speaking great things and blasphemies; and power was given unto him to continue forty and two months.” [Rev 13]

Much fire and brimstone lie before us, I feel, before the demons are quelled.

#21 IHCTD9 on 12.28.19 at 4:16 pm

My predictions for the 2020’s are:

Trump wins again, markets keep climbing.

If Canadian debtors do not implode by 2023, Cons will lose again.

If the above happens, taxes returned to the bro and I will eclipse 390,000.00 by 2023, and if the cons lose again, we’ll be north of 550,000.00 by 2027. Could be a giant win all the way to retirement as long as we keep electing left wingers.

Not much will happen on the oil front unless something kills US fracking. A steady upward climb connected to global demand.

China will play a little nicer when faced with 4 more years of Trump. What else can they do?

RE will remain stupid in Canadian metros until there is a financial/debt implosion of some kind, or rates go north of 6%.

Canadian Feds will go full out making RE their new beast of burden for tax revenues, Canadians in big cities will still ante up the dough as long as they’ve been sufficiently convinced RE will always go up. Thus ends the fading dream of metro home ownership for the 99% in Canada.

IHCTD9 physical assets will grow alongside lefty tax cuts and handouts to include new trucks, ATV’s SXS’s, boats, fishing gear, you get the idea.

#22 Shawn Allen on 12.28.19 at 4:21 pm

Democrats versus Republicans – Fact Check on Aisle 6 please

#16 Donny Fitzsimmons on 12.28.19 at 3:15 pm
Democrats. Obama are socialists, useless people that all his and their policies made everyone poorer. Just like Trudeau, Morneau Liberals today do.

They keep using the same tax, spend, debt pile up strategy and young naive, new people coming in which are so easily fooled. I have figured this out 20 years ago and people will continue to become poorer and their state, government is doing it to them. They will live in the same manner as their poor homelands going back to square one.

***************************************
Maybe check Republican Trump’s spending and deficits. Headed for Trillion dollar deficits in a booming economy, no? And I believe Bill Clinton was actually tight fisted and lowered the deficit? Obama surely lowered the deficit after an initial high level due to financial crisis inherited from Bush Republican?

In general, it does seem that democrats have big spending ideas. Once in office they have actually been prudent though?

#23 BillyBob on 12.28.19 at 4:26 pm

#9 Stan Brooks on 12.28.19 at 1:30 pm
#6 MF on 12.28.19 at 12:49 pm

Europe doesn’t really have a future. It’s past (which is mostly of violence anyways) is irrelevant. The future is Asia and North America. That’s who we are to judge.

MF

The delusions of the brainwashed plebs – debt slaves told that they are richer than the masters…

Eastern Europe is already surpassing Canada in terms of living standard.

Greece total debt is 124 % private debt + 182 % of GD public debt.

We are at 266 % private debt + 90 % public debt, surpassing Greece in total debt with 40 %+

And they had a debt crisis worth noting…. Sure.

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

I wonder which union of countries will bail out Canada?

MF…just stop. You’re embarrassing yourself even more than usual today.

Attempting to consider “North America” as a single entity is just pathetic. Canada isn’t fit to carry the USA’s shoes (economically speaking). Trying to lump oneself in with something much greater is transparently obvious coat-tail riding.

#24 Stone on 12.28.19 at 4:31 pm

#3 Shawn Allen on 12.28.19 at 11:32 am
Question on deferral of taxes via restricted stock units

#44 Loonie Coder on 12.28.19 at 12:53 am
#11 Keyboard Smasher on 12.27.19 at 4:50 pm
#20 Shawn Allen on 12.27.19 at 6:10 pm

Re: Phantom restricted shares defer/avoid taxes

——————————-

Please do elaborate. If you’re talking about restricted stock units (RSUs) which mirrors a company’s stock price but are not real (no voting, no dividends) shares – my understanding is they are paid out in cash, added to income and taxed at your marginal rate. I’m curious how taxes are deferred/avoided with RSUs.

*********************************
Taxes are deferred with Restricted Stock Units because they are received as RSUs by directors and managers in a given year as compensation for that year. But they are not taxed until “exercised” (turned into cash) some years down the road. I am clear on all the tax rules but I looked into it a few years ago when I saw some directors were voluntarily taking their director fees in RSUs instead of cash. That definitely deferred tax.

And why were RSUs invented? Before that there were stock options. Those used to be taxed only at exercise but I believe the rules were changed to tax the value of the options at the time of grant (which is far above zero even if granted at the current stock price). The rule change meant tax now rather than tax later. Voila, RSUs were invented, no?

———

No. There is a vesting period with RSUs which are a number of years depending on the company. It has nothing to do with tax deferment. There is no other reason to wait to cash them unless you’re only a couple years away from retirement and your income drops in consequence making it a viable option. The vesting period is there to assure the company that you put in your best effort in to those next few years and not get lazy and complacent as better performance for the company = better payout for the RSUs you were given. Also, once the vesting period (let’s say 3 years) is done, you can’t defer cashing them in to a further year. It has to be cashed out that year and taxed accordingly even if it flings you into the top tax bracket. It can be very tax disadvantageous, especially if your base pay and short term incentives (bonus) have increased significantly in that time period.

#25 IHCTD9 on 12.28.19 at 4:43 pm

#7 MF on 12.28.19 at 1:13 pm

… The next big thing is India.

—-

This would seem logical, but all my Indian buds in the GTA tell me to just forget about it. They say India is literally ******, and hopelessly corrupt.

Of course, all the dudes saying this left India to seek their fortunes here in Canada, so take it for what it’s worth.

Time will tell. I think another billion plus people competing to make even more dirt cheap crap products in a time when robots and AI are starting to take over might be doomed to fail.

At some point, they will have to stop selling clones/crap, and start innovating in order to give us a reason to buy their stuff other than that it’s cheap (like Japan did).

#26 PetertheSeparatistfromCalgary on 12.28.19 at 5:08 pm

Great list. For long term impacts I would list the Japanese tsunami aftermath as number 1. It really hurt the nuclear power industry which will have the long term impact of making natural gas the developed worlds most used fuel despite climate hysteria. The developing world will continue to use coal except maybe in their most polluted cities. The environmentalists will continue to predict a disaster that will never come.

Brexit’s impact will only be short term on Britain’s economy. However the successful exit will inspire other independence movements. The EU will learn nothing from it and will continue to act like a government rather than a trade area.

For the next decade I think India is the place to watch. It is also the country our Prime Minister made the biggest fool of himself in.

Hopefully, Alberta will also achieve freedom from Ottawa’s oppression or at least lay the ground work for that eventuality.

Have a great New Year!

#27 Bob on 12.28.19 at 5:19 pm

Re., Post 12 by GG

I nominate as Post of the Year

Take a bow !!

And then we have folks yapping about increased taxes and ‘concerned’ about deficits .how’s taxation in Canada folks ? Not bad eh ?

GG think u hit a nerve with poor Doug!!

#28 tccontrarian on 12.28.19 at 5:21 pm

#12 Glengarry Girl on 12.28.19 at 1:59 pm

I find it interesting how an economic analysts of the past decade doesn’t focus on massive market manipulation, epic stimulus and money printing, the FED control of record low interest rates, government intervention of policy and its reckless creation of the Housing Crisis, and how the World Bank has leveraged us and turned the masses into debt slaves….just sayin

Everyone (and I mean EVERYONE), talks their book GG.

Pointing those things you reference out, yet continuing with ‘business as usual’ for any Financial Management firm, is really an example of cognitive dissonance. Easier to just pretend that the deception is imaginary.

My repeated warnings have been ignored and even ridiculed by our hosts (but at least they’ve been ‘allowed’ to be posted). Probably the most relevant question which has been asked but never answered (by me and a couple others), is:

If you missed the ‘signs’ of the last crushing bear market of 2008-9, what makes you think that you will not miss them next time?

TCC

#29 Hurtin' Albertan on 12.28.19 at 5:58 pm

The correct answer is Shale Oil. All other news items are secondary.

Shale Oil changed global dynamics like no other story. All stories follow from there.

US becomes a net exporter of oil for first time in 70 years. It is already food stuff self reliant. Lowest trade profile out of any OECD nation. Doesn’t really need to be in the Middle East any more, doesn’t need Nato. You can see where those trends are going. Troop withdrawals have been going on all through Trump’s term. Canada is completely oblivious that it just became a competitor. Our largest export competes against Shale. Price slashed to maintain market share. Federal Govt runs deficit because of it. Alberta runs deficit because of it.

Anybody want to know why the US is hard balling China? Because they can. The US doesn’t need to ship half their oil through the Straits of Hormuz. The US is now in position where it benefits from both order and disorder. It can play chicken with every country, every continent on the planet and everybody else will blink first because the US became an autarky in the September of 2019.

The only country to get the new normal is Turkey. That’s why they are doing whatever they want. They know the US just doesn’t care any more.

#30 Fred on 12.28.19 at 6:06 pm

notice the themes of that list?

debt. The growth of MASSIVE debt worldwide this past decade . And during these recent USA ‘expansion years’ under Trump? MAASIVE MORE DEBT. Trillion dollar deficit with UE under 4%. The equities markets needed Powell to save the day Jan 2019 with the promise of decreasing rates.

make no mistake ‘economic expansion’ is occurring concurrently with deficit massive expansion. It HAS to, :)

#31 Ryan on 12.28.19 at 6:22 pm

Peter has gone full retard.

#32 Pacific on 12.28.19 at 6:23 pm

This decade is not over until the end of 2020.

#33 Camille on 12.28.19 at 6:31 pm

Silly goose, no one holds only bonds.

#34 devore on 12.28.19 at 6:32 pm

#3 Shawn Allen

There’s no way stock options are taxed when granted, since their value is unknown until they vest, at a price almost always higher than current stock price, which may never be reached.

#35 Donald Williams on 12.28.19 at 6:33 pm

#4 Shawn Allen on 12.28.19 at 11:42 am
Nonplused on refineres and cash as trash
Nonplused at 28 yesterday gave a great explanation of why Alberta does not and probably should not have more refineries. He warned of assuming the experts got it wrong.
Then at 31 he claimed taxes and deficits were far higher now. Actually Garth explained a week or so ago that the largest Federal deficit was $39 billion and occurred early 90’s. (Probably $50 billion inflation adjusted).
He also explained that money should be spent now as it is eroding in value fast. Well, virtually the entire financial system disagrees vehemently with that. Long term interest rates would not be so low if the experts thought that cash value was eroding fast or was trash. (And see Flop’s visualization link yesterday, one of the charts showed the items that have deflated a lot in price)
Is nonplused guilty of lecturing knowingly on a topic he is no expert in? (Again, I think the refinery discussion was excellent)
******************************************
You’re absolutely correct on nonplused’s explanation regarding refining or not refining in Alberta. It was excellent. I live in a retirement community full of Canadians and Americans and get asked this often. I understand it and have worked in the industry for decades but can never articulate it as well as he did.

Thanks Nonplused!

#36 Grunt on 12.28.19 at 6:33 pm

From fossil fuels, electrification, environmental levies to US deficit. Who knows how that will play out in the 20s?

As for technology in the longer term who’d have thought back in the 1920s a phone would be what it is today?

Will we see a chauffeur-comfort-shopper robot? I just don’t know. But I think we can count on something around us now morphing into something much more involved.

#37 Paul on 12.28.19 at 6:49 pm

#8 AGuyInVancouver on 12.28.19 at 1:22 pm
It makes me puke to see a rude, boorish waste of space like Trump occupying the same space as Barack Obama. While Obama was an example of the best America can produce, Trump is the worst.
————————————————————————————————
Talk about wasted space, there should be one more photo yours. You would win hands down!

#38 Shawn Allen on 12.28.19 at 7:11 pm

Options Taxed When Granted?

#34 devore on 12.28.19 at 6:32 pm responded:

#3 Shawn Allen

There’s no way stock options are taxed when granted, since their value is unknown until they vest, at a price almost always higher than current stock price, which may never be reached.

*********************
Well, I won’t swear to be right that these days options are usually taxed when granted. But I think so. And the value is calculated using Black Scholes formula and corporations must claim an expense equal to that value at the time of granting.

Restricted Stock Units were invented I presume to get around the initial taxing or the expensing rule? What is their advantage to the company and to the executive versus options?

You are right that the ultimate value of the options is not known. But the formula estimates their value.

Say Royal Bank is at $104. A three year option at $104 has a positive market value, I’d guess well over $10. It’s not zero certainly although it could turn out to ultimately be worthless if Royal Bank shares tank.

#39 Barb on 12.28.19 at 7:13 pm

We also loved our visit to Greece 25 years ago.
Hospitable and delightful people.

Stayed at a small almost-empty hotel for 3 days, the owner called his cook back from lay-off.
On check-out, the owner refused–yes REFUSED–to let us pay for our stay. He laughed and said “nobody pays taxes here, so I don’t need your money.”

#40 Shawn Allen on 12.28.19 at 7:19 pm

Options Tax

Starting to think I am wrong on when options are taxed. Apologies.

#41 Flop... on 12.28.19 at 7:20 pm

Robax, here is a top ten list I put up yesterday that you might want to take a quick peek at.

Top 10 Data Visualizations of 2019.

The best visualizations are easy to understand, informative and eye catching. After combing through dozens of our articles on everything from the world’s economy, to the stock market and price changes, we picked the top 10 visualizations from 2019.

https://howmuch.net/articles/top-10-data-visualizations-2019

Also Shawn Allen, I remember howmuch at one stage done a democrat vs. republican deficit chart.

I stumbled across this one first.

It has a crust on it as far as Trump is concerned but it states that Clinton grew the deficit by 1.4 trillion.

Less than his contemporaries.

Blowing money, Monica Lewinsky, there’s a joke in there somewhere…

M45TX

https://howmuch.net/articles/usa-debt-by-president

#42 Nonplused on 12.28.19 at 7:40 pm

#4 Shawn Allen

The problem, Shawn, is that we all don’t know what we don’t know. So I am probably guilty of the odd incorrect assessment now and again. Discussion is how we come to sort these things out. Two heads are better than one.

However I think I am not so far off on interest rates and the time value of money as you suggest. There is something, how shall I say it, “definitely different” about money now as in the past. Borrowers used to pay interest on loans, now they hardly do. Savers used to clip coupons, now they hope rates will decline further so they can get a capital gain. Something has changed. A dollar today used to be worth perhaps 2 dollars in 10 years. (About 7% interest.) Now a dollar today and a dollar in 10 years have near the same value. Something we’ve never seen before has happened. I don’t know if I’ve got it totally figured out but it seems to me that the only thing that is worth the same 10 years from now as it is today is a rotten banana, with the value thereof being zero both now and in the future.

#43 Nonplused on 12.28.19 at 7:50 pm

#35 Donald Williams

Well, you are welcome.

I like to look at the economy as a self organizing system that when operating best follows a sort of evolutionary path much as biology did only over a much shorter time frame. Top down design by some sort of “intelligent designer” does not work. Instead, the system (which is people all trying to maximize their productivity and return on investment) tends to produce the most it can for the least effort. This is why (and think about it for a minute) outhouses and bathroom stalls are so small. You just need to get the job done. You don’t need to gold plate everything.

#44 TurnerNation on 12.28.19 at 7:51 pm

Ah someone picked up on the soft sell here:

Globe editorial: There’s a new generation gap, and young Canadians are falling through it (theglobeandmail.com)

“”taxing the capital gain on principal residences””


BTW “Freeland” will be anything but for this land. It will be total lockdown land just watch. PM.

#45 espressobob on 12.28.19 at 7:51 pm

Investors are a weird bunch. Packing away money one really doesn’t need today,but might down the road like say, many years.

Being a part of the global economy can’t be all bad if your ahead of the curve financially when you finally need the cash.

There are no guarantees of course, but most of us would have spent it on something else anyways if we didn’t invest. Strange but true.

#46 Nonplused on 12.28.19 at 7:54 pm

#38 Shawn Allen

Stock “grants” are taxed upon granting, stock “options” are taxed when exercised.

#47 Sail Away on 12.28.19 at 8:16 pm

#28 tccontrarian on 12.28.19 at 5:21 pm

My repeated warnings have been ignored and even ridiculed by our hosts (but at least they’ve been ‘allowed’ to be posted). Probably the most relevant question which has been asked but never answered (by me and a couple others), is:

If you missed the ‘signs’ of the last crushing bear market of 2008-9, what makes you think that you will not miss them next time?

———————————-

TC, of course the signs will be missed. The signs are always missed. The reason is simple: there are always omens that only take on meaning with hindsight. Who knows ahead of time which will matter?

The whole point of a robust portfolio and rebalancing is to ride out the bad times.

What it seems you are suggesting is crystal ball gazing and trying to time the markets. You mention your warnings being ignored or ridiculed. Are you qualified to offer warnings? Which of your past predictions, if taken, would have had great effect on the readers of this blog?

Warren Buffett never tries to time the market except for buying a stock when it offers good value.

#48 devore on 12.28.19 at 8:20 pm

#9 Stan Brooks

The “history” is irrelevant, if people refuse to learn from it. Pretty sick of euros throwing that around like it means anything. But simple people often find superiority in irrelevant things. Europe also has a long history of being dominated by arabs and asians, that’s always conveniently forgotten.

#49 Jimer on 12.28.19 at 8:25 pm

One of the more interesting aspects of the Bidens corruption in Ukraine is how leads to Obama.

https://www.youtube.com/watch?v=jxrR6dmzpCI

#50 Remembrancer on 12.28.19 at 8:58 pm

#38 Shawn Allen on 12.28.19 at 7:11 pm
Options Taxed When Granted?
#34 devore on 12.28.19 at 6:32 pm responded:
#3 Shawn Allen
Restricted Stock Units were invented I presume to get around the initial taxing or the expensing rule? What is their advantage to the company and to the executive versus options?
——————————————
Not 100% accurate…

A primary difference between an employee stock option and a RSU is its nature and how / when the award vests or becomes exercisable by the employee and taxable by CRA.

A RSU is an actual share of stock that is an award for achieving some sort of preset milestone or goal – ie remaining at the firm for at least 2 more years. Once the RSU conditions are met, the share(s) are property of the employee (vested) and taxed at the full current market value as income. RSUs may also be staggered in terms of reward.

An option is more along the lines of a lotto ticket, likely with an expiry date as well – its awarded, portions may vest over time, but is not guaranteed to be worth anything once vested either immediately or in the future. When exercised, either for cash by exercising the option to buy at the option price then immediately sell for cash at market or when converted into actual shares, its taxed as a capital gains on the appreciated market price since awarding.

Bottom line RSUs have less potential downside for eventual cash value and are awarded and taxed differently….

#51 Remembrancer on 12.28.19 at 9:04 pm

#49 Jimer on 12.28.19 at 8:25 pm
One of the more interesting aspects…
———————————————–
…of this multi-spectrum social media disinformation campaign is the effort put into targeting this pathetic little blog’s comments section by posters with handles that have never appeared before…

#52 Sail Away on 12.28.19 at 9:11 pm

#49 Jimer on 12.28.19 at 8:25 pm

One of the more interesting aspects of the Bidens corruption in Ukraine is how leads to Obama.

—————————–

It’s funny how you write: “Bidens (sic) corruption”, as if it were a fact and not just wild speculation.

#53 Phylis on 12.28.19 at 9:16 pm

#46 Nonplused on 12.28.19 at 7:54 pm
#38 Shawn Allen

Stock “grants” are taxed upon granting, stock “options” are taxed when exercised

I recall a day when we were given stock options by the company. We also received a slip and letter informing us the black Scholes method was used to calculate the present valve of the options. We were taxed on it. The kicker was the options expired worthless. My bad for not exercising them or selling when they did have value.

#54 AR on 12.28.19 at 9:31 pm

This seems like a big assumption about your readers?

“Come at me, bro.”

Just so ya know, women also read this blog and enjoy it. And guess what? We understand a lot of it as well. Amazing huh?

Want to expand your client base? Consider the other half of the population.

#55 akashic record on 12.28.19 at 9:41 pm

Japan is considering to dump the radioactive water from the Fukushima reactor disaster into the ocean, since they have run out of storage space. It will be unpredictable disaster.

#56 Shawn Allen on 12.28.19 at 10:05 pm

Why Mutual Fund Advisors are not all bad

#45 espressobob on 12.28.19 at 7:51 pm said:

Investors are a weird bunch. Packing away money one really doesn’t need today,but might down the road like say, many years.

Being a part of the global economy can’t be all bad if your ahead of the curve financially when you finally need the cash.

There are no guarantees of course, but most of us would have spent it on something else anyways if we didn’t invest. Strange but true.

********************************
Right, a lot of investors would have simply spent the money if they did not invest.

That’s why the best feature of RRSPs is that the strongly encourage people to invest in order to get the tax refund. The math and the ultimate tax paid is mostly misunderstood but if it encourages investment, that is very good.

And a great feature of the RRSP is the money is usually (I think) treated as untouchable-until-retirement due to the tax hit.

And what about those awful mutual fund sales people including the nice lady at the bank? They get beat up a lot here. But in many cases they are the ONLY reason a lot of people managed to invest at all. Money invested at a high fee grows slower. But, money never invested never grows and even the principal is not there in retirement. Yes ETFs are way better. But for some people the nice lady at the bank and the InvestorsGroup guys (who may even make house calls) have been a godsend, have they not?

#57 TurnerNation on 12.28.19 at 10:14 pm

And another thing…why should Boomer couples be allowed living in 1500-500 square foot large manses in this age of growing income inequality, a broken gig economy, wealth hording, climate migrants and social inequality? They can get by in 500 square feet. Homes should fit the best use for maximal social results: tear down that Boomer manse and build a condo.
It’s coming…Climate Change can do all that – from a major news publication.

https://twitter.com/thenation/status/1210181476949606402

“If we want to keep cities safe in the face of climate change, we need to seriously question the ideal of private homeownership”

#58 Nonplused on 12.28.19 at 11:19 pm

#53 Phylis

Well I am in no position to argue with what happened to you, and the tax code changes. When I got stock options no tax was required until I exercised them. The company did use some sort of model to suggest how much they were worth and thus how gloriously I was being compensated, but then as now I thought financial models were a bunch of BS.

#59 Hamish Carrigle on 12.29.19 at 12:02 am

BANNED

#60 will on 12.29.19 at 12:30 am

After all my studies I thought interest rates were going to go up up up. Holy cow was I wrong.

A couple of theories of what’s going on:

We are still in the latter days (though diminishing) of the GFC.

The powers that be are still offering a situation of low interest rates whereby boomers can sell (ie. get rid of) their RE and invest in an environment of:

Share buybacks galore.

#61 will on 12.29.19 at 1:31 am

#56 Shawn allen

I don’t own any mutual funds anymore but before I knew any different, I’m sure glad I did! When I was overseas and making gobs of money and sending it home my mother had me loaded up on funds.

I eventually got “woke” and took charge of it all. Never looked back but appreciate what she did for me during those years. She also left a lot to all of us when she died.

#62 Andrew on 12.29.19 at 8:11 am

Bitcoin. The best performing asset of the decade and most important financial innovation. You’ll be able to throw it on next decade no worries.

#63 crowdedelevatorfartz on 12.29.19 at 8:54 am

@#57 CommunistNation.
“we need to seriously question the ideal of private homeownership”
++++

The Russians seized private property, the Chinese seized private property, shot the rich and then stagnated into navel gazing, politically indoctrinated slogan spewers that achieved nothing except stealing the Bomb from the west……..50 years later……they have gone into full reverse….. and embraced the capitalist ideals of “private ownership”.

Time to change your whine to something more realistic ….or move to North Korea where the State takes care of everyone….including the dogs.

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

#64 Dharma Bum on 12.29.19 at 8:55 am

Question:

Are there still tons of fat lazy people on that cruise ship, gorging on their 9th buffet meal of the day and watching 4th rate entertainment?

Just asking.

#65 Doug Rowat on 12.29.19 at 9:55 am

#62 Andrew on 12.29.19 at 8:11 am

Bitcoin. The best performing asset of the decade and most important financial innovation. You’ll be able to throw it on next decade no worries.

With a total market size of only US$135 billion, I decided it didn’t deserve to make the top 10.

It certainly had the press-coverage volume, but not the actual market impact.

–Doug

#66 TurnerNation on 12.29.19 at 11:07 am

#63 crowdedelevatorfartz I was being facetious. But that major new publication is not. They are selling communism that is coming and you have swallowed the climate change scam whole. You are part of the problem, you want us to be enslaved.
There is a plan. It’s theirs not mine.
Toronto has been selected as a showcase. The Google “Smart City’ Orewllian city. All these big tech companies are an extension of global control system. Borders are fiction. See the “No one is illegal” movement.

#67 joblo on 12.29.19 at 11:27 am

https://www.macleans.ca/opinion/the-left-must-stand-against-capitalism-now/

oK kAnAda, prepare

#68 TurnerNation on 12.29.19 at 11:28 am

Crowded…it’s coming. Full on global CommUNism.
Every media has been hijacked. Climate change is but one tool in their toolbelt.

https://www.macleans.ca/opinion/the-left-must-stand-against-capitalism-now/

OPINION
The left must stand against capitalism. Now.
Andray Domise: People who hold left-leaning ideals have to quit kidding themselves by believing that capitalism exists as a benevolent or even neutral social arrangement
by Andray Domise Dec 28, 2019

#69 AGuyInVancouver on 12.29.19 at 11:29 am

#37 Paul

The only thing stupider than Trump is a Trump supporter. He at least has the excuse of being born a narcissistic idiot, you made the choice to follow him into Idiocracy. Now go grab a bucket of KFC and lay it at the altar of your bloated orange god.

#70 tccontrarian on 12.29.19 at 12:47 pm

#47 Sail Away on 12.28.19 at 8:16 pm

TC, of course the signs will be missed. The signs are always missed. The reason is simple: there are always omens that only take on meaning with hindsight. Who knows ahead of time which will matter?

The whole point of a robust portfolio and rebalancing is to ride out the bad times.

What it seems you are suggesting is crystal ball gazing and trying to time the markets.
[some things are unknowable and I don’t pretend to have the magic crystal ball. But if previously a certain set of indicators have proven predictively reliable, I’m going to assume that “this time isn’t different”.]

You mention your warnings being ignored or ridiculed. Are you qualified to offer warnings? Which of your past predictions, if taken, would have had great effect on the readers of this blog?
[Well, since you asked, last August/Sept. I repeatedly mentioned that I thought it was prudent to hedge against the incredible bullish sentiment, and I made it known that I was a full 30% short the Russell and SP500 and a couple more ETFs. So, the plunge in Oct.-Dec. 2019 was quite profitable for me.]

Warren Buffett never tries to time the market except for buying a stock when it offers good value.
[Buying a stock or a sector when it offers ‘good value’ IS a form of ‘timing’ the market. Similarly, avoiding over-valued sectors, or even shorting them, is also a form of ‘timing’. For that matter, re-balancing is selling winners and buying non-winners; isn’t this a form of ‘timing’? The only thing, this type of timing is price based, which is not that sophisticate, in my opinion. Why? Well, because there are other indicators which are better predictors than price. Those include sentiment, insider activity (ie. smart money), media coverage, fund flows, … etc.
My ‘qualifications’ are that I’m a keen market observer and I follow the best of the best. I offer a perspective here that isn’t popular, but this isn’t a popularity contest, is it?]

Final word…

How is it that we accept the “Greater Fool Theory” as valid in Canadian RE (hence Garths message to not buy at market highs), but we ignore this principle in the Financial Markets? Overpaying for ANY asset is generally not a path to financial success. Anyone think that 30% gains for the SP500 in 2019 was warranted on economic fundamentals? Seriously??

This situation, as far as I’m concerned, to be able to short the general market and simultaneously buy up bargains in energy and precious metals is nothing short of a … GIFT. I look up and down my portfolio and I see 100-200% gains for 2020. And I don’t even have 20-20 vision! LOL

TCC

#71 Dogman01 on 12.29.19 at 1:14 pm

#29 Nonplused on 12.27.19 at 8:17 pm

#26 Shawn Allen on 12.27.19 at 6:53 pm

Interesting stuff, yes no I have no doubt it is much more complex and risky to foster a new industry. (I imagine you also have some trade treaties which deal with subsidies/incentives etc.). I see a lot of Canadian businesses can and will move.

I was watching a show playing Alberta news clips from 1984. With the exception of the NuWest homes selling houses for $65,000, all of the clips could be played today, Boom, bust, Boom, bust …

Like the bumper sticker said: “Please God, give me one more oil boom. I promise not to piss it all away next time.”

We don’t appear to have any economic strategy either in Alberta or Canada. – You bet China has one, and the US always does seem to play us.

#72 CD on 12.29.19 at 5:54 pm

Doug,

By far my favourite blog of yours yet (despite them all being very good).

2019, a world where Trump is president and everything said must be censored 5x over… what a time to be alive. Remember when Trump was simply the face of “You’re Fired”, and now his 10-second cameo from Home Alone is being cut and there a full exhibits dedicated to him in the AGO – “The Horrible & Terrible & Deeds & Words of the Very Renowned Trumpagruel” (mind you, not in a flattering means).

I wonder what the next decade will bring…

“Amazon was primarily an online bookseller and Jeff Bezos wasn’t half as rich (or jacked) as he is now”

“and Taylor Swift was a huge pop star (fair, some things stay the same)”

“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.”

And, best of all…

“Come at me, bro.”

#73 Kevin on 12.30.19 at 3:17 am

Hi Doug,

This is a great list, but I think you missed a big story. I would replace #9 Race to the Trillion with the Emergence of Big Tech.

Netflix:
Today’s Market Cap: $144B
Dec 2009 Market Cap: $3B

Apple:
Today’s Market Cap: $1.3T
Dec 2009 Market Cap: $190B

Microsoft:
Today’s Market Cap: $1.2T
Dec 2009 Market Cap: $270B

Amazon:
Today’s Market Cap: $927B
Dec 2009 Market Cap: $58B

Facebook:
Today’s Market Cap: $593B
May 2012 IPO Market Cap: $72B

Google:
Today’s Market Cap: $934B
Dec 2009 Market Cap: $392B

I’d recommend The Four by Scott Galloway for more about their impact on society. Tech is eating up entire industries, and they will continue doing so and being disruptive in the next decade.