The year ahead

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RYAN   By Guest Blogger Ryan Lewenza
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2021 proved to be a great year for investors with the S&P 500 and TSX up 27% and 22%, respectively, on the year. The big rally in stock prices was driven by two key factors – a stronger-than-expected economic recovery and the unprecedented monetary and fiscal stimulus that was injected into the system. These factors helped boost corporate profits and encouraged more risk taking, helping to drive risk assets like stocks up in value.

2022 is going to be a different story, in that, many central banks will begin to withdraw the stimulus (i.e., end their QE programs) and likely, hike rates this year to help combat the inflation problem. This withdrawal of stimulus and tighter monetary policies will likely bring on increased market volatility, as potentially, we see spikes higher in interest rates throughout the year. I think an important theme for 2022 could be about rising interest rates and the impact it has on the economy and markets.

That said, you have to stand back and ask yourself why are central banks tightening? The answer is largely because the US/global economy continues to strengthen and while I see a weaker first quarter due to the Omicron hit, I see the US/global economy doing quite well this year, which should help to deliver another year of market gains, albeit more moderate returns for the year.

Let’s start with the economic outlook.

In 2020 the global economy was brought to its knees from the novel coronavirus Covid-19, resulting in the biggest economic contraction since 1945. This was all reversed last year (2021) with the global economy surging back and projected to grow at a phenomenal 5.8% y/y (still waiting on Q4 results).

For this year (2022) we see continued ‘above-trend’ GDP growth for the US/global economy. For example, the US is projected to grow by 3.9% in 2022, which is above the long-term average GDP growth rate of 3.3% for the US economy.

The growth is likely to be driven by robust consumer spending given: 1) the labour markets continue to improve (the Canadian unemployment rate dropped from a peak of 13.7% last year to 6% in November, for example); 2) we see lots of pent up demand as Covid slowly retreats and we start traveling, living and spending money (aka YOLO); and 3) collectively we’re sitting on record cash balances in our bank accounts.

With consumer spending representing roughly 70% of North American economies, this should help to drive the overall economy higher. Additionally, government spending remains at very elevated levels, so absent some type of exogenous shock, I almost fail to see how the economy won’t grow at a good clip this year.

Forecasted GDP Growth Rates

Source: Bloomberg, Turner Investments

Given my growth expectations for 2021, I see this continuing to drive corporate profitability higher. Currently, the consensus forecasts for S&P 500 and TSX earnings are for earnings to grow by roughly 15% y/y in 2022. This is roughly in-line with my estimates based on my earnings models.

What about the P/E ratio?

As I’ve covered in past blog posts, stocks rise by either corporate profits rising or the multiple we pay for stocks (e.g., P/Es) increases. As mentioned, a key theme for this year is for interest rates to rise based on: 1) my expectations for solid real GDP growth; 2) the high inflation levels; and 3) my expectation for the Fed and Bank of Canada to hike rates this year. If correct, these higher rates could help to compress the P/E a bit, which is why I don’t see the S&P 500 and TSX delivering 20%+ gains in 2022 like last year.

So putting all that together I see the potential for North American equity returns in the high-single digits/low-double digits range, driven by higher profits.

NA Earnings Are Projected to Rise 15% in 2022

Source: Bloomberg, Turner Investments

A few more positives for 2022 include:

  • We’re still in the early innings of this current bull market, which started in March 2020. The average bull market last 5 years and we’re not even 2 years into this one.
  • History suggests more gains this year. Since 1950 there have been 19 occurrences of the S&P 500 posting a 20%+ annual return. In 16 of those 19 occurrences (84%) the S&P 500 has gone on to post another positive return with an average of 11.5%. That’s a pretty good batting average!

Average Bull Market Lasts 5 Years

Source: Raymond James

Now nothing in life is perfect, especially as we’re in the throes of a terrible pandemic. I see three key risks to my outlook. First, is this darn virus. I’m optimistic that things will improve on the pandemic front this year but we’re not done with this pandemic yet, so this remains a risk to our outlook. Second is China and their real estate market, which could come under pressure if we see an Evergrande default/bankruptcy. A default could spread to other developers and weigh on the overall real estate market, which represents 29% of China’s GDP.

Lastly, and most importantly, is the high inflation readings with US/Canada inflation rates around 6%. This is key since if inflation remains hot as it currently is then it will force the Fed and BoC to ‘catch up’ on the discrepancy where interest rates are (0-.25%) and inflation is (6%). This could force their hand to hike more aggressively than previously expected, which could lead to some increased market volatility. I’m hoping that inflation peaks this year (seeing some early signs of this in key indicators) but if it remains hot this could pose a risk to the markets.

So that’s the big picture. Below are some of our key investment themes for 2022:

  • We continue to prefer (for now) US to Canada and International
  • Given our growth expectations, cheaper valuations, and their high correlation to rising interest rates, we see small caps potentially outperforming large caps
  • We still like high-quality dividend stocks (e.g., Canadian banks) and given our expectations for more volatility, dividend stocks continue to make a lot of sense
  • I see value stocks outperforming growth as they typically do better in a rising rate environment
  • Commodities should continue to do well so the outlook is improving for the TSX. The TSX returned over 20% last year, which I don’t see repeating but I’m still expecting a good year
  • On the bond side, we like short-term bonds (less impacted by rising rates), investment grade corporate bonds (corps tend to outperform government bonds when rates rise), and floating rate bonds, which provide a hedge on inflation
  • Preferred shares should continue to trend up on the higher interest rates, but returns will moderate from the strong 2021

Wow that was a lot. Sorry to nerd out.

In summary, it’s going to be a bit bumpier ride this year but I think at the end of the year we’ll have some more gains to show after this year’s stellar performance. And Covid will hopefully be on its back heels and we’ll have peace and harmony around the world. A man can hope can’t he!

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

 

87 comments ↓

#1 LewenzaCountry aka Prince Polo on 01.01.22 at 10:23 am

Nerding out is just what the doctor ordered on the 1st of the year!!

Do you foresee the US-midterm elections/circus throwing a wrench into the potential returns for 2022?

#2 crowdedelevatorfartz on 01.01.22 at 10:29 am

Up early in the New Year.
Well done you keener.

Boomers retiring en mass and mills stepping up to the plate to replace them…
Volatility?
You bet.
China could use a nasty little war to get their peeps minds off a dismal, escalating, real estate bubble.
Lets hope our Western democracies are somewhat prepared.
Speaking of the democratic process.
Fingers crossed the Conservatives punt O’Toole down the road and get someone electable at the helm.
The Libs ( with or without “Stutters” ) aren’t going to wait forever.

#3 crowdedelevatorfartz on 01.01.22 at 10:35 am

@#97 Faron
“Regardless, I’ll take what I can get as I age. I’m admiration agnostic.”

+++
hahaha
It gets worse.
Wait ’til your in your 60’s.
Grumpy AND ignored.
Just ask Ponzie.

#4 Flop… on 01.01.22 at 10:47 am

HNY gang.

Hi WULLY.

Haven’t been commenting on here the last month or so.

Got up one Saturday morning a while ago and turned my phone on, and someone had sent me death threat.

I called the police and they traced the number and that person spent a night or two in jail and was given a two year restraining order.

Why would someone threaten my life?

This is Vancouver.

Real Estate, of course…

M47BC

#5 crowdedelevatorfartz on 01.01.22 at 10:58 am

@#92 fishman
“Smoky was demoted to private around 6 times. ”

+++

I met Smoky at a huge dinner in his honour.
The last surviving VC winner in Canada.
Canada no longer allows the VC to be awarded to it’s troops.
Politics.
A new Canadian VC has been created.
And , as of yet, no Canadian has received the Canadian VC.
Several things I remembered.

He and his WWII mates were quite small.
They all stood about 5ft 8 or less.
As soon as he reached the stage he flashed up a HUGE Cuban cigar ( no smoking) to the annoyance of the “elite” on stage with him.
After the Dinner all the politicians, generals, etc left in Limos before Smoky. The place cleared out in minutes but there were several well dressed ladies getting their pics with Smoky and his VC on his blazer jacket. He seemed to be enjoying that.
The VC is a tiny, non descript medal.
After all that.
Smoky was left sitting there in his wheelchair waiting for his family to bring their van around front of a hotel in Richmond to bundle him inside for the drive home.
No limo, no fanfare, no bs.
THAT was Sgt/Private/Sgt Smoky Smith.

#6 Habitt on 01.01.22 at 11:07 am

Thank you Ryan for the excellent post. Happy new year to you, everyone associated with this blog and of course all the dogs.

#7 Sam on 01.01.22 at 11:11 am

Ryan – The unprecedented fiscal and monetary policies are what drove the economic recovery, thus the economic recovery isn’t organic as your post implies. Therefore, the markets only had one/two main drivers which was the money printing and low rates. It’s currently taking the CBs to inject $2T daily into reverse repos just to keep the bull market afloat. Also, I understand that bull markets are lengthy and crashes are few and short as your chart implies (4.5 years avg) however when the crashes do come they take away all the appreciation quickly as stocks nosedive within days and weeks back to mean reversion.

#8 TurnerNation on 01.01.22 at 11:17 am

They year ahead – a bountiful message of hope. ;-)

If you’d been paying attention back in April 2020 and seen this plan chart released then by the helpful folks at the WEF, the global plan was clear. Every facet of life, and it’s not designed to be “going away”:
Dispel yourself of this fanciful notion.

https://tinyurl.com/5n8escbx

-As Quebecers learned we will be under quasi House Arrest, with all the old culture banned/cancelled during this time. Comply as you wish. Keep trying

——
——
2022 schedule (Thanks to our sponsor, Fizer):

January: TFSA contribution; 3rd booster
March: RRSP contribution; 4th booster
June: 5th booster
September: 6th booster
December: 7th booster. Annual winter lockdown

#9 Dolce Vita on 01.01.22 at 11:46 am

Sorry to nerd out.

———

Not at all. It was an enjoyable read.

Agree totally.

Supply chain issues also a drag on the economy. They take years to build. They will not heal in a few months. Longer than 1Q.

#10 Dogman01 on 01.01.22 at 12:07 pm

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance.” – Chuck Prince’

“Walk away from any table where you are up 2.5 million, he explains. Use the proceeds to buy a house with a 25-year roof, a car, and then put the remainder in a fund earning 3-5% a year. To anyone asking for something you find inconvenient, you can simply reply, “F….you!”

How do you get to 2.5 million? You get married. You stay married. You show up for work every day. And you save and invest 15% of your gross income.

Will this make you happy? I have no idea. But it will make you (moderately) rich.” – The Gambler

#11 Brian on 01.01.22 at 12:11 pm

Happy New Year Ryam!

Presently enjoying Joe Roagan Podcast with Dr. Robert Malone!

#12 Shawn on 01.01.22 at 12:54 pm

Your Move Sail Away

Sail Away claimed:

#120 Sail Away on 12.31.21 at 3:29 pm
@Shawn, the strategy works just fine to melt down an RRSP. No need to insult CS just because you haven’t grasped that.

There is no need for additional risk, either. The RRSP is already invested in something; just invest the borrowed $ in the same.

It works.

And

So melt it down with GICs. The GIC rate will always be near loan rate.

Still works.

******************************
I am surprised Sail Away has not responded where I told him yesterday he is wrong. He appears to be a very smart and successful businessman and investor, but he’s wrong here.

The borrow-to meltdown strategy is to take money out of an RSP and offset the taxable income with interest on the loan. (Bizarre rely, it seems the higher the interest rate paid the more income it can offset)

The borrowed money is invested and so the interest is deductible. But if the invested funds make money, that’s taxable and the interest deduction will be chewed up to offset that. Certainly for GICs the income is all taxable so can’t work at all.

The only way this strategy works is if there is no current income on the taxable investment account that the borrowed money is put into. So you can try capital gain stocks or return of capital stocks. This can work at the expense of a risky strategy. And to the extent it works it really has NOTHING much to do with the RSP, it’s just a borrow to invest strategy. You can do it without an RSP just take a bit of the borrowed amount to pay the interest each year.

So the GIC math idea is completely faulty and investing in normal RRSP type investments won’t work becasue those tend to generate income that will chew up much of the interest deduction.

So Sail Away is wrong and besides that RRSP meltdown is generally a silly idea.

Another problem is it takes massive borrowing at say 4% interest to offset an RRSP withdrawal – $250,000 borrowed at 4% interest will offset just $10,000 in RSP income and that’s assuming you made zero on the taxable investment. What a crazy idea!

JSS responded in agreement and he is the very long-time rub-tummy dividend investor / commenter and seems a smart investor.

#13 HUNGRY BEAR on 01.01.22 at 1:04 pm

HAPPY NEW YEARS!!!

You only live once.
Life is short.

Learn from your past years and prepare for the next.

Your not gauranteed tomorrow so MAKE THAT MONEY TODAY!!

…….and Enjoy It.

#14 crowdedelevatorfartz on 01.01.22 at 1:29 pm

Welcome back Floppie!

Geez Real estate wankers losing it over negative internet comments?

Just wait for the rising interest rates and the Bankers tightening the purse strings…

:)

#15 Ryan Lewenza on 01.01.22 at 1:35 pm

LewenzaCountry aka Prince Polo “Do you foresee the US-midterm elections/circus throwing a wrench into the potential returns for 2022?”

Not really. Maybe adds a bit of volatility around midterms but shouldn’t have a big impact. A Republican win could be positive as markets might like the check and balance to the Democrat President. – Ryan L

#16 Ryan Lewenza on 01.01.22 at 1:43 pm

Sam “Ryan – The unprecedented fiscal and monetary policies are what drove the economic recovery, thus the economic recovery isn’t organic as your post implies.”

How do you know this? How can you discern between a job added due to stimulus or a job added ‘organically’? Either way I disagree with you. The Canadian economy added 3 mln jobs since the pandemic hit. Many of those jobs were created due to the recovery from the initial waves of the pandemic. They weren’t created (or all of them as you imply) because the BoC bought $300 bln worth of bonds. So as I said, the markets rallied on the combo of a rebounding economy and the stimulus. – Ryan L

#17 Common Sense on 01.01.22 at 1:44 pm

#12 Shawn

What is crazy for some may be viable strategies for others. It depends on each individual’s situation and risk tolerance.

What is important is to understand the strategy, the factors, and be able to do the math to determine viability and risks.

Higher interest rates make the strategy less viable; lower rates make it more attractive. Same for investment returns, but in reverse. So probably makes sense to stay away from GICs as the returns are too low.

The point of this strategy is to use the RSP to convert your fully taxable dollars into a much larger account where every dollar is not taxable, and the tax is favourable for those dollars that are taxable.

Using Shawn’s numbers:

If you have an $80k RSP you can borrow $250k @ 4% and pay interest only $10k for 10 years and deplete your RSP. You now have $500k in your investment account and $250k net based on the investment doubling in 10 years.

Yes you’ve paid tax on the investment account along the way, but the capital gains and dividends were tax favourable.

Yes there is extra tax paid on the above, but there’s extra income and wealth generation too. Complaining about paying more tax on more income is like those who don’t want a raise because it moves them up a tax bracket. Makes no sense.

Yes you pay tax – likely capital gains – to sell your investments to clear the loan. But again tax favourable, and not on every dollar of the $250k.

In this example the $80k RSP turned into $250k net after ten years and every dollar of the $250k is not fully taxable.

The same circumstances give you $160k in your RSP if you do nothing, where every dollar is taxable. You get close if your RSP can triple in the decade, but every dollar is still fully taxable, and the meltdown scenario gets more attractive if it triples too.

Overall you are likely to pay less tax if you meltdown, likely tens or even hundreds of thousands of dollars depending on RSP size. Even less still if you meltdown before you die, versus dying and leaving a big tax bomb in your RSP for your final return.

The numbers are all fast and loose, and there are a lot of unstated assumptions to keep it simple. The point is to do the math, asses your risk appetite, and make your own choices. Like all other financial decisions in life.

#18 Michael King on 01.01.22 at 2:10 pm

Some rare good news on the pandemic/vaccine front.

https://www.scientificamerican.com/article/a-covid-vaccine-for-all/

https://www.researchsquare.com/article/rs-1196079/v1

Links courtesy of Naked Capitalism. Like Greater Fool, this is a blog I visit every day.

#19 Kevin on 01.01.22 at 2:19 pm

Thanks Ryan for the great post!

Re: your image about average bull runs, why do you see 2020 as a new bull run and not a continuation of the 2009 one post GFC? Does drop in March/April 2020 really count as ending that prior one? Seems more like a fluke/once in a lifetime event. As a result, if it’s a continuation of the 2009 bull run, we’re 13 years into it.

#20 Cici on 01.01.22 at 2:21 pm

Sorry, but don’t be sorry: bring the NERD on!

Thanks and HNY, Ryan

#21 I don't know on 01.01.22 at 2:28 pm

#16 Ryan Lewenza on 01.01.22 at 1:43 pm

Excellent response. A lot of doom and gloom types or permabears will try to distill the recovery to one or two factors that match their worldview, and ignore every other factor. ​

Of course the economic recovery was aided by monetary policy, but the real story is how resilient the economy has proven in the face of the pandemic, lockdowns, reduced capacity, supply chain driven inflation and so on. The whole system has adapted to keep life moving remarkably smoothly.

This is what the markets are largely responding to, and will continue to respond to.

#22 Neo-Liberal Communist on 01.01.22 at 3:18 pm

BMO American Corporate bonds are sliding down in value this past week. What gives? It is replicating the Bloomberg US Corporate bond index.

#23 Ambrose Pereira on 01.01.22 at 3:21 pm

Great advise Ryan and thank you

We wish you, your family and colleagues a Healthy, Safe and Peace-filled 2022.

#24 JackYVR on 01.01.22 at 3:25 pm

Just an observation, I don’t post much, but the graph of bull markets shows an 11 year bull market starting in 2009, now 2009+11=2020, so how come it’s not a 12.8 year bull market we’re in, 2009 to 2022 as there appears to be no gap between the bull markets?

#25 Nonplused on 01.01.22 at 3:34 pm

Well, here in Alberta 2022 is starting out with the schools closed and another week of -25 in the forecast. Ug.

With inflation at 6%, some terms need redefining. “Value” now equals “price”. Value cannot be determined in an environment of high inflation.

GDP should always be measured “minus inflation” as is done with real interest rates. There is no reason to assume at present the entirety of the published GDP increases reflect anything other than inflation. 6% GDP growth minus 6% inflation equals 0% real GDP growth. Not spectacular at all.

None of the key indicators indicate there is any relief coming from inflation. Lumber is back up, car dealers are charging over MSRP for what cars they can secure, used car prices are silly, you need a HELOC to go to the grocery store, and energy is still hugely expensive (which will affect the price of everything).

Stocks should perform well in an inflationary environment, at least for those companies who can establish pricing power. But for the average person, gains in the stock market will not offset loses at the gas pump and grocery store. That is where 80% of your economic activity is, the people who don’t have stocks.

Increasing interest rates will help temper inflation, but real rates need to be positive. The proposed increases to maybe 2% in stages aren’t going to do it. They will still be deeply negative. “Buy all the things” remains the mantra so long as inflation is higher than interest rates.

2022 could be anything. We don’t know. But it doesn’t look like a bed of roses just yet. So far it is just a manure field.

#26 XGRO and Chill on 01.01.22 at 3:39 pm

Epidemiologists: “We don’t know when the pandemic will end.”

Financial bloggers: “The pandemic will end in 2022, cause market sentiment”

#27 TurnerNation on 01.01.22 at 3:41 pm

2022? Permanent rolling Economic Lockdowns, leading to a UBI. Planned reset or happenstance. You decide.

Don’t take my word for it. Kanada is done for.
Still predicting a massive Consumer-led recession in 2023-24.

https://www.canada.ca/en/revenue-agency/news/2021/12/the-government-of-canada-launches-applications-for-the-expanded-canada-worker-lockdown-benefit.html
News release December 30, 2021
The Government of Canada is committed to supporting Canadian workers, businesses and service providers through the COVID-19 pandemic.
On December 22, 2021, the Government of Canada announced that it would be expanding eligibility for the Canada Worker Lockdown Benefit (CWLB) to better support Canadian workers. Today, the Honourable Diane Lebouthillier, Minister of National Revenue, announced that the expanded access to CWLB is now in effect and Canadians in designated regions affected by lockdowns or qualifying capacity restrictions can apply for the benefit.

#28 bdwy on 01.01.22 at 3:43 pm

all the old culture banned/cancelled…

———————-
RIP to plastic bags in vancouver for 2022. extra $$$ for that cup too.

only bags this morning at no-thrills we reuseable for 2.25 a pop.

i am feeling 2022 is going to be a good year, as i had a 1500pk of new, strong, light, thin, clean plastic bags from amazon in the back of the truck. stuck a few in the pocket on the way in. gave the guy in the next aisle a couple. what a great day!

lifetime supply of plastic straws was put up 2 years ago.

forks knives and spoons are this years projects. at camp we use alot , maybe 25,000-35,000 pc of each will suffice.

#29 KLNR on 01.01.22 at 4:03 pm

[email protected]#11 Brian on 01.01.22 at 12:11 pm
Happy New Year Ryam!

Presently enjoying Joe Roagan Podcast with Dr. Robert Malone!

good back story on Malone

https://www.theatlantic.com/science/archive/2021/08/robert-malone-vaccine-inventor-vaccine-skeptic/619734/

I’ll hand it to Roagan.
Guy knows how to make money, knows exactly who his audience is lol.

#30 Linda on 01.01.22 at 4:08 pm

HYN Ryan & thanks for yet another (upbeat) analysis of what to expect from the markets in 2022. I do wonder about inflation. The official numbers have not in my opinion been a true representation of actual inflation. Since the official numbers are used to determine increases to items such as CPP it seems to me that a ‘hidden’ tax is occurring which will presumably reflect in household spending or lack thereof – at least, for those households that have ‘fixed’ incomes. Which is not an insignificant number.

Also, the unintended side effects of WFH continue. I refer to the exodus from large urban centers to small urban or rural communities. The problem is that small communities are struggling with the influx, in that locals have been priced out of the housing market & further, the supply in small communities was limited to begin with. NYE group call with siblings based in Ontario touched on the local housing & rental situation. Prices have jumped to levels beyond the reach of many; one sibling mentioned looking on behalf of a friend for 3 solid months without success for ‘affordable’ housing. Problem is local rents for a 2 bedroom abode have jumped to $2K, which is unfortunately the monthly income of said friend. Who is a single parent with children, hence the need for a 2 bedroom. Another sibling mentioned the issue with moving. Rent controls mean that a vacated place will see a substantial increase in rent for new tenants. Sibling mentioned that one tenant who had moved out returned; however the rent for the exact same size apartment went from not quite $700 per month to $1,600 per month. This in a small town an hour outside of Ottawa. Another sibling mentioned that over the past 2 years the homeless population went from effectively zero to visible numbers. Seems to me that our government would better serve its citizens by reallocating all those billions earmarked for low cost child care etc. into building affordable housing. When parents with children can’t find affordable accommodation I would think housing would take priority over daycare. Just saying.

#31 Neo on 01.01.22 at 4:12 pm

Toronto home prices climbed by almost 500 per cent in the last two decades

https://www.blogto.com/real-estate-toronto/2021/12/toronto-home-prices-bubble-500-cent-last-two-decades/

Can we stop calling it a country and use the correct term “commodity”

The standard of living has dropped 90% in what used to be Canada o

#32 Shawn on 01.01.22 at 4:13 pm

Common Sense RRSP Meltdown

Using Shawn’s numbers:

If you have an $80k RSP you can borrow $250k @ 4% and pay interest only $10k for 10 years and deplete your RSP. You now have $500k in your investment account and $250k net based on the investment doubling in 10 years.

*********************
Well, why not keep the RRSP and still borrow the money and have $500k (less interest paid) plus $160k in the RSP. (And why did the RSP being tax-free compounding not grow faster than the taxable account?). And did you know that a double on an investment in ten years is not guaranteed?

Your scenario is just a borrow to invest strategy. It does not have a lot to do with RSP and you can do independently if you like the risk involved.

And your scenario again has a $250k loan to melt down a paltry $80k RSP. Make it an $800k RSP and you need to borrow $2.5 million. Is that your banker I hear laughing?

#33 CanadianThinker on 01.01.22 at 4:42 pm

#11 Brian on 01.01.22 at 12:11 pm
Happy New Year Ryam!

Presently enjoying Joe Roagan Podcast with Dr. Robert Malone!

^^^^^^^^^^^^^^^

Intellectual type eh? Hot!

#34 Gregor on 01.01.22 at 4:49 pm

Canada is the worlds doormat

Poverty-level income tax filings prompt questions in mega-rich Richmond, B.C.

https://www.richmond-news.com/local-news/poverty-level-income-tax-filings-prompt-questions-in-mega-rich-richmond-bc-3059097

#35 Sail Away on 01.01.22 at 4:51 pm

@Shawn re: RRSP

No, not wrong, but situation-dependent. In my case if I were purely Canadian, the tax bracket at RRSP contribution remains the same as at distribution, so using RRSP $ for a write-offable (is that a word?) expense could be beneficial, especially since the $2M loan would be liquid and available while the RRSP wouldn’t. Essentially, the RRSP would act as a guaranteed payment account for the loan.

However, for dual citizens who can choose to change tax residency to the US, there is more benefit to keeping the RRSP, since any RRSP taxation by Canada above the far-lower US rate (53% vs 24% in my specific case) yields tax credit that can be used to offset US tax.

#36 earthboundmisfit on 01.01.22 at 5:04 pm

“some type of exogenous shock”

Like a second U.S. civil war? A descent into authoritarianism? Today’s Globe & Mail is chock-a-block full of such doomsday prognostications. Care to do a little hypothetical theorizing on portfolio positioning for such an event? Or are we all just ****ed?

#37 LewenzaCountry aka Prince Polo on 01.01.22 at 5:11 pm

#15 Ryan Lewenza on 01.01.22 at 1:35 pm
LewenzaCountry aka Prince Polo “Do you foresee the US-midterm elections/circus throwing a wrench into the potential returns for 2022?”

Not really. Maybe adds a bit of volatility around midterms but shouldn’t have a big impact. A Republican win could be positive as markets might like the check and balance to the Democrat President. – Ryan L

Good point! I wish we could deadlock our out of control Photo-op Minister’s spending too.

#38 espressobob on 01.01.22 at 5:24 pm

HNY! Let’s hope this year rocks.

As a retail investor, it just seems owning the major indices by market cap proves more profitable than favoring anything like the TSX based on home bias, unless owned in a non reg by the wealthy,and this index has proven historically, a stinker for years until recently.

Market timing a sector or index somehow doesn’t cut it compared to a global benchmark. Just saying…

#39 Gath of Izar on 01.01.22 at 5:37 pm

I hope to live in a legitimate country one day. Time to bone up on my German.

https://www.sightline.org/2021/05/27/yes-other-countries-do-housing-better-case-2-germany/

From 2010 to 2019, for every hundred people added to Germany’s population, the country gave permits for construction of 97 homes. That’s right: Germany permitted almost as many new homes as it added residents.

#40 baloney Sandwitch on 01.01.22 at 5:53 pm

Our friend Rosenberg’s out again in the G&M saying – no inflation (but deflation)) and a reverse V retracement in stocks and RE in 2022 as stimulus is withdrawn by the CB’s. Interesting that he and Garth are on the same page on RE.
https://www.theglobeandmail.com/investing/markets/inside-the-market/article-why-2022-will-be-the-year-of-the-great-transition/

#41 Omicron Kenobi on 01.01.22 at 6:01 pm

2022 belongs to me.

Many of you will not survive it, financially or otherwise.

Ryan, invest in the funeral industry.

#42 Quintilian on 01.01.22 at 6:02 pm

#21 I don’t know

“The whole system has adapted to keep life moving remarkably smoothly.”
And…
“This is what the markets are largely responding to, and will continue to respond to.”

No not the system.

It’s government injection into the GDP equation.

Over 1.5 billion per day of government stimulus.
(officially , but the real number is much bigger).

And nobody here seems to be praise and thank the Liberals

#43 Ryan Lewenza on 01.01.22 at 6:09 pm

Kevin “Re: your image about average bull runs, why do you see 2020 as a new bull run and not a continuation of the 2009 one post GFC?”

The 30%+ decline last Feb/Mar ended the 2009-2020 bull market. We then started a new bull market last spring. So it’s not viewed as the continuation of the 2009 bull market. – Ryan L

#44 Brian on 01.01.22 at 6:26 pm

[email protected]#11 Brian on 01.01.22 at 12:11 pm
Happy New Year Ryam!

Presently enjoying Joe Roagan Podcast with Dr. Robert Malone!

good back story on Malone

https://www.theatlantic.com/science/archive/2021/08/robert-malone-vaccine-inventor-vaccine-skeptic/619734/

I’ll hand it to Roagan.
Guy knows how to make money, knows exactly who his audience is lol.

Obviously mass psychosis has set in!

#45 lots of bad vcomments here on 01.01.22 at 6:29 pm

What was your track record from the previous year?

#46 crowdedelevatorfartz on 01.01.22 at 6:40 pm

@#41 The Book of Babble Fret
“…..invest in the funeral industry.”

++++

Funerals?
Sooo Boomer-ish.
The new “green” Celebration of Life”?
Water Cremation.
Placed ( without chemical embalming) in a body sized pressure cooker.
Slowly “cooked” in an alkaline organic goo while the vessel is occasionally rotated.
3 to 6 weeks later ( depending on your girth).
The tank is emptied…..down the drain.

https://www.talkdeath.com/green-burial-updates-2021/

#47 crowdedelevatorfartz on 01.01.22 at 6:53 pm

@#41 A Quintillian dollars deeper in Debt

“And nobody here seems to be praise and thank the Liberals”

+++
Why?
They haven’t fired the rich dilettante Truedough or the non finance Finance Minister Freecash yet…

#48 Reality Check on 01.01.22 at 7:16 pm

Presently enjoying Joe
Podcast with Dr. Robert Malone
————
FYI – Dr Robert is a rabid antivaxer.

#49 Joe on 01.01.22 at 7:22 pm

You mentioned Bank stocks. I have a few questions. The Federal Government owns The Bank of Canada, they also own/regulate the banks in Canada. Do the Rothschild have any involvement ?

#50 Shawn on 01.01.22 at 7:27 pm

Swollen RRSPs

There must be some truly massive RRSPs out on the tail of the distribution.

There are the non-pension people, a few of whom would have been putting in about 18% of earnings for many years. Some of these as well as some other smaller contributors will have knocked it out of the park.

I’d guess thousands at $5 million or more and at least 100 at $10 million.

Very difficult to say. Sure they face a big tax bill but also huge incomes in retirement.

Fess up, who here has more than $5 million in their RRSP? And, for those that might be interested, are you single? (And, even better, very old and/or fragile?)

#51 Trudeau’s Magic Money Machine on 01.01.22 at 7:27 pm

When you said:

On the bond side, we like short-term bonds (less impacted by rising rates), investment grade corporate bonds (corps tend to outperform government bonds when rates rise), and floating rate bonds, which provide a hedge on inflation

What do you this of the short term corporate bond etf CSD.TO for that purpose?

#52 Cici on 01.01.22 at 7:30 pm

#12 Shawn

I had no idea what an RRSP meltdown strategy was so I looked it up. I agree, it seems complicated and risky. I think you really have to know what you are doing to make it work. And you have to make sure you don’t withdraw too much because there are implications regarding the withholding tax.

And even then, it may be about to become even more complicated, if this guy is right about the federal government reviewing the interest-deductibility rules:

https://ca.rbcwealthmanagement.com/delegate/services/file/249690/content#:~:text=The%20RRSP%2FRRIF%20meltdown%20strategy,withdraw%20funds%20from%20an%20RRSP.

#53 Shawn on 01.01.22 at 7:31 pm

RRSP transfer on death to a recent spouse

What if the last surviving spouse or a single person with a large RRSP takes a new spouse late in life?

Does the RRSP transfer to the new, and no-doubt younger, spouse tax free until his/her death or he/she makes withdrawals?

Asking for a friend.

#54 crowdedelevatorfartz on 01.01.22 at 7:32 pm

Anyone in the Lower Brainland notice the jump in gas prices this morning?

I filled up 2 days ago at $1.49/ litre.
Today it was $1.68/ litre.

Inflation here we come.

#55 Joe on 01.01.22 at 7:34 pm

To be more direct in my question im reading that the Rothschild own the Bank of Canada, is this true or conspiracy thinking?

#56 Cici on 01.01.22 at 7:42 pm

#4 Flop

Wow, welcome back! But seriously, that’s insane.

Although truth be told, I could never open any of those links without registering for an account, so didn’t bother.
But still, considering that anyone who’s invested in real estate should be laughing all the way to the bank, it’s probably not related. Don’t forget, COVID and isolation have pretty much affected everybody’s mental health over the past couple of years.

Regardless: lie low brother, stay safe and HNY!

#57 embarrassed on 01.01.22 at 8:14 pm

Leafs game, no fans

south of the border stadiums are full

am i the only Canadian embarrassed?

is this paranoia for real? its 2 yrs later, we have treatments and vaccines. what is going on?

#58 Mark on 01.01.22 at 8:39 pm

Ryan,
Wish you would nerd out for the ones who would like too know what kind of losses one could realistically expect in a down turn based on portfolio construction.

#59 tc-contra on 01.01.22 at 9:33 pm

“We’re still in the early innings of this current bull market, which started in March 2020. The average bull market last 5 years and we’re not even 2 years into this one.”

wow, I could not disagree more!

Let’s see…

A Bull market BEGINS after a BEAR market, as far as I know. What we experienced in March 2020 was NOT a bear; it was a correction in a bull market that began in 2009.
True bear markets last approximately 2 years, give or take, no?
1929-1932, 1973-1974, 2000-2002, 2007-2009, and…2021-2023/4 (my prediction).

Perhaps I got it all wrong – we shall see.

#60 Albertaguy in AB on 01.01.22 at 9:35 pm

Rose Bowl, 60,000 fans, no masks.

We are sucky wuseholes.

#61 Drinking on 01.01.22 at 9:36 pm

I very much hope that your predictions are correct but anyone saying that inflation is a lousy 6 percent are in a deep sleep. Could care less what the charts show just show up at a grocery store and see if the so called graphs are telling the truth, never mind filling the tank.

What pisses me off if how far off you all of you are, sounding more like T2…

#62 mike from mtl on 01.01.22 at 9:58 pm

#57 embarrassed on 01.01.22 at 8:14 pm
Leafs game, no fans

south of the border stadiums are full

am i the only Canadian embarrassed?
////////////////////////////////////////////////////////////////////

No, because we have a piece of garbage single payer health system that has no alternatives. I used to be proud of that, however under actual stress it is a money hole.

80+ vax as was promised not locked down exceeded despite to a crappy funded system brings us right be to square one.

Was on the fence of publicly funded health systems but now it is clearly a complete joke, throwing good money at bad.

8 million have to suffer for the mismanagement of a few hundred is.. well.. I can’t put this politely.

#63 Sail Away on 01.01.22 at 10:15 pm

#53 Shawn on 01.01.22 at 7:31 pm

RRSP transfer on death to a recent spouse

What if the last surviving spouse or a single person with a large RRSP takes a new spouse late in life?

Does the RRSP transfer to the new, and no-doubt younger, spouse tax free until his/her death or he/she makes withdrawals?

Asking for a friend.

———-

If properly designated beneficiary, yes:

https://www.cifinancial.com/ci-assante/ca/en/insights/wealth-planning/tax-treatment-of-rrsps-left-to-your-spouse-on-death.html

Of course, that surviving spouse could remarry younger and continue the sequence… essentually forever if the stars aligned.

#64 Shawn on 01.01.22 at 10:31 pm

Consumer Price Index

No one is interested in the actual data since they already know all the answers but the Stats Can Consumer Price Index in November was a 4.7% year of year increase

Were they hiding things?

They had food at only 4.4% (which does look low) and shelter at 4.8% (A ton of people own their house and faced no rent increase and did not buy a house). But they had gasoline at 44%. And Energy overall at 26%.

https://www150.statcan.gc.ca/n1/daily-quotidien/211215/t001a-eng.htm

#65 Drinking on 01.01.22 at 10:52 pm

One last comment Ryan, you did not mention the recent hikes in cpp, Ei, carbon tax, never mind the federal, municipal and provincial taxes, food, energy, that are increasing starting 2022; just asking, are they all included in your graphs, if not, please explain the difference on what we are actually paying and what your graphs are saying. Thank you!

#66 MaggieB on 01.01.22 at 11:20 pm

#60 Albertaguy in AB

U.S. Covid deaths – 824,000

Canada Covid deaths – 30,000

Maybe smart, not wusey.

#67 Ponzius Pilatus on 01.02.22 at 12:08 am

Excellent, professional presentation.
0ne can tell that a lot of research went into it.
This together with expert judgement makes for a sound forecast.
And all this for free!
Thank you, Ryan.

#68 Garth's Son Drake on 01.02.22 at 1:18 am

Elon Musk just tweeted the next recession may be in spring 2022, but not later than 2023.

What does the richest person in the world know that you don’t?

#69 Stealth on 01.02.22 at 1:28 am

Thank you very much Ryan for your detailed post. I say it with great respect.

The bottom line is that many trillions of dollars / euros etc have been ‘injected’ into the world whether through printing or quantitative easing or whatever other terms are used, causing money supply of fiat based currencies to increase dramatically.

Therefore, everything will simply be more expensive regardless whether it is paper or real assets or milk etc.
Too many “dollars” chasing too few good. I think Milton Friedman explained this well. How much more depends on control of inflation, but still money has to go somewhere invested or spent or both regardless of inflation being 3,5 or 10%.

Either that or things gets significantly cheaper. Wouldn’t bet on it.

So as Garth says hold everything in a boring, diversified and balanced way and be happy (naturally cause your own happiness via pursuit and completion of meaningful goals or course )

Thank you again.

Clarifying question, when you refer to small cap do you mean US small cap?

#70 Baby We Made It on 01.02.22 at 1:30 am

You want to talk about inflation?

I just looked at my BC Assessment (a January 1st tradition).

+600,000 in one year.

My annual house price performance since buying my place in 1998 is 28.90% annually – smoothed out for the past 23 years or six fold gain.

My neighbour who has been in his place since 1974 is up 3011.11% or an annual average return of 64% annually over 47 years.

The Left Coast is the best coast. RIP SS

#71 under the radar on 01.02.22 at 5:56 am

RSP Meltdown = I would rather pay the tax then be saddled with a very substantial investment loan simply to offset the tax on the withdrawals.
Buddist Proverb – Enough is a Feast .

#72 Love_The_Cottage on 01.02.22 at 8:07 am

#64 Shawn on 01.01.22 at 10:31 pm
No one is interested in the actual data since they already know all the answers but the Stats Can Consumer Price Index in November was a 4.7%…

…and shelter at 4.8% (A ton of people own their house and faced no rent increase and did not buy a house).
_________
Thanks Shawn, people seem to take note only when prices go up.
Property taxes are up 1.5% next year for me, car insurance dropped a bit. I switched to a lower cell phone plan with Virgin.

Sweatpants and T-shirts instead of suits is the biggest saving for me. WFH forever saves a ton on gas too, I’m spending less money overall now that 2 years. Deflation in my house.

#73 Phylis on 01.02.22 at 9:03 am

#68 Garth’s Son Drake on 01.02.22 at 1:18 am
Elon Musk just tweeted the next recession may be in spring 2022, but not later than 2023.

What does the richest person in the world know that you don’t?
Xxxxxxx
His sales projections aren’t looking good? (Maybe that’s why he kept on selling stock, he figures it’s at the peak?) Any other guesses?

#74 KLNR on 01.02.22 at 9:38 am

@#60 Albertaguy in AB on 01.01.22 at 9:35 pm
Rose Bowl, 60,000 fans, no masks.

We are sucky wuseholes.

almost like america purposely wants to cull their population a bit.

#75 Dharma Bum on 01.02.22 at 10:02 am

I see three key risks to my outlook.

– Ryan
——————————————————————————————————

I see debt people.

https://www.youtube.com/watch?v=b9GNkCHknGs

#76 Ryan Lewenza on 01.02.22 at 10:04 am

Stealth “Clarifying question, when you refer to small cap do you mean US small cap?”

It’s a broad call for small caps to outperform given our growth expectations but we’re specifically targeting US small caps for this trade. – Ryan L

#77 Ryan Lewenza on 01.02.22 at 10:13 am

Drinking “One last comment Ryan, you did not mention the recent hikes in cpp, Ei, carbon tax, never mind the federal, municipal and provincial taxes, food, energy, that are increasing starting 2022; just asking, are they all included in your graphs, if not, please explain the difference on what we are actually paying and what your graphs are saying. Thank you!”

Stock returns are driven by macro factors like GDP growth and commodity prices. Things like taxes and CPP hikes are secondary and don’t move the dial much on stock prices. – Ryan L

#78 Ryan Lewenza on 01.02.22 at 10:25 am

Drinking “I very much hope that your predictions are correct but anyone saying that inflation is a lousy 6 percent are in a deep sleep. Could care less what the charts show just show up at a grocery store and see if the so called graphs are telling the truth, never mind filling the tank.

What pisses me off if how far off you all of you are, sounding more like T2…”

Groceries represent a portion of what we spend money on. Haven’t you seen things like TV and computer prices decline in recent years? Or how Zoom conference calls can replace expensive business traveling costs. You need to look at the full picture. And lastly you’re coming to Garth’s blog for info/content. If you don’t like what you’re reading you can go elsewhere. This isn’t a prison. – Ryan L

#79 Ponzius Pilatus on 01.02.22 at 11:05 am

Spent New Year’s Day afternoon watching Apocalypse Now Redux.
All 3 1/2 hours of it.
The critics are right, the original , 1 hour version, is still better.
And, the extra hour did not entail a forecast of stock markets for 2022.
But I’m sure if it had, it would have been Apocalyptic, I recon.

#80 Ponzius Pilatus on 01.02.22 at 11:09 am

#79
“The 1 hour shorter version”, is still better

#81 millmech on 01.02.22 at 11:43 am

#52 Cici
It is less risky than buying a million plus dollar house that is 100% financed. One can put protections in place to limit losses on investments and any losses can be written off against any future gains also.
This is only one way to lower taxes, another is to start up a company and have write offs for the next seven years. There are so many consultants out there now, the best part is when going for beers and bites now is pretty well free as people argue over paying the bill. They want the write of a business expense because they talked about their business lol.
Most people do not seem to realize that most businesses need investors to grow and stay viable if the Liberals rug pull this one, who will provide that liquidity now as banks only want to lend to established companies not start ups.
If I can not write off my investment interest I will just charge more interest, where else are they going to go realistically.
Just imagine how the stock markets would be if the Government would guarantee your investment loan up to 1.25 million against default and any profits made from the market were tax free. Now you see why there is nothing that will stop our real estate market from growing.
The best part is that the Liberals promised to make housing affordable if elected and look at what has happened to prices since.

#82 Dr V on 01.02.22 at 11:50 am

70 Baby – have you received your vax for the highly contagious Dolcemathitis?

#83 Wrk.dover on 01.02.22 at 1:34 pm

Rose bowl parade vs Jan 6th insurrection

What a televised contrast!

Had excellent bleacher seats 33 years ago, still worth bragging about. Experience still worth the money it could have earned by now.

#84 Sail Away on 01.02.22 at 1:38 pm

A 6 month update on the Heloc borrow to invest taken June 2021 at 2.6%:

7.75% capital gain + 1.5% div = 9.25%
Cost of borrowing: 6 months at 2.6% minus 50% tax klwriteoff = 0.65%

Total 6 month return = +8.60%

#85 Penny Henny on 01.02.22 at 1:39 pm

#82 Dr V on 01.02.22 at 11:50 am
70 Baby – have you received your vax for the highly contagious Dolcemathitis?

////////////////////

Dolcemathitis, ha.
I had to read it a few times before I got it.
Good one.

#86 Ordinary Blog Dog on 01.02.22 at 1:55 pm

Thanks for the info Ryan. Nice how you package it up – and dumb it down for people like me.

#87 IHCTD9 on 01.02.22 at 3:29 pm

Our local MLS right now, is a dystopian hellscape. Never seen so little choice, or such absurd prices. They’re holding offers on most of those absurd prices too.

If this RE gas bag keeps going for years more, living anywhere south of Algonquin park in Ontario just won’t be worth the price. You can smell the greed floating on the air everywhere you go.

This absolutely needs to blow up asap.