What do we like?

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RYAN   By Guest Blogger Ryan Lewenza
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In my last blog I provided our macro outlook for the markets and economy for this year. I’m sure readers we’re riveted by this detailed financial analysis so now I’m going to provide the knockout punch by reviewing some key investment themes for 2023.

Let’s start with fixed income, the safer stuff that helps to reduce portfolio volatility and provide steady income. Speaking of income, as a result of the aggressive rate hikes by the Fed and Bank of Canada (BoC) we’re finally seeing some attractive yields from bonds. For years we’ve (savers more so than borrowers) been moaning about the very low yields from investments like GICs and government bonds. But now, with the rate hikes, we’re finally getting good yields from these lower risk investments.

The problem of course is that it required a year of pain, like we saw last year, as central banks hiked rates from effectively zero to now around 4%. Looking at broad or ‘aggregate’ bond indices, US bonds declined roughly 13% last year while Canadian bonds fell 12%, marking one of the worst years on record.

Bond prices more inversely to interest rates, so as central banks jacked rates higher last year this sent bond prices sharply lower. That’s the bad news. The good the news is that we’re finally seeing attractive yields and we could potentially see some capital appreciation from bonds in the coming year.

It’s our view that inflation has peaked, which was reinforced by this week’s US inflation report with inflation declining for a sixth straight month and now at 6.5% yoy (off its peak of 9.1% last June). Given this trend I believe the Fed (and BoC) are close to the end of this tightening cycle with maybe a few more rate hikes to go. If correct, interest rates should peak this year and we could even see long-term interest rates decline. So how do you play this?

Over the last 12-18 months we shifted our portfolio more into short-term bonds, which are less sensitive to rising rates. Now, with rates potentially peaking, we’re shifting the portfolio back into longer term bonds or in bond parlance, we’re adding duration.

Duration measures the price sensitivity of a bond to changes in interest rates. For example, if a bond has a duration of 8 that means that if interest rates drop by 1% we should see the bond price rise by roughly 8%. Last year we focused on short-term or low duration bonds and now we’re starting to tilt the portfolio back to longer term bonds, which we believe could appreciate this year.

Tangentially we recently added US preferred shares to the portfolio. US preferred shares are mainly ‘perpetuals’, meaning they provide a set dividend in perpetuity. These are very sensitive to rising rates and so not surprisingly they got crushed last year, declining roughly 20%.

You can see this relationship in the chart below where I overlay US interest rates with a US preferred share ETF. I believe US prefs are a buy since: 1) they got hit hard last year; 2) we’re getting yields of roughly 5%; and 3) we could see some appreciation if interest rates decline.

Higher Interest rates crushed US Prefs in 2022

Source: Stockcharts.com, Turner Investments

Moving over to equities we like good old Canadian maple stocks, particularly dividend paying equities like banks and pipelines and REITs.

After years of underperformance from Canadian stocks we believe the TSX is set to outperform for the next few years, like it did last year.

First, we’re bullish on commodities. Commodities tend to trade in six year cycles and we believe we may have started a new long-term upcycle. Also they tend to do well when inflation is hot as it is now.

Second, valuations for Canadian stocks are very attractive. Currently, the TSX trades at a price-to-earnings ratio (P/E) of 13x, which is a steep discount to the S&P 500 at 17x. We also like the higher dividends with the TSX yielding 3.1% versus the S&P 500 at 1.2%.

Lastly, the technicals have greatly improved with the TSX breaking out from its long-term relative downtrend versus the S&P 500.

All of these factors led us to upgrade Canada to ‘overweight’ in the portfolio last year.

TSX Trades at a discount to the S&P 500

Source: Bloomberg, Turner Investments

In the US we continue to like value stocks, which outperformed last year, but we’re also quite bullish on US small cap companies. Over the long-run small cap stocks outperform large cap stocks by roughly 2%. However, in recent years they’ve lagged so there could be a nice ‘catch up’ trade. Also small companies generally outperform as the economy rebounds. And lastly they are attractively valued, especially when compared to large caps (S&P 500). Currently, small caps trade at 2x price-to-book (P/B) versus the S&P 500 at 3.8x.

US Small Caps Trade at a big Discount to Large Caps

Source: Bloomberg, Turner Investments

Finally, in the international markets one exciting idea for 2023 is South Korean stocks. Yes you read that correctly. We believe they are primed for a nice turnaround this year. Here’s the thesis:

  • First, South Korean equities were down huge in 2022 at -29%. Additionally, the South Korean currency (Won) was also down a lot versus the US dollar last year. So we see the potential for both stock prices and the currency to rebound.
  • Second, South Korea is a very cyclical country so with the slowdown globally, South Korea has experienced a bigger hit to their economy. But, when the global economy bottoms, the South Korean economy/stock market could be one of the first to recover.
  • With the big price declines, South Korean equities are trading at their lowest P/B ratios in over 20 years at 0.9x. Additionally, it’s the among the cheapest P/B of the top 20 global markets (see chart below).
  • The South Korean equity market is also a play on semi-conductors and a chip recovery.
  • Finally, Goldman Sachs and Morgan Stanley have it as their top trade or “rebound candidate” for 2023.

So there you have it! Above we highlighted our top themes for 2023, which we’ve been incorporating in our client portfolios. Now if Russia can just pull out of Ukraine, the Fed stop hiking rates, and China start growing again the.0n all should be good this year in the markets.

S. Korean Equities among Cheapest Globally on P/B

Source: Credit Suisse
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.

 

74 comments ↓

#1 crowdedelevatorfartz on 01.14.23 at 9:46 am

Another interesting topic.
Thanks for the Sat morning read.

On another note.
Looks like Lowerbrainland Flippers are getting squeezed…

https://vancouver.citynews.ca/2023/01/13/lower-mainland-presale-buyers-interest/

I guess they should have hired a better accountant for advice. Sad.
As a person with zero debt.
I’m kinda enjoying the interest rate rises….. bring it on.

#2 crowdedelevatorfartz on 01.14.23 at 9:50 am

DELETED

#3 LewenzaLand aka Prince Polo on 01.14.23 at 9:54 am

Is TI recommending a South Korean allocation to the B&D portfolio? WOW!!!

On your P/E chart in Jun/Jul 2022: was the substantial drop mostly the banks’ fault or were multiple sectors contributing?

Any major differences between Russell 2000 and the S&P 600 small cap that should be noted?

#4 Grumpy Panda on 01.14.23 at 10:05 am

I give up. Where’s the dog.

#5 Steerage on 01.14.23 at 10:12 am

What about rate reset preferreds?.. you are always such a fan.. they stunk last year too!

#6 crowdedelevatorfartz on 01.14.23 at 10:40 am

#1 AND #2 AND #2 is “deleted”.

Is that some kind of rare….. never again to be duplicated…. Greaterfool record?

A “Crowdie” NTF as it were.

#7 AlbertaOil on 01.14.23 at 10:53 am

Can you recommend a etf that covers south korea?

#8 Mr Happy on 01.14.23 at 11:07 am

#4 Grumpy Panda on 01.14.23 at 10:05 am
I give up. Where’s the dog.

Bottom right of the picture….to the right of the FEDEX truck… peeing on the lightpost… :)

#9 Dogman01 on 01.14.23 at 11:24 am

South Korea

Also one of the best industrial providers of very good and somewhat cheep weapons.
ESG is but “chaff in the wind”, when your neighbour is North Korea!

South Korea: West’s New Military Megafactory Against China and Russia?
https://www.youtube.com/watch?v=4Hu4ccSx10M

#10 Senator Bluto on 01.14.23 at 11:26 am

Higher interest rates are definitely affecting the rental market. For example, Hunter Biden said he was renting his dad’s $2 million house in Wilmington for $50,000/month. $600,000/yr. That’s a phenomenal return on investment for the landlord! Any Blog Dog would be giddy with that RE investment in their portfolio.

Good thing that Hunter had all that income from various nation states and his artwork sales. At a rent of about 10X the going rate, the Big Guy wasn’t giving his son any deals.

https://trendingpoliticsnews.com/background-check-form-claims-hunter-biden-paid-50000-a-month-in-rent-for-biden-home-where-classified-docs-were-stored/

Lucky for us, the MSM isn’t digging into this story so that tells us that there’s no story here. Move along folks, and have an A-1 day : )

#11 Ryan Lewenza on 01.14.23 at 11:44 am

Lewenzaland “On your P/E chart in Jun/Jul 2022: was the substantial drop mostly the banks’ fault or were multiple sectors contributing? Any major differences between Russell 2000 and the S&P 600 small cap that should be noted?”

There was a sell off in July that likely caused that big drop in P/E. And very little difference between Russell 2000 and S&P 600. Just more stocks in the former. – Ryan L

#12 Shaggy on 01.14.23 at 11:51 am

Another fantastic read, Ryan, love the analysis.

If I might make a suggestion to you and Garth, it’s to dedicate an entry to the tax treatment of bonds and the opportunity that exists in the current environment to add investment grade long bonds with a good total return, but with a low interest income tax hit.

You both have expressed how fixed income has become a much more attractive option with the increase in rates, and you alluded to how the secondary market works today, but I find that many people don’t fully understand the tax treatment of bonds purchased in the secondary market. In the current environment, there are several long bonds with low interest coupons that are trading at a steep discount. In these cases, the total return is comparable to bonds issued today in the primary market, but the interest income component is limited, with a much larger capital gain component (as they are bought at a discount and mature at par or face-value). This is a potential opportunity for long-term investors who don’t need a cash flow to diversify their non-registered portfolio in a more tax-efficient way.

Anyway, just some food for thought as it’s a situation that hasn’t been seen for quite some time and may not be top of mind for most.

#13 TurnerNation on 01.14.23 at 12:01 pm

The S&P 500 finished 2022 down, at about -20%

My workplace RSP plan with its pathetic mutual funds I re-jig myself, the same ended about -11%.
Yay I beat the Index by 9 points. BSD or SSD?

——–
The War on Small Business — kicked off March 2020 in ever Former First World Country — continues.
(There were openly declared ‘Non Essential’, had to close for the greater good. Say how many Costco employees died in 2020. I thought so)

https://twitter.com/FoodProfessor/status/1613513509626875904?
Pace of restaurant closings in Canada accelerated in 2022, according to Restaurants Canada.

Openings/Closures ratio by Region (2022):

ATL: 148/314, 43%
QC: 585/1577, 37%
ON: 1526/3246, 47%
PR: 625/1178, 53%
BC: 544/1119, 48%
7:29 AM · Jan 12, 2023

—-
—-
See the one thing our Rulers did not want is doing, for 2 years straight is sitting down with friends, breaking bread and discussing the world. The narrative would have fallen apart.
I can count on two hands the number of small business I went to now destroyed or hanging on with huge debts at ever increasing rates.

#14 Observer on 01.14.23 at 12:10 pm

No concerns about the looming U.S debt-limit crisis?

#15 Wrk.dover on 01.14.23 at 12:11 pm

There is a point to the picture. More to the point would be the big ariel picture, like on the opening of Cash Cab TV shows.

When you fly in and out of the big T.O. you can realize how massive the business of the real world is, thus markets can’t lie down and play dead for long.

Too many people want and need stuff, daily.

Glad to have read your piece Ryan!

#16 IHCTD9 on 01.14.23 at 12:16 pm

#1 crowdedelevatorfartz on 01.14.23 at 9:46 am

As a person with zero debt.
I’m kinda enjoying the interest rate rises….. bring it on.

——

It’s been about 10 years since we paid off the mortgage, thereby eliminating our only debt. 24 years worth of consistent investing has become a significant bulwark against troubled times too. We also keep about 40K cash for “emergencies” (I know, I know – being married, I have to choose my battles).

Building financial security is its own reward, and you get to enjoy it every day. I love being near bullet-proof. Rates up? Economy shaky? Houses cost a Mil? Public and consumer debt breaking records? Just elected a dork? Who cares…

I’ll be watching the Canadian Metro melt-down from a safe distance. In the meantime, I will continue to be a hard target for taxation, slayer of inflation, an absolutely pathetic consumer, and devout disciple of the Church of LQAM.

#17 Ryan Lewenza on 01.14.23 at 12:19 pm

Observer “ No concerns about the looming U.S debt-limit crisis?”

Yes I’m worried about it given the small Rep majority and aggressive Freedom Caucus. But in the end they’ll agree to increasing it. It will go down to the wire but it will get done. – Ryan L

#18 Satori on 01.14.23 at 12:20 pm

DELETED (Anti-immigrant)

#19 Ponzius Pilatus on 01.14.23 at 12:27 pm

#13 TurnerNation on 01.14.23 at 12:01 pm
The S&P 500 finished 2022 down, at about -20%

My workplace RSP plan with its pathetic mutual funds I re-jig myself, the same ended about -11%.
Yay I beat the Index by 9 points. BSD or SSD?

——–
The War on Small Business — kicked off March 2020 in ever Former First World Country — continues.
(There were openly declared ‘Non Essential’, had to close for the greater good. Say how many Costco employees died in 2020. I thought so)

https://twitter.com/FoodProfessor/status/1613513509626875904?
Pace of restaurant closings in Canada accelerated in 2022, according to Restaurants Canada.

Openings/Closures ratio by Region (2022):

ATL: 148/314, 43%
QC: 585/1577, 37%
ON: 1526/3246, 47%
PR: 625/1178, 53%
BC: 544/1119, 48%
7:29 AM · Jan 12, 2023

—-
—-
See the one thing our Rulers did not want is doing, for 2 years straight is sitting down with friends, breaking bread and discussing the world. The narrative would have fallen apart.
I can count on two hands the number of small business I went to now destroyed or hanging on with huge debts at ever increasing rates.
————————-
It’s a fact that Restaurants are notorious for being short lived.
Nothing to do with “Government and Rulers”.
NOMA, the number 1 restaurant on the Planet in Kopenhagen, is closing.
Because I make a Killer Schnitzel at home does not mean I should open an Austrian restaurant.

#20 Zxcvbnm on 01.14.23 at 12:43 pm

These are my favourite blog entries. Thank you, Ryan!

Re: TurnerNation, I read an article about climate lockdowns this week and remember you calling this over a year ago. You’re not as crazy as I once thought.

Have a great weekend, all

#21 Dogman01 on 01.14.23 at 12:54 pm

#10 Senator Bluto on 01.14.23 at 11:26 am

Higher interest rates are definitely affecting the rental market. For example, Hunter Biden said he was renting his dad’s $2 million house in Wilmington for $50,000/month. $600,000/yr. That’s a phenomenal return on investment for the landlord! Any Blog Dog would be giddy with that RE investment in their portfolio.
Good thing that Hunter had all that income from various nation states and his artwork sales. At a rent of about 10X the going rate, the Big Guy wasn’t giving his son any deals.
https://trendingpoliticsnews.com/background-check-form-claims-hunter-biden-paid-50000-a-month-in-rent-for-biden-home-where-classified-docs-were-stored/

Lucky for us, the MSM isn’t digging into this story so that tells us that there’s no story here. Move along folks, and have an A-1 day : )

———————————————————–
Our “empire’s” Ruling Class know the game, keep the corruption “one-hop” away and done in the provinces. Create “Named Charitable Foundations” to give the influence peddling some cover.

The MSM knows the rules…don’t ask, don’t tell.

Apparently millions from China to this “Biden Foundation”
https://nypost.com/2023/01/11/penn-biden-center-is-dark-money-nightmare-patronage-mill/

I would like to know about who got the China money in Canada’s last election. Also donors to Little Lord Fauntleroy’s “Trudeau Foundation”

“The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, and intolerable…”

#22 T-Rev on 01.14.23 at 1:05 pm

Great post Ryan.

One of the biggest misses I think all investors will look back on is the China rally. Total Chinese market ETFs are up some 50% since Halloween. Should have been obvious to those of us who went through 2008/9, Spring 2020, etc, that when a large economy’s index is down 70% from recent peaks, it’s time to buy. They were never going to permanently disable their economy with lockdowns. It wasn’t different this time to quote Garth.

#23 TurnerNation on 01.14.23 at 1:07 pm

Little sympathy for the public sector unions. Except for FLOP. Say how does a guy like you get hired by the government, these days? You must have told them you are disabled right? :-) That must be it. Checked off a box or two.

—— The Long Game our Rulers are playing. Kicked off March 2020. The cutesy term is “Public Private Partnership”
As we enter Year 4 of forced Health Care rationing. Always in the wintertime. -15c windchill today our Rulers know we will not be protesting outside.

. Hospitals will lose staff and wait times for urgent care will grow if Premier Doug Ford opens privately operated independent surgical centres to clear a backlog from the COVID-19 pandemic, warns the regulatory body for Ontario’s doctors. The shot across the bow from the College of Physicians and Surgeons of Ontario came a day after Ford said “we need to have facilities like that to take the burden off the hospitals.” (thestar.com)

.SickKids hospital to begin ramping surgeries back up as respiratory surge abates (cp24.com)


— Comrades our lifestyle has been flagged as Unsustainable. All efforts going forward lie in its removal. Winding down the Former First World Countries.

https://tnc.news/2023/01/13/carbon-tax/
The average Canadian family can expect to pay up to $847 on carbon taxes even after rebates are dished out, according to the Canadian Taxpayers Federation (CTF).
The carbon tax is expected to spike by 14 cents per litre in April of this year and 12 cents per cubic metre for natural gas.

#24 Eggs in a basket on 01.14.23 at 1:29 pm

Wasn’t there some guy on this blog that was a huge Elon fanboy?
Not sure if he still reads this blog, but I wonder what tune he is singing now…. Now that Tesla stock has come back down to earth (and will continue on its earthbound trajectory)… and now Tesla chopped new model prices like an axe-murderer on steroids.

Investment lesson. Don’t put all your eggs in one basket. Under any circumstances. And certainly don’t brag about it else the eggs will end up on your face.

#25 Quintilian on 01.14.23 at 1:33 pm

Ryan,

Well thought out analysis, and I would think that the more it is challenged the more credibility is added, if the criticism is squashed.

And so it is in that vein that I think you might need to look at it through a wider lens.

Bonds down, yields up, interest rates up, preferreds down- makes sense.

But that is only a result of the super turbo charged rate of increases by the Central Bankers, who were trying to put out the blazing fire they created.

The blazing mess, which the CB’s created is not extinguished yet, nothing is broken, unemployment is a at zero, core inflation still moving ahead.

I suggest your scenario is overly optimistic.

If the methodology adopted by the CB’s is to work perhaps the conditions they create may in fact justify the PE in the 13 range for a long time, and the pricing may turn out to be not such a screaming bargain.

Tick Tock, Tick Tock

#26 Baba Novac on 01.14.23 at 1:45 pm

Thank, Ryan! Your last two blog posts are must reads to understand your (well-illustrated) perspective on the year ahead.

One specific question on combining your outlook for 2023 with your overall philosophy: would you ever tilt a small portion of the portfolio (e.g the FBT call) as granularly as a South Korean-specific ETF? Or is this an outlook call that is not realistically considered for implementation in your sage overall approach to the B&D portfolio?

I note that there are US-based, South Korea ETFs with MERs as low as 0.09% and good spreads–so price of entry/exit and holding is not a barrier to entry. But is it too granular?

#27 Dolce Vita on 01.14.23 at 1:48 pm

#13 TurnerNation

QSR • NYSE

1Y:

+16.02% stock
3.3% dividend yield

——————–

Thank you Ryan. Maple banks. Energy.

#28 Food 4 thought on 01.14.23 at 1:50 pm

Agree completely. Canada is “overweight”.

Just look at your fellow shoppers next time your cruising the aisles of CostcoWorld! But don’t you dare peek in their shopping cart! You’ll be accused of violating some untoward social attrocity.

BTW, ever wonder what happened to the Overwaitea chain of grocery stores in BC?

#29 Observer on 01.14.23 at 1:55 pm

Ryan, curious to have your take on Canadian preferred shares.

#30 Dolce Vita on 01.14.23 at 1:56 pm

#23 TurnerNation

The average Canadian family can expect to pay up to $847 on carbon taxes even after rebates are dished out, according to the Canadian Taxpayers Federation (CTF).

—————–

They have to recalculate that number. They pay less in French.

French
https://twitter.com/s_guilbeault/status/1613928722691756033

English
https://twitter.com/liberal_party/status/1613978212891230209

#31 John WS on 01.14.23 at 2:00 pm

Ryan

Excellent read as usual, thank you. I’ve scoured the internet, to no avail, to find the answer to the following questions.

1. Why did a portfolio of laddered Rate Reset Pfds (ZPR specifically) do so poorly in 2022? It has rebounded somewhat in 2023, but this is as the end of the tightening cycle is in site?

2. How would you expect ZPR to perform going forward, in a declining rate environment? It seems as though it’s been trading like a basket of perpetuals not rate resets or floating rates.

Thanks in advance if you can help.

#32 Baba Novac on 01.14.23 at 2:01 pm

Two more clarifications from blog dogs and Ryan: (that’s the problem with blog posts that are thought provoking… :)

(1) How do we reconcile the current portfolio tilt towards Canadian equities (at the expense of the US) and for how long in light of long-term projections of Canada under-performing to 2030 and then to 2060? (For blog dogs, see Dec 2021 OECD projections, as reported incl here: https://tinyurl.com/yr6c2e46)

(2) Ryan, what is you 2023 perspective on US perpetual preferreds vs the Canadian rate-resets? Do you continue to see the Canadian preferreds ETFs as strong contenders for all the reasons they’ve been well-represented in client portfolios for years?

#33 Roy LePage on 01.14.23 at 2:19 pm

#4 Grumpy Panda:

‘…where’s the dog?’

It is the downtown Toronto Commercial Real Estate market. WFH has put it in the ‘dog’house!

Rough-rough!

#34 ogdoad on 01.14.23 at 2:29 pm

“In my last blog I provided our macro outlook for the markets and economy for this year. I’m sure readers we’re riveted by this detailed financial analysis so now I’m going to provide the knockout punch by reviewing some key investment themes for 2023″

:):):):):):)

I almost dislodged my Backjoy while reading this para on my 19” curved, ergonomic, monitor.

Now, while I’m sure you’re being sarcastic, any doubts you may have will soon be swept away with one glance at your pay stub…

Enjoy the day!

Og

#35 Stratovarious on 01.14.23 at 2:31 pm

Nice analysis. US bank preferreds are trading well below the call value, which is generally $25.00 USD/share. At least for US investors they are treated as “qualified dividends” meaning that the tax rate is reduced vs. bond coupon. Although some preferreds are adjustable based on the inflation rate, most are fixed dividend per share, which is more attractive today due to the reduction in price due to rising interest rates. The end of 2022 was an ideal time to buy in this area due to tax-loss selling, although it is not too difficult even in mid-January to find preferreds earring just below 7% yield.

The remainder of your ideals are equally good. Canadian E&P is very attractive, with PE and PB ratios that are at historic lows. Finally, emerging markets also are very attractive, and Korea is one of the best. A weakening US dollar will provide some additional tail winds.

You hit this posting out of the park. Excellent advice.

#36 PBrasseur on 01.14.23 at 2:53 pm

Peaking or not inflation is still higher than basic interest rates used to finance governments and the RE markets, anybody lending money is also losing money.

How is this sustainable?

What this tells me is that this crisis is still in its early stages.

#37 Nonplused on 01.14.23 at 2:56 pm

“Now if Russia can just pull out of Ukraine, the Fed stop hiking rates, and China start growing again the.0n all should be good this year in the markets.”

Ok, but what if we go 0/3?

#38 Ryan Lewenza on 01.14.23 at 3:56 pm

Baba Novac “(1) How do we reconcile the current portfolio tilt towards Canadian equities (at the expense of the US) and for how long in light of long-term projections of Canada under-performing to 2030 and then to 2060? (For blog dogs, see Dec 2021 OECD projections, as reported incl here: https://tinyurl.com/yr6c2e46)

(2) Ryan, what is you 2023 perspective on US perpetual preferreds vs the Canadian rate-resets? Do you continue to see the Canadian preferreds ETFs as strong contenders for all the reasons they’ve been well-represented in client portfolios for years?”

For (1) economic growth is not a big driver of equity returns. For the TSX commodity prices are a much more important factor. For (2) we like Canadian resets as well. Last year they fell as credit spreads widened. I see these bouncing back this year. – Ryan L

#39 Ryan Lewenza on 01.14.23 at 4:10 pm

John WS “1. Why did a portfolio of laddered Rate Reset Pfds (ZPR specifically) do so poorly in 2022? It has rebounded somewhat in 2023, but this is as the end of the tightening cycle is in site?

2. How would you expect ZPR to perform going forward, in a declining rate environment? It seems as though it’s been trading like a basket of perpetuals not rate resets or floating rates.”

For 1, as the economy and markets weakened last year credit spreads widened. Credit spreads are the difference between government bond yields and corporate bonds/prefs. Basically in a downturn investors worry that corporations may have a harder time paying the bond interest/pref dividends so the prices drop. Also with government bond yields being a lot higher, bank prefs paying 5% yields don’t look as attractive. But they should recover this year.

For 2, ZPR should recover this year. Short term rates will remain high and the GoC 5-year should remain elevated so this should help resets. And we could possibly see spreads tighten. After a rough 2022 we should see a recovery. – Ryan L

#40 Tony on 01.14.23 at 4:11 pm

I wouldn’t buy long term bonds until the middle of March. Inflation has been pushing higher since the start of January this year in both Canada and America.

#41 kommykim on 01.14.23 at 4:18 pm

RE: #1 crowdedelevatorfartz on 01.14.23 at 9:46 am
On another note.
Looks like Lowerbrainland Flippers are getting squeezed…

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

I went on MLS and searched for “assignment” of presale contract as per the article. Some are pretty funny if you look at the purchase price and date vs what they want for it today. Here’s a 785 sqft condo where they want apx $620K for a contract purchased for $520K in 2021:

https://www.realtor.ca/real-estate/24401842/324-23222-gilley-road-richmond

Yea, good luck with that!

#42 Ryan Lewenza on 01.14.23 at 4:20 pm

Observer “Ryan, curious to have your take on Canadian preferred shares.”

They’ll come back. Interest rates, particularly short-term rates will remain elevated. If I saw big cuts to interest rates then I would be more concerned. Be patient. After bad years you generally see them bounce back. – Ryan L

#43 Tony on 01.14.23 at 4:39 pm

Re: #37 Nonplused on 01.14.23 at 2:56 pm

You could go 0/4 instead of 0/3 if China invades Taiwan this year.

#44 Flop… on 01.14.23 at 5:25 pm

#23 TurnerNation on 01.14.23 at 1:07 pm
Little sympathy for the public sector unions. Except for FLOP. Say how does a guy like you get hired by the government, these days? You must have told them you are disabled right? :-) That must be it. Checked off a box or two.

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

Hey TN, at the interview I saw a LGBT sticker on the wall.

I pointed at the T.

They asked if I was Trans, I said no, Tasmanian, they said close enough…

M48BC

#45 Monkey shoulder on 01.14.23 at 6:27 pm

So let’s back up the truck with KORU etf Bull 3x shares.
What l like less, is the risk that the nut leader in the north can go crazy anytime.

#46 oops on 01.14.23 at 6:33 pm

Doug T From yesterday 13.01.2023 irt #177 sail away

You lost me here – wth are you telling anyone this ? Hero biscuit?

————————

Man are you guys naive. Trolling. Like Mattl said. Do you really think that someone that has the time to comment as much as him and his friend will be able to accomplish the types of lives that they describe?

Appreciate them for the commentary. Their second self.

Then get a life.

#47 Wayne on 01.14.23 at 6:51 pm

Thanks so much Ryan, very helpful. Any thoughts on where Canadian Pref’s will go? With rising interest rates I was anticipating growing valuations. Thanks again.

#48 David on 01.14.23 at 7:22 pm

DELETED (Anti-vaxer coward)

#49 The Original Jake on 01.14.23 at 7:23 pm

A couple of more 1/4 pt rate hikes, which is anticipated, and then a pause will not get inflation down to the FED’s 2% target. Of course, there is a lag and inflation will continue to fall a bit more after a pause.

However, I think getting it from 4% down to 2% is going to be very difficult unless they raise some more. The last 2% is going to be the hardest.

#50 Sail Away on 01.14.23 at 7:36 pm

Ah, South Korea. Good memories from a 1993 Army infantry tour. 21yo and boxed light-heavy on the Army team out of Camp Casey with some all-forces (Army, Air Force, Marine, Navy) competitions in Okinawa and Hawaii.

Roomed with two KATUSAs (Korean Augmentees to the US Army), Kim Duc Koon and Jo Dong Il, who did their mandatory Korean 2 year enlistment as part of our battalion. They introduced me to Kaygogi Bak Ban, or ‘Dog with rice’, a spendy delicacy served sizzling on a briquet. Tasty. Tender and fatty. We’re still in touch. Kim is in finance- maybe he can give us some hot tips!

#51 Ohm on 01.14.23 at 7:37 pm

#28 Food 4 thought

I heard Zellers is returning to Canuck land. Many fond memories there as a child; especially the breakfast specials; hopefully they re-introduce that. Lol, if that happens one will probably need to sell their left kidney to buy an egg. :)

#52 Ham and Eggs on 01.14.23 at 7:50 pm

So, is the preferred shares ‘tub thumping’ over in favour of equities? Shocking. What was once a ‘star’ focus doesn’t merit a single ‘whammy’? What happened to the magic “relationship” of rates and preferred holding hands and rising together? Seems to me we got sold a dud.

#53 Ponzius Pilatus on 01.14.23 at 8:25 pm

#23 TN
The average Canadian family can expect to pay up to $847 on carbon taxes even after rebates are dished out, according to the Canadian Taxpayers Federation (CTF).
The carbon tax is expected to spike by 14 cents per litre in April of this year and 12 cents per cubic metre for natural gas.
————————————
Ah, the famous Canadian Taxpayers Federation
The fountain of truths that quenches the thirst of right wing zealots.

#54 Ponzius Pilatus on 01.14.23 at 8:51 pm

#21 Doggy
“The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, and intolerable…
—————————
So, who is this “dangerous” man?
Could it be you?
Come on.
Do you actually belief the stuff that you’re posting?

#55 Doug t on 01.14.23 at 9:02 pm

#46 poops

Yes me fell off the turnip truck early in life – you ?

#56 Alois on 01.14.23 at 9:18 pm

I see someone let P.P. out of it’s cage.

Hope there’s not a full moon tonite.

Sigh….

#57 Nonplused on 01.14.23 at 10:46 pm

#50 Sail Away on 01.14.23 at 7:36 pm

“Ah, South Korea. Good memories from a 1993 Army infantry tour. 21yo and boxed light-heavy on the Army team out of Camp Casey with some all-forces (Army, Air Force, Marine, Navy) competitions in Okinawa and Hawaii.”

Did you fight Corn Pop while you were there?

#58 Warren Peace on 01.14.23 at 10:58 pm

Currency Exchange Rate
1 USD=1.33950 CDN
Ryan, How do you factor in the conversion fee when buying USD preferreds?

#59 Nonplused on 01.14.23 at 11:25 pm

#43 Tony on 01.14.23 at 4:39 pm
Re: #37 Nonplused on 01.14.23 at 2:56 pm

You could go 0/4 instead of 0/3 if China invades Taiwan this year.

————————————

That would be very bad. Something about computer chips. I don’t really understand the dynamics of that market all that well, but I understand there is a high concentration of chip manufacturing in Taiwan, and that it isn’t easy to just build a chip plant. Sure, the US is pretty self-sufficient in computer processors from Intel and AMD, but although those are some of the more impressive chips, they are also some of the less ubiquitous. Some cars for example have up to 57 chips in them, and none of them are an i7. Everything from your thermostat to your washing machine runs on chips these day. Oh and phones. All the phones. Memory. Graphics cards. And Furby. Don’t forget Furby. It would probably be really bad news if something happened to the chips.

But I don’t think China is going to invade Taiwan. I prefer to predict things that are already happening. It’s easier that way.

My possible 4’s in the 0/4 would be a US political crisis, probably brought about by whatever “documents” ole Joe forgot he had in his garage. Or maybe when Pelosi’s tax returns are made public, now that that is a thing. Or when Epstein’s client list finally drops. Or Hunter’s laptop. Or any one of a number of other things people wonder about. Those things are actually happening.

If we’ve learned anything from the Twitter files so far, it’s that pretty much everything you thought was true but couldn’t put your finger on, was true, only worse.

Here in Canada the upcoming story might arise from the College of Psychologists deciding to take down Jordan Peterson, supposedly because he “retweeted” something that Pierre Poilievre had tweeted. This is pretty Orwellian. Justin will have to keep himself well insulated from this affair or he’s probably going down. Jordan is bigger than the whole College put together right now, so it better not turn out that this was politically motivated, for both the College and for Justin’s sake.

So we got lots of number 4’s without Taiwan. And I don’t think either the US or China is ready for that sort of a conflict. But if it did happen it would be really bad. Can you imagine Commander In Chief Harris and war with China? Ok, I’ll give you that that would be as good as time as any that China could possibly imagine to make their move, but luckily they have covid problems. They probably can’t go to war while they won’t let people out of their apartments.

#60 Sail Away on 01.15.23 at 12:42 am

#57 Nonplused on 01.14.23 at 10:46 pm
#50 Sail Away on 01.14.23 at 7:36 pm

Did you fight Corn Pop while you were there?

—————

Yeah. Played with him in the first round and iced him in the second.

#61 4 out of 3 people find math hard on 01.15.23 at 2:07 am

According to my BMI (27), I am overweight.
I like to think of myself as thin.
Does that make me Trans-Slender?

#62 SoggyShorts on 01.15.23 at 7:07 am

#58 Warren Peace on 01.14.23 at 10:58 pm
Currency Exchange Rate
1 USD=1.33950 CDN
Ryan, How do you factor in the conversion fee when buying USD preferreds?
******************
Use Norbert’s Gambit, and avoid the fee?

#63 millmech on 01.15.23 at 8:59 am

#1&#41
Do not forget the $420 maintenance fee from the get go which will soon be go to $800-$1000. Remember that insurance is getting very hard/expensive and this is not added into the fees yet.

#64 Looking Up on 01.15.23 at 10:05 am

Sail Away on 01.13.23 at 7:33 pm
I’ve been working hard since last March to achieve 50 pullups in a single set in my 50th year. Currently at 38, so not crazy far away, but still far. It’s tough- when I really work the pullups, it adds muscle weight, which then needs to be lifted. Or when I drop weight through lots of mountain running, it causes upper body muscle loss and lower strength. It’s a delicate balance. My hands are basically one big callous. Tough life.

————

So being 50 and all, whist doing your 36 pullups do you emit multiple gaseous emissions?

#65 Alois on 01.15.23 at 10:15 am

#60 Sail Away on 01.15.23 at 12:42 am
#57 Nonplused on 01.14.23 at 10:46 pm
#50 Sail Away on 01.14.23 at 7:36 pm

Did you fight Corn Pop while you were there?

—————

Yeah. Played with him in the first round and iced him in the second.

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

How did you do vs. Frosted Flakes,Froot Loops and Cheerios?

#66 crowdedelevatorfartz on 01.15.23 at 10:32 am

@#54 Ponzies perpetual putdowns permeate posts.

“Do you actually belief the stuff that you’re posting?”

+++
What was it Groucho Marx said about politics?

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

Pretty much sums up the current Canadian cabal in charge.

#67 Ryan Lewenza on 01.15.23 at 10:32 am

Warren Peace “ Currency Exchange Rate
1 USD=1.33950 CDN. Ryan, How do you factor in the conversion fee when buying USD preferreds?”

We bought a hedged ETF of US preferrreds. But if you purchased a US dollar ETF of US prefs you would bring in the currency. I see the CAD possibly getting back to .78 so if this occurred you would get a boost on the investment from the currency appreciation. – Ryan L

#68 crowdedelevatorfartz on 01.15.23 at 10:37 am

@#61 4 out of 3
“Does that make me Trans-Slender?”
++++
Nah.
I’m thinking more like Two Cooking Oil Spirit.
Trans Slender and Trans Fat…

#69 Dogs Not Barking on 01.15.23 at 11:03 am

#49 The Original Jake on 01.14.23 at 7:23 pm
A couple of more 1/4 pt rate hikes, which is anticipated, and then a pause will not get inflation down to the FED’s 2% target. Of course, there is a lag and inflation will continue to fall a bit more after a pause.

However, I think getting it from 4% down to 2% is going to be very difficult unless they raise some more. The last 2% is going to be the hardest.

+++++++++++++++++++++++++++++

Last 2% is easy-peasy. The feds will jiggle how they calculate everything and make it go away. Same as they’ve been doing for the last 15 years.

2% is the new 8%. Nothing to it.

#70 Russ on 01.15.23 at 12:58 pm

Looking Up on 01.15.23 at 10:05 am

Sail Away on 01.13.23 at 7:33 pm
I’ve been working hard since last March to achieve 50 pullups in a single set in my 50th year. Currently at 38, so not crazy far away, but still far…
————

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

A little clarification request here, is S. A. only 38 years old and hopes to achieve 50 years old some day?

Cheers, R

#71 DON on 01.15.23 at 2:00 pm

In my view the only inflation that matters and is the inflation consumers are facing on a daily basis for necessities and services. In the US credit card debt went up in November by a significant amount. How much of our US and Canadian economies reliant on the consumer?

We could just recalculate inflation down to zero…but will that help the consumer who is buying products with yesterday’s wages.

How exactly do we trust institutions that have not been telling the whole truth and nothing but the truth?

The $99 dollar for a bag of groceries is reality to people on a daily basis. How long can folks tread water is the main question.

#72 Faron on 01.15.23 at 2:27 pm

#248 Dharma Bum on 01.14.23 at 10:25 am

LOL, lemme guess, you had your chilluns at a time when a single income could pay for all household expenses?

#73 maxx on 01.15.23 at 5:35 pm

@ #4 Dave on 01.13.23 at 1:52 pm

¨“A way to advancement”…what a shallow goal.¨

Hmmm, let´s unpack.

People don´t normally advance unless they acquire skills, become adept in relating to others and gain organizational knowledge. They most definitely won´t be privy to deeper and more substantial office intel whilst at home cleaning the kitchen floor of junior´s splattered spag bowl.

Or weaving silly texts with friends between work packets. The mechanics: Quick text to BFF, answer comes back followed by a multi-minute repartee. Then the math: double open bracket: 15 minutes with BFF, plus 15 minutes to round up friends, plus 5 minutes to book the restaurant they just jawboned about, plus 3 minutes to text the gang with confirmations plus a final 2 minutes to yuck it up, close bracket, times number of official gubbmint work days per year,close bracket, times number of snorflers. Endless tax down the proverbial toilet. That tells you what respect your taxes get from TPTB.

This WFH idiocy is a surrealistic nightmare. Having said that, government leads by (in this instance, very bad) example with it´s aggregate, firmly planted butts at home for yet another year of Zoom parliament. Quelle farce.

I shudder to think of someone´s half-finished income tax assessment sitting on a WFHer´s forgotten open laptop whilst a guest or party-goer glimpses a peek (or more) at the kitchen table, living room coffee table, patio or even the home office on the way back from the bathroom.

Employment is paid-for work, the contents of which are defined by the employer. And signed up for prior to hiring. Employees have a legal duty to perform prescribed work with prescribed targets at a prescribed location as prescribed by the employer.

We are currently paying (enormous) taxes to deliver inferior attitude and the resultant schlock that passes for work.

Human beings are hard-wired to conserve energy. Laziness is not far behind and they certainly don´t need encouragement in that direction. Ever. The general attitude was mixed at best prior to COVID-19, but it´s now the stuff of fantasy fiction, WADR to those who make up for the sloths, and they are exceptional.

Pandemic WFH accommodation is over, it is not a ¨right¨ and although needing vast improvement, people managed childcare challenges long before 2020. IMHO, the only leg unions have to stand on is the current Zoom parliament stupidity. TPTB are on shaky ground and in a weak position to dictate. 2 days a week? Dreck mandate which will yield dreck work results. Big reset? Absolutely laughable.

Work-life balance? Horse apples. This simply means more ¨me¨ time. At ¨someone else´s¨ expense. Work and personal life has been and always will be a perennial tug-of-war, rarely ever balancing in real time. WFH is a huge mistake on so many levels; fewer commuters will hardly green back the world, it´s a fabrication, a fart in space.

Snorflers need to do their own stuff on their own time.

Since you brought it up, what´s uglier than a ¨shallow goal¨?

Entitled, snorflers, foie-gras-ing on pay and benefits without manifest appreciation (results) for jobs which so many others would give their right arms for.

#74 45north on 01.15.23 at 6:43 pm

“When mortgage holders are bleeding from high rates and house prices are STILL batshit crazy,” adds Ron Butler, “now is the time to tighten lending rules? Last 3 Years, everything was just peachy, couldn’t do anything? What world are these folks in that facts take years to absorb?”

I watched Ron on youtube. He called the drop in sales catastrophic. Danielle Park said Canada’s housing downturn is barely started. Steve Saretsky said the construction sector had a 74% increase in insolvencies. There’s a side of the downturn in housing that is hidden. Construction companies may decide not to build but they don’t hold a press conference. Banks may decide not to lend but they don’t either. These decisions will be apparent a year from now but right now they’re hidden.