- the source for market opinions


August 27, 2018 | Don’t Make it Weird

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

On Monday the White House announced a trade deal with Mexico. “NAFTA is dead,” said Donald Trump. Within hours Canada’s trade minister was abruptly rerouted from Europe to Washington, as the T2 gang scrambled to resurrect a deal.

Where’s this going?

No idea. But the markets aren’t deterred. Stocks gained. The dollar advanced. Commodities  plumped. Investors like trade deals better than trade wars. Trump has gone from looking like a nutcase wild-eyed outlier to a negotiator who actually achieved something. So news of the deal raised hopes corporations will have clear rules to follow, instead crawling through chaos. Outcomes are more certain. Money can be made. Up go the markets.

The expectation is a deal with Canada will now follow, which explains the market reaction here. Any agreement’s better than none. Add this to the 3% inflation rate now raging, fatter GDP growth and job creation and runaway corporate profits, and it’s a slam dunk interest rates will rise. If not next month, then October 24th and perhaps again December 5th.  The direction of Canadian stocks is probably up. Houses, down.

$   $   $

My meeting with him was brief, but John McCain had the handshake of a grizzly and the piercing gaze of an eagle. Those were a few minutes I won’t regret. His passing understandingly moved America in the last few hours. Tributes were everywhere. Even on the floor of the NYSE. But not at the White House, where the flag was hoisted back to full staff after the briefest of salutes.

The pettiness of the American president is always on display, and keeps the fires burning among those who want him gone. With the Mueller inquiry in full swing there is chatter of impeachment, and fear of a political meltdown has kept a lot of people from investing in American markets.

But that’s a bad position to take, say the economists at Scotiabank.

First, history shows that while presidents getting punted is huge news for the mainstream media and political parties, investors don’t much care. Look at how the overthrow of Nixon and Clinton’s impeachment were non-events:


Beyond that, the bank agrees with a point made here last week – even if Trump was forced from office prematurely the basic reasons markets have roared would not disappear with him. At the top of that last is the deep tax cut corporations have enjoyed, followed by a lessening of regulations that increased costs and stifled profits. “It is a reasonable assumption that such policies would likely remain intact at least over the medium term. Beyond 2020 may be a bigger question mark, but stocks don’t typically take such a long horizon view and they may consider lower odds of less market-friendly policies,” adds the bank.

In fact, there’s even a hint that a Trump departure might end up being the impetus for even bigger market gains: “One angle on this is that markets have already seen the ‘good’ side of Trump’s policies through tax cuts/reforms and some deregulation and if Vice President Pence takes over then these measures would be durable for as long as markets are capable of looking forward. It may even be that markets are more concerned about the ‘bad’ side of the Trump administration’s policies and particularly its protectionist approach and some foreign policies.”

The truth is those people afraid of exposure to US markets have paid a heavy price. This is going to continue. Trump in or Trump out. The stage is set for higher growth, inflation, earnings and rates.

But still no excuse to dis a hero.

$   $   $

If you live in Richmond, you might want to leave. Or at least build a really big berm. The sea is coming.

If the global climate heats up by just one more degree, which is apparently a slam-dunk, ocean levels will rise enough to put 250,000 people living in the Vancouver suburb under water forever, rendering more than $100 billion in real estate worthless. That’s because they all live in homes constructed one meter or less above current sea level, and the world is relentlessly hotting up. This is the latest from US-based climate change lefties and scientists that politicians really, really, really want to ignore.

Apparently there’s not enough money around to save Richmond. Just imagine when that news gets out.

$   $   $

“Here’s a question that I don’t believe I’ve ever seen addressed on your blog, and is likely of interest to your female readers, so I’m hoping you can advise,” writes Andriana.

I have a defined benefits pension, and am going on maternity leave soon. We are given the option of buying back our contributory service while on maternity leave, but I am struggling to figure out whether this is worth it.

My online pension buyback estimator tells me that if I decide to retire at 65 (I’m 35, so in 30 years) the annual difference in my pension with and without buyback will be $1,440 annually. The cost to buyback the one year of contributory service is $10,490, so upon retirement I will have recouped the cost in about 7 years ($10,490/$1,440=7.28). But this doesn’t factor in the lost opportunity cost had I simply invested the $10,490 myself. In 30 years, $10,490 would be $43,178 assuming a 5% annual ROI. So $43,178/$1,440 = 30 years, which means I’ll be 95 years old by the time I recoup the cost?!?! This can’t be right, did I mess up the math? Or perhaps I am not accounting for other obvious factors (e.g. the $1,440 annual difference grows with inflation over time?)

You are absolutely correct. It’s a bum deal. Many big brother pension plans make these buy-back offers to their members who, lemming-like, accept the numbers. They should not. It’s a bad deal, as you have proven.

But the results can be even more dramatic if you use the average historic return of 7% for a balanced, diversified portfolio, which would put the three-decade total at more than $85,000, of which $75,000 would be growth. And if you used a TFSA to shelter the investment the advantage over the pension plan is stunning. That $1,440 per year from the plan guys would be 100% taxable in your hands. The $85,000 would be tax-free, and could actually generate $5,950 in taxless income annually.

I guess somebody has to pay for the fund manager’s Porsche.

About the picture: “Long time devoted worshiper of your pathetic blog Tim here. This photo was taken recently in Ucluelet BC where they get Mallards and Malamutes confused apparently. Please keep churning it out for us and I’d be honoured if this photo adorned one of your noble efforts to enlighten the deplorables.”

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

August 27th, 2018

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published.

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.