Fralick Financial Blog

 

 

Please visit our special market intelligence report for insight on the current market conditions and thoughts on investment strategies for 2017.

Statistics show that many Canadians are not prepared for retirement (article). In the majority of cases, this is the result of poor planning, overconfidence and an inadequate understanding of the keys to investment success.  While all three of these detrimental tendencies can be overcome by partnering with an experienced financial advisor, investors who take the time to educate themselves early on will have a higher chance of achieving their investment goals.  Below is a guideline for each decade of an investor’s life; a great reminder that effective retirement planning doesn’t start at age 55.

 

Key Takeaways

 

1.      Your 20s

·         Your top priority is education and the accumulation of the human capital that will generate and maximize future financial capital

·         Effective savings habits are formed early by living within your means and repaying loans as quickly as possible

·         Striving to eliminate all student debt by age 30 is an excellent goal

 

2.      Your 30s

·         Pursue your passions, develop and follow career goals and focus on learning how-to-invest skills

·         If you haven’t already, begin a disciplined savings plan of 5%-10% of gross family income and distinguish bad debt (credit card and other high-interest loans) from good debt (mortgage)

·         Aim for a financial base worth two to three times your gross family income, not including your residence, by the end of the decade

 

3.      Your 40s

·         Serious saving begins in this decade by effectively controlling the use of debt and repaying it wherever possible

·         Estimating required retirement capital and forming more specific retirement goals should also happen in your 40s

·         If you have been following a do-it-yourself investing model up until this point, you should consider working with a professional given the increasing complexity, and size, of your investment accounts

 

4.      Your 50s

·         Your savings rate will peak in this decade, in conjunction with your annual income

·         Modeling the required rates of return in your retirement plan will ensure effective asset allocation and improve likelihood of meeting and/or exceeding retirement goals

·         Assets should be between six and twelve times your family income

 

5.      Your 60s

·         Migrating from the accumulation phase to the income phase, assuming you retire in this decade, will mark the most significant shift of your investing career

·         Ensuring your assets are approaching and eventually meet your retirement goal becomes top priority.  Reducing risk annually as you approach retirement is also recommended

·         Treat your total capital as one single portfolio to effectively determine overall risk.  Your nest egg may be 20 times your family income, or higher

 

6.      Your 70s and beyond

·         Make a habit of periodically reviewing your capital projections and spending plan

·         Protect your capital from inflation and avoid becoming too conservative

·         Have the estate planning conversation with loved ones and design a plan sooner rather than later

 

 

Every investor is unique and everyone will encounter unexpected challenges throughout their lives that may impact their ability to follow their retirement plan to a “T”.  It is the unexpected obstacles that make us really appreciate having implemented a plan early and having had the discipline to follow it.  These obstacles are also far easier to overcome when working with a financial advisor who can use their knowledge and experience to adjust your strategy accordingly and get you back on track in short order.  

The bottom line market summary for Jan - Feb 2017:

- Global equity markets rallied in January & February. 

- US equity markets led the way with the S&P 500 hitting nine new all-time highs. 
- The S&P/TSX Composite also hit six new market highs in the month of Feb, but a strong US dollar created a headwind for the commodity-based sectors, and the Canadian market lagged its peers for month-end results. 
- Emerging markets continued their strong run in 2017, making up ground after a lack-luster fourth quarter in 2016. 
- Bond markets moved steadily forward, with longer-term bonds performing best as yields inched lower in the month.
- Corporate earnings results were strong across most developed countries, including Japan, Europe, Canada and the US. 
- A string of positive economic data helped boost investor optimism and increased odds of a US Federal Reserve rate hike coming as soon as March. 
 
For more indepth information, please visit: GLC Market Matters Update
 

 

 

Happy New Financial Year!
Wishing you a prosperous 2017!

 

US Market Update - December 2016

 

Check out this update from Leih Wang Sr Investment Manager with Empire Life.  Video Link: Lieh Wang Sr Investment Manager with Empire Life

December 5, 2016
In a surprise announcement last week, it was revealed that the organization of petroleum producing exporters (OPEC) reached a deal to curb the production of oil.  As a result, the price of WTI crude has surged 15% to $US 52.04 per barrel.  This week’s Update highlights an article from The Economist Magazine that provides perspective into the newly reached deal and how it is likely to impact markets over the near term.
 
Key Takeaways:
 

The deal:

On November 30th OPEC reached an agreement to remove 1.2m barrels a day (b/d) from global oil production as long as non-OPEC countries such as Russia cut production by an additional 600,000 b/d.

The agreed upon amount (1.8m b/d total) represents nearly 2% of global production, much more than markets were anticipating

Markets reacted positively to what will be the first cut since 2008 with Brent reaching a 16 month high of $US 55 per barrel

 

Looking forward:

Some speculators feel that this agreement marks the end of a two-year oil glut that has caused deep price cuts and pushed producers like Venezuela to the brink of collapse

If this trend in oil prices persists Saudi Arabia may be able to forget the fact that their plan to push competitors out of the market failed miserably

Success of this new strategy now depends on non-OPEC producers, most notably Russia, to follow through with their end of the bargain

 

Monitoring follow-through:

Cuts begin January 1st, 2017 and will last six months.  Traders will monitor oil-tanker traffic to ascertain whether fewer are leaving port

Determining whether Russia is also cutting production will be more challenging since most of their production is moved via pipeline

Perhaps the best indication that the deal is being adhered to will be a decline in global oil inventories which is expected to begin at some point next year

 

 Market Update for November 2016

Here is our market update for November 2016:     
http://glc-amgroup.com/pdf/GLC_Market_Matters_November_2016.pdf

2016 Third Quarter Update - October 24, 2016

 

Please see a comprehensive 3dr quarter update on the markets provided by GLC Asset Management Group =>   http://www.glc-amgroup.com/pdf/GLC_Market_Matters_October_2016.pdf

 

October 10, 2016

What affect will the US election have on the markets?

This is the question on our investment clients' minds as we all sit watching the US presidential election heating up.  There is no doubt that the run up to the election will likely lead to some market volatility.  However, history shows that in US presidential election years, the markets have had consistantly provided positive returns regardless of which party has won.  Furthermore, if you have built an investment portfolio that is well diversified in various industries, various investment instruments and well diversified geographically, then it should withstand any election volatility as uncertainty around the US election should be short lived.  

Here is more information and commentary on the likely affects of the US election on markets:  http://www.cnbc.com/2016/06/23/how-presidential-election-will-affect-your-investment-strategy.html

Market thoughts for the week of September 19th, 2016

The price of oil has sat somewhere between US$40 and US$50 since April (WTI Crude; Bloomberg.com), and now analysts predict a near-term testing of this US$40 floor given lacklustre demand and more-than-sufficient supply.  Given Canada’s inextricable link to oil, a softening in energy markets does not bode well for Canadian investors however the long-term outlook suggests that a different storyline is developing.  This week’s blog write up highlights an article from the Financial Post that explains why the supply of oil is expected to decline over the next several years.
 
Key Takeaways:
 
Exploration
  • Exploration yielded roughly one tenth as much oil in 2015 as it has on average since 1960 and 2016 figures are anticipated to be even poorer
  • Of course, this lack of oil discovery is largely due to the pullback in spending on exploration that began when oil prices collapsed in 2014
  • However, the 2.7 billion barrels of new supply that was discovered in 2015 (the smallest amount since 1947) and the mere $736 million barrels found so far this year will still impact prices given the longer term trend in demand
 
Spending cuts
  • Global spending on exploration has been cut to US$40 billion this year from about US$100 billion in 2014 and spending levels are expected to remain where they are through 2018
  • Exploration spending is easier to cut compared to development spending because of shorter supplier-contract commitments
  • The result is less drilling: there were 209 wells drilled through August this year, down from 680 in 2015 and 1,167 in 2014.  The annual average dating back to 1960 is 1,500
 
Playing catch-up
  • Kristin Faeroevik, managing director for the Norwegian unit of Lundin Petroleum AB, said it will take ‘five to eight years probably before we see the impact’ on production from current cutbacks
  • Ten years down the line, when the low exploration data begins to hinder production, it will have a ‘significant potential to push oil prices up’ according to Nils-Henrik Bjurstroem, a senior project manager at Oslo-based Rystad Energy AS
  • Overall, the proportion of new oil that the industry has added to offset the amount it pumps has dropped from 30 per cent in 2013 to a reserve-replacement ratio of just six per cent this year
 
 
While OPEC’s decision not to curb supply in 2014 shocked the oil markets and caused a major collapse that continues to stifle returns, the longer term implications are positive.  OPEC no longer has the ability to saturate the market, aligning the resulting behaviour of the energy sector more directly with actual supply and demand figures.  Geo-political tensions and policy decisions will remain potent influencers of the price of oil, but at least one variable has been removed.
 
 

June 27, 2016

 

Brexit Thoughts & Comments:

In an historic and unprecedented move the people of Britain voted (Leave 51.9% Remain 48.1%) to leave the European Union sending shock waves through global capital markets. A review of the above tables significantly masks the volatility experienced through-out the week as markets simply got ‘Brexit’ dead-wrong. The UK FTSE 100 is one of the most glaring examples with its meaningfully positive return for the week. The index was supported on Friday by its 17% weighting in large consumer staples exporters (aided by a lower British pound (GBP)) and 5% weighting in gold-miners. The intra-week moves (and indeed intra-day moves on June 24) were much larger for all asset classes than the weekly point-to-point results above. As an example, our chart of the week depicts the performance of four European assets in the 4-days leading up to Thursday’s vote, followed by Friday’s sell off. By the end of the day, global equities lost $US2.08 trillion in market value, the worst one day drop on record. At one point the GBP touched a 3-decade low of $1.3238 down 11% before finishing down just over 8% the magnitude of which rarely occurs in a single session. The US dollar, Japanese yen and gold all gained on a flight to safety. Due to the pre-positioning of expectations for a ‘Remain’ vote, the weekly results in these safe haven assets also do not reveal the sharp moves on Friday (1 day change: Japanese yen +3.7%, gold +4.9%, DXY +1.9%). 10-year German bond yields touched record lows (-0.17%) and finished at -0.05%, while 10-year US Treasury yields dropped 18 bps on Friday to close down 5bps on the week. Canada was not immune to Friday’s volatility (S&P/TSX -1.69%), but on a weekly measure, oil held above its 50-day moving average, the Canadian dollar moved only modestly lower, equities were flat and Canadian government yields actually finished higher across the curve.
But the voting result was not driven by economics. It was driven on emotions of nationalism, income inequality, a backlash against globalization and the desire for greater autonomy, especially over immigration. As Winston Churchill once said “The trouble with committing political suicide is that you live to regret it.” Ironically, many “Leave” voters may not live to regret it. But the young Britons who voted overwhelmingly to remain a part of Europe almost certainly will. Voting was strongly divided across age categories with younger people voting 64% to remain and the 65+ age group voting 58% to leave. In the wake of the vote there is much uncertainty, PM Cameron has resigned, staying on until a successor is picked; also resigning is the UK's European Commissioner. Who will be negotiating the UK’s divorce remains to be seen, as does the timing; until Article 50 is formally exercised by the UK, nothing changes. There is a debate in the UK and musings from the Continent on the speed at which a divorce should be done. Once Article 50 is invoked, the U.K. will have 2 years to negotiate a deal with the EU. The result is negative for the UK, whose goods trade with the EU is significant, accounting for 45% of exports and over 50% of imports, new agreements on trade will need to be negotiated and the EU’s attitude toward negotiations is an open question. Existing relationships within the UK are another source of uncertainty.

Regionally, there were stark voting alignments. Scotland, (62% remain) is already talking about a new referendum in order to maintain their ties with the EU. There are whispers around Irish re-unification as Northern Ireland also voted 55.7% ‘Remain’. The City of London (voted ‘Remain’) home to large financial services head-offices (financial services accounts for 8% of British GDP) may also suffer. A number of financial companies have indicated they may be moving significant personnel and operations from London to other EU financial hubs such as Frankfurt or Dublin. Even though UK 10-year government bonds rallied hard, (-28 bps on Friday to 1.08%, an all-time low), the country’s AAA rating is at risk. Rating agency S&P warned in May, and followed up Friday, with the comment that the rating is “untenable under the circumstances”. Moody’s lowered its outlook on the country to negative from stable, but affirmed the EU’s top rating.

The ‘Brexit’ result is likely a net negative for the global growth outlook, but not as severe as Friday’s market action might suggest. As noted, the initial financial market reaction was especially dramatic mainly because leading in to Thursday’s close markets had risen significantly on the week, convinced that ‘Remain’ would prevail (see chart of the week). However, even Friday’s equity sell-off was not a panic or disorderly. There were no ‘flash crashes’ triggered by the swift moves, no circuit breakers or complete exchange closures. Volatility did rise; the S&P 500 volatility index (VIX) climbed 8.5 points to 25.8, but remains below its February level of 28 and well below levels experienced during previous periods of market stress. For comparison, during 9/11/2001 the VIX spiked to 45 and its all-time peak was around 80 during the 2008 financial crisis. Putting things into context, the U.K. economy represents 2% of global GDP (9th largest) and the U.K. is 3% of U.S. trade and 2.5% of Canadian. The political, financial, economic and social implications of the vote will take months (perhaps years) to unfold. There are two primary concerns that raise global uncertainty in the near term:
  1. Contagion across other EU members, raising the prospect of additional referendums on EU membership and the future of the EU (bonds of weaker EU countries sold off).
  2. The impact on global growth through financial channels, business investment decisions and consumer confidence. Bank shares globally were hard hit on Friday adding to their year-to-date pain (YTD - Euro Stoxx Bank Index –34%, S&P 500 Bank Index –15%). Longer term, restrictions to the free flow of labour and capital hamper growth – the vote is a move away from the ideals of globalization.

Global monetary policy expectations are also on the move, post Brexit. The Bank of Japan faces a yen that has strengthened on safe haven flows, (+6% vs. the USD and 13% vs. the euro YTD) a negative for the struggling Japanese economy. The Bank of England (BoE) has a ‘Brexit’ contingency plan, likely there will be no interest rate hikes for the foreseeable future. In fact, rate cuts are now a distinct possibility. Expectations for a rate hike in the US have also shifted. The bond market is now signaling only a 15% probability of a Federal Reserve (Fed) rate hike this year (down from 50% June 23) and a 10% probability of a rate cut by year-end, a notion markets had previously not contemplated. Should the Fed stay on hold for longer, life becomes easier for the Bank of Canada, who is expected to remain on hold well past the initial Fed rate hikes.

The week ahead is likely to bring more ‘Brexit’ fall-out as markets deal with the ongoing uncertainty and resultant volatility. Consider that a petition calling for a referendum ‘do-over” with over 3.5 million signatures is already circulating. On Friday, Google reported a spike in searches in the UK for “What happens if we leave the E.U.?”. There will be plenty to discuss at the previously scheduled EU Leaders Summit and the ECB’s Forum on Central Banking. Traditional data to watch for in the quarter-ending week ahead: Canadian GDP and employment; US trade, GDP, inflation and PMI data along with readings on the consumer – confidence, spending and income.



 

 

Five reasons to love stocks, no matter what the market is doing.

 

Source - National Post April 15, 2016

 

Staying on track to meet your investment goals
 
The key to investing in turbulent markets is to avoid making hasty decisions that are mis-aligned with your long-term financial goals and could seriously set back your plans of achieving those goals.  As professional money managers we recognize that stock markets move in cycles, and throughout these cycles our role remains largely unchanged – stay focused on buying investments that compensate you for their commensurate risk, and generate excess return over the long run. Staying disciplined in our investment processes (i.e. avoiding the knee-jerk reactions), and taking an objective view of the markets and the economic conditions driving the markets is how we stay focused. 
 
Likewise, whether 2016 goes down in the history books as ‘the year the markets soared’ or ‘the year the markets soured’ is not in any one person’s hands. But you can choose to make 2016 ‘the year you were glad you had (and stuck to) a long-term investment plan”. Now is the time to re-confirm that your investment portfolio is aligned with your risk tolerances and long-term goals. And now is the time to realize the benefits of professional portfolio management (experts with the time, tools and experience to navigate market risks and capitalize on market volatility), diversification (particularly in volatile markets), and rebalancing strategies (to stay within risk tolerances) to keep you on track with your investment goals as markets move, shake and make their way through what may turn out to be another interesting year in capital markets. 

 

January 11, 2016

 

For global stock markets, we are experiencing the worst start to a year in over two decades. In fact, the S&P500 hasn’t seen a start like this since 1929, which turned out to be the beginning of the Great Depression.  Unlike in 1929 when the ‘roaring twenties’ led to massive overconfidence and a subsequent crash, the main culprit of this year’s volatile introduction is instability in China. China’s circuit breaker mechanism which was thought to slow “falling knives” has accomplished the exact opposite, resulting in panic and pandemonium both domestically (in China) and globally.

 

  1.  Chinese Currency devaluation

 

  *   Lowering the Yuan relative to other currencies, especially the US dollar, is meant to bolster Chinese exports.  Unfortunately, it may force surrounding nations to take similar actions in order to remain competitive, thereby lessening any positive impacts of China’s heavy-handed market manipulation

  *   The devaluation and accompanying volatility has also caused a significant exodus of Chinese wealth from the Shanghai and Shenzen stock markets.   These assets have consistently landed in more tangible offshore investments, namely the Canadian and U.S real estate markets

  *   This ineffective Chinese government intervention reaffirms the instability of some emerging markets, particularly those as opaque as China’s

 

  2.  Commodities and Canada

 

  *   Commodities have suffered as riskier assets have been affected by a ripple effect from China

  *   Oil reached new lows last week, belabouring the poor performance of the S&P/TSX in 2015

  *   There is no immediate sign of relief for the price of oil.  As such, foreign investors have continued to avoid our market

 

  3.  Flight to safety

 

  *   With market instability comes the inevitable flight of assets to fixed income securities and gold

  *   As a result, the price of Gold has risen and yields have fallen as fears of longer term volatility set in

  *   The U.S federal reserve is in the process of normalizing interest rates.  This curtailing of easy credit, combined with the current global volatility, will likely result in a noticeable decline of leveraged investors

 

LINKS

 

  1.  http://business.financialpost.com/investing/global-investor/thought-this-weeks-market-turmoil-was-bad-get-used-to-it-volatility-is-the-new-reality

  2.  http://business.financialpost.com/news/economy/china-shuts-down-market-for-second-time-this-month-as-savers-panic-about-yuan

  3.  http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/chinas-economic-turmoil-causing-a-crisis-of-confidence/article28084404/

 

 

Staying diversified by asset class, sector, geography and product type is the best prescription for a market (and/or client) with a weak stomach.  While ‘cashing out’ may feel like the right thing to do, and result in avoiding further downside, it often results in avoiding the significant upside that generally follows a correction as well.  For more information please contact us at any time.

Happy New Year 2016!

Jan 2015

 

New-year forecasts should generally be dismissed, largely because they are usually wrong. Forecasts tend to exhibit a recency effect whereby forecasters typically assume that what is occurring now is going to continue to occur. The challenge, beyond not having a crystal ball, is how to communicate market expectations even when we know they could be inaccurate.  The first step is to avoid forecasts that make highly specific predictions such as the exact price of oil or the expected annual performance of individual indices.  The second is to note that markets are and always will be unpredictable. With those concepts in mind, we look to the year ahead (from a relatively broad perspective) in five key areas of the Canadian economy.

 

Key Takeaways

 

 

  1.  Banking

 

  *   From a dismal Canadian economy and struggling energy producers, to low interest rates and a potential housing bubble, to increased regulatory pressure and the rise of nimble financial technology companies, bankers won’t exactly be coasting on ideal conditions in 2016

  *   However, the outlook isn’t all gloomy. Although fintech competition is on the rise, the banks are taking the threat seriously by establishing relationships with outside firms and developing their own in-house technology talent, leading to one of the most remarkable eras for financial innovation

  *   Additionally, the banks aren’t confined to their home turf. Royal Bank of Canada, TD and Bank of Montreal have substantial operations in the United States, where the economy is considerably stronger. Canadian Imperial Bank of Commerce wants to expand stateside, and Bank of Nova Scotia has a big exposure to Latin America. Add it all up and you can say this: 2016 won’t be all that dull

 

  2.  Energy

 

  *   Canada’s battered oil patch faces another grim year in 2016 as U.S. and global crude prices hover at severely depressed levels with few signs of recovery on the horizon

 

  *   Several forecasters have chopped their outlook for prices, foreshadowing deeper cutbacks in an industry already rife with suspended or reduced dividends, miserly budgets and job losses that number in the tens of thousands. The year ended with the Organization of Petroleum Exporting Countries again refusing to rein in production to accommodate the expected return of Iran to global markets, driving U.S. and international oil prices down to multiyear lows

  *   Analysts expect the industry’s austerity binge to accelerate as high-cost producers struggle to bring expenses in line with rapidly dwindling cash flows. The Bank of Canada forecasts oil-patch investment levels will plummet another 20 per cent in 2016 after falling by 40 per cent in 2015. To be sure, some analysts believe conditions will steadily improve as demand for cheap crude grows and the boom in U.S. shale output begins to ebb

 

  3.  Manufacturing

 

  *   The manufacturing sector will begin 2016 much the way it began 2015 – with the expectation that it will be one of the bright spots in the Canadian economy, fuelled by a weak Canadian dollar and a strong U.S. economy that should give a big boost to Canada’s non-energy exports

  *   “Canadian manufacturers are set up with the pre-conditions for a very good year,” said Peter Hall, chief economist at Export Development Canada. The sector has been suffering the effects of the deep declines in resource prices, taking a particularly big bite out of manufacturers of petroleum and metal products. But even excluding those goods, manufacturing sales were down 1 per cent year to date – a testament to how much of the resource slump is spilling over to other parts of the economy that supply the country’s large resource sector

  *   “It’s really a tale of two types of supply chains,” said Jayson Myers, chief executive officer of Canadian Manufacturers & Exporters, the sector’s leading trade group. The outlook for exports of non-energy manufactured goods looks strong heading into 2016

 

 

 

  4.  Real Estate

 

  *   The Canadian housing market will likely face its most important test since the global financial crisis in 2016 as low oil prices continue to weigh on Alberta and Saskatchewan while new down payment rules from Ottawa are expected to take some heat out of Ontario and B.C. The slowdown will be even more noticeable because the housing market is coming off one of its best years on record, surprising many analysts who had predicted a soft landing in 2015

  *   Most housing market forecasters expect growth to slow dramatically in 2016. The Canadian Real Estate Association forecasts that national home prices will increase just 1.4 per cent in 2016, compared with more than 7 per cent in 2015. The market is already showing signs of stress, with average prices outside of Toronto and Vancouver falling by nearly 5 per cent for the year. Much of the pain has come from the oil-dependent Prairies. But new down payment rules from Ottawa, which kick in on Feb. 15, should only add more cold water to the market

  *   “The Canadian real estate market is already in correction mode,” wrote National Bank of Canada economist Krishen Rangasamy. Mortgage rates are also expected to increase modestly over the next two years. That will mean as many as 750,000 homeowners who are set to renew their mortgages will see their monthly payments increase, according to a study by the Mortgage Professionals of Canada. About half of those borrowers can expect to pay an extra $100 or more a month

 

 

 

  5.  Retail

 

  *   Retailers are bracing for a year of fast-paced change that could hit their bottom lines even as they raise some prices. A weak Canadian dollar will push up some import prices, although consumer resistance may force some merchants to swallow the added currency cost. At the same time, new luxury players will expand in Canada and help shake up that market amid the rise of e-commerce and shrinking physical stores. And 2016 will bring more pain for retailers in oil-squeezed provinces, particularly Alberta

  *   Merchandising sales are projected to rise 3.6 per cent in 2016, compared with an estimated 2.2 per cent in 2015 and 4.6 per cent in 2014, said retail consultant Ed Strapagiel. The retail slowdown in the second half of 2015 will carry over into the first half of 2016, with some pickup by the end of the year, he predicted. But some of that growth will simply be a result of higher prices of imported goods to make up for heftier purchasing costs in U.S. dollars as supply contracts and currency hedging run out, he said

  *   There are always winners and losers as changes are rapidly redefining the retail landscape as digital powerhouse Amazon.com Inc. and other e-commerce players step up their efforts while brick-and-mortar stores increasingly scale back. Retailers will need to find ways to marry their physical and digital stores and better serve the ever more important mobile customer

With the holiday season upon us and the ‘joys’ of shopping that come with it, we will highlight an article from tax expert Tim Cestnick that may help you avoid the mayhem at the malls.  Whether you have children or grandchildren, this article from the Globe and Mail offers up some sage advice for giving monetary gifts to young people.

 

Key Takeaways

 

 

  1.  Age 12 and under

 

  *   Contribute to an RESP.  With as little as $2500 per year for 18 years plus government grants and an average annual growth rate of 6%, you can build an educational nest egg of roughly $98,000!

  *   Give them an allowance and tie it to chores so that they learn what a strong work ethic can get them.  Encourage them to divide it into 3 buckets: savings, spending, and charity

  *   Set up a low fee bank account.

 

 

 

  1.  Ages 13 – 18

 

  *   Keep up the allowance and the RESP contributions.  If they have started earning some babysitting money or other part-time job income, the allowance will free them up to invest the part-time job money.   According to Tim and the CRA, children pay tax on the investment income earned with their money vs. interest and dividend income generated from money you give them being attributable back to you

  *   Create an in-trust account.  Endeavour to grow it with capital gains (cap gains are taxable to the child) and not interest or dividend income (taxable to the parent) and at age 18, the account becomes available to be transferred directly to the child

  *   Buy life insurance on their lives.  Not only does it become a savings vehicle but it turns into ready-made insurance – all transferrable tax free at age 18

 

 

 

  1.  Over 18

 

  *   Consider giving over the insurance and ITF account and discontinue allowance and RESP contributions

  *   Make a gift of assets – consider passing along inheritance before you die and in a taxation year that is advantageous to you assuming the gift is age appropriate and the recipient is responsible enough to receive it.  It will cut down on the tax bill at estate time

  *   Lastly, educate them on the benefits of the TFSA and investing early as well as the habit of filing a tax return annually

 

LINK:  http://www.theglobeandmail.com/globe-investor/personal-finance/taxes/give-the-gift-of-money-smarts-to-your-kids-this-year/article27585576/

 

While the ideas listed above may not be gifts that can be ‘opened’, the lessons learned and responsible habits they help to form will ultimately be more valuable than the fuzzy socks or “un-cool” clothes you had planned on giving!  For information on any of the products or accounts mentioned above, please contact us at any time.

 

MONDAY NOVEMBER 16,2015

The incredibly tragic and senseless events in Paris and Beirut last week, like other similar moments in history, provide individuals with an opportunity to stop and evaluate a variety of their own personal circumstances.  Ideally, with our sympathy for those directly and indirectly impacted by the events, we develop an even greater appreciation for the safety and freedom we are fortunate to have in our own country.

Inevitably, there are a variety of repercussions that follow such events.  This week's comments, and the link provided to the Globe and Mail article it was inspired from, is simply providing information for those investors that may be worried about the economic impact this geopolitical event may have.

Key Takeaways:

1.  Equity impact

 

  *   While a short-term sell-off is somewhat expected, a prolonged economic impact is not expected given the resiliency of European markets after similar events in the past.  All markets remain open

  *   Some sectors may be negatively affected - specifically trade and tourism as France has the largest number of tourists in the world (representing 7.5% of its GDP)

  *   Companies directly or indirectly related to defense may see gains given ‘the prospect of more military action in Syria’ says Nicholas Colas, chief market strategist at the ConvergEx Group in New York

 

 

2.  Economic Impact

 

  *   Trade - increased national security slowing down trade may "bode ill for the euro" according to Brian Battle, director of trading at Performance Trust Capital partners in Chicago

  *   Consumer spending - specifically around luxury goods and tourism may be also impacted

  *   The initial damage to economic confidence may spur the ECB to continue monetary policy easing keeping pressure on the euro and aiding in exports

 

 

3.  Treasuries Impact

 

  *   “While the attack was in Europe, stocks all around the world will see pressure on Monday.  The typical risk off trade is out of global stocks, and into global sovereign debt and the U.S. dollar.” According to Colas

  *   A meaningful move into US treasuries would counteract the recent trend out of treasuries caused by the belief that the Fed will raise rates next month.  However with few expecting fallout from the attack to be big enough to affect Fed decision making, any Monday move will likely be short lived

  *   One reason for a possible volatile move into Treasuries is because the Fed rate hike anticipation has prompted heavy short positions in the 10-year Treasury.  That could exacerbate any move into safe-haven government debt

 

 

LINK:  http://www.theglobeandmail.com/report-on-business/international-business/global-markets-brace-for-short-term-hit-after-paris-attacks/article27264969/

 

While most investors will be more focused on the victims of this weekend’s events, some may seek input on how their portfolios will be affected.  As with any geopolitical event, effective diversification provides the best defense against market uncertainty – whether the resulting volatility is short-lived or drawn out.

For more information on designing diversified portfolios, please contact us at any time.

 

Monday, November 2, 2015

Diversification is one of those rare financial planning concepts that most investors understand before their first meeting with an advisor.  The phrase “don’t put all of your eggs in one basket” is used so often that one might say it has been downgraded from a piece of helpful advice to overused cliché.  But just because the concept is understood by most investors does not mean it is appreciated.  Canadian investors continue to demonstrate a clear ‘home bias’, allocating dangerous proportions of their portfolios to Canada and until only recently they’ve been rewarded for their ‘patriotism’.  We highlight an article from The Financial Post that discusses the recent outflow of assets from Canada as investors are learning to appreciate the merits of geographical diversification the hard way.

 

Key Takeaways

 

 

  1.  Go with the flow

 

  *   Money is exiting Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end

  *   Canada’s basic balance swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June

  *   More recent data show the outflow extended into the second half of the year.  Meanwhile, the Canadian dollar touched an 11-year low against the U.S. dollar in September

 

 

 

  1.  Oil-based market, water-based dollars

 

  *   “The policy in Canada the last 10 years has greatly favoured investments in energy.  Now the drop in oil prices made all that investment unprofitable” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York

  *   The impact of falling oil has been measurable both within the corporate landscape and amongst individual Canadian investors

  *   Nine of the 10-best performing companies on the S&P/TSX in the past two years have favoured buying growth abroad rather than expanding at home.   Domestic mutual-fund investors have pulled money from Canada-focused funds for six straight months, the longest streak in two years

 

 

 

  1.  The Canadian dollar

 

  *   According to Benjamin Reitzes, an economist at BMO, the CAD still has to get cheaper in order to make Canadian businesses more attractive than their foreign peers

  *   The median forecast among strategists surveyed by Bloomberg has the loonie weakening to $1.34 per U.S. dollar by the first three months of next year (down from roughly $1.31 now)

  *   The dollar’s decline has led to a pickup in manufacturing and service exports but activity remains below pre-2008 levels.  Reitzes believes the currency must stabilize before any meaningful pickup is seen in exports

 

 

LINKS:

http://business.financialpost.com/investing/global-investor/money-is-flooding-out-of-canada-at-the-fastest-pace-in-the-developed-world

An optimistic view of the Canadian stock-market’s underperformance this year is one that focuses on lessons learned for those who are overexposed to Canada.  It is also an opportunity to remind clients who were already well-diversified that their disciplined approach has boosted returns this year (the S&P 500, Nasdaq, MSCI EAFE and MSCI World are all positive YTD, while the S&P/TSX Composite sits at -7.31%).  Lastly, this year’s turbulence should be leveraged going forward as a prime example of just how handcuffed we are to the three sectors that dominate our market.  In order to gain exposure to sectors other than energy, financials and materials, looking abroad is an absolute must.

 

Weekly Commentary – October 26, 2015

Alfred Lam, MBA, CFA
Senior Vice President,
Investment Consulting

Sean May, MA, CFP, CIM, FCSI
Investment Counsellor

Richard J. Wylie, MA, CFA
Vice President, Investment Strateg

 

 

 

Source: Trading Economics, Yahoo Finance

Market Focus

Bank of Canada lowers forecast
Following its latest deliberations, the Bank of Canada left administered interest rates unchanged. At the same time, the central bank’s forecast for Canada’s GDP growth for 2015 was lowered to 1.1% from 2.0%. Looking further out, the broader economy is now expected to grow by 2.0% in 2016 and 2.5% in 2017, down from previous forecasts of 2.3% and 2.6%, respectively. While forecasts for longer-term inflation were left largely unchanged, overall CPI growth is now expected to be limited to 1.5% in 2016, down from 1.9%. In addition, the bank highlighted that the current inflation rate had not come down as much as expected, with prices for gasoline failing to drop as much as those for crude oil. The report stated that “typically, gasoline prices move broadly in sync with oil prices. However, this relationship has weakened in recent months.” The generally softer tone of this report suggests that any interest rate hike by the U.S. Federal Reserve would not necessarily be immediately mirrored by Canada’s central bank. This, in turn, could lead to additional weakness in the Canadian dollar.

U.S. housing continues to strengthen
Updated information from the U.S. Census Bureau revealed a 6.5% surge in housing starts during September. The gain was sufficient to raise the annual growth pace to 17.5%. With this report, the overall level of starts now stands at 1.206 million units (annual, seasonally adjusted). This is now the second-highest point (1.211 million in June 2014) in the post-recession period and is the sixth consecutive month above the 1 million mark. At the same time, the U.S. National Association of Realtors announced that existing home sales jumped 4.7% to a seasonally adjusted annual rate of 5.55 million units in September. This is also the second-highest reading of the post-recession period (5.59 million in July 2015). Annual sales growth in this category is now 8.8% and inventories stand at a modest 4.8 months’ supply.

China’s GDP slows
The world’s second-largest economy decelerated in the third quarter as China’s National Bureau of Statistics reported that overall GDP grew at an annualized 6.9% pace during the July to September period. The result was down from the 7.0% pace recorded in each of the first and second quarters of 2015 and the 7.3% expansion posted for 2014 as a whole. A secular slowing of GDP growth has been widely anticipated as the country’s ongoing shift from a rural to an industrialized economy continues. Official forecasts peg economic growth at 7.0% in 2015. However, cyclical cooling of activity in manufacturing and housing, coupled with softening world demand for China’s exports, has influenced the more recent data. Despite the slowdown, economic growth in China remains well above the pace seen in all of the other major industrialized nations.

Longer View

Following several years of a general expansion in the price-earnings ratio of equities, we believe returns from this asset class will moderate somewhat and become more closely tied to the rate of growth in company earnings. Also, we anticipate that after an extended period of declining yields in the bond market and therefore increasing bond prices, interest rates will likely rise, which would detract from bond performance. We continue to favour stocks over bonds as they have greater expected growth potential than bonds and are less sensitive to changes in interest rates. Having a professional advisor who can provide a diversified portfolio that takes into consideration your risk tolerance can help protect your investment returns from rising interest rates.

Weekly Summary

October 19
China’s National Bureau of Statistics announced that the economy had grown at an annualized 6.9% pace during the third quarter. This was down from the 7.0% posted in the second quarter and was the weakest three-month period since 2009. With the market braced for weaker results, this report is actually stronger than expected. However, it places the official forecast of 7.0% for the year as a whole at risk.

October 20
The U.S. Census Bureau announced that housing starts in September were at a seasonally adjusted annual rate of 1,206,000. This is 6.5% above the upwardly revised August estimate of 1,132,000, and 17.5% above the September 2014 rate of 1,026,000. At the same time, the number of building permits issued in September was at a seasonally adjusted annual rate of 1,103,000. This is 5.0% below the downwardly revised August rate of 1,161,000 but is 4.7% above the September 2014 figure of 1,053,000. The starts figures are considerably stronger than consensus estimates while the permits results are weaker. Activity in the housing market has a significant "ripple" effect on the broader economy.

Statistics Canada reported that wholesale sales edged down 0.1% to $55.3 billion in August. Declines in four subsectors, in particular the machinery, equipment and supplies subsector, accounted for the decrease. On a year-over-year basis, overall wholesale sales are now up 3.8%. This report was broadly in line with expectations. Activity at the wholesale level can be an indicator of future consumer trends.

October 21
■ The Bank of Canada announced that it was maintaining the target for its key overnight interest rate at 0.50%. The bank rate was correspondingly left unchanged at 0.75% and the deposit rate at 0.25%. These results are in line with expectations. The central bank also downgraded its forecast for the broader economy, indicating that any possible interest rate hikes contemplated by the U.S. Federal Reserve may not find immediate follow through in Canada. Canadian monetary policy, as decided by the Bank of Canada, has significant influence on both the domestic economy and the value of the currency.

October 22
The U.S. Department of Labor announced that initial jobless claims totalled 259,000 (seasonally adjusted) in the week ending October 17, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 to 256,000. The four-week moving average was 263,250, a decrease of 2,000 from the previous week's revised average. This is the lowest level for this average since December 15, 1973 when it was 256,750. The previous week's average was revised up by 250 to 265,250. These results are stronger than consensus estimates.

Statistics Canada reported that retail sales rose for the fourth consecutive month, advancing 0.5% to $43.6 billion in August. The increase was led by higher sales at motor vehicle and parts dealers. Excluding this subsector, retail sales were flat. On a year-over-year basis, retail sales are now up 2.8%. This report is considerably stronger than consensus estimates. Since consumer spending accounts for over 60% of Canadian economic activity, it is critical for overall GDP results.

According to the U.S. National Association of Realtors, existing-home sales increased 4.7% to a seasonally adjusted annual rate of 5.55 million units in September from a downwardly revised 5.30 million in August (originally reported as a 5.31 million-unit pace). Sales are now 8.8% above the 5.10 million-unit pace in September 2014. These results are well above consensus expectations. Activity in the housing market has a significant "ripple" effect on the broader economy.

The U.S. Conference Board announced that its Leading Economic Index (LEI) declined 0.2% in September, following no change in August and July. The weakness in stock markets, the manufacturing sector and housing permits was offset by gains in financial indicators. This figure is somewhat weaker than market consensus. The report suggests that the expansion in the U.S economy remains neutral.

October 23
The People’s Bank of China announced that it was lowering the one-year benchmark bank lending rate by one-quarter of a percentage point to 4.35%. This is the sixth rate cut since November 2014 and is part of the continuing effort to jump-start the slowing economy. Earlier this week, the nation’s statistics agency reported that GDP grew at a 6.9% pace in the third quarter, modestly lower that the official forecast of 7%.

Statistics Canada reported that on a seasonally adjusted basis, the CPI decreased 0.2% in September, after posting no change in August. The decline was led by the transportation sub-index, which fell 1.4%. On a year-over-year basis the CPI was up 1.0%. The Bank of Canada's core inflation index rose 2.1% on a year-over-year basis, near the mid-point of its 1% - 3% target band. These figures are broadly in line with expectations, and are consistent with the central bank's forecast for neutral inflation.

 

 

 

 

Key market and economic performance highlights for the week of October 5th 2015. 

 

Global equities rallied strongly this week after retesting the August lows earlier last week. Although there continues to be numerous issues to worry about, from a technician’s eye, equities have put in a classic bottom. At the price lows last week several positive divergences in market internals began to emerge. More specifically, readings on percentage of stocks below moving averages; new 52 week lows; and on lower volume; just to name a few, failed to confirm the lows on stocks. This is also very consistent with historical corrective patterns where markets make initial lows and retest 6 to 8 weeks later with less conviction. In the chart of the week above we have illustrated one of these divergences where you can see in August both the index and percentage of members below their 150 day moving averages hit new lows. Then last week, with stocks spiking to new lows, breadth held up better. This positive technical action, along with several other factors, leads us to believe that the current rally has some legs. Emerging markets have rebounded post the bigger-than-expected interest rate cut by the Reserve Bank of India. The decline in the US dollar has helped sentiment in the commodity sector. While the emergence of significant M&A activity in the energy sector gives some hope that the worst in the oil patch may be in the rear view mirror. Suncor announced a hostile takeover bid for Canadian Oil Sands Ltd and the Canada Pension Plan Investment Board struck a $900 million deal with Encana on a package of shale assets in Colorado. Finally, the calendar is on your side, as the fourth quarter is historically the best time of year for stocks.

 

Admittedly the fundamental picture is not as clear. Last week’s disappointing US nonfarm payroll report cast some doubt on the strength of the US economy, and growth is not getting help from inflation. As we enter third quarter earnings season in the US, the strong dollar and weak energy prices are expected to keep a lid on earnings growth. Consensus bottom up projections have S&P 500 third quarter earnings declining 3%. Investors have to look out to 2016 earnings to see more reasonable valuation (note the S&P 500 is trading at 15.5x 2016 consensus earnings). In economic news, the release of the Fed minutes was largely a non event. They confirmed the primary reason for holding steady on rates was concerns about global growth and financial market volatility. The minutes also highlighted the improvement in housing and consumer spending, but inflation is being held low by the strength in the currency. In fact the Fed is prepared to risk higher inflation as opposed to tightening too soon. The negative impact of a strong dollar was evident in the August trade report as the trade deficit was worse than expected. With weak business investment and a trade deficit, US economic growth will rely heavily on the US consumer and fiscal spending. Although the US consumer looks strong, the US government is seemingly headed for another battle over the debt ceiling in early November.

 

Canadian equities benefitted this week from a rotation into the laggards with energy and materials sectors lifting 11.6% and 10.6%, respectively. While the previous market leaders like health care declined 5%. Canadian earnings season won’t get underway for a few weeks and expectations are quite low as energy continues to depress index-level earnings. Similar to the US, if 2016 consensus earnings hold, valuations become more palatable (note the S&P/TSX Composite is trading at 15.2x 2016 consensus earnings). Economic news in Canada was mixed. At first glance the 12.1k jobs added in September was positive, however it was all part time. Full time employment dropped nearly 62k. Surprisingly, Alberta added 12.3k jobs while Ontario lost 33.8k jobs spread across education, trade, and manufacturing. The unemployment rate ticked up to 7.1%. Not a great report, but nor was it a disaster. The August trade deficit also widened due largely to the drop in energy prices. Finally, the Canadian housing market continues to confound with better than expected starts of 231k. This may be some catch-up to the weak start to the year, but it was strong enough for the Canada Mortgage & Housing Corp to warn companies to manage inventories.

 

The Federal election is almost upon us and according to data compiled by CIBC World Markets the best outcome for markets would be a minority Conservative, which has on average delivered a 13% CAGR compared to 6% for a minority Liberal government. Interestingly, historically when it’s a majority government Canadian stocks have performed best with Liberal leadership (adding 7.5% on average per year) versus a Conservative majority (where stocks on average have declined 2.8% per year).

Outside of North America, eurozone retail sales increased a better-than-expected 2.3% compared to last year. This is good news for Europe, but unlikely to change the ECB’s commitment to further easing.

 

In the week ahead, in addition to a pick up in earnings reporting season the US will release September retail sales, CPI, PPI, industrial production, and capacity utilization. The most watched data will likely be out of China where a string of September data will be released, including retail sales, industrial production, fixed asset investment, and inflation.

Market Update - September 15, 2015

 

The past 6 weeks have been a roller coaster in the world markets.  Volatility is the 'word of the day!'

 

Some key points to consider when looking ahead based on the past 6 weeks:

  *  Concerns over Chinese driven economic growth and the devaluation of the Yuan started a market selloff in August that moved in a wave through Europe and North America

  *  An impressive rally was staged in the second half of the month with bond yields moving back up, oil gaining 29% from its August lows and North American markets moving up and out of official correction territory for the month

  *  We remain cautious on Chinese equities as we continue to see extremes in volatility and market speculation

  *  The US remains the world’s largest economy and as our closest neighbour, we are intricately tied to their economic well-being. Fortunately, the US economy remains significantly healthier today than prior to the 2008/2009 financial crisis. Banks and US households both have much stronger balance sheets than they have had in years

  *  Active portfolio management and disciplined investment processes were built for market corrections and gyrations like we experienced in August and they can and do find attractive opportunities amidst, and in spite of, market noise and volatility. 

 

Key Take Away:

 

The old market adage ‘when the US gets a cold, the rest of the world comes down with pneumonia’ needs an update. Perhaps something like "When China catches a cold, the US sneezes, emerging markets run a fever, Europe stays in bed with the chills, and commodities cough up a lung." We recognize that isn’t your everyday market summary, but it sums it up quite nicely for August 2015!

 

 

Tweets from Mike Fralick @FralickFinance

    

Print Print | Sitemap
© Fralick Financial and Insurance Inc. is an incorporated financial services and insurance brokerage operating in Canada. Copyright 2009 Fralick Financial and Insurance Inc. All rights reserved.