Devastating Losses Are Coming
Total Page：16
File Type：pdf, Size：1020Kb
VOTED THE WORLD’S BEST INVESTMENT ADVISORY February 8, 2019 Vol. 51, No. 3. Pages 45-64 $6.00 What is your advisor 2019 OUTLOOK EDITOR’S doing about it? NOTES Banks Devastating losses banking on arket watch- ers continue credit trends to debate are coming whether or continuing Mnot cannabis is a long- hold financial professionals Experienced financial profes- By Doug Young and Gary Ho term play. Cannabis who recommend monetary sionals understand that gold bul- stocks have certainly had gold to their clients in the lion is an alternative to cash. Ray ooking back on the Canadi- something of a rocky highest esteem. It is their Dalio, chairman of the largest an financial sector in 2018, Isage advice that will protect in- hedge fund in the world (Bridge- the life insurance compa- start post-legalization in vestors from the unprecedented water & Associates), once stated, nies lagged the banks, con- Canada, but many play- dangers they face today in the "If you don’t own gold…there is Ltrary to our call, while the asset ers are intrepidly forging markets. However, many advisors no sensible reason other than you managers underperformed both. ahead to establish a clear are no longer permitted to recom- don’t know history or you don’t Desjardins Capital Markets’ finan- brand identity and hope- mend physical gold or precious know the economics of it." cial sector "top picks" this year are fully gain an advantage metals in client portfolios as a re- In the final quarter of 2018, in Sun Life Financial Inc. (SLF-TSX, sult of the new rules defining risk NICK BARISHEFF Canadian dollars, the price of $48.02; SLF-NYSE, US$35.97) (life among consumers. in mutual funds. moved upward by 13.8 per cent. insurers, or lifecos), Toronto-Do- A major game changer Many clients who had been The NASDAQ return was -12.8 per minion Bank (TD-TSX, $72.20; TD- will be the legislation on holding gold for years were forced cent and S&P 500 return was -8.9 NYSE, US$54.10) (banks) and Alaris edibles and other refined to reduce their positions last year sors and investment dealers no per cent over the same period, Royalty Corp. (AD-TSX, $18.80) (al- cannabis products taking by their investment advisor’s deal- longer being viable. The Every- while the return on the TSX was - ternative lenders). er. The timing for this couldn’t thing Bubble appears to be burst- 10.1 per cent. For the Canadian banks, the fo- effect on Oct. 17, 2019 have been worse, as the resulting ing and, as history has shown, Based on those figures, securi- cus in fiscal 2019 will be acutely on (when the second year of rise in their gold holdings would investors’ fears can easily grow ties regulators have made a grave credit and whether we finally see marijuana legalization have reduced the losses in their into a panic. mistake in re-rating monetary credit trends start to turn, given we begins). Makers of portfolios from the market car- The final quarter in 2018 was a gold to a medium-high risk rela- are arguably in the late stages of the cannabis-infused prod- nage we have witnessed since late textbook display of why investors tive to ‘Know Your Client’ (KYC) credit cycle and household debt September. must own gold. There is no liquid forms. These regulators, fund levels are elevated. ucts are already forming The equity selloff that began in asset more negatively correlated dealers and, by extension, their Otherwise, net interest margin relationships with leading October is intensifying and threat- to the financial markets. Investors various compliance enforcement (NIM) expansion should continue beverage companies ens advisors, MFDA (Mutual Fund who do not own monetary gold departments have ignored the fact (partially offset by deposit betas (such as the HEXO Dealers Association) dealers and may find themselves dangerously that the Bank for International and increased competition in the Cannabis Corp. deal with investors with a high probability of exposed to market volatility with- Settlements (BIS), which sets the commercial segment), and we be- a 50 per cent to 70 per cent loss of out the much-needed divers- rules for central banks and com- lieve the banks will further reduce Molson Coors Inc., and capital and a corresponding loss of ification/portfolio insurance that mercial banks, has stated that expense ratios in order to offset the Coca-Cola Co. invest- income in 2019. A decline of this gold offers. If the current down- "monetary gold is a risk-free asset slowing loan growth. ment in Aurora Cannabis magnitude will have devastating turn in the market continues, as on par with U.S. Treasuries and For the lifecos, a sustained in- Inc.), inspiring thrilling effects on retirement portfolios. the world’s leading financial ex- U.S. dollars." They have also ham- crease in 10- and 30-year bond speculation about the Many investors will not recover in perts predict, this asset may be strung investment professionals yields would be favourable, and we their lifetimes. the only form of wealth preserva- possibilities, among pot This could snowball into advi- tion that works. See Barisheff on page 47 See Young and Ho on page 46 consumers and investors. At HEXO’s annual gen- eral meeting Jan. 16, CEO THE SENTIMENT PIE Sébastien St-Louis was New tax rules hit entrepreneurs hardest keen to discuss promo- Bears By Mark Halpern the taxable income and wages the tion level of $500,000 will be re- 21.3% tional opportunities (such earner gets from working. Passive duced by $5. This equates to a full as offering samples at et me begin by wishing income can include things such as reduction of the small business music festivals) and for- you and your family a hap- rental income, interest income, deduction when passive income is ays into green cuisine (it py, healthy and prosper- royalties, dividends or pensions. greater than or equal to $150,000. ous new year. Business New rules: The tax rules that The good news is that the has developed a THC ex- Lowners and incorporated profes- became effective on Jan. 1, 2019 amount resets the following year tract powder that can be sionals may not be aware of Ot- target Canadian-controlled pri- with no carryover. Even better, Bulls 45.4% Unsure added directly to food). tawa’s latest tactic to collect more vate corporations (CCPCs). The there are a few tax-efficient strate- 33.3% He and his colleagues taxes by changing the rules re- hardest-hit are business owners, gies that can help you keep more These are some stubborn bulls. After a were keen to underline garding tax on passive income. entrepreneurs and incorporated income for yourself and your fam- Examples of passive income in- professionals such as doctors, ily instead of the tax department. very brief spell in second place, they HEXO’s international ex- clude rental income and any busi- lawyers and accountants. Here are some of them: retake the largest share of our Senti- pansion efforts as well, ness activities in which the earner Corporations with more than Individual Pension Plans ment Pie with a 45.4 per cent slice, up pointing to another path does not materially participate $50,000 of annual passive income (IPPs) let you deposit significant from 34.8 per cent two weeks ago. during the year. Passive income will now lose all or part of their corporate funds for the sharehold- Last issue’s dominant group, the un- toward growth for mid- sure, shrink back to 33.3 per cent from differs from active income, which Small Business Deduction and ers’ benefit. These deposits are range pot stocks. – R.P. 35.8 per cent. The bears, which put up is any earned income including all then get highly taxed for every dol- tax-deductible for the CCPC, a a good fight last time, when they lar of excess passive income. This non-taxable benefit to the share- jumped to 29.4 per cent of the pie, could amount to an additional tax holder and provide tax-effective have since receded to 21.3 per cent. grab of $55,000 to $70,000 unless access to money from a corpora- Source: Investor’s Intelligence. you plan now. tion when you retire. In brief, the federal govern- You can save significantly more ment set an annual maximum of with an IPP than under current $50,000 of annual passive income RRSP rules – up to 65 per cent for CCPCs. Failure to stay below more – depending on your T4 in- that amount could be costly. Now, come and years of prior service. for every $1 of passive income over $50,000, the small business deduc- See Halpern on page 46 46 / February 8, 2019 INVESTOR’S DIGEST Issue 3 / 19 TD: Higher U.S. exposure than peers Young and Ho from front page roughly $1 billion in debt capacity, mortgages (currently No. 2). Of ronment is changing in Alaris’ assuming a 25 per cent debt-to- note, TD has about 22 per cent of favour, with interest rate hikes in- © Copyright 2019 by MPL Communications Inc. see a few catalysts that should capital ratio. all demand and notice deposits in creasing the appeal of its royalty All rights reserved. drive core earnings per share (EPS) It also generates about $800 Canada, a strong tie to consumers. structure; net capital deployment growth; however, sentiment could million of excess capital a year net Second, in our view, TD has could pick up, reducing the pay- Customer Service be negatively impacted if equity of dividends and funding organic high-quality franchises in Canada out ratio to 80 per cent by year- 416-869-1177 [email protected] market volatility remains elevated.