Category: Accounting tips

Days ago a blog dog reported being mocked by buddies for considering a ten-year-long mortgage term. The obvious advice here was to get new friends.

But wait. Does this make sense – now that a decade-long term is available for (wait for it)…1.99%?

Hmmm. It merits some serious noodling.

First, history has proven time and again that people who chose variable rates win. The cost of a home loan with a floating rate is generally less than one which is set for three or five years. Plus, over the last couple of decades we’ve had more deflation than inflation as well as economic potholes which have kept central banks hitting their brakes. So borrowers who went with a VRM saved interest costs and actually paid their principals down at a speedier rate.

But that was then. This is 2020. The year of lockdowns, quarantines, free govey money, recession, pandemic, mask fashion, curbsiding, working-in-undies, social distancing, Trump-busting, vax angst, burb lust, Zooming, crashing rents, bug stress and, yes, .99% mortgages. History is bunk, apparently.

In the last few months the big discount for a variable-rate loan relative to one nailed down for a few years has dissipated. So it just made sense to lock in for five years at 1.5%, or whatever ridiculous number your lender was offering. When rates are this low the bulk of every monthly cheque goes straight to paying off principal, so no need to make annual pre-payments or double up. As spelled out here recently, better to take the extra cash and invest it in a diversified portfolio – then pay down the mortgage upon renewal from investment gains. Diversification is good.

Now decade-long terms are crashing, too. That 1.99% rate is being offered by brokers and comes in below Tangerine’s 2.1% rate – an historic low.

The thing to remember about 10-year money is that all loans become open and fully payable after five years because of the Canada Interest Act (this is why we don’t have USA-type 30-year loans). As a result, if you take a decade-long mortgage make sure you don’t move, sell, croak or get divorced in the first 60 months. The mortgage break fee’s a killer. But after the five-year mark, this loan becomes open, so a homeowner can walk by paying a penalty equal to only three months of interest.

Now, what about the rate? A ten-year commitment at 2% costs more every year than a five-year term at 1.5%. Is it worth paying this additional amount for the first sixty months in order to have a 2% mortgage guaranteed for the next five years? In other words, will mortgage rates be materially higher in 2025 than they are now? If you think so, this makes sense. If not, go five.

Well, if you ask this pathetic (but muscular, low-cholesterol) blog for an opinion, there’s no hesitation. There’s but one direction for rates over the coming years. Up. If not there are worse things to worry about – like a complete vaccine failure, deep recession, and years of masked snouts.

But that’s not gonna happen.

Governments around the world have already spent almost $20 trillion on stimulus programs to counter the virus. More is flowing from Ottawa every day. The US is about to approve another almost-$1 trillion package. Central banks continue to snorfle up assets ($4 billion a week for the Bank of Canada). The combo of this fiscal and monetary stimulus – massive amounts of spending and debt – all but guarantees inflation and higher rates will emerge.

Meanwhile a world in lockdown – Toronto, LA, Madrid, Berlin, NYC – is stoking pent-up demand. Once the vax squishes the slimy little pathogen and herd immunity rides to the rescue, expect a torrent of consumer spending. More inflation. More rate pressure.

And look at the savings rate. As detailed here in recent days, government largesse has more than doubled the amount people are hoarding. Cash deposits are $170 billion ahead of normal levels, says CIBC. So much moolah, and nowhere to shop! This will end. More pressure.

Plus the vaccines. Soon there will be millions of doses available as the biggest inoculation in human history rolls out. Vaccine passports/aps will be required for travel, entertainment, shopping and employment. This is an unprecedented time, but also a triumph of science. As the vax flows, the virus will recede and as that occurs, global GDP will expand, pushing commodity prices higher, increasing inflation and augmenting rates.

It is inconceivable a Canadian mortgage will be 1.5% in 2025. You’ll be gonzo lucky to see 3% money. So a loan that runs until 2030 at just 2% could look very tasty. Borrow accordingly.

Source

Why, I asked him, are you calling it that?

Actually he never answered me. That was consistent, because Jim Flaherty (I’m pretty sure) hated me. He was a Stephen Harper man. I was radical, populist, blogger MP with the heretical view that people should tell government what to do, not vice versa. It didn’t end well.

Jim was the finance minister, who did some good deeds. One of those was adopting my idea for a new retirement-investment vehicle based on the American Roth IRA. Unlike an RRSP, nobody would get a deduction for using it but assets placed inside would grow free of tax while withdrawals would also be tax-free. That way it could boost retirement income without pushing people into a higher bracket. Oh, and it would be universal. The most democratic of shelters – equal contribution for all, regardless of income, assets or station in life.

Then he called it the TFSA. Tax-free savings account. I despaired, knowing what would occur. The whole thing went further off the rails when the government gave examples of how to use it – like saving for new flooring. Ugh.

Well, it’s been about a dozen years now. The limit again next year is six grand, taking the grand total of all possible contributions to $75,500 – plus growth. Along the way the TFSA was viciously attacked by the current prime minister who, in gutting the yearly space from the $10,000 Conservatives had in place, labelled it a tool of the rich. That was a fiction and piece of political theatre. Shame on him.

If the Libs want to attack something of benefit to the wealthy, the RRSP is a better target. The more people earn the more they can contribute, getting a whopping tax break for doing so. The annual limit of $26,500 is four times that of the TFSA and can save a high-income dude about $14,000 in tax. Moreover you can borrow for an RRSP and use the tax refund to pay the loan down (not possible with a TFSA). A big-income earner can contribute to a spousal RRSP, grab all the tax benefit while the other person takes the money out at lesser or no tax. Can’t do that with a TFSA, either. You can slide assets you already own into a RRSP and receive a tax break for doing so. No such benefit with a TFSA.

In short, Trudeau’s attack on the people’s tax shelter, as modest, humble, egalitarian and democratic as it may be, was just as dumb as F calling it a ‘savings’ account. The Cons corrupted it. The Libs diddled it.

Okay, so here we are. The latest stats show Canadians have placed more than $300 billion into 19 million accounts held by 14 million people. That’s almost half the entire adult population. A new BMO survey says the average amount held is just a hair over $30,000. All of that = success. Despite Mr.Socks’ attempts to shame it.

But wait. We have a problem.

The same bank survey found only 49% of people are aware “a TFSA can hold both cash and at least one other type of investment.” In fact, about 40% of the hundreds of billions in those millions of accounts sits in… cash. Savings. Making way less than 1%.

F may be gone, but this horrible legacy lives on.

For the record, a TFSA is not for saving money. It’s not a glorified bank account for your next Fluevogs, trip to Cub or bamboo flooring. That is a complete waste of a beautiful thing. So stop thinking like a Trudeau.

The TFSA is a money machine designed to be stuffed with growthy assets like equity-based ETFs. None of that growth is ever taxed. No withdrawals will be added to your taxable income. And unlike an RRSP you can actually put back (in the next calendar year) anything you withdrew. A major benefit is that a fat, old TFSA can, in retirement, throw off a great income stream which is unreported and therefore will cause zero claw-back of government pogey, like the OAS.

For example, someone who starts contributing six grand a year at age 28, earns an average of 7% in the TFSA and retires at 65 will have $1.127 million in there, of which about $900,000 is taxless growth. That would throw off $75,000 a year in annual retirement income. Add in CPP (average $710 a month) and OAS (currently $614) and you have a retirement income of $91,000, with zero tax. If you retired with an RRSP of $1.1 million, this would be impossible. Less income. More tax.

Now, imagine what would happen if 14 million people properly invested that $120 billion in TFSA cash for the next few decades.

We don’t lack the tools. Or the money. Or the income or the vehicles.

We just need a whack on the head. And better leaders.

About the picture: Terri J. is a Toronto dog rescue photographer who routinely shoots critters at the Etobicoke Humane Society. “Nefeli is a sweet and stunning German Shepherd mix. I fell in love with her – it’s a pity that  I’m not in the market for a new dog or I would have taken her home with me!”

Source

More hunks of the 905 went into lockdown this week. Windsor, too. Plus Calgary, Edmonton, most of Quebec. Germany on Wednesday. LA a few days ago. Westjet and Air Canada have chopped flights. Commuter rail traffic in Toronto is down over 90%. No Christmas this year. “Blame me,” said Manitoba premier Brian Pallister in a gritty address. But it’s not him. It’s everywhere.

Did we think in March this would be here in December? Or the second wave would be deeper than the first? Three million people in the nation are still without work. Small business is on life support. I hear school grades are falling most everywhere. Online learning doesn’t work. Kids need kids.

Hope may be in the window. The first vaccine arrived yesterday. But it will be the summer, at best, before enough have been inoculated to bring change. Experts says we’ll still be masked a year from now.

So the pandemic is endless. It has brought not only heartbreak and loss to twelve thousand families in Canada, but isolation and stress to us all.  Do you feel it? A third of people now report enough extra tension to impact their daily lives. No wonder. Working from home may have seemed cool, affordable and flexible for a few months. But it also brings gnawing loneliness. Zoom doesn’t cut it.

Masks are essential. But they remind us constantly of the state of emergency enveloping society, and render it impossible to see a smile, a cocked lip or those little wrinkles of welcome in a familiar face. The virus makes us fear everyone, everything. Physical distancing. People leaping off a sidewalk to avoid you. Signs saying don’t pet someone else’s dog or to sanitize your hands when entering any door. There’s panic hearing a random cough or sneeze. Temperature checks are forced on you. Capacity limits and plastic barriers everywhere. There’s no escape.

Experts say this triggers the body into a fear mode, as being in a constant state of danger. Over time – and it’s been months now – it can accelerate aging and the risk of diseases accompanying that process. Because there’s no normal anymore – no work for many, no certainty of school, seeing friends, travel, church, routine – we’re constantly a little disoriented. Just enough to impact confidence or trigger a sense of rejection. No sitting in Timmies with friends. No people-watching in the mall. No shared lunches at work. No praying, drinking, skating or playing together.

Not getting dressed for work is no longer a relief. It’s a trap. PJs, sweats and pants you wear for eight days because, well, why not… they become the clothing of an inmate. Cut off from society, we feel less professional, less engaged, even less judged. Online conferencing can’t show your shoes or share your fragrance. We’re less human without the nuances of our physical beings.

Now it’s December and it’s easy to regret this world. Empty downtown streets, closed stores, no clogged roads or busy subways and airports plus UPS/FedEx guys who ring the doorbell and run. And layer on this the personal setbacks we all face. An ill child. Getting old. A beloved animal companion who sickens and dies. No wonder we feel this way. Covid may not sicken many, but it has stricken us all.

What to do?

Stop being angry about it. Raging against masks or immunization, politicians who order lockdowns or shopkeepers imposing rules is pointless, fruitless and just isolates you further. This is not anybody’s fault – not the prime minister, not China or globalists. The virus is a virus. It has no politics, religion, agenda or purpose other than to spread and infect as widely as possible. Stop weaponizing it.

Look for some of the good coming out of the mess. It’s there if you’re an investor, for example. Financial markets have romped higher. Plus your house is probably worth a lot more as mortgage rates went down and property lust went up. It’s a big irony most people emerge from the pandemic better off, even as others suffer so much. It’s a good reason not only to be grateful, but to be charitable. If you help someone else you will feel so much better.

Think ahead. Pandemics are temporary. They always end. Modern pharma cut the development time for effective vaccines from ten years to nine months. That was a miracle. So is the new messenger technology, which could save many lives from many threats. Billions of people will be dosed in the next year. The pathogen will end up sulking in dark corners, gone from your life, defeated by science.

Finally, reflect on what we lost to Covid – what you miss. Shopping freely. Visiting family. Shaking hands. Riding the crowded streetcar. Going to a concert, a play, a club or a hockey game. Travelling for business or a vacay. Seeing faces. Going to work. Sending your child to school with no mask or anxiety. Restaurants without plexiglass walls. Making friends. Sharing your dog.

All that is coming. The patina of life. Hold on.

Source

She made $5,000 last year baking cakes in her home. Covid hit. The wedding biz plopped. She applied for CERB to supplement household income (hubby kept his job).

The cheques rolled in. After collecting $18,500 in dole a letter from the CRA arrived questioning her eligibility for assistance. Pay the money back, it said. By December 31.

Crisis. She’d spent the cash. Saved nothing. The night after the letter arrived she spent in tears. Then she went to the media, to make the government look spiteful and cruel.

Welcome to Canada, 2020. Four in ten families pay no net tax. The federal deficit is $383 billion. When the current government is done, the debt will have doubled. The bulk of what future generations will owe was the work of one man, and his son.

On Friday StatsCan had some shocking things to say.

Household net worth since the virus hit has increased a cumulative $600 million. As mentioned here before, the saving rate exploded higher with the pandemic. CIBC says $170 billion in cash now sits in bank accounts, private and corporate. Real estate sales and prices have romped higher. In the GTA the average property was worth $910,290 in February, when life was normal. In November, after nine months of unemployment, lockdown, death and quarantine, that property was worth $955,615.

Per capita, household net worth is $320,441, much of it real estate, which is $12,000 more than a year earlier. Across Canada, housing jumped in value by $440 billion in a single year, and most of that was represented by new mortgage debt. Home loan rates plunged by half, down to the 1.5% range. That meant even more debt resulted in lower carrying costs, so the rate of debt to assets fell to a 15-year low.

Cheap rates and $250 billion in direct payments to individuals, plus $180 billion in mortgage and credit card payment deferrals – along with sharply reduced family costs as WFH wiped away commuting and child care charges – have been profound. The wealth gap has widened. Houses have become sharply less affordable. Low-wage people have seen their employment wiped away. Small businesses have been obliterated. Folks with assets – like real estate holdings or portfolios of financial assets – have benefited disproportionately. Stock markets are finishing the worst year in a century for global recession and a public health crisis at record levels.

What is 2020 laying the foundation for?

First, more gains. Vaccine optimism and cheap rates will probably deliver a record real estate run come March. Many buyers will swallow massive mortgages at rates which can only increase in the future. Condo bargains will fade as it becomes clear the boss wants people back at their desks.

Stock markets, commodity prices and related financial assets will feed off the economic growth that the vax brings. Global GDP will increase, central banks will continue their stimulus programs and corporate profits will restore. Some analysts talk openly about The Roaring Twenties.

But we also have troubles ahead.

Cheap rates can’t last forever. When growth brings the spectre of inflation bond investors will want a premium, and yields increase. Higher rates will be a shock when mortgages are renewed, and as Ottawa services over $1 trillion in accumulated debt. Decisions taken amid a crisis in 2020 may look sketchy in 2025. Regardless of the actions taken by central banks, the price of money will rise. And so will the cost of living. A lot. Just ponder what the carbon tax will bring.

Tax levels won’t hold, either. No country the size of Canada can so increase public spending, and debt, free of consequences. The future will certainly bring higher corporate levies, an increase in the capital gains rate, empty-house taxes, elevated property tax, an additional tax bracket, more user fees, reduced local services and an extra cost for every Amazon purchase you make or Netflix movie you watch,

Political stability? Fuggedaboutit. Odds are 2021 will bring a federal election in Canada and dog-knows-what in the USA. Will Canadians re-elect the Libs who have the worst fiscal record in history, just because they dole out more money? Will the seventy million Americans who Donald Trump tricked into thinking the Biden presidency is illegitimate create discord, gridlock or worse? In a world growing ever more tribalized, how do we deal with common challenges like global debt, wealth inequality, climate change and a slimy little pathogen? We barely survived 2020, after all.

Well, stay the course. Be balanced and diversified. Forget DoorDash, Airbnb, Bitcoin or Robinhood. Fill your tax shelter vehicles. Don’t be seduced into new dollops of debt. Suck up to your employer. Shun GICs. Of course, get vaccinated. And muse on how we ever got to a point where someone earning five grand a year receives $18,500 in cash and feels like a victim.

The future can’t come soon enough.

Source

  By Guest Blogger Doug Rowat

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It’s beginning to look a lot like Christmas.

Is it the stockings hung by the chimney with care, visions of sugar plums dancing in my head, cousin Eddie’s RV pulling up to the Griswold’s? No. It’s the market-outlook reports that are clogging my inbox.

Here’s a sample:

Click to enlarge

It won’t stop here, of course. The reports will continue to pour in for the next several weeks. It’s an investment-industry end-of-the-year tradition. And the outlooks are (as they always are) unwaveringly bullish.

But this annual tradition is a fair bit of bunk. First, the focus on outlook at this time of year is purely arbitrary. The outlook really shouldn’t matter more now than it does in, say, May or August. Secondly, these forecasts are so frequently wrong that they’re of limited value. Investment manager Barry Ritholtz sums up the usefulness of year-ahead market outlooks nicely:

These are counter-productive exercises for investors. First, they are little more than guesses. I mean that literally; there is no valid science to estimating stock prices, interest rates, inflation, bond yields, gold, bitcoin or whatever 12 months out.

Consider: How many strategists had “Global Pandemic, one million deaths, 34% market crash, but with huge gains in FAANMG stocks and a 12% annual S&P500 gain” in their 2020 Outlooks? None.

The future is both unknown and unknowable. Don’t blame Covid—wars, pandemics, natural disasters and other tail risk events are a feature, not a bug. The unprecedented occurs with alarming regularity. This is why the forecasters never stand a chance over the course of a year.

Heavy-hitter Morgan Stanley recently raised its S&P 500 target for next year to 3,900, roughly 6.5% upside from current levels. I haven’t read its report, but no doubt Morgan Stanley carefully weighed central bank policy, Biden’s economic policies, vaccine rollout, corporate profitability, and god knows what else, to come up with its tepid, middle-of-the-road 6.5% upside.

But let’s see if I could duplicate a similar, and probably equally accurate (or inaccurate), 2021 forecast with just a bit of quick back-of-the-envelope math. First, US equity markets usually trade higher. With remarkable consistency under many scenarios, markets trade higher more than 70% of the time (73.1% to be exact). And maybe I’ll tilt those probabilities even higher because it’s the first year of Biden’s presidential term (see largest column in chart below). So my first wager? The US market will move higher next year. So far, me and Morgan Stanley are on the same page.

Odds the market will rise in any given year

Source: MarketWatch; US market data going back to 1793

And finally, the determination of the gain’s magnitude. Looking long term, what’s the historical distribution of US equity-market returns? US equities over almost the past 200 years most frequently have returns that fall into a range of between 0 and 20% (the peak areas of the pyramid or bell curve below). So, historical likelihoods support my estimating within this range. And if I shade my next-year forecast a bit more conservatively towards the lower end of this range, I arrive at an identical 6.5% upside estimate. No hours of research, no carefully argued fundamental thesis and no expensive analyst team required.

Pyramid of US equity returns past 195 years

Source: Visual Capitalist

The problem, of course, is that annual returns with great frequency fall to the edges of the pyramid or bell curve. Almost 60% of the time they fall outside of the range that I mentioned above. More than a quarter of the time returns are flat-out negative and more than 13% of the time returns fall into a -10% to -50% range—a fairly significant probability of such a lousy outcome. But no Wall Street analyst ever frames their year-ahead outlook with a negative return prediction, and certainly not a forecast of a double-digit decline—at least no analyst who wants long-term job security.

But such declines happen. A lot. This is why you should always maintain a balanced and diversified portfolio: for the predictions that Wall Street analysts will never make—and for the disruptive market events and sharp declines that will nevertheless still occur despite the sunny forecasts.

I’ve quoted New York Times columnist Jeff Sommer before on this blog, and his past observations on forecasting are always relevant this time of year:

Since the start of 2000, The Standard & Poor’s 500-stock index has ended in negative territory in five calendar years (2000, 2001, 2002, 2008 and 2015) and has been virtually flat once (in 2011). But while a handful of individual forecasts have, from time to time, predicted mildly negative years for stocks, the Wall Street consensus in every single year since 2000 has predicted a rising market.

Consider the calamity of 2008. … The S.&P. 500 fell 38.5% in the course of those 12 months…the forecast for 2008 was unusually bullish, calling for a rise of 11.1 percent. Wall Street missed the mark by 49 percentage points that year.

So, perhaps the only truly useful prediction is George Carlin’s weather forecast: “Weather forecast for tonight: dark. Continued dark overnight, with widely scattered light by morning.”

But knowing the pointlessness of all of these end-of-year investment-industry forecasts, am I still going to carefully construct a detailed 2021 market-outlook report for my clients?

You’re damn right I am. You don’t mess with tradition.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

Source

As the first shots of vax enter the longing arms of a virus-weary nation, there is hope. By next summer the herd may be dosed enough for life to seem normal. Let’s hope. This has been a dark time, although we always knew the pandemic would be temporary.

But what about the residue?

There’s some evidence the economic and financial damage of Covid could be, well, permanent. For example, the national debt will have doubled by the time this is over, and stand at an incredible $1.4 trillion. In a country where the entire economy’s only $2 trillion in size, that is daunting. Besides, family debt now exceeds $2 trillion – so add that in. (The household debt ratio just soared to 170% of income.) And did I mention the provinces? No? Well, they owe another $700 billion – half of it Ontario alone.

None of this is going away, or being paid down. In fact the feds have plans to spend another $100 billion on re-engineering the economy (whatever that means) in the immediate post-Covid years. That scares the Parliament Budget Officer, who this week said: ““Our labor market projections currently suggest that the size and timing of the planned fiscal stimulus may be mis-calibrated.” Atta boy, Yves Giroux.

But, I hear the rabble cry, all this spending was needed to shield us from the slimy little pathogen, so we could Zoom, Netflix and buy groceries.

Indeed. Mr. Socks doled out more than $250 billion in CERB and other payments. The results are interesting:

• The personal savings rate went from 7% to 28% in mid-2020.
• Personal bankruptcies across Canada plunged
• Food bank usage fell noticeably
• The real estate market caught fire with leaping sales and prices
• Sales of quads, bikes, hot tubs and home reno materials soared
• Personal and business cash savings exploded, says CIBC, to $170 billion

And while the feds were papering over the virus, banks deferred mortgages, credit card companies waived payments and a whole lot of people in low-wage jobs found they had more money in Trudeau largesse than had been in their paycheques, pre-bug.

But what now?

Troubles, maybe. The second wave has hit and it’s worse than the first. Toronto’s locked down. Alberta and the flat provinces are a mess. Cases are rising and Christmas is cancelled. Meanwhile there seems to be a little sober second thought going on in Ottawa after realizing more than 800,000 people who got CERB money may not have deserved it.

Alex and thousands more received this letter in the last few days:

He has no intention of paying anything back, since he didn’t cash the cheques (apparently he had no direct deposit). Alex just wanted to frame them, which he did. All $12,000 worth. In his bathroom.

Who cares about the accumulated debt or our $383 billion deficit this year? Angus Reid found only 23% of people are fussed by it. Nik Nanos last month discovered a scant 11% think the economy’s a top priority. This is why the T2 gang wouldn’t mind an election any time soon. Politicians who dole out money tend to be popular.

Of course, the dopamines won’t be swimming through our veins forever. Never before has this thinly-populated nation faced such a level of indebtedness. And no, kids, we don’t just owe the money to ourselves. If not for historically-ridiculous interest rates, what’s just happened in 2020 would be economically devastating. The cost of servicing such an alpine of debt would suck off a serious amount of government revenues.

But rates will stay this low forever, right? Many believe that. And they err.

As the virus fades, economies expand and GDP reflates, inflation and higher rates will materialize. There will be a giant economic stimulus bill soon in the States. Vaccines are starting to roll out globally. The Biden guys will spend up a storm. Central bank bond-buying will end in a while (already being tapered back), allowing yields to rise. Global growth will resume in the next two years, commodity prices will swell and investors will be demanding a premium for owning oceans of debt.

As mortgage broker/blogger Rob McLister warns:

By the time COVID case counts start heading in the right direction and enough people are vaccinated, both of which should happen by spring-ish or summer, say analysts, the market could start pricing in Bank of Canada policy tightening. That will be a signal to investors to take yields higher (i.e., sell bonds). Higher yields mean higher fixed mortgage rates.

He also points out that while this damn Second Wave is brutal, bond yields have not been dropping as they did during the first viral assault. “When bad news doesn’t hammer yields, it often suggests the market is gearing up to run in the other direction.” Exactly. Everybody in the financial world knows where this is headed. You should know it, too.

So pay back your CERB by the end of the month or be prepared for CRA grief. Lock in your mortgage rate, too. Maybe there are a few more basis points yet to save, but we all know a year from now these deals will be so gone. And make sure you have a nice pile of rate reset preferreds (or a good pref ETF) in your portfolio, constituting half the fixed-income component. They pay close to 5% for just sitting there, and will jump in capital value as rates back up.

Oh yeah, be careful who you vote for. Nothing’s free, and reality bites.

Source

Airbnb lost $700 million in the first nine months of this year on revenues of $2.5 billion. In real life you’d drag it behind the barn and shoot it. Same with DoorDash, the meals-delivery guys who last year burned $667 million on sales of $885 million. What a disaster.

But this week when DoorDash stock became available to investors for the first time (it’s called an IPO – initial public offering), the kids swarmed it. Shares doubled for a while Wednesday and when the smoke cleared the company was worth about $40 billion.

As for Airbnb, the IPO was scheduled Thursday. And while Covid crushed it for a while with more and more cities starting to ban or restrict it, the betting is by the time trading starts (there was a delayed opening – too much demand) this thing will have exploded in market capitalization. More swarming. More FOMO. More frenzied buying of anything that’s (a) online and (b) new.

Look at Canada’s tech baby, Shopify. It provides hands-on eCommerce retail tools, and while it’s been operating for a while (I used it as the platform for iPad-based sales of pumpkin spice muffins and Rocky Road ice cream at the Belfountain General Store), its shares have absolutely bloated. Company assets are scant, yet at $170 billion it’s now worth more than two of the major banks – combined.

And while we’re talking about speculative investor frenzy and asset bloat, don’t forget Bitcoin. The crypto – backed by absolutely nothing – has again been flirting with the $20,00 mark, gyrating wildly in value. It’s not a viable currency. Not a reliable medium of exchange. It’s not even a storehouse of value. It cannot be loaned out or used in fractional banking. There is no regulator and its very existence is threatened by romping computing power. And yet it’s been swarmed.

“Bitcoins and other cryptocurrencies,” says analyst Cam Hui, “are the latest digital equivalent of Beanie Babies or sports figure trading cards. It’s difficult to see how they can have value in the long run.”

And they won’t. CBs will one day have their own digital currencies, backed and regulated by governments. The private crypto years will end in tears.

But back to Airbnb, DoorDash, LightSpeed, Nuvei and other profitless, sexy, craved outfits arousing investors. What’s happening? Is the FOMO legit?

Maybe. Partly. Depends. The pandemic has poured gas on societal trends like online shopping, WFH, deurbanization plus the digitization of financial services and everything from buying cars to telemedicine. Quarantines, physical distancing, lockdowns and virus panic have changed many human activities in 2020. Outfits like DoorDash (it’s delivered over 550 million meals to people’s homes this year) and Shopify, powering online sales, have emerged as investment winners as a result.

Investors who use these services ain’t dumb. They can see this. They pile on.

Second, the virus has resulted in a huge, steaming pile of cash in society – as detailed here earlier this week. Millions of people are working from the spare bedroom, not spending money on gas, car maintenance, child care or pants. Costs have been slashed, incomes retained and the personal savings rate has doubled as a result. Then there’s Justin’s $250 billion in direct payments to individuals and companies. CIBC economists say this has resulted in $170 billion sloshing around in bank accounts. Or buying stock in DoorDash and Airbnb.

Besides, a lot of these WFHers are bored. Like seriously, eat-the-drywall bored. No bars, clubs or restaurants. No concerts or business trips. No commuting or concerts. No pro sports games. I mean, how long can you spending Zooming colleagues, walking the pooch, surfing Netflix or wandering around in your skivvies eating Cheetos?

This brings us to the age of Robinhood. It’s exciting.

Millions of moisters now have this app on their phones. It allows ‘investors’ (aka gamblers) to buy and sell securities fast, without cost. No commissions at all. So day traders can flip in and out of positions every few hours. Or minutes. Or seconds. And they do.

Says Wall Street/Bay Street vet Ed Pennock:

The Robin Hoodies are transforming markets. They are 20% of the volume. 25% on a busy day. They have new tricks which the old dogs aren’t paying attention to. Commissionless trades enable rapid turnover. They don’t trust many of the structured products. They want to buy and sell stocks. Particularly if they can bail for nothing. Robin Hoodies do their own research. They rely on each other. They use Seeking Alpha, Zacks’, Motley Fool, and others. They don’t use P/E’s, PSR’s or many standard tools. They don’t care for the analysts and their recommendations and target prices. They’re not fixated by “Bubbles and Peaks and Crashes”. They buy the dips. And if it works that’s good. If it doesn’t, then they bail. On to the next one.

Exactly. Massive momentum investing – people going with the flow. Riding the trend up. Jumping off when some genius on Twitter says to. And lots of them have made a bundle – after all, the Hoodies were materially responsible for propelling Tesla into space. Now DoorDash billions. More to come. What’s happening fully eclipses the dot-com mania which, two decades ago, did not end well.

More than $160 billion has been raised in the US this year in IPOs – amid the worst public health emergency and global recession in a century. A sizeable chunk came from clueless people who got a text telling them to press Send.

Be balanced. Be diversified. Be ready. This is real.

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The central bank won’t touch interest rates for a while. That was confirmed Wednesday. Meanwhile one lender has hacked its variable-rate to 0.99% while a major bank has four-year money at a buck forty-nine. Historic. And now we’ve got the vax. So, it’s the end of the beginning, if not the beginning of the end. Whatever. It’s good. Vamos, virus.

Oh, my, but what a legacy the slimy little pathogen is leaving for the property market.

Prices, horniness, FOMO and family debt have all leapt higher. Houses with dirt, front doors, yards and home offices are hot. And WFH – even though temporary – has created a suburban renaissance. Now Zoom Towns surrounding the big city are seeing the biggest hikes in sales and valuations.

The impact on the urban core has been equally remarkable.

Ponder this report on Vancouver condos by local analyst Dane Eitel:

The city of Vancouver condo owners, especially investors have taken it on the chin recently. Vancouver proper condo values were down to $861,000 in October, then news broke the vacancy homes tax will triple to 3% for 2021. Fast forward a couple of weeks and the average sales price has dropped to $765,875. A $96,000 loss, month over month.

From zenith to current prices the city of Vancouver condo values have lost more than $325,000 (-30%). A 10% drop from peaks is considered a correction, a 20% is a recession, and 30% drop has no definition other than, “ouch”.

More ouches in The Big Smoke. Condo listings in Q3 mushroomed 113%, and prices continue to fall. From $1,200 a foot for swishy DT condos, buyers – the few still kicking around – are now paying a grand or less. Last week one realtor held a blind-auction, bring-yer-offer day for a unit she’d priced 25% below market. What happened? One lowball, rejected bid.

As listings pile up, rents fall and the vacancy rate climbs. We all know why. Airbnb is broken. The students and bar maidens moved back to mom’s house. Immigration fell by 70%. White collar WFHers moved out. The landlord/tenant board is dysfunctional and evictions are illegal. It is just a bitter, awful, losing time to be an amateur landlord or a condo specuvestor  especially as thousands of newly-built units come online.

In Toronto, as a result, rents have fallen 17% so far this year and continue to erode. The vacancy rate has tripled in the last 12 months, from 0.8% to 2.4%. Rental condo owners are desperate for new tenants to come along, and willing to throw in months of free rent or other incentives.

Meanwhile an unknown number of condo owners who bought in order to get on the first rung of the property ladder and are ready to move up cannot. They’re trapped. No buyers. Some in negative equity – especially those who, in 2018 and 2019, dove into a hot market because (you know) real estate always goes up!

Summary: whether it’s Van, Victoria, Calgary or Toronto, renters are winning. Condo owners losing.

And what’s the government agenda? More tax, of course.

This week Toronto’s local politicians are expected to approve an empty-house tax, as exists in Vancouver, likely to take effect in 2022 and probably at 1% of the assessed value of a property. That would add $6,500 a year to the $3,000 or so paid in property tax on an average condo – tripling the burden on owners who don’t use them as permanent residences or rentals.

Says the mayor (who used to be a conservative): “We simply can’t afford, from the housing perspective, to have housing accommodation for thousands of people sitting empty.”

But with three times more units on the rental market now that last year, and landlords trolling for tenants while monthly lease costs plunge, condos are empty because of demand, not supply. The bug we know as Covid has done a fine job at making rental accommodation both more plentiful and more affordable. So what are these pols doing?

Desperately trying to squeeze out tax revenue, of course. And they’re doing it in the name of a socially justifiable goal. It’s fraud.

Now, you might not own an investment condo, or be an amateur LL, or have to do business in Toronto a few months a year and need digs there, but this still matters. Taxing people in a heavy fashion, as this levy does, because the state thinks they need to spend more nights in a property they own, or forcing them to rent, is a further erosion of property rights.

But wait. You have none.

In Canada there is no legislated, constitutional or legal right to own property. A Conservative government (Mulroney) once tried to include it in the Charter of Rights and Freedoms, but that went down to defeat during the Meech Lake/Charlottetown Accord debacle. (I know. It was my idea at the time.) This means any level of government can take your land, change its usage or zoning, bust up established neighhourhods or pound you silly for not using it enough.

Taxing ‘empty’ units won’t make more of them. Or reduce the cost. Or hurt anybody except owners when apartments are empty from a lack of tenants. It’s a tax grab. Because real estate is the only sitting duck left.

Be wary of what’s coming.

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So a 90-year-old British babe is Patient Zero as the great vax begins. Nice. She has more balls than a good chunk of this blog’s steerage section.

But let’s talk about being a wrinklie, instead of our fav pathogen. People getting older (100% of us) in a world where a pandemic can change everything in a few months, where interest rates are close to zero and ‘safe’ investment pay absolutely diddly, face new challenges. It used to be a 60-year-old would have 60% of his/her assets in bonds. At seventy, that became 70%. After all, bond and GIC returns were decent, more than inflation, and the interest was enough to live on.

Well, forget that.

Today a long bond pays half a per cent and GICs are no option. The best portfolio for people in retirement turns out to be the same one as for those still working – an exposure to equity or growth assets of about 60%, with a big chunk of the fixed-income stuff being high-dividend preferreds. In a low-rate world we all need growth, then we need income. The biggest risk has not changed. That’s running out of money, not losing it.

Now, this brings us naturally to the Numero Uno question financial dudes are ever asked: should I take my public pension early or later?

A new study on this was released Tuesday. Like every other one in the past, it reached this conclusion: “Delaying Canada and Quebec Pension Plans benefits for as long as possible is the safest and most inexpensive approach to get more secure, worry-free pension income that lasts for life and keeps up with inflation.”

Ah, but here’s the rub. Almost nobody waits until CPP maxes out at age 70. On average 41% grab the money when it’s first offered at age 60 and another 30% sign on at 65. Merely 1% of Canadians hold out until seventy candles.

So, another example of widespread financial illiteracy and social stupidity?

The pros think so. They consistently point out that waiting to collect the government cash means more income for life, because payments increase with each year delayed, plus the plan is inflation-indexed. The experts point out we’re living longer, need more income to finance those extra years, and live at a time when safe assets pay nothing and there are fewer adult children around to look after the old snorts.

In fact financial planners say there are only three reasons a sane person would collect early: You need the money to eat and pay the bills since you’re otherwise destitute, expecting to collect the GIS and probably read the wrong blog. Or you anticipate living a shorter life because of illness, heredity or your love of Harleys. Or you retired early and stopped making CPP contributions in your fifties. These authorities also point out that the 7% annual increase in CPP payments realized from just waiting is probably more than your investments would yield, so it makes financial sense to abstain.

Finally, TPTB want you to delay and burn thought your RRSPs first because it saves the government money. First, your retirement accounts are fully taxable as income is withdrawn so politicians finally get to suck off their share. Second, the longer you wait to collect the public pension, the closer is death. Then they don’t need to pay you anything (except maybe a small survivor benefit to your spouse).

Okay. So the consensus financial view is to suck it up, collect nothing at age 60, take your free OAS at 65 and hang in for CPP until seventy. Today’s report actually claims this strategy would yield about a hundred grand extra over retirement decades.

But, as noted, most people don’t wait. And this time they’re right.

You should stick your hand out and grab the monthly cash when it’s first offered to you. No regrets. No second-guessing. No spreadsheets. No online financial calculators. Pas de experts.

First, you have absolutely no idea how long you’re going to last. Look at what the virus has done. Not only the immediate deaths but all of the life-extending treatments and therapies that have been cancelled or delayed for hundreds of thousands of others, because of the damn bug. Crap happens. Take the money.

Second, getting old sucks. You have no idea what this involves until you get there. Assuming you’ll wait and spend your enhanced CPP on fun stuff – exotic travel or a big honking camo quad – after you pass seventy might end up in disappointment. Live now. Take the money.

Third, if you’ve got a proper B&D portfolio just let it continue to swell in retirement while you collect early CPP to pay for day-to-day stuff like bourbon and ammo. This is eight hundred bucks or so a month you don’t need to pull out of investments. Besides, if you have a lot of capital gains, waiting to collect more at age 70 could put you in a higher tax bracket, triggering a bigger bill. Take the money.

Finally, this is yours. You and your employer funded it. Your years of service earned it. This belongs to you. If 2020 has taught us anything, let it be this: each month in an unpredictable world is a gift. Make it count. And never leave anything for Chrystia.

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The first trickles of vax will arrive soon. Good. Cannot come soon enough. After all, I spent the last year growing a manly handlebar moustache (to divert attention from the rest of my chops) and hiding it under a mask is criminal. It longs to blow in the wind. We’re all being asked to sacrifice.

Apparently, however, the slimy little pathogen has been doing a lot to grease people’s savings accounts. It raises some serious questions about Ottawa’s pandemic spending orgy and (as you know) helps explain why real estate would boom during an historic recession.

The latest Nik Nanos poll is telling. In the middle of the Second Wave and record infections, Canadians are feeling positively frisky. Consumer confidence sits at the highest level in eight months – since way back when life was normal in March. Now 45% believe real estate prices – currently at all-time highs – will be higher still in six months. Two-thirds believe their jobs are secure. And, as you may know, financial markets have been on a tear – with stocks hitting peaks during the best November ever.

This makes no sense. The economy sucks. Millions are still unemployed. Airlines, restaurants and tourism are kaput. Toronto’s locked down. Drake is missing. The virus news gets worse daily (except for Drake). And yet personal finances are… improving? Huh?

Look at the recent report from the OECD, comparing us to the rest of the industrialized world. Household incomes in Canada actually rose in Q2 by a massive 11%. Compare that to big drops in what families earned in Britain, France, the US or Germany. Weird.

When it comes to savings, things become more detached from reality. Before Covid households were putting away 3% of what they earned, about half the long-term average. Then the bug struck. The economy was turned off. Unemployment spiked. Recession ensued. And the savings rate surged from 3% to 28%. Stunning. Since then it has declined to 14%, still twice the amount socked away annually over the previous forty years.

Source: Statistics Canada, National Post

A CIBC report says this amounts to a $90 billion pile of dough. And all those hard-hit businesses have squirreled away another $80 billion. The guys at online EQ Bank confirm it – savings accounts there are brimming with $4 billion, up a billion in a few months.

How did this happen?

Simple. The federal government went completely nuts when the virus showed up, with the prime minister hitting the SPEND button as no politician had done before. This is how we got a $383-billion one-year deficit, which is $327 billion bigger than any shortfall ever seen before. Canada has spent more money on virus mitigation than any other nation, on a per-capita basis, and also as a share of the economy. The cash found its way into houses, into financial assets and has stuffed personal and corporate bank accounts. Worse, it seems to have flowed disproportionately into the hands of higher-income earners. You know. Folks like you. The WFH crowd.

“A lot of that money went toward people who didn’t need it, who just banked it,” says economist Philip Cross. “Quite rightly, we told people that we would compensate them for lockdowns that were beyond their control. But we did more than compensate.” It’s like my suspender-snapping, portfolio manager Buddy Ryan wrote on the blog last weekend – this has created a K-shaped recovery. Some people are doing great. Many are bearing the brunt.

Look at Justin Trudeau’s pandemic spending, compared with that of the USA:

Source: Scotiabank Economics

Says CIBC economist Benny Tal: “This is the first recession that income is actually rising, reflecting the fact that government transfers were actually larger than the amount of money lost in the labour market.” Meanwhile businesses and organizations have been pocketing the free bucks associated with emergency business loans. Just as those claiming hardship got $2,000 a month in CERB cash, so corporations with their hands out have been given no-strings $40,000 loans to spend, invest or save. They need only give back  thirty grand, keeping ten as a Trudeau gift. (Now the limit’s been raised to $60,000, with the grant portion increased to $20,000.)

On Monday Deloitte economist Craig Alexander said the deficit this year will probably hit $400 billion. Last week the FM, Chystia Freeland, said the T2 gang is planning on spending $100 billion more next year and beyond on a ‘reimagined’ economy.

‘Never let a crisis go to waste.’ Now you know what that means.

What are the implications of this?

You’re already seeing some of it. Combined with vax optimism, this river of largesse flowed into financial markets, helping kick assets to new levels. Ditto for houses, especially now that CBs have crashed interest rates to historic lows, inflating real estate. Likewise for building materials (priced a 2×4 lately?), appliance sales, quads, bikes, sleds and now even Christmas trees.

Coming as soon as the economy reopens, retailers revive, lockdowns end and shopping returns is a tsunami of consumer spending, especially since experts say most of the Trudeau cash is idling in chequing accounts. This will help goose economic growth in later 2021 and again in 2002, now estimated to top 5%. That’s huge.

And with it all will come more expensive real estate, an urban condo revival, plumped-up investment portfolios, a serious return of inflation and, inevitably, higher interest rates as the bond market starts calling the shots. Oh, more taxes, too. And you’ll have to buy new pants to wear back to the office. So save money for that.

Now, I’m off to find moustache wax. It’s a thing. Really.

Source: Financial Advisors 2021 Stud Calendar

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