Matthew Lekushoff |
Brussels | Budget 2016 | Kawhi Leonard

Most financial markets recovered their losses mid-week after being offset with news of Tuesday morning's deadly suicide bomb attacks in Brussels. In the last little while, however, the markets have been more placid than volatile, leading to a divergence between various markets. 

With the exception of U.S. small cap and tech indexes, the major North American markets are slightly positive on the year, with Canada outpacing the U.S. Emerging markets have also happily rebounded to be north of even on the year. However, the biggest surprise has been commodities . After a horrendous start to 2016, oil is currently up 6% on the year, but has risen almost 50% from its recent low. On the other hand, after a frustrating 2014 and 2015, gold has been strong all year, sporting an increase of almost 20% on the calendar year.

Sooth sayer I'm not
I'm often asked how a stock market or commodity will do over a given period. I understand many people assume those who manage portfolios have specialized information, but I like to be upfront and say that my crystal ball, especially over the short run, isn't that much better than anyone else's. As the saying goes, "predictions often tell you more about the person making the prediction than they do about the future."
This is not to say I don't have opinions, I do and they are often strong ones. But, being in my 20th year as a financial advisor, I've learned one of the most useful things to have an abundance of is humility. For example, when oil was in the high $20s and low $30s I went on record to say that I thought it was very cheap from a historical point of view. However, I wanted little part in predicting how much it would rebound, and when.

I know from experience "markets can stay irrational longer than many investors can stay solvent." Unfortunately, some people aren't so aware of the difficulty in making predictions. Case in point is the chart posted by Soft Machines (image above), highlighting the laughable prediction on the price of oil by the US Energy Information Administration.
Hot off the press
On Tuesday afternoon, the Liberals announced their first budget since they took the reigns in parliament last November. The budget invests heavily in middle and lower income earners as well as infrastructure, in hopes of reducing income inequality and boosting economic growth.

However, this comes at a cost, which lands mostly on higher income earners facing higher tax rates. As mentioned at an earlier date, a new tax bracket for those earning over $200,000 was introduced with a federal tax rate of 33% (this figure jumps to 51.97% when combined with the Ontario tax rate , and 53.53% for Ontarians making over $220,00. Rates will vary depending on province.
The small business tax rate will stop at 10.5%, rather than the previous promised gradual reduction from 11% to 9%. The government will also be cracking down on corporate class mutual funds . Switching money between funds in the same corporate structure will no longer be tax-free after September.

Til debt do us part?
As a result of the increase in spending, the national deficit, or addition to the existing debt, is expected to be $29.4 billion this year. The five year deficit projection is expected to be $113-billion, as opposed to their previous promise of four years totalling $26.1-billion. This will of course be added to the existing debt the federal government owes, which according to NationalDebt currently stands at $1.04 trillion.
When hearing such huge numbers it's very easy to lose perspective of what these numbers actually mean. To put it another way, the federal government's current debt of $1.04 trillion equates into $29,000 for every Canadian citizen. This year's deficit alone will increase that amount by another $816 per person and the projected five year number will add another $3,200 per Canadian. Keep in mind this is in addition to provincial (Ontario's per capita debt is $22,400) and municipal debts as well.
As readers of this newsletter know, rising debt, be it personal, corporate or government is something to be very careful with. We've seen a number of European countries, most prominently Greece, mortgage their financial future due to easily available and cheap loans. Our debt levels are nowhere near the level where we need to panic, however, should interest rates rise or economic tides unexpectedly worsen, we may be forced into a more uncomfortable position.

My kinda guy
I don't watch much basketball, so before coming across an article on NBA star Kawhi Leonard I'd never heard about him, he's now one of my favourite athletes. Why, you ask?
Well, Leonard signed a five-year $94-million extension to his contract last year. But, he still drives a rehabbed '97 Chevy Tahoe, nicknamed "Gas Guzzler", that he's been driving since he was a teenager. "It runs," Leonard explains, "and it's paid off."
This stands in stark contrast to most athletes and many professionals I've met, who dramatically change their lifestyles once they become rich, and often end in financial ruin. Take a look at the documentary Broke  to see this scenario played out over and over. As Warren Buffet's business partner, Charlie Munger, often teaches, "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." 
Here's to Kawhi Leonard who at the age of 24 looks to have already learned this lesson-may he be an example to individuals, companies and governments, alike!
In the Audible queue
I just finished listening to Tim Ferris' podcast where he interviews best-selling author and marketing expert  Seth Godin . The conversation with the quirky and brilliant Godin is a two-hour discussion of wide-ranging topics, including how he minimizes his time on email, some of his favourite books, how he consumes media, and many more. If you know anything about Godin, you'll know it will be well worth your time to give it a listen, and recommend it to others!

In the news


Matthew Lekushoff, CIMA

Financial Advisor 

Raymond James Ltd.


T: 416-777-6368 | F: 416-777-7020


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