My daughter reminded me yesterday how quickly summer is approaching when she announced that there were officially only 9 more sleeps before the end of the school year! She was so excited in fact that she made the announcement while doing the “floss dance”. Note to self: must learn to do the “floss dance” this summer. For anyone else interested in getting up to speed with the latest craze, I’ve included a handy YOUTUBE video: https://www.youtube.com/watch?v=ru1ZZhxLX2I Your welcome!
Lots happening this summer…
Joe is going to become a grandfather for the second time! The new grandson is due to arrive mid-July, and so Joe and Helen will definitely be heading off to California for a few weeks after the baby arrives. Everyone is quite excited including me. Almost every morning I get to listen to Joe in his office talking to his four-year old granddaughter over FaceTime – the conversations are quite funny sometimes. Can’t wait to hear what grandpa Joe’s baby voice sounds like through our thin walls!
There will also be a wedding in the Silva household this year. Joe’s youngest - Leslie, just got engaged! She and her fiancé are planning for a Summer/Fall wedding this year. Joe and Helen couldn’t be happier. I’m still trying to wrap my head around Leslie being old enough to drink, never mind the fact that she’s getting married!
Rudy, Nadia and myself will be taking off in August for our usual motorhome summer road trip! We’ll be hitting Tobermory this year with some friends. Haven’t been out that way for a very long time, so we’re looking forward to it. Other than that, we have a few camping weekends planned, lots of BBQs and plenty of time by the pool.
Vijay, in case you’re wondering, will be around most of the summer unless there is a big soccer game on that he must watch. We’ve tried threatening him to take some time-off so that clients don’t think we tie him to his desk. And for the record, we don’t - Vijay is just that dedicated and refuses to leave.
The markets don’t stop over the summer, and neither do we. And unless Mr. Trump decides he’s going to take the summer-off and give Twitter a break, we’ll have plenty to keep us on our toes over the summer months no doubt. Issues like Canadian debt-levels, interest rates, the CAD$, NAFTA and North Korea just to name a few of the issues that we'll be keeping an eye on in the coming months.
These type of events tend to move and shake up markets. These are also on top of mind when building or rebalancing your portfolios so that we are not forced to react at the worst possible times.
Canadians are in Debt!
So what if Canadians are out there spending like drunken sailors? It’s not that bad, right? The (BOC) Bank of Canada is definitely concerned. Canadians hold $1.68 in credit debt for every dollar of a household’s disposable income. This debt includes mortgages, lines of credit, student loans and credit cards. That means for every $1 we earn, we’re spending $1.68. More and more seniors are going into retirement with debt as well.
The Bank of Canada weighs all of these things when deciding whether to raise or drop interest rates. Remember, interest rates are a tool that the BOC uses to try and control inflation and/or to pump up the economy. If Canadians are driving up prices and inflation (by over-spending) because times are too good, the BOC will raise rates. Why? Because left unchecked, inflation can be bad and damages the economy. If the BOC feels that Canadians need a little extra ‘push’ to start spending money, thus help move the economy, they’ll lower rates, making it cheaper for us to borrow and spend. Tricky, eh? It’s for our own good though, trust me.
Figures! Our CAD$ starts to drop just as we’re all getting ready for summer travel…
One of the main reasons my family is staying local this summer is the falling CAD$. The friends we travel with come up from Mexico to join us every year. We normally then pack up our motorhomes and head south of the border where the gas is cheaper and there’s lots to see and do. With the USD$ trading at $0.48 for every PESO however, vs. the CAD$ which is trading at $0.64 for every PESO, the choice was clear for them - Let’s check out some Canada!
Recent NAFTA re-negotiations and the various US-imposed tariffs that are being handed out like Oprah’s show giveaways on steroids, may look like a lot of childish drama, but it does rock the markets and our CAD$ specifically. The weakness we’ve seen the last few weeks (a drop of -4.6% year-to-date against the USD$) has been a direct result of this.
Canada depends on the US because they buy our stuff. Plain and simple. Tariffs on Canadian products will impact our farmers, steel producers and car manufactures. The fall-out could push us into a recession sooner than expected. But it’s not over yet. These tariffs do not benefit the American consumer either. Canada is fighting back with real tariffs of our own. We’ve fired a warning shot. Let’s hope cooler heads now prevail and we avoid an all-out trade war.
Moral of this story?
Buy Canadian. If you have foreign investments however, which most of us do, you’re laughing!
Remember when we had a strong CAD$ last summer and our foreign investments looked as if they took a dive? The opposite should hold true now. Remember, a strong CAD$ is only great when you’re travelling south of the border. A weak CAD$ means you’re heading to Tobermory, Ontario instead of Maine with your motorhome. Canada is beautiful…can’t wait to check her out!
Here’s some perspective:
YTD U$ YTD C$
DOW 1.5% 6.5%
S&P500 4.0% 9.0%
MSCI World 1.5% 6.4%
As of June 15, 2018
As you can see from the figures above, although the S&P 500 is up 4.0% year-to-date, once converted back into CAD$ terms however, it’s actually up 9.0% because of the simple fact that the CAD$ is weaker. Repeat after me: strong CAD$ bad…weak CAD$ good.
Finally, as always we are here to answer any of your questions or concerns. In the meantime, we will continue to keep you posted. Enjoy your summer and talk soon!
Kelly Fagundes is a Senior Financial Advisor at Manulife Securities Incorporated. She can be reached for further comment at email@example.com or at 416.259.8222