The Week in Review
It was a shortened trading week in the U.S. as the country celebrates Thanksgiving. The U.S. markets were closed Thursday and operated with a shortened session Friday.
The Dow Jones Industrial Average lead the way in North America, gaining 1.25% for the week. The S&P500 was up 0.96%, the Nasdaq 100 saw an increase of 0.81%, the Russell 2000 index was up 0.54% and the S&PTSX proved the laggard, finishing the week down 0.36%. Compared with the heightened volatility of the past few weeks, things were pretty calm.
In this episode of Pulse we review the key takeaways from Finance Minister Chrystia Freeland's Fall Economic Statement. We also look a the key drivers behind Canada's latest CPI report and we see what the U.S. Leading Economic Index says about a possible recession.
Another story catching my attention this week are the troubles that Binance founder Changpeng Zhao finds himself in. The company has paid a huge fine, and now he faces possible jail time due his is actions, or more accurately, inactions. Lastly, I'll update you on the shoddy insurance services residents of Ontario are receiving.
As always, we'll also look at the top Winners and Losers in the stock market the past week.
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Finance Minister Chrystia Freeland was front and centre at her news conference in Ottawa Tuesday, as she read her Fall Economic Statement. Here are a few highlights of her speech.
First off, her document suggests Canada will avoid a recession but predicts economic growth will slow to a virtual crawl. The Department of Finance is projecting the economy will grow by only 0.4 per cent next year. At the same time, the unemployment rate is expected to tick up nearly a full percentage point to 6.5 per cent in the second quarter of next year, and that equates to tens of thousands more people being without jobs.
The cost to service the country’s sizeable debt load will spike in the years ahead. According to her statement, the cost to borrow the money the government now owes has spiked from $20.3 billion in 2020-21 to $46.5 billion in this fiscal year. These debt service charges will go even higher in the coming years, with the debt carrying costs expected to be $60.7 billion in 2028-29.
Back in 2015-2016, the first year of this liberal administration, the federal debt was $619.3B. That has now doubled to $1.2 trillion last year, and is projected to climb to $1.4 trillion by 2028-29.
Freeland did say that a main focus of the government is “reducing federal debt as a SHARE of the economy over the medium term.” According to the statement, the debt-to-gdp ratio is forecast to rise to 42.7 per cent next fiscal year and then will eventually fall back to 39.1% by 2028-2029.
The deficit for this fiscal year will be $40 billion, just a tad lower than the $40.1 billion that was expected. The deficit for 2024-25 is now expected to be $38.4 billion — $38.3 billion in the year after and $27.1 billion in 2026-27. I can’t be the only one that is somewhat skeptical about that trajectory.
Finance Minister Freeland announced a whole slew of new measures to increase Canada's housing supply, an issue so important to so many Canadians.
First off, starting in 2025-2026, the government will provide an additional $1 billion over three years to build more than 7,000 new affordable homes across the country, including non-profit, co-op and public housing.
Also starting in 2025-2026, there are provisions, called the Apartment Construction Loan Program, for an extra $15 billion in new funding for the construction of more than 30,000 new rental homes across Canada.
The Finance Minister also announced a new Canadian Mortgage Charter, which sets out expectations for how financial institutions are to work with Canadians and to provide homeowners with new rights when facing a mortgage renewal. The goal is to provide tailored relief and ensure payments are reasonable for borrowers.
The government is also initiating a crackdown on Airbnb and other short-term rental units by making it less lucrative to own these units. The statement proposes to deny income tax deductions for expenses incurred to earn short-term rental income in areas where these units are not in compliance with local laws. This would be a huge blow to many who have bought units for the express purpose of using them on the short-term rental market, and this change would make that unprofitable in many situations.
And, with what has to be the cherry on top of the update, the minister announced relief related to mental health. If you’re feeling stressed because your mortgage payment has spiked and you can’t afford to feed your family, or if you haven’t had a vacation in five years, help is on the way. Minister Freeland announced the government is going to remove the GST/HST from psychotherapy and counselling "to ensure Canadians can receive the support they need."
Statistics Canada released the latest inflation numbers Tuesday and The Consumer Price Index rose 3.1 per cent in October from a year earlier, down from 3.8 per cent in September. This data strengthens market bets that the Bank of Canada is unlikely to deliver another rate hike. Some of the highlights:
The largest contributors to the year-over-year CPI increase continued to be mortgage interest cost, food purchased from stores and rent.
Transportation costs fell 0.4% on the strength of a 7.8% year over year decline in gasoline prices. On a month-over-month basis, gas prices fell 6.4%.
Grocery prices remained pretty high, although the year-over-year trend did improve. Prices were up 5.4% in October, down from an increase of 5.8% in September.
Mortgage interest payments rose by 30.5% year-over-year in October.
Rent prices rose at a faster rate in October, up 8.2% compared to 7.3% in September.
The largest increases in rent prices were seen in Nova Scotia (+14.6%), Alberta (+9.9%), British Columbia (+9.1%) and Quebec (+9.1%).
If you’re planning a vacation, prices for travel tours rose 11.3% year-over-year in October after a decline of 2.2% in September, with faster price growth largely driven by travel to destinations in the United States.
The Conference Board Leading Economic Index was updated this week, and for the US it fell by 0.8% in October and now sits at 103.9. Analysts had been predicting a slightly milder drop of 0.7%, the same as we saw in September.
This indicator measures the key elements that point toward peaks and troughs in the business cycle. The various indices are summarized with the attempt to show common turning points in the economy.
This decline in October is the 19th month in a row that the index has dropped, and the last time this happened was during the great financial crisis running from 2007 through 2009.
In a summary statement the board said:
“The Conference Board expects elevated inflation, high interest rates, and contracting consumer spending — due to depleting pandemic saving and mandatory student loan repayments — to tip the U.S. economy into a very short recession.”
In the past, the indicator has generally been a reliable indicator of economic downturns, and this now points to a recession, albeit a mild one, sometime in 2024. That said, this same indicator pointed to a recession in 2023, and so far that hasn’t happened.
When I was running my practice and working directly with clients, I always shook my head at how difficult it was to open an investment account. Pages and pages of personal details and disclosure were necessary to ensure that account holders were legitimate and that advisors were not skirting securities regulations.
In stark contrast, the world’s largest crypto company, Binance, was for years opening accounts and allowing users to trade by simply providing an email address.
Now, the US government has taken steps against Binance and the company has agreed to fines and forfeitures of $4.3 billion, Additionally, the government has filed federal charges against founder Changpeng Zhao. According to the filings against the company, Binance willfully violated the Bank Secrecy Act and knowingly disregarded legislation governing the crypto space. Amongst the inadequate oversight was finance facilitating terrorist groups, funding ransom attacks, and websites devoted to selling child sexual abuse materials.
According to the filing, Binance was also active in trying to help clients avoid government oversight.
Following in the footsteps of disgraced crypto poster-boy Sam Bankman-Fried, who has been convicted of fraud and conspiracy and is awaiting sentencing in March 2024, Zhou is also likely to face jail time when he is sentenced in February.
I was reading an article this week about how the Financial Services Regulatory Authority of Ontario (FSRA) is proposing some new guidance designed to, get this, make sure life insurance agents are worthy of licensing. Are you kidding me? How is it possible that this is not already the case?
In a previous version of this newsletter, I reported on how a large number of life insurance agents were found to be less than capable in providing services to their clients. In many cases, insurance agents worked on a part-time basis and placed more of their focus on their regular jobs than they did on actually doing their jobs as insurance representatives.
The new rules are designed to help life insurance companies screen potential new agents and applicants, and ensure that there is an improvement in agent conduct and customer treatment in the life insurance sector.
This isn't the first time there has been a focus on these issues. Two years ago, the FSRA started seeking guidance on many of these same issues. Given the importance of the role that insurance agents play in our lives, it sure would be nice to see an actual resolution to these problems before too many more Canadians end up with insurance products that produce great commissions for the agents, but are unsuitable for their needs.
Weekly Winners & Losers
Compared to recent weeks, there were no major spikes in share prices this week. Here are some of the more notable winners.
Notable Top Gainers were:
Agilent Technologies (A),up 11.90%
Insulet Corp (PODD), up 7.98%
Enphase Energy (ENPH), up 7.93%
Paramount Global (PARA), up 7.73%
DexCom (DXCM), up 7.60%
Palo Alto Networks (PANW), up 7.47%
Danaher (DHR), up 6.56%
Boeing (BA), up 5.75%
Aside from First Quantum, the markets were pretty stable on the downside this week. Here's a look at the worst performing stocks for the week.
Notable Big Losers were:
First Quantum Minerals (FM), down 13.06%
Jacobs Solutions (J), down 8.83%
Autodesk (ADSK), down 6.40%
Canadian Tire (CTCA), down 5.56%
🍁 Most of the assets held in Canadian pension plans are from places other than Canada. The federal government wants to change that. Read this story.
🏬 Hudson's Bay Company is struggling to keep up with its debt, and is selling off assets to keep up with its payments. The company has now raised USD $340 million to help with it's cash challenges.
📈 With what can only be described as encouraging comments, Bank of Canada Governor Tiff Macklem said this week that we may have seen the end of the interest rate tightening cycle. Nothing for sure, of course, but this is welcome news.