Canadians in dire straits, conservative investors’ chase and headlines debates

Good morning. The Financial Post crew heads to the office once every two weeks for whatever reason, but it allowed a couple of us during this week’s visit to note that our readers didn’t seem to care too much that the International Monetary Fund cut its global growth rate on Tuesday even though it was one of the top stories pretty much everywhere else. Perhaps you were all savvy enough to know that the IMF only cut its forecast by 0.1 percentage points to 2.8 per cent for 2023. Or perhaps global concerns don’t really resonate when some seem to be struggling to just put food on the table.

Quite a few folks have resorted to stealing food due to ever-rising prices, the cost of which is passed onto the rest of us in the form of increased prices, breaking a few more camels’ backs in the process and … repeat. The big three grocers could be collectively losing more than $1 billion a year due to theft, but you can be sure they’re not paying for it. Some younger people are even celebrating their thefts on TikTok, sticking it to the man, as it were, since stealing from mom-and-pop shops is frowned upon. 

Ethical thievery? Or perhaps it’s just a recognition that Canadians “don’t see a silver lining” on the financial horizon, according to the latest Maru Household Outlook Index, as elevated levels of inflation, higher interest rates and persistently expensive grocery prices take their toll on budgets. “Canadians are exasperated,” says John Wright, executive vice-president of Maru Public Opinion, the creator of the index. “They are adrift in an ocean of inflation and there’s no dinghy, no lifeline at the moment.”

That index is echoed by the latest MNP Consumer Debt Index, which says half of us believe the worst is yet to come when it comes to the impact of Canada’s current economic conditions on our personal finances, which isn’t good since 46 per say they are $200 away or less from not being able to meet all their financial obligations. Three in 10 say they are already insolvent.

Investors aren’t feeling much better, according to the Maru outlook. Just 27 per cent say they’ll invest in financial markets compared to 39 per cent in November 2022 and 34 per cent two years ago when we were all gripped by pandemic fever. One investor, former Bank of Canada governor David Dodge, says he’s sitting on a pile of cash, “just waiting for those long rates to go up — not down.” 

Dodge believes “either excess demand” or a “deficiency of supply” will exert more upward pressure on consumer prices than expected through 2024, so inflation and interest rates will stay higher for longer, something current governor Tiff Macklem all but confirmed on Wednesday while keeping the current rate steady at 4.5 per cent. The good news is that the central bank believes a soft landing is in store and that food prices will eventually start coming down.

Food prices down south were flat in March for the first time since November 2020, as the consumer price index (CPI) rose five per cent from a year ago, the smallest year-on-year gain since May 2021, and down from the six per cent recorded in February. Investors initially cheered the headline numbers, but markets are still leaning toward the United States Federal Reserve increasing rates by another 25 basis points at its next policy meeting in early May, according to CME Group’s FedWatch tool.

Neither of those newsworthy economic releases will particularly soothe anyone today, and tomorrow isn’t looking so bright, either. Almost half of us want to quit our jobs before turning 64, but 36 per cent of those between the ages of 18 and 54 believe they’ll never be able to stop working, according to a recent poll by H&R Block Canada Inc., and 52 per cent say they don’t have anything left over at the end of the month to devote to retirement savings. Worse, one in 10 admit to having saved nothing for retirement at all despite all the tax-friendly registered savings vehicles the federal government has given us, including the newest one, the first home savings account.

But if that’s not enough bad news — and readers do love bad news — economist David Rosenberg points out that the IMF attached an “incredibly high” 25-per-cent probability to a “severe” downturn happening this year. That occurs when global growth comes in at two per cent, which has only happened five other times since 1970. Maybe we should take another look at its latest economic outlook after all.

Andy Holloway, editor of the FPI and Financial Post Magazine, and senior features editor of the Financial Post. If you have any quips, queries or comments, get in touch at [email protected].

7 world headlines investors should pay attention to, and 1 they can ignore

There’s intense and conflicting talk about inflation, recession, banks, China, artificial intelligence, the war, the United States Federal Reserve’s next move and the never-ending U.S. election. It’s enough to put some strain on your noise-cancelling headphones. Fortunately, veteran investor Tom Bradley is here to cut through the chatter.

DON’T BRING THE NOISE

3 specialized vehicles to keep conservative 60/40 investors happier

Whether you believe the classic 60/40 (stocks/fixed income) portfolio still holds up or not, there are ways to alleviate some of the stresses while gaining some upside. Portfolio manager Martin Pelletier has three suggestions, including alternative investments, option overlay and low-volatility exchange-traded funds, and structured notes.

BABY, YOU CAN TRY THIS CAR

5 things to watch as OPEC+ shock revives oil bulls even as demand warnings flash

The surprise production cut by the Organization of the Petroleum Exporting Countries Plus last week pushed crude prices up by the most in a year. Now that the dust has started to settle, one question looms large: Will that price rally stick, or fade away? Banks such as Goldman Sachs Group Inc. and RBC Capital Markets LLC raised their oil-price forecasts immediately after the cut, but many traders still believe a souring economic outlook will prevent prices from rising further. 

SUPPLY AND DEMAND

U.S. companies face biggest decline in profits since COVID-19 shutdowns

Earnings season has once again arrived and corporate America is facing its sharpest drop in profits since the early stages of the pandemic, with companies on the S&P 500 index expected to report a 6.8 per cent decline in first-quarter earnings compared to the same period a year ago. The gloomy outlook among Wall Street analysts belies a relatively buoyant market, so who’s right?

INVESTORS VS. ANALYSTS

FP 500 — The most authoritative survey of corporate Canada: The 2022 FP 500 is the only national ranking of the country’s public, private and Crown corporations, making it an indispensable research tool with vital data on Canada’s top companies across all sectors. Order your copy here.

Should we use the money in our TFSAs to pay off our mortgage?

Rising interest rates are a common concern for many fixed-rate borrowers whose mortgages are coming due, leaving them wondering whether they should pay off as much as possible rather than renew. Certified financial planner Daniel Perras says higher borrowing costs makes using your savings to pay off your mortgage quite attractive, but there are several things to consider since you’re essentially turning liquid money into illiquid home equity.

GET THE ANSWER

If you have an investing or personal finance question, hit us up at [email protected].

Backing up expense claims on your taxes could save you from CRA trouble

You’ve got all your receipts for the taxman, right? If you don’t, you better find them because you’ll be in hot water when the Canada Revenue Agency comes asking for proof of any expenses you claimed on your return, as one taxpayer found out. Tax expert Jamie Golombek has the details of the case and what a judge ultimately ruled.

FORGET ME NOT

B.C. couple has plenty of money, but even the wealthy need a coherent financial plan to retire

Rich people have problems, too, but the advice financial planner Ed Rempel provides for one couple trying to ensure a comfortable retirement applies just as much to the rest of us as it does to them. Do we have enough money to maintain our lifestyle? How can we pass some money to our kids in a sensible way? Where should I park the capital that’s currently sitting in guaranteed investment certificates?

FAMILY FINANCE

Ottawa is offering a 25-year, high-interest GIC: It’s called the Canada Pension Plan

Many think of Canada Pension Plan (CPP) payments as a retirement income stream, but certified financial planner Jason Heath thinks envisioning it as an investment account holding a 25-year, high-interest-rate guaranteed investment certificate is better. His argument might just change your decision on when to start receiving the pension.

PENSION REFORMED

White-collar jobs will be painful casualty of the coming AI revolution

The rise of generative artificial intelligence and its potential economic impacts have been all over the headlines lately. Economists David Rosenberg and Julia Wendling say productivity will undoubtedly receive a boost, but the displacement among many white-collar jobs is likely to be a painful casualty, meaning AI will be disinflationary just like the internet was.

A BOT HOLE

Grieving is hard enough already; banks shouldn’t make it harder

Navigating a parent’s death requires plenty of paperwork, appointments and tough decisions, all while dealing with your own grief. Janine Guenther, president at Vancouver-based Dixon Mitchell Investment Counsel, recently went through it and found dealing with the banks pretty tough even though she’s an experienced financial professional. She has some advice for bank, trust company and insurance firm leaders to make the whole process a bit more human.

A CALL TO ACTION

Recreational home prices rose between 10 and 20 per cent in 2022, depending on the province and type of property, even as urban housing prices slumped. But Phil Soper, chief executive of Royal LePage, tells the Financial Post’s Larysa Harapyn that he’s expecting cottage prices to dip by 4.5 per cent this year. “We’re seeing softer prices now, whereas in the urban markets, prices are starting to rise again,” he says.

WATCH THE VIDEO

Good news if you’re a Newcrest Mining Ltd. shareholder: Newmont Corp., the world’s largest gold miner by output, has sweetened its share-only offer to buy Australia’s largest gold producer to the equivalent of US$19.5 billion as the industry continues to consolidate. The new deal calls for each Newcrest shareholder to receive 0.4 Newmont shares for each Newcrest share held. 

Bad news if you’re a Hexo Corp. shareholder: Your shares of the cannabis company were worth more than $580 in April 2019, but now the company is being taken over by Tilray Brands Inc. in an all-share deal valued at a mere US$56 million. 

Good news if you like Canadian oil: The Trans Mountain pipeline expansion should bring higher prices for oilsands producers when it opens next year and may allow them to increase production as they start accessing new markets in Asia. “Being able to send our barrels into more markets is a big opportunity for Canada,” says Canadian Natural Resources Ltd. chief financial officer Mark Stainthorpe.

Bad news if you like bank stocks: Oracle of Omaha Warren Buffett says more bank failures are on the horizon, but troubled bank stocks aren’t value investments because shareholders are likely to be wiped out even if the government moves to fully protect depositors, which he expects the United States will do.

Good news if you’re a WW International Inc. shareholder: Shares of the company previously known as WeightWatchers soared as much as 44 per cent on April 11 following its acquisition of telehealth provider Sequence, which will help it access the growing market for new obesity drugs. Goldman Sachs Group Inc. analyst Jason English raised his price target to US$13 from US$3.80. The stock closed Thursday at US$7.35.

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