Investing judgments, opposing arguments and CRA adjustments

Good morning. I was called for jury duty this week for the sixth time, a number that astounded officials at Ontario Superior Court, but not enough to let me off. I’ve been summoned nine times, but was excused three times for already serving within the previous three years. There’s very little else you can do to get out of it, even though you won’t get paid for your time, or travel, never mind any extra costs for child care if that’s an issue for you. The court even has overpriced vending machines to make a few bucks off you while you wait.

Sitting in a room with weak Wi-Fi and sniffling people got me thinking about bigger issues we have no control over, such as inflation, Bank of Canada rate hikes, a possible recession and taxes, to name a few. All affect our financial situation more than offering the state a free week or two of labour (shouldn’t this be the domain of retirees and the unemployed?), but we still throw our hands in the air and say, “What are ya gonna do?” A change in government certainly won’t do anything. For example, Ontario under the Conservatives is spending more money than the Liberals or NDP ever did and is more in debt. Indeed, Ontario now has the country’s highest provincial debt as a share of the economy at 38.7 per cent. So much for Conservative fiscal prudence.

Nevertheless, doing nothing should not be in our DNA. That doesn’t mean investors should jump in and out of the market whenever some official opens their mouth — that’s market timing and you’ll likely fail. But portfolio manager Martin Pelletier often reminds us to review our portfolio allocations and question whether they still make sense. For example, a friend of mine refuses to invest in oil companies, partly because of their choppy history and partly because he’s a bit of a greenie. But he also likes dividends, which the energy patch has been throwing off in spades and will likely continue to do so throughout 2023 even though oil prices will again be volatile. WTI will average US$80 a barrel this year, according to Deloitte’s latest forecast, while Western Canadian Select will average $74.30 per barrel.

On the other hand, let’s realize decarbonization is not going away. Bert Clark, chief executive of the $70-billion Investment Management Corp. of Ontario, calls it a “long-term powerful investment trend. It’s going to create a big mess and big opportunities for investors.” But in the meantime, oil companies, given that they aren’t spending much on capital projects, will keep paying off their debts and returning money to shareholders. Is a little greenness worth losing out in the near term while preparing for those longer-term opportunities? Your choice, but understand why you’re doing it and be comfortable with your decision.

Here’s another example of how things change. Canadian banks for years offered safe, dividend-paying stocks with some price appreciation, certainly enough to thwart a few Great White Shorts. But 2022’s 13.6 per cent drop by the big banks was the fourth time in the past five years they have lagged the S&P/TSX composite index in price performance (not including dividends), so investors may want to rethink their blind faith in the sector given the myriad challenges they face, including a cooling housing market, shifting credit cycle and rising capital buffer requirements. National Bank of Canada analyst Gabriel Dechaine has revised his target price for the big banks (he does not follow his own institution) down by an average of five per cent for 2023, with only Royal Bank of Canada rated as outperform.

Markets change, industries change, companies change. Tesla Inc. once looked like a sure-fire hit, but now Ford Motor Co. is taking market share and Tesla is having trouble selling cars. What looked like a good investment a few years ago might look pretty bad today if you can get past your biases — and vice versa.

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].

5 current investing themes and what the opposite trade looks like

Every stock, bond, commodity or cryptocurrency you sell has an equal and exact opposite opinion on the buy side. If not, no trade occurs. That also applies to market themes such as the end of easy money or the demise of Big Tech. Investors who take the opposing view to the crowd can often make big returns, but it takes some guts to be a contrarian. Veteran investor Peter Hodson looks at five current popular themes, and what the other side might be seeing.

SWIMMING AGAINST THE TIDE

Take care, the last time the greenback did this, the tech boom blew up

The strength of the United States dollar has been one thing investors could count on lately, but portfolio manager Martin Pelletier says the current market situation looks a lot like what transpired during the 2000 technology rollover when the dollar declined. If you invested in the S&P 500 from January 2000 to January 2008, your return would have been essentially flat. As a Canadian investor, you would have lost more than 31 per cent in currency exchange. Could it happen again?

KEEP AN EYE ON THE GREENBACK

Fall in tech stocks in 2022 helps fuel recovery for short sellers

Short sellers earned aggregate profits of US$300 billion by betting against United States stocks such as Tesla Inc., Amazon.com Inc., Apple Inc. and Facebook owner Meta Platforms Inc., partly reversing a US$572-billion loss between 2019 and 2021, according to S3 Partners LLC. The revival of the short strategy suggests stock pickers could reap outsized returns in the coming years now that individual companies and sectors are plotting more diversified paths rather than rising higher in unison.

BEWARE THE SMALL MAN

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5 technologies that might define the next decade

Decades are often defined by their technological advancements, and the next 10 years will likely be no different. Economist David Rosenberg and his team outline five areas where we might find the greatest opportunities for such advances. From improving water supplies to food security, their chosen technologies have, in general, the potential to meaningfully improve our overall quality of life and perhaps your portfolio.

STEP INTO THE TIME MACHINE

Investors look for green ways to cash in on battery metals boom

Mining companies — even those that dig up battery metals — are not traditional darlings of the environmental, social and corporate governance crowd. This is causing a wrinkle for investors seeking to profit from the demand for commodities used in the clean-tech sector while minimizing exposure to environmental or human rights issues.

IT AIN’T EASY BEING GREEN

We’re all obsessed with inflation and the latest reading in the United States gives a glimmer of hope that pricing pressures have peaked. The core consumer price index (excluding food and energy) rose 0.3 per cent in December and 5.7 per cent from a year earlier, according to the U.S. Labor Department. The overall CPI fell 0.1 per cent from December and was up 6.5 per cent from a year earlier. But the initial selloff in U.S. stocks following the report on Thursday shows investors were hoping for even softer readings, though the major indexes rose slightly by day’s end.

Is there any advantage to continuing CPP contributions after age 60?

After working for almost 40 years for someone else, a reader is now self-employed and wondering if there’s any advantage in continuing to pay into the Canada Pension Plan for the next five years. Certified financial planner Allan Norman points out he doesn’t have a choice since you can only opt out of making CPP contributions after you turn 65. Even worse, the self-employed must make both the employee and employer’s contributions, for a total of $6,999.60 per year. But it’s not all bad.

GET THE ANSWER

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

The CRA is cracking down on ill-gotten COVID-19 payments as this taxpayer found out

The federal government’s six pandemic aid programs doled out a total of $210 billion to individuals and corporations, but the auditor general has noted the Canada Revenue Agency’s “lack of rigour” in identifying and recouping potential overpayments. The CRA has sent 825,000 debt notes to taxpayers it suspects received ineligible or excess payments and is winning court battles when people protest. Tax expert Jamie Golombek has the details of how one taxpayer lost his day in court.

WHEN IT’S NOT BETTER TO RECEIVE

Top six ways to improve your finances this year

Broken your new year’s resolutions yet? Yeah, me too. But one we should probably stick to is improving our financial position, especially since that has knock-on benefits for years to come. Debt counsellor Sandra Fry offers her top pieces of advice to reduce our costs, get us out of debt and save up enough funds to prepare for whatever comes next.

SIX DEGREES OF PREPARATION

Good news if you own Canaccord Genuity Group Inc. shares: Its management group wants to take the firm private in a $1.13-billion deal. The offer represents a 31-per-cent premium to the closing price on Jan. 6 and a 42-per-cent premium to the volume-weighted average from the previous 20 days, but it’s not much higher than the company’s initial public offering of $10.25 in 2004.

Bad news for technology shareholders: The sector is shedding tens of thousands of jobs, but Ashwin Alankar, head of global asset allocation at Janus Henderson Investors, says tech shares could see an additional 20 per cent drop in a worst-case scenario. “(Layoffs) tells me demand is much worse than the market expects, which suggests (earnings) multiples need to contract more,” he says.

Good news if you like bonds: Pacific Investment Management Co., which oversees roughly US$1.7 trillion in assets, says a recession could further challenge riskier assets such as stocks, but it continues “to see a strong case for investing in bonds, after yields reset higher in 2022 and with an economic downturn looking likely in 2023.” Of course, Pimco is always bullish on bonds, but it advises investors to consider inflation-protected notes and United States core bond funds that yield 5.1 per cent or higher.

Bad news for just about everyone: Almost 30 per cent of Canadians say their finances deteriorated in December, an increase of five percentage points from November, according to the latest Maru Public Opinion monthly household outlook index. Only 11 per cent say their financial position improved, down from 14 per cent.

Good news for home sellers: Home prices and sales are expected to bottom out in the first few months of 2023, says Rishi Sondhi, a Toronto-Dominion Bank economist. This will likely coincide with a pause in Bank of Canada interest rate increases, which TD thinks will happen after one more hike in January. All told, prices are expected to decline 20 per cent from their peak.

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