Monthly Debrief March 2023
Our Monthly Debrief video is a summary of all the information that we would like to share with you in an effort to provide an update.
Hi and welcome to March's monthly debrief. This is all the information that I read or listen to heard from analyst, porfolio managers throughout the month and I thought that I would share with you all right before we jump in big news for my girls as they got their ears pierced but Delia in fact only got 1pierced because when it came to the second one, she just didn't want you. And and we decided, you know, what is your body if you want to have one of your pierced? That's fine. So she has one earring, she's sporting a new style and also I took a trip to Arizona and I finished one of the books as part of the Wealth Confidence Series. So I'm very excited for its launch coming out in September and so and it was a very beautiful vacation although it was a lot of work to kind of put the final touches on it. So okay, let's jump into economics. The recession is still very much likely coming this year and the probabilities still sitting at around 70%, but oddly was happening. Is that the indicators are still pointing in opposite directions. In particular, labor is quite positively in the US unemployment rate came in at the lowest level since the late sixties but whereas we have consumer sentiment that are that is very, very negative, as unemployment is very positive for employment situation is very positive and then we have the consumer, translating amongst other indicators as well as far as the contradictory nature of that having said that it is still pointing. It's really hard to imagine a scenario whereby we could avoid a recession and a little bit of a correction along the way. Okay, another thing that economically that we're starting to see and it's being developing and percolating. Is this term Friendshoring. Friendshoring and so Friendhoring is is a form of De-globalization. And so one of the efficiencies, as it does as a world that we enjoyed over the last little bit is globalization through the countries that are most efficient at producing something will be where we asked them to produce it. Versus now we have to consider some Geo-Political threats and things like that cropping up and so then it might not be all about efficiency anymore and what it might be in terms of where is it, where is the country going to be more friendly. We had some, we saw some supply chain issues and so one of the benefactors I would say is Mexico of this trend as so then Mexico has a fairly friendly country if you think of both North America. And so we're seeing some Friendshoring into Mexico. Now Friendshoring isn't as efficient as as full-blown globalization. So what this is going to cause this is going to cause us to have a little bit of increase in our prices and continued increase in our pricing because we're just going to be a little bit less efficient. As a global economy. Supply chains, as I was mentioning their a little bit more vulnerable than originally estimated. And that's why Friendshoring is likely to continue into the future here, okay So let's take a look at equities over this month. And so the kind of maroon color is representing Canada, and the blue color is representing the US. Let me just move out of the way here. And point over here. because this is the end of the month here. So you can see some of it coming. But some of it coming back down here, the end of the month here. Now, I'm recording this fairly late because of the vacation. And so, I'm recording this on March 13th as of this is part of this chart because of, as of March 10th is showing into March. Just so you know, Okay, so if you look at it on a month-to-month basis and again, I'll just kind of duck out of the way there. And so if you look at it on a month-to-month basis, you can see some of the bobbing at the end at the end at the end over here. And so, then we're expecting continued volatility in the market. We're not anticipating this volatility to reduce and so just expect to continue to see this bobbing. So increase decrease, increase, decrease and kind of bobbing way, until we have the real correction. Although, the correction is may be coming in the next couple of months. Remember that markets are forward-looking and much of the pain that we would be anticipating an irregular recession has already really frankly being priced in it and it's really hard to see any way that equities are going to come out of this without any sort of Correction and maybe we're looking at another 10 to 15. Percent down to the negative before we start seeing a really, really nice recovery into the next bull market. And so, the expectations for this year, if you look at it in aggregate is still looking at about mid-single-digit return, but that's after it comes down and then does recover from there, but we are going to see continued volatility as I mentioned. One of the things to keep in mind is during a market downturn, and we seen a lot of pain already. and there is still a little bit more pain likely to come. But during a market downturn, it is a very good opportunity to put Capital to work. And so a lot of people at this moment, I almost feel as though that they should shy away from the market, but it's it's really quite the opposite that you should do at this moment. And and you can really benefit from the uptick because once all of this clears out, we're really headed likely headed for a very nice recovery in a nice uptick. Okay, onto interest rates, we continued to see a pause for the Bank of Canada and we are very likely going to continue to see this. Pause, they're not going to do knee jerk reaction. There's not going to be any drastic action at that we're anticipating and it's going to continue like this over the next few months. Now, one of the things that we were originally anticipating was that the interest rates would correct a little bit in the tail-end of this particular year, given everything is a little bit delayed. We're now pushing that expectation into early 2024. Before we start seeing interest rate really come down from these levels, okay So the fixed-income side of the portfolios are really pegged to keep portfolios afloat. During the time where we're going to see that little bit of an equity correction during the recession. Now return and attributes of bonds, and your fixed-income have really returned to their typical characteristics. Whereby when the equities are dropping likely. The fixed-income is going to stay afloat because they were moving in tandem for a while there and that's where we really did. See the worst bond market in over forty year period. But they're very well positioned now to take advantage of a fairly strong period. Now, this is a little bit of a chart and I'll just move out of the way here. But with yields now higher, because you can see the yields right now or quite a bit higher. So once again, they're providing a little bit of a diversification benefits and so I would say not like, don't look at historic return specially now in judging where you should be at in your portfolio, don't discount Bonds, bonds are going to be a very powerful tool especially where the yields are and what you're getting paid to wait. And then once these yield that are really quite High start to reduce, you're also going to be a little bit of a benefit or an uptick in your bond pricing, which is going to be a nice lift to the portfolio, Ok, on to inflation. Sticky but waining, given the hard stance of Central Bank and the staying power of central banks. Our expectation is absolutely and I shouldn't say absolute any absolute. But our expectation, is that it is will continue to drop in the direction of back to semi-normal. 2% - 3% arena. Central banks aren't going to likely budge on interest rates until this correction happened because they aren't happy with having inflation this high. So we are anticipating that that gets corrected. Lastly on to some tax considerations just as an FYI, the prescribed rate interest is pegged to increase to 5%. That is the fourth consecutive increase that we've seen and its adjusted on a quarterly basis. And this adjustment going to be as of April 1st. Now prescribed rate impact some of the strategies that you might do when you're doing a spousal loan or prescribe rate loan into a Family Trust. That sort of thing. This strategy has really gone by the wayside as probably not have been advantageous at this stage and probably in and around 3%. prescribed rate now it's sitting at 5%, but around 3% there, sorry, you lose. most of the benefit of this strategy. So it is probably not something that likely, your accountant will be recommending. I should preface anything with tax considerations. we would always recommend to that you discuss this information with your trusted accountant. Lastly, I just wanted to mentioned your underused housing tax. This is something just to be aware of the filing requirements and this can even hit things like trust and private corporations, partnerships So this is maybe something. If you're in that scenario, or if you're in that boat, you might want to ask your accountant. Whether this applies to you. The deadline for filing is April 30th And there's fairly stiff penalties for failure to file. I think it's something like $5,000 personally, and $10,000 for each Corporation and even if there's no taxes owed. So you just have to be really careful about this and ask your, your trusted accountant about this one. All right, that's it for our March monthly debrief. I hope you'll join me in the next one.