Monthly Debrief May 2024
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
[CIBC Private Wealth Logo
Monthly Debrief
May 2024]
Leanne: Hello and welcome to May's monthly debrief. My name is Leanne Mamchur and this is all the information that I either read or listened to or heard in person from our underlying analysts, the institutional portfolio managers or the economists that I listened to that I thought would be relevant to share with you. Alright, let's jump in.
[CIBC Private Wealth Logo
Image 1: Two girls cuddling the dog
Image 2: Picture of the new fur-baby: Max
Introducing our new fir-baby: Max (…tacquito)]
Leanne: The very first thing I have to do is share our new little fur baby. I've never owned a dog and so this is a new experience for me. And so we welcomed Max into our home this month, and so I thought I would share a little picture of him there
[CIBC Private Wealth Logo
Image: Cover Image of the Book “Behave Boldly”.
Image Background: Women’s Executive Network Event Flyer]
Leanne: Alright, and the other thing that I did this month was I attended one of the Women's Executive network events and we got the pleasure of hearing directly from the author Elise on her new book Behave Boldly. And Elise is right here in Calgary and it was great to hear her speak and she's so inspiring and so I really enjoyed that event.
[CIBC Private Wealth Logo
Economics
- Continued expectations of economic growth
- Possible US slight deceleration
- Recessions risk around 35%?
- 3 x normal, but dropping
- Possibly best outcome
- Mediocre economy?
- Not too hot, but not too cold?]
Leanne: Alright, so onto economics. So on the economic side we are expecting continued economic growth, but slightly less. It's slightly decelerating a bit, and so the recession risk is still sitting at around possibly 35%, maybe creeping to 30%, which is actually three times the normal level. But as you can see, and if you've been listening to these monthly calls, we are dropping that recession risk. And so it is still elevated comparatively to normal, but we are anticipating perhaps we get that perfectly nice soft landing. Maybe the best outcome for an economy like this might be mediocre growth. Now the reason why that might be something that would be good for us at this moment is because if we get too overheated, we're not going to see those interest rates be able to come down because the economy is just too excited. And also if the interest rates stay high too long and we see too much economic damage from that, then we might have an economy that slows too fast and too quickly pushing us then into recession. And so maybe just kind of like edging, continued positive return or positive growth in the economy would be our best bet.
[CIBC Private Wealth Logo
Strong Investment Tailwinds
- Business Cycle
- Likely a continuation of prior cycle?
- Arguments on both sides
- Data possibly points more to a continuation
- i.e.) Labour, growth, etc.
- If a continuation, maybe a few more years of growth
- Mid to late Cycle?
-2 to 5 more years? ]
Leanne: Okay, so business cycle, there's been a lot of arguments on both sides as to is this a new business cycle or is this just a continuation of our previous business cycle? And there's probably more data points that are pointing towards a continuation of the previous business cycle, but it's really hard to tell Usually when a business cycle is ending, we do have that Recession, we do have that weakness and we're just not seeing that in the growth rate in the labor market and that type of thing. And so we are somewhat thinking that it's going to be just a continuation. And if it is a continuation, we may still see a couple more years of growth. We may, because we've had a little bit of growth up until this point, we might be mid to late cycle, so maybe two to five more years somewhere in there. But it could create that soft landing and then continue the upswing of the bull business cycle or the bull market or what have you.
[CIBC Private Wealth Logo
Inflation
- Stickier than perhaps preferred
- No further drop = hard to adjust rates downwards
- A few of the inflation culprits:
- Service inflation including insurance increases
- Shelter costs
- New orders, etc.]
- Ideal
- Continued deceleration in growth (but positive) and maybe a moderate economy?]
Leanne: And so on the inflation, and this is part of the reasoning as to why we're seeing rates still quite high, is inflation is proving to be a little stickier than what we would prefer. Now if we don't see any further drop in inflation and the inflation rate coming down, it's really hard for central banks to justify or to put rates downwards.
And so we'd like to see rates coming down, but inflation almost has to start to come down a little bit or further first before they really have the appetite for that. Some of the inflation culprits have been the service inflation, including insurance costs. And so I'm not sure if you have recognized, but some of the insurance costs are really increasing in value and partly because the asset values have increased. And so to ensure those asset values, it's that much more expensive. But also it's difficult for insurance companies right now because they do have more claims and more losses and more natural disasters and things like that. So that's part of the reason and part of the inflation culprits there. And also we have shelter costs and new orders, et cetera. So they're all kind of playing into our inflation numbers and where they're at. And as I mentioned before, the ideal might be continued deceleration in growth, but remaining positive and maybe a moderate economy going forward.
[CIBC Private Wealth Logo
Interest Rates
- No change in rates, status quo
- Expectation to push out rate drops slightly to ensure this has right sized
- Maybe late summer now and into the fall?]
Leanne: So onto interest rates, there's really no change here, but one thing that has been mentioned is that maybe interest rates are going to start to change or drop a few more months out as opposed to when we were initially thinking. And so maybe we're looking at late summer now and maybe potentially into the fall before we see that first or rate decrease.
[CIBC Private Wealth Logo
Equities
Graph: Equity Chart
Source: Bloomberg as of May 6, 2024]
Leanne: So this is your equity chart, this is the daily pricing, and this is as of May 6th. I'm recording it on May 8th actually, but I did the slides on May 6th. And so you can see here a nice little bump up at the tail end there that represents the month of May.
[CIBC Private Wealth Logo
Equities
Graph: Equity Chart (Bigger version)
Source: Bloomberg as of May 6, 2024]
Leanne: And so let's take a look at how that looks on the big picture here. So this is the month over month data spanning all the way back to 2019. And so you can kind of see that dip there over here, 2020 and then the rapid increase and then the bobbing. So we saw a lot of bobbing and then just recently we've had this nice little tailwind up and this is partially to do with the expectation that we might have that perfect soft landing.
[CIBC Private Wealth Logo
Equities and Fixed Income
- Likely best to continue to hold both categories going into the next few years
- Both likely to provide reasonable returns
- Including some upside in both cases]
Leanne: Okay, I'm going to be really quick on equities and fixed income because realistically at this moment both categories are a good spot. And of course I don't typically mention the alternatives, but the alternatives also play into this in a well-balanced portfolio. But it's likely best to continue to hold both of the traditional categories, both your equities as well as your fixed income. So if we have a little bit more lag of this business cycle whereby we can see continued growth and continued economic movement, equities is a nice place to be. And then also fixed income because rates are so high, you're getting paid to wait in the fixed income, but you're also, there's a built-in capital gains mechanism that you could realize in your fixed income as well.
So both of them are likely to provide quite reasonable returns and some upside.
[CIBC Private Wealth Logo
Tax Considerations
- Capital Gains Inclusion Rate change:
- Hard pill to swallow
- Not clear on whether this is even good medicine – unlikely
- What Changed?
- Inclusion rate increased to 2/3rds (66%) instead of 50%]
- Personal exemption 1st $250,000
- Impact:
- Increased hardship for small business owners (no exemption)
- Due in part to treatment of passive income, might be harder for individual business owners to reclaim their RDTOH?
- Public corporations
- Less cash for dividends?
Sources: CRA Website (Canada Revenue Agency) https://www.canada.ca/en/revenue-agency.html]
Leanne: And the reason why I was short on that one was because I wanted to get into these tax considerations. So we had the federal budget come out and there was a big announcement in my perspective anyways, I guess I'm biased on this side, but about the capital gains inclusion rate. And it was a hard one, it was a one to hear about and to understand the reasoning as far as the change in policy as far as from a small business perspective in particular. And again, these are things, I'm not an accountant, so these are things that you should chat with your trusted accountant about. But the capital gains inclusion rate was changed and we're not clear on whether it is good medicine for the economy. It's really hard when taxes are increased to continue to have a good and strong economy.
Having said that, there's government programs that needs to be paid for. Now what has changed the inclusion rate has been increased to two thirds, so around 66% instead of our original 50%. Now, there is a personal exemption that was written into the budget whereby the first 250,000 of capital gains in any one calendar year is exempt on the personal side. Now, where the impact comes in is that it's increased hardship for our small businesses and small business owners because there is no such exemption on the small business side or even in the trusts side that we can read. And it's a question mark now as to how easily the small business owners will be able to reclaim some of their refundable dividend tax on hand or R-D-T-O-H. And so then there's some question marks still on this policy, and we're going to really rely on the accountants to kind of give us the advice pieces here as to what to do.
If you are a small business owner, you have a corporate account or a holding account where you've housed a lot of your investments, what should you do as far as claim the capital gains right away before the rule change on June 25th or should we defer? And so that's going to be a question mark and there's lots of discussion going on. Now the other impact I wanted to make mention is on public corporations. And so when a company has to pay more taxes, they have less cash available to pay out for dividends. And so this is really going to affect even personal investors because there's just going to be less cash available.
[CIBC Private Wealth Logo
Tax Considerations
- Impact Continued:
- Second properties
- Many Canadians own second properties and eventually these will be sold
- Lots of them will have more than a $250,000 capital gain
- Estate considerations and impact
- Deemed disposition and may be taxed on large unrealized gains at that time
- Becoming a Non-Residents
- Possible deemed disposition
Sources: CRA Website (Canada Revenue Agency) https://www.canada.ca/en/revenue-agency.html]
Leanne: Now, let's take a look at a couple more impacts. Many, many Canadians own a second property and if you have a second property like a cottage or something like that, it may eventually need to be sold or it may be deemed disposed. And so lots of them are going to have more than the $250,000 worth of capital gains. So this can impact on the personal side as well in that circumstance. Now another consideration would be on the estate side and the deemed disposition, because everything comes to being deemed disposed in a passing if you don't have that rollover to a spouse or anything like that. So deemed disposition, you may be taxed on the large unrealized gains at that time. What we're thinking is that's going to be an opportunity for some planning. If you can anticipate then if you're getting up there in age or what have you, might choose or contemplate with your trusted accountant whether to start incurring some of those gains if you have a lot of unrealized capital gains that you are sitting on. And so then, because again on the personal side there's a $250,000 exemption.
So if you say you have a million dollars, you might spread it over four years, thereby receiving that 50% anyways. These are all kind of tax ideas and tax strategies that you're going to want to talk about. Now, the other thing that it might impact is when you become a non-resident or if you do become a non-resident. So there's some possibility of deemed disposition at that time as well. And so lots to chew on that change.
[CIBC Private Wealth Logo
Interesting Perspectives
- Lot of discord
- Regarding the built-in windfall of additional income tax expected from planning prior to the change (in the billions)
- Deadline June 25, 2024
- Hard to plan before legislation is officially passed
- Potentially use elective claim instead of buy/sell?
- Potentially - deadline moved fwd?
Sources: CRA Website (Canada Revenue Agency) https://www.canada.ca/en/revenue-agency.html]
Leanne: Okay, so it's an interesting perspective. I've been hearing a lot of interesting perspectives on this. A lot of the accountants are looking at it now that tax season is over, A lot of them are talking about it with their clients and there's lots of discord as far as the feelings from Canadians as to the built-in windfall. As an example, I've been hearing of some additional income tax because there is this deadline of June 25th.
So it's a question of do we plan and incur those capital gains ahead of this deadline or do we defer past the deadline? And so it's really hard to plan before legislation is officially out. And I did hear also that there might be a potential to use an elective claim instead of doing the buying and the selling transaction. So in the corporation, there might be something like this that you'd want to talk to your trusted accountant about. And also I've been hearing a little bit or a little bit of chatter about the potential of the deadline of June 25th, maybe being pushed a little bit maybe to the end of the year. But this is just chitter chatter. It's not confirmed in any way.
[CIBC Private Wealth Logo
RESP - Canadian Learning Bond
- Auto RESP Set-up?
- Discussions for government to set-up RESPs on behalf of lower income families
- Aiming to have children receive the Canadian Learning Bond who may not have otherwise
Sources: CRA Website (Canada Revenue Agency) https://www.canada.ca/en/revenue-agency.html]
Leanne: Okay, so one thing that I heard about that I really liked was that the government is aiming to allow the setup or the automatic setup of RESPs.
The Canadian learning bond is a benefit that our government offers that is available to lower income families. But the issue has been that the lower income families sometimes don't actually go forward and set up the RESP. So thereby those children have not been receiving the Canadian learning bond. So there's been requests to the government to make this more of an automated process and they were listening and they have started to make this change. It might take a couple of years to come into fruition, but that was a really nice positive thing that I heard this month.
[CIBC Private Wealth Logo
New CRA Online Portal
- Pain was heard
- New approach rolled out whereby there is a simply upload of your government issued ID
- Possibility can be done instantly with your trusted Accountant
- Easier method to provide authorization for your Accountant’s access
Sources: CRA Website (Canada Revenue Agency) https://www.canada.ca/en/revenue-agency.html]
Leanne: And then finally, I've been hearing really good things about the new CRA online portal. There was a little bit of pain to get somebody online, especially if it was a little challenge or if the person had a little challenge on the computer. And so CRA rolled out a new approach whereby you actually are able to upload government issued ID directly and then you can get instantaneous or it sounds like instantaneous access to this portal. And one of the things that some accountants are considering is potentially doing it right directly with the client. So that is an easier method than trying to have the client go through it on their own. And it's an easier method to potentially getting that accountant to have access to the portal to do their work, to look at things and
That of thing. So that's a plus on the CRA side as far as the tech side.
[CIBC Private Wealth Logo
Monthly Debrief
May 2024]
So, alright, so those are the things that I read this month and that I wanted to share with you. I hope you enjoyed the debrief and I hope to see you next month. Here's our disclaimer
[This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2024.
Leanne Mamchur is a Senior Portfolio Manager with CIBC Wood Gundy in Calgary. The views of Leanne do not necessarily reflect those of CIBC World Markets Inc.
“CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.
The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.
™ CIBC Wood Gundy Investment Consulting Service is a trademark of CIBC World Markets Inc. CIBC Wood Gundy will be responsible to CIBC Wood Gundy Investment Consulting Service clients for the advice provided by any Investment Manager. The ICS Program Manager, CIBC Asset Management Inc., is a subsidiary of CIBC.
The contents of this communication are for informational purposes only and are not being provided in the context of an offering of any security, sector or financial instrument, and is not a recommendation or solicitation to buy, hold or sell any security.
Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.
If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor/Portfolio Manager.]
Introduction to Corporate Philanthropy
Introductory to a 3-part series that provides an overview of the tax benefits of charitable giving. Email leanne.mamchur@cibc.com for the full series.
[On screen: CIBC PRIVATE WEALTH
Corporate Philanthropy
Strategically Giving Back
from the desk of
Leanne M. Mamchur, CFA, CFP, FMA ]
[On screen: Leanne M. Mamchur presents with a warm and engaging demeanor. She has shoulder-length dark hair with glasses and is dressed in professional attire, suggesting a businesslike and approachable manner. ]
LEANNE M. MAMCHUR: Hi. Today we get to talk about one of my near and dear topics, which is philanthropy. I know I say that word not quite right, but giving back. Basically, strategically giving back. To stretch your dollars longer and further than you could otherwise do. There's strategy behind it. First off, I think that anybody's listening to this is already doing great because they're thinking about corporate philanthropy and philanthropy in general. I think that we can all give so much back to each other and society and those less fortunate.
I feel as though that's a very good start in the right direction. I wrote an article related to this, and it's called Corporate Philanthropy, Strategically Giving Back. The reason why I wanted to write the article was to give people the concept or idea of trying to expand what they're already intending to do through creative ideas. With Canadian law or the Canadian revenue agency, there's some incentives already built in, especially for corporations, if they were to consider to do charitable donations. Let's dive in.
[Text on screen: CIBC PRIVATE WEALTH
Giving Back to the Community
• • Important objective
• • Both time and money
• • Benefits to humanity
• • Improves donor's quality of life ]
LEANNE: Giving back to the community. This is just the intro video, but basically, it's such an important objective for so many people and so many private clients that I work with. It just fills the bucket of joy within their heart. They give both, it's not just money side, they also are so generous on giving their time and as well as their money. Then they are part of the boards, they're part of fundraising campaigns. They're part of events, they're coordinating events. They're doing all sorts of wonderful things for the community, and I very much applaud them.
[Text on screen: CIBC PRIVATE WEALTH
Improves Donor's Quality of Life1
• • Greater contentment, joy and community
• • Conversation around gifting – enhance family bond ]
LEANNE: They're also sharing. They're sharing their hard-earned money with ventures and charities that are important to them. It's a huge benefit to humanity in having that ability, but it also very much improves the donor's quality of life. It's interesting because there's an article written about how much it improves the donor's quality of life. They get joy from the act of giving. Sometimes somebody might give you a present for your birthday, and you feel bad about it, but you have to just remember that they are getting joy from the ability to gift you something.
That goes the same way for charity and so greater contentment, joy and they also have a sense of community. You can't underplay, especially over these last two years. I'm recording this in 2022, but the last two years of isolation and COVID, and all the trauma that that has caused, the sense of community is very important. To get that back is huge. The other thing I guess would be the improvement of a donor's quality of life in the way that it changes a family and it changes a family dynamic if you want it to.
Some people really like to be anonymous in their donations and don't share anything with the family, but other people really want it to be a lasting legacy. Then they create that ability so that kids can be part of the conversation or nieces or nephews or whomever in the family, and then it creates these family values that just don't exist without this type of structure and strategy. I shouldn't say that they don't exist because they probably, they might in the background, but it just enhances them, I guess, more than anything.
[Text on screen: CIBC PRIVATE WEALTH
World's Major Philanthropists
• • Bill and Melinda Gates
• • Warren Buffett
• • Oprah Winfrey
• • Michael Jordan
• • Serena Williams
• • J.K. Rowling (Harry Potter)
• • Jeff Bezos (former CEO of Amazon) ]
LEANNE: You get an enhancement of family values through this process. Some of the world's most famous philanthropists are listed here on the screen. I'm sure you recognize lots of these names. One of the things that I was noticing when I was researching this, was where are all the Canadians in that list? I know that. I know certain families, and on the private client side that are incredibly generous with their funds and their time. I encountered an article written by Dene Moore, and I know that it's not Demi Moore from Ghost, which is one of my favorite movies.
[Text on screen: CIBC PRIVATE WEALTH
Where are the Canadians?
Article written by Dene Moore for Canadian Family Offices2
• • Quiet way
• • Request for anonymous donation
• • Tend to make donations over time
• • I.e.: Rogers Family Foundation, Weston Family Foundation, etc. ]
LEANNE: Anyways, so Dene Moore for the Canadian Family Offices, or wrote an article for the Canadian Family Offices. It outlines how Canadians are just a little bit more anonymous in their donations, and you get just as much pleasure for being anonymous to being loud. We're more doing our donations in a quiet way. Sometimes when we're doing a donation to a certain charity, people request anonymous donations and so they don't want their family foundation named. They don't want themselves named. You have that ability to stay anonymous but still be giving back.
Other people want to use their donation as a representation of what they would like other people to do in the corporate side. By not being anonymous, sometimes they're trying to encourage others to follow suit. I myself have set up a family foundation, and my husband and I, and I feel as though that it's a really great thing to share because I think that more people could do that type of thing. I'm less on the quiet side, I suppose, even though that I am full-fledged Canadian from Saskatchewan.
Then I feel as though that there's all sorts of different ways of doing it but good examples are Rogers Family Foundation, the Weston Family Foundation here in Canada. Canadians are extremely generous with both their time and their money. The majority of private clients get to a stage, and especially if they're very, very successful. They typically get to a stage where they're almost compelled or called to give back.
[Text on screen: CIBC PRIVATE WEALTH
Corporate Philanthropy
Short Three-Part Series
• • Tax Benefits of Corporate Charitable Giving
• • Strategically creating a Family Foundation
• • Advantages of using Life Insurance Policies ]
LEANNE: It's almost like an inner drive that they have through their success that they want to share, which is lovely. It's beautiful. With corporate philanthropy, I broke this topic into three separate series, so that if you wanted to just watch one or you just have limited time, you could just click play and just hear about one specific topic. I wanted to break it down just a tad, but these are the three parts that I'll be talking about in the next three videos.
It's the tax benefit of corporate charitable giving, the strategy of creating a family foundation or the consideration of doing that, and the advantage of using life insurance policies in a corporate sense to again, enhance what you are able to give. With that, I'm going to turn to notes and references and then followed by a disclaimer slide. I hope that you'll join me in the next three series as I go through and delve into the topic a little bit more. Thank you.
[Text on screen: CIBC PRIVATE WEALTH
Notes and References:
Notes:
1 - https://link.springer.com/article/10.1007/s10902-020-00242-8,
Lawton, R.N., Gramatki, I., Watt, W. et al. Does Volunteering Make Us Happier, or Are Happier People More Likely to Volunteer? Addressing the Problem of Reverse Causality When Estimating the Wellbeing Impacts of Volunteering. J Happiness Stud 22, 599–624
(2021). https://doi.org/10.1007/s10902-020-00242-8
2 - https://canadianfamilyoffices.com/philanthropy/biggest-canadian-philanthropists-give-in-a-more-quiet-way
Biggest Canadian philanthropists 'give in a more quiet way'
Author of the article: Dene Moore • Canadian Family Offices
Publishing date: Aug 05, 2021 ]
[Text on screen: CIBC PRIVATE WEALTH
Disclaimer:
CIBC Private Wealth Management consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. Insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc.
“CIBC Private Wealth Management" is a registered trademark of CIBC, used under license. "Wood Gundy" is a registered trademark of CIBC World Markets Inc.
Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.
The views of Leanne Mamchur do not necessarily reflect those of CIBC World Markets Inc. The information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.
"CIBC Private Wealth Management" consists of services provided by CIBC and certain of its subsidiaries, through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. ("CAM"); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. ("WMI"). CIBC Private Banking provides solutions from CIBC Investor Services Inc. ("ISI"), CAM and credit products. CIBC Private Wealth Management services are available to qualified individuals.
If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor. ]