A guide to money management: Who should handle your nest egg?


Our firm was featured in The Globe & Mail this week as one of recommended choices for potential financial planning choices.


By Dianne Maley at Globe & Mail

At age 59, Anne-Marie is at a turning point. She and her husband ran a business for decades before it closed, and he recently died. She sold the family house in the city to free up some cash, then moved to a small town and bought a condo.

With the house sale, her retirement savings amount to $1.1-million, and she wonders what to do with that sum.

Anne-Marie is a composite of a number of men and women who have written to The Globe and Mail’s Financial Facelift feature seeking advice.

Where should someone like Anne-Marie look for advice, and how much should she pay for it? Who should handle her nest egg and help her invest it? The options are many for those with larger sums of money, and they can be confusing. While a robo-advisor could work for her, older people can be less comfortable with technology and likely to need more in-depth financial planning.

Read the full article here

The consumer may be all the U.S. economy has going for it


By Bryden Teich – this article appears in the Globe and Mail

The September jobs report released last week served as an important milestone for the U.S. economy. We have now had 72 consecutive months where the U.S. economy has added jobs. In this time, more than 14 million jobs have been added – the equivalent of 200,000 jobs a month for six years. By all accounts, this suggests that the U.S. economy should be firing on all cylinders.

In light of this, why has the U.S. consumer not kicked into high gear to power the economy forward? Well, the data shows that the U.S. consumer is already in high gear. It may be the only thing that the U.S. economy has going for it.

Economic growth is measured by the sum of consumption, investment, government spending and net exports within an economy. Economic theory would tell you that seven years into an economic expansion, you should expect a broad-based contribution to growth. Seven years on from the Great Recession, this is not the case.

If we dissect each segment of the U.S. economy, we start to recognize some worrying underlying trends. Let’s pick on exports first. A strong U.S. dollar and weak global demand do not provide a good backdrop for growth in exports. Net exports have been negative in eight of the previous nine quarters. With the U.S. Federal Reserve inching toward raising interest rates, one can expect the U.S. dollar to remain strong. A strong dollar combined with a weak global growth scenario is not a conducive dynamic to growth in exports. Cross out exports as a source of growth.

Next, let us look at inventories. The data shows us that the U.S. economy is sitting with the highest inventory-to-sales ratio since 2009. At times in the past, an increase in this ratio would be viewed as a recessionary indicator. However, this is not always the case. Despite the drag on the economy that changes in inventory levels have caused, it has not been enough to push the U.S. economy into recession. One should pay close attention to the inventory liquidation cycle to come over future quarters, as this could have implications for corporate profitability.

Business investment also remains low. In a slow-growth world, corporate executives become more cautious and defensive about making long-term business investments. This has been a key contributor to the push toward share buybacks, as opposed to capital expenditures and long-term investment. If you are unsure about economic growth, you will be inclined to buy back your shares or conduct mergers and acquisitions activity as a source of earnings growth.

The collapse of commodity prices and the billions of dollars of capital expenditure and investment plans that were scrapped have also served to limit business investment in recent quarters. An increasingly hostile regulatory environment and a shift toward populist politics also provide a negative backdrop for long-term business investment decisions.

Government spending can provide important support to an economy during periods of recession. However, seven years into an economic expansion, the government spending component of GDP should not be heavily relied on as a source of growth. On the home stretch of an election cycle, every politician in the United States is focused on getting elected. Outgoing President Barack Obama is watching this all from the sidelines, and nothing will get done in Congress. One should expect the government to make a limited contribution to economic growth over the next few quarters.

Last but not least, we have the U.S. consumer. The consumer has emerged resilient through this seven-year economic expansion. The 14 million jobs created have led to an increase in disposable incomes and a buoyed level of consumer spending. Household balance sheets have largely recovered, and personal savings rates are up.

With other segments of the U.S. economy creating a drag on growth, the burden placed on the consumer segment will become increasingly significant over coming quarters. A case in point is Q2, where the consumer contributed 2.9 per cent toward GDP growth, while the economy only grew at a real rate of 1.4 per cent. This means that the other segments of the economy caused a drag of -1.5 per cent. This dynamic has been present for the past three quarters. It’s not a sustainable pattern.

The September jobs report served as an important milestone and reminded us that the U.S. consumer remains strong. However, we should not pacify ourselves in the expectation that the consumer will triumphantly return the U.S. economy to a high growth level. Rather, we should be appreciative for the strong growth that he or she is already giving us. As we enter cold and flu season, let us all hope that the U.S. consumer doesn’t catch a cold.

Poloz’s Rate Cut the Wrong Move at the Wrong Time


By Paul Gardner – this article appears in the Globe and Mail

Now that we have absorbed the initial shock of the Bank of Canada rate cut and the subsequent meeting, we can try to begin to understand the logic behind it.

When we look at recent monetary policy around the globe, there appears to have been a competition between many countries to devalue their own currency as the main mechanism to stimulate the growth of their own economy at the expense of others. The term beggar thy neighbour is often used to explain this global phenomenon.

Up until January of this year, the Bank of Canada’s usual method of relaying monetary information was through a defined, transparent process that was familiar to the market. The central bank had spent more than a decade nurturing this transparency, especially under Mark Carney’s tenure. This measured process was abandoned on Jan. 21 with a shocking rate cut. As we know, most analysts were expecting a gradual rise in the overnight banking rate over the next several months. But due to the collapse of oil prices, combined with other countries cutting their rates, the Bank of Canada felt obliged to reduce our rate as well.

Why was this cut necessary? The Bank of Canada followed all the global banks by aggressively reducing the rate in the 2008-09 period to offset the financial crisis from what has now been termed the Great Recession, with the result that we have had historic low rates for the past four years already. The Canadian economy has been growing at around 2.25 per cent. Not a booming economy, perhaps, but still growing at a satisfactory rate. Although employment growth has slowed, it is still positive; new jobs in Ontario and Quebec should help offset Alberta job losses over the next few years.

Before the rate cut, the loonie had depreciated compared with the U.S. dollar by 10 per cent, which again should help the manufacturing provinces. The bank and economists argue that it takes roughly one to two years for a depreciated currency to take effect. The Canadian economy has yet to show any effects from the dollar weakness.

Possibly as early as this June, the U.S. Federal Reserve will start the process of raising its federal funds rate. This course of action should continue throughout next fall. Why is the Bank of Canada going in the opposite direction?

More importantly, the rate cut will only further fuel the overextended housing rally and private debt consumption. Over the past several years, the Bank of Canada has been obsessed with lowering consumer debt accumulation. The rate cut goes completely against this astute strategy and blatantly encourages more consumer debt. Even so-called rational financial advisers are saying now is the time to invest or spend since loans are so cheap, instead of retiring debt, because the message received from the Bank of Canada is that it is healthy to stimulate more debt acquisition. It is not.

Over the past decade, both the government and the Bank of Canada have tried to nourish productivity, which increases a country’s wealth. The weak dollar policy that the Bank of Canada has now adopted only makes productivity more difficult to achieve since it will be much more expensive to import equipment and technology. A dynamic economy needs to create highly skilled technological jobs or high-end processing in the manufacturing base. Disappointingly, this will not occur.

Canada’s economy had the ability to survive and overcome the weakness from the oil sector. As a country, we would have been fine “sitting” with an 85- to 90-cent (U.S.) dollar. But the Bank of Canada panicked and misguidedly copied the tactics of Europe. However, the European countries that cut their rates have home currencies that were getting stronger compared with their main trading partner, not weaker, such as in Canada.

A few years ago when Stephen Poloz took over as Governor of the Bank of Canada, he alluded that the hardest job for the central bank chief is to “sit on one’s hands and do nothing.” He would have been wise to remember this since the Bank of Canada would have served Canada better by doing nothing. It appears that Mr. Poloz is still behaving as the ex-CEO of Export Development Canada (EDC), which required a very different set of actions. He needs to start being the Governor of the Bank of Canada.