Monthly Archives: October 2013

Terry Broaders

Weekly Update October 22, 2013

“Credit worthiness is like virginity, it can be preserved but not restored very easily, so it is crazy to play around with it.” -Warren Buffett


Markets Are Positive

The Toronto stock market closed sharply higher Friday, rising to its highest level in more than two years following strong economic data from China and solid earnings reports from General Electric, Morgan Stanley and Google. The S&P/TSX composite index ran ahead 99.64 points to 13,136 after closing above 13,000 on Thursday for the first time since late July 2011. The increase came amid relief that U.S. lawmakers had reached an agreement to extend the debt limit, thus averting a possible default.“Things are aligning for Canada,” said Wes Mills, chief investment officer at Scotia Asset Management PM Advisor Services. “Canada has lagged for a couple of years now on the U.S. in particular. Technically, the TSX has broken out (and) we should be able to challenge the 14,000 level.”The Canadian dollar was off 0.01 of a cent to 97.13 cents US as inflation pressures increased slightly in September.

U.S. indexes were higher as the Dow Jones industrials erased early losses to advance 28 points to 15,399.65, while the Nasdaq rose 51.13 points to 3,914.28 as Google’s stock price cracked the US$1,000 level. The S&P 500 index was ahead 11.35 points at a record high of 1,744.5. There was positive news from the world’s second-biggest economy as China’s growth rebounded in the latest quarter to 7.8% from a two-decade low of 7.5% in the second quarter, helped by government stimulus measures. Strong economic data, solid earnings and relief that at least a short-term fix for the U.S. debt crisis was attained sent the TSX up 1.9% this past week while the Dow industrials climbed 1.07%.


U.S. Reaches Debt Deal

World equity markets rose and short-term U.S. Treasury debt rallied on Wednesday as lawmakers neared a last-minute deal to prevent the United States from defaulting on its debt. U.S. Senate Majority leader Harry Reid said a bipartisan compromise was reached in the Senate to lift the government’s $16.7-trillion borrowing limit and re-open the government, which has been shuttered since October 1. News that a deal had emerged was enough to push U.S. stocks within striking distance of an all-time high. It comes after days of political wrangling over the U.S. budget and the debt limit, which has sparked substantial preparation by dealers in government securities in case of a default.  “Any deal that gets us out of the current box, where we have a potential imminent default, is good,” said Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors in Wilmington, Delaware.


Sources: Bloomberg; Investment Executive;

Odette Morin

Back from a conference in Los Angeles. Here is what’s shaking in the world of money

bull over bear

The US government has reached a temporary deal on the debt ceiling issue reopening government and putting an end to the psychodrama,  only until March 2014 however. Warren Buffet commented this week on this issue by saying “Credit worthiness is like virginity, it can be preserved but not restored very easily, so it is crazy to play around with it.”  He also added, “These guys may threaten to take their mother hostage, but they will never hurt their mother.” This sums it up well and shows how a big part of this saga is for show.

At our L.A. conference, I had the pleasure of hearing Howard Dean, former Vermont governor and candidate for the Democratic nomination for President of the United States in 2004.  He gave a good description of the tactics and stratagems used by the Tea Party to bring their agenda forward in times like these.  He also stated that the future of politics will be quite different with changing demographics and the “Global” Generation fast exchanging information and being more homogenous in wants and needs.

As far as the now is concerned, tapering of Quantitative Easing is unlikely until the debt ceiling is finally resolved. In the meantime, the US continues its healthy recovery. Equity Markets continue their ascent especially in the US and if you checked your investment portfolio lately you are very pleased to see impressive returns.

We continue to prefer equities over bonds as we see better yields and less interest hike risks.  At the same time, we favour developed over emerging equity markets and stocks tied to the North American and European economies.   Even Nouriel Roubini and David Rosenberg, the dubbed “Perma Bears” i.e. permanent pessimist, have turned positive on the current state of the World economies and bullish on equities.  Here is what they currently say.

Always remember that equity investment returns are closely tied to corporate earnings growth and the price you pay for those earnings. Historically, over the long term corporate earnings have been fairly stable and have grown along with productivity gains and inflation. Stock valuations though are more volatile than earnings since they are influenced by investor sentiment, which swings between optimism and pessimism.  So, ignore the noise, avoid reacting to the daily news and stay the course with your annually reviewed and tweaked portfolio.   You will never go wrong holding a diversified portfolio of quality investments.

Odette Morin

The most frequently comment at client meeting: “But isn’t the US massive debt an issue? Why do you want me to hold so much US Equities?”

national debt5

Believe it or not, the September monthly report of the Congressional Budget Office, the non-partisan government agency that provides independent analysis of the government’s accounts, showed that the federal deficit for the first 11 months of fiscal 2012-13 (October through August) was $753-billion (U.S.) – a massive $411-billion lower than at the same point a year earlier. With federal government revenues expected to have outpaced expenditures in September, the deficit looks on track to be in the range of $650-billion for the full fiscal year – a 40-per-cent drop from 2011-12 !!  This is good news.

The US has unarguably a large debt issue that could come back and haunt them and the rest of the world in years to come.  However, when economies recover and employment is improving, so are Government revenues.  This is the fastest way to reduce debt.  Remember the deficit woes of Canada in the mid 90s? We quickly recovered  with the recovering economy.  The US remains the most resilient and robust engine of world growth.  For portfolio growth, you are well advised  to hold a healthy serving of US equity in your portfolio.

Article published in the Globe & Mail for subscriber only but available for free here


Odette Morin

Beware of the Upcoming Mortgage Squeeze

Model house squeezed by vise grip

The biggest worry I have for clients I see everyday is the amount of debt and the size of mortgage they carry.  We have benefited from extraordinary low interest rates for several years now and this is about to change. Interest rates are raised with improving economy as a measure to control inflation.

If you carry a mortgage you will want to pay attention to this.  A 1% increase in interest rates translates into about  a 10% increase in mortgage payments  for a 25 year mortgage. Interest rates are likely to increase by 1% to 3% over the next few years.  If you carry a $300,000 mortgage for example, and rates go from 3% to 6% which is very possible over the next 2 years, your mortgage payment would increase by about $500 per month.  That will be a big deal for a lot of people.

So, my advice is simple.  Avoid taking more debt than you can afford at the projected higher rates.


Odette Morin

Did You Receive a T-Slip Late? File It NOW !

By Terry Broaders



Did you receive a T3 or T5 or other T-Slip after you filed your taxes for the year? Don’t just put it away. File that T-Slip with Canada Revenue today by filing a T1-Adjustment or you could face a big penalty.   If you forget to include an income T-Slip for 2012 tax year and you have also forgotten to include a T Slip in any of the prior three years you will have a 20% penalty on the amount of income reported on that second “forgotten” slip.

Here is an example.  In 2010 tax year you forget to report a $50 T5 slip. No big deal, Canada Revenue picks up on it, reassesses you and charges you about $15 tax on that $50 of income you forgot to report.  But you have used up your “strike one”.  Now in 2012 tax year you have a $20,000 T5 slip that you forget to include. Canada Revenue will assess you the tax owing on that $20,000 which results in a surprise tax bill of about $6,000 plus interest.  But on top of that they will assess you a 20% penalty of the amount of income you failed to report or an extra $4,000.   So you pay the $6,000 tax you owe on that $20,000 plus a further $4,000 penalty!

If you a late received T-Slip contact us right away and we can prepare a T1-Adjustment to report it. Once Canada Revenue picks up on it it’s too late ! To avoid the penalty you have to report it before Canada Revenue picks up on it.

Odette Morin

RESP: Savings for your Children’s Education

By Anthony Sabti

The Registered Education Savings Plan (RESP) is a special account created to save for your children’s post-secondary education.  Since it is a registered account, any money that you contribute will grow on a tax-deferred basis.  However, you do not get a tax deduction from the contribution in the same way that you would from an RRSP.


The biggest incentive to opening an RESP account is that the government offers a matching Canada Educations Savings Grant (CESG).  This grant is equal to 20% on the first $2,500 contributed to an RESP each year for a total of $500.  If you invest a minimum of $2,500 per year, you would get the lifetime maximum grant of $7,200 over 15 years.

The CESG increases if your net family income is under $87,124 (as of 2013).  If you contribute $2,500 and your family income is:

–        Under $43,561 you will receive a $600 grant.

–        Between $43,562 and $87,123, you will receive a $550 grant.

–        Over $87,124, you will receive a $500 grant.

You can carry forward any unused CESG contribution.  However, you can only catch-up an extra $500 in grant money per year as the government will not issue more than $1000 in grant money a year.


The funds are only taxed when they are withdrawn.  Even then, they are taxed at the hands of the child, who will often be in very small tax bracket.  RESP funds are made up of three components:  the contribution, the grant, and the growth on the contribution and grant.  Only the grant and the growth portion are taxable.  Contributions (principal) are made using after-tax dollars and are therefore not taxed on withdrawal.


Your child will need to provide proof of enrolment and complete a redemption form from the financial institution that holds the RESP.   Most universities, colleges, technical or trade schools will qualify as eligible post-secondary institutions.  You do not need to “justify” your costs (i.e., submit receipts, etc.).

There are two types of withdrawals that you can make. One is the Educational Assistance Payment (EAP), which consists of the growth and grant portion of the RESP.  The other is the Post-Secondary Education Capital Redemption (PSE), which consists of the contribution.  There are no restrictions on PSE withdrawals.  For EAP withdrawals, you can only take out $2,500 in the first 13 weeks of a part-time program, or $5,000 in the first 13 weeks of a full-time program

What if my Child doesn’t Attend Post-Secondary?

If you child never attends post-secondary, you will have to repay the grant received.  You can obtain your original contribution tax-free or roll it over into your RRSP(if there is RRSP room available). You can also rollover the growth portion into your RRSP or withdraw it with heavy tax penalties.  Sometimes the best option is to simply wait as you child may change his or her mind about going to school. RESP accounts can remain open for 36 years.

child education