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Frank Mueller

Weekly Update – June 9, 2017

“An ounce of performance is worth pounds of promises” – Mae West

Toronto Stock Exchange Rises to End a Busy Week

The Toronto Stock Exchange’s S&P/TSX composite index, bolstered by strong Canadian jobs data and gains in the financial sector, rose by 50.12 points to close at 15,473.21 to close out a news-filled week. However, only 3 of the 10 main sectors posted gains for the day.

Statistics Canada reported a substantial rise in employment levels for May. The Canadian workplace added 77,000 new full-time jobs in May. Somewhat ironically, the unemployment rate actually rose to 6.6%, due to an increase in people entering the jobs market. Still, the May jobs numbers offer no sign of a market slowdown, so we can expect the economy to continue its trajectory in the short-term. Job gains for the month were highest in BC, Ontario and Quebec.

On Friday, the Dow Jones Industrial Average closed the week at 21,271.97 on a rise of 89.44 points, the S&P 500 lost 2.02 points to close at 2,431.77 and the NASDAQ slipped by 113.85 to close at 6,207.92.

“Triple Threat Thursday”, Part I

The much-anticipated open-session testimony of former F.B.I. Director James Comey took place on Thursday morning. Mr. Comey testified that he took detailed notes of his meetings with President Trump because he felt Mr. Trump would lie about those meetings. He further asserted that in his opinion, he was directed by Mr. Trump to end the F.B.I. investigation of former National Security Advisor Mike Flynn. Mr. Comey also said he believed he was fired because of the investigation into Russia’s meddling in the 2016 Presidential Election.

Initial reaction to the testimony in the markets appears to have been muted, with some analysts feeling that Mr. Comey’s testimony wasn’t damaging enough to the President to seriously threaten his position; however, it should be noted that Mr. Comey was later questioned by the Senate committee in a classified (closed-session) hearing that could be far more damaging to the Mr. Trump and his administration.

“Triple Threat Thursday”, Part II

European Central Bank chief Mario Draghi signaled that he had no plans to cut back the bank’s stimulus, even though reports of the Euro zone growing rapidly on Thursday morning. Mr. Draghi stated that he expects the ECB will “be in the market for a long time”. His commentary led to a jump in European bonds and a short-lived drop in the Euro and bank shares, as signs of a Euro zone bank rescue in Italy led to a rebound in bank and energy stocks.

“Triple Threat Thursday”, Part III

In what could gently be called a “political gamble gone awry”, British Prime Minister Theresa May’s calling for a snap election – designed to strengthen her majority – did not end the way she’d have liked. She called for an election a month ago, emboldened by a double-digit lead in the polls, and with the goal of silencing those who wanted to stop or reverse the Brexit process.

Her goal gaining on her majority backfired, as the Conservative Party lost 13 seats, dropping from a Majority Government holding 331 seats in the 2015 Election down to a 318-seat Minority Government.

The resulting uncertainty around the Minority Government led to the largest drop in the Pound Sterling in 8 months, before it rebounded slightly on Friday.

Sources: Globe Advisor, Huffington Post, The Guardian

Frank Mueller

What Happens if Donald Trump Gets Impeached?

Will Donald Trump be Impeached?

Whether or not you like Donald Trump, one thing that many of us will agree upon is the notion that the simple fact his potential impeachment is being considered, only a few short months into his presidency, is a stunning turn of events. Still, this is where the bizarre story being written in the White House has brought us.

Last week, Trump abruptly fired F.B.I. Director James Comey. Almost immediately, the White House’s explanation of why Comey was fired began to fragment, as none of President Trump, Press Secretary Sean Spicer, or any of Trump’s handlers – such as Kellyanne Conway – could get their story straight, or even aligned with one another’s.

Fast-forwarding to this week, a leaked memo surfaced in which Mr. Comey detailed his meeting with President Trump. According to the memo, the meeting – which occurred the day after National Security Advisor Mike Flynn’s resignation – centered around the potential investigation of Mr. Flynn’s contact with the Russian ambassador to the United States, both before and following the November 8th Election. During their meeting, Comey writes that Trump said to him, “I hope you can see your way clear to letting this go, to letting Flynn go.” Trump continued, “He is a good guy. I hope you can let this go.” Comey would only go as far as to agree that Flynn was “a good guy”, but wouldn’t commit to dropping any such investigation. Later, Comey was terminated.

Unsurprisingly, the White House has denied the accuracy of the leaked memo. Many analysts and political pundits have pointed out that Trump’s firing of Comey – particularly with this leaked memo coming to light – establishes the very real possibility that Trump could be impeached for Obstruction of Justice (the same threat that forced Richard Nixon to resign his Presidency on August 8, 1974).

Today, it is being reported that the investigation has now identified a “senior White House advisor” who is “close to the president”. Many Democratic politicians, as well as some Republican politicians, are demanding to see the Comey leaked memo. This bipartisan interest in the memo should be worrying for Trump. It certainly appears that the Russia investigation is not going away anytime soon, and their could be major political fallout in the near future.

How Will Markets React if Trump is Impeached?

Markets this week have not taken Comey’s dismissal well, with some major Canadian and US Stock Indices suffering their worst day in over 8 months on Wednesday.

Political uncertainty is bound to weigh on investor confidence. Trump is a wildcard, prone to saying and doing what he wants, regardless of truth or accuracy (or legality), and the potential risks associated with such a personality as president are being felt right now. However, Trump’s potential successor would be far less risky, from a pro-business point of view.

Should Trump be impeached and removed from office, in would step Vice-President Mike Pence to assume the role of Commander-In-Chief. The initial uncertainty of an impeachment could result in a drop in the market; however, the market’s long-term response would likely be positive. There are three key reasons for this:

Firstly, Pence is obviously a Republican. He served as Governor of Indiana from 2013-2017, and shares the same pro-business views as his Republican counterparts. He is, relative to Trump, a drama-free. He knows and has a good working relationship with many politicians in both the House and the Senate. His time as Governor has given him both the experience and the knowledge of the political process.

Secondly, at least until the 2018 Midterm Elections, both the U.S. House of Representatives and the U.S. Senate are controlled by the Republicans, as they hold majorities in both. Tax reform may be put to the backburner temporarily if impeachment proceedings happen, but at some point, the Republicans should be able to start advancing their political agenda.

Thirdly, and perhaps most importantly, Pence’s relative stability would allow the markets to rebound in a less politically risky environment. It would be (pro) business as usual.

What Action Should I Take?

Our recommendation, as always, is to continue to focus on the long-term picture. A reactionary selloff if the markets drop in the near-term could result in missing out on the inevitable rebound. When that train leaves the station, you don’t want to be left standing on the platform waiting to purchase a ticket.

In fact, investors should look at a potential short-term market drop as a great opportunity to invest, as the potential to reap a nice return will present itself to those who are paying attention.

Should you have any questions or concerns, we are happy to discuss them with you. Please feel free to give us a call or send us an email.

In the short-term, enjoy your May long weekend!

Sources: CNN Politics, The Globe and Mail, The New York Times, The Washington Post

Frank Mueller

Weekly Update – May 5, 2017

“A satisfied customer is the best business strategy of all” – Michael LeBoeuf

TSX Rises, Major US Indices Also Close Out the Week with Increases

The Toronto Stock Exchange’s S&P/TSX composite index rose – on the back of rising oil – by 1.2% on Friday to close out the week at 15,582.04, but it wasn’t alone. The S&P 500 recorded a record-high close of 2,399.29, the Dow Jones Industrial Average rose 0.26% to finish at 21,006.94, and the Nasdaq Composite climbed to 6,100.76 to finish off the week.

Rising oil prices, as well as strong US jobs numbers, better-than-expected earnings calls, and unchanged interest rates, helped to buoy the US indices. The US added 211,000 nonfarm jobs in April, up from a modest March increase of 79,000.

Oil enjoyed a bump on the news that Russian and Saudi Arabia may be ready to extend supply cuts, joining OPEC. The Federal Reserve opted to stay the course without an increase at this time. According to Thomson Reuters data, investors put the odds of a June rate increase at 75%. Lastly, the earnings reports for the first quarter 2017 gave investors a confidence boost. The S&P 500 first quarter returns were their strongest since 2011, at an increase of 14.7%.

U.S. House of Representatives Passes American Health Care Act

The U.S. Congress narrowly voted in favour of repealing much of the Affordable Care Act, known also as “Obamacare”. The AHCA – coined “Trumpcare” – must still get through the Senate to be signed into law by President Trump. While many political analysts feel that the bill is likely to be voted down by the Senate, there is a chance that Trumpcare will come into effect.

The impact on U.S. markets remains to be seen, but markets were up on Friday after a mixed post-vote Thursday.

The Healthcare industry in the United States has been estimated to be about 1/6th of its economy, so such a vast overhaul would create waves throughout the entire economy. Should the bill come into law, the Healthcare industry would potentially stand to gain ground in the short term, due to an increased set of pre-existing conditions that could lead to denial of coverage.

Looking at the mid- to long-term, with the loss of coverage anticipated to be in the 24-million-person range, it is possible that Trumpcare would end up being a drag on the economy, as the uninsured may not be able to afford their healthcare bills, should they become ill.

Sources: Globe Advisor, New York Times

Links

Odette and Terry Retirement Announcement

 

Odette Morin

Important Announcement: Odette & Terry will retire on June 30, 2017

Dear client,

It is with great excitement but also heavy hearts that we announce our retirement.  After 28 years in the industry, we will be retiring full time on June 30, 2017.  The good news is that Anthony Sabti, our valuable employee for 8 years, whom you know, will be our successor and will be acquiring You First Financial.

It was of outmost importance to us to find a suitable replacement to service your account and deliver the same level of thorough financial, tax and investment planning advice that you have been accustomed to.  We had interviewed several potential successors but none compared to Anthony.

Anthony has been with us since 2009.  He expressed an interest in taking over the business early on and has been trained by us for the potential event for 8 years now.  He is the best successor not only because he holds, like us, the Certified Financial Planner designation and all the required investment and insurance licences but more importantly, he is a high integrity individual who clearly shows that he cares about our clients and wants to do what is best for them.  He has been a natural extension of who we are and clearly shares the You First core values.

Anthony has a great analytical mind.  He has been following investment managers, selecting the investments for our fund line up every year, and preparing recommendations on your account for the past 8 years. He has worked closely with myself on financial, tax and retirement planning and tax preparation and research with Terry. He has demonstrated that he is ready and fully capable to take charge. Please note as well however, that we will be providing assistance to Anthony on request for a period of four years to ensure a smooth transition in handling client files.

Not only does Anthony have the credentials and competence to succeed us but he enthusiastically goes above the call of duty in all client relations. In the end, we wanted a professional successor that cared, who we could recommend with trust and confidence.  In fact, we believe in Anthony’s ability so much that he will become our own long-term investment advisor as we will no longer have access to the investment research financial advisors have access to and frankly, we will be too busy enjoying our retirement.

Anthony has vowed to keep You First exactly the same, from the annual review process to the year-end review meetings, right down to the Lindt piece of chocolate!

You First will remain in the same location with the same current staff.  The only change is that you will be meeting with Anthony, assisted by Frank, Sandrine and JoAnne Provost who has recently rejoined the team.

I will very much miss our meetings.  We thank you from the bottom of our hearts for the trust you have put in us in handling your hard earned money. Our success depended on your confidence and we will be forever grateful for that. We are sad but delighted to leave you in such good hands.

We will remain available to meet and speak with you until June 30, 2017.

Kind regards,

Odette & Terry

Frank Mueller

BC Training & Education Savings Grant – Who Says Nothing in Life is Free?

In 2013, the Government of British Columbia introduced the BC Training & Education Savings Grant. This grant is a great way to help build your child’s RESP, as it will receive a one-time grant of $1,200.

According to the BC Training and Education Savings Grant’s info website, the following 3 conditions must be met in order to qualify for the $1,200 one-time grant:

  1. The child must be born in 2006 or later
  2. You and the child must be residents of British Columbia
  3. The child is the beneficiary of a Registered Education Savings Plan (RESP) with a participating financial institution

The earliest you can apply to receive the grant is on the child’s 6th birthday, and the latest you can apply is the day before the child’s 9th birthday.

If your child meets these 3 conditions, they are eligible to apply for and receive the one-time grant of $1,200. We have been reviewing all of our client RESP accounts, and looking for accounts with beneficiaries that meet the above criteria. If you have an RESP account with us, and would like to find out if your child qualifies for this one-time grant, please do not hesitate to contact us.

Anthony Sabti

Corporate Class Switching Deadline Extended – Will Take Effect January 1, 2017

In March, the 2016 Federal Budget announced that the tax-deferred switching advantage of corporate class funds would be ending this year. Originally, the budget called for the regulation change to take effect on October 1, 2016; however, the regulation change will now take effect on January 1, 2017.

Until this year, an investor was able to use this fund structure in a non-registered account and switch from one corporate class fund to another – within the same fund company – on a tax-deferred basis.  For example, an investor could switch from ABC Canadian Equity Fund Corp. Class to ABC Global Equity Fund Corp. Class without incurring a capital gain. With a regular fund structure, the investor would normally pay capital gains taxes on the profit incurred on the fund being sold.

While this is unfortunate news, corporate class funds will continue to offer the advantage of tax-efficient distributions.  These funds will restructure any income distribution (including interest income) in the form of capital gains or dividends, and are taxed at a lower rate than interest income.

Since the announcement was made, we have reviewed and will continue to review all non-registered portfolios at client meetings for any changes we would like to make before the rule change takes place. If you have a non-registered account with us and would like to see if we should act on your portfolio before the end of the year, please do not hesitate to contact us.