Economic Update and Market Outlook 2016

Transcription

1 FEBRUARY 2016 Economic Update and Market Outlook 2016 Darrell Gebhardt, B.Comm., CIM, CFP, FSCI, FMA Senior Vice-President / Portfolio Manager Bieber Gebhardt Advisory Group

2 Disclaimer National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). NBF is a member of the Canadian Investor Protection Fund. The opinions expressed herein do not necessarily reflect those of National Bank Financial. The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. Some of the securities mentioned in this letter may not be monitored by the analysts at National Bank Financial. Ancillary services such as lending and risk planning are provided by National Bank of Canada and National Bank Insurance Inc., affiliated companies of National Bank Financial Group, which are not members of Canadian Investment Protection Fund (CIPF)

3 DOMINANT ISSUES IN 2015 Q1: Continued falling commodities Election of Syriza in Greece ECB announcement of its quantitative easing program Slowdown in Chinese growth Q2: Weak leading indicators in the U.S. Recovery/recapitalization attempts by Greece U.S. oil production peak reached Q3: Chinese yuan devalued Second rate cut in Canada in 2015 U.S. stock market corrected by more than 10% Q4: Russian military intervention in Syria Rate hike by the U.S. Federal Reserve Bonds, currency, preferred and common shareholders: Canada is overlooked Source: Fiera Capital

4 Finding balance in 2016 Can Chinese government actions cushion the domestic cyclical downturn? How disruptive to the U.S. economy will the Fed s gradual tightening be? What is true supply and demand for oil? Is the European Union sustainable?

5 Macro risk: Volatility in China will remain Structural issues Lower labour force growth House disequilibrium Primitive financial sector Rising debt levels Government intervention Reducing interest rates Reducing the reserve requirement ratio for banks Devaluing its currency Stepping in to prop up its stock market China s path to becoming the world s largest economy will not be smooth

6 GDP retraction CHINA Negative effects of a 1% decline in China's GDP Source: JP Morgan

7 CHINA Total capital reserves ($US Billion ) 3,438 1, U.S. É.-U. Euro Zone zone EuroSaudi Arabie Arabia Saoudite Japan JaponChina Chine Sources: Bloomberg, Federal Reserve, Saudi Arabia Monetary Agency, EuroStat

8 DOMINANT ISSUES IN 2015 Canadian heavy oil in $CAD Source: Bloomberg

9 THE GLOBAL OIL MARKET MARGINAL PRODUCTION COSTS Cost/barrel Including initial capital investments Million barrels/day Source: Crédit Suisse

10 2001/ / / / / / / / / / / / / / / / / / / / / / / / /01 THE GLOBAL OIL MARKET 30,000 25,000 20,000 15,000 10,000 5, ,000-10,000-15,000-20,000-25,000 Saudi Arabia s foreign capital reserves Monthly change in $US Million Sources: Saudi Arabia Monetary Agency, Bloomberg

11 A myriad of reasons for lower oil prices Oil markets are oversupplied. Iranian oil volumes will increase with lifting of sanctions. The U.S. dollar is expected to keep strengthening. China s economy is slowing. Expectations for global growth are being lowered. The Fed has started to increase interest rates. U.S. production isn t falling fast enough. The Saudis are determined to keep production high to maintain market share. The cost curve for oil is falling.

12 U.S. production peaked in April

13 Global demand growth is strong

14 4/1/ /1/1995 8/1/1996 4/1/ /1/1997 8/1/1998 4/1/ /1/1999 8/1/2000 4/1/ /1/2001 8/1/2002 4/1/ /1/2003 8/1/2004 4/1/ /1/2005 8/1/2006 4/1/ /1/2007 8/1/2008 4/1/ /1/2009 8/1/2010 4/1/ /1/2011 8/1/2012 4/1/ /1/2013 8/1/2014 4/1/2015 CANADA AND ITS NEIGHBOUR 1.50 U.S. Federal Reserve 9-indicator dashboard National Association of Home Builders Market Index (0.50) (1.00) (1.50) (2.00) (2.50) Projected over 12 months Correlation = (3.00) 0 Sources: Fiera Capital, Bloomberg

15 CANADA AND ITS NEIGHBOUR Manufacturing production cost comparison The decline of the loonie is beneficial for Canada s competitiveness Sources: ia Groupe Financier, Boston Consulting Group, LBS Economic Research and Strategy

16 CANADA AND ITS NEIGHBOUR Index of home prices Teranet - National Bank Source: National Bank Financial

17 No sign of slowdown in U.S. labour market

18 Yield curve set to flatten as rates normalize

19 Global market outlook U.S. economy is growing; however, further along in the economic recovery, rates will rise gradually. China is the greatest risk to global growth: balancing structural issues and government intervention will be important. ECB and Japan will lead further central bank balance sheet expansion.

20 Widespread border controls and closures

21 Validity of the European Union is in question The inability to come to an agreement over the migrant crisis points to a lack of cohesion both politically and socially. Financial imbalances are well known, and, except for Greece, they are cyclical in nature. However, societal differences are more opaque and tend to be more structural. The test of leadership is at hand.

22 STOCK MARKET VALUATION WHAT IS THE POTENTIAL? Source: JP Morgan

23 EXPECTATIONS 1-2 additional rate hikes by the U.S. Federal Reserve China will continue to intervene (fiscally and monetarily) The Bank of Japan and the European Central Bank are ready to do more The American consumer is the spark plug Oil prices will recover 10-year interest rates will increase by at least 0.50% Source: Fiera Capital

24 EXPECTATIONS COMMODITY PRICES February month forecast $30 $50-60 February month forecast $1175 $1200 Source: Fiera Capital

25 EXPECTATIONS 6-8% 6-8% 8-10% -2% - 0% Source: Fiera Capital

26 Manitoba 2016 Tax tips for investors Cedric Paquin, CPA, CA, CFP Wealth Planning Consultant Bieber Gebhardt Advisory Group

27 What is wealth planning? the art of structuring your assets in a way that will help protect, preserve and build your wealth

28 What s involved

29 Topics Selected personal tax update Three tax tips for investors

30 Changes to personal tax rates Personal Tax Brackets Other Income Capital Gains Eligible Dividends Non-Eligible Dividends $45,282 - $90,563 (1.5%) (0.75%) (2.07%) (1.43%) Potential tax savings $679 $340 $937 $647 Average middle class income in Manitoba $62,992 $266 $133 $367 $253 $200, % 2% 5.52% 4.92% Additional tax on every $100,000 of taxable income over $200,000 $4,000 $2,000 $5,520 $4,920

31 Implications of supertax Higher taxes on: Death High income years (property sale, pension commuting) Income retained in a trust (testamentary trust issue) Higher up front taxes on corporate investment income Donation tax credit will increase by 4% when taxable income is over $200,000

32 Selected other changes TFSA limit decreases from $10,000 to $5,500 (indexed) for 2016 Lower minimum RRIF amount after age 71 End of graduated tax brackets for testamentary trusts

33 Three tax tips for investors

34 Strategy # 1 - Capital loss planning Carry back 3 years or forward indefinitely Beware of superficial loss rules If large loss carry forwards consider designating RRSP to estate rather than surviving spouse Possible to transfer loses to spouse or corporation

35 Example Transfer loss to spouse Meet Bill and Carol: Both in the highest MB tax bracket Carol incurred $15K in capital gains Bill owns ABCco: Purchased for $20,000 now worth $5,000 Want to dispose of their shares for investment reasons

36 Example Transfer loss to spouse Steps Bill sells and Carol buys ABCco for $5K Bill s $15K loss is denied Carol s cost increase by $15K Carol sells ABCco after 31 days for $5K Carol has $15K in losses to offset her gains Bill and Carol save $3,780

37 Strategy # 2 - Asset location TFSA? RRSP? Non-Registered Corporation? Trust

38 Combined marginal tax rates Individuals MB 2016

39 Difference in after-tax values Eligible Dividends 2016 Manitoba 2 nd tax bracket ($31,000 - $45,282) Tax Rate $10,000 after tax Income needed to net $10, % $ 9,347 $ 10,699 Capital Gains % $ 8,612 $ 11,612 Interest % $ 7,225 $ 13,841

40 Strategy # 3 Family Income Splitting Shift income from a family member in a high tax bracket to one in a low tax bracket: 2016 Manitoba High and Low Tax Brackets Tax Bracket Taxable Income Marginal Tax Rate High Over $200, % Low $9,134 $31, % Potential Savings 24.60% But beware of income attribution!

41 Example Loan to family trust Bill and Carol want to reduce their tax They are not comfortable with gifting funds to children and grandchildren

42 Why do people use trusts? Income splitting Control over funds Creditor protection Access to capital (depends on set-up) To hold assets for spendthrifts Control timing and amount of gifts Estate freeze Avoid probate Privacy

43 Example Prescribed rate loan to family trust $2M Loan at 1% Bill and Carol $20,000 interest payment by January 30 th each year Trust Beneficiaries Trust Beneficiaries Trust Beneficiaries Trust Beneficiaries Family Trust 4% return $60,000 income after loan payment

44 Individuals MB 2015 For 2016, an individual with no other sources of income can receive TAX FREE Federal ($) Manitoba ($) Other Income 11,474 9,134 Capital Gains 22,948 18,268 Non-Eligible Dividends (2015) 36,150 9,367 Eligible Dividends (2015) 50,122 24,271 Potentially $30,204 in taxes saved each year!

45 Disburse income for various expenses Private school, tutoring, postsecondary education Music or sports equipment and lessons Summer camps Luxury clothing or quality furniture (bedroom or playroom) Plane and admission tickets to Disneyworld Every day expenses such as clothes, shelter and food may not qualify

46 Estate Planning Gerald Sawatsky Estate & Insurance Advisor Bieber Gebhardt Advisory Group

47 Bio 25 years of experience in the world of investments and insurance. Gerald works closely with our high net worth individual and corporate clients to provide unique, customized insurance solutions. Gerald focuses on corporate transition and tax strategies, corporate risk management, intergenerational wealth transfer and wealth preservation.

48 Planning Process Collaboration is integral: Each plan requires coordination between investment planning, estate planning, retirement planning, tax planning and insurance planning Each area of planning is affected by the next requiring communication and advanced integration

49 Key Strategies Corporate Estate Bond Designed to reduce or eliminate 3 levels of taxation Estate Preservation A thorough estate plan will uncover potential estate tax liability Insurance (often jointly owned) provides estate liquidity to preserve the estate value Insured Annuity An alternative to a fixed income investment portfolio Provides an increased level of income, guaranteed for life Preserves the full investment value for the estate

50 Legislative Changes January 1, 2017 will see new rules regarding the taxation of various insurance products Certain life insurance plans and annuities will be affected Corporate insurance taxation will be affected Changes made after January 1, 2017 to existing insurance plans may negatively affect the taxability Now is the time to review existing plans and to take advantage of current favourable conditions

51 Questions?