I saw this chart being sent around in the Twittersphere today.  It shows the dramatic divergence in the pricing of Canadian vs US housing over the last six years.  Canada is represented by the red line and the US by the blue line.

It also raises the question:  How are Canadians on average able to pay this much for housing considering the fact that Americans were not able to do so?  And, is this sustainable?

Is there that much foreign money seeking Canadian real estate assets?  The trouble with all this is that the Canadian government does not keep stats on this.  So, we will never really know.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. 

Richardson GMP Limited, Member Canadian Investor Protection Fund.

Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.

The Federal Reserve has “Rung a Bell” and markets are listening…the recent choppy/indecisive market action is signaling a “sea change” in Market Psychology…and the KEY to this “seas change” is the realization that this is the beginning of a long process that will eventually lead to the Fed tightening monetary policy. This process will be especially meaningful to markets as other central banks remain “accommodative” or “fall behind” the Fed in the tightening process. Don’t fight the Fed.

The Fed’s actions have begun to ripple across all assets. Near term I expect Market Psychology to shift towards a “risk off” attitude…it’s time to take profits and reduce leverage. I look for the USD to do better, stocks to weaken, bonds to rally and gold to rally…if not against the USD then against other currencies and the stock market.  I’m skeptical of markets that have been bid aggressively higher as people reached for yield…or chased momentum…I’m especially skeptical of stocks that have had big gains despite poor (or no) earnings.

Currency markets:

Canadians are well aware that the CAD is falling…trading below 91 cents this week for the first time since the summer of 2009…but the fall of the CAD is only part of a broad move down in currencies all around the world as the USD strengthens. Emerging market currencies have been particularly hard hit and…FINALLY…the Euro is weakening…registering a Weekly Key Reversal Down as the US Dollar Index registers a Weekly Key Reversal Up…closing last week at its best level in 4 months.

Stock markets:

The major US stock indices surged to New All Time Highs into the end of 2013 but so far in 2014 they have gone sideways…despite the widely held view that the rally would continue…that new money would “flood” into the hot stock market…that tapering was “priced in.” The TSE is rallying so far in 2014…outperforming the US market as resource stocks are bid higher. I wrote two weeks ago that the US stock market is “priced for perfection” and I’m looking for an opportunity to get short.

Gold:

Gold is up ~$70 (~6%) from the December lows (when it traded to a 3 ½ year low) while gold shares indices are up ~15%. Gold registered a Weekly Key Reversal Up over the end of the year and MAY have established a double bottom with the lows made in June 2013. A close above 1275 would be an indication that a bottom MAY have been made.

It’s interesting that gold and the USD are rallying at the same time…perhaps money is “rotating” out of “risky” assets and into “safety” assets. Remember gold has fallen by more than 50% against the S+P since Sept 2011…to a 5 year ratio low…such a move might cause a “rotation” from stocks into gold…or gold shares. (Gold shares may also be bouncing from “tax loss” selling at the end of 2013…when they fell to their lowest levels since the crisis lows of late 2008….down ~70% from their 2011 highs…now that’s a BEAR market!)

Interest rates:

US long term interest rates hit lifetime lows in 2012…(as bond prices hit lifetime highs) with the US 10 year Treasury bond yield at ~1.5% …yields then drifted sideways to higher until May 2013 when they began to move sharply higher…with the 10 year breaching the 3% level in December 2013…its highest yield since the summer of 2011. Since the December highs Treasury yields have declined modestly…despite many analysts calling for the collapse of the bond market in 2014.  The junk / high yield bond market outperformed Treasuries in 2013 (bouncing well above their summer lows while Treasuries did not) as investors reached (paid up…aggressively) for higher yields!

What I’m doing in my trading accounts:

Currencies: In my short term trading accounts I’m long the USD and also have short positions against the AUD. I will be looking to ADD to my bullish USD view if the USDX trades decisively through 8150.  In my long term savings accounts I have switched 30% of my net worth from CAD to USD over the past few years at an average rate of around par. I intend to maintain this position.

Stocks: I’m short small positions of the S+P at Friday’s close. The market seems to be struggling…I’m probably early on this trade…it’s been a raging bull market…so  I’ll be gone with a small loss if the markets make new highs…but I’ll certainly look to add to my positions if the market breaks.

Gold: I have no position but I’m watching the closely…it’s been a bear market for over 2 years…it may be turning…the better trade may be to buy gold against other currencies or against the stock market rather than against the USD.

Interest rates: I have no position but I expect bonds to rally if  stocks fall. I’m skeptical of calls for the bond market to collapse…even though I expect interest rates to move higher longer term….if stocks fall and bonds rally because of that I may see the rally as an opportunity to short bonds.

Client Services

Victor Adair, Senior Vice President, Senior Derivatives Portfolio Manager and his son Drew Zimmerman provide the following client services in exchange-traded derivative markets:

Corporate Risk Management

Client specific risk management programs for currencies, interest rates, equities, metals, energy products and other commodities.

Managed Accounts

Individual, not pooled, managed accounts for accredited investors. Daily liquidity and transparency, low leverage, non-correlated with other assets, negotiated performance fees.

Full Service Accounts

Work with an experienced broker for valuable advice and efficient access to all principle futures and options markets.

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Jan 18th Media Appearance Michael Campbell’s Money Talks.

KeyStone Financial’s Senior Analyst Mr. Aaron Dunn will be speaking on Money Talks radio show with Michael Campbell (CKNW 980AM) on Saturday January 18, 2014, at after 9:00 a.m. Pacific Time. Mr. Dunn will be discussing Income Investing and Dividend Growth Stocks. For those interested in the Income Stock Research service please go to www.keystocks.com. The appearance will be archived in the CKNW (Corus Radio) audio vault on Saturday morning – the appearance should be some time after 9:00am. http://www.cknw.com/audio-vault/. It will also appear on Moneytalks.net sometime after 9am and for the balance of the week. You will find it in “The Latest Radio Show & Michael’s Market Minute”.

Market Buzz – Registered Investment Accounts – TFSAs and RRSPs 

When we talked about starting up a trading account with discount brokerage, we never specified the different types of accounts that are available. A regular trading account needs little explanation. It provides all the basic functions you need to buy, sell, and hold, stocks, bonds, and other securities. Any investment returns earned in a regular investment account are taxable as income, dividends, or capital gains. But investors also have access to a range of registered investment accounts which can provide some very attractive tax benefits. The two most common registered accounts in use are the Registered Retirement Savings Plan (RRSP) and the Tax Free Savings Account (TFSA).

Registered Retirement Savings Plan (RRSP)

The RRSP is a tax deferred account. A common misconception that many people share is that the RRSP is some type of investment. It is not. The RRSP is an investment account through which you can buy, sell and hold a wide range of different investments; just as you can in a regular account. What the RRSP does for you is allows you to contribute pre-tax income and generate returns on a tax free basis until the funds are withdrawn from the account. At withdrawal, the funds are taxed at your marginal rate for regular income. While inside the RRSP your capital can accrue returns tax deferred, which means that a portion of the return on capital you are generating actually belongs to the government (they collect their share when you make a withdrawal). One thing that is very important to understand is that when you withdraw your funds from an RRSP you do not receive the preferential capital gains tax treatment as you would in a normal, non-registered investing account. For this reason, the RRSP must be seen as a place to put capital for a long-term time horizon so it can fully benefit from the tax deferred treatment.

Basic Facts (RRSP):

• Contribution deadline March 1st.
• 2013 annual contribution limit of the lesser of $23,820 (2013) or 18% of gross income from the previous year.
• Individuals can choose self-directed (individual manages their own investments) or directed (a third party money manager administers the account).
• Unused contribution room can be carried over to future years.
• Withdraws from the RRSP are treated as income for the current year and taxed at the normal rate.
• Withdraws from the RRSP count as income and effect taxable benefits like OAS, CPP, and medical.

Tax Free Savings Accounts (TFSAs)

The TFSA is a tax free investment account. This means that you contribute money that you have already paid tax on but your investment returns on that capital accrue tax free. Just like the RRSP, you can hold a wide variety of stocks, bonds, cash instruments and alternative investments in your TFSA. One thing that people like about the TFSA is the flexibility. Investors can make deposits (up to the contribution limit) and withdraws at any time in the year with no impact to their taxable income or taxable benefits.

Basic Facts (TFSA):

• Contributions can be made at any time of the year.
• Annual contribution limit of $5,500 (2013) with ongoing inflation increases in increments of $500.
• Individuals can choose self-directed (individual manages their own investments) or directed (a third party money manager administers the account).
• Unused contribution room can be carried over to future years.
• Withdraws from the TFSA do not count as income and are not taxable.
• Withdraws from the TFSA do not effect taxable benefits like OAS, CPP, and medical.

The Power of Tax Advantaged Accounts

To illustrate how powerful these registered accounts can be we will use a simple example. We have three fictitious investors John, Jim, and Mary. Each has made an extra $5,000 in pre-tax income for the year that they wish to invest. John invests in a regular investing account, Jim uses his RRSP and Mary uses her TFSA. All three investors have a marginal tax rate of 30% and will each earn an average pre-tax return of 8% over the following 10 years.

John (Regular Investing Account): The regular investing account provides no special tax benefits and John must first pay tax on his $5,000 of income before he can deposit it into his account.

After Tax Contribution = $5,000 x (1 – 30%) = $3,500

John must also pay tax on his investment returns. We are assuming that the portfolio is taxed on an annual basis at a marginal rate of 35% (in reality it is a little more complicated).

After Tax Return = 8% x (1 – 30%) = 5.6%

After 10 years, the $3,500 after tax contribution will be worth $6,035.

$6,035 = $3,500 x (1 + 0.056)10

Jim (RRSP): The RRSP allows Jim to invest his income on a pre-tax basis so he retains the entire $5,000 as his initial contribution. The RRSP also allows investment returns to accrue tax deferred as long as they remain in the account.

Initial Contribution = $5,000

Annual Return on Investment = 8%

After 10 years, the $5,000 after tax contribution will be worth: 

$10,795 = $5,000 x (1 + 0.08)10

But before Jim can run off with his money, he has to remember the tax. RRSPs are a tax deferred account but the bill must be paid upon withdrawal. The after-tax value of the portfolio base on the 30% tax rate will be $7,556.

$7,556 = $10,795 x (1 – 30%)

Mary (TFSA): The TFSA allows Mary to accrue investment returns tax free but the contributions are made with after tax dollars.

After Tax Contribution = $5,000 x (1 – 30%) = $3,500

Annual Return on Investment = 8%

After 10 years, the $3,500 after tax contribution will be worth $7,556.

$7,556 = $5,000 x (1 + 0.08)10

Because tax was already paid on the initial contribution and the returns accrue tax free, the capital can be withdrawn from the account at any time without any impact on taxable income.

RRSP vs. TFSA

You have probably noticed that in our last example both the RRSP and the TFSA generated the exact same portfolio value at the end of the 10 years. That is because we assumed the same tax rate at contribution and withdrawal. With the TFSA you pay the tax today. With the RRSP you pay the tax when you withdraw the funds. The most effective alternative is the account that pays the lowest tax rate. If your tax rate is lower today, the TFSA is the more attractive option. If your tax rate will be lower when you withdraw the funds 10 or 20 years from now, the RRSP is more attractive option. Although most of us will assume that our tax rate at retirement will be lower than in our peak earning years, the fact of the matter is that the future tax rate is unknown. We don’t know what the tax rate is going to be a decade or two in the future. What is more important than spending too much time deliberating between the TFSA and RRSP is that you make use of at least one of these tax advantaged vehicles. A lot of people like the TFSA due to its flexibility. Contributions and withdrawal (and then re-contributions) can be made at any point in the year (up to the respective contribution limits) with no impact on taxable income or taxable benefits. 

Regards,

Jenny McConnell,

Administrative Assistant/Office Manager

The stock market has certainly produced its share of heroes and villains over the years. And while villains have been many, the heroes have been few.

One of the good guys (for me, at least) has always been Jesse L. Livermore. He’s considered by many of today’s top Wall Street traders to be the greatest trader who ever lived.

Leaving home at age 14 with no more than five bucks in his pocket, Livermore went on to earn millions on Wall Street back in the days when they still literally read the tape.

Long or short, it didn’t matter to Jesse.

Instead, he was happy to take whatever the markets gave him because he knew what every good trader knows: Markets never go straight up or straight down.

In one of Livermore’s more famous moves, he made a massive fortune betting against the markets in 1929, earning $100 million in short-selling profits during the crash. In today’s dollars, that would be a cool $12.6 billion.

That’s part of the reason why an earlier biography of his life, entitled Reminiscences of a Stock Operator, has been a must-read for experienced traders and beginners alike.

…Continue Reading 9 Lessons HERE

For a biography on Jesse Livermore click HERE

Here’s an interesting article by the author of NINE LESSONS FROM THE GREATEST TRADER WHO EVER LIVED

Bitcoin Is Defeating Governments (and Making Investors Rich)

We recently told you about our new Special Economic Report: The Truth About Why Main Street is Still Struggling, which uncovers a secret economic story that until now has gone underreported. 

Well, now the story is out — at least among the people we care about most: our dedicated readers like you. 

Last week, we emailed you the Employment section of the report. But that is only one part of this multi-part story that also uncovers unreported truths about:

• Personal income
• Homelessness
• Government assistance
• And consumer spending

“These are not expendable aspects of economic growth,” the author says. “They are its lifeblood.” 

If you take the time to read its concise six pages, our new Special Economic Report: The Truth About Why Main Street is Still Struggling will complete the secret economic story that until now has gone underreported. 

The mainstream tried to deep-six this story, but we have brought it back to the surface so you can know, understand and prepare for the underreported facts threatening the so-called economic recovery. 

Follow this link for a special limited-time offer and to SEE TWO CHARTS from our newSpecial Economic Report: The Truth About Why Main Street is Still Struggling >> 

Sincerely, 

Paul DeBoer
Elliott Wave International 

P.S. Click through to see two charts from the report and learn how to read it now for $29 — or free with a 30-day risk-free trial. Please hurry! This limited-time special offer expires at 5 p.m. Eastern time Friday, Jan. 17. See the two charts and get your special offer now >>