Financial Markets Meltdown

[raab]

Originally Posted by Drewski Canuck

Home Equity Lines Of Credit was the spin by financial advisors to get more money from the investor the money buys an investment like a mutual gund that continues to generate income for the advisor in addition to the initial commission paid.

The story is that the interest paid is tax deductible so why pay it back right?

That is why in house investment advisors push HELOCs It is aWin Win for the bank

Drewski

Wow! Just my opinion but I would not borrow money to buy stocks.

[bdub]

Originally Posted by Drewski Canuck

Home Equity Lines Of Credit was the spin by financial advisors to get more money from the investor the money buys an investment like a mutual gund that continues to generate income for the advisor in addition to the initial commission paid.

The story is that the interest paid is tax deductible so why pay it back right?

That is why in house investment advisors push HELOCs It is aWin Win for the bank

Drewski

If advisors are randomly suggesting this strategy to one and all, well that should be criminal.

That being said, using leverage to buy stocks might be worthwhile in certain instances based on the individuals circumstances and exactly what they are doing with it. There are two circumstances where I have used it over the years.

The first circumstances we used it was in our RRSP. When we were first starting out we always contributed a monthly sum to our RRSP with each paycheck but it wasn't enough to max out or contribution limits. At the end of the year we would borrow enough to top up the RRSP and use the tax refund to pay off the loan or a good chunk of it when it came in.

The second situation was during 2008-09. We were making good money, secure employment, we had no other debt, mortgage, vehicle loan, nothing. The market had already taken most of the beating from the GFC. Loans on our HELOC were charging around 2% if I recall. We borrowed a good chunk of money and bought blue chip dividend payers, banks, telcos, utilities etc. The dividends at the time paid double what the loan interest was. The investments were also held in a non-registered/cash account so that the interest was tax deductible as well. Still we were early and I remember at one time being down perhaps 20 or 25% on those holdings and wondering if I had made a huge mistake. The market eventually turned around and it turned out to be a good decision in the long run. But even in our circumstances I found it extremely stressful.

This is not a recommendation, just an example of how we used leverage. The second example of borrowing on the HELOC helped put us ahead. But circumstances in the equity market and with interest rates are completely different right now compared to 2009.

Right now the retail investor can get into plenty of trouble with leveraged products as it is without ever having to borrow a dime. For example we have 2x and even 3x leveraged long and short etf's that can quickly lay waste to you capital if things go the wrong way.

Leverage cuts both ways, you need a strong stomach and the right market and personnel circumstances to make it work imo. Not something to be blindly recommended to everyone with a line of credit.

[bdub]

Originally Posted by raab

That does not sound good. I know when I looked at TD I was worried about the amount of Home Equity Lines of Credit they had loaned out. Most of those I believe are variable rate, with an older demographic using them.

IIRC TD had about 400B loaned out in mortgages and 200B loaned out in HELOCs. It is insane to me that almost 1/3 of the money loaned out by a Canadian bank for housing is in HELOCs.

I imagine all the banks are roughly in the same boat.

Financial liberalization, extreme levels of debt, rising inflation and interest rates, falling home prices, combined with a government that thinks fiscal policy means spend it as fast as you can. What could go wrong? Despite all the safeguards in the Canadian Banking system, I don't think it is a stretch to say that we may experience a banking crisis again in Canada. Or a currency crisis for that matter. They tend to follow each other.

[raab]

Originally Posted by bdub

If advisors are randomly suggesting this strategy to one and all, well that should be criminal.

That being said, using leverage to buy stocks might be worthwhile in certain instances based on the individuals circumstances and exactly what they are doing with it. There are two circumstances where I have used it over the years.

The first circumstances we used it was in our RRSP. When we were first starting out we always contributed a monthly sum to our RRSP with each paycheck but it wasn't enough to max out or contribution limits. At the end of the year we would borrow enough to top up the RRSP and use the tax refund to pay off the loan or a good chunk of it when it came in.

The second situation was during 2008-09. We were making good money, secure employment, we had no other debt, mortgage, vehicle loan, nothing. The market had already taken most of the beating from the GFC. Loans on our HELOC were charging around 2% if I recall. We borrowed a good chunk of money and bought blue chip dividend payers, banks, telcos, utilities etc. The dividends at the time paid double what the loan interest was. The investments were also held in a non-registered/cash account so that the interest was tax deductible as well. Still we were early and I remember at one time being down perhaps 20 or 25% on those holdings and wondering if I had made a huge mistake. The market eventually turned around and it turned out to be a good decision in the long run. But even in our circumstances I found it extremely stressful.

This is not a recommendation, just an example of how we used leverage. The second example of borrowing on the HELOC helped put us ahead. But circumstances in the equity market and with interest rates are completely different right now compared to 2009.

Right now the retail investor can get into plenty of trouble with leveraged products as it is without ever having to borrow a dime. For example we have 2x and even 3x leveraged long and short etf's that can quickly lay waste to you capital if things go the wrong way.

Leverage cuts both ways, you need a strong stomach and the right market and personnel circumstances to make it work imo. Not something to be blindly recommended to everyone with a line of credit.

I guess I should not say I would never borrow to buy stock. The price of the stock would have to be trading for pennies on the dollar though and be good strong business.

Bad enough watching the money you earned lose 30%. Not worth the stress of being absolutely wiped out if the market corrects. That said if you are going to use debt a HELOC or personal loan is the way to do it. You want a loan they can not call if things go sideways. Do not use a margin loan.

Edit: Not really directed at you Bdub, just a general warning.

[bdub]

Originally Posted by raab

I guess I should not say I would never borrow to buy stock. The price of the stock would have to be trading for pennies on the dollar though and be good strong business.

Bad enough watching the money you earned lose 30%. Not worth the stress of being absolutely wiped out if the market corrects. That said if you are going to use debt a HELOC or personal loan is the way to do it. You want a loan they can not call if things go sideways. Do not use a margin loan.

Edit: Not really directed at you Bdub, just a general warning.

Ubet, no worries. I'm largely on the same page and its good advice for 99%. Not that I would hesitate to use leverage again under the right circumstance.

Another critical point is to a look into the tax circumstances if you are using leverage and how you set up the loan etc. You must keep the investment loan completely separate from other loans ie, don't have the new kitchen counter on the same heloc as you are using for investing. As well as what investment vehicle you are using. Borrow to invest into a TFSA or RRSP and the interest is not deductible.

[eric2381]

Myself, I never would invest on margin. Never. Number one most important thing in investing is risk management.

[Dean2]

TD has followed the same pattern as RY. Royal is back up to 136.77 after its earnings announcement drop to 132.40 March 1st, and TD is at $89 after its drop to 87.85 yesterday on its earnings announcement.

I respect the opinions that potential problems in the housing market may affect Bank earnings. The housing market is going to correct at some point, but as long as we are bringing in 3 times as many immigrants as we are building housing units per year, demand for purchase or rental space is not going away any time soon. Even if interest rates cause foreclosures to ramp way up, there is a long line of people to buy them. Pundits have been forecasting the implosion of the Canadian Banks for 20 years. They have lost BILLIONS shorting the Canadian Banks. The Banks will go up and down, but if the Big six fail, or even a couple of them, we a all seriously screwed, no matter what your money is invested in. If you really believe that is a potential scenario then you should be moving a big chunk of money out of Canada.

As far as borrowing to invest, my view is I should never borrow more than 10% of the total value of my investment portfolio. That gives me a bit of leverage to work with but still way more than adequate coverage in case things go sideways. With real estate, I believe leverage at a max of 60% of the value of the real estate owned remains in the prudent range.

[raab]

Originally Posted by Dean2

TD has followed the same pattern as RY. Royal is back up to 136.77 after its earnings announcement drop to 132.40 March 1st, and TD is at $89 after its drop to 87.85 yesterday on its earnings announcement.

I respect the opinions that potential problems in the housing market may affect Bank earnings. The housing market is going to correct at some point, but as long as we are bringing in 3 times as many immigrants as we are building housing units per year, demand for purchase or rental space is not going away any time soon. Even if interest rates cause foreclosures to ramp way up, there is a long line of people to buy them. Pundits have been forecasting the implosion of the Canadian Banks for 20 years. They have lost BILLIONS shorting the Canadian Banks. The Banks will go up and down, but if the Big six fail, or even a couple of them, we a all seriously screwed, no matter what your money is invested in. If you really believe that is a potential scenario then you should be moving a big chunk of money out of Canada.

There is a reason most of my investments are in the US and I bank with ATB. If I could I would get paid in US dollars. I am not very high on the Canadian economy or currency over the next 20 years. I expect we will feel some pain due to the green transition. The fact is Canada has almost no companies who spend on R&D or produce finished products. We are a very commodity driven economy so we are more prone to boom and bust cycles than the US.

I also no longer trust the Canadian bank system after they froze the accounts of protestors. I have been looking at accounts in Switzerland and the Cayman Islands but have not found one yet. I would think I am not the only person who now sees the Canadian banks as untrustworthy.

[doublehaul]

I have a novice question.

When you buy US equities, do you have to claim and pay taxes on earnings?
If so it seems like it would be a lot of work??

I’m currently only buying Canadian, but there is more opportunity to include the US markets.

Thanks

[Twisted Canuck]

Yes. Any earnings you have are taxable, regardless of where they occur.

[raab]

Originally Posted by doublehaul

I have a novice question.

When you buy US equities, do you have to claim and pay taxes on earnings?
If so it seems like it would be a lot of work??

I’m currently only buying Canadian, but there is more opportunity to include the US markets.

Thanks

The US government will tax you 30% on dividends unless you put them in a RRSP. In a RRSP the US government does not withhold the 30% tax so that is my preferred method of acquiring US bluechip stock.

For your TFSA you can buy US stocks with no dividend and there is no penalty. Growth companies are what the TFSA was built for.

[raab]

Well after going on my rant against the Canadian banking system I sat down to look at a few reports.

It looks like Canadian banks are well positioned to absorb the risk of an economic downturn. Although it is hard to decipher the bank's financial statements due to their diversification into other products such as brokerages, wealth management, and insurance. None the less it seems like they have the capital required to cover loan write offs. In saying that I would like to know what derivatives they are holding as derivatives caused the 2008 crash.

TD is heavily invested in Ontario with almost 50% of its Canadian retail loans and mortgages coming from the province. RBC's report was difficult to follow but went in-depth into their risk management strategy.

There is a risk with TD that the housing market in Ontario corrects enough to freeze HELOCs. According to TD's financial report the average HELOC in Ontario is sitting at 63% LTV. Because of the rapid rise in markets like Toronto a 20% correction is not unheard of and could put these borrowers at risk of their HELOC being frozen or having to repay the amount unexpectedly.

RBC is in a similar spot with regards to HELOCs in Ontario sitting at 66% LTV.

The most concerning thing for both banks is that 25% of the mortgages held will take over 35 years to pay off at current payment levels. This is up from last year in which 70% of mortgages would be paid off in less then 25 years, and another 28% between 25 to 30 years.(RBC) Further interest rate hikes or higher unemployment could push these mortgages into default.

In closing I believe Canadian banks will face a short term headwind due to the macroeconomic environment in which they are operating over the next 2-3 years. However long term I believe they are a secure investment at todays prices. If I had to pick between RBC or TD, I would choose TD because their annual reports are easier to read and I believe they have higher upside long term. To mitigate risk I would plan on buying in intervals over the next two years until the macroeconomic environment stabilizes.

Disclaimer this is not investment advice but my personal analysis. Use at own risk I bear no responsibility.

Edit: The more I look at the 25% number, the more I do not like it. 1 in 4 mortgages held by two of the biggest banks in Canada are at risk of default. I am not sure the banks actually have enough liquidity to cover their costs if those borrowers all default on payments in a short period of time. The government will no doubt bail them out, but this could be our 2008 moment.

[Dean2]

If I had more time I would write out a detailed dissertation of how mortgage and HELOC lending works in Canadian Banks and the risk mitigation measures thereon.

Since I don't, long and short;

1. You will not see a 25% foreclosure rate on land secured loans.
   
2. Even default at that level won't happen as amortization can effectively be pushed to however many years it needs to be to allow a debtor to make their payments.
   
3. From the Banks perspective, if it takes you 50 years to repay the loan, their risk did not increase. The limitation to this is when the capitalization of interest hits the market value of the property.
   
4. Other salient point, market value has to drop almost 35% before the properties are not worth the mortgage outstanding.
   
5. The Banks have mortgage insurance for all properties with less than 25% equity, typically about 30% of the portfolio. There are no Capital Reserves required against these insured loans as the banks are not exposed to loss. MICC is for most, about 80%, and CMHC for the remainder of the loans.
   
6. If Helocs are frozen, they are not called, they just go into monthly repayment.

https://www150.statcan.gc.ca/n1/pub/...021001-eng.htm

If you read this on the link, you can see all the charts they refer to.

Trends in the Canadian mortgage market: Before and during COVID-19

by Michael Daoust, Matthew Hoffarth and Thomas Haines
Release date: February 17, 2021

Acknowledgements

This work would not have been possible without the invaluable contributions and expertise of innumerable dedicated staff from Statistics Canada including Carolina Cabañas-Leòn, Gilbert Côté, Lydia Couture, Yves Gauthier, Lei He, Dragos Ifrim, Matthew Kelly, Dave Krochmalnek, Denise Lafleur, Alexander Li, Alexander McGuire, Daniela Ravindra, Étienne Saint-Pierre, Akram Sirag, and Jennifer Withington.
Introduction

This is the first in a series of papers exploring the trends in borrowing activity observed among Canadian households and businesses leading up to and during 2020. It draws analysis from a wide array of sources, including Statistics Canada’s National Balance Sheet Accounts and Monthly Credit Aggregates, as well as information from Statistic Canada’s Mortgage Loans Report and the Bank of Canada’s Report on New and Existing Lending. The focus of this paper is on household mortgage borrowing, that is, the debt acquired to finance the purchase of a property.
Household mortgage debt leading into and during the pandemic

Following the financial crisis in 2008, significant attention was directed to ensuring stability in financial markets around the world and avoiding the type of risky lending that could result in a new contagion in the financial system. By late 2015, concerns about the strength of Canada’s housing market were beginning to grow, with fears that the markets were overheating in several Canadian cities. In January 2017, in an attempt to address these risks, the Office of the Superintendent of Financial Institutions (OSFI) implemented several new restrictions. These included an interest-rate stress test for all mortgages and, to help curb property speculation, new rules that exempt foreign buyers from earning tax-free capital gains on residential properties.Note As property prices and debt levels continued to rise in many parts of the country, additional concerns grew about the mortgage market’s exposure to interest rate risks resulting from historically low interest rates and record high loan-to-value ratios.Note To help limit risk in this type of lending, in January 2018, OSFI updated its mortgage underwriting guidelines (known as the B-20 guidelines) to require more stringent stress tests for all uninsured mortgages.Note

Chart 1 Year-over-year growth rate of household residential mortgage balances
Data table for Chart 1


In the years leading up to the financial crisis of 2008, the stock of outstanding household residential mortgage debt maintained double-digit or near double-digit annual growth. Following the crisis, growth remained above 4.5% year-over-year. This persisted until 2018 when, at the same time as mortgage underwriting standards began to tighten, the Bank of Canada implemented a series of increases to their policy rate. What ensued was a period of relatively tepid growth in the stock of outstanding mortgage debt, slowing to just above 3% in 2019 and marking a moderate departure from prior trends. On a year-over-year basis, the growth in mortgage debt hit its lowest point in nearly two decades, falling to 3.0% in February 2019, after which mortgages rebounded and continued on a path of accelerating growth for the remainder of 2019.

Throughout 2020, mortgage borrowing has remained relatively strong, with households adding nearly $108 billion in mortgage debt by November compared with less than two-thirds of that amount in 2019 and just under $46 billion in 2018.Note Government-orchestrated measures, such as the Canadian Economic Recovery Benefit, the six-month mortgage deferral option offered by financial institutions and reductions to the Bank of Canada’s policy rate to its lowest level since the 2009 financial crisis have helped support the housing market while mortgage borrowing has remained resilient.

Chart 2 Household mortgage debt as a proportion of household disposable income
Data table for Chart 2


Household mortgage debt as a proportion of disposable income has risen since early 2001. This ratio is an indicator of how well households can manage their debt with their current income. The oil-induced economic shock that occurred in early 2015 pushed the ratio up sharply as household incomes felt the pinch of lower compensation. The ratio subsequently plateaued and remained relatively stable over the period of 2016 to 2019, during which mortgage borrowing guidelines were tightened. This persisted until the second quarter of 2020, when the ratio experienced a significant contraction, not as a result of reduced borrowing, but because of strong growth in disposable income. This was fuelled by assistance from all levels of government to help diminish the economic impact of COVID-19. Disposable incomes rose 12.7% on a seasonally adjusted basis in the second quarter of 2020 from the fourth quarter of 2019, with government transfers up 103.4% over the same period; mortgage credit rose a more modest 3.3%.Note Note If mortgage borrowing remains robust and income decreases back to pre-pandemic levels, then households may find themselves with record levels of mortgage debt relative to their current disposable income in subsequent quarters.
New mortgage lending hits record level as home sales post sharp but short-lived decline

The amount of new lending by chartered banks reached record levels in the first half of 2020, driven in part by significant declines in the costs of borrowing and resilient demand for housing. This lending, which represents the origination of new mortgages for the purchase of residential properties and the refinancing and renewals of existing mortgages, surpassed $42 billion on a seasonally adjusted basis for the first time in March. The change in the outstanding stock of mortgage debt is a combination of this new lending less the repayment of existing debt, with the expansion of new lending persisting in the latter half of the year.

Chart 3 Monthly new mortgage lending versus growth in outstanding mortgage balances
Data table for Chart 3


With only essential services able to operate in late March, many parts of the economy were brought to a standstill. Stay-at-home orders severely restricted the ability of home sellers to hold open houses, which prevented visits from interested property buyers. While buyers and sellers coped with these limitations, climbing unemployment and increased uncertainty about the future put considerable downward pressure on the housing market, with April marking the lowest sales figure since the late 1980s.Note However, this decline was short lived and, as restrictions eased, the number of homes sold rebounded quickly, setting records for monthly growth in May, June and July.Note Note Despite the initial slowdown caused by COVID-19 restrictions, cumulative January-to-December resales were 12.6% higher in 2020 than over the same period a year earlier.

Chart 4 Monthly Multiple Listing Service (MLS) units sold and mortgage related lending
Data table for Chart 4


Table 1
Monthly growth in seasonally adjusted mortgage lending and MLS sales
Table summary
This table displays the results of Monthly growth in seasonally adjusted mortgage lending and MLS sales. The information is grouped by Reference Period (appearing as row headers), Jan-20, Feb-20, Mar-20, Apr-20, May-20, Jun-20, Jul-20, Aug-20, Sep-20, Oct-20, Nov-20 and Dec-20, calculated using percent units of measure (appearing as column headers). Reference Period Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
percent
New mortgage lending, seasonally adjusted 2.2 7.5 1.6 0.7 -11.9 -14.1 7.6 23.4 12.6 2.2 -0.6 1.6
MLS units sold, seasonally adjusted 0.4 11.0 -14.7 -68.2 71.6 104.9 28.8 1.3 3.2 -2.9 -6.2 -2.6
Source: Canadian Real Estate Association (CREA), Haver Analytics, Statistics Canada calculations. Bank of Canada Report on New and Existing Lending (A4). MLS – Multiple Listing Service

Although resale activity fell significantly in March, followed by a record monthly decline in April, the impact on new lending would not become apparent until May, when the demand for funds declined in response to the preceding drop in sales activity. Typically, there can be a lag of up to three months between when a sales agreement is signed and when the funds are actually transferred. Despite this decline in sales through April, new lending decreased only modestly in May and June as mortgage refinancing and renewals helped dampen the impact of the decline in sales. Similarly, the sharp recovery in housing demand was mirrored by growth in new lending later in the year.

As time spent at home increased during the pandemic, shifting housing preferences coupled with pent up demand pushed home sales to record levels throughout the summer. As of October, over one-quarter of Canadians (2.4 million individuals) who would not normally work from home were doing so, while the number of Canadians working at locations other than home was little changed.Note Working from home continues to be an important adaptation to COVID-19 health risks, and this new reality has likely increased the importance of securing suitable housing options. According to the Bank of Canada’s Monetary Policy Report, more than one-quarter of respondents to the Canadian Survey of Consumer Expectations for the third quarter of 2020 reported that they would like to move to a larger or single family home because of the pandemic.Note

Due in large part to the historically low interest rates and these changing housing requirements, Canadian housing prices continued to climb above their pre-pandemic levels during 2020. Statistics Canada’s Residential Property Price Index (RPPI), which includes both resale and new build properties in Canada’s major cities, ended the fourth quarter of 2020 up 8.5% from the fourth quarter of 2019. Prices for resale properties rose 9.4% from the fourth quarter of the previous year, outpacing the similarly strong 6.4% growth of new build property prices over the same period.Note

Chart 5 Residential property price index, quarterly
Data table for Chart 5

Strength in new lending fuelled by originations and renewals

New lending by chartered banks can be broken down into funds extended for new home purchases and funds related to renewals and refinancing with either the same or a different lender. As the volume of resales declined through 2018 and increased only modestly through 2019, renewals began to account for a larger share of overall new lending. With fewer borrowers requesting funds to purchase new homes, there was a relatively larger share of existing mortgages due for renewal as they reached the end of their term.

As interest rates fell to historic lows during the first quarter of 2020, mortgage refinancing and renewals spiked, sending the total value of mortgage renewals (same lender) up 13.3% on a seasonally adjusted basis. Since many financial institutions allow borrowers to renew several months before the end of their term, it is possible that renewals were fuelled not only by those with terms ending in the quarter, but also by those with terms expiring in subsequent quarters who may have taken advantage of early renewal options.

Chart 6 Seasonally adjusted lending by purpose
Data table for Chart 6

Household borrowers react to interest rate environment and shift term preferences

Mortgage lending data from chartered banks show that Canadians generally prefer five-year fixed-rate mortgages, with this loan type accounting for 49% of the total outstanding balance of existing mortgages in late 2020 compared with just under 42% in early 2019.Note New loan preferences fluctuate as the interest rate environment changes, for example, the popularity of five-year fixed-rate mortgages has grown substantially since the beginning of 2019 as fixed-term mortgages became available at similar or even lower rates than their variable-term counterparts. As interest rates dropped in March 2020, the demand for variable-rate mortgages spiked while longer-term rates were slower to adjust. As longer-term rates began to mirror the decline in variable rates, growth in demand for five-year fixed-rate mortgages accelerated into the summer.

Chart 7 Discount mortgage rates by type and term
Data table for Chart 7


Chart 8 Seasonally adjusted monthly residential mortgage new funds advanced by loan term
Data table for Chart 8

Chartered banks provide the bulk of mortgage financing and deferrals

Historically, non-bank lending institutions have held about a quarter of the total household residential mortgage market’s outstanding debt. As the lockdown took effect in March 2020, the growth in outstanding household mortgage debt provided by non-banks slowed, with chartered banks providing the bulk of the funds. As businesses reopened in April, the amount of mortgage lending administered by both chartered banks and non-banks surged to record levels. With the accelerating growth of home sales into the summer, non-bank mortgage lending was outpaced by that of banks as they represented a smaller portion of mortgage lending in each month through the end of November, while posting a sizable increase in this final month.

Chart 9 Monthly change in outstanding mortgages debt by lender sector
Data table for Chart 9


As the employment rate fell and businesses closed for the first time in March, many Canadians found themselves out of work or working reduced hours. To support borrowers and reduce the risk of near-term mortgage defaults, OSFI announced a special capital treatment for federally regulated deposit-taking institutions granting payment deferrals to borrowers. This gave many lenders leeway to provide relief without the need to reclassify loans with payment deferrals as non-performing. As of November 30, 2020, chartered banks had provided mortgage payment deferrals to more than 797,900 Canadians.Note In comparison, non-bank lenders, while not subject to the guidelines outlined by OSFI, also provided payment deferrals on a further 100,372 mainly uninsured mortgages during the second quarter.Note
Debt service ratios drop as households defer mortgage payments

The household debt service ratio is a measure of total obligated payments of principal and interest as a proportion of household disposable income and excludes deferred principal payments, resulting in a lower ratio than if borrowers had been obligated to pay. Between the first and third quarters of 2020, the size of these deferrals as a proportion of total obligated payments of mortgage principal grew from less than 1% to a high of over 18% in the second quarter. By the third quarter, the proportion had fallen considerably as the special capital treatment provided by OSFI on new approvals came to an end on October 1st, 2020.

Chart 10 Household mortgage debt service ratio and payment deferrals
Data table for Chart 10

Expected credit losses grow, but represent only a small proportion of overall mortgage debt

As part of their risk management activities, financial institutions estimate the proportion of their loan portfolios that may enter default each period. These expected credit losses (ECL) are based on actuarial assumptions that attempt to anticipate the default rates on their loans and subsequently the amount of impaired loans that may need to be written off in a given period. While ECL on mortgage loans had been rising slowly from 2017 to the end of 2019, as the pandemic hit, banks’ ECL increased sharply. With non-essential businesses unable to operate, most of the growth in anticipated credit losses occurred on non-mortgage loans. Despite the increasing ECL through 2020, the risks in the mortgage market were seen as very minor, with total ECL on mortgage loans as a proportion of total household mortgage debt reaching only 0.1% in the third quarter of 2020.

Chart 11 Expected credit losses (ECL) on outstanding mortgage balances
Data table for Chart 11

Growth in overall household debt during COVID-19 led by mortgage borrowing

The growth in outstanding mortgage balances had been declining since the financial crisis, peaking in October 2007, then decreasing to a low of 3.0% in February 2019. As mortgage rates began to decline through 2019, home sales started to accelerate and the growth of outstanding balances once again began to rise. COVID-19 restrictions forced non-essential businesses to close in March 2020 and it seemed that the housing market would be especially adversely impacted. Instead, government support measures, coupled with historically low interest rates, helped to prop up the housing market in 2020, demonstrated by cumulative housing sales exceeding those of 2019 and annual growth in outstanding mortgage balances reaching 7.5 % in November 2020. Despite rising mortgage balances, historically low interest rates and robust incomes have kept mortgage debt burdens from surpassing their pre-pandemic levels.

While this article has focused on trends in mortgage borrowing, it does not tell the whole story on household debt over the last 12 months. Non-mortgage loans, which are funds used primarily for consumption, were impacted significantly by the various social-distancing measures that were implemented. The outstanding stock of non-mortgage debt exhibited a sharp contraction in the first half of 2020 as household consumption declined by a record amount.Note By the end of November, households had added $108.0 billion to their outstanding mortgage debt while simultaneously shedding almost $8 billion from non-mortgage debt since December 2019.

This will be examined further in a future article in this series on debt.

Chart 12 Year-over-year growth in household mortgage and non-mortgage loans
Data table for Chart 12

References

Bank of Canada (December 2020). “Historical selected credit measures (formerly E2).” Available at https://www.bankofcanada.ca/rates/ba...s-formerly-e2/.

Bank of Canada (December 2020). Monetary Policy Report – October 2020. Available at https://www.bankofcanada.ca/2-2-/10/mpr-2020-10-28.

Canada Mortgage and Housing Corporation (October 2020). Residential Mortgage Industry Report – September 2020. Available at https://www.cmhc-schl.gc.ca/en/data-...ket-assessment.

Office of the Superintendent of Financial Institutions (December 2020). Residential Mortgage Underwriting Practices and Procedures Guideline (B-20). Available at https://www.osfi-bsif.gc.ca/Eng/fi-i...s/b20-nfo.aspx.

Rate Hub – Historical Mortgage Rates in Canada (December 2020). Available at www.ratehub.ca/historical-mortgage-rates-widget.

Rate Spy (December 2020). History of Mortgage Rule Changes in Canada. Available at https://www.ratespy.com/history-of-m...anges-03255560.

Statistics Canada (December 2020). “Credit liabilities of households.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=3610063901.

Statistics Canada (October 2020). “Current and capital accounts – households, Canada, quarterly.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=3610011201.

Statistics Canada (December 2020). “Debt service indicators of households, national balance sheet accounts.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=1110006501.

Statistics Canada (October 2020). “Household sector credit market summary table, seasonally adjusted estimates.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=3810023801.

Statistics Canada (December 2020). “Residential mortgage credit, outstanding balances of major private lenders, Bank of Canada.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=1010012901.

Statistics Canada (December 2020). Labour Force Survey, October 2020. Available at https://www150.statcan.gc.ca/n1/dail...01106a-eng.htm.

Statistics Canada (October 2020). “Residential property price index, quarterly.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=1810016901.

[raab]

Originally Posted by Dean2

If I had more time I would write out a detailed dissertation of how mortgage and HELOC lending works in Canadian Banks and the risk mitigation measures thereon.

Since I don't, long and short;

1. You will not see a 25% foreclosure rate on land secured loans.
   
2. Even default at that level won't happen as amortization can effectively be pushed to however many years it needs to be to allow a debtor to make their payments.
   
3. From the Banks perspective, if it takes you 50 years to repay the loan, their risk did not increase. The limitation to this is when the capitalization of interest hits the market value of the property.
   
4. Other salient point, market value has to drop almost 35% before the properties are not worth the mortgage outstanding.
   
5. The Banks have mortgage insurance for all properties with less than 25% equity, typically about 30% of the portfolio. There are no Capital Reserves required against these insured loans as the banks are not exposed to loss. MICC is for most, about 80%, and CMHC for the remainder of the loans.
   
6. If Helocs are frozen, they are not called, they just go into monthly repayment.

https://www150.statcan.gc.ca/n1/pub/...021001-eng.htm

If you read this on the link, you can see all the charts they refer to.

Trends in the Canadian mortgage market: Before and during COVID-19

by Michael Daoust, Matthew Hoffarth and Thomas Haines
Release date: February 17, 2021

Acknowledgements

This work would not have been possible without the invaluable contributions and expertise of innumerable dedicated staff from Statistics Canada including Carolina Cabañas-Leòn, Gilbert Côté, Lydia Couture, Yves Gauthier, Lei He, Dragos Ifrim, Matthew Kelly, Dave Krochmalnek, Denise Lafleur, Alexander Li, Alexander McGuire, Daniela Ravindra, Étienne Saint-Pierre, Akram Sirag, and Jennifer Withington.
Introduction

This is the first in a series of papers exploring the trends in borrowing activity observed among Canadian households and businesses leading up to and during 2020. It draws analysis from a wide array of sources, including Statistics Canada’s National Balance Sheet Accounts and Monthly Credit Aggregates, as well as information from Statistic Canada’s Mortgage Loans Report and the Bank of Canada’s Report on New and Existing Lending. The focus of this paper is on household mortgage borrowing, that is, the debt acquired to finance the purchase of a property.
Household mortgage debt leading into and during the pandemic

Following the financial crisis in 2008, significant attention was directed to ensuring stability in financial markets around the world and avoiding the type of risky lending that could result in a new contagion in the financial system. By late 2015, concerns about the strength of Canada’s housing market were beginning to grow, with fears that the markets were overheating in several Canadian cities. In January 2017, in an attempt to address these risks, the Office of the Superintendent of Financial Institutions (OSFI) implemented several new restrictions. These included an interest-rate stress test for all mortgages and, to help curb property speculation, new rules that exempt foreign buyers from earning tax-free capital gains on residential properties.Note As property prices and debt levels continued to rise in many parts of the country, additional concerns grew about the mortgage market’s exposure to interest rate risks resulting from historically low interest rates and record high loan-to-value ratios.Note To help limit risk in this type of lending, in January 2018, OSFI updated its mortgage underwriting guidelines (known as the B-20 guidelines) to require more stringent stress tests for all uninsured mortgages.Note

Chart 1 Year-over-year growth rate of household residential mortgage balances
Data table for Chart 1


In the years leading up to the financial crisis of 2008, the stock of outstanding household residential mortgage debt maintained double-digit or near double-digit annual growth. Following the crisis, growth remained above 4.5% year-over-year. This persisted until 2018 when, at the same time as mortgage underwriting standards began to tighten, the Bank of Canada implemented a series of increases to their policy rate. What ensued was a period of relatively tepid growth in the stock of outstanding mortgage debt, slowing to just above 3% in 2019 and marking a moderate departure from prior trends. On a year-over-year basis, the growth in mortgage debt hit its lowest point in nearly two decades, falling to 3.0% in February 2019, after which mortgages rebounded and continued on a path of accelerating growth for the remainder of 2019.

Throughout 2020, mortgage borrowing has remained relatively strong, with households adding nearly $108 billion in mortgage debt by November compared with less than two-thirds of that amount in 2019 and just under $46 billion in 2018.Note Government-orchestrated measures, such as the Canadian Economic Recovery Benefit, the six-month mortgage deferral option offered by financial institutions and reductions to the Bank of Canada’s policy rate to its lowest level since the 2009 financial crisis have helped support the housing market while mortgage borrowing has remained resilient.

Chart 2 Household mortgage debt as a proportion of household disposable income
Data table for Chart 2


Household mortgage debt as a proportion of disposable income has risen since early 2001. This ratio is an indicator of how well households can manage their debt with their current income. The oil-induced economic shock that occurred in early 2015 pushed the ratio up sharply as household incomes felt the pinch of lower compensation. The ratio subsequently plateaued and remained relatively stable over the period of 2016 to 2019, during which mortgage borrowing guidelines were tightened. This persisted until the second quarter of 2020, when the ratio experienced a significant contraction, not as a result of reduced borrowing, but because of strong growth in disposable income. This was fuelled by assistance from all levels of government to help diminish the economic impact of COVID-19. Disposable incomes rose 12.7% on a seasonally adjusted basis in the second quarter of 2020 from the fourth quarter of 2019, with government transfers up 103.4% over the same period; mortgage credit rose a more modest 3.3%.Note Note If mortgage borrowing remains robust and income decreases back to pre-pandemic levels, then households may find themselves with record levels of mortgage debt relative to their current disposable income in subsequent quarters.
New mortgage lending hits record level as home sales post sharp but short-lived decline

The amount of new lending by chartered banks reached record levels in the first half of 2020, driven in part by significant declines in the costs of borrowing and resilient demand for housing. This lending, which represents the origination of new mortgages for the purchase of residential properties and the refinancing and renewals of existing mortgages, surpassed $42 billion on a seasonally adjusted basis for the first time in March. The change in the outstanding stock of mortgage debt is a combination of this new lending less the repayment of existing debt, with the expansion of new lending persisting in the latter half of the year.

Chart 3 Monthly new mortgage lending versus growth in outstanding mortgage balances
Data table for Chart 3


With only essential services able to operate in late March, many parts of the economy were brought to a standstill. Stay-at-home orders severely restricted the ability of home sellers to hold open houses, which prevented visits from interested property buyers. While buyers and sellers coped with these limitations, climbing unemployment and increased uncertainty about the future put considerable downward pressure on the housing market, with April marking the lowest sales figure since the late 1980s.Note However, this decline was short lived and, as restrictions eased, the number of homes sold rebounded quickly, setting records for monthly growth in May, June and July.Note Note Despite the initial slowdown caused by COVID-19 restrictions, cumulative January-to-December resales were 12.6% higher in 2020 than over the same period a year earlier.

Chart 4 Monthly Multiple Listing Service (MLS) units sold and mortgage related lending
Data table for Chart 4


Table 1
Monthly growth in seasonally adjusted mortgage lending and MLS sales
Table summary
This table displays the results of Monthly growth in seasonally adjusted mortgage lending and MLS sales. The information is grouped by Reference Period (appearing as row headers), Jan-20, Feb-20, Mar-20, Apr-20, May-20, Jun-20, Jul-20, Aug-20, Sep-20, Oct-20, Nov-20 and Dec-20, calculated using percent units of measure (appearing as column headers). Reference Period Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
percent
New mortgage lending, seasonally adjusted 2.2 7.5 1.6 0.7 -11.9 -14.1 7.6 23.4 12.6 2.2 -0.6 1.6
MLS units sold, seasonally adjusted 0.4 11.0 -14.7 -68.2 71.6 104.9 28.8 1.3 3.2 -2.9 -6.2 -2.6
Source: Canadian Real Estate Association (CREA), Haver Analytics, Statistics Canada calculations. Bank of Canada Report on New and Existing Lending (A4). MLS – Multiple Listing Service

Although resale activity fell significantly in March, followed by a record monthly decline in April, the impact on new lending would not become apparent until May, when the demand for funds declined in response to the preceding drop in sales activity. Typically, there can be a lag of up to three months between when a sales agreement is signed and when the funds are actually transferred. Despite this decline in sales through April, new lending decreased only modestly in May and June as mortgage refinancing and renewals helped dampen the impact of the decline in sales. Similarly, the sharp recovery in housing demand was mirrored by growth in new lending later in the year.

As time spent at home increased during the pandemic, shifting housing preferences coupled with pent up demand pushed home sales to record levels throughout the summer. As of October, over one-quarter of Canadians (2.4 million individuals) who would not normally work from home were doing so, while the number of Canadians working at locations other than home was little changed.Note Working from home continues to be an important adaptation to COVID-19 health risks, and this new reality has likely increased the importance of securing suitable housing options. According to the Bank of Canada’s Monetary Policy Report, more than one-quarter of respondents to the Canadian Survey of Consumer Expectations for the third quarter of 2020 reported that they would like to move to a larger or single family home because of the pandemic.Note

Due in large part to the historically low interest rates and these changing housing requirements, Canadian housing prices continued to climb above their pre-pandemic levels during 2020. Statistics Canada’s Residential Property Price Index (RPPI), which includes both resale and new build properties in Canada’s major cities, ended the fourth quarter of 2020 up 8.5% from the fourth quarter of 2019. Prices for resale properties rose 9.4% from the fourth quarter of the previous year, outpacing the similarly strong 6.4% growth of new build property prices over the same period.Note

Chart 5 Residential property price index, quarterly
Data table for Chart 5

Strength in new lending fuelled by originations and renewals

New lending by chartered banks can be broken down into funds extended for new home purchases and funds related to renewals and refinancing with either the same or a different lender. As the volume of resales declined through 2018 and increased only modestly through 2019, renewals began to account for a larger share of overall new lending. With fewer borrowers requesting funds to purchase new homes, there was a relatively larger share of existing mortgages due for renewal as they reached the end of their term.

As interest rates fell to historic lows during the first quarter of 2020, mortgage refinancing and renewals spiked, sending the total value of mortgage renewals (same lender) up 13.3% on a seasonally adjusted basis. Since many financial institutions allow borrowers to renew several months before the end of their term, it is possible that renewals were fuelled not only by those with terms ending in the quarter, but also by those with terms expiring in subsequent quarters who may have taken advantage of early renewal options.

Chart 6 Seasonally adjusted lending by purpose
Data table for Chart 6

Household borrowers react to interest rate environment and shift term preferences

Mortgage lending data from chartered banks show that Canadians generally prefer five-year fixed-rate mortgages, with this loan type accounting for 49% of the total outstanding balance of existing mortgages in late 2020 compared with just under 42% in early 2019.Note New loan preferences fluctuate as the interest rate environment changes, for example, the popularity of five-year fixed-rate mortgages has grown substantially since the beginning of 2019 as fixed-term mortgages became available at similar or even lower rates than their variable-term counterparts. As interest rates dropped in March 2020, the demand for variable-rate mortgages spiked while longer-term rates were slower to adjust. As longer-term rates began to mirror the decline in variable rates, growth in demand for five-year fixed-rate mortgages accelerated into the summer.

Chart 7 Discount mortgage rates by type and term
Data table for Chart 7


Chart 8 Seasonally adjusted monthly residential mortgage new funds advanced by loan term
Data table for Chart 8

Chartered banks provide the bulk of mortgage financing and deferrals

Historically, non-bank lending institutions have held about a quarter of the total household residential mortgage market’s outstanding debt. As the lockdown took effect in March 2020, the growth in outstanding household mortgage debt provided by non-banks slowed, with chartered banks providing the bulk of the funds. As businesses reopened in April, the amount of mortgage lending administered by both chartered banks and non-banks surged to record levels. With the accelerating growth of home sales into the summer, non-bank mortgage lending was outpaced by that of banks as they represented a smaller portion of mortgage lending in each month through the end of November, while posting a sizable increase in this final month.

Chart 9 Monthly change in outstanding mortgages debt by lender sector
Data table for Chart 9


As the employment rate fell and businesses closed for the first time in March, many Canadians found themselves out of work or working reduced hours. To support borrowers and reduce the risk of near-term mortgage defaults, OSFI announced a special capital treatment for federally regulated deposit-taking institutions granting payment deferrals to borrowers. This gave many lenders leeway to provide relief without the need to reclassify loans with payment deferrals as non-performing. As of November 30, 2020, chartered banks had provided mortgage payment deferrals to more than 797,900 Canadians.Note In comparison, non-bank lenders, while not subject to the guidelines outlined by OSFI, also provided payment deferrals on a further 100,372 mainly uninsured mortgages during the second quarter.Note
Debt service ratios drop as households defer mortgage payments

The household debt service ratio is a measure of total obligated payments of principal and interest as a proportion of household disposable income and excludes deferred principal payments, resulting in a lower ratio than if borrowers had been obligated to pay. Between the first and third quarters of 2020, the size of these deferrals as a proportion of total obligated payments of mortgage principal grew from less than 1% to a high of over 18% in the second quarter. By the third quarter, the proportion had fallen considerably as the special capital treatment provided by OSFI on new approvals came to an end on October 1st, 2020.

Chart 10 Household mortgage debt service ratio and payment deferrals
Data table for Chart 10

Expected credit losses grow, but represent only a small proportion of overall mortgage debt

As part of their risk management activities, financial institutions estimate the proportion of their loan portfolios that may enter default each period. These expected credit losses (ECL) are based on actuarial assumptions that attempt to anticipate the default rates on their loans and subsequently the amount of impaired loans that may need to be written off in a given period. While ECL on mortgage loans had been rising slowly from 2017 to the end of 2019, as the pandemic hit, banks’ ECL increased sharply. With non-essential businesses unable to operate, most of the growth in anticipated credit losses occurred on non-mortgage loans. Despite the increasing ECL through 2020, the risks in the mortgage market were seen as very minor, with total ECL on mortgage loans as a proportion of total household mortgage debt reaching only 0.1% in the third quarter of 2020.

Chart 11 Expected credit losses (ECL) on outstanding mortgage balances
Data table for Chart 11

Growth in overall household debt during COVID-19 led by mortgage borrowing

The growth in outstanding mortgage balances had been declining since the financial crisis, peaking in October 2007, then decreasing to a low of 3.0% in February 2019. As mortgage rates began to decline through 2019, home sales started to accelerate and the growth of outstanding balances once again began to rise. COVID-19 restrictions forced non-essential businesses to close in March 2020 and it seemed that the housing market would be especially adversely impacted. Instead, government support measures, coupled with historically low interest rates, helped to prop up the housing market in 2020, demonstrated by cumulative housing sales exceeding those of 2019 and annual growth in outstanding mortgage balances reaching 7.5 % in November 2020. Despite rising mortgage balances, historically low interest rates and robust incomes have kept mortgage debt burdens from surpassing their pre-pandemic levels.

While this article has focused on trends in mortgage borrowing, it does not tell the whole story on household debt over the last 12 months. Non-mortgage loans, which are funds used primarily for consumption, were impacted significantly by the various social-distancing measures that were implemented. The outstanding stock of non-mortgage debt exhibited a sharp contraction in the first half of 2020 as household consumption declined by a record amount.Note By the end of November, households had added $108.0 billion to their outstanding mortgage debt while simultaneously shedding almost $8 billion from non-mortgage debt since December 2019.

This will be examined further in a future article in this series on debt.

Chart 12 Year-over-year growth in household mortgage and non-mortgage loans
Data table for Chart 12

References

Bank of Canada (December 2020). “Historical selected credit measures (formerly E2).” Available at https://www.bankofcanada.ca/rates/ba...s-formerly-e2/.

Bank of Canada (December 2020). Monetary Policy Report – October 2020. Available at https://www.bankofcanada.ca/2-2-/10/mpr-2020-10-28.

Canada Mortgage and Housing Corporation (October 2020). Residential Mortgage Industry Report – September 2020. Available at https://www.cmhc-schl.gc.ca/en/data-...ket-assessment.

Office of the Superintendent of Financial Institutions (December 2020). Residential Mortgage Underwriting Practices and Procedures Guideline (B-20). Available at https://www.osfi-bsif.gc.ca/Eng/fi-i...s/b20-nfo.aspx.

Rate Hub – Historical Mortgage Rates in Canada (December 2020). Available at www.ratehub.ca/historical-mortgage-rates-widget.

Rate Spy (December 2020). History of Mortgage Rule Changes in Canada. Available at https://www.ratespy.com/history-of-m...anges-03255560.

Statistics Canada (December 2020). “Credit liabilities of households.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=3610063901.

Statistics Canada (October 2020). “Current and capital accounts – households, Canada, quarterly.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=3610011201.

Statistics Canada (December 2020). “Debt service indicators of households, national balance sheet accounts.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=1110006501.

Statistics Canada (October 2020). “Household sector credit market summary table, seasonally adjusted estimates.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=3810023801.

Statistics Canada (December 2020). “Residential mortgage credit, outstanding balances of major private lenders, Bank of Canada.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=1010012901.

Statistics Canada (December 2020). Labour Force Survey, October 2020. Available at https://www150.statcan.gc.ca/n1/dail...01106a-eng.htm.

Statistics Canada (October 2020). “Residential property price index, quarterly.” Available at https://www150.statcan.gc.ca/t1/tbl1...pid=1810016901.

All I can go off is what I know. The risk of a liquidity crisis is never zero, and I believe it is higher now than pre-pandemic based on those financial reports. It is possible that nothing happens and the banks weather the storm over the next couple years and are valued higher than today. I can not say for sure though, and so would be leery about a big dump of capital into a bank stock at this time. Buying in intervals over the next couple years would somewhat mitigate the risk of a large price drop in bank stock.

I found this little nugget which truly concerns me with the amount of mortgages that could be at risk.

"Investors accounted for over 22% of mortgaged purchases in the fourth quarter of 2021, up from 19% in 2019... Investors are increasingly extracting equity from their existing properties to support new purchases. The share of investors who took out at least $5,000 in equity in the three months before they purchased an investment property rose substantially since the start of the pandemic (Chart 2-B). The amount of equity these investors took out through home equity lines of credit or mortgage refinancing also noticeably increased. For about one-third of these investors, the equity extracted was equal to or greater than the down payment on their subsequent purchase. This proportion is up from just over one-fifth in 2019."

https://www.bankofcanada.ca/2022/06/...al-real-estate

[doublehaul]

Originally Posted by raab

The US government will tax you 30% on dividends unless you put them in a RRSP. In a RRSP the US government does not withhold the 30% tax so that is my preferred method of acquiring US bluechip stock.

For your TFSA you can buy US stocks with no dividend and there is no penalty. Growth companies are what the TFSA was built for.

Ok thanks for your reply. I need to be more specific.

I have money in a self directed RSP, if I where to buy a U.S. dividend that would hopefully drip, would I have to eventually pay taxes to the US government when I sell or withdraw from rsp?

[raab]

Originally Posted by doublehaul

Ok thanks for your reply. I need to be more specific.

I have money in a self directed RSP, if I where to buy a U.S. dividend that would hopefully drip, would I have to eventually pay taxes to the US government when I sell or withdraw from rsp?

No you should not have to, but I recommend you talk to a financial advisor. Preferably someone you pay and not a bank advisor.

This article is a good read on the issue.

https://www.moneysense.ca/columns/as...for-canadians/

[bdub]

Reporting season well under way. Some encouraging comments from a couple Canadian biggies in a still cheap and hated sector.


-committed to returning the majority of annual FCF to shareholders and is executing on that plan; the Company plans to return between 50-90% of FCF to shareholders in 2023..

-paid $7.90/share in base and special dividends in 2022, a 12% trailing yield..

- expects to declare and pay special dividends for the remaining three quarters in 2023, fulfilling the commitment to return 50-90% of free cash flow to investors. Strong base and special dividends are anticipated in 2024 and in subsequent years based on current strip pricing.

- increased its sustainable and growing quarterly dividend twice in 2022 for a total combined increase of 45% to $3.40 per share annually. The last increase in 2022 was in November, when the Board of Directors approved a 13% increase to our quarterly dividend to $0.85 per common share, which demonstrates the confidence that the Board of Directors has in the sustainability of our business model, our strong balance sheet.. ◦ In addition, the Company paid a special dividend of $1.50 per common share in August 2022.

-the Board of Directors has enhanced our free cash flow allocation policy to accelerate incremental shareholder returns to 100% of free cash flow when the Company’s net debt reaches $10 billion..

[eric2381]

The oil and gas companies are definitely making great money and returning that to their shareholders. Do you care to say what company you were quoting? Sounds like CVE, but I didn’t look into it much. Share buybacks and higher dividends and lower debt and increased cash flows will continue to drive share prices higher.

[bdub]

Originally Posted by eric2381

The oil and gas companies are definitely making great money and returning that to their shareholders. Do you care to say what company you were quoting? Sounds like CVE, but I didn’t look into it much. Share buybacks and higher dividends and lower debt and increased cash flows will continue to drive share prices higher.

Sure ubet. Tourmoline first three comments, Canadian Natural Resources the last two comments. Common theme with lots of producers, pay down debt and return fcf to shareholders.

[Fisherdan]

https://open.spotify.com/episode/5T0...Qciy6ilyF2mUxg

An interview with the CEO of Freehold Royalties - a company that Dean has mentioned more than once.

[fishtank]

FDIC in the us has seized SVB( it price drop from 250+ to a low of around $30 yesterday after hours , it was halted and seized this morning ) , it the biggest bank to be seized since 2008 . Smaller bank in the U.S. is taking a beating today . This Rate hike is going to shake down a lot of skeletons in closets of business over leveraging .

[raab]

I have not watched a sell off like this since the Covid news came out. Some companies down over 5% just today, and pretty well red across the board.

[fishtank]

https://www.marketwatch.com/story/20...?siteid=yhoof2

[Dean2]

So how many have received calls from their financial advisors over the past few days? If they haven't called, why is that. Do you really have an advisor if they aren't talking to you during periods of high market volatility. You are paying them a LOT of money every year for advice and coaching. If you aren't getting that, why are you paying for it?

[bdub]

Originally Posted by Dean2

So how many have received calls from their financial advisors over the past few days? If they haven't called, why is that. Do you really have an advisor if they aren't talking to you during periods of high market volatility. You are paying them a LOT of money every year for advice and coaching. If you aren't getting that, why are you paying for it?

Exactly.
The worst time to panic is when everyone else is. It's hardwired into our human brains, the flight or fight response. Lots of studies on how people feel the pain of financial loss much greater than the pleasure of financial gain (2-3X, not sure how they quantify that). When things turn to crap best to just not look if you can't handle it. If you have cash available, it is a time of opportunity when everyone is freaking out.

[bdub]

On another note, the market is telling us that rate hikes are done and cuts are on the way. Subject to change at any time of course. Nothing like a good bank panic and a spreading financial contagion to put the brakes on.

[Dean2]

A couple of guys have asked what the average charge by an advisor is. For bank hired advisors that are assigned specifically to you, they average about 2 percent of your portfolio, and that is over and above any fees on mutual funds or etfs. This holds true to about 750,000 in portfolio. So on a 400,000 portfolio you are paying them 8000 dollars a year for advice and coaching. If you are getting the usual 1 to 2 hours of time from them that is a hell of a high hourly rate.

Above 750 the rate usually starts to drop but 1 percent on a million is still 10 grand a year, over and above any mutual fund or etf fees and any stock trading commissions.

That is a lot of money. Make sure you are getting value for it.

[fishtank]

FRC is not holding up after the dead cat bounce , Like a rock it might be the next one to go .

[bdub]

Originally Posted by Dean2

A couple of guys have asked what the average charge by an advisor is. For bank hired advisors that are assigned specifically to you, they average about 2 percent of your portfolio, and that is over and above any fees on mutual funds or etfs. This holds true to about 750,000 in portfolio. So on a 400,000 portfolio you are paying them 8000 dollars a year for advice and coaching. If you are getting the usual 1 to 2 hours of time from them that is a hell of a high hourly rate.

Above 750 the rate usually starts to drop but 1 percent on a million is still 10 grand a year, over and above any mutual fund or etf fees and any stock trading commissions.

That is a lot of money. Make sure you are getting value for it.

Could not agree more and here is some math coming at it from a different angle for folks to consider. I don't think people really think through what exactly this means to their retirements when they start out and surely advisors don't point it out, ours sure didn't before they got the boot years ago.

Say you start out saving at age 30 with the goal of retiring at 55. At the end of every year you put $20000 into your RRSP and it earns 10% per year.

At age 55 you will have 1.96 million.

Now take off 2% in fees every year to the advisor. At age 55 you will have 1.46 million.

Now lets say you have an advisor charging 2% that puts you in ETF's charging .5% for fund fees plus his 2%. Down to 1.36 million.

Now lets say you have a real dirt bag advisor charging 2% who sticks you in a mutual fund that also charges another 2% a year, not that uncommon to see fees that high for mutual funds in Canada. Down to 1.1 million.
When I took over my own stuff, I was in exactly the last scenario.

So, if at the end of the year your advisor doesn't provide enough alpha(extra return) above the benchmark that makes up for their extra fee's why are you paying them? What other service do they provide?

I could go off on a completely different tangent on the efficiency of the stock market, but the point is you don't have very good odds of finding an advisor that will provide alpha above and beyond their fees over time. You are better off sticking your $20000 in a couple low fee ETF's each year and forgetting about it until you are 55. Most likely you will be several hundred thousand's of dollars ahead.

Sorry to offend any advisors on here but that's the truth imo. And check my math, I didn't.

[fishtank]

Originally Posted by fishtank

FRC is not holding up after the dead cat bounce , Like a rock it might be the next one to go .

it a takeover rather then a bailout !!