It was a mildly positive week across all asset classes this past week. The prospect of interest rate cuts, though tempered, are still very much alive. Earnings have been generally better than expected. The only fly in the ointment (for now) are the ongoing wars in Ukraine and the Middle East. Oil ticked up a bit this week as the final assault on Rafah appears imminent.
| Index | Close May 2nd 2024 | Close May 9th 2024 |
| S&P500 | 5,069 | 5,213 |
| TSX60 | 21,885 | 22,370 |
| Canada 10 yr. Bond Yield | 3.77% | 3.66% |
| US 10 yr. Treasury Yield | 4.58% | 4.46% |
| USD/CAD | $1.36718 | $1.36825 |
| Brent Crude | $83.82 | $84.18 |
| Gold | $2,304 | $2,346 |
| Bitcoin | $59,097 | $62,734 |
Source: Trading Economics & S&P Cap IQ
Some small relief on the global inflation front this week. The US job market continued to soften as unemployment claims rose to their highest level in 8 months. Job openings are also declining all of which will (should) ease wage pressures. Mortgage rates also fell in the US, though not enough to spur housing demand. It does help on the housing cost front though. The US mortgage market is fundamentally different than Canada’s. 30 year fixed-rate mortgages are not uncommon.
In Europe, Sweden dropped its benchmark rate by 25bps this week, following earlier cuts by Switzerland, Hungary, and the Czech Republic. Expectations are high for a cut by the European Central Bank (ECB) on June 6th. The debate swirls around how aggressive subsequent cuts should be. Germany’s inflation is still sticky and aggressive cuts ahead of the US Federal Reserve will impact the Euro.
Last week, Sam and I attended a conference in Vancouver for family offices and private investors. It was a good chance to reconnect with some colleagues and I got to moderate a panel. Two of the takeaways from the conference were 1) alternative investments (alts) are a growing part of part of portfolios, 2) private debt and credit are attracting a growing share of wallet. We are believers in alts and use them in most portfolios for their diversification and low correlation to traditional asset classes. We are a bit more sceptical on private debt, which, at the moment, has a flavour of the month feel about it. It is an area that on the surface seems attractive, but needs a lot more due diligence before jumping in.
Venture Capital (VC) is another area that always requires deep due diligence but is a sector that has matured over the past 25 years. In conversations over the past week with 2 VC funds, both pointed to a reduction in the amount of capital available to the sector in the past year. The knock effect is that deal terms for investors are becoming much more attractive. This is not just a Canadian issue (where VC funding has always been scarce) but global.
The US equivalent of the Canada Pension Plan (CPP) is Social Security. A recent actuary’s report extended the solvency timeline of Social Security to 2035 at which time the fund will need to reduce benefits payable to retirees. By contrast, our CPP is fully funded for a minimum of 75 years (2099). CPP is a key component of a lot of retirement plans and the only fully indexed defined benefit pension plan most of us will ever have. With longevity increasing, the timing of when to draw on CPP has become an important consideration, with recommendations now skewing to deferring taking benefits as late as possible. The advantage is that the benefit payable increases every year up to age 70. The maximum monthly CPP payment at age 60 is $873.44, at age 65 $1,364.60, and age 70 $1,937.73.
The calculus is similar for Old Age Security (OAS). Delaying your OAS benefits will increase the payments by 0.6% per month for up to 60 months (age 70) which can mean a 36% increase in your monthly income. The current OAS monthly payment at 65 is $713.34 and $970.14. NOTE – OAS is clawed back if you earn over $90,997 at the rate of 15 cents for every dollar earned over $90,997.
It is Eurovision Song Contest season. This year the finals are being held in Malmo Sweden with 10 finalists vying for the crown. We’ll sign off with Jerry Heil and alyona alyona who have made to the finals representing Ukraine…. Enjoy
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
