Harp Dhillon Group of RBC Dominion Securities Inc.

04/11/2022

2022 Federal Budget

April 7, 2022, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, released Canada’s 2022 Federal Budget.

This year’s budget focuses on housing affordability, a national dental care plan, defense spending and some tax increases targeted at financial institutions and life insurance companies.

What the 2022 Budget does NOT include:
- No changes to personal or corporate tax rates
- No increase to the capital gains inclusion rate
- No introduction of a new wealth tax
- No amendments to the principal residence capital gains exemption (although there is an introduction of an ‘anti-flipping’ tax)

NEW INITIATIVES ANNOUNCED:

Housing Measures
- Introduction of a new Tax-Free First Home Savings Account, to help individuals to save for their first home
o Contributions will be tax-deductible and income earned in the FHSA will be tax-free;
o withdrawals to purchase a first home will not be taxable
- Doubling the First-Time Home Buyers’ Tax Credit to $10,000
o provides up to $1,500 non-refundable tax credit
- Doubling the Home Accessibility Tax Credit to $20,000
o provides up to $3,000 non-refundable tax credit for seniors and those able to claim the Disability Tax Credit
- Multigenerational Home Renovation Tax Credit
o provides up to $7,500 refundable credit for construction a secondary suite for a senior or an adult with a disability living with a relative
- Residential Property Flipping tax
o Profits from flipping properties that are owned for under 12 months will be taxable as business income (not capital gains and not eligible for the principal residence capital gains exemption).
- Ban on foreign buyers of Canadian housing
o Intend to implement a 2 year ban on foreign commercial enterprises and people who are not Canadian citizens or permanent residents from buying non-recreational, residential properties in Canada.

Personal Measures
- Dental Care for Canadians
o For families with incomes of less than $90,000/year
o Full implementation by 2025, starting with under 12, then under 18, then seniors and those living with a disability
- Medical Expense Tax Credit for surrogacy and other expenses --15% non-refundable tax credit
- Labour Mobility Deduction for Tradespeople -- eligible trades workers can deduct up to $4,000 in eligible moving or travel expenses/year

Canada Recovery Dividend (CRD) and additional tax on banks and life insurance companies
- A one-time 15% tax on banks and life insurance companies on taxable earnings over $1 billion for the 2021 tax year
- An additional 1.5% corporate tax on the taxable income of banks and life insurance companies

Defense Spending
- $8 billion in spending to bolster Canada’s national defense aimed to increase the size and capabilities of the Canadian Armed Forces
- Includes a commitment to cyber security, increasing commitments to NATO and NORAD and $1 billion in additional support for Ukraine

FISCAL CONSIDERATIONS:

- The 2022 Budget projects the deficit will shrink to $114 billion in 2022 (down $31B from initial estimates due to economic growth and increased revenues); then down to $53B in 2023, to $40B in 2024 and projected down to a $8.4B deficit in 2027.
- The federal debt is projected to shrink from 46.5% of GDP today to 41.5% of GDP in 2026-2027 (in large part due to higher revenues resulting in high inflation and elevated commodity prices).

02/10/2022

I sincerely appreciate the opportunity Drishti Media Group Ltd has given me to share my story.

If I was to give a message to anybody, it is that life is about living. We are taught from a young age to focus on becoming successful, and success is important. But what is success? An old expression says: "rich people have money, but wealthy people have time. Time is what we need."

“If I was to give a message to anybody, it is that life is about living. We are taught from a young age to focus on becoming successful, and success is important. But what is success? An old expression says: rich people have money, but wealthy people have time. Time is what we need.

01/11/2022

Now that 2021, a winning year for equity markets is behind us, the focus has shifted to 2022 and what to expect as investors. A lot of ink is being spilled on predictions and expectations just like every other year. The tightening of money supply by central bankers, higher inflation, higher interest rates, continued Covid overhang, supply chain issues, contentious U.S. midterm election and high valuations of US stocks are some of the key topics that are surfacing through various financial reporting channels. These topics certainly create concerns and anxiety. As a very successful investor once said, “the bearish argument always sounds more intelligent”.

However, the other side of the story is that the global economy appears to be expanding with solid momentum, corporate balance sheets are healthy, the unemployment rates are declining, businesses have more access to labor than last year, and with pent up demand and high savings, the consumer confidence is on the rise. Although inflation is still a concern, it appears to be settling as the supply chain issues are resolving themselves and valuations are not extreme in most markets. This all translates into a reasonably good year for global GDP growth. RBC Global Asset Management’s Recession Scorecard also suggests that the business cycle is alive and well and has further to run. It would take some powerful exogenous event or set of circumstances to produce a sustained downturn from here.

Canada and UK are expected to raise interest rates sooner than U.S. and the Eurozone later. If history is our guide, which, arguably is more concrete than simply hypothesizing about the future, this isn’t a bad scenario. Equities have historically produced positive results in the year following the first rate hike albeit with higher volatility. Central bankers start hiking rates when the markets and economy are strong enough to remove accommodation and it is also deliberate to cool parts of the economy that may be overheating.

All this doesn’t mean we are not expecting a corrective phase in the near term. In fact, having no correction in 20+ months is a bit long in the tooth by historical standards. Combine this with the historically higher volatility in a rising interest rate environment, we should be prepared for a pullback. However, all the positives of strong market cycle suggest that any correction should be a buying opportunity.

In my view, an investment portfolio that is diversified across asset classes, with a tilt towards inflation protection and interest rate sensitivity that includes resilient businesses in different sectors is the appropriate stance for the current environment. Things will evolve throughout the year, adjustments will be needed to stay current, we must remain alert, active and take actions as necessary.

The journey of an investor is exciting and rewarding but it certainly isn’t a smooth ride, at least not in the short term. We are immensely grateful for having wonderful clients and business partners and we look forward to continue this journey together in 2022!

At the end I would like to share a quote from a famous psychologist, Daniel Kahneman, “If owning stocks is a long-term project for you, following their changes constantly is a very, very bad idea. It’s the worst possible thing you can do, because people are so sensitive to short-term losses. If you count your money every day, you’ll be miserable.”

10/12/2021

Aging in Control

Effective planning can help you maximize your choices and your peace of mind.

Aging is a sensitive topic that many families wish to avoid and therefore don’t effectively plan for.

However, the Covid-19 pandemic has had a dramatic impact on our aging population, especially those living in long term care. This reality has shone a spotlight on living arrangements for seniors and is forcing them to think more carefully about where they want to live in their aging years.

For those who are in retirement or are considering retirement, now is the time to start having conversations with your families about what you want your future to look like. Being in control of your choices is of utmost importance to aging with dignity.

A recent survey by the National Institute on Ageing found nearly 100 percent of Canadians ages 65 years+ now wish to live in their own homes for as long as possible. But, 30% of the same group feel that they aren’t prepared.

Most Canadians wish to sustain their standard of living as they move into retirement, which highlights the importance of planning for your long-term living expenses well in advance of an emergency occurrence. For those that wish to age in their own homes, some of the financial implications of aging at home include:

• Not having the sale of your principal residence as a major source of your investment capital to generate income and support living expenses and long-term care needs;
• Increasing property taxes, maintenance costs, renovation costs and inflated living expenses exceeding your fixed income; and
• The increasingly rising costs of in-home health care support.

With Canadians living longer than ever, planning ahead can bring peace of mind and potentially a much longer retirement with financial comfort. The following 5 topics are a great starting point for you to start planning for your future and ‘aging in control’:

1. Have a Financial Plan
Having a financial plan allows you to visualize your current income and expenses and project your financial position in the future based on your future living expenses, the rising cost of care, transportation costs, inflation and either an increase to or erosion of your capital. A financial plan will also identify risks that may lie ahead, such as the risk of a critical illness, disability or death, the risk of a significant drop in your investment portfolio, inflation risks and also risk to your property.

Identifying where and how you would like to live, well in advance of having to make final decisions, can give you peace of mind. Your financial plan might detect that you are spending too much money. With enough notice, you might be able to adapt your spending habits and style of living to ensure you will be able to live comfortably in the future. Or you might be able to put your mind at ease knowing that even with an increase to your future expenses and cost of living, your resources are still sufficient to ensure you will be financially secure.

2. Seek Professional Advice from a Financial Planner or Investment Advisor
Having a qualified financial planner or investment advisor structure and manage your savings and investment portfolio can ensure that your finances continue to grow and create a consistent cash flow to meet your needs.

Your financial advisor should also be able to assist you with some of your other wealth planning needs, such as protecting your assets from creditors or fraudsters preying on the elderly; strategies to minimize taxes; Will and estate planning and strategies to transfer your assets to your heirs in a tax-efficient manner; planning for incapacity; and assisting you with your philanthropic desires.

Organizing your financial affairs (such as consolidating your assets, structuring bill payments, reviewing your account statements, maintaining a list of your assets and services providers) can help you and your loved ones feel prepared for the unexpected.

3. Understand your Options
There is a wide spectrum of living arrangements for the aging in Canada and it is important to explore your options before an emergency event occurs.

The traditional idea of long-term care often brings to mind nursing homes, which have been at the forefront of the pandemic crisis. But there are many other options that are oriented towards lifestyle, such as retirement communities where care services, companionship and a social life right are offered right within your community. And of course, there is the option that many seniors are preferring and that is to stay in your own home with in-home care support.

Exploring your options in advance and communicating your preferences with your love ones, in consultation with your financial advisors and your financial plan, can give you peace of mind in knowing you have a plan.

4. Prepare your Estate Plan
Having a Power of Attorney and a Representation Agreement (health care directive) in place will ensure that your loved ones are aware of your wishes and are able manage your financial affairs and make health care decisions on your behalf, should you become incapacitated and unable to manage your own affairs or express your own healthcare wishes.

Having an up-to-date Last Will & Testament is equally as important. A Will allows you to decide how you want your assets to be distributed on your passing (rather than letting the government decide). With proper estate and tax planning advice, you can structure your Will to minimize taxes and fees, which ultimately permits your Executor to administer and distribute your estate in the most timely and cost-effective manner.

5. Start the Conversation
One of the most important goals for the aging population is to feel that they are in control of their future and their choices. Starting the conversation with your spouse, your family and your advisors is the beginning of the journey. Taking the small incremental steps towards planning your future will help you to feel in control of how and where you wish to live. Having a plan that you have communicated to your loved ones will help you achieve peace of mind that you are ‘aging in control’.

09/28/2021

I am excited and honored to be appointed as the Board Chair of Surrey Hospitals Foundation. I look forward to continue working with this very capable board and management team to improve the Health Care initiatives in our region.

Ron Knight thanked ‘for his tremendous support, dedication and commitment’ over the past 11 years

09/17/2021

What is Impact Investing?
When it comes to investing, many people seek only returns without thinking about what their money is supporting.

When it comes to investing, many people seek only returns without thinking about what their money is supporting.

09/09/2021

As humans we are drawn to change, our entire focus diverges to the changes occurring in the world around us because they are surprising. But what many of us fail to recognize are the things that stay the same.

“History never repeats itself, but man always does.” - Voltaire

If you like history, I recommend watching “The Roman Empire” on Amazon Prime. After watching that show and “World War II in Colour” (Yes, I have had lots of screen time lately!!) and reading Yuval Harari’s book “Sapiens,” one of things I have been thinking about is that as humans we are drawn to change, our entire focus diverges to the changes occurring in the world around us because they are surprising. But what many of us fail to recognize are the things that stay the same: the fundamental behaviors of humans, their thought processes, weakness and undeniable qualities. The closest anyone can come to predicting the future is understanding the past; the world looks nothing like it did 100 years ago. But how people’s minds work hasn’t changed, their perspectives on fear, greed, opportunity and tribal affiliations mirror those of humans living in ancient civilizations. These fundamental behaviors haven’t changed for hundreds of thousands of years and most likely will not change in our lifetimes.

Majority of the time, big risks are the result of multiple small risks combined. The ignorance with which people treat small risks leads to them underestimating the odds of big risks. No one in 1929 imagined there would be a crisis like the Great Depression. The Great Depression wasn’t a byproduct of complacency, rather it was the simultaneous occurrence of an overvalued stock market, real estate speculation, and poor farm maintenance. These rather insignificant events transpired into an unprecedented disaster. Staring ruin in the face and having to question whether you will survive can permanently alter your outlook and expectations. It is the reason the generation that survived the Great Depression never looked at money the same. They started to save more, use less debt and were cautious of risk for the rest of their lives. A very similar situation occurred during the 2008/2009 financial crisis when the greed of never ending real estate price rose, and easy money led to disasters.

From March 2020 to May 2020, we witnessed an event never seen before: the shutdown of the global economy. It feels as if we were struck by an unfathomable risk with minimal chances that it would actually occur. But we weren’t, a perspective that only hindsight can enable, shows us that the shutdown occurred when a bunch of small risks collided and multiplied at the same time. The enormity of this pandemic started with a virus presumed to have transferred from animal to human, something that the world has seen many times before. These humans then, as expected, interacted with others. The spread of the virus understandably remained inexplicable for a while before the bad news was suppressed, an unfortunate but common part of government. Denial and lack of leadership led to overconfidence demonstrated by many nations, and the virus, as expected, plagued their populations. The lack of preparation was met with blunt-force lockdowns, a final, desperate measure.

There is no question in my mind that we must prepare ourselves with the assumption that the world will likely break down once per decade, because history has shown us that it does. However, the cause of each disaster will likely be a surprise and something different than what was anticipated. The world can prepare for expected events, we see this in the current coronavirus crisis; the second and third waves have been much more manageable in comparison to the first wave that hit us unexpectedly.

On the other hand, humanity has won every one of those battles and there is always a “Tomorrow” that we can look up to. The recent progress by science against coronavirus proves just that. Driven of greed and fear, the pendulum has always swung too far and it will always do the same in the future. I have no doubt in my mind that there will be pent up demand for vacations, for cruises and for the fun and enjoyable life that we have been accustomed to. While there will be few things that will change forever, those are the changes that the world will accept for good reasons and represent our growth as a society.

08/19/2021

There has been enough written about mismanagement of money, people living beyond their means, not having enough savings; to the other extreme of hording assets, dealing with stress/anxiety of money and not being able to enjoy life.
So what is it that we are after and how do we measure the value of wealth?
There is lots of research that has been done, and arguments on both sides of the table as to whether money buys happiness or not. As shown in the chart below, some countries appear happier than others and if you look at the per capita GDP of the happier countries, the correlation suggests that money is playing a role in that happiness or satisfaction in life.
In my opinion, nobody would want money for money’s sake but everyone wants it because it gets you something else. That something else could be a house, car, luxury goods, vacation and other materialistic items but it also gets you time, power, it helps you build your status and more importantly, it can give you independence.
On the topic of independence and being able to do what you want to do, Charlie Munger summed it up quite nicely in one of his interviews: “I did not intend to get rich. I just wanted to get independent.”
I often talk to my clients about “work optional lifestyle.” That is when you work because you want to not because you have to.
As a child, Franklin Roosevelt complained to his mother that his life was dictated by rules. His mother gave him one day free of any rules. He could do whatever he chose on his own. His mother then shared that after a very short period of time Franklin went back to his normal structured routine. But this time he was happy to do it. Even if you’re doing the same work, the independence of doing it on your own terms changes everything in the same way that sleeping in a tent is fun when you are camping but miserable when you are homeless.
That independence is what Charlie Munger was talking about and that independence is what money can help buy.
The other side of the coin is that wealth can also create complexity, it can give you anxiety and it can take your time away from you. One of the root causes of this issue is not being able to connect your goals to the money or wealth you have created. For example, when investors check on a day to day basis their portfolio values fluctuating they get concerned when in fact their goal of securing their retirement future, providing for their family members or giving back to their communities are many years away.
One of the other primary causes of stress/anxiety is a change in expectations. Naturally most people gauge their wellbeing relative to those around them, and with the desire of being better than others, we move our financial goal posts. More often than not this change of expectations grows faster than people’s earnings and when that happens we end up chasing and unfortunately for many, the time runs out but the race continues.
I read an article where the writer compared money to drugs. He wrote, “money buys happiness in the same way drugs bring pleasure: Incredible if done right, dangerous if used to mask a weakness, and disastrous when no amount is enough.”
Conclusion in my opinion: Money is one of the most important things in life after health and family. Those who know how to strike a good balance in acquiring, managing and making the best use of their money are happier than those who get in the race of wanting more and more without a measurable goal.
A person who doesn’t even have to think about money has a higher form of wealth than someone with more money who’s constantly thinking and worrying about it.
“Wealth is a blessing to those who know how to use it, a curse to those who don’t.”

07/22/2021

The European Union (EU), U.S. and China are each in the process of rolling out plans that will, in very different ways, challenge global supply chains, create new trade barriers and risk stoking inflation. The EU was first out of the blocks with a comprehensive plan to get to net zero carbon emissions, including putting an end to new gas-burning vehicles by 2035 and an import tax on carbon-intensive products like steel, cement, fertilizer and aluminum. In the U.S., Senate Democrats advanced their own plans for an import tax on goods from countries with weak climate policies. One of those countries, China, indicated it is ready to introduce an emissions-trading system that will require heavy industry to pay to pollute, effectively increasing the cost of running “the world’s factory,” as the country is often called
Locally, Alberta is also preparing for a bigger role in Shell’s net-zero ambitions. The oil giant unveiled plans for its second carbon-capture and underground storage facility in the province. The proposed Polaris facility would be located at Shell’s Edmonton-area Scotford Complex, which houses a bitumen upgrader, oil refinery and a chemicals plant partially owned by Shell. The Polaris project could store up to 300 million tonnes of CO2 over its lifespan, significantly reducing emissions at the massive Scotford facility. In addition to creating up to 2,000 jobs in the initial phase alone, Polaris would generate enough hydrogen to turn the Edmonton region into a major hydrogen hub, and give Alberta more ammunition to call itself a low-carbon energy power.
The topic of Electric Vehicles (EV) is front and center in many of ‘fighting the climate initiatives’ that are in progress. A question that is not always discussed is HOW MUCH CLEANER ARE EVs than traditional automobiles. Estimates exploring the carbon gap have to cover thousands of parameters, such as the extraction and processing of minerals for EV batteries and the production of power cells. Other considerations are based on “after-sale” elements like the type of power used to charge an EV or the fuel dynamics and upkeep of a gasoline car.
· It’s a little complex to delve into all the variables, so it may be easier to divide them between the “building” of the vehicles and their “maintenance.” Compared to gasoline cars, EVs are not as green when it comes to manufacturing due to the mining of rare earth metals that are needed for their batteries. But once they hit the road, the only thing that contributes to their carbon footprint is the sourcing of their energy, giving them an advantage over gas-powered cars.
· The framework created by the Argonne National Laboratory in Chicago, called the “Greenhouse Gases, Regulated Emissions and Energy Use in Technologies,” is being used to help shape policy. Reuters recently took a test drive of the model, stacking up a Tesla Model 3 versus a Toyota Corolla, with the assumption that both vehicles would travel 173,000 miles during their lifetimes. The scenario also took place in the U.S., where 23% of electricity comes from coal-fired plants.
· Results: Even before hitting the road, the analysis showed that the production of a mid-sized EV generated 8.1M grams of CO2 during the extraction and manufacturing process, which was more than the 5.5M grams for a comparable gasoline vehicle. One would also have to drive another 13,500 miles in a Model 3 - the average mileage motorists drive each year - before breaking even with the Corolla in terms of emissions. However, Tesla pulls ahead in the later stages... At Year 5, the Model 3 has emitted a total of 17M grams of carbon emissions (vs. 30M for the Corolla) and at Year 10, it has released 25M grams (compared to the 52M produced by the Toyota vehicle).
· Not every country is the same: If the Model 3 was being driven in Norway, which gets most of its electricity from renewable hydropower, the breakeven point would come after 8,400 miles. Compare that to the 78,700 miles needed to reach carbon parity in nations like China and Poland, which generate the majority of their power from coal.
We all know that EV adoption has accelerated in recent years, driven by factors such as accommodative government policies, shifts in consumer preferences, declining cost structures, etc. From 2015 through 2020, global EV sales grew at an impressive rate of approximately 30% per annum. Looking ahead, RBC Capital Markets sees further momentum and is forecasting for global EV sales to compound at an annual growth rate of a whopping 32% from 2020 through 2030. While the rate of change is impressive, I believe it’s important to emphasize that the growth is off of a very small base.
Despite all the initiatives and some Government plans that appear to be very aggressive, the expected percentage of EVs is only expected to grow to 9% by 2030 (see chart below):

The aggregate impact of nuclear, hydroelectric and solar/wind generation has reduced global reliance on fossil fuels from 95% of primary energy in 1975 to 85% in 2020. In other words, energy transitions take a very long time and lots of money. The International Energy Agency (IEA) expects fossil fuel reliance to decline at a more rapid pace now, but still projects that 70%-75% of global primary energy consumption may be met via fossil fuels in the year 2040. Why doesn’t rapid wind and solar price declines translate into faster decarbonization? Well, renewable energy is still mostly used to generate electricity, and electricity as a share of final energy consumption on a global basis is still just 18%.
Put EVs aside for a moment and focus on the elephant in the room: the number one issue for China and the world’s decarbonization is China’s massive industrial sector, which consumes 4x more primary energy than its transport sector and more primary energy than US and European industrial sectors combined. China has electrified larger parts of its industrial sector than the US (23% vs 12%), but since China’s grid is so reliant on coal, electrification provides fewer climate benefits. In contrast to the US, China uses 10x more coal than natural gas. In 2020, China built over 3x as much new coal capacity as all other countries combined, equal to one large coal plant per week. Its overall coal fleet grew in 2020 while non-China net capacity declined. China initiated 5X new coal plant proposals in 2020 than the rest of the world combined.
Here is another fact on CO2:
1 Billion Tonnes

This is how much CO2 the Amazon rainforest now produces. Scientists say it now emits more CO2 than it absorbs. Most of the emissions are caused by fires, particularly to clear land for beef and soy production.

An interesting article by Michael Batnick: https://theirrelevantinvestor.com/2021/06/17/blink/

Pe*******on Rate as a Total of Global Vehicles In Operation
Source: RBC Capital Markets, IHS Automotive, IEA

06/21/2021

INFLATION, YIELD & REAL RETURN
Let's review this chart and talk....

These are 10 year U.S. government bond returns for each of the last 9 decades. You will notice in the last column (Real return), 40 of the last 90 years’ returns after inflation on bonds were negative. This is not even taking taxes into consideration. You might have heard about the inverse relationship of interest rates and bonds. The interest rates for those 40 years were on the rise in the U.S. and then we saw interest rates peak in the early 80s and bonds deliver great results for the next 40 years. Other than some minor ups and downs over those time periods the correlation has been pretty clear.

When we make investment decisions based on historical returns, we need to keep this type of longer term perspective in mind. Looking at the last 5 or 10 or even 20 years’ returns on bond funds, or in fact any funds that have a portion of their assets invested in bonds or so called fixed income, are not reflecting the true picture. It’s hard to fathom such lofty returns as we find ourselves in a very different environment today. With a 10-year bond yield of close to 1.5% and inflation running closer to 3%-4%, the current real yield is the lowest since 1980 (real yield = nominal yield minus inflation).

Asset allocators who steer big institutional pools of money like endowments, pension plans or sovereign wealth funds are also facing one of the trickiest investing landscapes in history. The high prices for fixed-income assets mean bonds, typically a ballast in portfolios, are unlikely to offer substantial protection should equities waver again. Based on historical valuations and returns, AQR, the investment group, now estimates that a traditional U.S. 60/40 portfolio will return just 1.4% a year after accounting for inflation over the next five to 10 years. This is not a bad number considering this is real return after inflation but it is certainly much lower than the historical range of about 4-5%. For a 100% fixed income or a bond portfolio the real reruns will likely be negative for the next 5 to 10 years if the relationship of inflation and interest rates remains as expected.

That’s not to suggest that bonds have no place in a portfolio today but that bond investors need to keep their expectations in check. The 40-year bull market in long-term bonds (1981-2019) generated abnormal real returns, particularly during the 1980s (6.6%) and 1990s (4.4%). But the factors that led to those strong returns (high starting yields, potential for falling yields/inflation) are no longer in place today. In fact, the complete opposite is true (low starting yields, potential for rising yields/inflation).

The Golden Age for bonds seems to be over (at least for now)!