Wednesday morning we started the day off right with a special breakfast event featuring RBC’s Chief Investment Strategist, Jim Allworth. As a part of my ongoing commitment to keeping my clients informed and confident in our future plan, I arranged for Jim to join us for a candid chat over breakfast – and for WOTS this week, I thought you might like to read a brief summary of his thoughts.

Jim has been in the investment business for 49 years, as both a research analyst and portfolio strategist and is a wealth of knowledge we are fortunate to have at the firm, for my team, for our clients and for you. Over breakfast, Jim gave us a ‘tour’ around the world as he described the various economic conditions and outlook for financial markets around the globe. The main takeaways are as follows:

• The U.S. is the main driver of global economic activity and will continue to be for the foreseeable future and into the next few decades. It produces over 25% of world GDP with under 4% of the world’s population.
• One of the biggest detriments / impediments to long term investors is not that long-term investing doesn’t work, it’s that the noise overwhelms your willingness to want to keep your chips in. So, if you want something to worry about, worry about a US Recession because if we look back historically (say 120 years) the stock market not doing well and eroding your capital is almost always linked to a US recession.
• So, is a recession on the horizon, in particular a U.S. recession? The answer, as it has been for almost eight years, is “no.” And the changes that would cause us to alter that view are, so far, are giving benign readings.
• In the Last 100 years, every single recession has been preceded by tight money or tight credit except for only 2 occasions - 1937 and 1945. This is therefore an indicator we carefully watch out for…
• The next logical question is, are we in tight money conditions? To answer this, two main indicators must follow:
  1. Interest rates must be at a minimum above the rate of inflation, likely closer to 300 basis points above the rate of inflation if history is any guide. One could argue the market was growing at 4-5% real GDP before and now were closer to 2-2.5%. So if we want to say this time its different, then maybe instead of 300 bps above inflation, it might be closer to 150bps above, i.e. interest rates would have to be closer to 3.5% and above. Are we there yet? Not at all. Rates are at 1%, inflation lies at 2%. It has to be noted that the monetary backdrop has begun to change. The Fed is raising rates, albeit very slowly. Most central bankers have stopped talking about further rate cuts. We are finally trending upward, but this will be a long process. 2019-2020 would be the estimated timeline for this to happen.
  2. No one is borrowing money except for the people that absolutely have to. No one is taking on mortgages, loans, personal debt, finances, unless they absolutely have to (i.e. someone who needs a loan to make payments, or for rent etc).

• Another very reliable indicator of whether a recession is immediately ahead is the unemployment rate. It rarely changes trend: moving steadily higher while the economy is in recession and falling throughout an expansion. Today, the U.S. unemployment rate is at 4.3%, close to a 50-year low. Canada’s unemployment is trending similarly. Since WWII, once the trend in unemployment turned higher the start of a recession was only a few months away. Currently it would take significant deterioration in employment data to deliver such a trend change, probably several months of outright job loss. Not impossible but so far unlikely.
• So where do we stand? As usual, the short term could appear more problematic. We expect there will be at least one correction of note before we get to the next “bear market” for stocks, probably more than one. But it would be less than forthright to suggest that spotting its arrival or extent correctly would be anything more than accidental.
• So, if you are a long-term investor with a plan in place, stay invested and give equities the benefit of the doubt until tight money exists. We have a clear 2017 and 2018 with forward momentum. Begin to exercise some caution once the two factors of tight money start to present themselves (potentially 2019-2020).

Speaking of the benefit of the doubt – click here for a copy of Jim’s latest Wealth Management Review commentary which elaborates further on his North American thoughts and stay tuned for the July issue of our monthly Global Insight for our thoughts on the rest of the world.

With so much going on and information coming at us from every angle, it's sometimes hard to keep your finger on the pulse of what's happening. In an effort to keep you in-the-know and provide you with some conversation nuggets for this special Canada Day long weekend, I've compiled the following hit list to fill your conversation pipeline.

Now you are in-the-know with Word on the Street.

Enjoy the long weekend and happy 150^th Birthday, Canada!

D.

Dian Chaaban
Investment & Wealth Advisor
416.842.4234

Market Minute

In this week's Global Insight:

• MKT Update: The TSX, down 0.7% so far this week, is tracking along with the S&P 500. TSX Energy attempted to stabilize while Financials bounced moderately as yields rose.
• So What Could Go Wrong? The equity bull is riding a winning streak and the macro environment is conducive for more gains. So what’s not to like? Yet there are some risks that could rain on the parade, and we zero in on a risk that has caught our attention—China. Hong Kong-based analyst Jay Roberts weighs in. (pg 1)
• Canada Section - We discuss key factors behind the recent CAD rally, our take on how the Amazon/Whole Foods deal could impact Canadian grocers, and why policymakers should take note of international firms’ exodus from oil sands projects. (pg 3)
• Regional Developments: Bond market acts as swing factor for U.S. stock market; Italian bank bailout raises eyebrows; More access to China’s onshore bond market. (pgs 3-4)

Click here for the Global Insight Weekly.

Term of the Week

CPP - Canadian Pension Plan | Although it forms a big part of our retirement income, the Canada Pension Plan is a complex program that's not entirely understood by those who will eventually benefit by it. Here are 13 things you need to know about the Canada Pension Plan | Learn more here

Chart of the Week

And speaking of which, with the celebration of Canada's 150^th birthday taking place this weekend, there are a number of reasons for us to look back and be proud to be Canadian. Here are some key financial milestones that have taken place in our country's history:

• The Hudson Bay Company was founded in 1670, nearly 200 years before Canada became a country. It has spent much of its history as a fur trading company, and is not only the oldest company in Canada, but in North America as well.
• The Toronto Stock Exchange was formally created by a group of 25 people back in October 1861. It was later incorporated in 1878. Today, the cumulative market cap of the TSX is $2.8 trillion.
• Canada created the RRSP in 1957. At its inception, the contribution limit was 10% of the individual’s previous year’s income to a maximum of $2,500 per year. There was also no ability to carryforward unused contribution room. Until 2005, Canadians were limited on the amount of foreign content that was eligible to be held in their RRSP account. Prior to the limitation being removed, only 30% of an account could invest in foreign securities.
• A more recent innovation to help Canadians save for the future was the introduction of the TFSA in 2009. With the cumulative contribution limit, an investor that has been eligible to contribute since the account’s inception has a total limit of $52,000.
• The Canada Pension Plan was introduced in 1965 with the first benefits paid in 1967. As there was a phasing in period, full benefits were available starting in 1976 with a maximum monthly retirement income of $155/month. Today the maximum is $1,114/month.

Market Movers

Canada's economy grows for 6^th consecutive month

Canada’s economy grew for a sixth consecutive month with gains in a majority of industries, underlining the central bank’s view a durable recovery from an oil shock is emerging. Gross domestic product grew 0.2% in April, Statistics Canada said today from Ottawa, matching the median forecast in a Bloomberg survey of economists.

Read more here | Bloomberg

RBC Economics is Now Forecasting two Rate Hikes from the BoC in 2017

RBC Economics has adjusted its interest rate forecast and it is now calling for two rate hikes in the second half of 2017 (the July and October MPR meetings) and two rate hikes in 2018 (also the July and October MPR meetings). RBC Economics had been previously forecasting no rate hikes in 2017 and three rate hikes in 2018 (April, July and October). The full report notes that broadly-based growth and improving business sentiment fueled a hawkish turn from the Bank of Canada. With lower rates having “done their job,” RBC Economics sees the bank removing 2015’s rate cuts with increases in both July and October this year.

Read more here | RBC Economics

India’s drive for tax reform will create the largest common market in the world

The country’s 1.3 billion residents currently pay a bewildering array of sales taxes, and the administration of each one means the potential for a bribe. On July 1, a new federal GST will replace many of those varied taxes with a single graduated system that applies across the country. Prime Minister Narendra Modi promised to attack corruption and India’s thicket of bureaucracy after his 2014 election, yet critics say his biggest swings so far—including banning all large-denomination bills—haven’t gone far enough.

Read more here | Bloomberg

Italy will pump up to €17 billion into two failing banks

The bailout—which comes just weeks after a troubled Spanish bank was rescued without taxpayer money—means Italy’s strongest lender, Intesa Sanpaolo, will end up with the failing banks’ good assets after paying a symbolic €1. Italy said using taxpayer funds was warranted because the banks’ failure would have had disastrous consequences for businesses and depositors in the country’s industrial northeast.

Read more here | BBC

Investment in the U.S. petrochemicals sector is booming

Thanks to the shale revolution, the U.S. is now one of the cheapest places to manufacture plastics. Some US$185 billion in new U.S. petrochemical projects are in the construction or planning phase, making the sector one of the brightest spots for U.S. business investment. Given healthy demand worldwide for all things plastic, annual U.S. petrochemical exports are expected to grow to US$110 billion by 2027 from US$17 billion in 2016.

Read more here | Wall Street Journal

A large sell order temporarily rocked the price of gold

The yellow metal dropped to its lowest level in 6 weeks on Monday before recovering somewhat. Some observers said it was likely the result of a “fat finger,” or a trade made in error, noting that the 1.85 million ounces sold was likely much more than intended. Gold is still up about 8% so far this year, making it one of 2017’s best-performing commodities.

Read more here | Bloomberg

Loonie also celebrates 150

The loonie climbed to its highest level in four months (77.06 cents US) after Canada's central bank head hinted at a possible interest-rate hike. During an interview yesterday morning, Bank of Canada Governor Stephen Poloz said the cuts introduced in 2015 to offset the impact of falling oil prices seemed to "have done their job," adding the country experienced "surprisingly" strong growth in the first quarter of 2017.

Read more here | Bank of Canada

Current Events & Politics

Hack Attack

Less than two months after a coordinated cyberattack hit more than 150 countries, hackers executed another assault this week targeting hospitals, government offices and corporations across Europe. Ukraine bore the brunt of the attack, with energy companies, banks, bank machines, gas stations, and supermarkets going dark. The ransomware did make its way to the U.S., but its speed slowed throughout the day and only a few places complained of computer issues.

Read more here | Financial Post

No-Hacking Handshake

Canada and China have officially agreed not to partake in state-sponsored hacking of each other's private sector. "The two sides agreed that neither country's government would conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors," read an official statement on the recent meeting. In addition to hacking, representatives from the two governments discussed a range of security matters, including North Korean aggression, terrorism and organized crime.

Read more here | CBC News

Trump’s travel ban goes back into effect

The US Supreme Court allowed the administration to ban most travel from six majority Muslim countries for 90 days and suspend much of the refugee program for 120 days as it considers the legalities behind the order. The rhetoric around the travel ban has already had an impact: by one measure, tourism to the US is down 16% from last year. And it is big coastal cities and liberal enclaves such as California that are being hardest hit by the decline. A Canadian government spokesperson said nationals of the six affected countries who also hold Canadian citizenship wouldn’t be affected. The situation for Canadian permanent residents appears less clear. Some observers said the ruling opens up a minefield for all involved, since determining who lacks "any bona fide relationship with a person or entity” in the U.S. will be tricky.

Read more here | Globe & Mail

China is charging

Tesla gets all the headlines for its “Gigafactory” in Nevada, where the electric-car company is building the world’s largest single battery factory. But China is ramping up its battery production even faster. Battery technology is entering a really interesting—and probably bruisingly competitive—growth period:

Read more here | Bloomberg

Health Care Lifeline

If the Republican health care bill dies in the Senate, the party may have to work with their Democratic counterparts to shore up the Affordable Care Act. That was the warning from the Senate majority leader, Mitch McConnell, as he continued talks with his fellow Republicans over a new version of the bill that he hopes to vote on after the July 4 recess. In Mr. McConnell’s home state, Kentucky, many of his constituents are worried about health care. The Affordable Care Act had a huge impact there — nearly one in three people now receive coverage through Medicaid.

Read more here | NYT

Google Penalties

The European Union has slapped Google with a record €2.42 billion ($2.7 billion) fine for violating antitrust rules. In the landmark ruling released yesterday, regulators said the search engine "abused its market dominance" by giving preferential placement to another Google product, its online shopping service. "What Google has done is illegal under EU antitrust rules," read a statement from the EU commissioner. "It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European customers genuine choice of services and the full benefits of innovation." Google, which can appeal the charges, has been given 90 days to end its practices or face additional penalties.

Read more here | Forbes

There won’t be a Trump Tower in Toronto.

The troubled condo-hotel complex’s new owners reached a deal with the Trump Organization to sever branding and management ties—reportedly at a cost of at least US$6 million. The Trumps never owned a stake in the project, whose myriad problems have included construction delays, disgruntled investors and more recently, protests. The jury’s still out on what effect the Trump presidency will have on the Trump brand, but even the Trump Organization is going with new names for some of its hotels.

Read more here | Financial Post

Minority Report

Theresa May is paying a hefty price to stay in power. The U.K.'s Conservative prime minister, who's party lost its majority in the June 8 snap election, has inked a deal with Northern Ireland's controversial Democratic Unionist Party (DUP) to prop up her fragile minority government. The terms of the agreement include $1 billion pounds ($1.68 billion) of new investment over the next two years towards Northern Ireland's economy in exchange for the DUP's support on confidence votes like Brexit and the budget. The alliance will hold for the length of the current Parliament (five years), but will be reevaluated after each session.

Read more here | Reuters

Tim Hortons’ fight with franchisees gets bigger

Half of the coffee chain’s U.S. franchisees have joined their Canadian peers’ acrimonious dispute with parent company 3G over cost-cutting, which franchisees say benefits shareholders over franchise owners and hurts the brand. (3G disputes that view.) While four-fifths of Tims’ restaurants are in Canada, the U.S. is a key growth market for the company. Franchisees are looking to gain the kind of clout that U.S. owner-operators already have at their sister business, Burger King, in determining supply costs.

Read more here | Globe & Mail

6 North Atlantic right whales found dead in June

Since June 7, six North Atlantic right whales have been found dead, floating in the Gulf of St. Lawrence, in a loss that amounts to more than one per cent of the population of the endangered species. The whales were all found in the area between New Brunswick's Miscou Island, Quebec's Magdalen Islands and northern P.E.I. "It's a bit of an unprecedented event in that we've never had an incident like this involving right whales where so many animals have been turning up dead just over the last few weeks," said Wimmer.

Read more here | CBC

Controversial Schooling

A chain of private schools called Bridge International Academies is operating hundreds of schools — and generating lots of controversy — in several African countries. The American-led, for-profit start-up is utilizing the latest tech tools in the classroom. But it’s also clashing with teachers’ unions and critics, including some who question the model of pressing desperately poor parents for payments.

Read more here | NY Times

Sock Diplomacy

Prime Minister Justin Trudeau of Canada is employing a new political tactic. This past weekend, when the celebrations for gay pride and the end of Ramadan coincided, he pulled a one-two punch: Rainbow socks that said “Eid Mubarak,” or blessed feast. He’s previously employed socks to plug “Star Wars,” NATO and Canadian maple leaves. “Rarely have a man’s ankles said so much,” our fashion critic concluded. “It’s pretty clever.”

Read more here | NY Times

Upcoming Events

How to Taste Beer Like a LadyBoss | An exclusive Women of Ambition event on Thursday, July 13^th at 6:30pm. We’ll be sampling 4 brews from Toronto’s Henderson Brewing paired with some tasty cheese with beer sommeliers Crystal Luxmore and Tara Luxmore, aka the Beer Sisters | Click here for more info.

Just for Fun #Canada150 edition

#Make150Count

When we invest in youth, great things happen. To celebrate Canada’s 150th, we gave thousands of Canadian youth $150 each, with no strings attached, and challenged them to Make 150 Count.

Read more here | RBC

150 Facts about Canada in 150 Seconds

Watch the video here | CBC

50 Fantastic Canada Day Potluck Recipes

Check out our collection of tasty treats and authentic Canadian eats to celebrate the nation's 150th birthday in style.

Read more here | Food Network

Break out the red and white

July 1 is just around the corner, and CBC is marking the 150th anniversary of Confederation with a full day of special programming from coast to coast to coast. Whether you're blasting the radio at a backyard barbecue or just curling up in front of the TV, we've got you covered from sunrise to the last firework over Parliament Hill. Here's an overview of everything that's going on.

Read more here | CBC

Country Stroll

Dave Durkee is exploring Canada's splendors from coast to coast without ever leaving his town. Since October, the 62-year-old has walked a three to four-hour route around Yarmouth, N.S. while mirroring his steps on a virtual map of Canada. "Usually by noon I have the 29,500 steps necessary to give me 25 kilometers," he said in an interview. The ambitious journey, which you can track here, has taken Durkee clear across the country with the goal of arriving in Vancouver on Canada Day. "Just goes to show how far you can get by continuing to put one foot in front of the other," he wrote on his Facebook page. "Never quit, never stop, never give up."

Read more here | CBC

What the Duck?

Pictured below swimming by my office earlier today … Torontonians will flock this weekend to an attraction that has no relationship to Canada Day at all: a giant rubber duck. Whether people are drawn by the idea that the massive toy bird figuratively transforms Toronto Harbour into a giant bathtub or the novelty of a record-setting duck, its call beckons.

Read more here | CBC

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