“Death, taxes and childbirth! There's never any convenient time for any of them.” Margaret Mitchell, Gone with the Wind

Good morning,

It’s that time of year again, the inevitable and unavoidable tax time is creeping up on us, so it’s time for us to start to organize. As we get closer to tax season, we’ll be preparing all of your tax packages everyone is ready for tax time. This also means that it’s RRSP and TFSA top up time. The deadline for this year’s RSP contribution is March 1, 2021, the max limit for 2020 is $27,230 and for 2021 the RRSP contribution limit is $27,830. Also, around tax strategy we are actively monitoring commentary on any tax changes in the budget this year and we are planning accordingly.

“Change is the only constant in life” Heraclitus

While tax time is one of life’s only certainties, the current environment has reminded us that the only constant in life is indeed change. With change come challenges….breaking routine can make us uncomfortable, veering from the path we thought we were on can seem daunting. It’s ever more important for us to be reminded that change can also offer us hope and provide positive impact in personal growth, strength, progress, opportunity and new beginnings.

“Whether we like it or not, change comes, and the greater the resistance, the greater the pain. Buddhism perceives the beauty of change, for life is like music in this: if any note or phrase is held for longer than its appointed time, the melody is lost. Thus Buddhism may be summed up in two phrases: “Let go!” and “Walk on!” Drop the craving for self, for permanence, for particular circumstances, and go straight ahead with the movement of life.” Alan W. Watts, Become What You Are

As Alan Watts so eloquently notes, the only way to make sense out of change is to embrace it…”plunge into it, move with it, and join the dance.”

“When patterns are broken, new worlds emerge.” Tuli Kupferberg

And now, to the markets

It was a relatively good week for global equity markets, led in particular by the global technology sector which ultimately pushed some markets to new all-time highs. Much of the world was understandably focused on the inauguration of the 46th President of the United States, Joe Biden. He was quick to implement a few executive orders, one of which has meaningful implications for Canada. Meanwhile, on the pandemic front, we saw some encouraging early signs of progress in North America. Lastly, the earnings season is underway with companies providing results that thus far have been better than expected. We offer some of our key thoughts below.

Coronavirus Update

Canada’s 7-day average rate of new daily infections fell meaningfully, for the first time in months. The figure stands at just over 6000 versus the nearly 7800 average rate reported a week ago. Moreover, the declines were noticeable across most provinces, with Ontario, Quebec, and Alberta leading the way. Saskatchewan and British Columbia also saw declines. The East Coast remains relatively stable with the exception of New Brunswick, which saw yet another large increase over the past week that may lead to tighter restrictions in the province. While it may be premature to offer a distinct conclusion, this past week delivered the first meaningful sign that perhaps the peak in this second wave in our country may be passing. The U.S. too is seeing progress. Its 7-day average rate of new daily infections fell below 200,000 for the first time in weeks.

Elsewhere, developments remain far more mixed. In Asia for instance, Hong Kong is now implementing new restrictions given a recent outbreak. In Europe, governments have extended lockdowns out of concern that new variants continue to pose a greater risk of contagion. Even Israel, which has vaccinated nearly a quarter of its population, reported record levels of new daily infections over the past week.

Canadian energy in cross hairs of new U.S. administration’s climate policy

During his first day in office, newly elected President Joe Biden acted on his campaign promise to revoke the Presidential Permit for the Keystone XL pipeline project. While not a surprise, the move will no doubt disappoint many whose economic prospects are tied to the Western Canada energy industry and is the latest reminder of the hurdles facing pipeline developments in North America. It should be noted that many industry experts and investors had already discounted Keystone XL’s prospects of completion.

Nevertheless, the project’s cancellation raises the pressure on some of the other Canadian pipelines under development that are aimed at improving our country’s ability to transport oil to key destination points. One project that comes to mind in particular is the expansion of the federally-owned Trans Mountain pipeline, which proposes to expand the volume of oil that can be transported from Alberta to British Columbia, while offering the additional benefit of access to overseas markets. Its importance has undeniably increased in the wake of the recent U.S. decision.

Banks offer early clues from earnings season

The fourth quarter earnings season, for the period of October through December 2020, is now underway. It is too early to draw broad conclusions but many of the U.S. banks have already reported results. In general, they were better than expected, with revenues holding in reasonably well given the circumstances, and earnings benefitting from less capital being set aside for future loan losses. Despite the positive, the sector sold off modestly, a result in our view of some profit taking after strong returns in recent months. Not surprisingly, most management teams were reluctant to provide much of an outlook as they continue to await more clarity on the pandemic. While the outlook for revenue growth remains murky, we remain confident in the strength of the sector’s balance sheets and the ability to withstand ongoing economic stress that is likely to remain over the near-term.

Broadly speaking, investors expect a very sharp rate of earnings recovery in 2021. The anticipation of this recovery in growth helps to explain why global equity markets are near their highs. Ultimately, the timing and trajectory of the economic recovery remains heavily dependent on the rollout of vaccines and the ability to reach levels of herd immunity. While it will take some time, we continue to see favorable odds of this happening in the year ahead.

"When you get free from certain fixed concepts of the way the world is, you find it is far more subtle, and far more miraculous, than you thought it was.” Alan Watts

Be well, enjoy the moments and embrace change

Derek