ELECTION SPENDING
It is an election year here in Alberta, with the big day being May 29. And in an election year, it is not surprising for the government in power to try making potential voters happy. This is not just a phenomenon in Alberta, but across the country. I recently spoke with someone in another province who received cheques from both the provincial and federal government, but has no idea why. He still cashed them.
As an example here in our province, the UCP has started to implement a $2.8 billion program of direct payments and tax cuts to help Albertans deal with inflation. This kind of generosity has been made possible by the highest-ever non-renewable resource revenue raked in by Alberta in a single year – $27.5 billion for fiscal 2022 – leading to a projected surplus of $12.3 billion.
Oil prices were remarkably high in 2022 because Russia’s invasion of Ukraine led to partial sanctions against Russian oil, reducing supply. Placing even more upward pressure on prices were the lower inventories of oil on hand; inventories were depleted by the rising demand that occurred after pandemic restrictions started to ease.
What to do with the remainder of Alberta’s surplus, being the better part of $10 billion? The fact is, oil prices and therefore Alberta’s revenues are highly volatile. Just three short years ago (it sure seems like a long time, given the pandemic), provincial natural resource revenue was just $2 billion, given that oil prices had cratered due to Covid. Government must decide how much money to set aside for the next rough patch to hit the oil patch, which inevitably will arrive, sooner or later.
FEDERAL BUDGET
The federal budget is coming down March 28. I will share my thoughts with you in the April edition of the Journal. If you have any questions at all in the meantime, please do not hesitate to reach out.
CANADA IS MORE BANKABLE
The sudden collapses in March of Silicon Valley Bank and Signature Bank in the United States have created volatility in global markets, but nothing of serious concern to us, and our confidence in the Canadian banking system remains very high.
Simply put, compared to the US, we do things differently in Canada. Our banks are more heavily regulated, one of those cases in which we can be happy for our government to have stringent rules in place. As well, Canadian banks’ businesses are, generally speaking, more diversified, both within Canada and internationally.
What happened down south? History has shown that some investors, consumers, and businesses get themselves caught in a vulnerable position nearly every time financial conditions have tightened. Namely, having become dependent on cheap money to, respectively, enhance returns, fund spending, and grow profits, they find themselves in a bind when interest rates rise and that money becomes not-so-cheap.
This time appears to be no different. SVB and Signature had some things in common, including assets that were concentrated in fixed income securities like government bonds – bonds that had unrealized losses, because they had decreased in value due to higher interest rates. For its part, SVB tried to suddenly borrow money to fund these losses. The market found out, confidence plummeted, and depositors rushed to withdraw their money in what’s known as a “bank run.”
US federal regulators shut down both banks and took action to guarantee the lost depositors’ money. Among other steps taken by regulators to restore confidence in the banking system, they injected deposits into other banks and created a new lending facility, through which U.S. banks can get emergency funds in exchange for securities like bonds.
Again, the Canadian banking system is a much more structured and conservative place, and we are very confident in it.
WE STILL HAVE TO EAT
At 5.2% in February, inflation is slowing across Canada. But you have been to the supermarket, so you know that food prices are still climbing. Specifically, they were up 10.6% in February compared to the same month in 2022. Perhaps you have noticed that the prices of pasta and lettuce are leading the climb, up a remarkable 23% and 20% year over year.
Stubbornly rising food prices reveal a weak spot in the strategy of central banks to curb inflation by increasing interest rates: people need to eat. They are going to keep buying food, even at higher prices.
And yet, there is hope. Alberta’s February inflation rate was the lowest of all provinces, at 3.6%, a big drop from 5% in January. Even so, food prices were up 9.7%. A range of factors are working together to keep groceries expensive. Among them: avian flu in Canada and the US that killed millions of chickens; ongoing supply chain issues; war in Ukraine; climate change.
The central banks of most relevance to Canadians, being the Bank of Canada and the US Federal Reserve, continue in their stated policy of reducing inflation to their target of 2%. After increasing rates at close to the same rate for the past year, their approaches have started to differ: the Fed raised rates by a further .25% in March, while the BOC kept rates steady, at 4.5%, for the first time in a year.
ALBERTA BOUND
For Canadians, especially those with mortgages, this provides at least a small measure of mercy. And for those considering a new mortgage – people looking to buy a new home, in other words – the non-increase could be just enough to get them off the sidelines and into the market.
Across Canada, home prices fell 13.2% in 2022. But not in Alberta, where prices are actually higher than they were in February of last year. Why?
Some credit the “Alberta is Calling” campaign launched by Jason Kenney with attracting other Canadians to this province, an initiative I wrote about in last October’s edition of the Journal. As the Financial Post reports, “Not to say it’s the campaign that did the trick, but Canadians are coming. Alberta’s population increased 1.3 per cent, or by 58,203 people, in the last quarter of 2022, the highest growth seen in the country, and much of that was interprovincial migration, mostly from Ontario and British Columbia.”
In some important ways, it is an easy sell. For example, housing prices are up, but they are still very affordable compared to other major Canadian cities. Essentially, average home prices in Calgary are half-price compared to Toronto and Vancouver:
Do you have a mortgage coming up for renewal? Do your children? If so, we should talk.
HAPPY BIRTHDAY COLLEEN!
A very happy birthday to Colleen! Our clients appreciate her so much, and so do I. Here is a great photo from a shoot we did last year.
THE FAMILY FILES
It has been a big month in the Family Files. Tara and I celebrated our 14th wedding anniversary by going out to dinner. I see from Google that ivory is the traditional gift on anniversary number 14, but that it has fallen out of favour, because it leads to the poaching of animals such as the hippopotamus and elephant. In fact, apparently the elephant has taken over as the theme of 14th anniversaries, “reflecting the stability, patience and dignity inherent in a long marriage.”
This is the perfect time to thank Tara for everything she does for me and our family.
As a family, we recently hit the beach, right here in Calgary. An indoor beach for a birthday party. It was lots of fun, the kids loved it and we got to play soccer in the sand.
Jake and I also celebrated our birthdays in March, and Cara has been having great success selling Girl Guide cookies. What’s your address?? Just kidding.
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The greatest compliment we can receive is a referral to someone you care about who would appreciate the same value we take pride in giving you. If you have someone in mind, feel free to contact me at any time. Thank you very sincerely.
Jason de Weerd, CFP, CIM
Investment Advisor & Financial Planner
RBC Wealth Management
RBC Dominion Securities Inc.
1-403-213-6731
jason.deweerd@rbc.com
www.jasondeweerd.ca