Market update - May 11, 2021

It's been about two weeks since our now infamous inclusionary and diverse budget for all Canadian "peoplekind." As you know, it spent up a storm—deficits to the horizon. Everybody gets a pony. Until herd immunity comes and the election takes place. Then the process of our children's, children's, children paying it back begins. And if the Libs win, we pay.

Upper-income earners dodged a few bullets in this budget as nothing materialized related to new taxes for the ultra-wealthy. But don't get too arrogant since the odds favour a re-elected Trudeau-Chrystia tag team, and if this happens, you can bet your bottom dollar the taxation is coming.

I think this could happen as early as Quarter 3, 2021, and (if it happens) Canada would have a new level of personal income (for tax purposes) in place for 2022, plus enhanced capital gains taxation effective from the night of the vote.

If you (and your accountant or advisor) think this is a possibility, explore the options. Hard assets such as Gold and Silver have a fantastic track record during these economic times of uncertainty. The last time we witnessed this type of commodity super-cycle occur was between 2002-2011. The chart below shows both Gold and Silver and how well they performed.

SILVER 2002-2011

GOLD 2002-2011

I've been cautiously optimistic since April 12th of this year when we began the new Radio Show on Sauga960 AM, and as such, I have not taken the notion of calling a bottom in the Silver and Gold market lightly. You never know for sure when you ultimately call the bottom like this if you are making the right decision or not. When you look back in hindsight, you know for sure that what you were seeing is correct.

It now appears that we have had enough significant developments to point pricing in both Silver and Gold higher. Technically, both Silver and Gold look decent, but we are also witnessing what I believe to be a breakout in the miner stocks. Breakouts in mining stocks usually coincide and lead to the eventual breakout of both Gold and Silver and have for a very long time. But getting back to our economy, there is much more viewable data that persuades me to think we are about to see significant changes in investors' minds. Mindset is also a part of the key ingredients in the makeup of a super-cycle. Not only was the latest Federal budget a lot of what many of us expected, but it was a delay tactic as we move forward because there's more on the table.

The GST/HST could increase. But as far as sales taxes are concerned, they tend to smack the lower-income earners who spend a more significant amount of their income on essentials. So, it is more likely the Liberals will continue their assault on the 'wealthy,' like those with TFSAs.

It was not too long ago in 2015 when Trudeau slashed TFSA contributions in half from Harper's $10,000 a year. I recall Trudeau saying part of the reason was that many people didn't have $10,000 to put in each year. What a farce that was.

A TFSA can have up to $75,500 in contribution, and those who have invested correctly probably have over $100,000 in value. But many have considerably more, and in the next 10-15 years, these folks will end up having perhaps even $250,000 or more in their TFSAs, which can generate income every month in retirement, completely tax-free. In two decades, double that if invested and spread out. Precious metals have been part of this in a big way for Delta clients.

But by no means does this imply the Liberals won't tighten up the contribution limit again. They could always cut the existing $6,000 annual amount of new room back to a smaller amount (Considering the average TFSA contribution is probably around $2-$3K) or even cap the amount total invested inside the TFSA plan.

What about RRSPs? The system is strongly weighted to favour those who earn more since the contribution room is based on income. Consequently, higher tax bracket folks can put over $27,800 a year into their plans, enjoy tax-free growth, and deduct the whole thing from their taxable income. But, the average contribution is just $6,000 a year, and approximately 75%-80% of all the RRSP room remains unused ☹. (Physical Gold and Silver can be placed into your RRSPs and TFSAs, by the way.)

Finally, what about real estate? The principal residence exemption from capital gains costs Ottawa just over $7 billion a year in lost revenue, and there's been talk that this extreme loophole for unearned wealth should be dashed. But we all know that is not going to happen. The budget's almost complete silence on the current real estate mania spoke volumes. There is zero appetite in Ottawa to touch the drug of choice for the masses.

Moving forward, the current fiscal state of affairs isn't viable. Either spending has to drop (which Trudeau will not do), or revenues must rise (which Freeland will most likely do). So, get ready. Start by communicating to your advisor, planner, or the ones you trust with your money and take advantage of your tax shelters that exist currently.

Stuff your TFSA and get it into something that is growing, not something that requires you to be on the throttle making hairpin changes every hour, but hey, what do I know I am NOT your planner or your advisor. You can also transfer existing assets from another institution into an account with Delta Harbour in favour of owning physical Gold and Silver using funds you have already amassed.

(Not financial advice--My planner has also suggested to me many times that I consider borrowing money to fill up all the vacant RRSP room I have accumulated. The loan interest is not deductible, but the big tax refund can be used to pay it down.)

Right now, I am seeing people take advantage of pension income-splitting with their partner. I also see many clients using a spousal RRSP or a cheap spousal loan to reduce the overall tax profile of their glorious union. And often, the most astute families are also dumping money into their children's RESPs so they can collect the 20% government handout for doing so. Beyond this, there is more you can do inside the registered accounts structure but seeking the advice of your planner or advisor is the suggested path.

Mostly, don't be naive or relieved. The budget played us. The end game is not one we survive on current income or the hope of reaching the "straight and narrow" with some new government. Mine is not the only vision, and again I am not your certified planner or advisor. Talk about your changes with those you trust.

But right now, the world is flooded with printed dollars, and the only saving grace we have currently in Canada is two-fold. One, our real estate, which is most likely near a top and will peel back hard. And two, we share our appetite for printed dollars with the rest of the world. This inevitably is why we see such a growth in the number of people looking for alternatives like hard assets in Gold and Silver. In central banks worldwide and in personal accounts as ways to fortify wealth and introduce new ways to grow. All of this in preparation for what looks like it will be a very uncertain time ahead.

Yours to the penny,

Darren V. Long