I’ll stay away from stock picking, but am sure I will be humbled when I look back at these predictions. Without further ado:
1) Oil and the Canadian Economy Will Stay Down
Canadian oil will stay down below $50 per barrel. This will continue to hamper growth and employment within Canada. All levels of government will also feel the sting as royalties and taxes paid by oil companies and other materials and natural resources (which aren’t getting the media attention) dry up. With oil-producing countries around the world struggling to balance budgets and badly in need of oil revenue, I don’t see taps turning off or slowing down any time soon. Shale production in the USA appears to be more resistant to lower price points than anyone would have thought a year ago.
Some might say that this is a pretty pessimistic outlook, but a contrarian might point out that this could represent a significant buying opportunity. Keep your eye on the P/E ratio of ETFs and index funds that track the entire Canadian market. I think we’ll see some much more attractive valuations. Of course I’ll take advantage by rebalancing my couch potato portfolio in the same boring way I always do!
2) Canadian Oil Will Be No Closer to Reaching Tide Water by 2017
Canadian provinces remain stuck in NIMBY (Not In My Back Yard) mode and I just don’t see all of the people buying into this that need to. Keystone XL appears dead (against all rational logic) and Northern Gateway won’t be far behind. The great national hope of Energy East appears to make a lot of economic sense – but when did that ever convince anyone? I’m simply betting that the project requires too many stakeholders with vastly different agendas to buy in. The really sad part about this from a broader perspective is that governments will continue to lose billions of dollars in tax and royalty revenues because Canadian oil sold at such a discount relative to other oil suppliers.
3) Low Interest Rates Continue to Bully Pension Funds and Savers
I think we’ll see yet another rate cut to the prime lending rate in Canada in 2016. We probably won’t delve into negative interest rate territory, but just the fact that it’s being discussed seems like a pretty good indicator of where everyone’s head is at. While this is great for borrowers (especially those borrowing to fund a growing business) it’s a terrible mess for people who depend on ultra-stable investments for their income needs. Pension funds have had to take on more and more risk over the past few years in order to desperately try to gain the returns they need in order to meet their targets. Some have even went back to active management strategies (and the accompanying sky high costs) in order to achieve these goals. Needless to say, that could backfire in one heck of a hurry. I genuinely feel bad for elderly Canadians who were relying on bond payouts of 3% or so in order to provide a decent standard of living in retirement.
4) Interest Rate Moves Continue to Sink the Canadian Dollar
With my crystal ball showing a rate cut to try to offset the slumping Canadian economy, and the USA talking about gradually raising rates now that they’re back on the rails, it doesn’t take a genius to figure out what will happen to our respective currencies. Hope you took that vacation to see Disney over the past few years because it’s about to get a whole lot more expensive! Smart folks that I often read say that the natural resting point for the Canadian Dollar versus its American counterpart is 80-85 cents. Considering where we have been for the past several years, we’re likely in for an extended ride on the other side of that figure.
5) Canadian Housing Markets Stay Absurdly High – Before Collapsing in 2017
Anyone can throw out their thoughts for the upcoming year. I’m going Nostradamus and getting a jump start on 2017!
Everyone who understands basic economic realities knows that the Canadian housing market is somewhere between moderately overpriced and insanely overpriced. What most “experts” don’t understand – and haven’t understood for the last several years – is that the vast majority of people don’t understand economic realities. In fact, they have no interest in discussing economics at all, aside from dinner parties spent talking about how housing prices just keep going up.
Lower interest rates will continue to encourage lenders to throw money at anyone with a pulse. Sure the Federal Government just tightened rules up a little bit (smart move), but that won’t stop private lenders from filling in gaps. The media will continue to report housing prices going up and Canada’s massive real estate industry will keep encouraging people to get into the housing market (or climb higher up the housing ladder) “before it’s too late” and interest rates start going up. I realize that’s a recipe for disaster – I’m just betting the disaster will take more than 12 months to unfold. Foreign buyers will take advantage of our lower dollar and low interest rates to keep pushing prices up in Toronto and Vancouver. Sure, we’ll see some price dips in Alberta and maybe other parts of the country, but when looking at national statistics, I doubt we’ll see any negative movement on home prices, and I wouldn’t be shocked to see 5-8% gains year-over-year.
6) Smart Money Will Continue to Become Less Active
As more and more people wake up to the fact that Canada’s actively managed mutual funds are terrible investment options (see our free eBook for more details), passive investing strategies will continue to see growth (although will still be small time compared to our mutual fund industry). ETFs and discount brokerages have cut investing costs to the absolute bone, while robo advisors represent perhaps the easiest, most user-friendly way to passively invest your money that Canadians have ever seen. All in all, it’s a great time to be a passive investor in Canada with lots of options for folks with varying levels of financial literacy.
7) “Because it’s 2016” Will Be the Most Overused Canadian Phrase of the Year
The media loves Canada’s boy-toy of a leader. The vast majority of us love pretty people who say things in 140 characters or less. Many of us love to backlash against what the vast majority of people love.
All of these factors will combine to push “Because it’s 2016” memes and social media commentary into the stratosphere during the upcoming year. I feel like the quote reached its saturation point a long time ago, but apparently I’m in the minority. What this says about reasoned debate and exchange of ideas on complicated issues… well, I will slowly back away from a “Get off my lawn!” old-man moment.
8) Uber Will Continue the Slow Inexorable March to Taxi Extinction
There’s “disruption” and then there’s Uber. I think AirBnB/FlipKey can survive alongside hotels and that other industries will adapt instead of being relegated to history textbooks. Taxis are not one of those industries. The downward pressure being exerted on taxi prices will continue and something will break one way or the other. Politicians will eventually quite trying to work against this new paradigm (votes vs union donations) and work with them instead to make things slightly more safe.
9) More Fintech Companies Will Collapse or “Pivot” Than Succeed – Banks Still Rule.
I love the general idea of robo advisors (despite the unfortunate name the industry has gotten stuck with) but wouldn’t want to own a robo advisor start up right now. The reason is that there is so much competition out there, and the struggle to get noticed amongst all of the noise in the modern consumer world. Canada’s big banks have massive branding advantages and the client infrastructure in place to slowly introduce their own in-house robo advising options. Several of them have already announced plans to go down this road. There is just so much trust in the banks (many would argue that it is underserved) as institutions that I see it as very difficult to overcome. Of course, if robo advisors can continue to make the pitch that banks have been soaking them with fees and commissions for years, they might yet gain some traction. It will be interesting to see who ends up acquiring who within this space going forward.
On the other hand, I don’t think all of Canada’s fin-tech (financial technology) start-ups have as bright a future as the robo advisors do. A lot of these companies have great ideas, but I’m just not sure how their respective monetization models will work going forward. These tech-heavy companies also face an uphill battle in trying to separate themselves from the pack when it comes the average cautious Canadian trusting them with their money. I think that a best-case scenario sees many of these companies get bought out by older/bigger brands or pivoting them into niche products aimed at very specific demographics.
10) Go Spurs Go!
Possibly the only people wrong more often than financial forecasters are sports prognosticators. In that vein, here is who I’m betting on (*if betting were legal*) in 2016.
The Spurs will shock the world and beat the previously unstoppable force known as the Golden State Warriors. Stephen Curry and Co. have had great injury luck and the Spurs are quietly lurking in the weeds doing smart Spurs things like they always do. Lebron will once again be a bridesmaid as the Spurs win two 7-game series en route to their 6th title of the Tim Duncan era.
I predict the Blue Jays will win the World Series because I’m Canadian and couldn’t name a dozen non-Jays if I had to. Don’t get off the bandwagon yet baby!
No one wants to admit that Stanley Cup playoffs comes down to who has the hot goalie 85% of the time. Instead we love to talk about stuff like “heart” and “wanting it more”. I’m pretty sure that if you’re a professional athlete who has been playing a game their whole life, have a massive financial incentive to win, and whose identity is completely tied up in being a hockey player – you “want it” pretty badly. All this to say that sports commentary is mind-numbing much of the time and that a decent team with a hot goalie will hoist sports’ coolest trophy. My random pick given those parameters is the LA Kings. You really want to bet against a goalie named Quick?
In a series of upsets that are only upsets if you haven’t watched football the last few weeks, the Seattle Seahawks will win Super Bowl 50 (Super Bowl L?). The Carolina Panthers are getting all the attention for beating up a bunch of mediocre teams all year, but Seattle’s experience will get them through the hornet’s nest that is the NFC.
11) Money and Fisticuffs
A recent series in the National Post reveals what many Canadian parents learned a long time ago: Hockey is quickly becoming too expensive for the middle- and working-class. I wrote about this a couple of years ago, but better late than never National Post. I don’t see how this trend ever reverses and I think our collective idea of hockey as Canada’s national game will be challenged as more and more first-generation Canadians pump up the grassroots of cheaper games such as soccer and basketball from coast-to-coast.
The UFC saw a banner year in 2015, as it rode its rising stars Ronda Rousey and Conor McGregor. I believe the company has turned a corner and will continue its gentle descent into the mainstream (leading to the predictable social media backlash from hardcore original fans). Unfortunately for the star-marketing business, no one can survive 4-ounce gloves very long and Conor McGregor’s time will soon come. Love him or hate him though, people will continue to tune in to watch.
Here’s to hoping you have an excellent holiday season, and best wishes to you and yours in 2016! Thank you from the team here at Young and Thrifty for making 2015 another great year. As always, we need to acknowledge that we only continue to do this because of the interaction we get with our readers and the joy helping others brings!