Transcript: Are Negative Oil Prices the New Normal? [Soft Music playing in background] [Title reads: Are Negative Oil Prices the New Normal?] [Onscreen Text: April 27, 2020] [Onscreen Text: Brian See, Portfolio Manager, Global Equities, CIBC Asset Management]   So when we see oil at zero or in fact negative pricing, it's really a function of too much supply in the oil market and not enough demand. And then compounded by the fact that there's really no place to store the oil. And when this happens, oil prices will effectively go no-bid, which is what we witnessed when oil prices traded at negative $37/barrel. So when the markets go through this painful price discovery, it's really a function of these futures oil contracts being unwound prior to contract expiration. And so what we mean by that is the financial holders of these contracts, they're looking to sell their positions toward the end of the month to avoid taking actual physical delivery of oil.   [Still image of an oil tanker navigating across a sea.]   And in previous cycles in the past, refiners and storage operators would be buyers of this crude. But because of their fears of crude approaching full storage capacity, they end up not purchasing it at all.   [Still image of two technicians walking through an oil refinery, followed by an aerial image of a large oil refiney.]   And then these oil contracts end up pricing to whatever is necessary in order to sell them.   [Soft Music playing in background] [Title reads: OPEC matters]   So at the latest OPEC meeting, which was an emergency meeting held between Saudi and Russia to get everyone back to the negotiating table, the OPEC plus delivered a historic deal, cutting 9.7 million barrels out of the market. Now, when we look at the numbers, the devil's in the details because the 9.7 million barrels a day cut is really only for two months, for May and June. After that, that cut actually falls to 7.7 million barrels for the balance of 2020. Starting in 2021 and all the way out to April 2022, that cut further falls to 5.8 million barrels a day. Now it's still a historic cut by any means, given the amount of production taken off the market.   [Still image of an offshore oil rig.]   And it truly helps in helping balance the overall supply markets. In addition, other oil producing nations such as the U.S., Canada and Brazil have also voluntarily cut production.   [Still image of a crew of workers at an oil derrick, followed by a still image of a single oil derrick on a snowy plain, followed by a still image of a single oil derrick on a wide, rolling green plain, followed by a still image of a long row of oil transport train cars.]   And this is really stemming from the fact that it's not only uneconomic to produce to the oil, but there's simply no place to store it.   [Soft Music playing in background] [Title reads: Impact on Canadian oil companies]   With low prices and what it means for Canadian oil companies is that solvency and liquidity are going to be the most important things in an environment of extreme price dislocation. So this means that Canadian oil companies and other global oil companies are going to have to be making sure that they can access cash, credit facilities or any debt on hand and really any other forms of cash in order to be able to ride out this volatile time. That's the most important thing. The second thing is production shut-in economics: companies are going to have to assess their assets and their various plays in order to decide which production has to be shut-in in order to preserve the balance sheet and the financial viability of the company.   [Soft Music playing in background] [Title reads: Where are oil prices headed?]   So when you look at depressed oil prices, it's really a combination of COVID and OPEC. When you're actually looking at oil, it's really facing a black swan event where you had an initial price war resulting in an oversupplied market, which was further exacerbated by the fact that the Corona virus wiped out 20 to 30 million barrels of oil demand at its peak.   [Still image of a large stack of oil barrels, followed by a still image of a man wearing a germ mask on a city street, followed by a still image of a rural gas station with a single truck at the pumps.]   When you look at that at its peak, this results in 2020 being the first year of negative oil demand since the global financial crisis.   [Still image of a set of unused gas pump nozzles, followed by a still image of a super highway being used by a single car, followed by a still image of a city highway with no cars.]   And so when you combine the OPEC cut of 9.7 million barrels a day versus the 20 to 30 million barrels a day of demand destruction, it's simply not enough to overcome weak prices in the short term. And ultimately, even with other countries moderating, the short term, prices are going to continue to be under pressure.   [Soft Music playing in background] [Title reads: Will oil demand return?]   So things will look better for oil once Canada's economy starts to pick up. But this is also dependent upon the US economy. It's important to note that Canada produces about 4 million barrels of oil and seventy five percent of this is actually exported to United States. And so the good news out of this is the US is actually demanding a lot of the heavy oil that Canada produces, and this is to replace their dwindling supplies from Mexico and Venezuela. In addition, the US has goals of oil independence and less reliance on foreign oil, such as coming from the Middle East and Africa, and this makes Canada also an attractive substitute. So in the long term, Canada's still better positioned for this. It's just going to take time for supply and demand to moderate and balance.   [Soft Music playing in background] [Title reads: Longer term oil outlook]   If we look in the long term and approximately about two to three years out per se, we're going to see this as a tremendous buying opportunity in today's markets for a couple of reasons. Number one, demand will eventually return to historical levels, post-COVID. We're already seeing early trends of less cases and fatalities, and the data seems to be trending in the positive direction. The second thing is the OPEC supply cuts and overall voluntary production curtailments are going to be effective all the way until 2022. So that's a lot of supply taken off of the market. In addition, there's also a lack of investment by the industry. And this is going to result in a supply crunch eventually down the road a few years later. Ultimately, when you combine that all together and assess our supply and demand fundamentals and marginal cost economics, we see oil prices going from effectively no-bid or very low prices today to somewhere in the realm of 40 to 50 dollars, which we view as the fair value for long term oil prices.   [Soft Music playing in background] [Disclaimer: The views expressed in this video are the personal views of Brian See and should not be taken as the views of CIBC Asset Management Inc. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.   ®The CIBC logo is a registered trademark of CIBC, used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.   Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]

 

Transcript: Steering You Through the Uncertainty

[Onscreen Text: A CIBC Private Wealth Webcast. Recorded on April 17, 2020. CIBC Private Wealth Management. CIBC Wood Gundy.]

 

[Soft Music Plays]

 

[Onscreen Image: A still image of Ed Dodig]

 

[Onscreen Text: Steering You Through the Uncertainty. Ed Dodig, Managing Director & Head, CIBC Private Wealth Management & Wood Gundy]

 

Ed Dodig: Hello and thank you for joining us today. My name is Ed Dodig, managing director and head of CIBC Private Wealth Management Canada and CIBC Wood Gundy. We certainly continue to operate in challenging and unusual times.

 

[Onscreen Images: An empty baseball diamond with a sign attached to the fence saying, “Attention! Stay 6 Feet Apart. Respect Social Distancing”. A woman types on her laptop at home.]

 

Ed Dodig: We're all adjusting to a new normal, the way we manage our personal and professional lives as a result of COVID 19. That's why I'm pleased we can connect today to share some important perspectives on the current environment: the economic downturn, the market volatility, and what really matters for your longer-term wealth ambitions. Within all of this uncertainty, there are a couple of things I know for sure. The first is that we're here to help you navigate your financial matters and lend our support. The measures we have put in place at CIBC Private Wealth to safeguard our people and processes during this pandemic, including the ability to work from home, will enable us to continue to meet your needs. We are firmly focused on looking after our employees, our clients and our communities throughout the cycle.

 

[Onscreen Text: Unwavering Focus and Commitment:

Our Clients. Our Colleagues. Our Communities.]

 

Ed Dodig: Our hope, is that we're able to make the short term better while we plan together for the long term. So, let me be clear, if you have concerns or questions about your current financial situation, we're here to help. We understand that each situation is unique. Please speak with your advisor to explore how we can support you and your family in this environment. The second thing I know for certain is that it's never been more important to partner with professionals for an integrated approach to your wealth. The impact of events like this pandemic can have far reaching and sometimes unexpected impacts on your personal, family, and business financial position. At CIBC Private Wealth, we fundamentally believe that your wealth and your aspirations are unique and command a personalized and integrated approach, an approach that encompasses wealth strategies, disciplined investment management and sound stewardship. Which leads me to our speakers today.

 

[Onscreen Text: Steering You Through the Uncertainty:

Your host Ed Dodig, Managing Director & Head, CIBC Private Wealth Management & Wood Gundy

Your presenters Benjamin Tal, Managing Director & Deputy Chief Economist CIBC World Markets

 

Ian de Verteuil, Managing Director & Head, Portfolio Strategy, CIBC World Markets

 

Jamie Golombek, Managing Director, Tax & Estate Planning, CIBC Private Wealth Management

 

Lana Robinson, Executive Director, Wealth Strategies Group, CIBC Private Wealth Management]

 

Ed Dodig: I'm delighted to have a range of CIBC experts here to provide you with insights on the economy, investment portfolio strategy, the latest financial relief measures, and the heightened need for financial and estate planning. Let me start with Ben Tal, CIBC Deputy Chief Economist. Ben, definitely interesting times! We have been quickly plunged into the recession. With all of the current economic uncertainty, can you please shed some light on what we can expect moving forward?

 

[Onscreen Image: A still image of Benjamin Tal]

 

[Onscreen Text: Economic Update. Benjamin Tal, Managing Director & Deputy Chief Economist CIBC World Markets]

 

Benjamin Tal: Yes. Thank you, Ed. Clearly interesting times. And of course, you cannot talk about the economic situation without talking about the trajectory of the infection curve. So, let's start here, as you can see in the first chart, clearly, things are getting a bit better.

 

[Onscreen Text: Daily Growth in Number of COVID-19 Cases

Source, WHO, CIBC]

 

[Onscreen Graph: A line graph shows the daily growth of COVID-19 case in Canada and Italy.]

 

Benjamin Tal: We have a situation in which the curve is starting to flatten. The rate of growth is slowing. It's still rising, but the rate of growth is slowing. And the rate of growth of the rate of growth is actually negative, suggesting that we’re very close to the peak. So hopefully within a week or two, we might start to see a flattening in the curve, which is a very positive situation. Of course, that's not the green light and the economic damage is very, very visible. Just this week, Stats Canada released preliminary numbers for the first quarter GDP growth. It's a guess at this point, but it's roughly negative 10 percent, the first quarter with most of the damage, of course, being in March. The second quarter our forecast, which is a rough forecast of course, that we are going to see the economy declining by roughly 40 percent on an annual basis. That's something that we have to understand. This is damage we have never seen in our lifetime. The unemployment rate over the course of the quarter will rise to about 13, 14 percent. Unfortunately, we're going to see job loss of about 2.3 million people.

 

[Onscreen Images: An exterior shot of the U.S. Federal Reserve headquarters.]

 

Benjamin Tal: Just recently, the chairman of the Federal Reserve said that we might be in a recession. This is the understatement of the century. We are in a recession. We are in a deep recession. And we have to recognize that. However, given this kind of pain, the concession, of course, is to go back to normal as quickly as possible.

 

[Onscreen Images: A time-lapse shot of a bridge in Shanghai. A time-lapse shot of downtown Singapore. A time-lapse shot of the Frankfurt skyline. A time-lapse shot of a harbor in Sweden. A time-lapse shot of the Warsaw skyline. A close up of an escalator. Students entering the doors of a school.]

 

Benjamin Tal: We see countries like China, Singapore moving way too fast, trying to go back to normal. Countries like Germany, Sweden, Poland are starting to open stores, going back to semi-normal. Denmark is opening schools. So, things are starting to move. And we have to be very, very careful not to move too fast.

 

[Onscreen text: UK During Spanish Flu. Deaths Per 1,000. Source, WHO, CIBC]

[Onscreen Graph: A line graph illustrating the three peaks in deaths of the Spanish flu, from June 1918 to March 1919.]

 

Benjamin Tal: Because as you can see in the second chart, we have a situation in which those situations are coming in waves. The Spanish flu had three waves, three peaks, in 1918, twice, and then 1919. So, when people go back to normal too quickly, you have a second wave. I believe that is the risk now facing China. And in Singapore - we are seeing early stages of a second wave. So, we have to be careful here not to move too quickly. I think that's what we are going to do. And if that's the case, the way I picture our lives, if we move slowly, let's say by July or June, the way I see our life in three months from now is the following. Older people and people with precondition will be asked to stay home. People working from offices, namely large financial institutions, accounting firms, law firms, this kind of stuff that would be encouraged / told to maximize the number of people that would still be working from home to minimize interaction.

 

Benjamin Tal: In manufacturing and construction, we'll see flex hours and multiple shifts. Basically, trying to make sure that people are not working too close to each other. That will reduce productivity and the speed of completion and construction by maybe 40, 50 percent. But still there would be sites going and there would be some activity. Some stores will open again, but they will be basically function like the grocery stores.

 

[Onscreen Images: A grocery cart is pushed to a line on the floor that says “please wait here”. An aerial view of empty soccer stadium. Empty bleachers at a baseball field.]

 

Benjamin Tal: We will line up and minimize the number of people in this site, in the store at any point in time. And of course, large events probably will not be allowed. Baseball again, maybe it will be without an audience. This kind of life, I'm picturing three months from now. Not normal, but better than it is now. Now, of course, this has some implications on the trajectory of the recovery.

 

Onscreen Text: Composition of Labour Market by Vulnerability:

 

Source: Statistics Canada]

 

Benjamin Tal: Let me say something about the level market. If you look at the next chart or the table, you can see the composition of the labour market by vulnerability. Namely, when we go back to semi-normal three or four months now, what kind of vulnerability are we going to see in the labour market. And you can see that there are different vulnerabilities. For example, the essential workers will remain essential. In fact, their wages will go up, their bargaining power is rising, and they will be hiring, not firing people. Also, we see a minimum impact on government employment, public sector. The government is not in any mood now to lay off people. That's about 10 percent of the labor market. Some impact will be on office related jobs. Large companies will try to have a different reaction curve to the situation. They will not lay off people in big numbers, but they will try to cut costs. So, the compensation chanel, let’s say bonuses, this kind of thing. So, it's not going to be laying off people, but rather cutting costs for compensation. And more notable impact will be in construction, manufacturing, as I suggested. And we are going to see a situation in which some people, unfortunately, would have been laid off, but others will be working reduced hours. So, that's where we see some impact. And clearly we see some vulnerability, especially in the private services segment of the market, that will be the last to come back. That's roughly nine, 10 percent of the market. So, that's more or less where we are.

 

[Onscreen Image: A still image of Benjamin Tal]

 

[Onscreen Text: Economic Update. Benjamin Tal, Managing Director & Deputy Chief Economist CIBC World Markets]

 

Benjamin Tal: And when it comes to economic growth, unfortunately, given this scenario, it's not going to be a V-shaped recovery by any stretch of the imagination. Some people are hoping that by July or August, we'll be back to normal. It's not going to be the case, although we see after negative 40 percent in the second quarter GDP growth, we see GDP growth rising by 20, 30 percent in the third quarter. This is not a V-shaped recovery by any stretch of the imagination. And the unemployment rate will go down. But even in 2021, late 2021, we see still it at about 8 percent, which is 2 percent higher than it was before the crisis. So, there would be some permanent damage there. We have to recognize that. But clearly in the third quarter and fourth quarter, we'll see positive numbers after the significant decline in the second quarter. But it's not a V-shaped recovery by any stretch of the imagination.

 

Benjamin Tal: Now, very important. Some people are comparing the current situation to the Great Depression. And I think that's a very wrong thing to do. This is not a depression. This is not even 2008 in the sense that it is a depression or a fairly significant recession. You are in a freefall. There is nothing, there is no flow beneath you. We have to remember this crisis is significant economically speaking. However, this crisis, has an end game. The end game, of course, is the vaccine.

 

[Onscreen Images: Vials of a vaccine on an assembly line. A nurse places a needle into a vial. A highway with a large LED sign that says, “Keep your distance” and “6 feet between people”.]

 

Benjamin Tal: When we have a vaccine and this is maybe a year, 18 months from now, when we have a vaccine this crisis will be over. And in between, we have two layers of defense. One is, of course, the social distancing, that is working, flattening the curve. And the other, of course, is the anti-viral medication. And you are all aware of the news coming. People are getting more and more optimistic about an anti-viral medication coming in the coming few months. So those two layers of defense will make the situation better, because for the first time in a few months from now, we will feel that we are not totally defenseless against that virus. So, what we are doing now, and that's very important to understand.

 

[Onscreen Images: An aerial view of Parliament in Ottawa. A Time-lapse shot of a CIBC office tower at night.]

 

Benjamin Tal: What we are doing now; governments, central banks, banks, individuals and companies. What they're doing now, we are simply buying time. We are buying time until this end game. And that's why government policy is so important now. We have never seen this kind of situation ever, ever in our lifetime. But also, we have never seen this kind of government response in our lifetime.

 

[Onscreen Images: An aerial view of Parliament in Ottawa. An exterior image of the old Bank of Canada building.]

 

Benjamin Tal: And, you know, the government response, I will not get too much into it. The Bank of Canada has been fantastic in its response function to the crisis. And the reason why we need this policy response: Three reasons. One, we need to make sure that the financial system is functioning. There is not enough liquidity in the system. Number two, clearly, we have to provide short term support to people that are impacted, the sick, and of course, the unemployed. And third, to provide enough demand in the system to get us out of any deflationary cycle. That's really what the government and the Bank of Canada are trying to do. And banks are also playing a big role here, to defer debt payments and all kinds of other things. So, those are the policies that are being implemented. And it's not over yet. The government is spending two hundred and fifty billion dollars trying to lift the economy, help people. More is coming, I'm convinced. Clearly, some questions are being asked about the cost of all this. So, let's talk about debt.

 

[Onscreen Text: Expected Deficit to GDP Not Unprecedented:

Canada Federal Surplus/Deficit (% of GDP)

Source: Canada Department of Finance, CIBC]

 

[Onscreen Graph: A line graph showing the federal surplus and deficit as a percentage of GDP from 1961 to 2021 (forecasted)

]

 

Benjamin Tal: Clearly, as you can see from the next chart, the deficit is going to rise dramatically. We're talking about 8 percent of GDP, but it's not something that we haven't seen before. In the 1980s we've seen something similar. Now, people say, how are you going to pay for it? Of course, you're not paying for it. What you do is after the crisis is over, you make sure that your deficit is basically zero. And then GDP growth would be to two, two-and-a-half percent. So, GDP growth would be faster than debt accumulation. So, the debt to GDP ratio will go down over time. That’s the plan. And the good news is that Canada started this crisis in a very good fiscal position relative to other countries. So, we are now getting to where other countries were before the crisis and the debt is of course is going up. So, I think that we can manage it over time. But it is clear the governments would have to cut spending. And unfortunately, I think there will be some casualties. I think that the first casualty will be the environment. The other casualty, maybe will be education. I see more health-related spending. But clearly, we need to make sure the governments are maintaining zero deficits to be able to reduce the debt to income ratio.

 

[Onscreen Text: Core CPI Sees Little Response to Money Supply Swings:

M2 Money Supply and BoC Core Common Component Inflation. Source: Bank of Canada]

 

[Onscreen Graph: A line graph showing the M2 money supply and BoC core common component inflation from 1990 to 2020.)

 

 

Benjamin Tal: Another question that’s being asked, very quickly, is we are printing money. This is basically helicopter money. The Bank of Canada is printing money. We're talking about a quantitative easing, which is a very significant injection of money into the system. How inflationary is it? And if you look at the next chart, you can see that, yes, money supply would be rising. But money supply for many years now is not a good indicator of inflation. We have to remember that this money that is being now introduced to the economy is not new money. It's basically replacing lost income by corporations and, of course, by individuals. So, it's not really new money that is generating inflation. Money supply needs something else. It needs the money to move very quickly in the economy. And that's what's happening at this time. The Fed has been introducing quantitative easing for years, we haven't seen inflation. Same goes for Japan, the European Union. So, I'm not losing sleep over inflation at this point, despite the fact that the Bank of Canada is “printing money”.

 

[Onscreen Image: A still image of Benjamin Tal]

 

[Onscreen Text: Economic Update. Benjamin Tal, Managing Director & Deputy Chief Economist CIBC World Markets]

 

Benjamin Tal: So, all this means that yes, now, this quarter is the worst, ever, in our lifetime. There will be a rebound. The rebound will not be a V-shaped. But what governments are doing now is simply buying time. Because this crisis has an endgame. And this endgame is the vaccine. I will stop here. Back to you Ed.

 

[Onscreen Image: A still image of Ed Dodig]

 

[Onscreen Text: Steering You Through the Uncertainty. Ed Dodig, Managing Director & Head, CIBC Private Wealth Management & Wood Gundy]

 

Ed Dodig: Thank you, Ben. Now let me turn to Ian de Verteuil, Head of Portfolio Strategy at CIBC Capital Markets. Ian, given the economic prognosis we've just heard from Ben, I'm hoping you can drill down on the specific market outlook and investment strategy that makes sense in this environment.

 

[Onscreen Image: A still image of Ian de Verteuil]

 

[Onscreen Text: Investment Portfolio Strategy. Ian de Verteuil, Managing, Director & Head, Portfolio Strategy, CIBC World Markets]

 

Ian de Verteuil: Thank you Ed. The first thing we need to remember is that since the financial crisis, we have experienced a golden decade of investing. With strong equity and fixed income returns, and with modest volatility.

 

[Onscreen Text: Investment Strategy Will Get Tougher:

Since the Financial Crisis, we have experienced a decade of strong equity and fixed income returns with modest volatility

• • Declining interest rates have driven returns in both asset classes

  • Cash has been trash

  • Low volatility has helped investors remain confident and fully invested]

 

Ian de Verteuil: Specifically, over the last decade, the S&P 500 has compounded at about 11 percent. The TSX has lagged that because of falling oil prices. But even the 10 year bond, only that has produced 5 percent annual returns. To add to the positive performance of the past decade, we have had very low volatility. VIX-the common measure of volatility in stocks has averaged only 17 over the course of the past decade.

 

[Onscreen Image: A still image of Ian de Verteuil]

 

[Onscreen Text: Investment Portfolio Strategy. Ian de Verteuil, Managing, Director & Head, Portfolio Strategy, CIBC World Markets]

 

Ian de Verteuil: The strong returns and low volatility have largely been driven by declining interest rates, which have increased bond prices and also reduced the discount rate applied against equities, equity, cash flows and earnings. Cash has been trash. Low volatility has helped investors. All of us remain confident and fully invested. However, it is worth remembering what the previous decade looked like from 2000 to 2010. Over that period, the S&P 500 was virtually unchanged and VIX was about 30 percent higher, averaged 30 percent higher in that decade than in the past decade. This should be a stark reminder not to consider the past decade as typical. So, what will the future look like?

 

[Onscreen Text: The Future Will Likely Look Different:

We are likely to face more volatility and lower returns in the
next decade

• • Interest rates provide some indications of potential returns and unless they fall further (unlikely) both bond and equity returns will moderate

  • Higher risk due to substantial higher government funding needs, largely supported by buying Central Bank monetization

  • Lower rates increase interest rate sensitivity

  • Equity valuations are stretched]

 

Ian de Verteuil: We believe we will face more volatility and lower returns in the next decade. For four reasons, first, the level of interest rates typically provides an indication of potential returns. And given that they are already low, we should assume modest returns from both bond and equity portfolios. Second, we have much higher risk due to substantially higher government funding needs, as Benjamin mentioned, largely supported by central bank activity. This says nothing about the reality that the government is far more involved in the corporate world than they have been in the past, and they will have to extricate themselves over the course of the next several years. The third point I would make is, as we have moved to lower rates, we actually become far more sensitive to move in interest rates. The last point is equity valuations are actually relatively stretched and quite a bit higher than their long-term average. So, what does this mean for asset mix?

 

[Onscreen Text: More Conservative Asset Mix Needed

Given the low returns on cash and fixed income, it will be tempting to accept more risk – Don’t

• • Understanding individual risk tolerance will be important

  • Despite the low yield, hold some cash and limit leverage

  • As returns will be more modest, tax implications will be more important]

 

Ian de Verteuil: Given the low returns on cash and fixed income, it will be tempting to accept much more risk. We do not believe investors will be well-served by making this decision. Remember, we expect more volatility. So, the first thing that needs to be done is individuals need to be very clear on their risk tolerance. We don't want to create a situation where volatility such as we have experienced over the course of the past month, cause individuals to move dramatically, to dramatically shift in asset portfolios. Despite the low yield, we think holding some cash and limiting leverage will be a good idea. Again, this will provide good flexibility in periods of volatility. As returns will also likely be more modest, understanding the tax ramifications of your investments will become more important. When returns of 10 percent plus compounded, tax decisions may be less relevant. That will be very different over the course of the next decade.

 

[Onscreen Image: A still image of Ian de Verteuil]

 

[Onscreen Text: Investment Portfolio Strategy. Ian de Verteuil, Managing, Director & Head, Portfolio Strategy, CIBC World Markets]

 

Ian de Verteuil: Now, one of the things that many investors are focused on is the issue of yield. How do I get income? I believe that chasing yield will be quite dangerous. As I mentioned previously, low rates have increased sensitivity to interest rates.

 

[Onscreen Text: Chasing Yield Will Be Dangerous:

High Yields Are Not Enough

• • Most important question to ask, why am I offered higher yield?

  • Solid business models will shine through

    • Banks, Rails, Grocers and Telecoms remain attractive in Canada

    • Bank dividends have not been cut since the WW2, and likely will not be cut despite the tragic complications from COVID-19

    • Consider Bank DRIPs, particularly if a discount is offered]

 

Ian de Verteuil: High yields are not enough. The most important question that investors should be asking themselves when offered investments with high yield, is why am I offered the higher yield?

 

[Onscreen Images: A man looks at computer monitors showing stock performances.]

 

Ian de Verteuil: Surely there must be higher risk associated with that. Now there are some solid opportunities for yield even within the Canadian Equity market.

 

[Onscreen Images: A person wearing glasses, with data images. Fingers on an electronic device, scrolling through graphs. A computer screen with numerical figures, followed by the sun shining on the side of a building. A time-lapse shot of a CIBC office tower at night. An urban railroad. Stocked shelves at a grocery store. A 5G cellular tower.]

 

Ian de Verteuil: We believe many of the highly concentrated business, such as banks, railroads, grocers and telecoms remain extremely attractive and actually offer solid yield. Over the course of the past couple of weeks, as banking systems and other parts of the world have been called upon to cut dividends, there have been many questions on Canadian bank dividends.

 

[Onscreen Text: Chasing Yield Will Be Dangerous:

High Yields Are Not Enough

• • Most important question to ask, why am I offered higher yield?

  • Solid business models will shine through

    • Banks, Rails, Grocers and Telecoms remain attractive in Canada

    • Bank dividends have not been cut since the WW2, and likely will not be cut despite the tragic complications from COVID-19

    • Consider Bank DRIPs, particularly if a discount is offered]

 

 

Ian de Verteuil: We do not expect Canadian banks to cut their dividends despite the tragic complications from COVID-19. I would say, first of all, Canadian banks, the big five, have not cut their dividends since the Second World War. They also operate with high structural levels of profitability, which allows them to absorb loan losses, the inevitable loan losses that come from the economic environment that Ben has mentioned. We also believe that banks may start offering dividend reinvestment programs with some discounts. This would be particularly attractive for investors who own bank shares but may not need all the cash immediately. It will allow you to effectively get more exposure to bank shares at a discount to the trading price.

 

[Onscreen Image: A still image of Ian de Verteuil]

 

[Onscreen Text: Investment Portfolio Strategy. Ian de Verteuil, Managing, Director & Head, Portfolio Strategy, CIBC World Markets]

 

Ian de Verteuil: So, in conclusion, we suggest very defensive posturing. It is extremely important that investors hold cash and limit leverage despite the very low levels of interest rates. Remember, we become more sensitive to interest rates as the level of rates fall. We also believe that investors need to be careful in chasing yield. With that, I'll turn it back over to Ed.

 

[Onscreen Image: A still image of Ed Dodig]

 

[Onscreen Text: Steering You Through the Uncertainty. Ed Dodig, Managing Director & Head, CIBC Private Wealth Management & Wood Gundy]

 

Ed Dodig: Thank you, Ian. Now, the federal government has quickly rolled out support for both individuals and business owners in the form of various financial relief measures. It can be tough to keep track of everything announced. So, we have asked our own Tax and Estate Planning expert Jamie Golombek to provide an overview of what's in place. Over to you, Jamie.

 

[Onscreen Image: A still image of Jamie Golombek]

 

[Onscreen Text: Federal Financial Relief. Jamie Golombek, Managing Director, Tax & Estate Planning, CIBC Private Wealth Management]

 

Jamie Golombek: Well, thanks very much Ed. So, there's a lot of things changing pretty much every day right now. So what I plan to do over the next few minutes is sort of summarize where we are right now in terms of the personal tax measures and the business measures that Canadians might be entitled to as a result of some of the government's COVID-19 financial response plan.

 

[Onscreen Text: Personal Tax Measures:

Measure	Benefit
Canada Emergency Response Benefit	$2,000 per month
Special GST payment	Approx. $400 (single)
Increased CCB	$300 per child
Tax filing/payment	Deferral
Student loans	No interest/payments for six months

cibc.com/content/dam/personal_banking/advice_centre/tax-savings/covid-tax-en.pdf ]

 

Jamie Golombek: Let's begin with some of the personal tax measures. Probably the number one benefit that most Canadians are hearing about and that’s been written about and that’s really helped many, many people that have lost their job, is the a Canada Emergency Response Benefit. That's $2000 per month for up to four months, and that's available to many individuals who have lost their jobs. So, people who have stopped working, not earning income either employment income or self-employment income as a result of the COVID-19 pandemic.

 

[Onscreen Images: A woman with latex gloves on looks at her phone. A woman lies on her couch wearing a mask and looking at a tablet. A man in a mask looks out a window. A father helps his young daughter with homework. Two young girls work on homework at the kitchen table. An empty school hallway.]

 

Jamie Golombek: It applies to anyone who is not working or maybe staying home, someone who is sick or taking care of someone who is sick; even parents who are staying home without pay to care for children because the children are sick or because the schools and the daycares are closed. So, there are a couple of qualification rules right now. As it stands, you have to have had at least $5,000 dollars of employment or self-employment income in the prior year, either 2019 or the prior 12 months. A recent change says that in fact you are even permitted to have up to a $1000 of income per month and still qualify for the emergency benefit. All that detail is contained in our bulletin. In addition to that, a special GST HST credit payment has been made for the month of April. So, if you do qualify to receive GST and HST quarterly payments, you're going to get a special payment in the month of April, doubling the normal amount. That's approximately $400 dollars. It does vary based on income, based on marital status, and of course, based on the number of children you have.

 

[Onscreen Text: Personal Tax Measures:

Measure	Benefit
Canada Emergency Response Benefit	$2,000 per month
Special GST payment	Approx. $400 (single)
Increased CCB	$300 per child
Tax filing/payment	Deferral
Student loans	No interest/payments for six months

cibc.com/content/dam/personal_banking/advice_centre/tax-savings/covid-tax-en.pdf ]

 

 

Jamie Golombek: Speaking of children, if you do have children and you're entitled to the Canada Child Benefit, there's an additional $300 per child that will be paid to everyone who's qualified for the Canada Child Benefit. Again, that's income teste;, that would be paid automatically as part of the May 2020 payment. There have been a number of extensions to the tax filing deadline. Of course, we all know that normally taxes are due on April 30th; self-employed due on June 15th. What they've done is they've extended the personal tax filing deadline till June the 1st for everyone. And self-employed still have to June 15th. And you actually now have until September 1st to pay any balance owing. And finally, for students with student loans or apprentices, with apprenticeship loans, what they've now done is deferred any payments or interest for up to six months, or for six months in total. So, I think that's very positive news on the personal side.

 

[Onscreen Text: 25% Decrease in 2020 RRIF Minimums:

Age (start of year)	Regular RRIF factors	2020 RRIF factors
71	5.28%	3.96%
72	5.40%	4.05%
73	5.53%	4.15%
74	5.67%	4.25%
75	5.82%	4.37%
76	5.98%	4.49%
77	6.17%	4.63%
78	6.36%	4.77%
79	6.58%	4.94%
81	7.08%	5.31%
82	7.38%	5.54%
83	7.71%	5.78%

 

Age (start of year)	Regular RRIF factors	2020 RRIF factors
84	8.08%	6.06%
85	8.51%	6.38%
86	8.99%	6.74%
87	9.55%	7.16%
88	10.21%	7.66%
89	10.99%	8.24%
90	11.92%	8.94%
91	13.06%	9.80%
92	14.49%	10.87%
93	16.34%	12.26%
94	18.79%	14.09%
95 & over	20.00%	15.00%

 

cibc.com/content/dam/personal_banking/advice_centre/tax-savings/covid-rrif-en.pdf]

 

Jamie Golombek: One final measure, of course, that's worth mentioning is when it comes to RRIFs. So, RRIFs are the continuation of an RRSP at the age of 71, by the end of that year, you must convert your RRSP to a registered annuity or RRIF or pay full taxation of the amount. So, many Canadians have chosen the RRIF. There's a minimum required amount that you must take out every single year after the year that you convert and open up a RRIF. And typically, at age seventy-one, that starts at 5.28%. And as you can see on the chart goes all the way up to 20% at age 95.

 

[Onscreen Images: A finger scrolls through stock prices on a phone. A stock ticker screen.]

 

Jamie Golombek: What they have done in recognition of the financial markets that we've seen, obviously a lot of volatility and we've heard already with the financial markets and the decline in the markets, is that the concern that many seniors had was addressed because they're worried about taking money out of the RRIF, from a depressed RRIF that's gone down in value when they don't actually need that money to live on. And that would obviously reduce the amount of tax-free compounding inside of the RRIF. So, what they've done for one time, only for 2020, is they've reduced the minimum required amount that you must take out from the RRIF by 25 percent. So, this chart shows you the various new RRIF factors for 2020. And you could see that in every age level up until age 95, inclusive, they have reduced the factor by 25 percent. That will allow more money to remain in that RRIF and be available, there for retirement savings.

 

[Onscreen Image: A still image of Jamie Golombek]

 

[Onscreen Text: Federal Financial Relief. Jamie Golombek, Managing Director, Tax & Estate Planning, CIBC Private Wealth Management]

 

Jamie Golombek: Turning now to some of the measures for businesses. One of the biggest ones, of course, that we've read a lot about is the Canada Emergency Business Account. Now, what is that?

 

[Onscreen Text: Relief Measures for Businesses:

Measure	Benefit
Canada Emergency Business Account	Up to $40K interest-free loan 25% forgiveness
Tax filing & payment	Deferral
Wage subsidies	10% / 75% / 100%

cibc.com/content/dam/personal_banking/advice_centre/tax-savings/covid-business-tax-en.pdf]

 

Jamie Golombek: That's effectively a loan. And the way that works is that you would go into your financial institution, so if you do your business banking, of course, with CIBC, you would you go online. We already have this set up online. And you can apply for an interest free loan of up to $40,000. And that's for businesses, that's for not for profits, and really helps covering some of the operating costs when revenues have been reduced. And in fact, they've just relaxed recently the rules for qualification. You have to be a corporation, and you have to have payroll. Now it's between 20,000 and 1.5 million dollars in 2019. And that's indicated on your T4 employment summary. So, that's a loan up to $40,000. 25 percent of that, would be forgiven assuming that you pay that loan back by December 31, 2022. If not, what we'll do at CIBC is convert that into a three-year term loan but with an interest rate of 5 percent.

 

Jamie Golombek: A couple of other measures for businesses, we should point out. First, of course, is an extension in various tax payment and filing deadlines for income taxes. Typically speaking, if the corporation had a filing due date anywhere after March the 18th, before June 1st, it's automatically extended to June 1st. In addition, certain payments have been extended. So, any income tax amounts that are owing after March 18th are also deferred till September 1st, just like we had with individuals, and personal tax payments.

 

Jamie Golombek: On the GST, HST side, on the remittance side, the CRA has also pushed back the deadline to remit the GST and HST that we've collected. Normally, it's due by the end of the month, following the reporting period. What they've now done is extended the GST and HST remittances until June 30th. So, a very, very positive news from a cash flow perspective.

 

[Onscreen Text: Wage Subsidy Programs:

Measure	Benefit
Temporary Wage Subsidy Reduce payroll remittance	10% subsidy
Canada Emergency Wage Subsidy Show revenue decline	75% subsidy
Canada Summer Jobs	100% subsidy

cibc.com/content/dam/personal_banking/advice_centre/tax-savings/covid-wage-subsidy-en.pdf]

 

Jamie Golombek: But perhaps the biggest thing for businesses, and I've left that, of course till the end, is wage subsidies. And there's really two wage subsidies and if you include students in the Canada student program, there's actually three. So, let me go over those on my final slide here. So, we have first of all, the temporary wage subsidy, this is the one that was originally announced. We call this the 10 percent subsidy. And effectively, that would apply to an eligible employer. And an eligible employer is typically an individual, sole proprietor, certain partnerships and some non-profits and charities and privately controlled Canadian corporations, CCPCs are generally smaller ones that effectively have below $15 million of taxable capital. And what you're able to do is claim a subsidy of $1375 per employee, up to $25,000 for employer. And this is actual direct cash that you can reduce your source deductions. So, as an employer, we're required to deduct and withhold amounts for income taxes. CPP, QPP in Quebec and EI. What you're now able to do under the temporary wage subsidy is simply reduce the amount of income taxes that you have to remit to the CRA on your next date by the amount of the subsidy. So, lots of information in our bulletin.

 

Jamie Golombek: Probably the biggest benefit, however, to many small businesses and large businesses as well, as the Canada Emergency Wage Subsidy. That's a 75 percent subsidy. And that's really, the key to that subsidy, again, available to those individuals, large and small corporations, many partnerships and charities, is that you have to show a revenue decline. They've changed the rules a little bit. But now the way it works effectively is you have to show that your monthly revenue has dropped by at least 15 percent for the month of March or 30 percent for the month of April and May of 2020. So, effectively you're going to be able to get a 75 percent wage subsidy. Now there are limits to that. And the limit is capped at a typical weekly amount, the weekly amount is a maximum benefit of $847 per week. But this is a substantial wage subsidy that will help many of our employers in Canada be able to retain those workers, whether or not they're actually working. And they've actually just enhanced that program. They're also going to provide for those employers a refund for various payroll contributions. So, as we know, there's an employer contribution for employment insurance CPP, QPP even the Quebec Parental Insurance Plan. And now what we're able to do is we're able to, as an employer, get a refund for 100 percent of your employer portion of the contribution to those plans. All those details are discussed in our accompanying bulletin on wage subsidies.

 

Jamie Golombek: And finally, to help students, we understand there's more relief coming for students any day now. But so far, what we know is a 100 percent wage subsidy. One hundred percent of any of the provincial or territorial minimum hourly wage for employees under the Canada Summer Jobs Program. And again, very, very helpful for students and we expect more relief coming for students.

 

[Onscreen Image: A still image of Jamie Golombek]

 

[Onscreen Text: Federal Financial Relief. Jamie Golombek, Managing Director, Tax & Estate Planning, CIBC Private Wealth Management]

 

Jamie Golombek: So, all of this stuff is changing on a day by day basis. All of our reports are online. They show the dates on them when you go on to the Internet and you'll see that we are continuing trying to update this and trying to stay on top of all the programs available for both individuals and businesses in Canada. Ed, back to you.

 

[Onscreen Image: A still image of Ed Dodig]

 

[Onscreen Text: Steering You Through the Uncertainty. Ed Dodig, Managing Director & Head, CIBC Private Wealth Management & Wood Gundy]

 

Ed Dodig: Thank you, Jamie. OK. We've heard a lot about the current situation. The outlook and measures in place to support Canadians. To wrap up, I'd like to turn to Lana Robinson, Executive Director of our Wealth Strategies Team, with some important reminders about the power of planning and some specific wealth strategies to consider during uncertain times. Lana.

 

[Onscreen Image: A still image of Lana Robinson,]

 

[Onscreen Text: The Power of Planning. Lana Robinson, Executive Director, Wealth Strategies Group, CIBC Private Wealth Management]

 

Lana Robinson: Thank you, Ed. The COVID-19 pandemic has caused many of us to reflect on our lives, our relationships and our plans. As we find ourselves reacting to unsettling news about the markets, our communities and in some cases, our families, it’s natural to feel like so much of what is happening is beyond our control. However, there are ways we can be proactive and focus on those areas we can control. This is the ideal time to revisit your wealth plan to understand the effect of market volatility, to adjust where necessary and perhaps to provide peace of mind that you're still on track to achieve your ambitions for yourself and your family. It's also important to review your estate planning documents to ensure they still reflect your wishes and intentions for transferring your wealth. We are here to help facilitate these conversations and to share strategies that may be appropriate for your situation.

 

[Onscreen Text: Proactive Planning in Volatile Markets:

 

You can’t control the markets but you can control your plan – be proactive, seek advice, recalibrate if needed.

 

Questions to consider with your advisor:

• How have recent market events impacted my plan?

• How can I plan beyond the immediate volatility to prepare for the future?

• Are my cash flow requirements sustainable in the current environment? What options are available?

 

Strategies to consider in the current environment

1. Harvesting capital losses

2. Utilizing a prescribed rate loan

3. Estate freeze]

 

Lana Robinson: While we can't control the markets, we can control our reaction to them by revisiting our plans. Working together, we would seek to understand the impact of market volatility in the short term and to determine what strategies we should consider today that will benefit you when markets recover. Harvesting capital losses is a strategy whereby you seek to offset other capital gains. You would sell security in a loss position to realize the capital loss and purchase a similar security or alternatively, wait 30 days to repurchase the same issue.

Utilizing a prescribed rate loan is an effective strategy for splitting income with lower income earning family members. The prescribed loan rate is expected to drop from 2 percent to 1 percent next quarter. If you hold assets in a corporation, you may consider an estate freeze to essentially freeze the value and therefore the estate tax liability of assets held in a corporation which may be reduced in value due to the recent market volatility. If you've done an estate freeze in the past, there may be an opportunity to revisit the strategy to consider a re-freeze at the lower value, in anticipation that the values will increase when the market recovers. As always, you should seek the advice of your professional advisors.

 

[Onscreen Image: A still image of Lana Robinson,]

 

[Onscreen Text: The Power of Planning. Lana Robinson, Executive Director, Wealth Strategies Group, CIBC Private Wealth Management]

 

Lana Robinson: If you're experiencing short term cash flow constraints, CIBC has also implemented various mortgage and loan payment deferral programs. However, there may be additional strategies such as debt restructuring that may be worth considering. We are here to help. Estate planning is one of the most important elements of a wealth plan.

 

[Onscreen Images: A finger scrolls through a news story on a cell phone. A scrolling screen on the side of a building displays advice for social distancing.]

 

Lana Robinson: In recent months, world events have many of us concerned about whether our wills and powers of attorney still reflect our wishes.

 

[Onscreen Text: Review Your Estate Planning Documents:

Planning for the unthinkable is difficult but necessary

Essential questions to ask yourself when updating
or preparing your estate plan:

• • Who will I make decisions about my family, finances
    and health if I fall sick?

  • How do I want my assets (property, investments, insurance proceeds) to be distributed if I suddenly
    pass away?

  • How do I execute documents in the current
    environment?

 

Estate planning documents to prioritize in the current environment:

1. Will

2. Financial Power of Attorney

3. Health Care Power
   of Attorney/
   Health Care Directive

 

Did you know?

Virtual witnessing now available for wills and POAs in ON and POAs in SK]

 

Lana Robinson: Consider, when was the last time you updated your documents Whether you were just now preparing your plan or updating your plan, we’ve identified some questions here for your consideration. If you are drafting and updating your estate documents, you should know that some of the obstacles created by social distancing and isolation are being addressed in certain jurisdictions. In Ontario, for example, the government has stepped in to allow for virtual witnessing of wills and powers of attorney during the pandemic. There are two caveats. First, the technology used must allow the participants to see, hear and speak with each other in real time. Second, at least one of the witnesses must be a lawyer or a paralegal. The Saskatchewan government has enacted similar emergency regulations to enable a lawyer to witness the execution of a power of attorney through video conferencing.

 

[Onscreen Image: A still image of Lana Robinson,]

 

[Onscreen Text: The Power of Planning. Lana Robinson, Executive Director, Wealth Strategies Group, CIBC Private Wealth Management]

 

Lana Robinson: What other considerations should we be thinking about? Well, as I said, estate planning is one of the most critical aspects of the wealth plan, but yet only half of Canadians have a will.

 

[Onscreen Text: Update Your Will:

Does my will reflect my wishes and recent life events?
Are the executors and trustees I have identified still appropriate?

 

Areas to review:

• The beneficiaries

• Executors and/or trustees

• Appointment of guardians
  for minor children

• The disposition of the
  assets

 

Key considerations:

• Do I want to provide for anyone beyond my immediate family? E.g. my community

• How will I communicate the details of my will?

• Do my executors know the scope and location
  of my assets?

• Should I appoint a corporate executor and trustee to provide fiduciary oversight?]

 

Lana Robinson: Of those that do, they were often drafted upon getting married or having children, but have not been updated or reviewed in light of changes to their family financial situation or for tax and legal changes. So, ask yourself, do they still reflect your intentions? Some questions to consider: Are there people you want to provide for beyond your immediate family? If you've identified causes or charities to support, are they still active and do they still reflect your wishes? Are the executors and trustees you've identified still appropriate? If you have a complex estate, does it make sense to have a corporate executor or trustee as backup to a family member to provide fiduciary oversight over the management of your affairs? Have you had a discussion with your executors and trustees regarding your intentions? Are they aware of the scope and the location of your assets? Who will look after your children? Have there been any changes that would cause you to rethink that decision? And finally, does your will reflect your intentions with respect to the disposition of your assets? Perhaps you have an outright distribution to your children or have created a testamentary trust with a distribution to children at certain ages. Is this still appropriate for your situation today? Have you communicated your intentions to your family?

 

[Onscreen Image: A still image of Lana Robinson,]

 

[Onscreen Text: The Power of Planning. Lana Robinson, Executive Director, Wealth Strategies Group, CIBC Private Wealth Management]

 

Lana Robinson: The good news is we are living longer, but unfortunately that can often mean living with some degree of incapacity in our later years. The fact of the matter is that we are living very differently today than we were 20 or even 30 years ago. Often our families are spread across the country or even in different tax jurisdictions. This can create unintended consequences for your plan.

 

[Onscreen Text: Appoint Your Representatives:

Designate individual(s) to handle your affairs in the event of mental
or physical incapacity.

 

Type:

Financial Power of Attorney
or Power of Attorney for Property

 

Power of Attorney for Health Care/
Health Care Directive

 

Purpose:

For financial matters

 

To make medical decisions for you when you are no longer able to decide for yourself

 

Key considerations:

• • Review representatives – is this still consistent with your intent?

  • Have you communicated your health care wishes?

  • Do your representatives know that they’ve been appointed?

  • Age, location, willingness, objectivity, experience of representatives

  • Do they know the scope and location of your assets?]

 

Lana Robinson: In some ways, the appointment of representatives to act on your behalf for your financial affairs and your health care decisions are two of the most important decisions you'll make for your plan. We've identified some key considerations for you here, and I would highlight one area I think is particularly important, especially in this environment. Communicate your wishes, not just with those you've appointed, but with your whole family. Making your wishes clear to your loved ones well in advance can often ease the emotional burden that comes with making decisions for you during difficult times.

 

[Onscreen Text: Review and Update Regularly:

As your life changes so should your wealth plan...

 

Review regularly

• Estate plan – every 3 to 5 years

• Wealth plan – at least once a year

 

Review with life changes

• Marriage, separation, or divorce

• Birth or adoption of a child

• Death of a spouse, child, or other beneficiary

• Move to a different province

• Change in financial circumstance

 

Times are challenging. Our team is with you every step of the way.
Lean on your advisor to help you find the right solutions.]

 

Lana Robinson: And finally, we would recommend you review your wealth plan with your advisor as part of your annual review and an in-depth review of your estate plan every three to five years. Consider that a change of location or circumstances of your executor, your attorney, your beneficiaries, the ages of your children, your marital status. All of these can have a material effect on your wealth plan. These are challenging times, but please know that we are all here to help. I would encourage you to reach out to your private banker or investment advisor to schedule a review of your wealth plan today. And with that, I'll hand it back to you Ed.

 

[Onscreen Image: A still image of Ed Dodig]

 

[Onscreen Text: Steering You Through the Uncertainty. Ed Dodig, Managing Director & Head, CIBC Private Wealth Management & Wood Gundy]

 

Ed Dodig: Thank you, Lana. Great points for all of us to consider and definitely food for thought in this environment. I hope you have all gained some perspective and important insights from all of our experts today. I want to close by reiterating that in a rapidly changing environment, access to advice and expertise is essential. Many of our clients have asked what they should do to protect themselves in the current market. As a general rule, the answer is that you should stick to the principles you've put in place with your advisor. The reason you have a trusted relationship with your financial expert is for times like this to help put market fluctuations and uncertainty in the context of your long-term ambitions. I want to thank you for joining us today and thank you for your continued partnership. We remain focused on continuing to earn that trusted relationship every day.

 

[Onscreen Text: If you have questions or need support, contact your Private Wealth advisor today. Thank you!]

 

Ed Dodig: I encourage you to reach out your advisor with any questions or concerns. We are here for you. It is our privilege. It is our purpose to support you and those you care about. I'm very proud of the way CIBC is responding to this health crisis at a time when our clients need us the most. And I'd like to leave you today with a short message from our CEO, Victor Dodig. Thank you.

 

[Onscreen Image: Victor Dodig stands at a table and looks at the camera. A laptop is open on the table facing the camera.

 

[Onscreen Text: Victor Dodig. President & CEO, CIBC]

 

Victor Dodig: In just a few short weeks, everything has changed. The health crisis is placing extreme pressure on Canadians and their finances. We know that many need help…and they need it now. So, we’re helping our clients by deferring mortgage payments, providing relief on credit cards and loans, putting in place special support for seniors and persons with disabilities, and increasing donations to charities that are helping those most at risk. We are also supporting the government programs for individuals and businesses, so we help get our country running again. We’ve also launched a special section on CIBC.com to help you get information on all the support measures available and how to access them quickly. Thank you…Stay well. And stay safe.

 

[Onscreen Text: CIBC (logo)

Helping you when you need it most

Cibc.com/covid19]

 

[Onscreen Text: Disclaimers: “CIBC Private Wealth Management” consists of services provided by CIBC and certain of its subsidiaries, through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC World Markets Inc. and ISI are both Members of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. CIBC Private Wealth Management services are available to qualified individuals. The CIBC logo and “CIBC Private Wealth Management” are registered trademarks of CIBC.

 

Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.

 

Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc.

 

The views expressed in this document are the personal views of the presenters and should not be taken as the views of CIBC Private Wealth Management. This document is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated and are subject to change.]

Transcript: A Shock to the System: Perspectives April 2020

[Soft music playing in background]

[Title reads: A Shock to the System: Perspectives, April 2020]

[Onscreen Text: April 16, 2020]

 

[Onscreen Text: Luc de la Durantaye, Chief Investment Strategist and CIO, Multi-Asset and Currency Management, CIBC Asset Management]

So in terms of economic outlook, obviously it is very dependent on the evolution of the coronavirus. Judging from what we know of what happened in Asia, which they are about two months, two and a half months ahead of us, we should be able to see a peaking in cases and a dying down of cases by the end of the first half of this year, at which point an economic recovery should take hold and carry us into the first half of 2021. In terms of the magnitude at this stage, it's very difficult to assess the magnitude. Certainly we will face a sharp economic recession in the first half and the degree of recovery will depend on a number of things. What we want to see is being able to see if we have an antiviral drug that comes over the next few weeks and if we see as well a vaccine being implemented within the next 12 to 18 months, we can forecast that this recovery could be almost a full recovery because we will have relieved, if you will, the risk of a recurring, second phase of the pandemic.

[A still image of a scientist working on a medication in a lab, followed by a still image of two lab technicians, one of whom is prepping a medication in a syringe, following by a still image of a lab technician holding a small vial of a medication, followed by a patient in a doctor’s office about to be given a coronavirus vaccine.]

The more these antiviral drugs' introduction and a vaccine is pushed back, then the more gradual the economic recovery will be. And from a regional perspective, we can also see some advantages in the sense that Asia has been ahead of the pandemic, it started there, and then North America is kind of at the tail end. And so we see a regional benefit. We'll see Asia, China recovering first, potential in Europe, and then the US after, which will provide also some investment opportunity on a relative basis.

[Soft music playing in background]

[Title Reads: Investment strategy]

So certainly when we hear global recession, it can be frightening. But we have to realize that financial markets have already discounted quite a bit of that news already as they usually do. Correction in equity markets of 30 to 35 percent as we have seen, are a typical correction in terms of percentages during recession, regular recession. And so from that perspective, we see that there has been value that has been uncovered in financial markets in many places. From a credit market as well, the central banks around the world have been providing a lot of support to various aspects at various areas of the credit market. [A still image of the US Federal Reserve, followed by a still image of the EU flag.] And that's certainly reassuring in the sense that you have strong backing from central banks in various areas of credits, which is also a place where investors should start looking into in terms of adding positions. And finally, we had been talking a lot about gold. That provides a good hedge. We would continue to recommend to hold gold at this stage. It's been a very stable and growing asset in this type of environment and we continue to see that in the future. [A still image of a stack of five gold coins, followed by a still image of many gold bars.] And finally, we had mentioned to hold a little bit of cash. Well, we think that at this stage, having cash is a good opportunity. [A still image of bills of various international currencies.] There have been some opportunities in the market during this correction, and it would be time for investors to gradually put some of that cash to work and finding some of the best opportunities.

 

[Soft music playing in background]

[Title Reads: Currencies]

 

So we have to touch a little bit on currency, there's been a lot of dislocation. The US dollar has been very strong. It's somewhat typical in these types of environment where the dollar is used as a financing currency around the world, and then when you have recession, there's a struggle around the world to find US dollars. The Federal Reserve, though - so the US dollar has been very strong. It has become very expensive. And the Federal Reserve on top of that has started to ease the need for the search for US dollars around the world through their, what's called their swap lines with the various central banks around the world. So we're already starting to see a reversal of the US dollar. So we would be careful from here. We would find that the US dollar is likely to be more weak than strong going forward. As long as the pandemic is kept under control. The reverse of that, we have a Canadian dollar that sold off quite a bit. The tricky part with the Canadian dollar is what is going to be happening with oil prices. With the recession, there's a shortage. Demand has declined quite dramatically. And so we're seeing oil prices at very low levels, which we think is very important for the Canadian dollar and the Canadian economy. So we think that it's going to be difficult for the Canadian dollar to rally strongly until we see the glut of oil in the world market resorb itself and oil prices going back up, which is not going to be something that's going to be with us until the second half of this year. So we would still be prudent on the Canadian dollar. We don't think it can appreciate a lot from here.

[Soft music playing in background]

[Disclaimer reads: “This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated and are subject to change.

®The CIBC logo is a registered trademark of the Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.

Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.”]

Equity Investing: Lessons Learned & Current Opportunities

 

[Soft music playing in background]

[Title reads: Equity Investing: Lessons Learned & Current Opportunities]

[Onscreen Text: April 9, 2020]

[Onscreen Text: Colum McKinley, CIO, Global Equities, CIBC Asset Management]

 

Global economies, financial markets, even our own daily lives are experiencing substantial disruption as a result of COVID-19. The world is coping with a significant and important issue. As long-term investors we want to obsessively worry about the risks in the near-term but remember the important lessons of financial history. And history has shown us over and over again that these periods of uncertainty, volatility, and angst ultimately, in the fullness of time, appear to be buying opportunities.

 

[A still image of people walking on a city street wearing masks, follow by a sign on a store door that reads ‘we are closed’, followed by an image of a US dollar bill with president wearing a mask, followed by a black and white image of depression-era people gathered together, followed by an image of a man standing in front of a wall-sized graphic showing changes in the stock market.]

 

I am very fond of Buffett’s old adage to “be greedy when others are fearful”. Fear remains very high today. We expect that in the coming months economic data and corporate operating results will deteriorate substantially. In meetings with business leaders they’re telling us that visibility in the near-term remains low. If we stopped there then this would be a bleak story but positives are happening in the background that should be providing investors hope for the longer-term. The battle against covid-19 continues to focus on flattening the curve, or slowing the growth of the number of new cases reported each day.

 

[A still image of a masked woman in a medical lab putting a liquid solution into a beaker, followed by an image of a mother and child, each wearing masks, and applying hand sanitizer, followed by an image of a man washing his hands.]

 

An important positive is the adoption of self-isolation or quarantine that is occurring around the world.

 

[A still image of a masked young woman staring out her window, followed by an image of a masked young child looking out his living room window, holding a sign that reads ‘#stayathome’.]

 

We have witnessed that strategy deliver results in other countries. Even now we are starting see progress in flattening the curve in many countries around the world.

 

[A still image of a hospital room, with a patient lying in a bed, being shown information to him on a tablet by his doctor.]

The great personal sacrifice we are all making is working. We continue to monitor this closely and we expect to eventually see a thawing of the restrictions and constraints on the broader economy. At the same time, central banks and governments have unleashed an unprecedent amount of stimulus into the economy.

 

[A still image of the Legislative Assembly of Ontario building, followed by an image of the Bank of London, followed by an image of the US Federal Reserve.]

 

In fact, they continue to demonstrate through their actions that they are prepared to do anything and everything needed to backstop the economy and provide liquidity into the financial system.

 

[A still image of a sign reading ‘Wall St.’, followed by a close-up image of Wilfrid Laurier’s face on a $5 bill.]

 

Once we get back to our normal lives, an incredible amount of pent up demand will exist. The stimulus and liquidity support will help the economy quickly regain its footing.

 

[A still image of a crowd at a concert, followed by an image of three men watching a soccer game at a sports bar, followed by an image of a happy group of people at a restaurant.]

 

In the midst of the crisis, investors are best to consider the old Gretzky advice of “skating to where the puck is going to be”. While calling a market at bottom is always difficult, we remain confident that looking out a year or two from now we’ll reflect back on today’s prices as a buying opportunity. And we want to ensure that we use this volatility and crisis to our advantage.

 

[Soft music playing in background]

[Title reads: Importance of dividends]

 

It’s in times like this that we are reminded of the importance of dividends to equity investors. Dividends are an incredibly significant source of return for equity investors. In the ten years ended December 31, 2019, the compound annual total return of the S&P/TSX Composite index was 6.9%. Approximately half of that total return was attributable to dividends. For equity investors, dividends represent the proverbial bird in hand. As markets have fallen, yields have increased. Many of the best companies in Canada today are providing yields in the high single digits. Buying today allows us to lock in these yields. This is very similar to the opportunity that existed in the global financial crisis. Banks have traditionally been a source of attractive dividends for Canadian investors. They have diversified businesses, they have strong management teams, and solid capital positions. They are expected to be a continued source of strong dividends for investors. In the near-term, bank earnings will be clearly challenged. Banks are a levered play on the economy. And as we witness the short-term deterioration of the economy, it’ll affect the profitability of these businesses. As a result, their dividend payout ratios will rise. Again, turning to history as a useful guide to today’s environment: since 1980, payout ratios rose above 100% only two times. The first was in 1987 when the big six reported negative earnings. And the second in 1992 when earnings declined by 60%. In both those periods the big six did not cut their dividends. In our analysis of the banks we have generated meaningfully stressed scenarios. We expect that the banks will be able to maintain their current dividends. And for investors that provides a stable and attractive dividend in a low bond yield environment. In addition, investors will benefit from the capital appreciation once markets and economies stabilize.

 

[Soft music playing in background]

[Title reads: Real Estate Investment Trust Units (REITs)]

 

Another source of attractive yield and an area of opportunity today is the REITs. Real Estate Investment Trusts own a variety of buildings and property, including apartments, offices, retail malls, and industrial units.

 

[A still image of a building under construction, followed by an image of a row of apartment buildings, followed by an image of a condo, followed by an image of an industrial shipping building.]

 

These are hard assets that are foundational to the economy.

 

[An image of a happy family sitting at their front porch.]

 

In addition, the cashflows are governed by contractual relationships in the form of leases.

 

[A still image of a close-up of a person putting their signature on a contract, followed by an image of a couple signing a lease.]

 

Over the last ten years to December 31, 2019, the S&P/TSX real estate sub-index has outperformed the composite, delivering a total return of 10.3%. Much like other parts of the market, these stocks have experienced substantial volatility recently.

 

[A graph shows the S&P/TSX Real Estate Sub-index on a monthly basis from 2010 until now. It shows a steady rise over that period, from 1500 points to 4000 points, until a recent, very sharp decline to 2000 points.]

 

This is creating opportunities. In today’s environment, REIT operating results will be affected. REITs are working with their tenants to provide relief in the short-term. Many are reducing or outright deferring rents for 2 – 3 months. As long-term investors, we look at these buildings that will provide monthly cash flow for 50, 60 years or more. 50 years is 600 monthly payments. While reducing or foregoing 2 or 3 months in the near-term will effect their short-term results it doesn’t meaningfully have changed the long-term value of these buildings. Yet recently REIT valuations have declined meaningfully, with many down in excess of 40% from their highs. In today’s environment they’re providing dividend yields in the high single digits, and very very attractive valuations for solid businesses.

 

[Soft music playing in background]

[Title reads: Attractive valuations]

 

Our portfolios are made up of high quality, blue chip businesses. Today, we are seeing the opportunity to add to these businesses at very attractive valuations. Our continued work and recent conversations have left us with higher conviction of the ability of these companies to navigate and survive this uncertainty. We know from past experience we will at some point look back at the current world as a buying opportunity. We continue to be ever vigilant about managing risks while ensuring that we don’t waste this crisis and the opportunity that it is presenting.

 

[Soft music playing in background]

 

[Disclaimer: The views expressed in this video are the personal views of Colum McKinley and should not be taken as the views of CIBC Asset Management Inc. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.

®The CIBC logo is a registered trademark of CIBC, used under license.

The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.

Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]

Transcript: Bond Update – Will Government Moves End the Wild Ride?

 

[Soft music plays]

 

[Onscreen Title: Bond Update: Will Government Moves End the Wild Ride?]

 

[Onscreen Text: Patrick O’Toole Vice-President, Global Fixed Income CIBC Asset Management]

 

Patrick: The Fed's actions today should actually alleviate some of the pressures you've seen in the corporate bond market. And you could see those yields drift a little lower as credit spreads start to move a little tighter, and they gapped in this morning, about a quarter of a percent already in the United States market. There's no doubt there's been a lot of pain in the corporate bond market. They're actually negative on a year-to-date basis, whereas you've got government of Canada bond yields are very positive. And you're seeing the stress is most acute in the high yield area. You saw credit spreads there get as low as 337 (basis points) on January 16. As of Friday, March 20th, they moved to over a thousand basis points just over that line. And you've seen that total return negative 18.7 percent in the broad high yield market, the U.S. So, with these credit spreads I mentioned where we're at 230 (basis points) in investment grade, just over 1,000 in high yield. What's the recent history been?

 

Well, during the great financial crisis, investment rate spreads hit 360 basis points, high yield hit over 2,100 basis points. And the 2011 Greece crisis and the 2016 episode of declining oil prices got down to 25 bucks. We saw investment grade spreads get to 175 and high yield get to 880 under both of those episodes. So, the reaction so far is much worse than we saw in the 2011, 2016 episodes. But we haven't approached the great financial crisis levels yet. We're on the way there. I just suspect because of the speed of these programs that the central banks are implementing, we're not going to get to that stage, but we'll have to see.

 

There's no doubt that the fallout for companies is going to be still problematic. Insurance companies, pension funds and more so in particular, will have funding issues or at least matching their liability issues. Energy companies are going to see defaults start to soar. You're going to see M&A (mergers & acquisitions) and bankruptcies will be the story for the energy sector for the next little while. I mean, it's pretty much a lay-up we're getting a recession.

 

I call it basically like a flash depression. You know, depression is really a prolonged deep recession. This one looks like it might be a very quick depression. I've seen some estimates as high as 20 percent contractions in GDP in the second quarter. Some of the measures that we're all that we're taking now, will bend this curve. It looks like you'll see things snap back at some point later this year. So, as I said earlier, it means a new lower range for yield.

 

But the good news, I guess, you could take away is that yields are rising on the expectation that things are going to get better from these programs the central banks and the governments are implementing. Yield curve is normalizing, so you have positive slope yield curves in both Canada and the U.S. and that really is a sign that the future is brighter, and that this too shall pass. But I think the fallout really still is that we're likely stuck with new, even lower yields for the foreseeable future than you might have thought 2-3 weeks ago or so.

 

The Fed is going to be leaving its rate at zero percent for the foreseeable future. That's an attempt, and the other measures they're taking to try and get a V-shaped recovery when things stabilize. And I think that the buyers of the 10-year treasury bonds, which is kind of like the benchmark we look at, a month ago, you would have thought 2.25%, if we back up to that level, you'd see buyers come back in. I think in the world we're in now, it's more like 1.25 to 1.5%. And buyers return to the Treasury bond market.

 

We've been of the view that the central banks will use every and all tools at their disposal. It's been a mistake to underestimate their ability to come up with new programs as we've seen today. The Fed announcing some new programs to help the corporate sector. And they'll be injecting money in for the businesses, as well, to absorb lost wages for workers. The worry is more so the politicians don't give them the added authorities in time that they might need. But so far so good on that front.

 

So our advice is don't panic. We've seen these episodes before. Riding it out tends to be the thing to do at these levels that we're seeing on investment grade spreads and high yield corporate bond spreads as well. You're getting probably the second-best levels we've seen in the last 20, 30 years. So, the differences we're seeing this time, I think is really the speed of response from the central banks and the governments. There's going to be more programs coming in all likelihood, but they are really pulling out all the stops.

 

You know, you're not seeing it just here and in the U.S., but you're seeing it in Europe as well. People learned the lesson from the great financial crisis. If you're going to do this, you have to come in quick, sharp, and you're not going to offset the damage from everybody staying home for who knows how long. You certainly can set the stage for a broad, sharp recovery once things do stabilize. And that I think, going to be the follow from the steps that these central banks and governments are taken and taken so far.

 

So what should investors do in this time? I think one of the things you want to look is start to deploy some of the cash you might have built up. There's always cash for the rainy day. You'd have to say this is more than just a rainy day. It's more like a big hurricane. A tsunami floods, everything else stacked up at the same time. So it's time to start slowly deploying some of that cash in the fixed income markets. Corporate bonds really are extremely attractive at these times. Now, we've seen, as I said earlier, you haven't seen spreads these this high since the great financial crisis exceeded the last couple of episodes like the 2011 Greece crisis, the 2016 episode where oil prices get down to U$25. We are well above those levels already. These are great entry points if you're buying corporate bonds. You don't have to be in a huge rush, but start to slowly deploy some of that capital.

How to Stay Balanced in Volatile Markets

[Soft music plays]

 

[Onscreen Text: Craig Jerusalim, Portfolio Manager, Canadian Equities, CIBC Asset Management]

 

Craig: Markets are really experiencing some unprecedented moves right now. The drop in oil, 20 to 30 percent in one day. The drawdown in the broad indices is really unprecedented in the scale and the speed of which it's dropped. And the problem right now is no one can give definitive answers, definitive answers of when the Coronavirus is going to be cured or when the imminent recession is going to come or not come. And it's really that fear of the unknown that is causing some market participants to panic. And there's no answer that I can give to fully allay fears of an imminent V-shaped bounce back, because no one knows for certain that that's what's going to happen.

 

Advice for clients really has to be in line with what you feel comfortable, what risk you feel comfortable taking on. However, don't try and time the market. All the evidence we've seen over history is that investors are really poor at getting out as the market is dropping and then getting back in when the market's rebounding. There's really only one mistake an investor can make throughout the history of investing, and that's selling at the bottom. If you miss just the 20 best days over the past 20 years, you would've wiped out 100 percent of your returns over that time period for the TSX. So instead, be comfortable with your asset allocation and be able to perhaps either dollar cost average in or dollar cost average out to help alleviate some of those fears.

 

[Onscreen Title: The importance of long-term investing]

 

Craig: Today's market price is probably not the low, tomorrow's low probably won't be the cycle low either, but we don't know when that rebound is going to happen. And there are a number of differences between the situation today and the situation in 2009, for example, during the financial crisis.

 

Today, there's a factor, the Coronavirus, that is causing people to just tighten up and cause people to not go out and spend, not travel. And that's causing a short-term demand impact. However, unlike in 2008 and 2009, there's not massive fraud in the system. There's not excesses in valuations or any bubbles forming. The U.S. consumer, for example, is much healthier today than they were in 2008. Saving rates are high. Debt service ratios are low. Unemployment is extremely low. So, there's reasons to believe that there's going to be some sort of built up demand that will come back to the market when those fears alleviate. We also know that interest rates are extremely low at all-time record lows and that the federal government is there for monetary and fiscal stimulus, as well as many other countries around the world that are going to be throwing everything they can at this economy to get it moving again. We don't know when that's going to happen, but we know we want to be positioned for it. So, we're not throwing out the babies with the bathwater or using the opportunity to high-grade portfolios to move to the highest quality companies, to be best positioned for that rebound when it happens.

 

[Onscreen Title: Portfolio positioning]

 

Craig: There's two sets of assets that we need to think about. The asset where the allocation is a little bit more flexible, where you could raise cash and you can move more defensive. And there's another set of assets that are going to stay fully invested. And that's the money that we're managing for clients, for the money that's staying fully invested in mutual funds, for example, we're not sitting on our hands and doing nothing.

 

[Onscreen Text: Five indicators we are watching in our portfolios]

 

Craig: There's five things that we're doing within those funds.

 

[Onscreen Text: 1. Look at company balance sheets]

 

Craig: The first is looking at balance sheets. Any company that is at risk in the short term, due to their leverage, is something that needs to be taken out of the portfolios. We have to be invested in the companies that can use this market disruption to their advantage as opposed to it causing risks from an ongoing basis.

 

[Onscreen Text: 2. Identify potential switch trades]

 

Craig: The second thing is we're looking for switch trades, which companies with similar exposures are down more than others because right now everything is moving lower. But at different paces. So, we're looking for the switch trades in the portfolio.

 

[Onscreen Text: 3. Look for overreaction in company shares]

 

Craig: The third thing is we're looking for companies that have just overreacted: which companies have are discounting a worst case scenario, recession, even though the cash flows are still recurring and ongoing.

 

Craig: The fourth is we're looking for the opportunities in the companies that have recurring earnings, that have domestic focused earnings, because we think that Canada is going to be less impacted than some other emerging markets around the world. We're looking for the companies that we know where their next dollar is going to come from. Think about all the companies whose bills you receive every month that you're going to continue to pay. Those are the telcos and the utility companies.

 

Craig: We're starting to sharpen our pencil on those cyclical companies. The companies that are down the most now but are likely to snap back at the time when the stimulus and the recovery begins. We're too early at this stage, but sharpening the pencil and getting ready for that rebound is important.

 

[Onscreen Text: The views expressed in this video are the personal views of Craig Jerusalim and should not be taken as the views of CIBC Asset Management Inc. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change. ®The CIBC logo is a registered trademark of the Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]

Transcript: 2019 Year End Tax Tips

Author: Jamie Golombek

Subject: Year-end tax tips and suggestions

Keywords:

 

[Soft Music Plays]

 

[Onscreen Text: Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Financial Planning and Advice]

 

[Image: Jamie Golombek is speaking directly to camera in front of a white background]

 

Hard to believe, but it's that time of year again, time from some year-end tax planning. Let's take you through some of the top issues that individuals might want to consider as we approach the end of the year.

 

[Onscreen Text: Tax-loss selling involves selling investments at year end

to offset capital gains elsewhere in your portfolio]

 

First of all, let's start with year-end tax-loss selling. Tax-loss selling is when you sell investments with accrued losses at the end of the year to offset gains realized elsewhere in your portfolio. Any losses that you currently don't use can be carried back three years to recapture capital gains tax paid in those three years or carried forward indefinitely to offset capital gains in future years.

 

[Onscreen Text: For the loss to be available in 2019, the settlement must take place in 2019]

 

For your loss to be available for 2019, however, you've got to make sure the settlement takes place in 2019.

 

[Onscreen Text: That means the trade date must be no later than Dec. 27, 2019]

 

That typically means that the trade date must be no later than December 27^th, 2019 so that the trade settles by December 31, taking into account the intervening weekend.

 

[Onscreen Text: For securities bought in a foreign currency, consider the exchange rate when computing the gain or loss]

 

Also, keep in mind that if you purchased securities in foreign currency, you've got to compute the gain or loss in taking into account the foreign exchange component, which means in some cases a gain may be a loss or a loss may be a gain depending on the timing of when you bought the security and the movement of the foreign exchange during that period.

 

[Soft Music Plays]

 

[Onscreen Title: Superficial loss rules]

 

Always be mindful when doing year-end tax loss selling of the superficial loss rule, which says that if you sell a security with a loss and you buy it back or an affiliated person buys it back—affiliated means a spouse, a partner, corporation controlled by a spouse or partner, even a RRSP or TFSA, buys it back within 30 days after the day of sale, then that loss can be denied and is added to your ACB, your adjusted cost base.

 

[Soft Music Plays]

 

[Onscreen Title: Delay certain RRSP withdrawals]

 

You may also wish to be strategic about certain registered plan withdrawals.

 

[Onscreen Text: Delay RRSP withdrawals under the HBP or LLP until 2020]

 

So, for example, if you take out money from an RRSP, maybe under the Homebuyer's Plan or the Lifelong Learning Plan, you may want to delay that withdrawal slightly into the beginning of 2020 rather than take it out towards the end of 2019. That'll give you an extra year before you have to begin repaying the annual amounts.

 

[Soft Music Plays]

 

[Onscreen Title: Timing of TFSA withdrawals]

 

On the other hand, when you're taking money out of a TFSA, you may wish to withdraw the money in 2019 rather than waiting till 2020 because that gives you extra time to put the money back.

 

[Onscreen Text: Consider TFSA withdrawals in 2019, which gives you more time to put the money back]

 

In other words, you could put the money back in immediately the following year, 2020, instead of waiting until 2021.

 

[Soft Music Plays]

 

[Onscreen Title: Convert your RRSP to a RRIF by age 71]
 

[Onscreen Text: For people turning 71 in 2019, you have until Dec. 31 to make your final RRSP contribution]

 

For individuals who turned seventy-one and 2019, you've got only until December 31 to make that final RRSP contribution. You don't have until the normal RRSP deadline, which is March 2.

 

[Onscreen Text: You may also be interested in making a one-time over contribution to your RRSP in December 2019]

 

You might be interested, also, in making a one-time over contribution to your RRSP in the month of December 2019. You would do that if, for example, you had earned income in 2019 that will generate contribution room for 2020—but, because you can't have an RRSP in 2020 because it'll be over seventy-one, you over contribute in December 2019, pay a bit of a penalty tax of 1% for that one month of December 2019, but Jan 1st 2020 new RRSP room opens up, and therefore allows you to deduct that amount starting in 2020 or a future year.

 

[Onscreen Text: After age 71 you may be able to use your contribution room for a younger spouse or partner]

 

Now that may not be necessary if you've got a younger spouse or partner because you can still use your room after 2019 to continue to make spousal or partner RRSP contributions until your spouse or partner is age 71.

 

[Soft Music Plays]

 

[Onscreen Title: Families with students]

 

[Onscreen Text: Consider making RESP contributions]

 

Other things to think about: well, for families with students, think about our RESP contributions.

 

[Onscreen Text: You don’t want to miss out on the 20% Canada Education Savings Grant (CESG) for the first $2,500 of annual RESP contributions]

 

You don't want to miss out on the free 20 percent of Canada Education Savings Grant of twenty-five hundred dollars of annual RRSP contributions. And if you've got a beneficiary who turned sixteen this year, you got to be very careful because they may lose the opportunity to get the maximum government grants. If you haven't already contributed to an RESP.

 

[Soft Music Plays]

 

[Onscreen Title: Family members with disabilities]

 

[Onscreen Text: The non-refundable Home Accessibility Tax Credit (HATC)]

 

[Onscreen Text: Helps seniors and those with a disability with certain home renovations]

 

The non-refundable Home Accessibility Tax Credit for seniors and Individuals with a disability tax credit, can help them with certain home renovations.

 

[Onscreen Text: That credit is worth 15% on up to $10,000 worth of expenses]

 

That credit is worth fifteen percent on up to ten thousand dollars of expenses. That applies to any payments made by December 31 for any work or goods acquired in 2019. That might be something to consider before the end of the year.

 

[Onscreen Text: Contribute to a Registered Disability Savings Plans (RDSP)]

 

RDSP, The Registered Disability Savings Plan, allowing an individual eligible for disability tax credit to get significant government grants and bonds.

 

[Onscreen Text: Consider contributing before year-end to get the 2019 grants and bonds]

 

You may want to contribute before the end of the year to get the 2019 grants and bonds.

 

[Soft Music Plays]

 

[Onscreen Title: Make donations in-kind]

 

When it comes to charitable giving, I often talk about tax gain donating.

 

[Onscreen Text: For securities that have appreciated in price, consider donating them in-kind to a registered charity before year-end]

 

If you've got some appreciated securities in your portfolio that have gone up, consider donating them in-kind to red to charity before the end of the year. Not only do you get a tax receipt for the fair market value of that gift, but you will also pay no capital gains tax on the particular gain on the security that's being donated in-kind to charity.

 

[Soft Music Plays]

 

[Onscreen Title: Individuals with changes to tax rates]

 

And finally, if you expect your tax rate to be different in 2020, you may want to plan, to the extent possible, the timing of various deductions and income inclusions.

 

[Onscreen Text: If you expect a different tax rate in 2020, consider timing of various deductions and income inclusions]

 

So, for example, if you have an opportunity to exercise stock options or trigger gain by selling an investment in 2019, depending on your tax rate this year versus next year, you might consider whether or not it makes sense to either realize those gains this year or take them in 2020 depending on the change in your own personal tax rate.

 

[Soft Music Plays]

 

[Onscreen Text: CIBC financial advisors provide general information on certain tax, investment and estate planning matters; they do not provide tax, accounting or legal advice. Please consult your personal tax advisor, accountant, licensed insurance professional and qualified legal advisor to obtain specialized advice tailored to your needs.

This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ^®The CIBC logo is a registered trademark of Canadian Imperial Bank of Commerce (CIBC). The material and/or its contents may not be reproduced without the express written consent of CIBC.]