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Investment Ideas Housing bubble not just the Bank of Canada’s fault, Manulife’s day has finally arrived, and the case for buying commodities

I’m scheduled to interview Citi credit strategist Matt King next week and, since he’s one of the most interesting thinkers in sell-side research, I’m pretty excited about it.

Mr. King was among the first analysts to emphasize that the relationships between asset prices, interest rates, and monetary policy were a global, not national phenomenon. The domestic housing market is an excellent example of how this is so.

Cross border asset flows – Canadians buying U.S. equity ETFs or mutual funds for example – means that loose monetary policy in one country can quickly translate into higher asset prices outside of their borders. Bank of Japan asset purchases and low interest rates result in more Japanese investor buying in U.S. equities.

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There is a vocal contingent of Canadian investors who believe the country’s consumer debt and housing bubble is the fault of the Bank of Canada for keeping interest rates too low for too long. To the extent Canada imported low Federal Reserve rates after the financial crisis this is true, but these low borrowing costs were probably not as much to blame as many believe.

Mr. King published an extraordinary chart showing that China is responsible for 70 per cent of the entire world’s private sector credit creation. Regrettably, we do not have accurate statistics showing the extent of foreign buying of domestic real estate, but there are enough facts available for us to know that foreign buying is a major factor in real estate.

It doesn’t take very many price-insensitive Asian buyers to push Canadian housing values higher. And for this, we can point to ultra-loose monetary policy from half a world away.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Manulife: Analysts are turning overwhelmingly bullish on Manulife Financial Corp. amid a brightening economic backdrop and the company’s improving financial performance. Is the stock at last regaining the lustre it lost nearly a decade ago? Story (David Berman, for subscribers)

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Bausch Health Cos: Valeant Pharmaceuticals International Inc. wants investors to believe that it’s not the same old Valeant - so much so, that it’s even changing its name. The truth is, it won’t be that easy to turn the page. Story

The Rundown

Why it’s time to tilt towards commodities in your portfolio

Goldman Sachs loves commodities. You may want to at least like them. The Wall Street investment bank argued in a research note last week that the case for owning the raw materials of the global economy has “rarely been stronger” than it is right now. Not everyone agrees, of course. But investors fretting about stock-market turbulence and the punishing impact of rising interest rates on bond prices should take a look at the case for unloved commodities. Ian McGugan explains. (For subscribers)

‘We are a little nervous about giving our savings to someone we don’t know – can you please advise?’

They’re the kind of clients that advisers drool over – investible assets just into the seven-figure range and a desire to have someone handle their money for them. There’s just one hitch: This couple, both in their 70s, are leery of advisers. Story (Rob Carrick, for subscribers)

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Sorry, Warren Buffett, stock buybacks aren’t simple

So Warren Buffett is “delighted” that Apple Inc. has decided to buy back US$100-billion worth of its own stock. And really, why wouldn’t he be? But how should the rest of us feel about this use of Apple’s cash? Story

BMO launches ETF for investing in new tech trends

Bank of Montreal’s BMO Asset Management is looking to cash in on the technology sector with a newly launched exchange-traded fund that will combine some of the largest global technology stocks in the media industry. Story (Clare O’Hara)

Megadeals are back amid increasing M&A activity

Markets have returned to volatility after an unusually calm 2017, but that hasn’t stopped companies from striking deals to combine. Story (John Reese)

Apple and Buffett saw value, and acted

Apple Inc was not the only one to leap on a chance to buy its stock at a fat discount last quarter as Warren Buffett stepped in to scoop up an additional 75 million shares for Berkshire Hathaway at the same time. Story

Fidelity manager hasn’t been this excited by bonds in 5 years

Fidelity Investments fund manager Jeff Moore hasn’t been this excited about the bond market in a long time. The sell-off in U.S. and Canadian bonds has raised yields due within 10 years to levels at which investors can finally get decent returns, according to Moore, who co-manages more than $50 billion in Canadian and U.S. fixed income for Fidelity. Story

Top Links (for subscribers)

Tuesday’s analyst upgrades and downgrades

Tuesday’s TSX breakouts: A stock with 9 buy calls rebounds ahead of its earnings release

Number Crunchers

Stability in volatile times: Eight stocks for the defensive-oriented investor

Ask Globe Investor

Question:

I just received a note from my accountant doing our taxes. I had my daughter open up her first RSP and contribute $5000 into it as she turned 18 last year. I also had her open a TFSA. I wasn’t thinking at the time and she did not have enough RSP contribution room for the $5000 we put into it. What is the best remedy? - Stephen

Answer:

If she indeed doesn’t have enough RSP contribution room from past income, the RSP contribution can be reversed. You will need to complete and file a T3012A (Tax deduction waiver on the refurnd of your unused RSP contributions from your RRSP) and get it approved by the government. It is a form that basically states that there was an error made in making an RSP contribution and requesting the withdrawal. Once they approve the withdrawal, the funds can be taken out of the RSP without tax or penalty.

Something to keep in mind for the future is that if she has any RSP contribution room even if she doesn’t have significant income to deduct a contribution from she should still make the contribution. As long as she’s allowed to put money into an RSP doesn’t necessarily mean it makes good tax sense to use the deduction. She can build up any past contributions to be deducted from future income when she would be in a higher tax bracket. In the meantime the funds will be able to grow inside the tax shelter without any tax implications. - Nancy Woods, associate portfolio manager and investment advisor with RBC Dominion Securities

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Vahan Ajamian, an analyst who covers eight marijuana equities at Beacon Securities Ltd., will speak to our equities analyst Jennifer Dowty regarding his top picks and why the U.S. offers the best pot stock investing opportunities right now.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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