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It is the consensus view that the Bank of Canada will raise interest rates Wednesday by a quarter percentage point to 1.75. It is also consensus that central bank monetary tightening will push the two-year government of Canada bond yield to 2.52 by the end of 2019.

In a report released Tuesday, Merrill Lynch economists reiterated their prediction that the two-year yield will be at least 2.75 per cent by the end of next year with risks to the upside. Bank of Montreal economist Douglas Porter, among the most prominent domestic forecasters, thinks the two-year yield will be even higher at 2.9 per cent.

Why then, would I write a column this week featuring a bond market strategist, CIBC’s Ian Pollick, who’s decidedly non-consensus view is that yields are going down, not up, next year?

There’s a strategic reason for featuring Mr. Pollick’s predictions. I am more sensitive than most to the idea that Canadian household debt is starting to limit consumption and economic expansion. As another BMO economist, Sal Guatieri , wrote Tuesday, “Canadian retail sales have slowed sharply, with volumes up just 0.7 per cent in the past year to August. This goes hand in hand with more subdued consumer credit growth.”

The more important catalyst for the column, however, was that I’m in the media business and novel views are always more noteworthy and get attention. There are limits to this, of course – the sources have to be credible – but basic human psychology dictates that when everyone is saying one thing, and one person says another, to focus on the naysayer.

We’ve talked many times in this newsletter, though, about how often human psychology is detrimental to investing success. Chasing rallies out of ‘FOMO’ (fear of missing out), panicking and selling stocks at the bottom, and buying investments with ‘great stories’ but lousy financial fundamentals are only three examples of how understandable psychological motivations lead to bad investments.

I don’t mean to equivocate on my column. I’m happy I wrote it, and I think Mr. Pollick’s outlier view has a better chance of being right than any other contrarian view I’ve seen in the past few weeks. At the same time, however, I was fully conscious of the risk of valuing novelty solely for novelty’s sake and I recommend investors guard against the same pitfall.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you, you can sign up for Globe Investor and all Globe newsletters here.

Stocks to ponder

MTY Food Group Inc. (MTY-T). Restaurant owner MTY Food Group Inc.'s appetite for acquisitions, strong financial results and increased investor attention have helped send its stock to fresh highs. Shares of Toronto-based MTY, the company behind brands such as Mr. Sub, Jugo Juice, Timothy’s World Coffee and Thai Express, hit an all-time high of $70.16 on Friday – an increase of about 40 per cent from a year ago. Brenda Bouw looks at why (for subscribers).

The Rundown

Many cannabis producers likely to fail, DBRS warns

A leading debt-rating agency has issued a warning about the financial strength of Canadian cannabis companies, arguing that even the biggest among them should have “junk” ratings and that many licensed producers are likely to fail. On Monday, coinciding with the worst day of trading this year for pot stocks, Toronto-based DBRS Ltd. released an analysis of the cannabis sector’s credit risk that provides a sober look at the industry – in contrast to the lofty expectations of equity investors in the lead-up to the legalization of recreational marijuana last week. Tim Kiladze reports (for subscribers).

TSX at 17,600 by year end? Believe it, says BMO’s chief investment strategist

It has been a volatile year for Canadian equity investors, with the S&P/TSX Composite Index plunging in February, bouncing back to a record high in July and subsequently retreating more than 1,000 points by October. The index lost further ground on Monday and has now nearly made a return trip back to the lows set in February. Brian Belski, the chief investment strategist at BMO Nesbitt Burns, expects more volatility in the weeks ahead. But the next major move, he thinks, will be higher, driven in part by strong corporate earnings. Jennifer Dowty talks with him about his predictions for the TSX for this year (for subscribers).

The TSX earnings season is getting under way. Here’s what to expect

Analysts are expecting double-digit profit growth as Canadian companies prepare to report their third-quarter financial results over the next two weeks. Will strong corporate earnings help soothe a stock market rattled by trade tariffs and rising borrowing costs? U.S. and Canadian stocks have been unusually volatile this month. The Dow Jones Industrial Average has moved more than 100 points for nine of the past 15 trading days, including an 830-point slide on Oct. 10. Canada’s S&P/TSX Composite Index is also turbulent. The index has fallen a total of 735 points since the end of September, leaving it down 4.5 per cent for the year. David Berman explains (for subscribers).

Cheer up dividend investors, this CIBC strategist is predicting an interest rate reversal next year

Concerns about indebted Canadian households struggling with rising borrowing costs are everywhere, but one analyst believes that we’re headed for a reversal – lower rates and borrowing costs – in 2019. There’s been oceans of sell-side research published to explain the global market volatility of recent weeks. One of the most arresting statements was from CIBC’s head of North American rates strategy, Ian Pollick, who said that the price of one- to three-year government bonds “is going to be one of the best macro trades around, but that is a 2019 story.” Bond prices move in the opposite direction of yields, so if owning shorter-term bonds is going to be a great trade in 2019, bond prices are going up and yields lower. Mr. Pollick’s forecast is directly opposed to the consensus view that domestic interest rates are headed inexorably higher, thanks to the Bank of Canada’s stated monetary tightening intentions. Scott Barlow reports (for subscribers).

Fiera Capital sells retail mutual funds to Canoe Financial LP

Fiera Capital Corp. is leaving the retail mutual fund industry as it aims to bolster its institutional and private wealth businesses. On Tuesday, Fiera Capital announced that Canoe Financial LP has agreed to acquire the rights to manage the Fiera Captial mutual fund family which consists of nine funds. Clare O’Hara reports (for subscribers).

Canada’s favourite dividend mutual fund and dividend ETF square off

The awesomeness of ETFs has its limits. Exchange-traded funds are a simple, low-cost, transparent way to build portfolios for all kinds of people and all kinds of investment goals. Justifiably, ETFs are steadily grinding away at the mutual-fund industry’s dominance in retail investing. Are ETFs always a better choice than a comparable mutual fund for the do-it-yourself investor? Let’s tackle this question with a faceoff between the biggest Canadian dividend fund and the biggest Canadian dividend ETF: RBC Canadian Dividend versus the iShares Canadian Select Dividend Index ETF (XDV). Rob Carrick reports (for subscribers).

Short sales on the TSX: What bearish investors are betting against

Despite the recent plunge in stock markets, there wasn’t all that much turnover among the most shorted companies in Canada during the month to Oct. 18. Some notable exceptions were a large jump in the short position on Laurentian Bank of Canada, a sizable decrease in Quebecor Inc.’s short position, and a further drop in the number of marijuana companies on the table of the most costly shares to borrow. Larry MacDonald reports (for subscribers).

The Trump bump in stocks is weakening

If the stock market keeps dropping, U.S. President Donald Trump could lose one of his favourite bragging rights. Concerns about higher interest rates, Mr. Trump’s trade policies and slower economic growth outside of the United States have weighed heavily on stocks this month. Still, the stock market remains up a lot since presidential election day in 2016, something that Mr. Trump has often trumpeted. The S&P 500 is up 29.4 per cent in the 710 days since Nov. 8, 2016. Over the same number of days after Barack Obama was re-elected in 2012, the benchmark posted a gain of 32.1 per cent. The performance of stocks under Mr. Trump and Mr. Obama fall far short of the rally that took place after Bill Clinton was re-elected in 1996. The S&P 500 soared 48 per cent over the equivalent period. Peter Eavis reports for the New York Times News Service.

Others (for subscribers)

Why oil and copper prices are going in opposite directions

Volatility: Just a correction or the end of the bull market?

Tuesday’s analyst upgrades and downgrades

Tuesday’s Insider Report: Executive vice-president unloads $1-million worth of stock

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Marijuana stock sees a $33-million outflow from a major shareholder

Uber, Lyft among high-flying private tech firms planning IPOs in 2019

Thirteen U.S. energy stocks that stand out

The Globe’s stars and dogs for last week

Others (for everyone)

ETF picks to counter a Canadian bias in your portfolio

Tesla critic Citron makes U-turn ahead of results

Ask Globe Investor

Question: I have a self-directed registered retirement savings plan and a non-registered trading account. Does it make sense to hold my growth stocks outside of the RRSP (where capital gains will be taxed at just 50 per cent of my marginal rate), rather than inside the RRSP (where they will be taxed at 100 per cent of my marginal rate upon withdrawal)?

Answer: Your question is based on a flawed assumption. It is not true that capital gains are taxed at 100 per cent of your marginal rate when you invest in an RRSP. In fact, with RRSPs – assuming a constant marginal tax rate – there is effectively no tax at all on capital gains (or dividends or interest, for that matter).

I’ve tried to bust this myth before, but it’s like playing whack-a-mole. So let’s try again.

Consider a simple example. Two investors – Steve and Judy – both have $6,000 in cash that they want to invest in Sky High Marijuana Corp. We’ll further assume that both investors have a marginal tax rate of 40 per cent.

Steve thinks the best way to reduce his capital gains tax is to invest outside his RRSP, so he decides to buy $6,000 of Sky High shares in a non-registered account. The shares promptly triple in value to $18,000. Steve then sells them, pays tax of $2,400 (20 per cent of his $12,000 gain) and gets to keep $15,600.

Judy, on the other hand, decides to buy Sky High in her RRSP. Question: If Judy uses all $6,000 of her cash, how much can she invest inside her RRSP? $6,000? Nope. The correct answer is $10,000.

How can that be? Well, assuming Judy has the required RRSP room, she could take her $6,000 in cash, borrow another $4,000 (or get it from her own savings) and contribute the entire $10,000 to her RRSP. She would then get a tax refund for $4,000 (40 per cent of $10,000) and use it to pay off the loan (or replenish her own savings).

The key thing to understand here is that, at a tax rate of 40 per cent, $6,000 in a non-registered account is equivalent to $10,000 in an RRSP. Judy doesn’t actually have more money; she’s simply converted her after-tax dollars (outside the RRSP) into pretax dollars (inside the RRSP).

Now, let’s see how Judy would fare. Her $10,000 investment inside the RRSP would triple to $30,000. When she sells her shares and withdraws the $30,000, she would pay tax of $12,000 and keep $18,000 – $2,400 more than Steve. Notice the difference is equivalent to the amount of capital gains tax Steve paid. (Judy could have achieved the same result by investing her $6,000 in a tax-free savings account. In both cases she would end up with $18,000.)

You can do a similar comparison for dividend stocks, real estate investment trusts, bonds or any other investment. As long as you assume a constant marginal tax rate, an RRSP will always produce a higher after-tax return than the same investment in a non-registered account. So, if you have RRSP room – and if you expect to have the same or lower tax rate when you make withdrawals – you should use it for your growth stocks. (As a paper by CIBC’s Jamie Golombek demonstrates[], RRSPs can even come out ahead for people who have a higher tax rate in retirement.)

Now, what if you don’t have room in your RRSP (or TFSA) for all of your investments? In that case, you’ll need to choose the investments that you believe will save you the greatest amount of tax. This is a complex decision, because the optimal asset location depends on factors including your marginal tax rate and your investments’ future returns, neither of which may be known in advance.

As a general rule of thumb, I suggest keeping investments with very low expected returns (a high-interest savings account, for example) in a non-registered account while using your registered accounts for higher-yielding fixed-income securities, foreign stocks and Canadian stocks. Because Canadian stocks qualify for the dividend tax credit, they can also be a good choice for a non-registered account. Growth stocks that pay little or no dividends may also be appropriate for a non-registered account – again, as long as you’ve already maxed out your RRSP and TFSA.

--John Heinzl

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

A&W Revenue Royalties saw third-quarter same-store sales rise by a massive 13 per cent. That is almost unheard of in the restaurant biz. And it recently announced its third distribution increase of the year - likely with more to come. So is the stock a screaming buy? John Heinzl will share his thoughts.

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

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