scorpioncapital

Didn't someone once say, if you believe all this "stuff" why don't you call CRA and offer to give them an extra large voluntary contribution? Already there are so many companies offshore not paying taxes. Instead, let's make the common guy earning $100,000 pay 36% cap gains taxes. There are very few countries dumb enough to try this. I suppose if you want to live in a socialist society and think you get your money's worth, but I don't think in Canada you get what you pay for even in terms of basic services. Half the claims are denied, there are usage fees on top of taxes for everything, and the other half have a 2 year wait list with lines around the room to see the doctor. Keep paying 50% if you think it's worth it, I don't.

Folks talking about cap gains in Europe need to understand the system better. Belgium and Luxembourg is ZERO% capital gains for managing personal investments and capital gains. Netherlands is 1/3 of 4% per year flat rate or 1.3% (comes out to far less than regular cap gains taxes). UK and Ireland are ZERO% for non-domiciled residents which is probably anyone who isn't British or Irish by birth. Switzerland is also very very low if not zero. France is 50 to 65% off sale for holding shares 2 years (or 8 years at the higher rate) or more (easy for most investors) so effectively like 15 to 20% at the top rate. There are countless other examples like this, you have to read the fine print. Even the most socialist countries realize over-taxing capital is a big no-no. Probably Canada didn't get the memo, which is scary. And the Bill Morneau who keeps talking to the G20 about soaking the rich (realizing $150,000 US in cap gains is not rich!) and how we must make the upper middle class pay more, while the world is reducing taxes or has several reasonable exemptions like longer-term stock holdings, does not inspire confidence. As they say, socialism is great until you run out of other people's money - or those with the money reach the tipping point and decide to just leave.

But how do you explain that Canada would have the highest marginal capital gains tax in the world? They are clearly anti-wealth. Or anti-too-much wealth. I think it will have consequences but maybe not right now. The rates are high when the country gets in trouble which it chronically does every decade or so and then over-reaches. I remember Rick Rule, a mining investor who once said the riskiest jurisdiction he ever did business in was BC. He said he was less afraid of confiscation and anti-wealth policies in the Congo than he was about the socialists in a Canadian province!

Many countries don't even have capital gains taxes. Living in Canada once again getting more expensive. http://www.theglobeandmail.com/news/politics/world-should-follow-canadas-tax-the-rich-plan-morneau-tells-g20/article34319769/ While the world is lowering taxes, Canada is thinking a little more communist communally.

I believe Buffett stated that book value is no longer the best proxy for growth in value because IV is growing faster due to increasing value of goodwill which is sometimes written down but never written up. As a result he added an increase in market value of Berkshire shares column in the annual report not too long ago. So while the BV may have underperformed the S&P over the last 4-5 years, if you look at market price gain, it seems to be 115% vs 74% for S&P and for 4 years 70% vs 52%. Not crazy outperformance by any means, but a little bit better.

Exactly, the fee hits on departure so I suspect if there is an exodus it will be at some tipping point pretty soon. Don't think people like the idea of being forced to stay in a country because very few other countries have departure tax starting at a measly $100k (or at all). Better to take the hit once then forever, IMHO.

He talks about increasing capital gains taxes but has anyone heard about this? They are already quite high at a marginal rate of 23 to 25% (after the 50% deduction), roughly in line with most high-tax nations (arguably higher). Any higher would be , as he says, tempting a mass exodus since several countries don't even have a capital gains tax or lots of exemptions. Perhaps they will increase TFSA contribution?

What is the difference between this and communism? Can't sue, no free market? Sure, USA is not capitalist either but it seems to be more toward that end of the spectrum than Canada.

Maybe there won't be a crash, instead the CAD$ goes from say 1:1 when all the homeowners bought their property to say 3:1. So they lose 2/3rds of their money but will still have their house. Not sure how inflation would affect financing though. If they step out of the country they will be shocked where their wealth went. But in this scenario, house prices can just remain flat or even increase. Most home purchases are ring-fenced into the CAD dollar I imagine? Any thoughts on this theory?

Sunrider, I agree. The only explanation I have is a kind of backdoor capital controls. Canadian banking system is made stone age for the explicit purpose of creating a switching cost so high it's almost like a capital control to keep money in the country and in the CAD$ currency so that the dollar doesn't collapse even more :)

So a simple group of banks outperform Berkshire over a pretty long 25 years? What's the point then of making buys at the right price and painstakingly putting together high quality businesses and re-allocating capital to better uses if our system/government rewards something as simple as a bank? Just curious if others don't see something upside down about this.

I evaluate a merger arb deal the same as if I was buying the target myself on the respective terms, with some weight given to the acquirer's behaviour and presentations. In other words, I look at it as if there was no transaction, look at the behaviour of the parties, the businesses, and the presentations produced. If it looks idiotic, I pass. Or if it looks like a bad deal because I don't like the business , or any signs of incompetence or bad behaviour. This, together with a little diversification, should allow you to do well. Of course, your standard for the deal doesn't have to be as high. You don't have to be looking for a target that is wide-moat, but it has to have something going for it. You might also limit yourself to strategic acquisitions as opposed to hedge funds doing a leveraged buy-out for no other reason that they can. Also, I try to stay away from industries that are likely to run into snags or regulatory issues. Generally, industrials are pretty neutral here and have traditionally not had much problem.

Mr. Hall, you are spot on. But the world will keep on looking for complex problems. Here's what I find interesting about America - it tries to protect and talk up *everyone*. That's the capital markets. It may not be great for YOUR health, but without it, without all the horses in the race, who would watch the sport? You need everyone , even those who are, let's say politely, handicapped, to play their part. This truism probably applies to investment managers too. I think there was a Shakespeare quote, something about all the world's a stage...:)

Today, many 'advanced economies' are behaving like banana republics and many banana republics are acting like advanced economies. Don't know what will happen to the dollar, but no doubt bailouts are highly inflationary unless somehow everyone gets taxed more. At 50% marginal rates, I can't see this happening. And while canada does have soft capital controls (e.g. departure tax) I'm sure money will find creative ways to leave if it isn't treated right.

I think they could have gotten the same effects simply by enforcing the tax laws which are loosely enforced with lots of grey areas about residency, etc.. This would have the added benefit of favouring tax paying homeowners over tax avoiding homeowners and stashing wealth in houses.

It's hard to beat the index because human nature is always seeking a 'gimmick'. But it is also an ignorance issue. It has never been true that cigar butts or low quality that is cheap is likely to be a good long-term investment. So those funds, advisors, individuals seeking these gimmicks, these lures of value are often wasting time to compound and thus even the average beats them. Also human nature is to be jealous of your neighbor so even if they buy a good company , maybe like Google, they tend to buy it too late or after a large upswing, and thus their returns again sink below average. I think it's just human nature and very few are rational enough to keep it in check.

"Toronto up 30% yoy " Who needs stocks? And you can get a 15 year fixed loan for what 5%? Seems to beat the pants off even a margin account. And what leverage can you put on that? 10%-20% vs 30% for S&P500 stocks? I expect to see all the Canadians in Ferraris soon enough.

I was reading that there's huge domestic bank loans to foreigners who have bought real estate (like 500 billion). Isn't it considerably more risky to lend money to foreigners who can just take off or go somewhere else with a second passport and you're stuck unable to collect with the domestic taxpayers footing the bill? Not sure what happened in the States but I imagine the domestic/foreign ownership and defaults were skewed toward domestic? https://www.bloomberg.com/news/articles/2017-02-27/foreigners-housing-bets-start-with-banks-canada-economy-watch "The nation’s lenders have more than doubled their external debt since the end of the recession -- an amount in excess of C$500 billion ($382 billion), according to international investment position data released by Statistics Canada. That’s brought total external debt financing of Canadian banks to about C$850 billion through last September, and it’s easy to conclude that at least some of the new foreign debt has helped drive mortgage lending. In some cases, the linkage with residential mortgages is direct."

Just more confirmation that North America is one uptight , repressed nation or perhaps there is a world of politically correct media and the world of what's actually going on. No wonder Trump had it out with the media, there are words for the way they operate that is reminiscent of the world's oldest profession. It's amazing how often the 'news' is now injecting political and cultural points of view into what should be journalism.

Governments around the world are covert and sneaky. Inflation is the preferred method to paper over so many social ills like your neighbour paying full taxes ethically while your other neighbour is offshore and pays nothing. Markets must go up to compensate for such social ills. Also, governments eventually bail out everything, via the banks and via the tax payer. So sure, maybe nothing bad happens and things march ever higher. But they are marching higher because the currency is being debased. Who suffers most from inflation? Those without any assets. But even those with assets must earn a real return or they are still getting poorer. All this plays out over a long time sometimes. Real estate will be the same. It's always a transfer of wealth from someone to someone else.

"Does this not sound like a small market forecast to you guys?" Sure does. Some have speculated that despite the desire to raise rates, they will not be able to. Check out the book 'Dying of Money'. An inflation begins very very slowly with very low rates and good times and the party just keeps going, the consequences are seen much later, and boy are they bad. But you'd have to be crazy to miss a 10 bagger in the market before the eventual crash.

One can even argue it's low pollution licensing fee :) If you look at numbeo, you'd be hard pressed to find major countries/cities with moderately low pollution ratings as Canada and Europe.

No surprise, Buffett comes out today and says stocks are cheap unless rates rise - http://video.cnbc.com/gallery/?video=3000596522 Rates are like gravity. They have a huge impact on valuation. He also takes a swipe at market timers who think they can weave in and out of stocks based on valuation :)

There is a very strong correlation between risk free rates and valuations. If the risk free rate tomorrow jumps to 20%, you can be sure stocks are not going to be trading for an average market P/E of 20 (or 5%) yield. You can just buy the government bond and get 20% , why would you buy a stock yielding 5%? On the other hand, if rates are zero, 5% is looking somewhat better. It looks even better if earnings can grow better in a low-inflation environment than a high one. But I think you have a point that within a certain range, it doesn't matter so much. It's the outliers that are dramatic...like now. Less than 1% for a decade is pretty far out. So is 20%. I believe there was a study published that showed that as rates move up modestly to some neutral level, stocks actually do very well, rising quite a bit more along the way. Beyond this critical level, they start to encounter some turbulence. Where this is is hard to say. I think Buffett in a lecture to students a few months ago said it was 4% and that stocks were extremely cheap if rates don't go above that. So while we don't know what rates will do they have a very big effect on whether stocks will turn out to be very cheap today, or very expensive, or perhaps the most likely case, something in the middle. Btw, Ken Fischer (http://www.financialsense.com/art-hill-technicals-ken-fisher-2017-market-outlook), son of Philip Fischer , made a good observation about market forecasters. For 2017 he said because the consensus is more of the same, it could very well be + or - quite a bit either way.

I think Fisher described a behavioral problem with market timing, namely, once you bought this quality stock you always wanted, there is no certainty that your macro-call is correct, nobody really knows if the company is expensive - and he argues in his books, EVEN IF the stock is expensive, that is no reason to sell. Then, after many years of compounding, even if the stock drops 50% after you sell it, he says many people don't get back in or even if it does drop, it can still be higher than the selling price. Lots of moving variables. The big danger is leverage, but I'm not personally going to 100% cash especially since it's not entirely clear there is euphoria. 0.75% interest rates and 20x-25x P/E on quality stocks does not strike me as expensive. There have been times when blue chips were like 40 to 50x P/E at rates of 3-4%. If anything, at these low levels, even penciling in 3 more rate hikes to 1.5%, what is stopping stocks from reflecting these low rates and going to 50x P/E ?