Deleveraging To Build Back Better

This is a post that is a long time coming and one that I actually didn’t really want to sit down and write. For the first time since we started investing, I have actually turned bearish. We decided to sell off some stock to pay off our home equity line of credit completely. This will definitely destroy our passive income at the moment, but I feel like it’s a good move being debt-free once again.

Approximately 2 years later after governments around the world threw the slogan “Build Back Better” out, are we actually better? Think about that for a second and be serious with yourself. Are we still going to use the pandemic excuse, or are we going to be real with what seems to be going on?

Right before everyone started saying “Build Back Better”, the World Economic Forum basically was talking about a Great Reset. In 2030, you will own nothing and will be happy. Unfortunately, most of the world leaders (except those labelled as extremists) are members of the WEF. So I think we should keep that in mind as we watch what seems to be happening these days. Is this all part of a plan, or is this just more coincidence? It’s kind of amazing how much coincidences seem to be happening at the moment.

It’s actually hard to find a video on YouTube of just the leaders saying “Build Back Better”. This one does, but also touches on the Great Reset, if you have not heard of it.

Now, some of you may be thinking, “Wow, Rob’s a right-wing extremist”. Media tends to paint that picture these days on anyone who questions the system. I definitely am right-wing but don’t consider myself an extremist.

As I said before, we recently sold some stock and paid off our HELOC. I think this winter is going to bring some real issues into play. While I’m a fan of buying the dip etc., I think we are in for more than just a little dip. Maybe a double dip! A triple dip? I don’t know, some would say that’s too many dips. Seinfeld had a whole episode on that. =)

Inflation

We all know inflation is bad right now. Heck, it’s worse than bad. Governments say it’s like 8%, but real numbers tend to show it a lot higher. I know we personally are feeling these effects. Everything is going up, groceries are crazy. Gas, wow (although that’s also Trudeau’s awesome carbon tax, which he is planning on continuing to increase). Real estate? Energy? Well that’s going to be a whole different discussion… etc. etc.

As a lot of us know the governments were printing off money at an absolutely insane pace. Oprah kinda stuff. You want some money, you get some money! Things were booming, interest rates were low. Creating money out of thin air at such a pace surely increases inflation! (Did anyone not question this?)

I know in the fintwit (financial Twitter) space, lots of us were talking about raising the interest rates to cool things off a bit, not to mention mocking the printing press…

Housing here in Canada was absolutely insane. What did central banks say while we were all talking about this? Inflation is not that bad, it will cool off… Meanwhile, they continued to print money and keep rates low..

Why did people in the Twitter space see this but not central bankers, who get paid a tonne to try to keep inflation around 2%?

Anyways, they screwed up, in my opinion, and since mid-year have skyrocketed rates to try to control inflation.

Interest Rates

So I mentioned how they have been raising rates at super speeds. How bad could it be?

Well, Canada’s prime rate in March 2022 was 2.70%. As of September 7, 2022, it is at 5.45%. So we are now more than double in a 6-month span, and they plan to continue raising these rates. That is an insane increase in such a short time period. So we got super-high inflation, governments and households with record debts, and rocketing interest rates… Sounds bad on paper, doesn’t it? Pierre thinks so! But when Freeland actually answers, she says debt is cheap, it’s no big deal. I wonder what she would say today, but let’s be honest, she probably wouldn’t answer the question.

Housing

Housing absolutely boomed the last couple years. There were bidding wars giving hundreds of thousands over asking price. People buying without housing inspections. One house in our neighbourhood sold for a million dollars sight unseen. The place was full of mould from a leaking roof, and the guy gutted the house right to the studs. A year and a half later, it’s still in construction. Insane…

Again, earlier this year on Twitter, there was discussions about how variable-rate mortgages are historically the best way to go. Here we are today, and variable rates are north of 6%. That is going to hurt a lot of people and will continue to hurt people as they renew their mortgages. Luckily, we locked in for 5 years in March at 3.2%. This is not a short-term problem, this one will last a while.

Recently, I attended my first monthly mastermind meetup with different investors – real estate, stocks and crypto. One real estate investor mentioned his rentals are all variable-rate mortgages, and some units just break even with the current payment. But the central banks have stated they aren’t done raising rates… He will have negative rental income. Will rental rates increase more to make up for this, or will the house of cards start tumbling down? People are already complaining how expensive rentals are.

Food

Food is one of the things most impacted by inflation. Obviously, the Russian conflict has an effect on certain foods here, but you would think governments would be doing all they can to improve food prices. In some countries, like here in Canada, it’s the exact opposite. We now want farmers to reduce their fertilizer use by up to 30%. In the name of being green… In Holland, they said the same thing and the farmers put up a massive protest. Massive would be an understatement, but media tended to not cover the issue too much? Why not?

Farmers are screaming this would kill their output and possibly put them out of business. A monster red flag, but hey, it’s probably nothing…

War

One of the positives I did see for the coming 3-6 months was the end of the Ukraine war. They were/are gaining a lot of the country back, and there was a lot of opposition in Russia about the war itself. Recently, Putin said he was going to escalate the war and now send 300,000 troops – almost double the initial 180k. Unfortunately, this is not going to end soon, and actually today Ukraine applied for NATO membership… Time will tell if this is a good thing or the start of an even bigger war. Not to mention the recent Nord Stream pipeline bombings… Do you really think Putin would blow up his own pipelines? I don’t. Who did it, and if some other country did, I think it’s safe to say things will escalate quickly.

Healthcare

Moving into the winter, this is going to be another issue once again, but this time worse than ever, in my opinion. Why’s that? Well, Covid isn’t gone. I’m sure you know my stance on Covid. It’s the new flu, I’ve said it for 2 years now. Now we are removing all masks etc. (which is fantastic), but we also see all the added problems from all the vaccinations. Myocarditisis etc., and we have a massive healthcare worker shortage. But why do we have such a massive healthcare worker shortage? Because they fired all the people who wouldn’t get vaccinated. Now that the science has “changed”, will they come back? From the nurses I know (clients and family) who got fired, they are not going back. They system threw them to the curb and treated them very bad, why would they want to go back?

Energy

Alright, last one, I swear. The energy crisis is a big one. Us in the West see it at the pumps, but Europe is a whole different situation. They are about to have an energy crisis that we have never even experienced before. I think I read somewhere the average energy bill for residents in Europe will go from 100 a month to 600 a month. ArcelorMittal (MT), one of the world’s largest steel companies, has said they will be closing 2 steel plants in Germany due to the energy crisis. That says a lot. Get ready for more supply issues. It also screams about the upcoming problems Europe will feel. How will small businesses handle these costs? Especially after all the lockdowns the last couple years. If only someone saw these problems ahead of time… Oh yeah, Trump did back in 2018, while the Germans laughed at him.

The world should be watching what is happening there and really focusing on their energy security. Canada could be absolutely making a killing right now, paying off our debt and making our citizens richer. But instead, the Trudeau government decided oil and gas are bad.

I’m still bullish on the oil and gas space. While I think a recession is coming, the amount of underinvestment in this area will be a boom in the coming years, especially if war does escalate. Here’s hoping it doesn’t though.

Thoughts

Obviously, that is quite the list of negatives that are currently happening. I don’t think we will have the post-Covid boost we have seen in travel/leisure this winter, as people’s wallets will be a lot tighter in the coming months due to almost all these factors. The one positive I do see for markets is the continuing of the printing press. We see lots of places printing more money in the form of inflation relief. Is it really inflation relief, or does it only stoke the fire and continue keeping these inflation numbers up while looking good for the general public, i.e., buying votes…

Of course, this is a negative as well, as governments have increased their debts at breakneck speed.

Isn’t it amazing how many of these problems are government-induced? It must be just another coincidence. I didn’t even bring up Central Bank digital currencies. Governments will be wanting to implement these in the coming years, and what’s the easiest way to do that? A major banking crisis. Janet Yellen has openly stated they don’t really need banks these days, the Feds could handle everyone’s finances. Sounds like a great idea… They have been great with finances. More control and they will be able to monitor all your transactions – what’s not to like?

Sales

Alright, time for our sales. I didn’t sell everything in the portfolio, as I could be wrong. We used a HELOC to invest in our private investment and lots of DGI stocks since March. At the time the interest rate was just over 3%, and it’s now at 6%. While our added cash flow still easily covered the monthly payments, I was starting to lose sleep over it. For all the factors listed above, I thought it would be a better idea to sell these positions in our TFSAs and become debt-free once again. In January next year, I could always buy them right back and be where we currently are, but I think we will see a nice pullback over the winter months. I just don’t see anything bullish to propel the stock market. We have a Fed that is openly telling everyone they want to crash the market. Have we ever had that before?

I started off selling all our REITs. I think real estate is going to “get a hurt real bad…” (Russell Peters)

SmartCentres (OTCPK:CWYUF, SRU.UN:CA)

We sold our 234 shares at an average price of $27.95 per share. This lost $432.99 in forward income.

RIT (RIT:CA) ETF

Sold our our position of 1007 shares at an average price of $16.44 per share. This lost $815.67 in forward income.

Telus (TU, T:CA) – I like this company and will add them again in the future. Interest rates should lower their stock price.

Sold 403 shares at $28.75 per share. Losing $545.82 in forward income.

Restaurant Brands International (QSR, QSR:CA) – Love the brands, but their debt will be costly.

Sold 145 shares at $78.26 per share. Lost $313.20 in forward income.

The more I thought about things, the more I see a coming financial crisis. Finland is warning of an “energy-industry Lehman Brothers” crisis coming. I think there will be a ripple effect coming. Check out Deutsche Bank (DB) and Credit Suisse (CS) stock prices to see whats happening there. Credit Suisse has said the worst is yet to come…

We sold all our financial stocks. Yes, even those Canadian banks!

Bank of Nova Scotia (BNS, BNS:CA)

We sold 108 shares at $67.55 per share. Yes, this stock is cheap, but I think it will get cheaper. I don’t plan on buying this one back. Ill be buying National Bank of Canada (OTCPK:NTIOF, NA:CA) and TD as our bank holdings.

This sale lost $444.96 in forward income.

TD Bank ((TD), TD:CA) – I’m not gonna lie, this is one of my favourite holdings. I will buy this one in the future again.

Sold 194 shares at $84.90 per share. Lost 690.64 in forward income.

National Bank (NTIOF) – I’ll buy this one back as well.

Sold 168 shares at $86.41 per share. Lost $618.24 in forward income.

Manulife Financial (MFC, MFC:CA) – The only stock I sold that I took a loss on. I don’t plan on buying this one back. I try to stick to 3 stocks per sector and plan on having National Bank of Canada, TD and BAM in the future.

Sold 427 shares at $21.71 per share. Lost $563.64 in forward income.

Well, there it is. Let’s tally this up for the first time… Ahhhhh, all in all, we lost a whopping $4,425.16 in forward income. The portfolio hasn’t been updated as of today. This is actually more than I thought it would be. Lol… I guess it’s 100k in stock, so what was I expecting?

Conclusion

Well, that’s the longest post I have ever written. It’s not investment advice. In an effort to stay as transparent to you all as possible, this is it. While it’s unfortunate to lose that much in forward income, our HELOC was charging 6% (and will probably increase before falling down a bit) on 100k, those payments would cost $7200 a year. I guess Dale at CutTheCrapInvesting is starting to wear off on me. We need to focus on total return versus dividends. As I’ve stated, I think the market isn’t done falling, and we will see even lower stock prices in the coming months. That being said though, I’m not necessarily trying to time the market. I wanted to pay off all our debts and will continue dollar-cost averaging into positions each month.

I’ve always said I will focus on tech stocks in a market crash and plan on boosting that sector. They have tonnes of cash on hand to weather the storm. I will also be grabbing more Dividend Kings. Stanley Black & Decker (SWK) continues to look attractive at current prices. Unlike the government, I do actually plan on building back better.

This was a hard post to write, as I’m normally a buy-and-hold investor. I see clouds on the horizon, but like always, after a good storm the grass is always greener!

What are your thoughts? Anything bullish happening right now that I missed? Id love to hear your thoughts. These sales could be a great move or they could be a massive failure and learning experience. Time will tell.

As always, wish you all nothing but the best

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