Market Commentary

January 2021 Update

Therefore the Master takes action by letting things take their course. He remains as calm at the end as at the beginning.Lao Tzu

We finished the year on solid footing, with many companies in our portfolios making new all-time highs. I am confident our best days are ahead, and I am very much looking forward to 2021.

I believe one of the big themes for 2021 will be the long-awaited return of inflation. No, not just these transient bursts of inflation we’ve seen on-and-off for the last decade, but real structural and long-lasting inflation. There are several things I’m keeping an eye on in this respect, which I’ll detail below.

First, agricultural commodities like corn and soybeans are making big gains lately on the back on Chinese buying. Most people are not aware that China is going through a food shortage after dealing with a few years of swine flu, followed by a year of crop-land flooding. In an effort to rebuild their domestic hog production (hogs being their primary source of animal protein), China is importing record amounts of feed. There are reports of food rationing and shortages, best evinced by China’s 5,000 tonne purchase of rice from India, the first such purchase in three decades. This has pushed up demand for all things agricultural across the globe, as ripple effects make their way through the global food cycle. Fertilizer, farmland, and farm machinery is coming on trend. Natural gas, a major input into fertilizer production, is also marching higher from multi-decade lows. Gasoline, which is customarily blended with about 10% ethanol (produced from corn), is also perking up. I suspect these quickly appreciating commodities portend a general rise in prices across the broad economy.

Second, the printers will keep on printing – money that is. Government spending shows no signs of slowing down, with Canada leading the G8 pack in debt per capita. With every small business that is shutting down, unemployment programs are looking increasingly permanent, perhaps forming the bedrock of universal basic income programs in USA and Canada. A lot has been said about the positive and negative implications of UBI, and I am sure there is plenty more to follow. The basic mechanism at work here is government distributing subsistence wages well beyond what we today call “employment insurance”. Suffice it say that from an investment perspective, UBI operates as a means to currency debasement, and is therefore likely to lead to an increase in the price level of goods and services.

Third, western governments are looking for ways to get (wealthy) people to spend their money. Canadian Finance Minister Chrystia Freeland said as much in this recent interview, which I strongly suggest you watch. Whether this comes in the form of a direct wealth tax (less likely), or negative interest rates (more likely), the goal is to dislodge cash balances out of bank deposit accounts and into capital/investment assets. If this happens en masse, as would likely be the case under a government directive, asset prices will rise.

And two caveats to the above; first, these observations concern asset inflation, but certainly not wage inflation. While I expect asset prices will rise, I do not see any evidence of a commensurate rise in wages. This may prove problematic in the long run in regards to issues of wealth inequality and concentration. Rising asset inflation coupled with static wage inflation is generally good for corporations, who earn the spread, so to speak.

The second caveat, I should note that the historic relationship between bonds and inflation is likely to fade, in my opinion. Over several decades now investors have taken as gospel that inflation is the enemy of bond prices, so that if inflation goes up, bond prices go down, and vice-versa. However, as world governments are now targeting both low bond yields and higher inflation as desirable outcomes, presumably they can support bond markets as long as central banks keep buying treasury bonds. What this does to their currencies is another matter… One only needs to look at post-WW2 USA or 1980s Japan to see that a correlated relationship between inflation and bond prices is entirely fathomable.

All told, our companies are ideally positioned to benefit from these emerging trends. Our systematic strategies have pointed us in the direction of companies that are geared to profit from inflationary outcomes. On top of that, we own many too-big-to-fail corporate monopolies representing unassailable systemic interests. As we enter this new realm, too many will cling to old beliefs and cry out against the failures of capitalism, the failures of socialism, so-called “irrational” investment bubbles, and the general confusion of our times. With a systematic and disciplined strategy, you can safely ignore them, for there is nothing to fear. I remain wholly optimistic on our future and I look forward to the year ahead. We are positioned well for growth.

Financial Planning
Many Canadians are unaware that they may qualify to pay US estate taxes, regardless of their citizenship or residency. The Biden administration is considering lowering the US estate tax threshold from the current $11.4mm per person to just $3.5mm on US-source assets including investment accounts and real estate (caveats apply, please contact your accountant to confirm applicability). Granted this proposed change to the US tax code still requires legislating, time is of the essence in planning effective mitigation. We have access to certain planning strategies that can avoid undesirable outcomes, and my Advanced Wealth Planning Team would love to chat about them with you. Please be in touch, particularly if you own more than $3.5mm in US stocks in your non-registered account, and you are not already a client.

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Growth Portfolio
In December we purchased a sizeable stake in Waste Connections (WCN). Waste Connections is a Canadian large cap specializing in solid waste pickup, disposal and recycling. WCN has a number of attractive qualities, including long term customer contracts with automatic annual price increases. This counteracts the effects of general price inflation which I believe it a growing concern, as detailed above. Cashflow is ample, recurring, predictably stable, and recession-proof, as there is always a need to dispose of waste in good economic times and bad. WCN’s share price is in new high territory, while long term momentum is turning positive.

American Growth Portfolio
In December we bought a new position in Berkshire Hathaway (BRK.B). Quite simply, when Buffett buys a stock, one should pay close attention. When Buffett buys back his own stock, as he did recently with BRK, the significance cannot be over-stated. Notably, between Berkshire’s Burlington-Northern Santa Fe railroad and Union Pacific railroad, another recent purchase in our portfolio, we now own a monopoly on all freight rail along the US west coast. Taking another angle on Berkshire, when discounting Apple’s value out of Berkshire’s holdings, we find that we’ve very likely acquired a portion of Berkshire’s assets for free. That is to say, today’s Berkshire buyer gets Apple, plus a free call option on some of Berkshire’s many cashflowing businesses.

Income Portfolio
We made no changes to the Income Portfolio in December. Our corporate bonds and utilities are doing well.

Small Cap Value Portfolio
In December we purchased shares of Blackline Safety (BLK). Blackline Safety is a Canadian small cap that designs, builds, and distributes cloud-connected sensor equipment for various safety applications. The business started in wireless gas detection, and has since evolved into lone-worker monitoring and now covid monitoring. The company is growing very quickly, more than doubling revenues since 2017. Shares broke out into all-time highs recently, and we’ll own this as long as the uptrend remains in favour.

Across all portfolios I look for mispriced opportunities, considering only those with a significant margin of safety and minimal risk of permanent capital loss. After identifying such opportunities, patience is the most important factor in realizing our expected long term return.

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Thank you.



Ben W. Kizemchuk
Portfolio Manager & Investment Advisor
Wellington-Altus Private Wealth

Office: 416.369.3024
Email: [email protected]
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Ben Kizemchuk offers full service wealth management for high net worth Canadians including families, business owners, and successful professionals. Ben and his team provide investment advice, financial planning, tax minimization strategies, and retirement planning.

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