Investment industry reads the tea leaves

Investment industry reads the tea leaves

Investment industry reads the tea leaves

Movers and shakers gathered at the Empire Club Thursday to hear the annual state of the union, with panelists painting a rosier picture than collapsing oil prices and the threat of European deflation might suggest.
 
Speakers at the Empire Club of Canada’s 2015 Investment Outlook Luncheon included Tom Caldwell, Chairman of Caldwell Securities, IIAC CEO Ian Russell and CIBC Chief Economist Avery Shenfeld. The annual event brings together industry leaders to hear IIAC’s viewpoint on the year ahead in the capital markets.
 
WP had a prime seat to take in all the speeches. Also in attendance were some fortunate business students from Centennial College who had the privilege of hearing from a trio of industry leaders with more than 100 years combined experience.
 
While we don’t want to play favourites, Tom Caldwell really stole the show with a speech that was both humorous and insightful.
 
Key points in Caldwell’s speech included his take on interest rates (to remain low through 2015), oil prices ($60-$80), and U.S. banks (positive on them).
 
More seriously Caldwell mentioned three issues that will give the industry fits in 2015 and beyond.
 
The first is the gap developing between the rich and the rest of society. It’s growing at an alarming rate. Secondly, regulations will continue to maintain a stranglehold on the industry; and lastly, product complexity, especially as it relates to ETFs, will remain a ticking time bomb. On this last one Caldwell borrowed from the British suggesting “we’re too smart by half.”
 
All in all, however, he’s enthusiastic about the year ahead on the capital markets.
 
After Caldwell’s speech, Russell got up and highlighted the main findings from IIAC’s annual survey which canvassed 160 CEOs of IIAC member firms on their views about the economic and financial conditions in 2015.
 
There’s good news on that front.
 
In 2014 the CEOs were “tepidly optimistic” about the year ahead. This year things look much rosier for the industry as a whole. In fact, 69 per cent of investment dealers expect their profits to be higher year-over-year compared to just 48 per cent last year. A 21 percentage point increase in profitability is nothing to sneeze at.
 
Optimism on the profit front in turn will lead to increased advisor hiring in 2015. Almost three-quarter’s of the CEOs in the survey indicated that their firms will increase headcount this year, a full 20 percentage points higher than last year. Current advisors can look at this statistic in one of two ways: A glass half-full view where increased hiring represents a healthier, more vibrant industry or a glass half-empty view where the additional headcount represents a serious threat to your business.
 
The two biggest issues affecting industry stability and success according to IIAC are sweeping regulatory reform (CRM2) and technological change. It’s especially true for small- and md-sized dealers.
 
Overall, however, the industry will benefit from an economic headwind in 2015. It’s time to make hay while the sun shines. 
 
The last speaker, Avery Shenfeld, suggested that the U.S. economy is looking good and still in the early days of the economic cycle. Interest rates south of the border should be raised about 1% in 2015, long before anywhere else in the world with Canada taking its time raising rates due to oil woes. The Canadian dollar should finish the year around 81 cents which will be good for exports. Lastly, he indicated the first part of 2015 should be good for the S&P 500 while the second half will see the TSX shine. Overall, both equity markets will see high single-digit returns.
 
The consensus of the speakers?
 
2015 will be a good, but not great year on the capital markets.