We interviewed Andrew Johns, lead Financial Advisor at Canaccorde Genuity, via Zoom last week. We discussed everything from the Canadian government’s aid packages for small businesses, to the best investment avenues in the current global climate. Here's the full video:
Transcription of the interview:
Mike Rampf: [00:00:00] Hi, everyone. Hope everyone is doing well. I'm really excited to be with Andrew Johns today and hearing a little bit of his insight. I've been really lucky to know Andrew and his family for many, many years now. Andrew is an advisor for Cash Management Company, Canaccord Genuity. Very successful. Been doing this for over 20 years now?
Andrew Johns: [00:00:31] Twenty one years in May, for sure. Nice. Nice. Time flies. Thanks for having me, Mike. This is exciting.
Mike Rampf: [00:00:37] You're very welcome. Thank you. Thank you, Andrew. We know you're really busy and this is probably one of the busiest times of the year for you. With all of this crazy stuff going on. So really appreciate the time. Thank you very much. Andrew, why don't you tell us a little bit about yourself.
Andrew Johns: [00:00:54] Sure, Yeah. For those who are listening, thanks for joining in. Mike and I go back a number of years. Mike Sold us her our first house and we love working with the guy. So you're in good hands with Mike Rampf. Myself, I work at Canaccord Genuity, as Mike alluded to. I run a group here called the Cash Management Group. I also am an entrepreneur. I have another business cryptocurrency business called Honey Badger. So we're one of Canada's largest Bitcoin kiosk operators and we're across Canada. And I grew up, grew up on Vancouver Island, but is born here in Vancouver. And I've lived here in Vancouver for us to last roughly both to 20 years. And my myself and my wife, Crystal, we have three kids, Caprice, Chanel and Sterling. So two girls and boy ages 8, 6 and 4.
Andrew Johns: [00:01:46] And now there's a little background myself in my personal life.
Mike Rampf: [00:01:50] Yes. Andrew has been very, very, very successful. He's managing over two and a half billion dollars worth of cash. So he's this guy really knows what he's doing about. So we're lucky to have him on the phone right now. Andrew, we're in the middle of a very interesting time with Covid-19. It'. It's April 15th. The government has implemented a bunch of policies that are helping us in this very strange environment to help us get through to hopefully the end of this pandemic. What is some of the policies that you see and what would you and how would you benefit from them?
Andrew Johns: [00:02:30] Sure, so I definitely encourage anybody who's listening to this, too, especially for business owners to go to the government Canada Web site. The provinces also have programs in place, but they really kind of pale in comparison to what the government of Canada is doing. So you go to the government of Canada Web site. They have a section called the Corona Virus Disease Section, and they have a section there called Canada's Response. And then from there, you can select... I'm looking at right now of support for individual support for businesses and support for industries. So you're gonna want to look at the support for businesses, probably because I'm assuming that if you're working with Mike, you probably didn't lose a job. You're looking to get your two thousand dollars a month. You're probably running a business and and probably have some real concerns there. There is a lot of programs and these programs are kind of in play and changing as we speak. It's quite fascinating to me. You'll get a bit of a sense of my political view on this as we go into it, but it seems as though the programs continue to change as more and more Canadians complain and put their hand out and say, I want some, too. And I just I'm concerned about the long term effects. But short term, as an adviser, I'm definitely advising my clients to put their hand out, take what they can, especially because most the people I work with are high tax individuals and those people are going be the same people paying for this many years down the road.
Andrew Johns: [00:03:56] So do you want me to make you want to go through some of the specifics or be available to businesses right now?
Mike Rampf: [00:04:01] Well, there's there's the one about the seventy five percent assistance for income if you're paying over... I think last year if you paid over $50000 and less than a million dollars. You get seventy five percent subsidy. Yes. A question for you would be so would you consider continue to hire in your staff. You pay them the normal salary, you apply for this program and then you get seventy five percent back from the government of the salary that you paid?
Andrew Johns: [00:04:31] Not exactly, and this is where the devil is in the details. So it sounds really good from the surface, but there's a number of first of all, hurdles that you have to overcome or or markers you have to meet to be able to qualify for in the first place. So and that's where again.. this Has been changing. So initially when this came out, basically government said you had to have a 30 percent decline in top line revenues between March of 2019 and March of 2020 in order to qualify. And so if you didn't have that 30 percent decline, you wouldn't qualify. Then the second thing they were gonna do is they're only going to offer a 25 percent subsidy and then they change both dramatically.
Andrew Johns: [00:05:13] So the first one wasn't such a dramatic change for the change, but they did say that they were gonna adjust it from 30 percent to 15 percent for the month of March. So they've got three periods, as you describe. I've gone through the entire act its self that got passed through parliament on the weekend, so I know it quite well. So there's three, three periods they call it I'm going to call it March, April and May. So your business has to have a more than equal to or more than a 15 percent top line decline either from. And it's so it's taking your March 2020 revenue and it has to have minimum of 15 percent decline between March of 2019 and 2020 or the average of your revenues for January, February of 2020 versus March of 2020. OK. So that's the first hurdle you have to overcome. And then for April and May, that decline has to be greater than 30 percent in order to continue to qualify. So I look at my own business, for example, we didn't qualify in the month of March because we didn't have a 15 percent we had basically flat. Because we weren't really affected by this crisis until last week of March. No question we're in qualify for April and May. So you can't really apply until it's actually affected you. So we're only in the middle of May, our middle of April, so we can't apply yet to the best of our knowledge. The second part, the change, the bigger part was a going for a 25 percent subsidy to a 75 percent subsidy.
Andrew Johns: [00:06:47] So this is by no question, even at 25 percent. But no question at 75 percent, every business owner should be looking at this. And the other part of this equation is the 75 percent subsidy does have a cap. So you couldn't just pay an employee one hundred thousand dollars and then get a wage subsidy of seventy five thousand dollars. So what they've decided to do is they've capped it based on an annual income around $58000. So it works out to about eight hundred and fifty dollars per week. So if any of your employees work for you are earning an annual salary, less than fifty eight thousand, then you get the full 75 percent wage subsidy. But if everyday employees are earning 60 or 70 thousand dollars or more, it's seventy five percent of those fifty fifty eight, roughly fifty eight thousand dollars. And the program is only planning to go on for I think it's 12 weeks. So the best case scenario would be a company that has a minimum of a 15 percent decline in revenue in the month of March of 2020 compared to the previous March of 2019 or the average revenue from your January and February of twenty twenty. Followed by two more months of further declines that are 30 percent or more than those previous periods, and that your employees, regardless of whether they earn more or less than fifty eight thousand dollars a year, would all then qualify for this wage subsidy. So in one of my two businesses, like I said, we'll qualify in April and all five employees will be be able to qualify. If that helps, give you a bit of an overview. And oh, by the way, I should point out that this is of course, taxable income. So this is not free money. So you will be taxed as I believe the way that it's going to be taxed is, though, it's earned revenue for your business. So using some simple math, if you have say 10 employees each earning... no you have 10 employees and you're receiving eight hundred and forty seven dollars per week per employee, and you utilize this program to its full length, which is 12 weeks, you're going to get about one hundred and one thousand dollars given to you by the federal government. That will be taxable income. But if you're in a small business corp, you know your tax rate, 15 per cent is the hit for you on an after tax basis. It's gonna be pretty minor.
Mike Rampf: [00:09:13] Yeah, that's that's good information to know. Okay. So that's the. The seventy five percent subsidy. That's also a forty thousand dollar loan or line of credit of free interest for two years. Can you tell us a little bit about that?
Andrew Johns: [00:09:27] Yeah. Maybe before I do Mike, let me just also mention to everyone that there is also a temporary wage subsidy program of 10 percent. And it says here that the temporary 10 percent wage subsidy is a three month measure that will allow eligible employers to reduce the amount of payroll deduction required to remit to CRA. So this is something that, ah, our business didn't qualify for the Canada emergency wage subsidy, so the CEWS... We'll qualify for this one. And so this means that basically we will pay 10 percent less in remitted payments to CRA. So there is another program there. It's not as lucrative as the Canada emergency wage subsidy, but one worth looking at.
Mike Rampf: [00:10:07] And you can do both?
Andrew Johns: [00:10:11] I think if you qualify for the Canada Emergency Wage Subsidy, then you don't qualify for the other ones, so we're going to qualify for the temporary 10 percent wage subsidy for the first month because we didn't qualify for the emergency wage subsidy. And then with the emergency wage subsidy for the month of April and May, we will then not receive the 10 percent. So you wouldn't be able to get like eighty five percent. It's one or the other to the best my knowledge. There's also another couple of programs. So they have this worksharing program. Not sure what that one's all about. You can look into that. But the other one that's interesting is if you are planning on hiring students (were gonna be hiring a student this year). They have a program where they're going to provide a sort of a subsidy for hiring students in British Columbia. I worked all that number and it basically comes to both seven dollars and fifty cents an hour. So if you hire a student to work for the summer jobs program, you have to apply for this. I'm sure you'll get approved. They will... They will basically pay... I think it's a 100 percent.. sorry It's 50 percent of the minimum wage. That's where I got the seven dollars and fifty cents roughly. So if you pay your county or Canada student, youR student here in B.C . minimum wage or twenty dollars an hour, you're gonna get seven dollars and fifty cents paid docked to by the government of Canada
Mike Rampf: [00:11:31] That's that's good. That's going to help a lot of students over the summer.
Andrew Johns: [00:11:36] You'd like to jump to the loan program. It's called the Canada Emergency Business Account. Now, I know about this one quite well, too, because my business qualified. In fact, I filled my application last night and apparently I'm going to get my funding in five days. This is something that depending on whether you're working with a big six bank or you're working with a credit union, you're gonna get mixed response on where this program's at. Well, you know, we I talked to a couple of the credit unions we work with, and they're completely in the dark as to as how the program's going to unfold... Be rolled out... What the application terms are... They really don't seem to have much idea. And by contrast, I used one of the big five banks (I wont name which one) But I used it on our online application and we're actually able to do it last night in like five minutes. Apparently, we're getting funding for this. So it's forty thousand dollars. Every single business owner should consider this. The parameters around this one is that you have to have had at least $50000 in payroll for 2019 and upwards of a million dollars. So if you paid more than a million dollars in payroll, you wouldn't qualify. And if you had less than 50000, you wouldn't qualify. Now unfortunate with a lot of business owners are starting to realize and this is my sort of being a little bit to your credit critical of business owners out there who've tried to skirt the tax system for years, where they are maybe a self-employed individual and they pay themselves dividends or they they don't pay a lot of tax to keep everything Harbord in their in their corporation. And then they run their family expenses through the corporation and they don't pay themselves. Well, the problem is this if you didn't pay yourself for your any of your employees, if you were had your employees working as general contractors and they weren't paid anything and you don't have at least $50000 in payroll, you won't qualify for this program. And it's a pretty incentivized program, basically can borrow up to forty thousand dollars. This is an interest free loan. It's payable on December 31st of 2022. If you pay back 75 percent of the loan by December thirty first of 2022. The government will basically rescind or write off or forgive the other 25 percent. So in my view, even if you don't need the money, you go get it. I mean, if the government is willing to give you an interest free loan for $40,000 and in two and a half years, you can give back 30 of the 40 thousand dollars and keep 10. I mean, I don't know why you wouldn't do this. So it's definitely worth pursuing if you have that... if you fit those criteria.
Mike Rampf: [00:14:16] And what you can do with that, it's a nice little buffer those 40 grand. Do something smart with that.
Andrew Johns: [00:14:22] Yeah. Pay down debt or have it sitting in a tax free savings account. I don't know... I mean it as a corporate account so U guess you won't be able to do that. But you can invest it or you can use it how the government implies that you're going to use it for the business itself. But again, at the parameters are pretty minor. So here's the problem with these programs, both these business programs and the the ones for individuals, the limits, the test to get in, are so low that basically everybody is going to qualify. And if anybody qualifies, there's a lot of money that's going to get printed. And if a lot of money is being printed by the federal government, there is someone has to pay for that at some point. You know, you think about like the number of business owners out there that are innovative, they're creative. They are hustling every day, trying to make a buck and keep their business afloat. And yo know... Put food on the table for the families. They're going to apply for this program. They're probably all going to qualify to take their small businesses out there that do between 50,000 and a million dollars a year in payroll and you multiply that by forty thousand dollars... And those people all know that if they pay back two thirds that loan by December thirty first 2022, that they'll actually have a quarter of that loan rescinded. And that's a lot of free money being passed out right now. And some are going to have to pay for that later on.
Mike Rampf: [00:15:38] Yeah, that's quite scary.
Andrew Johns: [00:15:42] Yeah. Yeah. Get ready, folks, because the tax the tax bill is coming. It's going to be delayed, but it's coming.
Mike Rampf: [00:15:48] It has to, It has to. I think even our kids are going to be affected by it in the future. Now, touching on this, What is your vision of the economic forecast.
Andrew Johns: [00:16:01] Well, the one thing I do agree with, with the Bank of Canada came out with today, Mike, is that they basically threw it all their models. They said they're not putting any models in their current report or they're not going to put any models in any reports until October because they just don't have any clue as to what things are going to look like. One of things I learned from the financial crisis is that even the most articulate, well-educated individuals, had no damn clue about what was going to go on, what was going on or what was going to happen and couldn't predict it. So, you know, you watch movies like The Big Short and maybe there was the odd person out there that got really smart and had some inside scoop or had a good hunch. But for every one of those, there is a lot of people who claim to be intelligent and just got slapped during that financial crisis. So as far as the outlook is concerned, I'm taking the approach of this.. and this is the advice I'm giving to my clients. And this is the same advice for both my private wealth clients as well as my institutional clients. The advice is simple: You've got to look at your own house first, especially if you are a private individual, take a look at your spending habits. Make sure you cut those back. Prepare for a very negative environment. There's nothing wrong with forgoing, you know, more frivolous expenses for the next six months. That is not going to make your life worse. In fact, it might feel good in doing that for yourself and really cut back on your on your spending habits. Because even if you are well employed right now, even if you have a business that is doing well, maybe even thriving in this market, it could change. It could change very quickly. And if things do get really bad, maybe you even have, you know, businesses doing decent. But then also the tax bills start coming in from all the spending and it's going to go to the people who are earning the most. And, you know, we are already at of 53.5% marginal tax rate here in Canada, sorry n B.C., that just got changed here recently. So with this NDP provincial government and then this Liberal government, I don't think they're going to hold back on taxing Canadians more when they need to. So as far as the future is concerned, I mean, there's all sorts of scenarios. I have no idea. I can't control what I can't control what's going to happen externally. But What I can do as an individual is control my own spending activity. As far as the investing side is concerned, there's going to be some phenomenal opportunities. I've already started to point my own personal cash in the equity markets. I think there's phenomenal value in the big blue chip names out there, both in the U.S. market and Canadian markets. I like the big five banks. And we have this love hate relationship with the banks. Look, I compete against these big five banks all day long in my own job, but I also own their shares in my RRSP account because their dividend yields are phenomenal. Great. Now, if I took a look, I mean, Mark had a bit of a sell off today, but if I take a look at some of the big banks Canadian Imperial Bank of Commerce... And I'm not making any recommendations here. For proper disclosure... this can't be taken as financial advice. You need to actually talk to a professional about this, but just give you a highlight, CIBC currently has a dividend yield of 7.23% percent, the lowest dividend yield is with the Royal Bank, largest company in Canada and Royal Bank just to give you a contra contrast, World Bank is got a market cap, $125 billion. CIBC is the fifth largest bank. It's at thirty seven billion. What people don't realize that if Bank of Montreal, CIBC National Bank all merged, they'd still be smaller than Royal Bank. So people talk with the big five banks and they're all the same. They're not. Royal is huge. You get a 5% dividend yield at Royal Bank, these banks have never missed a dividend payment in their entire career, in their entire history. OSBI, who's a regulator, has recently requested or asked the banks not to raise their dividends. I think we're going to see what the big banks is. They're going to start to bank earnings just started happening today. Morgan Stanley or Bank America one of the first to come out the market with their earnings release. And they're going to take all their bad loans or potentially bad loans and they're going to throw them in this quarter and really make this quarter look terrible. There's two reasons for that in my opinion, three reasons, actually. One is that investors don't care.. Like everybody's expecting the news to be bad. So if it's it's shitty, really shitty or super shitty, it doesn't matter. Everybody's expecting it to be really bad, so you might as well throw all the bad stuff in, now, when you've got the opportunity; The second reason is then you can turn to the Central Bank. You can turn the federal government as the Royal Bank of Canada or CIBC and go, guys, we need more of your help. Look how bad our quarter was. The third reason is when people start to pay attention to bank earnings again, say, late 2020 or next year in 2021 or 2022. And some of these potentially bad loans that are kind of on the border, but probably going to be good and the bank writes them off now, what happens is you've got a guy like Mike Rampf and, you know, he's he's kind of not been great on making his payments, but he'll get through it. They throw you in as a bad loan today. And then a year from now, when you start making your regular payments again and you'll be a good customer like you always have been. They come back and they say, oh, you know what? This loan actually, you know, it actually turned out to be a good loan and they put that back on their earnings release for that quarter. And all of sudden their earnings look really good a year from now. So those three reasons is why I think you are going to see these banks doing this and I think these bank share prices are really good value. I want to be in context of time and give you some other questions to answer. But definitely there's some investment opportunities for sure.
Mike Rampf: [00:21:30] Well, that's actually leading into my last question is if you've got some cash sitting around, what would you be doing with it right now?
Andrew Johns: [00:21:42] Well, look, I guess... Going back to my first piece of advice, I mean, this is this is just generic advice because everybody has an individual situation and you can't really give good advice unless you know all those details kind of. I use the analogy of a going to see a doctor in time. You have a pain in your stomach and they give you some medicine without asking any questions. I mean, a doctor reasoning, you know, a good doctor would never do that. But if I want to just sort of speak in generalities, first of all, if you have a big debt load, despite how low borrowing costs have now become with the dropping rates by the Bank of Canada, get your financial house in order and pay off your debt. You can always go back and leverage up later. But I think this is not the time to be strapping on a ton of debt unless you have the stomach to handle that. Next up would be then taking a look at your own world. I mean, a lot of the people I work with, their business owners and they're keeping their powder dry. They're keeping a lot of cash on the sidelines because, while they love the idea of I've just given up using some of the capital by some bank stocks, they're also seen in their own world, whatever industry they're in, their competitors who are going to likely go out of business. You know, one or two of them. And maybe they can pick up those businesses, you know, for 50 cents on the dollar. Maybe it can buy some equipment at 70 cents on the dollar. I mean, there's going to be some real asset sales going on, you know, in your world Mike, the Bank of Canada talks about how it thinks that the real estate market will remain relatively robust. You know, low borrowing costs will help help keep the real estate prices propped up. I don't have such a positive view on that. Here's my view. If people start losing their jobs, it doesn't matter how low the borrowing costs are. You know, you could even get into negative borrowing costs, because if the banks can't lend to you because you don't have an income, then you're going to walk away from your house. We already know of this going on in the States, not the at the housing level, but the commercial property level. So I would be very. Right now, I'd be very cautious about investing. I don't think right now is the time to get a ton of money invested. I like these equity plays because unlike buying real estate, you can get in and out of a stock very quickly with very little cost. So I do like that. Of course, money that buys could work in the business. But if you want to consider other options like real estate, I would say keep your powder dry. Be ready. Talk to a guy like you to keep your finger on the pulse of what's out there, because I think some fire sales are definitely coming.
Mike Rampf: [00:24:01] It could be once you get to some financial distress, you lose your job, you over leverage you're going to be in trouble. We are going to see some big sales.
Andrew Johns: [00:24:09] Hundred percent. Yeah, a lot of people keep thinking about while interest rates are low so Canadians can carry this debt load, but you can only carry a debt load if you are actually employed. Like if you actually have an income, if you don't have an income, how do you possibly cover that debt load?
Mike Rampf: [00:24:24] Yeah, exactly. Exactly. Well, listen, Andrew, this has been a very, very informative session. I really appreciate your time and super valuable. Thank you very much. We'll send everyone an invite to your your Web site. And if anybody has any questions, maybe they can fire me an e-mail. And good luck out there. This is a very exciting and interesting time for you. Good luck.
Andrew Johns: [00:24:49] Thanks. Thanks for having me, Mike. Appreciate it. Good luck with you and your all your customers as well. Thanks so much.
Mike Rampf: [00:24:55] And hi to the family. Really appreciate it. No problem. See you soon. Bye bye.