# Odds of the Bank of Canada raising interest rates?



## jollybear (Jun 28, 2015)

Curious if there is a Canadian site that displays the odds of the BOC raising rates on Sept 6 or future scheduled announcement dates. The CME group posts information similar to what I`m after regarding the odds of the FED`s raising rates in the US.

Thanks


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## gibor365 (Apr 1, 2011)

Looking at CDN$ that is up 2% in last 2 days, it's possible...


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## james4beach (Nov 15, 2012)

There are futures on short term interest rates that trade in Montreal -- and those will predict the likelihood -- but unfortunately I don't know how to "read" them. Does anyone here know how to decipher those MX futures on interest rates?


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## jollybear (Jun 28, 2015)

I think the strong GDP numbers for Canada released on Aug31 definitely boosted the CDN$ for the short term. We'll find out on Sept 6 if Poloz uses that as partial reason for another rate hike


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## GeoNomad (Aug 24, 2017)

According to BNN yesterday:



> Overall, implied probability of the Bank raising by 25 basis points next week is hovering around 44 per cent.


Sorry - I am too new to be allowed to post a link to this overly suspicious forum.

Personally, I hope not. That will make the CAD rise even more, I think.


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## humble_pie (Jun 7, 2009)

james4beach said:


> There are futures on short term interest rates that trade in Montreal -- and those will predict the likelihood -- but unfortunately I don't know how to "read" them. Does anyone here know how to decipher those MX futures on interest rates?



being lazy here ... what are their symbols jas4

keep in mind that - to best of my knowledge - IB is the only canadian broker that also offers futures trading


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## humble_pie (Jun 7, 2009)

GeoNomad said:


> ... this overly suspicious forum



surely u have this backwards? on the whole, forum is too trusting ...


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## GeoNomad (Aug 24, 2017)

I guess the users on the forum are too trusting which is why the forum settings are "protecting" them from potentially evil new users like me who could post a link to a site like BNN with its ads and suspicious advice.


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## humble_pie (Jun 7, 2009)

GeoNomad said:


> I guess the users on the forum are too trusting which is why the forum settings are "protecting" them from potentially evil new users like me who could post a link to a site like BNN with its ads and suspicious advice.



now you're talking. Forum likes BNN, will be happy to see your link soon. 

i believe the no-links rule is only temporary. It's to prevent spammers who post links to their ads. From time to time all the moderators of this forum - including the founders themselves - have said It Is Unbelievable how much spam they have to remove each & every morning.


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## ian (Jun 18, 2016)

The Canadian economy seems to be very strong. Apparently we have not seen quarterly growth like this since 2011. My guess is that the rates will go up.


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## like_to_retire (Oct 9, 2016)

GeoNomad said:


> I guess the users on the forum are too trusting which is why the forum settings are "protecting" them from potentially evil new users like me who could post a link to a site like BNN with its ads and suspicious advice.


Unfortunately, forums are subject to a lot of spammers, bots, crazy people, etc., so the easiest way for them to be sure a new user isn't just a drive by shooter, they restrict access to certain features until the new member has a number of posts under their belt. I believe most forums use this method of filtering, and they certainly never allow url links from post number 1.

One of the best things to do is not start out by being sarcastic or insulting the forum in the first few posts.

ltr


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## GeoNomad (Aug 24, 2017)

humble_pie said:


> i believe the no-links rule is only temporary. It's to prevent spammers who post links to their ads.


Yes, which is why I am posting so many dull posts to get my count up :lemo: so I can start promoting my affiliate sites.


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## humble_pie (Jun 7, 2009)

GeoNomad said:


> Yes, which is why I am posting so many dull posts to get my count up :lemo: so I can start promoting my affiliate sites.



can't wait


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## james4beach (Nov 15, 2012)

humble_pie said:


> being lazy here ... what are their symbols jas4
> 
> keep in mind that - to best of my knowledge - IB is the only canadian broker that also offers futures trading


Montreal has "OIS" which tracks the Bank of Canada's CORRA
https://www.m-x.ca/produits_taux_int_ois_en.php
https://www.m-x.ca/nego_cotes_en.php?symbol=OIS*

Here is the CORRA at Bank of Canada, currently 0.7549
http://www.bankofcanada.ca/rates/interest-rates/

Montreal even publishes this guide on using their OIS contract to predict changes in the Bank of Canada rate!
Predicting a change in the overnight repo rate (CORRA)

They give an equation you can use to calculate the probability of an interest rate change, it's pretty simple. However this needs a trading price for OIS and maybe because it's after hours, the Montreal Exchange page doesn't show one.

I wonder if OIS trades at all?


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## jollybear (Jun 28, 2015)

Thanks for the info.....that`s a serious formula used to calculate the odds of a rate change!


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## humble_pie (Jun 7, 2009)

james4beach said:


> I wonder if OIS trades at all?



it's the weekend, that could explain all those zeros. See what happens next tuesday.

re the formula though, i'm not so good with so much greek .:biggrin:
although i bet you understand it like honey


EDIT: ah, jollybear too. I'm sure janus10 understands the formula as well. That makes 3 who stand to make a killing.

(signed)
slow-dimwitted-50-year-old-vancouver-dad-w-bored-wife


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## james4beach (Nov 15, 2012)

Those hedge funds and big banks already know how to use this formula, and how to get the quotes, so they trade against us using this specialized info. No wonder they generally "win" in market trading. We (small Vancouver dads) are at a disadvantage.

But yeah I'm curious to try this. Let's see if quotes appear on the next trading day!


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## redsgomarching (Mar 6, 2016)

I can see some rate increases. The growth when oil is at this level is better than expected. I wouldn't mind but it does hurt my US$ holdings. 

However I am ok with this as I hold some of the banks and everybody knows they are slower to increase rates on deposit but can damn well be sure their lending rates will increase almost instantly after rate increase.


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## james4beach (Nov 15, 2012)

Montreal's OIS contracts seem to have zero activity on them, according to the web site. No prices and no open interest, and I don't have Interactive Brokers so I can't check it directly. But ... looks like I can't apply those prediction equations.

I suspect there will be no rate change tomorrow. There are signs of a potential housing crash in progress (Toronto area) and I doubt the BoC would dare yank liquidity at such a vulnerable time. We don't know how the housing market will play out, this could just be a natural brief pause before the uptrend continues, so the BoC would probably prefer to wait until we know we're in the clear before they try raising rates.

Later this year, if GTA house prices are rebounding, the BoC probably can safely raise rates. But since housing is entirely based on cheap credit, any rate increases are extremely dangerous for housing.


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## OnlyMyOpinion (Sep 1, 2013)

Dollar has been strong too. Let it run up too much and the Feds will start getting an earful from the exporters.


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## james4beach (Nov 15, 2012)

Well unfortunately this is the never ending race to the bottom. The US currency is weak, so Canada will want to keep their currency weak too.

I bought tens of K of gold this summer using MNT and IAU.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Montreal's OIS contracts seem to have zero activity on them, according to the web site. No prices and no open interest, and I don't have Interactive Brokers so I can't check it directly. But ... looks like I can't apply those prediction equations.




at this hour, only BAX out of the 4 montreal exchange interest rate derivatives is showing any bid/ask quote data, presumably left over from the close today.

the other three - including OIS - have zeros only.

there has to be a way professionals can raise a quote ...

... hey i just found the live OIS calculator! the drat thing is that i can't exactly recall how i navigated to it on the m-x.ca website.

it's excel, one can enable editing, bingo, it looks easy to work. I'll try to figure out how i navigated to it & i'll report back.



LATER:


https://www.m-x.ca/produits_taux_int_ois_en.php

use the link above or enter "OIS calculator" in the montreal exchange search engine (of course, being the mtl exchange, the search engine itself is painfully difficult to find. It's the 2nd tiny little window to the right of the "quote" window. That pinhole, believe it or not, is the montreal exchange search engine portal to the entire blasted website)

either way, you'll get a page with the big fancy greek equation that daunts me. Keep scrolling down. Middle of the page, right hand column, you'll see a small blue shaded area. 2nd choice is "BOC rate move simulator for OIS futures."

you'll get the calculator model. Enable editing, the thing will become a live worksheet.

it may still require live quotes, might these be on the bank of canada website? or they might be a paid-only feed from the montreal exchange?

jas4 you can see that we are now upon the windswept heights in darien, where only eagles fly. You are the kind of patient, persistent explorer who's happy at these thin-air altitudes but they are not for this poor cookie. I'm climbin down.


.


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## james4beach (Nov 15, 2012)

Wow, Bank of Canada raises rates again by a quarter point, making the policy rate 1.00%. I didn't expect that.

I don't think the market expected it either, considering CADUSD jumped +1.4% and bonds (XBB) fell sharply -0.64%

Now we wait and see to find out if they've nuked the housing market


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## AltaRed (Jun 8, 2009)

Depends on what lenders do with mortgage rates. They may only go up a partial amount, e.g. 15bp. About time though. We actually need a 2% or better overnight rate. I'd like to actually see it in the 4% range as it was pre financial crisis. Sock it to the idiots taking on excessive debt....but be gentle about the the speed of rate increases. A half (or 3/4) point per year should be absorbable by both consumers and corporations.
See http://www.bankofcanada.ca/wp-content/uploads/2010/09/selected_historical_v122530.pdf for historical rates.


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## james4beach (Nov 15, 2012)

I agree and I'd rather see rates in the 4% range or even higher (I think 5% would be normal). These continued low interest rates are irresponsible.

But the fact is that the Bank of Canada put us here and they've already hooked everyone on ultra-cheap loans and created a housing boom based on cheap credit. Plus this insanely high national debt-to-income ratio. The problem is that now that they've caused this addiction and dependence, even tiny rate increases hurt a lot.

This isn't like in the 90s or early 00s. Today, the average Canadian needs that zero-ish interest rate. I think of it as a drug (near-zero interest rates) and an addiction (huge consumer debt/mortgages). Now that the addiction is formed, any withdrawal is going to be extremely painful.


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## AltaRed (Jun 8, 2009)

No one needs next-to-zero interest rates. Re-hab has to come sometime. Might as well be now than later... but it must come slow enough for consumers/corps to start paying down debt.

We all 'knew' this day was coming so some housing prices will stall/drop and leveraged companies will see valuations soften too. We are potentially in for a long period of adjustment.

P.S. I have a 5 year matured GIC I need to renew. Think I will wait a few days and see if there is a 5-15bp hike in the offing.....though Concentra at 2.55% (matching Home Trust) at iTrade is pretty good in the current environment.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> No one needs next-to-zero interest rates. Re-hab has to come sometime. Might as well be now than later... but it must come slow enough for consumers/corps to start paying down debt.
> 
> We all 'knew' this day was coming so some housing prices will stall/drop and leveraged companies will see valuations soften too. We are potentially in for a long period of adjustment.
> 
> P.S. I have a 5 year matured GIC I need to renew. Think I will wait a few days and see if there is a 5-15bp hike in the offing.....though Concentra at 2.55% (matching Home Trust) at iTrade is pretty good in the current environment.


A lot of the GIC rates at TDDI went up some time last week because I replaced a GIC the week before and so was familiar with the offerings. Equitable is at 2.55%, Home Equity and CTC at 2.53%.

ltr


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## milhouse (Nov 16, 2016)

Raising to 1% only gets us back to before the two quarter point rate cuts to help with the oil shock. 

Anyone's guess is as good as mine but I'm guessing the BoC holds now to the new year (only 2 more meetings this year) and then raises another 2 .25% hikes over the next year depending on how the economy is doing.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> ....About time though. We actually need a 2% or better overnight rate. I'd like to actually see it in the 4% range as it was pre financial crisis. Sock it to the idiots taking on excessive debt....but be gentle about the the speed of rate increases. A half (or 3/4) point per year should be absorbable by both consumers and corporations.
> See http://www.bankofcanada.ca/wp-content/uploads/2010/09/selected_historical_v122530.pdf for historical rates.


Completely agree. This nonsense of near zero rates has stretched on long enough.

ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> Completely agree. This nonsense of near zero rates has stretched on long enough.


I'm not sure it will ever go away. Japan has had near-zero rates for over 20 years.

My guess is that the BoC raises a bit, quickly finds they have burst the credit bubble and housing market, and is then forced to drop rates back to zero.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> P.S. I have a 5 year matured GIC I need to renew. Think I will wait a few days and see if there is a 5-15bp hike in the offing.....though Concentra at 2.55% (matching Home Trust) at iTrade is pretty good in the current environment.


So, what was your final decision?

Today I see at TDDI that CTC Bank, Equitable Bank, and HomeEquity Bank at 2.56% for 5 years. 

There are rumblings of some drops in rates too. 

The Concentra at 2.55% would probably be a good bet.

ltr


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## james4beach (Nov 15, 2012)

These banks are getting very greedy! ISA rates barely moved. TDB8150 went up from 0.85% to 0.95% ... that's just a 10 basis point increase, when the Bank of Canada overnight rate went up 25 basis points.

With the BoC policy rate now at 1.00%, TD's ISA is only paying 0.95%.

Time to move more cash to my credit union.


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## AltaRed (Jun 8, 2009)

Lending institutions are trying to restore traditional margins of circa 3% or so. They had been compressed below 2% in the latest era of low rates. Hence deposit rates won't go up much until that has been restored...which should be about now. I am guessing most ISA rates are based on commercial paper so as those rates tighten ISA rates should respond...and they are, albeit too slowly.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Lending institutions are trying to restore traditional margins of circa 3% or so. They had been compressed below 2% in the latest era of low rates. Hence deposit rates won't go up much until that has been restored...which should be about now. I am guessing most ISA rates are based on commercial paper so as those rates tighten ISA rates should respond...and they are, albeit too slowly.


It still seems greedy of them. Just look at t-bill rates today. A zero-risk federal government t-bill maturing in 50 days has a yield of 0.96%. *A 5 month t-bill yields 1.09%* <--- this thing is effectively a cash instrument.

Let's say you had 500K cash to store. I don't see any reason someone would lend to TD in an ISA or bank deposit when they can put all 500K into zero-risk 1.09%.


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## FI40 (Apr 6, 2015)

james4beach said:


> There are futures on short term interest rates that trade in Montreal -- and those will predict the likelihood -- but unfortunately I don't know how to "read" them. Does anyone here know how to decipher those MX futures on interest rates?


The most liquid short term instruments in the CAD OIS interest rate market are the so-called "meeting date forwards", basically it's a set of FRAs that begin and end at each announced future BoC meeting date. I don't believe they trade on the exchange at all, they're OTC. I believe they are what is used to calculate rate hike probabilities.

WIRP in Bloomberg can display rate hike probabilities. If you don't have access to BBG though, it seems that various news websites report on it a lot anyway so you can effectively know beforehand what the probabilities roughly are.


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## AltaRed (Jun 8, 2009)

james4beach said:


> It still seems greedy of them. Just look at t-bill rates today. A zero-risk federal government t-bill maturing in 50 days has a yield of 0.96%. *A 5 month t-bill yields 1.09%* <--- this thing is effectively a cash instrument.
> 
> Let's say you had 500K cash to store. I don't see any reason someone would lend to TD in an ISA or bank deposit when they can put all 500K into zero-risk 1.09%.


For the big institutions, I believe much of the ISA/HISA money is invested in commercial paper and short term Tbills. It is whatever those investments deliver, net of the institution's costs and some margin, that we ultimately get (within some range). FIs don't like to change their ISA rates often so they are likely always debating/anticipating how much positive margin they need to keep ISA rates relatively stable. I suspect FIs were right on the cusp of negative margin on those ISAs for some time and now they are banking on some positive margin. Managing ISAs is different than a MMF that delivers what the fund gets by definition (trust structure). If you don't like current ISA rates, buy the MMFs instead.


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## gardner (Feb 13, 2014)

Oaken (HCG) is still paying 3.0% for 5y until the end of the week. Then they're dropping the rate by as much as the BOC raised. With HCG, this move likely has nothing to do with the BOC rate and everything to do with the level of restored confidence in them as a going concern.


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## humble_pie (Jun 7, 2009)

FI40 said:


> The most liquid short term instruments in the CAD OIS interest rate market are the so-called "meeting date forwards", basically it's a set of FRAs that begin and end at each announced future BoC meeting date. I don't believe they trade on the exchange at all, they're OTC. I believe they are what is used to calculate rate hike probabilities.



fascinating! thankx!!

so in canada there's an unknown clique of insiders trading OTC among themselves, who are in the pre-know, while the ROC is in the total dark?

somehow that does not surprise ...


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## james4beach (Nov 15, 2012)

Well yes, there we go. An opaque OTC market in securities that let you easily predict the Bank of Canada decision.

Available to all the hedge funds and investment banks, but not to any of us -- of course. Just in case you were under the impression that everyone is on equal footing. The big guys have WAY better access to information and resources than we do.

Yeah let me just fire up my Bloomberg terminal... lol


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## humble_pie (Jun 7, 2009)

james4beach said:


> Well yes, there we go. An opaque OTC market in securities that let you easily predict the Bank of Canada decision.
> 
> Available to all the hedge funds and investment banks, but not to any of us -- of course. Just in case you were under the impression that everyone is on equal footing. The big guys have WAY better access to information and resources than we do.
> 
> Yeah let me just fire up my Bloomberg terminal... lol



lol is right

the thing that surprises me is that some enterprising journo isn't in touch with the clique, isn't filtering hints to the ROC

it's a great story scoop, jas4 u know how i like these .each:


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## FI40 (Apr 6, 2015)

humble_pie said:


> fascinating! thankx!!
> 
> so in canada there's an unknown clique of insiders trading OTC among themselves, who are in the pre-know, while the ROC is in the total dark?
> 
> somehow that does not surprise ...


I guess that's one way to interpret it, but I'd argue they are in the dark too.

Also, I think the majority of the trading on these is hedging, but that is speculation.

I can tell you, the rate on these forwards closely mirrors the consensus economists publish all the time on what they think CAD rates will do. I think the governor of the BoC couldn't care less what these forwards trade at - again, that's speculation, I don't know the guy, but we're getting into conspiracy territory there for sure.


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## FI40 (Apr 6, 2015)

james4beach said:


> Well yes, there we go. An opaque OTC market in securities that let you easily predict the Bank of Canada decision.
> 
> Available to all the hedge funds and investment banks, but not to any of us -- of course. Just in case you were under the impression that everyone is on equal footing. The big guys have WAY better access to information and resources than we do.
> 
> Yeah let me just fire up my Bloomberg terminal... lol


Don't agree that you can predict BoC decisions with these...they just reflect what the interest rate market participants think the BoC will do, based on the freely available published statements made by the bank. If you like you can read the history of those statements and form your own opinion and it'll likely match what they think, up to some degree of variation.

If they all already knew, there wouldn't be anyone taking the other side of their contract. There is active trading in these among informed participants - opinions diverge.


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## james4beach (Nov 15, 2012)

FI40 said:


> Don't agree that you can predict BoC decisions with these...they just reflect what the interest rate market participants think the BoC will do, based on the freely available published statements made by the bank. If you like you can read the history of those statements and form your own opinion and it'll likely match what they think, up to some degree of variation.
> 
> If they all already knew, there wouldn't be anyone taking the other side of their contract. There is active trading in these among informed participants - opinions diverge.


Just like any betting market, I think market-determined prices of those contracts are a far better predictor of the rate decision than if I read through the transcripts myself and form my own opinion.

As you said, they reflect what market participants (especially the big players in interest rates and bonds) think. These are very well informed opinions, far better than mine.

Of course it's not a unanimous agreement, that's why those contracts trade and have a fluctuating price. But it is a prediction, with a probability -- and that's key. I think you're kind of glossing over how useful that is.

The predictive ability of betting markets has been well studied.


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## FI40 (Apr 6, 2015)

james4beach said:


> Just like any betting market, I think market-determined prices of those contracts are a far better predictor of the rate decision than if I read through the transcripts myself and form my own opinion.
> 
> As you said, they reflect what market participants (especially the big players in interest rates and bonds) think. These are very well informed opinions, far better than mine.
> 
> ...


That's a fair point, but I was responding to your allegation that the market lets you "easily predict the Bank of Canada decision". Just wanted to make it clear that they can't do that with any accuracy either, even though they have more information (although in this case, I doubt they have much more if any, just experience).

I don't understand why it would be so useful to know those probabilities with a high degree of precision. What can you do with the information, if your guesstimate is like 50-100% chance of a rate hike on the next meeting, and the market says 68%? This is a genuine question - if you have a way for a retail investor to play the interest rate market I'm curious to know how to do it. Maybe there's an ETF? But anyway I guess like all markets that don't have enough retail interest, it's hard or impossible for retail investors to play them because of the costs for institutions to set up retail-friendly trading platforms/contracts/systems.

As an aside, any published probabilities are implied from forward rate quotes using a model. I know you know this but brokers don't quote probability nor does it actually mean anything, it's just a mathematical output from a model. Reality has nothing to do with it.


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## james4beach (Nov 15, 2012)

FI40 said:


> I don't understand why it would be so useful to know those probabilities with a high degree of precision. What can you do with the information, if your guesstimate is like 50-100% chance of a rate hike on the next meeting, and the market says 68%?


Why does _anyone_ want to know the likelihood of a Bank of Canada rate decision? Obviously it's for fixed income investment decisions, mortgages, and other consumer credit decisions.

What I'd do with the information: the market's better informed opinion can help correct or nudge my wrong idea, if I happen to be way off the mark. Let's say that I personally believed there was a very low probability of an upcoming rate hike. Maybe I think it's under 50% chance. But then I look at the interest rate derivatives and see that the odds are closer to 95% chance of rate hike -- near certainty.

In response, I might change my mind about a bond trade, asset allocation, or make a decision about my mortgage or cashflow planning. There are so many implications. Let's not pretend that this information is worthless.



> As an aside, any published probabilities are implied from forward rate quotes using a model. I know you know this but brokers don't quote probability nor does it actually mean anything, it's just a mathematical output from a model. Reality has nothing to do with it.


Right, the derivative just has a price. The probability is implied, and comes out from the equations.


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## ian (Jun 18, 2016)

I think that we have at least one more 1/4 point increase coming in the next few months plus a very good chance of another 1/4 early in 2018.


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## FI40 (Apr 6, 2015)

james4beach said:


> Why does _anyone_ want to know the likelihood of a Bank of Canada rate decision? Obviously it's for fixed income investment decisions, mortgages, and other consumer credit decisions.
> 
> What I'd do with the information: the market's better informed opinion can help correct or nudge my wrong idea, if I happen to be way off the mark. Let's say that I personally believed there was a very low probability of an upcoming rate hike. Maybe I think it's under 50% chance. But then I look at the interest rate derivatives and see that the odds are closer to 95% chance of rate hike -- near certainty.
> 
> In response, I might change my mind about a bond trade, asset allocation, or make a decision about my mortgage or cashflow planning. There are so many implications. Let's not pretend that this information is worthless.


Agreed, it's not worthless, but my point is that the extra information you get from the nonpublic realtime exact traded rates and implied probabilities, given that you have read a Financial Post or Globe and Mail business section or a relevant blog or whatever else recently, IS useless for all normal retail investor intents and purposes (as you mention, bond trading, asset allocation, or mortgage or cashflow planning). They will give you exactly what you need which is a ballpark estimate of the consensus. That would let you know if you are way off the mark or not.

For example if you are deciding whether to go to the bank and lock in a fixed rate now vs next week given a BoC decision in a few days, read some business news (I just went to google news and searched "bank of canada rate hike" and found a lot) and you'll get a very good rough idea of what the market is expecting, and know whether to clear a few hours in an afternoon soon to go do it. Some of those journalists would have Bloomberg access and they often do quote the probabilities from the WIRP page in Bloomberg anyway. More importantly they interview economists all the time.

I just don't see how the nitty gritty real time quotes will help you, past what is obvious in the media, that's all. I HAVE access to the information and I don't/can't use it.


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## james4beach (Nov 15, 2012)

FI40 said:


> I just don't see how the nitty gritty real time quotes will help you, past what is obvious in the media, that's all. I HAVE access to the information and I don't/can't use it.


From your posts, I could tell that you do have access to it 

For me it's about getting the best information possible. We don't live in the 1960s where the only place to get investment info was to trust the Business section of the newspaper. You are correct that economists, journalists and talking heads can convey this information to me. But as a scientist, I'd rather go straight to the data whenever possible.

For example, I don't rely on a journalist or talking heads telling me how the stock market is doing. I look up the stock chart data myself and judge it for myself.

I don't trust the bank's quote for the USD exchange rate. I get it independently from Google and XE, and then figure out how much the bank is ripping me off.

I don't have to tell you this, since you worked in the industry, but 2007 was a great example of why this matters a lot. The professionals have access to derivatives on mortgage bonds, and they could see ABX etc plummeting as the credit turmoil began. This was a clue to everyone with the best data to (a) dump mortgages (b) dump risk (c) get out of bank stocks. At the same time, the journalists and shills told small investors that everything was fine.

The Business column of the newspaper, and the talking heads, failed to adequately inform retail investors of how the rug was being pulled out. Talk about unreliable!

It's about access to information. In financial markets, information is power and privilege. I think it's important for retail investors to realize how disadvantaged they are. In my opinion, listening to the guy on TV is not going to make up for it (any more than it protected retail investors from 2007-2008 losses).


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## FI40 (Apr 6, 2015)

james4beach said:


> From your posts, I could tell that you do have access to it
> 
> For me it's about getting the best information possible. We don't live in the 1960s where the only place to get investment info was to trust the Business section of the newspaper. You are correct that economists, journalists and talking heads can convey this information to me. But as a scientist, I'd rather go straight to the data whenever possible.
> 
> ...


Let's be clear though, services like Bloomberg and Reuters are available to anyone, they are just expensive. So it's not that the information is totally inaccessible or secret. Individuals can buy it themselves if they feel it's worth it, or an investment club could share the cost more practically. If you believe it should be free or much cheaper, I agree with you, but that won't get us very far. Data providers will maximize their profits as they should as capitalist entities. Some other company will pop up if they are inefficient (maybe it'll be Money.Net?).

In 2007, not everyone with a Bloomberg terminal was dumping their assets. Some used their great data to personal advantage, yes, but I'd argue the majority didn't. Those that used the advantage were lucky their employers were paying for their access or they were lucky/smart enough to decide to pay for it themselves and more importantly, use it to draw their own conclusions.

I agree with you that it's important for retail investors to know how disadvantaged they are, but I would argue that the disadvantage varies massively with the investment you're talking about. Some markets have a lot of inside information, not available for any fee, but would be difficult or impossible for retail people to access anyway. Private equity is one. Large publicly traded stocks though...little to no insider trading due to their size and the regulatory environment, most information public, liquid prices and quotes available to everybody all the time. So your guess on which Canadian bank stock is best to own right now is as good as mine or anybody's IMO.


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## james4beach (Nov 15, 2012)

I'm starting to think that the Bank of Canada is going to be more hesitant about rate hikes going forward.

Look at Bombardier for example. Could rising interest rates be one of the reasons Bombardier stumbled? Their 5 year bonds are trading around 9% yield, and their financing costs are probably going through the roof as we speak. There will be thousands of layoffs.

Financing costs are also a problem with energy companies. Bloomberg is reporting that difficulties in the junk bond market are centered on the energy sector. If higher interest rates are playing a role in that, could the Bank of Canada now worry that the rate hikes are hurting corporations and causing unemployment to rise?

I've said this before, but I really don't think the BoC and Federal Reserve have much room to raise rates. Many corporations have loaded up on debt in the last few years, and the overall economy is very sensitive to interest rates.


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## Just a Guy (Mar 27, 2012)

Canada can’t afford to fall behind the USA on rates, so we’re not in control as much as you think. Some people are predicting interest rates could hit 6% by then end of next year...personally I don’t see it going up that fast, but that’s only my opinion.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> Canada can’t afford to fall behind the USA on rates, so we’re not in control as much as you think. Some people are predicting interest rates could hit 6% by then end of next year...personally I don’t see it going up that fast, but that’s only my opinion.


I agree with you that Canada doesn't have too much control here. But I think the Federal Reserve is feeling the same pressure to hold off, so I think they will slow the rate hikes too. Already these central banks are doing tiny rate hikes, the most delicate 0.25% moves possible, and even that is proving to be too much for a market addicted to ultra low rates.

The entire US economy is totally dependent on stimulus and low interest rates.

I think there's no chance that the central bank rate (US or Canada) hits 6% by end of next year. The market is already starting to crack at 2.25% overnight and 3% on the 10 year bond.


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## Onagoth (May 12, 2017)

My working thesis for the past few years especially, is that there is way too much debt....as such, interest rates will naturally approach a limit. 

I'm not exactly sure where the upper bound is right now, but it was interesting that fireworks started right around the time they hit 3.25%

I wouldn't be terribly surprised to see them hit near 4%....but anything above that I think will trigger a housing crisis. Many of my peers have considerable mortgage debt compared to their incomes...kind of shocks me. Plus many of them have floating rate consumer debts as well.


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## dubmac (Jan 9, 2011)

Not sure if anyone read the ROB this weekend, but good articles by David Berman and Barrie McKenna on the impact of the depressed and depressing oil market on GDP in the coming years. Berman says that Poloz, having hiked rates several times, will likely need to reconsider how much and how many hikes in the "new environment". He further quotes Doug Porter who states that the effect of this will be to shave some 0.3 to 0.5% off of the 2% GDP forecast for 2019. This doesn't take into consideration possible job losses, reverberations in housing markets. From this perspective, oil prices, lack of pipelines, etc will have a significant effect. Me wonders whether the politicians will respond, and how.


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## dubmac (Jan 9, 2011)

Onagoth said:


> My working thesis for the past few years especially, is that there is way too much debt....as such, interest rates will naturally approach a limit..


I'm wondering whether the same condition exists in the USA. I think that their debt has skyrocketed.


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## Just a Guy (Mar 27, 2012)

james4beach said:


> I think there's no chance that the central bank rate (US or Canada) hits 6% by end of next year. The market is already starting to crack at 2.25% overnight and 3% on the 10 year bond.


Unfortunately, no one in government cares what you and I think. The rates should never have gone so low for so long which is what caused the problems in the first place. 

Some brilliant thinker in government may just decide to pull the bandaid off as fast as possible in order to solve the problem. 

By the way, 5 small increased of .25% in just over a year still adds up to a 1.25% increase...which IS actually significant. The feds have already indicated more “small” increases to come.


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## humble_pie (Jun 7, 2009)

dubmac said:


> I'm wondering whether the same condition exists in the USA. I think that their debt has skyrocketed.



research article from quality source to watch out for: comparison of debt added by trump since inauguration to obama debt pro-rata - adjust obama's terms of office to trump's first two years. The result will be startling i imagine. Fits in with the eric reguly theme. 

none of trump's initiatives - lower taxes by increasing debt - lure overseas corporate $$ billions back to stateside america - companies then buy up their own stock thus pushing share prices to record highs & fattening executives' wallets - but no investment in R & D or plant expansion with its concomitant increase in skilled employment - none of these initiatives can build a healthier economy long-term.

all trump needs is illusory prosperity until 2020, so he can gain re-election. Then it's Après moi le déluge.


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## Just a Guy (Mar 27, 2012)

I’m always amazed at such sweeping generalizations...not a single dollar reinvested in R&D, no jobs created...

I guess this press releases from companies like Apple are just fake news. It’s all about profits, businesses are just shortsighted, it won’t matter that they’re out of business next year...as long as they get their bonuses.

Try getting back to reality.


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## humble_pie (Jun 7, 2009)

Just a Guy said:


> I’m always amazed at such sweeping generalizations...not a single dollar reinvested in R&D, no jobs created...
> 
> I guess this press releases from companies like Apple are just fake news. It’s all about profits, businesses are just shortsighted, it won’t matter that they’re out of business next year...as long as they get their bonuses.
> 
> Try getting back to reality.



what "this press releases from Apple?"

i do see a headline that AAPL invests in "secret" R & D nowadays. As ace globe journo eric reguly said in his seminal article on why US stock markets are at record highs on no earnings this year, Apple hasn't had a strong new product contender since iPhone.

oh & please stop stalking cmffers in order to try & pick fights. The stalking is creepy.

.


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## Onagoth (May 12, 2017)

dubmac said:


> I'm wondering whether the same condition exists in the USA. I think that their debt has skyrocketed.


I recall an article from a few months back which actually had shown the change the debt levels since the Financial Crisis by segment (household, corporate, sub-sovereign and sovereign).

The thing that stuck out to me was that most households had repaired their debt, but corporations and governments had binged. I will try to find it


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## humble_pie (Jun 7, 2009)

Onagoth said:


> I recall an article from a few months back which actually had shown the change the debt levels since the Financial Crisis by segment (household, corporate, sub-sovereign and sovereign).
> 
> The thing that stuck out to me was that most households had repaired their debt, but corporations and governments had binged. I will try to find it



interesting post, thankx

it was dubmac who posted the original link to the globe's european chief correspondent Eric Reguly. Reguly writes that the 2018 bull market on unimproved earnings is hinged to corporations buying back their own stock in record numbers. Such massive buying inevitably pushes up public share prices, which is what we've seen this year.

reguly was pointing to the billions of offshore $$ that are being repatriated by giant corporations such as Apple, lured by trump-lowered corporate taxes stateside (trump's increased debt was to lower taxes, reguly said)

stocks have soared but the repatriating giants aren't investing in new growth. Instead they're buying their own stock & forcing up share prices. Presto, fast easy gains for the corporate fatcats, not much for mr or ms american worker or their children.

frank mcKenna, new brunswick's former premier who says he might get back into federal politics for election 2019, shares some of reguly's ideas re the increase in trump debt.


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## Brainer (Oct 8, 2015)

I can't speak for the other things, but many documentaries and business news segments I've watched in the last few years have talked about R&D being at or near lows. We are desperate for new antibiotics due to drug-resistant bacteria. How many do you see coming down the pipeline? I'm not saying there is none. But other than in the tech. industry, which, I'd argue is all all about new developments, where is all this great new R&D you see?






Just a Guy said:


> I’m always amazed at such sweeping generalizations...not a single dollar reinvested in R&D, no jobs created...
> 
> I guess this press releases from companies like Apple are just fake news. It’s all about profits, businesses are just shortsighted, it won’t matter that they’re out of business next year...as long as they get their bonuses.
> 
> Try getting back to reality.


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## Onagoth (May 12, 2017)

Brainer said:


> I can't speak for the other things, but many documentaries and business news segments I've watched in the last few years have talked about R&D being at or near lows. We are desperate for new antibiotics due to drug-resistant bacteria. How many do you see coming down the pipeline? I'm not saying there is none. But other than in the tech. industry, which, I'd argue is all all about new developments, where is all this great new R&D you see?


I work for a very large multi-national company that is not in the tech sector. Our forecast shows increasing R&D spend over the next 3 years. Not a guarantee that it will happen, but our customers are pretty much demanding it.


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## sags (May 15, 2010)

The latest I have read is that American personal debt levels have now exceeded the levels just before the 2008 recession.

Not saying a recession will happen again, as housing markets would have to tank 50-70% and lender to lender credit would have to dry up............but who knows.

In Canada, I can see the government extending mortgages back to at least 35 years and maybe well beyond that. In a crisis they may allow 50 to 100 year mortgages.

As long as the monthly payments are comfortable and people have disposable income, both the homeowners and the economy are happy as ducks in a pond.


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## sags (May 15, 2010)

It is a little odd also that it is normal to mortgage $600,000 homes for 25 years and $35,000 cars for 8 years.

At today's prices, home debt could become generational. I believe it has been like that in parts of Europe for some time.


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## MarcoE (May 3, 2018)

The Fed and BOC can't raise interest rates too much. It's too late. Rates have remained at emergency-level lows for a decade now, and debt has ballooned. Governments, corporations, and consumers have become addicted to low-rate debt. We're in debt up to our ears. Asset prices have skyrocketed. Raising rates too much would cause an enormous crash, maybe even worse than 2008. So I think central banks have their hands tied, and can only raise rates very, very slowly and in very, very small amounts. But I'm not sure. That's just what I'm thinking and I could be wrong.


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## james4beach (Nov 15, 2012)

The CBs have created this situation. They could have let the recession play out in a more normal way, but instead they decided to engineer a very sharp and fast rebound using huge stimulus and zero interest rates. There's a reason they didn't hike rates through 7 years of this bull cycle... they knew that the moment they raised rates, the party would end. Stimulus and low interest rates has always been the heart of this economic boom.


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## Just a Guy (Mar 27, 2012)

humble_pie said:


> what "this press releases from Apple?"
> 
> i do see a headline that AAPL invests in "secret" R & D nowadays. As ace globe journo eric reguly said in his seminal article on why US stock markets are at record highs on no earnings this year, Apple hasn't had a strong new product contender since iPhone.
> 
> ...


Ever hear of google?

First hit I got...

https://9to5mac.com/2018/06/02/apple-research-triangle-park-announcement/

Note the link at the bottom of the article about a short list for other facilities. 

And this is from Apple which is notoriously secret about their developments. Wasn’t a lot known about the iPhone before it’s release...didn’t mean they weren’t doing the R&D though. 

Top link for Apple jobs...

https://www.apple.com/ca/newsroom/2018/01/apple-accelerates-us-investment-and-job-creation/

As for stalking, you would know best...anyone remember carverman? Driven away by a prolific stalker as I recall...

Some of us see a difference between calling out false opinions and stalking.


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## hfp75 (Mar 15, 2018)

I think that the UK has very large mortgages over very long time frames.....

So these generational mortgages do exist..... Only thing is that it is our generation that is plagued with this.... and we dont know how the dice fall at the end since 'most' elements that make up our economy are so manipulated... and / or out of whack.

Just remember that in Europe in the 30s the rich were only rich until inflation let them buy bread for a few weeks longer than their not so rich neighbors. In the end almost everyone was poor and desperate. Hence, the extreme politics.... and we all know how that ended.... although interestingly there are a few today that live in denial about the ugly side of National Socialism, Communism and Fascism..... not one is better than the other. 

Either way I digressed...

We are in an economy that in reality always demands small repetitive stimulation. This was interest rates slowly dropping from 18% down to 0%, and now we are somehow caught looking for the fire while we are standing in thick smoke. At 0% interest, what is next to promote the simulation that the economy demands ???? The illusion is the interest rate, they will keep it at 2-4% and do other things to stimulate the economy so that they can stand on their high horse and just talk about interest rates - all the while they are buying bonds and printing money at the back of the building.... the next decade is concerning for me.....

Their only hope is that inflation sets in and they have to jack rates to control it, that would buy them some time until they end up at 0% interest again.... during that process they will wipe out a ton of global cash and that could be bad.... but it would tear off the band-aid....


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## james4beach (Nov 15, 2012)

I think it's becoming increasingly clear that the Federal Reserve can't raise rates much further. Too many things are cracking. Sears went bankrupt. GE is collapsing. The US retailers like JC Penney and Target are getting hurt, and these are huge employers. All of these are interest rate sensitive and rising interest rates is now going to start pushing up unemployment.

In Canada, we have big problems at Bombardier (which is another company that's very reliant on debt) with massive layoffs as a result. Again, rising rates --> unemployment. The central banks don't have much room to raise rates here. They only raised rates a teeny bit, and debt-addicted companies are falling apart. And we haven't even gotten to the real estate side effects yet.

I continue to invest heavily in bonds and I think bonds will do just fine going forward. I am not concerned about big rate hikes, I just don't think it's going to happen. My guess is that 5 years from now, XBB will have still outperformed cash.


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## MarcoE (May 3, 2018)

james4beach said:


> I continue to invest heavily in bonds and I think bonds will do just fine going forward. I am not concerned about big rate hikes, I just don't think it's going to happen. My guess is that 5 years from now, XBB will have still outperformed cash.


I've been buying more bonds too. I've had people tell me I'm crazy for putting a third of my money into bonds. That interest rates will keep rising, and my bonds will keep losing. I listen to this advice, but I'm still buying more bonds. I've also been buying more gold throughout the year, and currently have 6.5% of my net worth in gold.

James, I'm curious--are you selling any of your equity now in preparation for the next recession?


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## james4beach (Nov 15, 2012)

MarcoE said:


> I've had people tell me I'm crazy for putting a third of my money into bonds. That interest rates will keep rising, and my bonds will keep losing.


People have been saying that 8 years now. Those people would be _really_ shocked to hear that 50% of my money is in bonds. Well more accurately, bonds + GICs with more detail in an earlier discussion. As I described in that thread (with links to articles) the popular belief on bonds is incorrect. Rising interest rates doesn't mean that bond portfolios keep going down endlessly. The decline is limited in the worst case, and over long periods, the fixed income portfolio will have a positive return, even if interest rates go up dramatically.



MarcoE said:


> James, I'm curious--are you selling any of your equity now in preparation for the next recession?


No, I don't make any tactical adjustments along the way. My view on the market, and my long term expectations, are baked into my asset allocation strategy: 30% stocks, 50% fixed income, 20% gold. Currently the only thing I'm doing is deploying new money from employment income towards maintaining those allocations. I will also do an annual rebalance in December or January.


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## Ag Driver (Dec 13, 2012)

Deleted


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## dubmac (Jan 9, 2011)

Article in G&M today, pg B13, by Alex Viega seems to corroborate/support Reguly's thesis on share buybacks as a possible cause for the inflated US stock prices - specifically tech companies (Apple, Qualcomm..). The numbers appear staggering. Some 80 billion in the first 3 quarters this year by Apple. Overall US company boards are likely to authorize $1 trillion this yr in buybacks. A record.

It seems that the fiscal stimulus of old (post 2007/08 recession, central banks influencing rates etc to encourage investment) is being gradually replaced by this kind of political manipulation involving share buy-backs that boost prices but not earnings. I'm left wondering whether this can go on throughout 2019.

https://www.theglobeandmail.com/inv...x-tumbles-as-oil-slide-batters-energy-stocks/. This 10% drop on the S&P may see more buy-backs...and another run-up in prices....but mebbe not with oil is freefall (at least Cdn oil)


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## cheech10 (Dec 31, 2010)

Buy backs won't increase earnings, but will increase earnings per share going forward, so it makes sense that stock prices will increase as a result. Of course, this is counteracted by the share dilution that occurs when executives/employees get stock options. Anyway, I personally don't see buy backs as a huge issue, except as a signal that the company doesn't have any good ideas for investing in growth.


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## AltaRed (Jun 8, 2009)

cheech10 said:


> Buy backs won't increase earnings, but will increase earnings per share going forward, so it makes sense that stock prices will increase as a result. Of course, this is counteracted by the share dilution that occurs when executives/employees get stock options. Anyway, I personally don't see buy backs as a huge issue, except as a signal that the company doesn't have any good ideas for investing in growth.


Or the shares are underpriced and worthy of buyback. Many regulatory limitations though on normal course issuer bids including quiet periods around quarterly results and material changes to the company. https://ca.practicallaw.thomsonreut...ontextData=(sc.Default)&firstPage=true&bhcp=1 I don't mind share buybacks if done at the right share prices. It increases the value of my own shares IF the shares purchased are cancelled and not just returned to treasury.


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## humble_pie (Jun 7, 2009)

dubmac said:


> Article in G&M today, pg B13, by Alex Viega seems to corroborate/support Reguly's thesis on share buybacks as a possible cause for the inflated US stock prices - specifically tech companies (Apple, Qualcomm..). The numbers appear staggering. Some 80 billion in the first 3 quarters this year by Apple. Overall US company boards are likely to authorize $1 trillion this yr in buybacks. A record.
> 
> It seems that the fiscal stimulus of old (post 2007/08 recession, central banks influencing rates etc to encourage investment) is being gradually replaced by this kind of political manipulation involving share buy-backs that boost prices but not earnings. I'm left wondering whether this can go on throughout 2019.
> 
> https://www.theglobeandmail.com/inv...x-tumbles-as-oil-slide-batters-energy-stocks/. This 10% drop on the S&P may see more buy-backs...and another run-up in prices....but mebbe not with oil is freefall (at least Cdn oil)




glad you're following the Eric Reguly theme (since there's nothing new under the sun, the veteran globe & mail pro may have picked up his idea elsewhere; however reguly did plenty of original research to support his thesis when he first put forward in the media)

announced share buybacks have always been suspect, during all the decades they've been going on. One problem is that a company can easily announce a coming share buyback campaign but then, in reality, deliberately fail to carry it out. Who would know? other than the odd journo or analyst who'd bother to keep track via analysis of corporate stats announced from time to time, months or even years after the course issuer bid was supposed to have concluded, nobody would ever know whether, in fact, a company did buy back even as much as one of its own shares, following its puffed-up announcement of a coming share buyback campaign.

if ever asked - years after an announced share buyback had never materialized - a company would always reply that, when the time came to actually commence buying, material circumstances had changed, so that the pre-announced course issuer bid was no longer appearing to be a healthy move for the company, heh ...

the sheer volume of the Apple & other buybacks that Reguly is following does look genuine though. No company could fudge a course issuer bid on such a grand scale.

more financial engineering from donald trump: on american thanksgiving day trump told the US public that he intends to go right on selling billions of $$ in weapons to the self-admitted Khashoggi murderers, ie the royal family of Saudi Arabia. Because it's those saudi $$ billions that are making america great again, said trump.

international trafficking in human beings, weapons & drugs is said to be greater than the GDP of all the planet's countries combined; but since when have we ever seen a US president openly state that he likes things that way?

.


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## doctrine (Sep 30, 2011)

Buybacks aren't necessarily wasted money; that $1 trillion is real money returned to shareholders who can then reinvest elsewhere. For companies like Apple, if they just randomly decide to double their business investment instead, won't necessarily increase their profits either. On the other hand, companies like General Electric shouldn't have been buying back tens of billions of shares when their business outlook was declining - their current market cap is less than they have spent on share buybacks in the last 10 years.


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## james4beach (Nov 15, 2012)

Personally I think it's bad for capitalism and bad for the economy when companies use excess earnings for buy backs as opposed to actual capital investment and internal growth (employment, etc).

I suspect this trend will continue, with equity assets doing pretty well while the general economy and work force does increasingly worse. With all the automation going on, I don't think companies will need many employees going forward.

Basically in 10 or 20 years, everyone will likely be unemployed, and only financial asset owners will be doing well. This increasingly concentrates wealth at the top among those who are already very wealthy. Workers and less wealthy segments of society will have no hope for a future. This situation in turn threatens democracy and capitalism, because people may vote to restructure the whole system. (Trump and MAGA is an early sign of this I think).

The best thing for stable democracy and capitalism will be to take measures to stop these trends, IMHO. Perhaps government can discourage things like buybacks and encourage capital investment that creates jobs.


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## Just a Guy (Mar 27, 2012)

Does no one read history? The Dutch, during the industrial revolution threw their wooden shoes (known as sabots) into the machinery because they were afraid they’d all be left unemployed. This gave rise to the word sabotage. 

The original meaning of computer was a person, I usually female, who did mathematical calculations manually. The advent of the digital computer wiped out an entire class of worker (not to mention how software has revolutionized and made redundant many former jobs). Yet more people are employed today than in the 50’s and 60’s before computers. 

The paperless office was supposed to come with computers, yet we use more paper today than ever before and useage continues to grow. 

Someone predicting the end of employment in 20 years is giving in to FUD. Jobs will go, new jobs will develop. Some jobs will remain relatively unchanged (garbage collection hasnt changes much in 1000’s of years). 

I’ve got 4 kids and have no worries that they will find employment, not to mention develop passive income to ensure they probably won’t have to work. If there were no jobs, they’d probably start a company, solving a need that they see in the world. It comes from raising them to look for solutions an not pretend to be a victim.


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## MarcoE (May 3, 2018)

james4beach said:


> Basically in 10 or 20 years, everyone will likely be unemployed, and only financial asset owners will be doing well. This increasingly concentrates wealth at the top among those who are already very wealthy. Workers and less wealthy segments of society will have no hope for a future. This situation in turn threatens democracy and capitalism, because people may vote to restructure the whole system. (Trump and MAGA is an early sign of this I think).
> 
> The best thing for stable democracy and capitalism will be to take measures to stop these trends, IMHO. Perhaps government can discourage things like buybacks and encourage capital investment that creates jobs.


I don't know if in 20 years, everyone will be unemployed. But I do agree there's a serious problem with income gaps and inequality. If the rich keep getting richer, and the poor keep getting poorer, that will lead to populism. People will elect more and more extremist leaders. Following the Great Depression in the late 1920s / early 30s, we saw the rise of fascism. Economic turmoil also helped communism take over vast parts of the globe. And well, Marie Antoinette learned what happens when you tell the poor to eat cake. The only way we can preserve democracy and capitalism is if we make it work for everyone. The rich might get richer and richer--but that doesn't help you when your head is in a guillotine...


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## Just a Guy (Mar 27, 2012)

What democracy? Barely 50% vote, the leading party takes 30% of that...and the politicians just buy votes with taxpayer money 

The rich get richer because they don’t sit around waiting for government handouts. If you don’t even play the game, you can’t expect to win.


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## MarcoE (May 3, 2018)

Just a Guy said:


> The rich get richer because they don’t sit around waiting for government handouts. If you don’t even play the game, you can’t expect to win.


The problem is... even the rich are at the mercy of the government. If people despair, they can vote in populist governments, which can then proceed to nationalize assets. History is full of examples where the system suddenly rebooted, and new regimes with new ideologies took over. Such governments can decide to seize assets from the rich, and we can kiss our portfolios goodbye. I think the possibility of this happening in Canada is pretty slim, since our society is remarkably stable, and most people still have a decent standard of living compared to the rest of the world. But it's important that we preserve and strengthen democracy and capitalism, and that we don't take it for granted. Our civilization is fragile. And our wealth depends on it staying in working condition.


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## Just a Guy (Mar 27, 2012)

For one thing Canada is too apathetic to stage a revolution. Second, the rich can afford to move away. It was a lot harder to do during the French Revolution, but to hop on a plane while transferring your assets electronically is much easier to do today.


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## MarcoE (May 3, 2018)

Just a Guy said:


> For one thing Canada is too apathetic to stage a revolution.


LOL



Just a Guy said:


> Second, the rich can afford to move away. It was a lot harder to do during the French Revolution, but to hop on a plane while transferring your assets electronically is much easier to do today.


It's not that easy. For example, many Canadians have their wealth tied into small businesses, which are registered in Canada. It's a complicated process to move a business to another country, as far as I know -- unless you dissolve the business first, and just take the cash, but then you'll lose half of your wealth in taxes. Also, Canadians don't just automatically get green cards in other countries just because we're so nice and polite. This is also assuming the laws about moving money out of Canada don't become more restrictive in the future. Moving to a new country just isn't that easy, especially if many of your assets are linked to your current country.

I agree that we probably won't have a violent revolution. It's not in Canada's nature. But I can see a scenario where in 20 years, we have a government that hikes taxes up to 75%, and potentially even nationalizes assets over a certain limit. There can be a "slow creep" toward such a society, with wealth redistribution becoming far more extreme than it is today.

The way to avoid this is to make it unnecessary. We do this by making sure capitalism works for everyone. The best way to achieve this, IMO, is through education. Canadians need better financial education, so that more and more Canadians can own parts of the market, become owners rather than just consumers. If we have too much inequality between the rich and everyone else (regardless of who's to blame), it ends badly for everyone. Especially those with money they've spent decades earning.


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## james4beach (Nov 15, 2012)

Examples of things an angry, unemployed population might do that is totally within reason: jack up capital gains or dividend taxes; impose capital controls that prevent the wealthy from fleeing the country with their money; impose extra taxes or penalties on foreign investment (to discourage people from taking their money out of the country) such as very complex reporting and disclosure requirements.

From 1990-2000, capital gains were taxed at 75% so almost fully taxed like income. This is absolutely possible going forward, and tax rules like this can change in the blink of an eye. Same for dividend taxes.

Making sure capitalism works for everyone, including good job prospects for everyone, helps ensure that the rich still have a good environment to invest in. If only the very wealthy have equities and benefit from (e.g.) corporate cost cutting and share buybacks, then there is a strong case to be made that taxes on equity investment should be increased so that the wealthy pay their fair share back to society.


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## Just a Guy (Mar 27, 2012)

So let’s keep throwing money at companies like GM and bombardier who can’t actually make a profit and use taxes from companies actually making a profit... pure genius. At least it’ll produce jobs, until the companies making money all go broke from heavy taxation. Another tax the rich and give to the undeserving plan...

Fortunately the rich can move away at any time, it’s not like things get implemented overnight. Also, if you walk away from Canada permanently, I doubt you’d be to concerned about leaving behind a tax bill...especially if the country had plans on seizing it anyway.


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## MarcoE (May 3, 2018)

Just a Guy said:


> Fortunately the rich can move away at any time, it’s not like things get implemented overnight. Also, if you walk away from Canada permanently, I doubt you’d be to concerned about leaving behind a tax bill...especially if the country had plans on seizing it anyway.


I think changes can come pretty quickly, including laws that restrict people's ability to move money out of Canada. Also, people have careers here, families, elderly parents or grandparents in retirement homes, kids in schools, spouses with family or career ties here, etc. It's not that easy to just pick up and move to a new country. I know. I've done it!

We also just don't want things to come to that. It's bad for everyone. It's bad for Canada. It's bad for the rich and the poor. Capitalism is the best system in the world. But we need to make sure it works for everyone. Or things can get very ugly very fast.


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## MarcoE (May 3, 2018)

james4beach said:


> From 1990-2000, capital gains were taxed at 75% so almost fully taxed like income. This is absolutely possible going forward, and tax rules like this can change in the blink of an eye. Same for dividend taxes.


You might remember that about a year ago, the Canadian government tried to raise corporate investment taxes to 73%. This was just recently. It didn't go through. But the fact that a serious attempt was made doesn't inspire confidence, IMO.

If taxes rise to that level, I do predict that the brain drain from Canada will increase. Yes, it's hard to move to a new country, as I described in my comment above. But at some point, if taxes do rise too high for the rich, we'll see a lot of them leaving anyway, despite the hardships and hurdles. And we'll lose a lot of small businesses that pay a lot of taxes and employ many people, which will only make the problem worse...


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## james4beach (Nov 15, 2012)

MarcoE said:


> If taxes rise to that level, I do predict that the brain drain from Canada will increase. Yes, it's hard to move to a new country, as I described in my comment above. But at some point, if taxes do rise too high for the rich, we'll see a lot of them leaving anyway, despite the hardships and hurdles. And we'll lose a lot of small businesses that pay a lot of taxes and employ many people, which will only make the problem worse...


That's the old threat, sure, but I think it's less of a concern when financial wealth is concentrated among older people and younger people tend to not own equities at all (which is now the case). Look around this forum for example. There are few younger people here. If I had to characterize CMF membership, I'd say that it's typically oil/gas related people, some financial sector people, mostly over age 50 or 60.

That's where equity wealth is concentrated in Canada. They're not going to move to another country or establish a new business; they're mostly hoarding wealth in financial assets. On the other hand, my friends are mostly under 40 yo with strong incomes and professional careers, but very few of them invest in equities.

I think it would be pretty easy to tax equity investors more heavily, if society decides to do that. The same will happen in the US and Europe, so this isn't really Canada specific.


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## MarcoE (May 3, 2018)

james4beach said:


> That's where equity wealth is concentrated in Canada. They're not going to move to another country or establish a new business; they're mostly hoarding wealth in financial assets. On the other hand, my friends are mostly under 40 yo with strong incomes and professional careers, but very few of them invest in equities.


I'm a small business owner under 40. A lot of my business's income comes from investments. Currently my corporate income tax is comparatively low. But my dividends / capital gains tax is very high compared to the US. If our taxes rise higher, I think there's definitely a danger that young Canadian entrepreneurs will move to the US and start a business there. Why would you want to start a business in Toronto or Vancouver, for example, where your house costs 7 figures, and your taxes are high, and your employees are commuting for three hours a day because they can't afford to live near your office? When you can go south of the border, pay a fraction for cost of living, and pay lower taxes too? I can definitely see brain drain of young, ambitious entrepreneurs choosing to start their business in America instead of here, if our taxes and cost of living differences get any worse. Then America's economy benefits from the business, and ours loses out. I'm thinking about the next generation. Old people will stay, yes. But I'm thinking about younger entrepreneurs who don't have much to lose by moving south of the border. I don't think this is happening at a large scale yet. But I do think it's a threat Canada's economy might face in the future. We need to remain competitive, or we'll lose talent to the Americans.


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## MarcoE (May 3, 2018)

james4beach said:


> I think it would be pretty easy to tax equity investors more heavily, if society decides to do that. The same will happen in the US and Europe, so this isn't really Canada specific.


Very true. Though I think very high taxes on investors (over 50%) starts to encourage tax evasion. Once you reach that psychological level of 50%, people start looking into moving to another country, or moving money offshore into tax havens, or moving their wealth into tax-free life insurance policies, and so on. Psychologically I think people will grumble and pay up to 50%, but once you cross that, they begin to really spend a lot of time and effort on finding loopholes.


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## Just a Guy (Mar 27, 2012)

If you don’t sell your equities, the government doesn’t tax them. Set up a margin account to access funds. There are always legal ways around government tax grabs.


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## peterk (May 16, 2010)

james4beach said:


> Examples of things an angry, unemployed population might do that is totally within reason: jack up capital gains or dividend taxes; impose capital controls that prevent the wealthy from fleeing the country with their money; impose extra taxes or penalties on foreign investment (to discourage people from taking their money out of the country) such as very complex reporting and disclosure requirements.
> 
> From 1990-2000, capital gains were taxed at 75% so almost fully taxed like income. This is absolutely possible going forward, and tax rules like this can change in the blink of an eye. Same for dividend taxes.
> 
> Making sure capitalism works for everyone, including good job prospects for everyone, helps ensure that the rich still have a good environment to invest in. If only the very wealthy have equities and benefit from (e.g.) corporate cost cutting and share buybacks, then there is a strong case to be made that taxes on equity investment should be increased so that the wealthy pay their fair share back to society.


Yep. What we need to promote enterprising business peoples, and their employee's productivity is:

Low personal income taxes
High corporate income taxes
Low corporate regulation
High investment income taxes
Moderate "employee rights" 
Moderate consumption taxes
Low government handouts.

Unfortunately liberal governments stand for the exact opposite of all those things, don't you think James? 

No corporation is going to leave a country with low regulation/restrictions, low, non-overbearing employee rights, and low employee income taxes (bringing wages down) just because their corporate taxes are a little bit high.
Employees will actually work to productively improve their companies if they don't have to pay high taxes.

Looking at a few years out, I'm wondering why I would want to keep working so hard, especially after I have kids?

Why pay tax on 170k salary and 30k investment income for 130k net, adding to my savings a little bit, when I can just get some easy self employment type job back in Ontario, hobble together a 40k employment income, and take home 75k net after all the credits?
I shouldn't even be thinking like this - but with high income tax, low investment tax, and high corporate regulations making jobs disappear... it's starting to make sense.


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## james4beach (Nov 15, 2012)

Liberal governments in Canada have been extremely business-friendly. They have centrist positions and are a little too pro-corporate, actually. Hardly left wing. Canada is a great place to do business, and that's consistently been the recent string of Liberal / Conservative / Liberal governments.

For those of you musing about taking your small business to the US, sure... I *dare* you to. Go ahead and do it!

Having been involved with small business operations in both countries, I can say for certainty it's far better in Canada. In the US, you have to pay sky high health insurance costs. This single factor alone pretty much eliminates the viability of running a small business.

Additionally, the tax regime in the US is extremely complicated, and you'll be dealing with a very aggressive IRS. I was recently audited in Canada and it was a breeze. I uploaded some PDF docs through the CRA web site and it was approved in about a month. The US system is nothing like this... it's a highly aggressive tax collection agency that is terrifying to deal with. And they have massive penalties for violations... the US does not screw around with punishment.

In addition to that, payrolls in the US have to collect huge amounts for social security and medicare. You'll never hear about this until you actually go and do it yourself, but it adds up to a lot. Those of you complaining about self employed CPP collection have no idea how bad it is in the US by comparison. At least with the CPP, you're paying into a well managed, fully funded pension system that will actually exist at the time you retire.

Further, the US is a very litigious society and you have to be extra cautious with liability and lawsuits. And I won't even go into the pain of foreign account reporting such as FBAR that has to be done in the US. They are very serious about this stuff, with massive penalties if you screw it up or fail to disclose foreign assets.

I dare you to start a small business in the US... be my guest


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## james4beach (Nov 15, 2012)

Addendum: I'm actually thinking of giving a talk at U Waterloo regarding these realities of working and doing business in the US and why it's not as great as people think.

America is very good at marketing themselves globally as a place to earn high incomes and get rich. It's a ruse! Don't believe it. The taxes in some states are higher than in Canada so you might actually be better off in BC, AB, ON. On top of that, many costs of working in the US are hidden/deferred and manifest in a bursty way. For example, a sudden health care cost (since insurance plans never cover everything) could cost you hundreds of K and wipe you out. Similarly, risk of aggressive tax authorities and aggressive litigation can create bursts of huge expenses.

The nuance here is that the hidden liabilities and costs of working in the US appear in unpredictable ways, some kind of Poisson distribution, and never represented in the calculations a person typically does when they think of operating in the US.

I strongly believe that on a net, long term basis that a wealthy individual or business owner is better off in Canada. Anyone over age 40 who might possibly have some health problem is better off in Canada. I can see the value of someone younger, maybe in their 20s, coming to the US for a period to earn a very high income... but they should escape from the US before those burst (surprise) expenses in health care & various liabilities.

Again, America markets themselves very well, but it's a sham. And Canada should not believe the hype and reduce taxes in reaction.


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## MarcoE (May 3, 2018)

james4beach said:


> Liberal governments in Canada have been extremely business-friendly. They have centrist positions and are a little too pro-corporate, actually. Hardly left wing. Canada is a great place to do business, and that's consistently been the recent string of Liberal / Conservative / Liberal governments.


I agree, James. Canada is a capitalist country, and so far, governments from all parties have respected this. The scenarios I described are just imaginary future dystopias, not the current situation or past situations. They're what could happen if inequality worsens, and the people elect populist governments. If we can make sure capitalism works for everyone, and make sure inequality doesn't run rampant, we can avoid this.


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## MarcoE (May 3, 2018)

I also don't think this danger is uniquely Canadian. In fact, our situation has been relatively tame compared to other countries. We're already seeing many European countries shift toward populism, with movements from both the political left and right becoming more extreme. We're seeing some of this in America too. I think that economic hardship and inequality gives a boost to extremism and populism, which is why making sure capitalism benefits all social classes (rather than just the top 1%) is so important. Remember that the big crash of 1929 helped fascism take over significant swaths of the world...


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## peterk (May 16, 2010)

james4beach said:


> Liberal governments in Canada have been extremely business-friendly.


That is exactly my point. Nobody is representing the middle class. Conservatives are more "all business" friendly and more upper-middle class friendly. Liberals are more "big business" friendly and more minority class friendly. Nobody is middle class friendly nor in favour of reducing barriers to business or burdens placed on the middle class. That's why you got Trump down there.

Trudeau's middle class tax cut, to buy votes, is funded by debt. A non-starter.


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## MarcoE (May 3, 2018)

peterk said:


> That is exactly my point. Nobody is representing the middle class. Conservatives are more "all business" friendly and more upper-middle class friendly. Liberals are more "big business" friendly and more minority class friendly. Nobody is middle class friendly nor in favour of reducing barriers to business or burdens placed on the middle class. That's why you got Trump down there.
> 
> Trudeau's middle class tax cut, to buy votes, is funded by debt. A non-starter.


A decade of near-zero interest rates has been great for the rich, who saw their asset prices skyrocket. It has been devastating, however, for younger middle class Canadians, who haven't been able to save money (their savings accounts paid virtually no interest), and who now can't afford to buy a home in our big cities (thanks to the low interest rates pushing up housing prices), and if they're just starting to invest now, they're facing sky-high costs of entry. The low interest rates have really made inequality more extreme, and made it far more difficult for younger Canadians to catch up.


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## peterk (May 16, 2010)

MarcoE said:


> I think that economic hardship and inequality gives a boost to extremism and populism, which is why making sure capitalism benefits all social classes (rather than just the top 1%) is so important.


Emphasis on the "all". So much talk about inequality being the biggest issue - Yet the suffering of the lowest in society is magnitudes less than 50 years ago. Fake news. The actual news is that my middle class life is no easier than my Grandpa's middle class life, despite technology making me, supposedly, many times more productive. So, where the hell did that productivity go? Why am I not working 20 hrs / week and buying a robot built car for $2000, an easily built nice house for $100,000 and GMO mechanically harvested groceries for $1/kg? What gives? Left-Right entrenched government class rulers not representing the best interests of the middle class, is what gives.


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## Just a Guy (Mar 27, 2012)

james4beach said:


> I dare you to start a small business in the US... be my guest


The world is a lot larger than the USA and Canada...

Just like starting a small business, there are opportunities everywhere. Look at the guy who invented the “pet rock”. Picked up a rock from his back yard, put it in a box with holes in it and made millions...wasn’t sued, didn’t really need to worry about health care costs being a multimillionaire...

People who look at problems only see problems. I taught my kids to ignore “problems” and look for solutions.


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## MarcoE (May 3, 2018)

peterk said:


> Emphasis on the "all". So much talk about inequality being the biggest issue - Yet the suffering of the lowest in society is magnitudes less than 50 years ago. Fake news. The actual news is that my middle class life is no easier than my Grandpa's middle class life, despite technology making me, supposedly, many times more productive. So, where the hell did that productivity go? Why am I not working 20 hrs / week and buying a robot built car for $2000, an easily built nice house for $100,000 and GMO mechanically harvested groceries for $1/kg? What gives? Left-Right entrenched government class rulers not representing the best interests of the middle class, is what gives.


I think there's a good argument that the middle class is WORSE OFF today than it was 50 years ago. Definitely in our big cities. 50 years ago, a man working a blue collar job could expect to support a housewife (many women didn't work back then), afford a nice house with a yard, have a car in the driveway, feed three kids, go out for dinner now and then, and enjoy vacations. My grandfather lived that way, and he barely earned more than minimum wage. He got a lot more for a lot less. Today both spouses have to work, and if you live in a big Canadian city, having a nice house, car, and enough money for luxuries is a real struggle.

Look. When I describe dystopias of capitalists fleeing Canada, I'm not talking about 2018. I'm not talking about our current government. Do I think Justin Trudeau will suddenly turn Canada into a failed socialist state like Venezuela? Of course not. I'm thinking of dangers that we might face in 20 years. If the middle class continues to suffer, and inequality widens, we could very well have an angry population that votes in populist governments, which want to burn down the entire system. That's why we have to carefully maintain our capitalism and make sure it continues to benefit everyone who lives here. Even if you're part of the 1%, you have an interest in keeping the 99% happy and thriving too--otherwise they can vote in governments that are hostile toward you.


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## hfp75 (Mar 15, 2018)

https://www.bankofcanada.ca/multimedia/canada-uk-chamber-commerce-speech-webcasts-november-05-2018/

Rates are gonna keep going up...


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## MarcoE (May 3, 2018)

I don't know if there's any way we can predict what'll happen to interest rates. Even if we think they're going to go up, and people are saying so now, it's not a done deal. The economy could begin to struggle, or we could enter a bear market, and rates could remain flat or even drop. We don't know. We can't time interest rates any more than we can time the stock market.


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## Just a Guy (Mar 27, 2012)

Interest rates are controlled by a handful of people, it’s not unpredictable like the stock market. It’s also, in Canada, usually tied to what happens in the states.

You can hope and pray that interest rates will remain low, go lower, or even remain flat...but reality will prove different. The government has indicated for years it wants to raise rates and that’s what they’ll do. Why else do you think they continue to make borrowing harder and harder to qualify. It’s to limit the damage.


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## james4beach (Nov 15, 2012)

I agree and not only that, but the Bank of Canada rate is not the same as bond market rates. The BoC rate could go up, and 5 or 10 year yields could stay the same, or even decrease. Even if you can perfectly predict the BoC policy rate, that does not tell you the bond market yields, nor the shape of the yield curve.

The next BoC rate hike is expected to be on December 5, but the probability is not 100%.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> Interest rates are controlled by a handful of people, it’s not unpredictable like the stock market. It’s also, in Canada, usually tied to what happens in the states.


When you say "interest rates" what exactly are you referring to? The Bank of Canada policy rate? The CAD LIBOR rate? The 5 year government bond yield? 10 year yield? 30 year yield?

If you can predict it so easily, you should be able to make a fortune using the futures, which let you speculate on those rates.


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## Just a Guy (Mar 27, 2012)

Okay James, you go on hoping interest rates will drop back to near zero in the next 5 years and I’ll bet that they’ll be higher in the next five years...let’s see who comes out closer on the predictions. It’s documented here.

I’m willing to bet you won’t even accept the bet because you know interest rates are going to rise...it’s not that hard to predict. Exactly how much and how fast isn’t my area of expertise, but common sense tells most people it’s going up, and you don’t need to be a rocket scientist to figure that out.

If you’re not planning for an interest rate hike, I pity your financial future.


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## james4beach (Nov 15, 2012)

You still haven't said which "interest rates" you think are going up. Do you mean all of the above?

You say it's not hard to predict. Ok then, so which of these (BoC policy rate, LIBOR, 2 yr, 5 yr, 10 yr, 30 yr) are going up?


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## Onagoth (May 12, 2017)

Seems like the fed funds rate probably isn’t going anywhere in December


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## james4beach (Nov 15, 2012)

Just a Guy said:


> Okay James, you go on hoping interest rates will drop back to near zero in the next 5 years and I’ll bet that they’ll be higher in the next five years...let’s see who comes out closer on the predictions. It’s documented here.


I didn't say rates are going down. I said I can't predict future rates. I _hope_ they're going up... as a fixed income investor, my rate of return goes up when interest rates go up.

Not being able to predict them, I take a neutral stance. You're the one saying you can predict future rates and you are positive the rates are moving higher.


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## james4beach (Nov 15, 2012)

Onagoth said:


> Seems like the fed funds rate probably isn’t going anywhere in December


The head of the US Federal Reserve suggested a possible pause in interest rate hikes next year:
https://www.cbc.ca/news/business/stock-markets-powell-interest-rates-1.4924472

As far as I know, both the US and Canadian central banks are expected to raise rates in December though. It's already priced in, I think.


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## agent99 (Sep 11, 2013)

james4beach said:


> ... as a fixed income investor, my rate of return goes up when interest rates go up.


*Real* rate of return? I recall an economics prof telling the class that interest rates had never been lower when mortgages were at 14% and inflation almost same, just to get that point across.


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## doctrine (Sep 30, 2011)

Latest inflation reading in Canada was 2.4%. With a 40% tax rate, you need a bond to yield 4% just to keep up with inflation.

Unfortunately, higher interest rates do not mean a higher rate of return after inflation. Higher interest rates are usually there because of inflation, or the threat of inflation.


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## james4beach (Nov 15, 2012)

I don't understand what you guys are getting at. Inflation fights us on all our investments, for all asset classes. It just sounds to me like you're trying to talk yourselves out of fixed income investments.

Stocks will not respond favourably to higher interest rates, by the way.


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## hfp75 (Mar 15, 2018)

US Fed and BoC want rates higher .... no doubt. The threat of inflation from injecting cash for 10Yrs is a real concern. To correct this rates need to rise. They can either do a bunch of 25 basis pt raises over time or when inflation rears its head they can hit us with 100 basis points a few times in 1 yr.

They are trying to get things started so that they are not behind the Inflation Monster. If the Monster gets going, stopping it will hurt us all a lot.

As rates rise - eventually there is a tipping point for equity markets, they will begin their inevitable descent, and bond markets, your return will rise but the value of your bonds will drop proportionally to the duration and the rise in rates. 

We are at the tip of the devils pitch fork....

it is a concerning time.... Bonds = Yes, Equities = Yes, Cash = Yes, Gold = Yes.

our turbulence now is trade and rate based.

next year will be the same but more dramatic...

late 2019-2020-early 2021 we 'might' be in a recession and markets will have adjusted ahead of time.......

If your reading it in the news your to late...

In theory to return to normal operations once in a recession they will drop rates and bond holders will be happy. Equity market will begin adjusting too...

problem is that our economy always needs stimulation and rates have been dropping since the 70's... when we truly hit zero then what ?

----------------

On a side note, US Nationalism was birthed with McCain and Palin, Trump took it and ran with it to his Presidency. I see US Nationalism growing over the next decade and that concerns me as a Canadian. As people get frustrated they find someone to blame or take it out on...

Ironically McCain and Trump never got along, but McCains Tea Party movement in the USA is what propelled Trump to office. 

As The USA grows in size there are more and more % of poor and disenfranchised voters. These people have a loud voice now....


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## MarcoE (May 3, 2018)

hfp75 said:


> As rates rise - eventually there is a tipping point for equity markets, they will begin their inevitable descent, and bond markets, your return will rise but the value of your bonds will drop proportionally to the duration and the rise in rates.


Rising interest rates mean bond values drop, BUT many investors also flee to bonds and gold during stock market declines. If rates rise, that will put downward pressure on bonds, but also on stocks, and the flight to bonds could buoy them. Ultimately, if you plan to hold your bonds to duration, you don't need to worry about their value in the interim. GICs might be more comforting to people who don't like to see the value move up and down every day. The value dropping is essentially an illusion. When you calculate in the coupons, and hold your bonds to duration, you won't lose money on them.

I've been buying lots of XBB all year, despite many voices saying I shouldn't because interest rates have nowhere to go but up. I have no idea what'll happen to interest rates. But I have a pretty good idea that we'll probably (not certainly but probably) have a recession in a year or two, and I'll be grateful that I own a lot of bonds and gold then.


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## hfp75 (Mar 15, 2018)

MarcoE said:


> Rising interest rates mean bond values drop, BUT many investors also flee to bonds and gold during stock market declines. If rates rise, that will put downward pressure on bonds, but also on stocks, and the flight to bonds could buoy them. Ultimately, if you plan to hold your bonds to duration, you don't need to worry about their value in the interim. GICs might be more comforting to people who don't like to see the value move up and down every day. The value dropping is essentially an illusion. When you calculate in the coupons, and hold your bonds to duration, you won't lose money on them.


You may very well be correct with the masses holding up the bond values. Fear ironically creates popularity and that in turn can command money.



MarcoE said:


> I've been buying lots of XBB all year, despite many voices saying I shouldn't because interest rates have nowhere to go but up. I have no idea what'll happen to interest rates. But I have a pretty good idea that we'll probably (not certainly but probably) have a recession in a year or two, and I'll be grateful that I own a lot of bonds and gold then.


Not a bad idea at all - definitely has merit, but the equity run up in markets you will possibly miss.... 

If you think Balanced is 60/40, each person & strategy has a different approach, maybe right now 40/60 is a better mix so you are still somewhat exposed. But up to you and your train of thoguht and risk factors - time of life, ect....


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## Just a Guy (Mar 27, 2012)

You May have missed it, but most of Canada is already in a recession...


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## Onagoth (May 12, 2017)

You might be glad you have bonds when the next recession hits, but the question I have is whether or not bonds give you anything that laddered GICs don’t? Maybe throw in some HISAs for liquidity 

I guess maybe the potential for price improvements if rates don’t or can’t go any higher? 

My principle concern with bonds right now (in particular bond etfs) is whether or not the credit ratings can be trusted, and how a recession might affect those BBB and A rated bonds (if at all).

I have been snooping around the bond etf financial statements looking for disclosures about defaults, but haven’t found anything yet


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## MarcoE (May 3, 2018)

Onagoth said:


> You might be glad you have bonds when the next recession hits, but the question I have is whether or not bonds give you anything that laddered GICs don’t? Maybe throw in some HISAs for liquidity
> 
> I guess maybe the potential for price improvements if rates don’t or can’t go any higher?
> 
> ...


Most of the bonds in XBB are government bonds which are very, very safe. The risk of Canada's government defaulting on its bonds is tiny. I don't like risky bonds, even if they pay more. Bonds are there to be very safe and stable, not to make a lot of money.

I have some money in GICs too.

The two main advantages of a bond fund over a GIC: Bond funds are liquid, and they also lower a portfolio's volatility (they can move up during stock market crashes).


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## Onagoth (May 12, 2017)

MarcoE said:


> Most of the bonds in XBB are government bonds which are very, very safe. The risk of Canada's government defaulting on its bonds is tiny. I don't like risky bonds, even if they pay more. Bonds are there to be very safe and stable, not to make a lot of money.


Totally agree....I guess I am focusing on the 30% allocation to corp bonds and the overall credit quality of the A and BBB bonds (both XBB and ZAG are roughly 22% of their holdings)

Or maybe this is just minutia that isn't worth worrying about. I guess I can look at XBBs historical records through the financial crisis to ease my mind about any potential bond defaults


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## james4beach (Nov 15, 2012)

Onagoth said:


> Totally agree....I guess I am focusing on the 30% allocation to corp bonds and the overall credit quality of the A and BBB bonds (both XBB and ZAG are roughly 22% of their holdings)
> 
> Or maybe this is just minutia that isn't worth worrying about. I guess I can look at XBBs historical records through the financial crisis to ease my mind about any potential bond defaults


Personally I am comfortable with XBB's holdings but if you are really concerned you could hold CDIC guaranteed GICs in addition to the bond fund (I also do that).

The bonds that are in danger of sliding towards junk are the BBB bonds, which are barely investment grade (10% of these bond funds). I don't think anyone is concerned about the A bonds deteriorating too much. But I absolutely agree that BBB are a concern and I think they could be a problem for XBB, ZAG, VAB if there's a serious recession.

For my fixed income, I hold a mix of XBB (in tax shelter), GICs (non-reg), and individually held government bonds (non-reg). That overall mix is safer than just the bond fund alone, and I guess you could say that I have more A equivalents and less BBB in my overall mix.


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## Onagoth (May 12, 2017)

james4beach said:


> Personally I am comfortable with XBB's holdings but if you are really concerned you could hold CDIC guaranteed GICs in addition to the bond fund (I also do that).
> 
> The bonds that are in danger of sliding towards junk are the BBB bonds, which are barely investment grade (10% of these bond funds). I don't think anyone is concerned about the A bonds deteriorating too much. But I absolutely agree that BBB are a concern and I think they could be a problem for XBB, ZAG, VAB if there's a serious recession.
> 
> For my fixed income, I hold a mix of XBB (in tax shelter), GICs (non-reg), and individually held government bonds (non-reg). That overall mix is safer than just the bond fund alone, and I guess you could say that I have more A equivalents and less BBB in my overall mix.


Yep...I think the GICs make some sense as part of an overall fixed income strategy. There is also XQB as a high quality bond etf....but I haven't really looked at that in depth.


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## james4beach (Nov 15, 2012)

Onagoth said:


> Yep...I think the GICs make some sense as part of an overall fixed income strategy. There is also XQB as a high quality bond etf....but I haven't really looked at that in depth.


Yes XQB is interesting, they seem to have eliminated the BBBs entirely. On the other hand, XQB has a much higher concentration in the financial sector (bank bonds), and that would take a big hit of a bank-centered credit crisis hits Canada. So, you get higher credit grades, but also higher single corporate sector concentration and I'm never a big fan of high sector concentrations.

I'm not sure XQB is safer than XBB.


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## hfp75 (Mar 15, 2018)

Onagoth said:


> Yep...I think the GICs make some sense as part of an overall fixed income strategy. There is also XQB as a high quality bond etf....but I haven't really looked at that in depth.


plus I think XQB has 10% higher corporate holdings....

I hold XQB - its a free trade (in/out) @ Q-Trade.... so I'm being cheap right now with it.


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## james4beach (Nov 15, 2012)

The Bank of Canada announcement is coming out tomorrow. Interestingly, US markets will be closed. That usually means there's less trading activity in Canada.


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## hfp75 (Mar 15, 2018)

I predict +.25


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## AltaRed (Jun 8, 2009)

I will go with the most recent sentiment that says no increase tomorrow. They will save it for March.


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## james4beach (Nov 15, 2012)

AltaRed said:


> I will go with the most recent sentiment that says no increase tomorrow. They will save it for March.


I'm leaning towards the +.25 tomorrow but pretty much no more rate hikes in 2019.

And look at how bonds (see XBB) have rallied in the last couple of weeks during this market weakness. Wow.


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## peterk (May 16, 2010)

I am going to the states in 2 weeks. So guaranteed the rate will be unchanged and increase my vacation cost by 2% lol.


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## doctrine (Sep 30, 2011)

Alberta's crude oil cut just removed 1.5% GDP growth from 2019. *poof*. That is very deflationary. As are the industry jobs fleeing Canada's high taxes to the United States and the severe drop in business investment and FDI. Housing is something that could be relied on in the past but governments in BC and Ontario put in severe taxes and red tape that has reduced new construction and liquidity as people aren't buying or selling. 

Really, there is a lot of bad news out there, and virtually all of it is self-imposed by our governments - the United States continues 3%+ annual GDP growth, with manufacturing at multi-year highs. This is only making it worse in Canada as they are attracting investment.

Hopefully, the Bank of Canada has their finger on the pulse and will make an independent assessment. All of the late cycle signs are there, and virtually no government is making business or economic smart decisions - its higher taxes, more regulation, more social benefits. An interest rate cut would be the type of shock that might wake governments up.


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## MarcoE (May 3, 2018)

james4beach said:


> And look at how bonds (see XBB) have rallied in the last couple of weeks during this market weakness. Wow.


I've had people telling me all year: Don't buy bonds, interest rates are rising, they'll just lose money. I kept buying them throughout 2018, and they're doing their job today.


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## james4beach (Nov 15, 2012)

MarcoE said:


> I've had people telling me all year: Don't buy bonds, interest rates are rising, they'll just lose money. I kept buying them throughout 2018, and they're doing their job today.


So far in 2018, XBB is +0.42%. I'm up even more in my own bond portfolio that includes GICs. And this was supposed to be the year bonds were getting destroyed with all those big rate hikes.

In fact, the Canadian 10 year bond yield was 2.08% at the start of this year, and is 2.17% today. For all the talk of higher rates, the 10 year bond (critical measure for many loans and underpinning the bond funds) *is only up 0.09%* so far this year... imperceptible increase in interest rates.


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## james4beach (Nov 15, 2012)

CBC reports that derivatives on the BoC rate imply there is a 0% chance of an interest rate hike today:
https://www.cbc.ca/news/business/ba...-lending-rate-in-decision-wednesday-1.4932506


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## My Own Advisor (Sep 24, 2012)

I would argue it's largely too much too soon, and no new rate increases until spring 2019. Things should stay flat for the next 3-6 months.


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## MarcoE (May 3, 2018)

XBB continues its climb today.


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## james4beach (Nov 15, 2012)

But I thought it was obvious to everyone that rates were going higher? Wasn't it clear to everyone that rate hikes were a guarantee, and I was supposed to lose a lot of money in bonds in 2018?


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## james4beach (Nov 15, 2012)

I'm disappointed with the BoC. They missed their opportunity to make significant rate hikes, and kept ultra-low rates during all these boom years. Now we're probably on the cusp of a slowdown, and they are still letting the easy money flow (overnight rate of 1.75% means basically free money). But because things are slowing, they no longer have the room to raise rates to any significant level... unless perhaps inflation picks up.


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## MarcoE (May 3, 2018)

Sadly, we've let debt run wild for a decade. Everyone is addicted to cheap money. Canadians earning $50,000 a year have insanely huge mortgages, sometimes even 7 figures in our big cities. They have car loans. The corporations they work for are in debt. Governments are in debt. It's a problem in many countries, not just Canada. For ten years, the world's been guzzling up cheap debt, getting more and more hooked on it. Now the world is so addicted we can't even raise rates significantly without crushing people, businesses, and asset prices. The low rates were meant to be an emergency measure to deal with the financial crisis a decade ago, not something to get addicted to for years and years. Eventually this debt will have to be paid off. Keeping rates low, encouraging people to keep or even add to their debt, only postpones the inevitable.


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## james4beach (Nov 15, 2012)

I agree MarcoE, everyone is addicted to debt. And as you say, this was supposed to just be an emergency measure... it's irresponsible to keep rates this low for such a long time.

The BoC's goal, in my opinion, was the same as every other central bank: to pump the economy full of easy money, get easy credit to consumers & corporations, and inflate financial assets & RE, even if it means fuelling bubbles. They believe strongly in the benefit of inflated assets and the wealth effect / consumer confidence it creates. I really don't think they care about the bubbles they create.

We also now have large numbers of corporations hooked on the same cheap rates. Many of these companies won't be viable with higher rates. So it's not just a consumer and RE issue, but truly an economy-wide issue. The central banks (including BoC) are trapping themselves in a corner where they really can't raise rates, because they will (a) burst the stock bubble, (b) burst the RE bubble, (c) kill many corporations


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## MarcoE (May 3, 2018)

The thing is... they're just postponing the inevitable. Maybe trying to keep the party going until it's somebody else's problem. But eventually all this debt WILL have to be paid off. It's not going to magically disappear. So long as rates are this low, people, corporations, and governments will continue borrowing money irresponsibly, and the bubbles will grow larger, and the eventual pain when interest rates do rise will be even worse. This should have been dealt with years ago... but nobody likes being the party-pooper.


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## Onagoth (May 12, 2017)

MarcoE said:


> The thing is... they're just postponing the inevitable. Maybe trying to keep the party going until it's somebody else's problem. But eventually all this debt WILL have to be paid off. It's not going to magically disappear. So long as rates are this low, people, corporations, and governments will continue borrowing money irresponsibly, and the bubbles will grow larger, and the eventual pain when interest rates do rise will be even worse. This should have been dealt with years ago... but nobody likes being the party-pooper.


I'm not sure it can be paid off. It's not unthinkable to me to believe that way down the road there could be some type of debt jubilee


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## doctrine (Sep 30, 2011)

The Government of Canada is squeezing their hands around the neck of Canadian business and real estate, preventing people from buying houses above certain thresholds and chasing investment capital out of the country while taxing everyone more. The Bank of Canada is trying to loosen the grip before it chokes the patient. This is typical late cycle behaviour and the government will ignore the warning signs until the layoffs start happening.


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## hfp75 (Mar 15, 2018)

hfp75 said:


> I predict +.25


I was wrong...


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## Just a Guy (Mar 27, 2012)

Debt is a tool, neither good or bad, it’s how it’s used. No one forced people to go out and bid up real estate prices, money was cheap, people could afford to do so, so they did. A 100k house will always be a 100k house (relatively speaking) unless some idiot is willing to bid it up to 350k because they can make the payments.

No one forced people to go out and buy new cars, quads, snowmobiles, big screen TVs, RVs, etc. That was a poor choice based on greed, stupidity and a desire to have everything they “deserve” today. 

Having bought more real estate than most over the years, I never had a mortgage over 100k on any of the properties because I was unwilling to pay more. It means I didn’t buy everything on the market, I was selective and patient. Each one of my mortgages pays the principle down $2 for every dollar I pay in interest. In 5 years, most are paid down upwards of 20k each. This isn’t bragging, this is the difference between using debt properly and using it improperly. My debt level is very high for a Canadian, yet the income produced from the debt, the clear payback schedule, and the original prices paid means I never lose a night sleep thinking about it. 

Instead of toys, I build financial security for the next generation and beyond in only a few years.


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## sags (May 15, 2010)

In a worse case scenario it is better to be a debtor than a lender.


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## Just a Guy (Mar 27, 2012)

Tell that to the debtor when the lender takes everything they own away...


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## james4beach (Nov 15, 2012)

WSJ reports that the Federal Reserve is no longer sure if they will keep raising rates. Basically it looks like stock market volatility & corporate borrowing risks has scared the central bank out of raising rates. Similar thing happening in Canada with the BoC failing to raise rates yesterday. A few months ago it was considered a sure thing that rate hikes were happening.

Now it is totally unclear if rate hikes are in the future, either in the US or Canada. The central banks are backing off from their commitment to steadily raise rates.

Note how unanimous the consensus was, in the media and among investors here, that rates were obviously going higher. Now look how things have changed. Interest rates cannot be predicted, whether it's the central bank policy rate or the bond yields. The big lesson here, I think, is that markets are tough to predict and things change... an investor should avoid making directional bets, such as assumptions that rates will go higher, bonds will drop, etc.


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## MarcoE (May 3, 2018)

james4beach said:


> Note how unanimous the consensus was, in the media and among investors here, that rates were obviously going higher. Now look how things have changed. Interest rates cannot be predicted, whether it's the central bank policy rate or the bond yields. The big lesson here, I think, is that markets are tough to predict and things change... an investor should avoid making directional bets, such as assumptions that rates will go higher, bonds will drop, etc.


Very true. I've said in this forum before that I can't predict interest rates any more than I can predict the stock market. All I can (try to) do is (hopefully) create a well-diversified portfolio that can perform well in different conditions. It's very hard to predict what'll happen to the stock market, inflation, deflation, interest rates, unemployment, and a variety of other factors. Even the pros have trouble predicting this stuff. There's no way some random dumb guy like me can. What I can do is diversify. Over the past couple of days, I've made some money, because my portfolio includes lots of bonds and gold. I'm 30% stocks, and if their prices drop, I'll keep buying more to keep myself at 30%.

I didn't have any bonds in my portfolio a couple of years ago. Today I'm 35% in bonds. I've steadily been moving money into bonds over the past two years, and people told me I'm crazy, that interest rates will rise, and my bonds are sure to lose money. Meanwhile my bonds are up in value since I bought them, and have been paying dividends too, and are a real help when stock prices are falling.


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## Onagoth (May 12, 2017)

james4beach said:


> WSJ reports that the Federal Reserve is no longer sure if they will keep raising rates. Basically it looks like stock market volatility & corporate borrowing risks has scared the central bank out of raising rates. Similar thing happening in Canada with the BoC failing to raise rates yesterday. A few months ago it was considered a sure thing that rate hikes were happening.
> 
> Now it is totally unclear if rate hikes are in the future, either in the US or Canada. The central banks are backing off from their commitment to steadily raise rates.
> 
> Note how unanimous the consensus was, in the media and among investors here, that rates were obviously going higher. Now look how things have changed. Interest rates cannot be predicted, whether it's the central bank policy rate or the bond yields. The big lesson here, I think, is that markets are tough to predict and things change... an investor should avoid making directional bets, such as assumptions that rates will go higher, bonds will drop, etc.


Predicting interest rates is probably a fools game like you say....but I had and still have a very strong conviction that rates can't go much higher than 4%. As I said before, too much debt.


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## Just a Guy (Mar 27, 2012)

Wow, they don’t raise rates one time and suddenly you think things have turned around. They still want rates to increase, the timeframe is always in question. Just because they didn’t raise interest rates this month doesn’t mean they won’t sometime in the future. I very much doubt rates will decrease any time soon. They may hold for a while, but don’t doubt for a second that they want rates to increase going forward.


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## MarcoE (May 3, 2018)

Just a Guy said:


> Wow, they don’t raise rates one time and suddenly you think things have turned around. They still want rates to increase, the timeframe is always in question. Just because they didn’t raise interest rates this month doesn’t mean they won’t sometime in the future. I very much doubt rates will decrease any time soon. They may hold for a while, but don’t doubt for a second that they want rates to increase going forward.


I have no idea what'll happen. I can't predict the future. Maybe they'll raise interest rates next year, maybe they won't. Maybe they'll just raise them by a bit. Maybe they'll lower them. I don't know. I'm prepared for different scenarios.


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## Just a Guy (Mar 27, 2012)

I plan for worst case personally, not pixie dust and unicorns. If I’m wrong, I benefit, if I’m right im prepared.


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## doctrine (Sep 30, 2011)

Rates could be cut. No one saw the cut coming three years ago.


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## AltaRed (Jun 8, 2009)

I don't see a cut in the works until the next big R hits. The US Fed will either continue to nudge higher or go into a holding pattern, because they can't afford to decrease and have no ammunition for the next recession. Canada will have to hold if for no other reason that it can't afford a 70 cent (or lower) loonie.


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## james4beach (Nov 15, 2012)

AltaRed said:


> The US Fed will either continue to nudge higher or go into a holding pattern, because they can't afford to decrease and have no ammunition for the next recession.


I think that ship has sailed (having ammo for the next recession). The Fed wasn't even close to getting near the 4% or 5% level which would have given them ammo.

In my view, the entire US economy and stock market was driven by low interest rates and liquidity, and I think there's nothing there without low interest rates. Just an illusion.


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## AltaRed (Jun 8, 2009)

A matter of interpretation. I simply said they can't cut rates because they'd have no ammo. A little bit is better than absolutely nothing.


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## MarcoE (May 3, 2018)

james4beach said:


> I think that ship has sailed (having ammo for the next recession). The Fed wasn't even close to getting near the 4% or 5% level which would have given them ammo.
> 
> In my view, the entire US economy and stock market was driven by low interest rates and liquidity, and I think there's nothing there without low interest rates. Just an illusion.


Agreed. They have no ammo left. They can't raise rates much higher. They have barely anything to lower during the next recession. I have no idea what'll happen over the next year or two, but I wouldn't be surprised to see the DOW sink to 20,000. I'm staying the course with 30% equities (currently 39% of that is in the US) and will try to maintain that allocation.


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## lonewolf :) (Sep 13, 2016)

Home prices have come down a lot lot further then is being reported. If & when the real numbers come out it will put downward pressure on rates. Though I think rates will still rise regardless of depressed economy because of higher credit risk. Based on price pattern & sentiment to my eyes looks like over @ least the next 10 years the trend will be higher interest rates.


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## james4beach (Nov 15, 2012)

A friend of mine in Winnipeg told me this evening that he's hearing that houses have become harder to sell. It sounds like RE is cooling across the country.

I haven't seen much media coverage lately about the trend in home prices and listings.


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## nathan79 (Feb 21, 2011)

james4beach said:


> A friend of mine in Winnipeg told me this evening that he's hearing that houses have become harder to sell. It sounds like RE is cooling across the country.
> 
> I haven't seen much media coverage lately about the trend in home prices and listings.


Vancouver detached sold prices are off quite a bit. Officially they're saying about 8%, but it's closer to 15% in reality.


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## lonewolf :) (Sep 13, 2016)

james4beach said:


> A friend of mine in Winnipeg told me this evening that he's hearing that houses have become harder to sell. It sounds like RE is cooling across the country.
> 
> I haven't seen much media coverage lately about the trend in home prices and listings.


 There are so many games played with the numbers i.e., they will use number of home sales one year from homes that have sold through real estate agents & not use private deals the next year they will add private deals with no real estate agent plus homes that were sold using real estate agents to increase the numbers. This info should be disclosed but it is not .I think it was Edmonton where they added the number of homes sold in Calgary to the Edmonton numbers..

A sharp decline in home builder stocks usually lead home prices lower.


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## james4beach (Nov 15, 2012)

The Federal Reserve announces their rate decision tomorrow, Wednesday. According to this Bloomberg article, the derivatives market places the odds of a rate hike at 90%

The Fed announcement and communications might influence the Bank of Canada.

Investors shall all tremble before the central banks, the great deciders of asset prices! When they stimulate, assets rise. When they tighten, assets fall. There is no bull market without more stimulus. Stay tuned!


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## doctrine (Sep 30, 2011)

The Fed decision tomorrow, and forward guidance, has much less to do with greasing the markets than it does with economic risks. The most significant one is the trade war which is actually both increasing inflation and decreasing economic growth. The massive increase to US tariffs on Chinese imports that will go from 10% to 25% in two weeks is just huge and could reduce US GDP growth by 1% on its own. Similarly in Canada, the cut in oil production could on its own reduce GDP by 1-2%. 

These are big numbers representing a drop of 40-60% of economic growth in single factors. Other factors could easily tip the scales to recession. This doesn't just mean slowing increases. This means interest rate cuts if anything else changes. What could change?

Imagine if the Paris Accord, agreed to by 200 countries, is actually enforced. That means a 45% cut to carbon emissions in 12 years. I don't think it will happen, but if you don't think that is a downward pressure on world economic growth, I don't know what is. The markets are really good at predicting future economic growth and they see a clear de-acceleration.


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## hfp75 (Mar 15, 2018)

The question is, will there be any rally(s) in the next while.... for the last few sellers....


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## doctrine (Sep 30, 2011)

Odds of an increase in the near term have now essentially dropped to zero with inflation dropping like a rock. 5 year Canadian bond now back below 2%.


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## Thal81 (Sep 5, 2017)

You would think so, but I wouldn't be so sure. The BoC might not want to let the gap between US and Canada rates get any wider, as it hurts our economy.


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## CPA Candidate (Dec 15, 2013)

Here's something to think about, if the bond market is the "smart money", why the sudden and spectacular drop in 10 year yields? Such sudden reversals seem to indicate complete destruction of a shared narrative between participants. Why the surprise if so forward looking?

IMO, there's no smart money or dumb money, just money. What looks smart can look dumb moments later.


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## james4beach (Nov 15, 2012)

CPA Candidate said:


> IMO, there's no smart money or dumb money, just money. What looks smart can look dumb moments later.


And it's all very unpredictable. Consider the consensus outlook earlier this year vs how things actually played out. We got the total opposite of expectations for stocks, bonds, and interest rates.

People were bullish on stocks, but global stocks are down 5% to 10% YTD. Everyone was bearish on bonds, but bonds are *up* 1% YTD. The benchmark 10 year Government of Canada bond has a lower yield today than at the start of the year. The only thing people got right was the Bank of Canada overnight rate going up... but the forecasts on the rest of the yield curve were totally wrong.

At the start of the year, who would have guessed that the 10 year yield would be _lower_ today, despite all those rate hikes?

That's why I never listen to the pundits or TV personalities. They have no clue what's going to happen, but they pretend they can predict it (which is much worse than just admitting you have no idea).

Listening to these narratives, predictions, and strategic suggestions will put you in a worse place than just consistently following a diversified asset allocation strategy. There are very few asset managers on earth who can reliably predict and reposition themselves in a changing market, and some of them are doing it by random accident -- not skill.


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## MarcoE (May 3, 2018)

Diversification is the only free lunch.


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## james4beach (Nov 15, 2012)

The Federal Reserve has totally chickened out of further rate hikes. They held rates unchanged today in a 10-0 vote... no interest at all in raising rates. They even softened their stance on tightening the balance sheet, meaning they are not even going to do quantitative tightening (reverse of QE) to as large a degree.

I hope you all bought those 5 year GICs at juicy 3.3% yields. It could be a long time before we see rates that high again.

I always said they can't raise rates much. The fragile economy -- still on life support after the '08 crisis -- just cannot handle normal interest rates. It appears we will be in a chronic period of low interest rates and free money.

Curious what others think after today. My sense is that the pressure on the Bank of Canada just eased, so I see less chance of significant BoC rate hikes. Maybe they will eventually raise enough to match the Fed's rates, so perhaps BoC will gradually raise another quarter or 50 basis points max.


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## OptsyEagle (Nov 29, 2009)

Perhaps Donald Trump cannot bully Canada, or China or North Korea, but he seems to be able to push the Federal Reserve around with little problem at all.

I would be so embarrassed to be the Fed Chairman today. How can he show himself in public. What a wimp.


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## Onagoth (May 12, 2017)

james4beach said:


> I always said they can't raise rates much. The fragile economy -- still on life support after the '08 crisis -- just cannot handle normal interest rates. It appears we will be in a chronic period of low interest rates and free money.


Agreed....too much debt to sustain high rates. It's why I never shifted my variable rate mortgage to fixed. Just couldn't see it happening.


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## hfp75 (Mar 15, 2018)

Toooo much debt out there....

If rates go higher the house might crumble.... that would be bad....

There were 2 options.... 
1-Wait and let Inflation show... then need to jack rates (to control “I”) and cause a catastrophe.... wipe out trillions of dollars.....and debase the currency....
2-Push rates as much as possible to avoid #1 - this is what he did..... 

Just hope inflation stays in check..... or we have a real problem...

The fact that trump doesn’t get #1 or #2 is the issue.... 

Our world is fxcked cause there is so much debt, it really is a house of cards just wait8ng to crumble.... it’s sad... even Powell commented on the US debt and deficit today.....


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## james4beach (Nov 15, 2012)

The US just had a horrendous retail sales report today: Retail sales drop the most since September 2009

This suggests a sharp slowdown in domestic economic activity. This is coming at the same time as indications of business slowdowns in China (as reported by Coca Cola, Apple, and Canada Goose for example).

Bonds surged in both US and Canada with yields plummeting. I think the news coming out most recently further reduces the probability of rate hikes in 2019. I wouldn't be surprised to see rate cuts soon, if the economic news continues to be negative.

Luckily, a diversified passive investor who didn't try speculating on interest rates would have benefitted as the bonds in their portfolio gained. XBB is up 3.1% in the last 6 months, exceeding stocks and softening the decline in a portfolio.

Again, I'm shocked at how investors say with one breath "you can't time the stock market" and then try to time the bond market and predict interest rates. How many posts did we see in 2018 that said rate hikes were going to continue and therefore one shouldn't invest in bonds? How about all the posts that said one should avoid bonds for a period... "and then get back in when rate hikes are done". Well yes obviously!! It's so simple. Just wait for the huge rate hikes to happen, and then wait to get the memo that rate hikes are done. Once you get the memo, buy bonds. Unfortunately that's not how capital markets work.

I'm sticking with my passive approach and consistent 50% in bonds and GICs, no matter what's going on with interest rates, or how much I fear rate hikes.


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## Eder (Feb 16, 2011)

We are overdue for a recession but might miss out on a 20% gain first. 

Timing any market is silly as we are betting against the herd and its time in the market that counts in the long run. 

Personally I think a few indicators is not enough to reveal a trend and more than likely we will see a couple point increases and find ourselves in a recession before anyone notices...(other than those pundits predicting a recession every 2 months for the last 8 years.)


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## Just a Guy (Mar 27, 2012)

Not sure how anyone can get excited over bond yields. After inflation and taxes what is your real return?

I’ll stick with real estate, businesses and the market. Even with the upheavals, the returns are well worth it.


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## goldman (Mar 18, 2017)

Just a Guy said:


> Not sure how anyone can get excited over bond yields. After inflation and taxes what is your real return?


I'll bet the 3% on corporate bonds and 5 year GICs are likely to beat inflation for the next 5 years. Yes taxes suck, but at least we have the TFSA to max out. Certainly, when bond rates are so low most savers would love to see tax reform to mitigate the income tax impact. 

My attraction for accumulating these assets isn't for 'getting rich quick' but rather to know some of my life savings will still be there when the next economic crisis happens in the years ahead. I'm getting older (faster than I care to admit) and would like to be able to retire sooner than later. Since the turn of the millennium I've held stock investments through recession after recession where we saw the value of stocks cut in half and take many many years to recover. In fact 'the lost decade' describes a 13 year period where if you started investing you had to wait all that time just to break even. Holding some lower risk/return assets helps so you can sleep at night.


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## doctrine (Sep 30, 2011)

Just a Guy said:


> Not sure how anyone can get excited over bond yields. After inflation and taxes what is your real return?


Very low; really the most useful in registered accounts. My 30% allocation to bonds (mix of Cdn/US gov/corp) gave me a lot of stability in the December crash and with rebalancing and distributions, I am back to all-time highs despite markets being 4-5% below their highs. 

In terms of Canadian stocks, performance has been excellent. Everything I bought in the last few months ago is already up 10 to 20%. Balances at all time highs.


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## peterk (May 16, 2010)

Eder said:


> We are overdue for a recession *but might miss out on a 20% gain first. *
> 
> Timing any market is silly as we are betting against the herd and its time in the market that counts in the long run.
> 
> Personally I think a few indicators is not enough to reveal a trend and more than likely we will see a couple point increases and find ourselves in a recession before anyone notices...(other than those pundits predicting a recession every 2 months for the last 8 years.)


Problem is this "I don't know when the recession will be but it's can't be too much longer" attitude can be and IS still wrong. People have been saying that since 2011, and it hasn't been a 20% gain first (almost right) it's been 120% so far since 2011!

Sure you could say "wow it's been 10 years, we are _overdue_ for a recession and market crash..." but maybe not, and no, it's not _bound to happen soon_... We could be 10 years into a 30 year bull run. Who knows what factors like the major increases in the money supply, the continued implementation of technology, and the retiring of the baby boomers will do to the markets. I don't know, and I don't think anyone does.


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## james4beach (Nov 15, 2012)

Canadian stocks have been excellent ever since 2016. In the last 3 years, XIU is up 12% annualized. In comparison ZSP (S&P 500 in CAD) is up 14% annualized.

People around here complain a lot about Canadian stock performance and how bad the TSX index is, but 12% CAGR is spectacular. And it's pretty similar to the US performance. Really these two markets have historically shown similar performance and I've used the Canadian weakness of the last few years as an opportunity to load more heavily into Canadian stocks.

As long as the central bank stimulus party continues, I expect stocks to keep doing well. My bonds and GICs are for when the party ends. As mentioned elsewhere, my allocation is 30% stocks, 50% bonds/GIC, 20% gold.


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## Just a Guy (Mar 27, 2012)

goldman said:


> I'll bet the 3% on corporate bonds and 5 year GICs are likely to beat inflation for the next 5 years. Yes taxes suck, but at least we have the TFSA to max out. Certainly, when bond rates are so low most savers would love to see tax reform to mitigate the income tax impact.
> 
> My attraction for accumulating these assets isn't for 'getting rich quick' but rather to know some of my life savings will still be there when the next economic crisis happens in the years ahead. I'm getting older (faster than I care to admit) and would like to be able to retire sooner than later. Since the turn of the millennium I've held stock investments through recession after recession where we saw the value of stocks cut in half and take many many years to recover. In fact 'the lost decade' describes a 13 year period where if you started investing you had to wait all that time just to break even. Holding some lower risk/return assets helps so you can sleep at night.


Taxes on interest is always at the highest levels, you’ll probably never hit inflation returns after taxes. Even with a TFSA it’s not worth the investment. 

I accumulate my stocks when the crisis hits. For example I picked up BMO back in 2007/8 when it fell to $28 and paid a $2.80 dividend (10% return). Today the stock is probably 300% higher (long way to correct) and the dividend has increased significantly (I haven’t looked lately). I sleep quite fine. Personally, I aim for secure, double digit returns, or infinite returns like you can get from real estate.


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## goldman (Mar 18, 2017)

Just a Guy said:


> Even with a TFSA it’s not worth the investment.
> I accumulate my stocks when the crisis hits.


 Meanwhile you earn zero return all those years you'd wait to only only invest in stocks during recessions (and never put any cash into any fixed income). Investors are looking to earn some kind of a return on their savings, with a reasonable return for the risk taken. 

Also, I wouldn't bank on achieving "infinite return on realestate", as the housing market in Canada has slowed and real estate saw a correction in 2018 and this trend is likely to continue this year. A recession may hit the country hard in the next few years. The average Canadian is mired in debt and will default on mortgage payments when faced with job cuts. As of last year the average Canadian owed $1.78 debt, for every dollar of household disposable income.

The average home buyers in Australia have now lost money on home purchased in the past year. In Sydney prices have fallen nearly 10% and the trend is likely to continue. There are some home owners in the US who have yet to recover what they paid for their home in 2007 ahead of the crash in housing prices.


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## Just a Guy (Mar 27, 2012)

But, you forget, I’m really diversified not some basket of stocks and bonds. 

As for infinite returns in real estate, I’ve been picking up a handful of properties each year, and am able to finance them 100%, plus generate significant positive cash flow. It’s all in the prices you buy at. My average door is probably less than 70k, yet generates probably $1100 on average. They appraise usually over 100k, giving me an 80k mortgage. No money in, means infinite return on investment. 

Yes, real estate has gotten worse in the last year, but that just means I’m paying less per door (about 10-25% on the ones I bought last year), but the rental markets aren’t related to the housing market. My rents are stable and, as housing collapses, demand will increase. 

Even with a housing correction, I don’t really care. I’m interested in the cash flow from now on. The price per door doesn’t matter, since I don’t plan to sell something generating $1100/month, which didn’t cost me anything and is paying itself off for 3% interest. Besides, the correction price was already built into the purchase price. 

If real estate suffers, I still have my two companies generating income. 

Sorry, I still think 3% is a waste of time. It’s for the lazy who have no idea how to make money.


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## james4beach (Nov 15, 2012)

The next Bank of Canada rate decision is coming up in a few days: Wednesday, March 6

The yield curve is quite flat right now at the short maturities:
1.75% current BoC policy rate
1.75% for the 1 year govt bond
1.78% for the 2 year govt bond
1.81% for the 5 year govt bond

I hope we get a quarter point hike, but who knows. My wild guess is that they do nothing. Does anyone have one of those Bloomberg terminals, and can tell us the forecasted BoC rate based on the futures?


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## l1quidfinance (Mar 17, 2017)

James, given the current political climate I think we can be quite sure they will not touch the rate at this time. This is just a wild guess but there is nothing that would point to an increase.


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## james4beach (Nov 15, 2012)

l1quidfinance said:


> James, given the current political climate I think we can be quite sure they will not touch the rate at this time. This is just a wild guess but there is nothing that would point to an increase.


I don't think politics have much to do with it. The Federal Reserve seems to have stopped raising rates and the BoC generally follows the Fed. With stocks falling quite sharply recently, I think the central banks will be more concerned about the danger of hiking rates, popping the bubble, and causing everything to fall.

Just look at how fast the Federal Reserve back-tracked on rate hikes as soon as stocks fell and people started screaming. On top of that, we have home prices declining in Canada. I really doubt the Bank of Canada would dare popping the housing bubble or kicking it while it's already depressed.

Central banks are in the game of keeping asset prices elevated, and inflation is a secondary concern. And today with inflation at 1.9% there's just about no reason to hike.


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## AltaRed (Jun 8, 2009)

Not expecting any hike. Inflation is circa 1.4%, the US Fed is doing nothing, and the loonie is hanging in at about 75 cents.


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## james4beach (Nov 15, 2012)

Sigh. I'm disappointed with GIC rates. Luckily I acted fast and got a few over 3% and got my dad to renew some above there as well. There's still Simplii at 3.40% but all the others through the discount brokerage plummeted down below 3% again.

I'm worried we're going to get stuck with low interest rates forever. I think they want to keep stimulating all assets.



AltaRed said:


> Not expecting any hike. Inflation is circa 1.4%


The smoothed out CPI readings are at 1.9%
https://www.bankofcanada.ca/rates/i...ey-inflation-indicators-and-the-target-range/


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## doctrine (Sep 30, 2011)

Canadian GDP in the 4th quarter grew a tiny 0.4% annualized, and has decreased in 3 of the last 4 months. Interest rates aren't going anywhere for a while. Low growth is inevitable, given the very low business investment rate, low foreign investment rate, and increasing business costs, taxes, and an unfriendly investment environment by most governments in this country. The only reason incomes are still up is because of big increases to social payments. Nothing wrong with higher payments for families with children, but when your only source of increased income is higher taxes paying for higher social payments that comes from increasing tax burdens on maligned businesses, that is not a sustainable situation. The Bank of Canada realizes all of this of course which is why interest rates may actually go down before they go up.


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## james4beach (Nov 15, 2012)

And if housing is actually in decline, the economy is toast. Something like 1/4 to 1/3 the Canadian economy is related to the housing boom: financing, loans, construction, insurance, retail purchases.

If BoC keeps hiking rates, they will burst the housing bubble and cause households to blow up. If they drop rates, it will communicate the message that housing is toast & the economy is in trouble. That suggests to me that they will do nothing for as long as they can.


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## twowheeled (Jan 15, 2011)

james4beach said:


> I don't think politics have much to do with it. The Federal Reserve seems to have stopped raising rates and the BoC generally follows the Fed. With stocks falling quite sharply recently, I think the central banks will be more concerned about the danger of hiking rates, popping the bubble, and causing everything to fall.
> 
> Just look at how fast the Federal Reserve back-tracked on rate hikes as soon as stocks fell and people started screaming. On top of that, we have home prices declining in Canada. I really doubt the Bank of Canada would dare popping the housing bubble or kicking it while it's already depressed.
> 
> *Central banks are in the game of keeping asset pr*ices elevated, and inflation is a secondary concern. And today with inflation at 1.9% there's just about no reason to hike.


I'm starting to believe that too since the Fed's dovish pivot, even though propping up the markets is clearly not part of their dual mandate.


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## Just a Guy (Mar 27, 2012)

If you believe inflation is just 1.9%, you obviously haven’t been shopping. Food is way more expensive than that...however real estate is falling by double digits, so maybe you can say it all balances out.


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## AltaRed (Jun 8, 2009)

Anecdotally, my personal expenses seem go up faster than CPI data, but is that due to the bias we have when we see prices increase? CPI indices and methodology have been around a long time so I have no reason to really doubt Stats Can when looked at on a national country wide basis. Obviously provincial and major urban areas vary as one would expect.


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## OnlyMyOpinion (Sep 1, 2013)

Yes, it very much depends on your personal spending patterns and location. The most recent stats show gasoline prices down 14.2% from January a year ago. Big savings if you drive a lot. On the other hand, fresh veggies were up by 13.2%. Big increase if you are trying to eat well.
While Canada averaged 1.4%, provincially the year-over January increase in unadjusted CPI ranged from as little as 0.1% in Nfld & Labrador, to as much as 2.4% in BC. 

https://www.cbc.ca/news/business/inflation-rate-january-1.5035221
https://www150.statcan.gc.ca/n1/en/daily-quotidien/190227/dq190227a-eng.pdf?st=SoTkTY3s


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## james4beach (Nov 15, 2012)

BoC held rates unchanged today and it sounds like future rate hikes are a bit less likely. Bonds rallied like mad, XBB up +0.45% which is an enormous single day move in bonds.

https://www.cbc.ca/news/business/bank-of-canada-rate-decision-1.5044828


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## goldman (Mar 18, 2017)

What a difference a year makes. The Canadian yield curve has flattened and inverted in some spreads. 
The 6 month rate offers a higher yield than the 5 year. From what I understand this suggests a weak outlook for economic growth in Canada for the next several years.
Keep an eye on the 10 and 30 year yields... if they drop down to the short term rates (or lower) we've got a recession. 


Yield curve chart:


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## james4beach (Nov 15, 2012)

Wow, look how normal that yield curve was a year ago!

Yeah, it's partially inverted now. If the BoC hikes again, they will surely invert the whole thing.


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## james4beach (Nov 15, 2012)

Federal Reserve says they don't want to raise rates in 2019. They've completely chickened out of rate hikes
https://www.bloomberg.com/news/arti...ember-end-to-asset-drawdown?srnd=premium-asia

There are also now reports of a cooling Australian housing market with the largest RE declines they've seen in "modern history". Since Australia has a similar RE bubble story to Canada, the BoC will be watching that closely and worrying that the Canadian RE bubble has burst too.

Other than a potential +0.25% to show they're not completely spineless, I doubt we will see any BoC rate increases for a long time now. I think it's also worth reflecting on this situation and observing how hard it can be to predict interest rates. Just a few months ago, there was strong consensus from just about everyone that many more rate hikes were coming.


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## l1quidfinance (Mar 17, 2017)

The 5 yr has now dropped to 1.55%. 

The 1yr is yielding 1.67% and you have to go out all the way to 20yrs to get a better rate at only 1.91%

I'm wondering when the cut will be and when mortgage rates will start dropping again. This is starting to look like a reality. 
I noticed that about the Australian housing as I was looking briefly at the Australian banks and their substantial dividend yields. However dividends havent been growing and it seem like they are facing significant head winds.


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## doctrine (Sep 30, 2011)

james4beach said:


> Just a few months ago, there was strong consensus from just about everyone that many more rate hikes were coming.


Not me. I posted here on 4 Dec that an interest rate cut would be a good idea. One may still come. Economic growth has evaporated from Canada over the last two months. Mortgages rates will be dropping, and with the new support for millennials in buying homes, there will likely be plenty of support for housing prices at or maybe just below current levels.


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## james4beach (Nov 15, 2012)

l1quidfinance said:


> I noticed that about the Australian housing as I was looking briefly at the Australian banks and their substantial dividend yields. However dividends havent been growing and it seem like they are facing significant head winds.


Equity in banks is very risky as these are highly leveraged businesses -- far more than typical corporations. And to own bank shares in Australia & Canada, you really have to strongly believe that the housing markets are still in bull mode. In a RE bear market, banks will get hit very hard.


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## james4beach (Nov 15, 2012)

Wow the Canadian yield curve is still partially inverted and the whole thing is awfully flat from 0 to 10 years! Canadian bonds are trading the same way as US bonds, analyzed in this Bloomberg article:
https://www.bloomberg.com/opinion/a...e-choices-in-this-fed-end-market?srnd=premium

Obviously some people are taking strategic bets at certain parts of the yield curve depending on their predictions for how the rest of this year plays out. But this is market timing and trying to get fancy.

Personally I am avoiding timing the market and not making any strategic (tactical) bets. I had some new money to deploy and just put it into XBB recently, as this fund holds bonds across the entire yield curve and is very generic fixed income. I think I'm now back at my asset allocation targets.


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## CPA Candidate (Dec 15, 2013)

Re: Banks; the Liberals new policy will probably be a shot in the arm for RE and will mute any further weakness. Then we have falling mortgage rates; my local credit union just dropped rates and I'm sure there's more to come.

Edit: Just checked Cambrian credit union rates (MB) and they have now made a 2nd mortgage rate cut (1st was March 14) and have a strange interest rate curve setup.

1 year 3.29
2 year 3.35
3 year 3.15
4 year 3.30
5 year 3.45

They are clearly pushing folks towards a 3+ year term to combat people waiting for further reductions.


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## peterk (May 16, 2010)

Hmm. If rates keep dropping while stock markets keep rising and housing keeps declining... I'm gonna be laughing my way to the bank for an early 2020 first time home purchase!

Edit: knocks-on-wood


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## WGZ (Feb 3, 2017)

CPA Candidate said:


> Re: Banks; the Liberals new policy will probably be a shot in the arm for RE and will mute any further weakness. Then we have falling mortgage rates; my local credit union just dropped rates and I'm sure there's more to come.
> 
> Edit: Just checked Cambrian credit union rates (MB) and they have now made a 2nd mortgage rate cut (1st was March 14) and have a strange interest rate curve setup.
> 
> ...


I may need to show this to the person I'm dealing with at a bank. I'm quickly closing in on a possession date exactly a month from now. So far they plan to give me 3.53% on 5 year fixed, but I plan to get that matched with TD which is offering 3.49%.

That 3 year looks very tempting though...I will inquire. Wondering if you/anyone has input on if I should pull the trigger on a 3 year. Maybe rates will remain the same or even be lower by 3 years - meaning I wouldn't want to be locked in for much longer than that. It's a gamble. I'll go play with 3.15% on ratehub mortgage calculator and see how the numbers change (for the better).


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## doctrine (Sep 30, 2011)

Well, the odds of a decrease have gotten lower. Our federal government has blown relations with China and now we can kiss not only a couple billion of canola sales goodbye, but prices for all other sales have dropped 20%.

But, it mostly affects the West, so they probably don't really care. Meanwhile, the chance of a recession just increased.


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## gardner (Feb 13, 2014)

doctrine said:


> Our federal government has blown relations with China


It wasn't our government's choice for the dickheads running the US to put us in this position. And as painful as strained relations with China might be, I would rather that than a serious pissing match with the Americans.


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## james4beach (Nov 15, 2012)

Exactly, we're collateral damage to American foreign policy and conflict with China. This puts our government in an extremely difficult situation.


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## james4beach (Nov 15, 2012)

I'm increasingly concerned that we're going to get negative interest rates in Canada. What on earth will we fixed income investors do if this happens? I'm scared.

German 10 year bond yields -0.02% and Japan is -0.07% so it's already happening in developed countries. Some within the Federal Reserve are already endorsing negative interest rates (link) which makes me think central bankers are warming up to the idea.


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## MarcoE (May 3, 2018)

james4beach said:


> I'm increasingly concerned that we're going to get negative interest rates in Canada. What on earth will we fixed income investors do if this happens? I'm scared.


Have you considered investing in long term bonds? Lock down what you can while you can?


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## MarcoE (May 3, 2018)

doctrine said:


> Our federal government has blown relations with China


I'm not a fan of Canada's current government, but they're not to blame for this. China acts like a bully, and wields trade like a weapon, trying to threaten, punish, and enforce its political will. Our government does a lot of stupid things, but in this case, the blame is squarely on China.


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## james4beach (Nov 15, 2012)

MarcoE said:


> Have you considered investing in long term bonds? Lock down what you can while you can?


The problem I have with this idea is, it's an attempt to outsmart the bond market and trade against the central bank, both of which tend to be bad ideas. I'm at an information disadvantage.

I think the best course of action is to stay with the intended average maturity of 10 years as per my asset allocation. XBB already has that, but GICs are less. I have a lot in GICs so this means the average maturity of all my fixed income is < 10 years... I think I previously calculated it at around 5 or 6 years. It probably does make sense for me to buy some longer term bonds to bring my average towards 10 years and I (clearly) should have done this earlier.


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## l1quidfinance (Mar 17, 2017)

james4beach said:


> I'm increasingly concerned that we're going to get negative interest rates in Canada. What on earth will we fixed income investors do if this happens? I'm scared.
> 
> German 10 year bond yields -0.02% and Japan is -0.07% so it's already happening in developed countries. Some within the Federal Reserve are already endorsing negative interest rates (link) which makes me think central bankers are warming up to the idea.


Have you read this?

https://global.pimco.com/en-gbl/resources/education/investing-in-a-negative-interest-rate-world


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## OnlyMyOpinion (Sep 1, 2013)

Add the market to your scared list. We're goin'down this week. Hold on to your stomach!


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## hfp75 (Mar 15, 2018)

OnlyMyOpinion said:


> Add the market to your scared list. We're goin'down this week. Hold on to your stomach!


There very well could be a correction coming in the next week....


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## james4beach (Nov 15, 2012)

Economy surprised with positive GDP reading. Virtually every sector has strengthened. Canadian dollar is soaring as a result
https://www.cbc.ca/news/business/statscan-january-gdp-1.5076572

Weak energy sector is not impacting the country.


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## AltaRed (Jun 8, 2009)

james4beach said:


> Economy surprised with positive GDP reading. Virtually every sector has strengthened. Canadian dollar is soaring as a result


0.49% to this point in time is soaring? That said, it is a good report across most sectors.

P.S. I'd like a 70 or 65 cent loonie sometime in the next year or so to convert a bunch of USD to CAD.


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## james4beach (Nov 15, 2012)

Are these GDP numbers single month, or already annualized?


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## OnlyMyOpinion (Sep 1, 2013)

james4beach said:


> Economy surprised with positive GDP reading. Virtually every sector has strengthened. Canadian dollar is soaring as a result
> https://www.cbc.ca/news/business/statscan-january-gdp-1.5076572
> Weak energy sector is not impacting the country.


How can you say that? An economist in your link was quoted saying "weakness in oil is significant".
The entire country manages to put a measly +0.3% on the board in January while the resource sector declines for the 5th month by -3.1% (a factor of 10x). The economy of this country is not performing to its potential. Tens of thousands are still out of work in that sector. 
Any economist who says, "We were expecting a more muted report, but ... we got a solid print, front to back." is just f* stupid.
That's a bit like saying, "I'm happy with the 2% I earned last year, even though my benchmark earned 6%."


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## OptsyEagle (Nov 29, 2009)

james4beach said:


> Are these GDP numbers single month, or already annualized?


I am pretty sure they are single month. Sometimes they will seasonally adjust them, but in either case you need to multiply them by 12 to get an annual rate.


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## james4beach (Nov 15, 2012)

That sector is weak, yes, but virtually every other sector is showing as strong.

Energy is just one small part of the Canadian economy. It no longer drives the Canadian dollar (as it once did) either.


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## AltaRed (Jun 8, 2009)

That is a rather cocky comment. That one sector still drives the economy in the ~10% range, quite a bit more when it is humming on all cylinders. I'd look for more recent data if it might exist but I am lazy today. https://www.nrcan.gc.ca/energy/facts/energy-economy/20062


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## james4beach (Nov 15, 2012)

What's cocky about my comment? Energy is about 10% of the economy. I said the recent stats show strength in every other sector and energy is just one small part of the economy.

Are you saying that a 10% weight in the GDP drives the whole thing?


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## AltaRed (Jun 8, 2009)

You said small sector. And now you are suggesting I said it drives the whole thing? Really, James... you seem to be bouncing between ditches.

FWIW, 10% (and closer to 15-20% when it is back to full health) is not small given the number of sectors.


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## james4beach (Nov 15, 2012)

You wrote:



AltaRed said:


> That one sector still drives the economy in the ~10% range, quite a bit more when it is humming on all cylinders.





AltaRed said:


> And now you are suggesting I said it drives the whole thing?


Isn't that what you just wrote above, quoted? Or maybe we're saying the same thing, that energy is about 10% weight. Whether you call that small or not small is a matter of interpretation.

Energy is a volatile industry so its % of GDP will fluctuate over time. At times it will obviously be a larger % but its average % of the GDP is the bigger factor in evaluating how significant energy is. I don't think the energy industry averages as high as 20% of GDP over a stretch of decades.


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## fatcat (Nov 11, 2009)

the natural exchange rate for the canada dollar is about .82 so ar's comment that energy is about 10% makes sense, when last above par it was at the height of the oil price boom around 2011

no doubt the rate will decouple completely when the Liberals finish destroying the energy sector


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## AltaRed (Jun 8, 2009)

james4beach said:


> Energy is a volatile industry so its % of GDP will fluctuate over time. At times it will obviously be a larger % but its average % of the GDP is the bigger factor in evaluating how significant energy is. I don't think the energy industry averages as high as 20% of GDP over a stretch of decades.


I wasn't suggesting 20% on a sustained basis, perhaps only in peak years, but it is somewhere in the 'teens' as a single sector when operating on all cylinders. Pretty important and not small by any means as a single sector. 

I don't see real GDP growth this year close to Morneau's election year numbers, but we will muddle along likely staying out of the ditches somehow. The upshot of it will likely be no movement in interest rates and little to no 'real' change in the TSX beyond the recovery we've seen YTD.


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## james4beach (Nov 15, 2012)

fatcat said:


> no doubt the rate will decouple completely when the Liberals finish destroying the energy sector


I seriously doubt the energy sector will be destroyed. We've had liberal governments before, and look how much incredible wealth has been created in the energy sector. I also think there's a tendency to blame leaders when there's a bear market going on. Same thing happens with stock markets; it wasn't Harper's fault that stocks went down, and it's not Trudeau's fault that we're in an energy bear market (for Canadian crude products).

Even if conservatives were in power today, there would be a bear market in crude and limited appetite for Canadian energy.


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## james4beach (Nov 15, 2012)

(duplicate)


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## AltaRed (Jun 8, 2009)

james4beach said:


> Again, just look at Money Diaries. People are still making fortunes today in the sector.


Indeed, selected individuals do well just like any other major sector, e.g. manufacturing, banking, etc. Usually it is a combination of tough working conditions, skill, good fortune, business acumen. Data mining doesn't strengthen assertions. 

However, I agree with you that the sector is not going away. Only that there has been lack of appropriate political support for projects of strategic importance, i.e. pipelines. The production industry can take care of itself if it could move product to market.


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## james4beach (Nov 15, 2012)

I think the leadership today is open minded, if there are better solutions and changes that can be made. Surely the massive federal purchase of Trans Mountain is a show of willingness to help the industry and sector.


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## AltaRed (Jun 8, 2009)

james4beach said:


> I think the leadership today is open minded, if there are better solutions and changes that can be made. Surely the massive federal purchase of Trans Mountain is a show of willingness to help the industry and sector.


It is, but they missed a massive opportunity with Northern Gateway. The Liberal decision to overturn the approval helped* set the tone with activists that pipeline approvals could be overturned, albeit there would have still be litigation by vested interest groups.

* There was more at play here than a poorly thought out strategic Liberal decision, as Chris Turner's book articulates, but that decision was momentous in Energy East that followed, and the current state of TMEP.


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## Just a Guy (Mar 27, 2012)

Overpaying for trans mountain and then sitting on the company doesn’t exactly appear to benefit anyone. Looked like a knee jerk reaction with no plan or thought behind it. Is the pipeline any closer to expansion now that it’s government owned, is the government actually doing something to force the expansion or are they just sitting there going “look what we did”, but don’t look too close and recognize nothing has happened.

There was no need for the government to buy the pipeline, the private sector, including native groups are interested in buying the pipeline...what’s needed is for someone to cut through the stupid blocking tactics and get the approvals done...something Trudeau could do with a stroke of a pen if he really wanted to and showed some leadership which may be unpopular with some people. Instead he doesn’t nothing of significance.

Btw James, why have you suddenly turned so negative on anything but gics and hisas. You used to be a little more adventurous...now you seem to be against anything else.


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## AltaRed (Jun 8, 2009)

JAG, you don't understand how things work. No private interest, including indigenous groups, are going to get financing for the expansion, without certainty it will go ahead. The Feds rightfully stepped in to keep the project team together and to be the 'holding' company until such time the planets line up and private interests can participate again. It actually is 'simple economics'.

BTW, indigenous groups think they will be able to cobble together hundreds of bands to hold a 51% controlling interest eventually with the rest held by others, e.g. pipeline companies. I am pretty certain no pipeline company is going to step up and be operator with a non-controlling 49% interest. I've been party to many JVs in the oil patch and that is not a workable model. The pipeline company will likely need either a veto on business decisions, or a 51% controlling interest.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> Btw James, why have you suddenly turned so negative on anything but gics and hisas. You used to be a little more adventurous...now you seem to be against anything else.


I still have all the same adventurous stuff including small caps and plenty of TSX stocks. I just stick to my asset allocation, and I'm exactly at my targets right now. I bought more GICs because it's about time to roll over some, but otherwise, I really don't have anything to do at this point.

I have as much in stocks now as I did a few months ago. I don't attempt to trade around the market or anticipate slowdowns. My big picture economic expectations and forecasts are baked into my asset allocation. But with 50% fixed income, I'm strongly hoping for higher interest rates... I just don't think it's going to happen.


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## Just a Guy (Mar 27, 2012)

They’ve been decreasing for 20 years now...to the point where an increase would kill the housing market, so I think you’re right that they won’t be going up fast any time soon. 50% is a large allocation to something that really doesn’t earn anything.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> They’ve been decreasing for 20 years now...to the point where an increase would kill the housing market, so I think you’re right that they won’t be going up fast any time soon. 50% is a large allocation to something that really doesn’t earn anything.


My new GIC that returns 3.4% with inflation at 1.8% has a +1.6% real return before taxes, so I wouldn't say that's too bad.

The typical 60% to 80% allocation to equities is a massive allocation (due to the intrinsic risk of equities) to something that has zero guarantees and which could, potentially, perform terribly for a stretch of decades or possibly even for the rest of your life. In my 20 year investment history I've already seen a stretch of about 12 years with worse-than-cash returns in equities, so I know it's possible.

The 30% that I have in equities is more than enough equity exposure given how incredibly volatile equities are. My 30% equities and 50% fixed income are approximately equal allocations in terms of risk, so I have designed the portfolio to provide equal reward per unit risk in both the equity & fixed income sections. This is a truly diversified portfolio. If you'd like to look it up, the concept is called Risk Parity.


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## Just a Guy (Mar 27, 2012)

I’m not saying your wrong for you, my strategy works for me. Personally I don’t like single digit returns, especially before taxes, but I also don’t buy very often. When I do, I get very good and consistent results and, since I buy during a near bottom, I tend to already have a future correction built in. By the time my stocks corected a second time, I’ve usually gotten my investment out, so I just take a short term hit to my profits. I don’t sell or rebalance my portfolio either, so I defer taxes and have it all continue to earn.

I do tend to keep the dividends though.


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## james4beach (Nov 15, 2012)

Trump has apparently been directly pressuring the Federal Reserve and it appears to directly be about drops in the stock market:
Trump Called Powell in March as Stocks Slid Amid Growth Worries

I find it sad that for the last 25 or so years, we've been operating in an environment where central banks are expected to stimulate and prop up the stock market. So far the Federal Reserve and Bank of Canada have acted to support the stock market. It makes me wonder what happens when the day comes that they no longer can/will do that.

Let's keep in mind that until 25 years ago, this was not a thing the central bank routinely did. That's something that all stock investors should think seriously about because it would dramatically change the way the stock market behaves.


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## Just a Guy (Mar 27, 2012)

The house of cards comes down. They pass legislation to make sure it “never happens again” and then go on to do it again. You should read history more James.


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## james4beach (Nov 15, 2012)

House of cards may be right. How about Vancouver's worst March for home sales (lowest volume of sales) since 1986 ! Sales volume came in at 46% below the 10 year average for March... horrendous - source.

But don't worry Just a Guy, the central banks will provide enough liquidity and stimulus to make assets (stocks and housing) go up... forever! With enough stimulus, the price can be forced upward, always, so that we can all be rich.


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## Just a Guy (Mar 27, 2012)

Worked in 2007/8 in the states...as long as there are tax payers. I kinda hope for hyperinflation so I can get my properties even cheaper. 

Unfortunately, I’ll probably be mostly paid off before disaster really hits.


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## MarcoE (May 3, 2018)

Why worry? If money runs out, the government can just print more. DUH. It's easy. * sarcasm *


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## james4beach (Nov 15, 2012)

MarcoE said:


> Why worry? If money runs out, the government can just print more. DUH. It's easy. * sarcasm *


And this is the promise from the central banks: they will not allow deflation to happen.

That's where faith enters the picture. If you have faith in the central banks and if you believe they will stick to that promise, are capable and willing to follow through on that promise, then the investment approach becomes quite different compared to someone who is skeptical.

Central banks have only provided this kind of assurance and stock market support for about 25 years. My investment horizon is 60 years. So naturally I am skeptical.

On the other hand, those who have faith and who believe in the central bank assurance have been strongly rewarded until now. I think this creates a very interesting, and kind of fun situation. We have somewhat of a global religion that believes in the central banks' powers and believes in their promises.


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## james4beach (Nov 15, 2012)

The next rate decision from the Bank of Canada is this Wednesday. I still think they wouldn't dare raise, with what looks like potentially serious weakening in Vancouver RE plus a change in policy direction in the US. But no idea... I keep hoping we'll get higher rates.

I recently helped a family member buy about $60K of ZDB to boost their bond allocation in non-registered. Myself, I'm at my target 50% fixed income allocation with lots of XBB.

My amateur prediction is: no change in rates on Wednesday. (Those of you with Bloomberg terminal subscriptions can look at the market-determined probability based on rate futures). T-bill rates are about 1.6% right now which suggests no rate hike; t-bills yield slightly less than today's BoC rate!


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## james4beach (Nov 15, 2012)

Does anyone else have any predictions on tomorrow's rate decision?


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## OnlyMyOpinion (Sep 1, 2013)

no change


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## doctrine (Sep 30, 2011)

No change. The recent rise in oil prices will probably prevent a cut.


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## james4beach (Nov 15, 2012)

Yes, we called it right! Bank of Canada holds rates unchanged and hints there will be no rate hikes coming
https://www.cbc.ca/news/business/bank-of-canada-rate-decision-1.5108747



> Trading in investments known as overnight index swaps imply there's now *zero chance of a rate hike this year*. Traders think there's about a 10 per cent chance of a cut as early as next month, and by September those odds jump to more than one in three.


So here we go, now the market agrees with what I predicted earlier in this thread: rate cuts coming. In response, the CAD fell and bonds soared.


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## john.cray (Dec 7, 2016)

james4beach said:


> So here we go, now the market agrees with what I predicted earlier in this thread: rate cuts coming. In response, the CAD fell and bonds soared.


Alas, no chance of getting any bond yields increases for fixed-income investors. Yield curve now looks pretty ... hmmm ... "saggy" (https://www.marketwatch.com/investing/bond/tmbmkca-05y?countrycode=bx)

Interesting how the BoC rate announcement (shortest end of the curve) immediately affected the longer end. 5 year GoC bond yield dropped 5% as of right now.


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## james4beach (Nov 15, 2012)

john.cray said:


> Alas, no chance of getting any bond yields increases for fixed-income investors. Yield curve now looks pretty ... hmmm ... "saggy" (https://www.marketwatch.com/investing/bond/tmbmkca-05y?countrycode=bx)


Yeah, this is bad news for fixed income investors. For a while there was a hope of getting higher yields but that seems to have evaporated now. Sigh.


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## john.cray (Dec 7, 2016)

james4beach said:


> Yeah, this is bad news for fixed income investors. For a while there was a hope of getting higher yields but that seems to have evaporated now. Sigh.


I know how you feel about it but I wonder if you are maybe a little bit tempted to include just a tad of preferred shares as part of your fixed income allocation now? I have 7% ZPR. Current yield is 5.07% of juicy tax-advantaged eligible dividends.


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## AltaRed (Jun 8, 2009)

john.cray said:


> I know how you feel about it but I wonder if you are maybe a little bit tempted to include just a tad of preferred shares as part of your fixed income allocation now? I have 7% ZPR. Current yield is 5.07% of juicy tax-advantaged eligible dividends.


Despite prefs having, more or less, fixed income, in 5 year increments at least, they cannot be considered in the same bucket as bonds and GICs. Bonds and GICs have finite maturity dates whereas prefs are callable only at the will of the issuer. Prefs as well are a fragmented smallish asset category subject to wild swings in market pricing. I have some individual prefs but I would never put them in my FI AA slice. I simply call them 'Other Asset Class'.


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## john.cray (Dec 7, 2016)

AltaRed said:


> Despite prefs having, more or less, fixed income, in 5 year increments at least, they cannot be considered in the same bucket as bonds and GICs. Bonds and GICs have finite maturity dates whereas prefs are callable only at the will of the issuer. Prefs as well are a fragmented smallish asset category subject to wild swings in market pricing. I have some individual prefs but I would never put them in my FI AA slice. I simply call them 'Other Asset Class'.


I know it's a contested topic 

What is your allocation of prefs to your overall portfolio ? And what is the "pure" bonds / GIC portion in your case?


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## james4beach (Nov 15, 2012)

I don't have any prefs because

(1) I don't understand them fully
(2) they don't clearly fit into either equity or fixed income asset class, so they will disrupt my asset allocation
(3) I would rather prioritize diversifying my AA by adding in other more clearly distinct assets -- best bang for the buck

Managing and staying on top of my bonds, GICs, stocks, and gold gives me more than enough to do already 

Fundamentally, I am not a dividend or interest driven investor (rather, I care about total returns). I like my GIC yields to be high, sure, but that's a minor concern in my broader asset allocation. I expect the equity component to provide the high return. The rest of my investment approach is about diversification and maximizing my odds of decent returns under a variety of unpredictable economic conditions. In other words a 5% or 7% yield on a pref ETF is not too big an attraction to me, the same way a high yield on a stock doesn't matter to me.


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## AltaRed (Jun 8, 2009)

john.cray said:


> I know it's a contested topic
> 
> What is your allocation of prefs to your overall portfolio ? And what is the "pure" bonds / GIC portion in your case?


4% prefs
7% bonds/debentures/GICs
5-6% HISA/ISA

The percentages vary depending on equity markets primarily, i.e. I have pretty much a fixed (absolute) amount in prefs/bonds/GICs/HISA as my foundation, and equity allocation floats with the market.


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## john.cray (Dec 7, 2016)

Thanks for that AltaRed and james4beach. Informative and interesting to compare with my thinking and preferences.


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## Eder (Feb 16, 2011)

john.cray said:


> I know it's a contested topic
> 
> What is your allocation of prefs to your overall portfolio ?


Unless retired with low taxable income preferred shares don't make much sense. In my case they make a lot of sense. I'm at about 7% total allocation to preferred but will keep increasing up to 15% as long as they continue to tank in price.


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## AltaRed (Jun 8, 2009)

john.cray said:


> Thanks for that AltaRed and james4beach. Informative and interesting to compare with my thinking and preferences.


I should qualify my response as being 13 years into retirement. Portfolio construction can be situational. 

I look at my "small" FI wedge, as being Return OF Capital, rather than Return ON Capital. Prefs don't really fit either category that well and thus I have halved my pref allocation from its peak. Right now, all my prefs are low spread insureds, in the hope that within 10 years they will be called at par due to regulatory imposition of NVCC compliant issues. James Hymas keeps moving the yardsticks on when that might happen, but since I don't need to likely ever sell my prefs, I will let them ride and just collect eligible dividend income until it happens or I meet my maker, whichever comes first.


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## james4beach (Nov 15, 2012)

The yield curve is incredibly flat and partially inverted right now. Here's how it looks at Friday's close:

1 year: 1.7%
2 year: 1.5%
5 year: 1.5%
10 year: 1.7%
30 year: 2.0%

This is really strange stuff. I kind of love how the bond market is full of surprises, and has gone totally differently than what was predicted a year ago. The 10 year rates were widely expected to increase. Instead, rates have actually dropped, and XBB is up 6.5% (yes, over six percent) from a year ago.


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## Borat (Apr 28, 2017)

james4beach said:


> Instead, rates have actually dropped, and XBB is up 6.5% (yes, over six percent) from a year ago.


On that note I recently sold ZDB which I bought roughly 8 or so months ago for a 5% increase.  Extra $1000 roughly for my mortgage down payment.


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## james4beach (Nov 15, 2012)

Inflation came in higher than expected
https://www.bloomberg.com/news/arti...mpering-case-for-rate-cut?srnd=premium-canada



> Stronger inflation dynamics in Canada are one reason why economists and markets are anticipating fewer cuts, and a slower pace of reductions, by the Bank of Canada than the Federal Reserve. *Markets are pricing in just one rate cut in Canada over the next six months*, versus three for the Fed, even though some analysts have begun to speculate a cut could take place as early as the next rate decision in September due to growing global trade tensions.


It still bothers me that central banks would actually cut rates with interest rates already near zero (and certainly already at zero *real* yield) and asset prices at all time highs. Feels very irresponsible to me.

At least bonds pulled back a bit on today's news. I'd love to see a good drop in bond prices, so we can get some higher yields.


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## james4beach (Nov 15, 2012)

Both the Bank of Canada and US Federal Reserve will announce their interest rate decisions on Wednesday, October 30.

https://www.bloomberg.com/news/arti...ar-s-high-yielding-status-as-boc-fed-day-loom



> *Futures traders are pricing in almost no probability of a rate cut at the Bank of Canada meeting*, while predicting a quarter point reduction from the Federal Reserve. The U.S. central bank has already cut rates twice this year compared to the BOC, which has yet to cut rates since 2015.


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## hfp75 (Mar 15, 2018)

If the USA actually falls into recession then Canada will follow. So, now might be a time to buy long bonds and Gold... 

Depends on what the inflation, unemployment and a few other factors do over the next 12 months....

From what I have seen, I would agree that Canada will hold and the USA will drop 25 BPs. 

J. P. is bound to the Dots - they will call for a rate cut to try and continue the bull market.... Plus the Bond market is signalling a rate cut... you could argue its calling for a 50 bp cut too....


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## james4beach (Nov 15, 2012)

The Bank of Canada left the rate unchanged today
https://www.cbc.ca/news/business/bank-of-canada-interest-rate-oct-30-1.5340613

It's still distressing that the BoC's overnight rate at 1.75% is higher than government bond yields that are much farther out on the curve
5 years: 1.49%
10 years: 1.49%
30 years: 1.66%

My interpretation of that is that the market believes that more rate cuts are ahead.


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## james4beach (Nov 15, 2012)

The CAD is also plummeting on the BoC announcement. It appears that until this morning, the market was thinking that Canada could actually stay on a rising rate path. However, the statements today make it sound like the BoC may resume cutting rates, playing catch-up with the other central banks.

Merde.


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## AltaRed (Jun 8, 2009)

Off by 0.63% as I write is 'plummeting'? Anything less than one cent suggests noise. See one year here https://www.xe.com/currencycharts/?from=USD&to=CAD&view=1Y

I am waiting patiently for a 73 cent dollar again (like last Dec) to convert some USD.


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## james4beach (Nov 15, 2012)

It's all relative but I consider anything above 0.5% a significant daily move.

The exchange rate has been remarkably stable now for 4 years. It seems to have started when the Liberals got into power -- though that could be a spurious correlation. Whatever the reason, it's quite stable:

http://schrts.co/kfrkSPQu

Easy to look at that and forecast 0.75 for the time being.


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## AltaRed (Jun 8, 2009)

I'd suggest from a 10 year chart here https://www.xe.com/currencycharts/?from=CAD&to=USD&view=10Y that you are looking for differences. Seems to be noise right across the chart for the most part.


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## james4beach (Nov 15, 2012)

The bond market has really been swinging around like crazy through October. Yields now appear to be plummeting again.

Today I bought a 5 year Scotia GIC @ 2.33%, the highest A/AA yield I've seen in many months. I believe that with bond yields falling again, this may be the highest GIC rates are going to get. In any case I had to roll over and reinvest cash, so it was either this or the 10 year bond.


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## scorpion_ca (Nov 3, 2014)

It doesn't make sense to buy a GIC with 2.33% whereas you can get 2.8% in Motive Savvy Savings accounts.You would get $470 less yearly for $100k investment.


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## james4beach (Nov 15, 2012)

scorpion_ca said:


> It doesn't make sense to buy a GIC with 2.33% whereas you can get 2.8% in Motive Savvy Savings accounts.You would get $470 less yearly for $100k investment.


Sure it makes sense. They are different assets. One is cash, which is subject to change at any time. The other is a guaranteed rate for 5 years.

What if interest rates fall to 1% ? What if they fall to 0% ? In that scenario, the 5 year GIC at 2.33% is a huge winner.


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## AltaRed (Jun 8, 2009)

scorpion_ca said:


> It doesn't make sense to buy a GIC with 2.33% whereas you can get 2.8% in Motive Savvy Savings accounts.You would get $470 less yearly for $100k investment.


Many of us don't chase rates at variety of online banking HISAs. We got tired of moving from one FI to another and now strictly stay at my brokerage. 

Besides, if BoC cuts interest rates shortly, that 2.8% will vapourize. It is already an outlier ready for a cut. A 5 year ladder is a 5 year ladder. Stay the course. So it does make sense.


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## james4beach (Nov 15, 2012)

james4beach said:


> Sure it makes sense. They are different assets. One is cash, which is subject to change at any time. The other is a guaranteed rate for 5 years.
> 
> What if interest rates fall to 1% ? What if they fall to 0% ? In that scenario, the 5 year GIC at 2.33% is a huge winner.


Fast forward in time and now you can see how the 2.33% GIC back in 2019 was, in fact, a great buy. In the mean time, the Motive cash interest rate is down to just 1.55%. And that 5 year GIC is still earning 2.33% for many years to come... far better than cash.


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## james4beach (Nov 15, 2012)

Economists are now talking about the Bank of England cutting rates to negative.



> The Bank of England is undergoing preparatory work to understand whether it would be feasible to cut the bank rate from its current level of 0.1% into negative territory. With the U.K. economy in a deep recession and inflation well below the bank’s 2% objective, it’s only natural to look for new things to try.


It's possible that Canada will eventually get negative rates as well. That's something to think about when you look at GIC rates and don't like what you see. There are many GICs that pay over 1% yield today, which is greater than zero.

As a saver, I don't like this but I just wanted to remind everyone that we might get negative rates at some point. I think it's best to stick to the GIC ladder (keep buying 5 years) or your bond ETF without trying to predict or time interest rates.

Just look at threads like this to see how difficult it is to predict the direction of interest rates!


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## MrMatt (Dec 21, 2011)

Come up with your plan, follow your plan.
You can re-evaluate it, but just giving up for a market blip is a horrible idea.


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## dotnet_nerd (Jul 1, 2009)

James, you made a comment the other day about ZAG only being suitable for 10+ year horizon. I get that there's volatility risk.

What bond ETF do you think is good for short term, if it might need to be cashed in within 5 years? As a substitute for a GIC ladder?


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## james4beach (Nov 15, 2012)

MrMatt said:


> Come up with your plan, follow your plan.
> You can re-evaluate it, but just giving up for a market blip is a horrible idea.


Are you referring to the "blip" of the recent yield curve inversion? I think that confused a lot of people about how to invest in fixed income.

Really it should not have changed anything. Stick with the GIC ladder or bond fund, as normal ... no reason to throw away all existing plans and methods just because the yield curve flattened. Already, we are are back to a pretty healthy looking yield curve today.



dotnet_nerd said:


> James, you made a comment the other day about ZAG only being suitable for 10+ year horizon. I get that there's volatility risk.
> 
> What bond ETF do you think is good for short term, if it might need to be cashed in within 5 years? As a substitute for a GIC ladder?


If you're looking at a time horizon of 3 - 5 years, I think XSB or XSH would be appropriate. As I recall, XSB has a bit higher quality whereas XSH has more corporate bonds (a bit riskier) with better yield.

If it's under 3 years, then you really need to stick to cash or GICs.


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