I don’t like to throw shade on the sunny side of the street but there are a number of points to consider. The inversion of the yield curve is actually worse now than it was in Nov, 10 year rates have dropped from nearly 4% to 2.87 and the one year rates are higher than they were in Dec.
These are U.S. rate curves but the Canadian one is similar, and if anything even worse because our current 10 year is down to 2.87%
Jan 2023
Oct 22
Jan 22
Rents are rising at more than 15% across Canada, there is a housing shortage for purchase and rent and the only reason house prices have dropped a little, still far above 2020, is they are now so expensive many have to keep renting. Immigration is bringing in 2.5 times more people than we are building housing per year so the housing issues will only continue to get worse.
There are more jobs than people that want to fill them. Despite the headlines of large layoffs in Canada and the U.S. large Tech, those folks will all have jobs in a month and they won’t be filling all the roles that are already empty in all the other industries. The economy is still growing at over 3%, consumer spending has not abated. That is just the tip of the iceberg, without getting into Government spending, rising taxes, highly inflationary items like carbon taxes, soaring utility bills and rising property taxes. Even if price increases were to stabilize and inflation comes down using the the government numbers to the target of 2-3%, the prices sure aren’t coming back down.
The Bank of Canada may well pause their rate increases after this next one, but they aren’t going to start lowering rates in the next year. In fact, I expect to see the Bank of Canada rate at least 2% higher than it is now by year end because no matter how the governments fudge the numbers, inflation is being very sticky. We are still well over 6%, even by the official numbers. To get back to 2%, they need to knock a lot of stuffing out of the economy, and that only happens with mass job loss, and recession caused by even higher rates.
The real price inflation the average consumer sees in his everyday living costs is not going away anytime soon. Anyone with variable rate debt has not finished seeing their payments go up, and it is way premature to be buying into the bond market for anything over a 3 year maturity. My advice, stick to Blue Chip companies that have pricing power and the deep pockets to withstand downturns, and that pay you a regular dividend. Money in a sock is rapidly depreciating due to inflation, GICs and Bonds are not even close to keeping up to inflation, especially after tax, so the only choice is real assets like land and companies that produce a good profit and grow every year.
Good luck to all.
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