Weekend Reading – Inflation higher and rates to nowhere edition

Weekend Reading – Inflation higher and rates to nowhere edition

Welcome to some new Weekend Reading: inflation higher and rates to nowhere edition!

More on that in a bit 🙂

You can check out other recent editions and past popular articles below:

Here are some interesting financial predictions for 2022 – including some doom and gloom ahead by some financial experts!

I recently wrote about my plan to fight higher inflation. You should be prepared too and we’ll talk about that below…

Enjoy these reads about inflation, what might fight it (or not), how might our lacklustre Bank of Canada performance hurt us all, and much more of course.

Have a great weekend!

Mark

Inflation higher and rates to nowhere edition

Earlier this week, Bank of Canada Governor Tiff Macklem tried to make one thing clear: interest rates are on a “path” higher. Where that path ends remains to be seen. “How far, how fast? Those are decisions we’ll take at each meeting,” the governor said at a recent press conference.

Right.

So is inflation, on a path higher Tiff.

Based on a latest article I read, our Consumer Price Index increased at an annual pace of 4.8 per cent in December (2021), as sharply higher prices for food led to the cost of living going up at its fastest rate since 1991.

As just one example, the price of apples has increased by 6.7 per cent in the past year, and oranges by almost as much — 6.6 per cent. I like apples too! Our cost of living is movin’ on up, fast…

Inflation higher, rates to nowhere edition - Weekend Reading

Source: CBC News, I have adapted this chart to show the yellow band that our Bank of Canada wants to operate in when it comes to controlling inflation.

Where do rate predictions and where does our Bank of Canada go from here?

Wait and see for the most part.

Certainly, the economics team at Royal Bank of Canada feels good about themselves about the BoC recent decision, since RBC stuck to its guns and said our central bank would wait until April (to raise rates). Potentially. Maybe.

I suspect our central bank is also waiting for the U.S. central bank to make the first move – we tend to follow suit – as Canadians we avoid sticking our neck out historically on any monetary policies.

I’ve personally been calling for some minor rate hikes before the pandemic. I feel historically, prolonged interest rates can and will lead to more overall indebtedness, overvalued assets, and on the flipside underestimated financial risks. I think we are also seeing this play out with our lack of government fiscal responsibility as well. This is not going to be a good recipe for any of us long-term – higher financial risks and higher instability is not great approach for financial success. That’s just my opinion. 

Well, regardless, I’m not waiting on anyone to help me with my financial future.

I have a plan for higher inflation, and part of that plan is owning dividend paying stocks. This month, I received the following raises for a few stocks I own:

  • BlackRock (BLK) increased their dividend by 18%.
  • Canadian National Railway (CNR) increased their dividend by 19% this week.

That should help!

This is how I invest for higher inflation here and more on the way. 

How to invest for higher inflation

A reminder that it’s not all doom and gloom when inflation runs higher. In fact, I confirmed my thinking that there’s actually a sweet spot for stock returns. A MarketWatch article confirmed my thesis. Since 1871, the sweet spot for inflation is 1.5-3% that delivered the highest, on average, S&P 500 U.S. stock returns.

Inflation, some is good

Source: MarketWatch 2021.

So, like this recent MoneySense article that Jon Chevreau wrote: exposure to our Canadian market, and the U.S. market for that matter, as part of a long-term, diversified stock portfolio, probably remains one of the best ways to fight inflation while keeping it simple, as you embrace a long-term investing strategy.

Inflation - Bank of Canada

If they were that committed, why didn’t they raise rates??

Sigh. 

What do you make of inflation? What do you make of our Bank of Canada decision to avoid doing anything?

More Weekend Reading!

A financial expert reminded folks that if you want to quit your job (and live your best life) (paywall) that you should continue to work through the following common-sense work:

  1. Map out your vision – answer the tough questions like “what will make you happy?”
  2. Save money – since your “start-up” costs to quit your job, change jobs, move, other – might cost more than you think.
  3. Tidy up your debt – removing major financial barriers can be key to any change.
  4. Identify your income sources – to realize your new goals or direction.

You can see what goes into a more comprehensive financial plan/common-sense work in this post.

What is a Financial Plan and what should it cover?

Does your financial plan include leveraging the world? Mine does not but some leverage, when used wisely, can help. Read on in Freedom 35 Blog here.

Freedom 35 Blog spoke about different ways to FIRE on my site, because the FIRE approach can make you miserable if you’re not careful. 

Jessica from The Fioneers wrote about a better lifestyle by design.

Another great read this week: are target date funds flawed? In a short answer: yes.

Some conclusions from the article and study:

  1. “Target-date funds are well-suited for young investors. On average, target-date funds held by employees who are in their 30s hold 89% of their assets in equities. That figure mirrors the authors’ estimates.
  2. For older investors, target-date funds are too conservative. Target-date 2035 funds, which address 50-year-old investors, are 68% invested in stocks. When target-date funds reach their final date, which presumably occurs when their shareholders reach age 65, they hold an average stock position of 40%. The authors prefer allocations of 80% and 60%, respectively.
  3. The needs of older investors vary more than those of younger investors.”

Amen.

I always enjoy the 5 from 5i each week.

Dividend Hawk is killing it with his dividend income.

My friend The Dividend Guy updated his income report – including selling shares of Apple – gasp!! Read why, in his post. 

Speaking of income, check out my current giveaway about how to earn a Salary for Life.

How to earn a Salary for Life

A big thanks to Rob Carrick for the mention of this post about RRSPs this season in his ever-popular Carrick on Money column. To answer Rob’s question of the week:

From Of Dollars and Data: are we bullish enough?

“And with the S&P 500 currently at 4,670 and the Dow currently at 36,068, this means that we should see the S&P 500 hit 10,000 and the Dow hit 100,000 before 2030.”

That would be wild…

Don’t forget some fine reading material from Cut the Crap Investing. Dale is always great to find some interesting nuggets from the personal finance blogosphere to enjoy. 

Cashflows & Portfolios Retirement Projections

Here is our latest article about the TFSA, including some tips and tricks to get the most out of this account. 

Knowing how to save and invest wisely is great but how to get the most out of your portfolio, including what accounts to draw down first in early retirement, semi-retirement or traditional retirement ages is something far more complex but something we can help out with at Cashflows & Portfolios.

We’ve already helped dozens of clients in the last few months alone!

If you are interested in obtaining private projections for your financial scenario, read more about our retirement projections serviceWe’ve updated our low-cost starting price on that page for you to check out. 

More income and retirement content

From the retirement files:

How to invest for retirement when time is no longer your friend?

How I invest in dividend paying stocks is always found here.

Why I invest in low-cost ETFs – along with dozens of articles about ETFs can be found here. 

Looking for free calculators, tools, or even my support? Check out my Helpful Sites page here. 

Save, Invest, Prosper!

As always, check out my Deals page.

Have a great weekend!

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

33 Responses to "Weekend Reading – Inflation higher and rates to nowhere edition"

  1. How many years now have we heard the pundits say that interest rates need to go up? But government can’t let that happen. We have incurred so much debt with these low rates that our economy would be totally messed up if rates are raised too much. We want to blame this all on the BOC. But they have to walk a fine line to keep bailing out this totally inept government. All of Justin’s progressive ideas that cost more and more money, do nothing to help the hard working people. Inflation will only continue with all the money being pumped in to the economy. We need a government that will realize that in order to function we need to create jobs for able people, and take care of the ones that can’t work. But instead, we just keep shoveling more money for free to buy votes. Interest rates will not go up much in the near future no matter what the media says.

    Reply
    1. I’m not convinced Justin has any ideas but to throw money at something in hopes of votes. If you know of his progressive ideas I’m all ears 🙂

      Unfortunately, none of the major parties have real leaders so we’re stuck. All the smart folks avoid politics for a reason!

      Have a good weekend,
      Mark

      Reply
      1. Progressive ideas are what we are getting now. Free child care, free CERB, more paid time off, everything these progressives come up with costs money. Productivity is going down and inflation increases. And he is promising a lot more like doing something about housing costs. But they have no idea how.
        Instead of trying to figure out how to get people to work, they just try to find more ways to give them more for nothing.

        Reply
        1. Oh, I see, yes, in support of many of those things DivInvestor – for sure – I was thinking these ideas were brand new! Hopefully we’ll see progress. We need it 🙂
          Mark

          Reply
  2. Inflation, the slow degradation of the currencies buying power. It is a form of taxation, or some would say a form of theft. No matter, it is happening, how to protect your family, good question.

    Dividend investing seems so far to keep up or surpass inflation (?). We too hold CNR, BLK and MRU. Great to see the increases. Yes CU has been a sad investment, have done much better with EMA, FTS, ENB, TRP. Thus no position is too large a component of the total. Diversification is key.

    Nice to read others concern with the easy money that’s been handed out these past two years. We all know people that received CERB or companies that got the wage subsidy. Have we reached a breaking point? Can zero interest rate policy continue, will we see negative interest rate policy? Is the trucker protest a culmination of everything, have people been pushed too hard, is there a way out of this? Have the leaders painted themselves into a policy corner?

    Just not sure, and can only try and help our families path forward. Balance is key, and let us hope calm thoughtful / respectful dialogue can help the way forward.

    Has anyone listened to the former First Minister, Brian Peckford, the last living drafter and signatory of the Canadian Charter of Rights and Freedoms, which is the highest law of the land, is suing the Canadian federal government over the Charter. May you live in interesting times, these sure are interesting.

    David

    Reply
    1. Very interesting times David. In watching some the media coverage from the Hill yesterday, living a few kms from there, I must say, I was disgusted by some of the scenes.

      I would like to think better days/more propserity is ahead for all but I highly doubt it. I feel social order is well behind us.

      Mark

      Reply
      1. Yes Mark I agree, it’s most sad. Says a lot when the Canadian public goes to this level of protest, can only push anyone so far before they push back. The moment of constructive dialogue is not now, hopefully things cool off. Thus the leaders should not be doubling down on divisive language, and its divide and conquer rule.

        My better and more beautiful half works in the health care system. If you get to meet her it means things are going very poorly for you. She has an important role, as are all workers in health care, from the cleaners to the top executives. Our system has been broken for a long long time, the pandemic has just put a spotlight on it. Will changes be made? Ever hopefully.

        David

        Reply
        1. “The moment of constructive dialogue is not now, hopefully things cool off.”

          Amen. For sure.

          Yes, healthcare is a big issue. I work in that field as well but not on the frontline. I would love it see some changes.

          Stay well,
          Mark

          Reply
  3. With the delayed rate increase I wonder if there will be a sharp increase when it happens instead of a more gradual one?

    The monetary policy these past few years makes one shake their heads. My children and probably grandchildren will definitely be paying for it.

    Reply
    1. Yes, future generations are in for a world of financial hurt and political instability (sadly) I think, as a collective. Decisions today, impact your tomorrow. Rates are part of the issue but a symptom of a much bigger issue with a lack of order and structure. That’s my biggest worry and I hinted at that in my post. It worries me, honestly, what is going on. It’s not a good direction and sadly future generations will suffer.

      I hope I am wrong but I doubt it. We’ve seen the chaos south of the boarder – it’s here.
      Mark

      Reply
  4. So far this month I’ve got a 19% dividend increase from CNR (as you say), 10% from Metro, and 85.7% from Richelieu. That’s my way of fighting inflation. Only disappointment was Canadian Utilities with another 1% increase like last year. Still holding. Perhaps improvement next year on CU.

    Reply
    1. Maybe on CU for next year? We’ll see. I sold mine some time ago and moved it into AQN and BEPC.
      Nice call on MRU and hope to own some eventually in taxable.

      Reply
    2. Inflation hedge? Why not energy stocks. Higher oil & nat gas prices, makes for higher prices for almost everything else we buy. Some energy stocks make for a nice hedge works for me. I posted my case for energy stocks last year. Still think some are still good value. See the price of imo, look at su. Price to cashflow makes suncor look like a deal to imo. Also vet looks good too, maybe 8 dollars of free cashflow this year. Ath cheap call on oil. Twm for fun. Lcfs for esgers. Just bought my lcfs on friday. Could be like catching a falling knife. Have bid to buy some more at just over $12.

      Reply
  5. The Bank of Canada are really operating outside the bounds of their mandate by keeping rates near zero during the highest inflation we’ve seen in decades. Macklem has shown a real lack of courage by not raising rates this past meeting. He had all the cover for it as well, with most (but not all) predicting a 0.25% rate increase. Pitiful.

    Reply
    1. I heard that rate will be raised for a very long time and sometimes I suspect low rate will stay here for a very long time. Look at Japan and Europe. Japan has negative rate for many years now and didn’t see they will raise rate in near future.

      The thing is: rate should be raised long time ago. Nobody had the courage to do the right thing. Now they are in a very difficult situation: raise rate to control inflation but people and governments with big debt will be in trouble. Not raise rate, inflation will continue go higher.

      And here comes the excuse for me to work longer: with inflation so high, I need more saving for a safer retirement. LOL.

      Reply
      1. Deane Hennigar (RBull) · Edit

        Good points. I agree rates should have been higher a long time ago. It would have helped contain the insane housing price increases, and less private and government debt.

        Ha May. The way you’re talking it may never be enough!

        Reply
          1. Deane Hennigar (RBull) · Edit

            BOC-About 18 mths ago claiming disinflation was more of a concern going forward, and after that housing price/debt load increases weren’t an issue?????

            GOVT- billions to seniors w/$500 gift ea. no income qualifier, tens of millions to 15 yr olds summer work = 12K in CERB, billions to HH with child under 6 -$1200/child HHI under 120K, $600/child HHI over 120K

            Borrowed money!!! VOTES.

            Huh?????
            End/rant. LOL

            Reply
            1. Ya, I just shake my head. Very dysfunctional to me.

              Sadly, reports of confederate flags on Parliament Hill just now with this trucker protest. Very sad let alone disgusting.

              Reply
              1. Deane Hennigar (RBull) · Edit

                We need better leadership and more astute decision making.

                Progressive mania, MMT, social justice rules everything now. OOPS, said rant was over.

                Confederate flags. Ya, some crazies expected. Remove those ones.

                Reply
        1. Pretty sure I already have enough but don’t mind to work a few more years. Work is not stressful and kids are still home. Prepared to retire any time though.

          Reply
          1. Deane Hennigar (RBull) · Edit

            I know for sure you do. That’s why I’m teasing you a bit on delaying.

            Great work changed and isn’t stressful. Kids will be great whether home or not.

            You’re going to love retirement. Well done May!!!

            Reply

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