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Email this3:41 pm
January 9, 2011
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I'm sure we all are keenly tuned in to the subject, however a few news announcements this afternoon made me think of posting somewhere here. Nothing surprising, but inflation, bond rates, mortgage rates eventually point to additional interest rate scraps the banks may find it necessary to give us HISA and GIC investors!
So I ended up creating a general topic 🙂
The first one, from The G&M; " Canada’s main stock index edged lower on Thursday in its third consecutive day of declines, as inflation fears persisted and expectations grew that the U.S. Federal Reserve will tighten policy in the coming months. Wall Street also ended the day lower, closing out its worst quarter since early 2020. "
The second one, from Reuters; " Toronto-Dominion Bank on Thursday became the first major Canadian lender to raise fixed mortgage rates since March, reversing recent cuts after bond yields jumped over the past week on inflation expectations.
TD Bank raised its Canadian five-year special fixed mortgage rate to 2.29%, according to its web site. It was 1.99% earlier, a spokesperson said.
The rate matches Bank of Nova Scotia’s, according to data from RateHub.com, and compares with 2.19% at rivals Royal Bank of Canada and Bank of Montreal and 2.24% at Canadian Imperial Bank of Commerce, according to their websites.
Fixed mortgage rates generally move in conjunction with bond yields, while variable rates are tied to the central bank’s key policy rate. "
The third one, from Bloomberg and others; " Mexico’s central bank raised borrowing costs for the third consecutive meeting Thursday as policy makers struggle to slow above-target inflation. With the inflation expectations increase and with four of five members of the board voting for the hike this time, the probability of another hike this year increases "
I expect 5 year GIC rate competition will be the first to happen, and therefore re-establish a more traditional yield curve 1 - 5 year. There might be some shorter term GIC competition start up as well as HISA "firming" - banks that abandoned being competitive coming back, and perhaps some small best rate increases. The needle points up, IMO. GICs 12/15 months maximum and HISA for me. 
Am I off base?
"Keep your stick on the ice. Remember, I'm pulling for you. We're all in this together." - Red Green
5:01 am
March 30, 2017
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Yes and no. It’s a break even analysis.
E.g lock in 1y at 1% then renew for 2y at 2%, vs lock in 3y today at 1.66%
Ignore compounding to make the math simple, both results in the same return over a 3 year period.
So it’s a question of how quickly you think rates will rise and by how much.
8:29 am
February 20, 2018
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the 5yr gic is dead who would lock in that long with all the inconsistencies flip flopping. Central banks letting inflation slide they been doin for years without compensation. The attack on savers taxpayers. For example you could be locked in for 5yrs at the same time they announce a new tax.
9:20 am
October 21, 2013
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As OP said, these news reports are not really surprising. It's how one interprets them that is the challenge.
Like the stock market, it is really impossible to predict, and there are other factors in play as well. For example, we, like most if not all major western countries, have an aging population. Older people don't buy as much and thus are a drag on inflation. On the other hand, I anticipate that the costs of adapting to climate change will be a very significant inflationary factor. And so on. It's unclear to me to what extent central bankers can control the situation. If we depend on them to make things predictable, then we have infringed on free markets. I have noticed a tendency among some folks to want to rely on the central bank to create conditions where their investment risk is substantially decreased. That doesn't seem right to me.
I tend to think inflation is here to stay for at least a while, but I am aware that I could be wrong, so I have not changed my GIC investment policy significantly.
I think it's important to avoid making decisions based on the hope of better rates to come. While you're waiting, you lose. Various people (I don't remember who) on this board have vowed to stick with shorter term GICs of up to 2yrs for a while now. They say they don't want to lock in at such low rates. Then, even lower rates appear, Over a five year period, they would have been better off with five year GICs at whatever rate than a series of shorter ones. As long as we don't have rate inversion, where longer term rates are lower than short ones, this will continue to be the case. Somebody posted a little while ago that they no longer had any GICs at 3% or higher. I still have more than half in the 3-4% range, with the last of these maturing in Jan 2025 at 3.25%. My interest income this year will be the highest it's ever been in absolute dollars and as a percentage as I've gotten smarter about this. Yes, ti will go down some next year, but this is balanced by the years when inflation was extremely low If I'm lucky, rates will inch higher before some of these GICs mature, but I will accept whatever comes and continue with laddering unless there is rate inversion. Because of my age (old), my ladder will probably shorten somewhat.
Plans are always subject to change, but i don't yet have a good enough reason.
9:40 am
October 27, 2013
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My view is current inflation is due to supply chain disruptions at the manufacturing level, dock loading/unloading, marine and truck shipping as a result of covid decimation and mobility restrictions. It will abate when (and if) the worst of covid induced disruptions can be mitigated. Perhaps summer of 2022 (a new serious variant notwithstanding).
It is my view central banks will want to keep overnight interest rates as low as possible for a variety of reasons and will increase only if inflation continues to be an issue in 2022 and/or the yield curve steepens too much. The 10 year bond yield will be top of mind. Another 100bp to circa 2.5% and it will get significant central bank attention.
What that means for the HISA/GIC investor is perhaps 50bp overall on a more sustained basis. Perhaps more for a temporary period to lasso inflation, but I don't think the economy can handle more than a broad 50bp increase over the longer term. No more 5 year GICs at 3%, at least not for more than very short periods of time. That is my crystal ball and I am sticking to it...... for now.
10:26 am
February 20, 2018
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Central banks are liars
10:34 am
October 21, 2013
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I think there's more to it than supply disruption. Everyone is trying to make up their pandemic losses with higher prices. My mother's hairdresser's rates, as one example, have gone up 20% and are higher every time she goes there. Presumably, as/if covid wanes, these inflationary increases will slow down, but there could be ongoing ripples for some time.
10:54 am
April 14, 2021
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Loonie said
I think there's more to it than supply disruption. Everyone is trying to make up their pandemic losses with higher prices.
There's been plenty of discussion over inflation; whether or not it is transitory or long-term. I think that it is more important how people think and act, regardless of whether or not it is one or the other. If everyone believes it is long-term (regardless of whether or not it is factual) and acts that way, then belief makes it reality. Price increases are one reaction to perception, with those making dramatic changes expecting high inflation to be long-term.
11:23 am
April 6, 2013
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The hairdressers price increases are a supply issue as well.
Because of COVID restrictions, the hairdresser can only serve one client at a time. They are no longer allowed to do a haircut for a client while waiting for the colour or the perm of another client to set. That takes a chunk out of their income per day.
The salons now cannot have all the chairs in use. That would exceed COVID capacity limits. Reduced supply of chair spots for the hairdressers.
One I knew quit. Reduced money per day at work. Reduced number of days each week when a chair is available for her to work. Just not worth it anymore.
12:24 pm
September 11, 2013
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Lots of media reporting on worsening global supply chain issues in last few months (Washington Post had comprehensive article just yesterday). Based on my reading sometime in 2022 looks super-optimistic. Plus I'm guessing breaking us of our consumerism might be a deliberate part of the "build back better" crowd's plan, i.e. wouldn't it be "greener" for us to have to stop buying so much?
12:39 pm
October 21, 2013
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Norman1 said
The hairdressers price increases are a supply issue as well.Because of COVID restrictions, the hairdresser can only serve one client at a time. They are no longer allowed to do a haircut for a client while waiting for the colour or the perm of another client to set. That takes a chunk out of their income per day.
The salons now cannot have all the chairs in use. That would exceed COVID capacity limits. Reduced supply of chair spots for the hairdressers.
 Â
That may be, but there is no shortage of chairs per se. There is nothing that didn't get delivered. It's not a supply disruption; it's a regulatory restriction.
12:53 pm
October 21, 2013
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Bill said
Lots of media reporting on worsening global supply chain issues in last few months (Washington Post had comprehensive article just yesterday). Based on my reading sometime in 2022 looks super-optimistic. Plus I'm guessing breaking us of our consumerism might be a deliberate part of the "build back better" crowd's plan, i.e. wouldn't it be "greener" for us to have to stop buying so much? Â
In my analysis, it's actually manufacturers and retailers who want us to keep buying more stuff. That's why we have so many things that can't be repaired, why last year's clothes are considered out of date and must be replaced etc.
That said, there is and will be a genuine need to replace things that are not energy efficient etc. I have doubts even about the latter. A fridge used to last basically forever, but new ones that are more "efficient" only last ten years if you're lucky, so it takes 4 or 5 of them that have to be manufactured to achieve the same amount of refrigeration. Same goes for all appliances.
There's always some new gadget that we "have" to have.
Hang on to your hand tools!
4:49 pm
January 9, 2011
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Loonie said
In my analysis, it's actually manufacturers and retailers who want us to keep buying more stuff. That's why we have so many things that can't be repaired, why last year's clothes are considered out of date and must be replaced etc.
That said, there is and will be a genuine need to replace things that are not energy efficient etc. I have doubts even about the latter. A fridge used to last basically forever, but new ones that are more "efficient" only last ten years if you're lucky, so it takes 4 or 5 of them that have to be manufactured to achieve the same amount of refrigeration. Same goes for all appliances.
There's always some new gadget that we "have" to have.Hang on to your hand tools! Â
Exactly 10 years and leaks on the floor from the dishwasher. The lack of a dishwasher rubber door seal part which is on back order for ? months, had us buy a new dishwasher. One wonders.
Mind you, I'm not 100% sure in our case it was a door seal, and its nice to have new parts again and everything working without worries, so I'm not complaining.
"Keep your stick on the ice. Remember, I'm pulling for you. We're all in this together." - Red Green
5:05 pm
April 27, 2017
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Manufacturers and retailers want us to buy more stuff? Really? Analysis? This cannot be!
6:49 pm
April 2, 2018
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dougjp said
Mind you, I'm not 100% sure in our case it was a door seal, and its nice to have new parts again and everything working without worries, so I'm not complaining. Â
European washing machine was working for 23 years. Little motor controlling where water intake should go (pre-wash, wash, bleach, etc.) broke down.
Opened machine, detected what was broken, called importer. About $250+tax+shipping. Technician mentioned (very friendly and knowledgeable guy) since I am that handy to check main motor brushes. If they are at 40-50% life left I should buy new set. $70 each (x2) +tax.
So, to fix old machine is about $500, my labour. With big question mark what next can break...
BTW, I could order little motor (actually the whole water dispensing part, nobody sells motor separately) from Europe (UK or Germany) for about $100+shipping with no guarantee of delivery time. Yes, WE are robbed here in paradise country EVERY SINGLE DAY!
So what do you think I did at the end...
8:58 pm
April 27, 2017
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Looks like StatsCan has issues with its methodology.
https://www.lacombeexpress.com/opinion/how-serious-is-food-inflation-in-canada/
Several factors seem to be working together to push inflation rate higher. Only some of them are related to Covid supply chain disruptions and shutdowns
Won’t come as a huge surprise if BoC is forced to bring interest rate hikes further forward and act more aggressively.
9:36 pm
February 27, 2018
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I have a few wrist watches. So every so often i need a battery change, which i have a jeweler do. During the covid lock down, stages 1 and 2 i set a dead watch aside. In covid opening stage 3, i took that watch in. The price for a battery change had more than doubled.
I never thought to ask beforehand, i was handed back my watch and asked to pay an exorbitant amount, which i refused to do. We settled on a price which i still thought was too high.
So YES, businesses in canada are trying to recoup lost income by gouging us. It's the Canadian way, insurance companies get away with it, banks rob us blind. As for bell and rogers... we all know what the telcos are capable of.
6:03 am
March 30, 2017
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Kidd said
So YES, businesses in canada are trying to recoup lost income by gouging us.
Yes I find that seriously disgusting that businesses just thought they wanted to recoup the last 18 months of lost business by charging exuberant amount for the exact service. We should all boycott those businesses. Everyone suffers from covid, not just businesses....
On a side note, optometrists are using the same opportunity to ask for more money and refused to see OHIP covered patients which is even worse. For those that thinks the optometrists ask are reasonable, I can point out why it aint.
Doug Ford should make it an essential service....
6:29 am
April 27, 2017
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Hundreds of thousands of businesses went bankrupt since March 2020.
Meanwhile many people are getting handouts, often larger than the salary or benefits they had lost.
A huge jump in money supply and shortages of workforce shifted psychology. People used to refuse pay higher prices. Now, flush with cash, they are paying up. Once there is a psychological shift, inflation is likely to stick around. We’ve already had official predictions that the inflation blip would last but a couple of months and that its purely in contrast to low prices of March 2020 changed to “well into 2022”.
7:26 am
September 11, 2013
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Ontario optometrists say they haven't had a raise from ohip in many years, that they get far less than in other provinces, and that it costs them to perform ohip related services, i.e. they lose money when seeing those patients. I don't know if that's true, but if it is can we expect people to lose money when they provide a service?
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