This week offered another look at inflation numbers in the U.S. Inflation is robust and we see those inflation hotspots or pockets. Transportation costs for goods are soaring. Commodities prices (and especially oil) are on the march higher. Yet the markets have shrugged off the big inflation numbers. The stock and bond markets are buying the transitory inflation argument.
In my weekly MoneySense post I offered …
“The CPI increased 0.6% in May on a seasonally adjusted basis after rising 0.8% in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 5.0% before seasonal adjustment; this was the largest 12-month increase since a 5.4% increase for the period ending August 2008.”
Government sources previously reported that consumer prices had jumped 4.2 per cent in the 12 months ending in April.
The stock market is near all-time highs.
Even bond yields fell in the U.S. sending bond prices higher. Here’s the long term treasuries ETF – ticker TLT.
The stock and bond markets are having none to this inflation chatter.
Here’s a good post on Seeking Alpha, why are bond yields declining as inflation surges?
For instance, the yield on the U.S. 10-year Treasury note fell to 1.43% on June 10 – its lowest level since March – while government-bond yields also declined in the UK, Germany and Japan, Eitelman said. “The bond-market rally in the face of accelerating inflation is a global phenomenon, and it’s certainly a bit mystifying,” he stated.
Much of the inflation is being blamed on supply chain bottlenecks and the aggressive reopening of the economy in the U.S. Canada is starting to reopen of course, as is much of Europe.
Central banks around the world have not responded by increasing rates. They collectively offer that inflation will be transitory. Investors are ‘buying it’.
And for the record, I have been in that transitory inflation camp for quite some time. But I cannot afford to guess. I hedge with Canadian resource stocks, gold and commodities ETFs and bitcoin.
Like you (perhaps) our portfolios are at all-time highs. Even the typical stock or balanced portfolio is at all-time highs. You should find the same situation if you are investing with one of the Canadian Robo Advisors.
Transient inflation would be favourable of course. Stocks and bonds typically like low inflation and a disinflationary environment. That’s mostly what we’ve ‘enjoyed’ in our investment lifespans.
Stocks and bonds typically prosper in this environment.
But keep in mind, anything can happen.
More Weekend Reads.
On MoneySense, Jonathan Chevreau followed up with a very good post on the Purpose Longevity Pension fund.
I’ll be back soon (on this site) with a follow up to my original post on the Purpose Longevity Fund. We’ll look into how to use that fund within your total retirement portfolio mix. It appears that a 30% to 40% allocation might be the sweet spot.
And on Jon’s site, The Financial Independence Hub, and on U.S. stock valuations, are the lunatics running the asylum?
From Yardeni Research, here’s a great link on stock valuations.
I’ve set more sell limit targets for some of our high flying U.S. stocks.
The $25,000 dividend income milestone.
And congrats to Drip Investor for reaching a $25,000 milestone in dividend income.
On the podcast front, how Mike The Dividend Guy became a dividend growth investor.
Rob at Passive Canadian Income gives us his May dividend income report and offers – Mey!
On My Own Advisor, Mark links to the best early retirement blogs in Canada in the weekend reads. That list is courtesy of the site and service at Hardbacon.
On GenYMoney, the May Dividend update.
On Million Dollar Journey, giving up on the smith manoeuvre? Yes we’re going for some British spelling here 😉
But, what is the Smith Manoeuvre and why is it so popular? This investment strategy was named after Frasier Smith, a financial advisor who popularized this strategy through his book. The Smith Manoeuvre, in its simplest form, is a leverage investment strategy that uses your home as collateral. It’s popular because borrowing to invest makes the interest eligible for a tax deduction. So to frame it in an enticing way, Canadians, it enables Canadians to convert their regular mortgage into a tax-deductible mortgage.
Canadian banks – big dividend increases on the way.
Canadian investors know that the Canadian banks set aside large sums in way of loan loss provisions. Those amounts might soon end up in your pocket by way of dividends.
From that Financial Post article …
Here’s the excess cash scorecard. The light blue segment represents the potential level of ‘excess’.
I am happy to sit on the biggest cash piles of the big 3. Of course those bank-by-bank numbers would have to be adjusted per share. The biggest banks set aside the biggest cash piles.
We could certainly see some dividend increases in the area of 10% to 15% once the big banks are allowed to return to a dividend growth policy.
The bitcoin watch.
On Savvy New Canadians how to buy bitcoin in Canada. Of course you can also buy bitcoin or ethereum by way of ETFs at Purpose, Evolve, 3iQ and CI Global. I have covered the difference between the Canadian bitcoin ETFs and the closed end funds.
Bitcoin has had a rough ride recently, but it appears to be finding some footing in the $35,000 range. It is up some 23% year to date, but that could evaporate in a hurry given the volatility. I continue to hold and invest in bitcoin.
For me, it’s another asset class.
Thanks for reading. We’ll see you in the comment section. Are you buying the transitory inflation argument?
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Dale
Where is the article on EM’s?