The investonomic smorgasbord on the Sunday Reads.

Start with some stocks and dividends and energy and asset allocation and then mix in $2 per litre gas prices, plus my dueling economists who say GMO stagflation “yes!” and inflation “no way” and you’ve got an investonomic smorgasbord on the Sunday Reads.

This week when I made sense of the markets for MoneySense, I looked at the scary, just-in-time-for-Halloween prediction of 8 rate hikes for Canada. In the post you’ll see what happens to markets when central bankers do get serious about hiking rates.

I also looked at the incredible growth of the monster U.S. tech companies. Canadian tech darling Shopify (SHOP) is also in that roundup. Also, oil and gas is where they keep the free cash flow, and market history says get ready for some nice stock market returns for November and December. Of course, past seasonal trends do not guarantee future trends 🙂 Enjoy the post, it’s likely the most words I’ve ever put together for my weekly; I hope they are in the right order.

$2 a litre coming soon?

That’s a scary thought as well.

Fill up your 60 litre tank? That’ll run you $120. Own a big truck? Well, good thing borrowing costs are so low these days.

Energy expert Dan McTeague suggests that in many parts of Canada, the price at the pumps could top or approach $2 per litre. There are many estimates for $100 oil, including from BlackRock. And then add in some new taxes – the Clean Fuel Standard.

The CFS is a program designed to get suppliers of liquid fuels, such as gasoline and diesel, to gradually cut the amount of carbon in their product in an attempt to reduce greenhouse gas emissions. If reduction targets cannot be met, credits can be purchased from other companies producing cleaner fuel or suppliers can pay into a compliance fund.

British Columbia, which already has its own Low Carbon Fuel Standard in place, is trading credits for about $475. If the CFS uses that as a standard, McTeague estimates every province outside of B.C. will see an immediate increase of 16 cents per litre on Dec. 1, 2022.

We’ve got that tax and $2 gas covered.

This is a modest energy investment in one of our TFSA accounts, and it represents some very recent gains. That should buy us about 2,090 litres and perhaps take us about 35,000 kilometers in my wife’s RAV 4.

That said, we’re not really going anywhere.

Get yer free gas

Our cost? Zero, nada, free.

I have that iShares XEG and the Ninepoint energy ETF in other accounts as well. Nobody knows with any certainty what will happen with the price of oil and the price at the pumps, but if you want to hedge your lifestyle, you might invest in Canadian energy stocks. I don’t think it’s too late by any means, but that’s just my “educated guess”.

Here’s an interesting Tweet from one of the energy guys that I follow on Twitter.

Hey Dale – here are my personal 100% Canadian returns YoY taken this morning (Oct 30, 2021) from my RRSP/ Invest / TFSA – 649% / 630% / 478 % #Canada #energy #oil #investing #oott Not bad EH !!! $bte.to $cj.to $cnq $cve $wcp.to $ath.to pic.twitter.com/qSVerNZbzW

— Burnsco (@garquake) October 30, 2021

Burnsco was responding to my recent post on how much does your Canadian home bias cost you?

I guess his answer is “not too much”. Of course, that is a very concentrated bet on energy. I’m happy with a small hedge as part of the commodities hedge.

Don’t blame Canada, blame China

In the Financial Post Martin Pelletier offered that …

“China is responsible for 64 per cent of the 32 per cent increase in emissions since 2003, the year of Greta Thunberg’s birth, and 93 per cent of the 39 per cent increase in coal consumption.

Of course Greta will soon be commenting on the blah, blah, blah coming out of the UN Climate Summit in Glasgow. China is not in attendance, but Canada is.

Let’s hope that one day we recognize the energy reality and put a real and viable climate plan on the table. That said, it’s obvious that nothing can really happen if China is not at said table.

Of course, we should all do our part. It would start with living and travelling and consuming a lot less. And as I’ve long suggested, stop buying crap that is made in “high CO2” jurisdictions. I don’t want to name any names, or blame anyone 😉

Is stagflation going GMO?

That’s what economist John Mauldin suggests. We might get some kind of genetically modified stagflation. GMO = genetically modified organism.

Here’s John’s latest – The Trick or Treat Economy.

Yes it’s mostly tricks according to Mr. Mauldin. And once again, that is a great read.

One very interesting observation or framing within that post is that government borrowing jumped the shark. Government borrowing became an accepted revenue source.

That’s all part of Modern Monetary Theory. From that VOX post …

The theory, in brief, argues that countries that issue their own currencies can never “run out of money” the way people or businesses can.

Cool, note to self – start my own country.

Related post: Got bitcoin? Just in case nation building does not ‘go so well’.

Anyway, back to that Mauldin post and MOD …

I often see the term “normalization” used to describe what the Fed is doing. It raises questions. First, do we really know what “normal” is? As noted, this economy is structurally different from the one we left behind in early 2020. Normal is a nebulous target. But even if we could go back, the previous normal wasn’t great.

And this reveals the real problems that are coming.

Modified stagflation.

Not that 70’s show

That rings true (assuming some form of stagflation sticks around). Every stock market correction is unique, every asset bubble burst in unique. And every economic period is unique. We won’t get the stagflation of the 1970’s, that’s impossible for everything to repeat in similar fashion. It’s not that 70’s show. Mauldin thinks we will get pockets of inflation (see the above energy story), the total inflation numbers won’t paint the picture.

Canadian economist David Rosenberg dismisses the stagflation threat …

I am not a big fan of the sustained inflation view even if the bottlenecks linger for longer. This remains, in my view, a massive supply-induced price distortion. 

Strip out the hot pockets and ..

We are hearing more and more about stagflation and hyperinflation, which is totally absurd. It’s as if, in the past few weeks, none of this happened: a 0.2-per-cent reading on the core CPI (the average of the past three months) and that the YoY trend has gone from 4.5 per cent in June to four per cent in September; a 0.1-per-cent print on core PPI, the lowest reading since April 2020; or a flat reading on ex-fuel import prices after a 0.1 per cent dip in August.

Rosenberg often points to the declining economic growth trends.

From that CTV post …

The fact that the economy only managed to grow at roughly a two-per-cent annual rate after actually falling in the second quarter just shows how it’s struggling to make any headway,” Porter said.

So much for all of those rate hikes. The economy might take care of that treat.

The inflation scorecard

Inflation will have the final say on this, and no one knows what will happen. As a very good internet economist 🙂 I don’t think we’ll get lasting and meaningful inflation or stagflation. But I’m not going to risk our retirement and invest based on that guess.

Here’s how to protect your portfolio against inflation and stagflation. The main story there is that stocks (stock markets) don’t work, or let’s say don’t always work for inflation.

If inflation goes away, think of it as insurance that you didn’t need to use. And as is the case with insurance, there is a cost. It’s retirement or portfolio insurance.

The young folks might not need that insurance, they’ll use stocks that have a very good record of beating inflation over much long periods.

The Sunday Reads

An interesting consideration, is paying off your mortgage a mistake? That post on My Own Advisor also includes Mark’s Weekend Reads.

And here’s a good reads roundup on Banker on Fire, not to be confused with our friend at Banker On Wheels who is no stranger to the Sunday Reads. And ironically, Banker rode in on that post with Bank of America’s crypto is too large to ignore report. In that Banker on Fire post you’ll also find a financial pro who gives himself an F in retirement.

On the Maple Money podcast we’re shifting gears on retirement with Mel Dorion.

Here was rethinking retirement on the Sunday Reads

And what a wonderful collection of posts this week on the Findependence Hub. You can start with Baby Boomers getting ready to retire comfortably from Steve Lowrie and then from Adrienne Young, short and steady wins the race, the case for short term bonds.

On Tawcan here’s the September dividend update.

On the Retirement Manifesto, Fritz offers how much time he spends managing their money.

From Mike The Dividend Guy – how to start investing, a podcast series.

Million Dollar Journey offers up stocks to fight inflation.

Thanks for reading, we’ll see you in the comment section.

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