If you follow the financial headlines, you have probably read about the dreaded inverted yield curve. The inverted yield curve has a very good record (OK, it’s perfect), in predicting recessions. Recently, the yield curve has inverted, and then reversed course. Many economists and market watchers suggest that for now, the yield curve is simply flashing a warning signal. We’re looking at the inverted yield curve on the Sunday Reads.
For the explanation of the inverted yield curve, plus charts and commentary, have a read of curve ball from John Mauldin. From curve ball:
So far, the full yield curve isn’t inverted, only parts of it. But this is definitely abnormal and combined with everything else we know, it’s a ringing alarm bell. The more inverted the yield curve is and the longer it stays that way, the more confident we are that a recession is coming.
And from that post quoting Jim Bianco …
This is why we have been arguing the Fed has no choice. They have to hike until it hurts. And if that causes a recession or bear market, so be it. I believe this is what the short and long yield curves are signaling. No recession now but headed that way with no off-ramp.
Of course, no one knows what we will get (recession or not), but we should be prepared for the possibility. Lance Roberts is keeping a close watch and offers more clarity. There are a few yield curves on watch, and it takes a certain percentage of curves flashing recession to get an accurate ‘reading’. We’re not there yet.
The big rift between government and business
I have to admit, this is an alarming read. We will get a budget in Canada on Thursday. And it appears that business and government are not on the same page to say the least. The current government is not interested in what business leaders have to say about generating economic growth. From that Globe & Mail (paywall) post, quoting Dave McKay, the CEO of RBC:
But to get there, he added, leaders in Ottawa will need to repair relationships with the business sector that are marred by frustration and mistrust. His tone was exasperated as he described years of back-and-forth with federal officials, who he said are too often “artificial and tactical,” and capable of talk but little action.
The confrontational tone is alarming, from both sides. The gloves are off. McKay adds:
“Tax and spend to me is like eating Sugar Pops for breakfast. You feel really good for an hour and you feel crappy by noon, at the end of the day. And that’s what tax-and-spend gives you. It doesn’t give you sustainable prosperity.”
As you know there is a new tax introduced on banks. It will transfer some $11 billion from shareholders to tax revenues. Bank executives offered a compromise.
In private conversations that included deputy finance minister Michael Sabia, the bank CEOs jointly and individually pitched the idea of letting banks and insurers keep more than $5-billion that would otherwise be taken from them under the new measures. Under the industry’s proposal, the institutions would earmark that money for investments and lending in areas that are high on the government’s agenda, like housing supply or climate transition.
Nobody trust big business
But the government ain’t listening. Nobody trusts businesses and business leaders they suggest.
The strain in relations is not new. Prominent CEOs still speak bitterly about a gathering years ago of top business leaders, who met with Mr. Trudeau at an event space in The Globe and Mail’s headquarters. The group of executives was chastised by the Prime Minister, who said people don’t trust them, according to two sources’ accounts of the event.
We’ll keep an eye on this rift and the tax measures and policy to come. Many sectors are in the government’s crosshairs. All of this as Canadian GDP growth is predicted to be the lowest of the G20. We were already lacking on the growth front, pre-pandemic.
The Sunday Ride Update
Why are the markets so high? Earnings – says Banker on Wheels.
But earnings are manipulated by buybacks. Buybacks are when companies use cashflow or debt to buyback shares. That will drive earnings per share of course, while actual earnings do not have to increase.
And on My Own Advisor we have the richest people in the world weekend reads.
And every week we head over to Dividend Hawk for the week in review, with the stock market headlines and links to the top blog posts of the week.
Mistakes are life’s best teachers. We don’t often learn when everything goes right. On Tawcan, Bob is learning from his investment mistakes. Bob’s mistake list:
- Mistake #1: Not doing proper research
- Mistake #2: Being greedy, not following my own rules
- Mistake #3: Not thinking long term
- Mistake #4: Only look at dividend growth rate
- Mistake #5: Not believing my investment thesis
Rob at Passive Canadian Income is breaking $10k. Rob now has $24,835.77 in total forward passive income.
And while I share posts from dividend investor friends, I would offer that total return is more important than income during the accumulation phase. Income can provide some benefit in the retirment funding stage.
Related post: What is the cost of your Canadian home bias?
On FiPhysician an interesting post on overconfidence bias. Yes, we all feel like a genius during a bull market. And of course, men are much more overconfident than women investors. Is that why women are better investors?
Take your pick, there’s a fresh post every day, Monday to Friday on Findependence Hub.
Pebbles and ponds
We have the pebble and the pond on The Retirement Manifesto.
There are few things in life as rewarding as knowing the work you do makes a positive impact in the lives of others. I suspect there are many who only casually watch the ripples roll toward the distant shore. Some, however, embrace the ripple. I’ve received thousands of emails from you, the reader, telling me of the impact
my wordsmy pebbles have made.
Fritz’s very helpful blog turns 7 on April 12. 🙂
Here’s another good follow for you, the Atlantic Investor. A recent retiree who pens on the worries of a newbie retiree.
Let’s check in with the recent dividend update on the Money Maaster.
In this post I offer why I left my weekly column – Making Sense of the Markets. I also look at the outperformance of the big dividend payers.
Thanks for reading. We’ll see you in the comment section. Have a great Sunday and week.
Cut The Crap Investing Partners
You will earn a break on fees by way of many of these partnership links.
CANADA’S TOP-RANKED DISCOUNT BROKERAGE
Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
RETIREMENT FUNDING PLANNING
The self-directed investor might consider the service provided by Mark Seed from My Own Advisor. He runs Cashflows & Portfolios where they will provide options for that optimal retirement funding strategy. That service is provided for a very reasonable fee.
If you do head to Cashflow & Portfolios, be sure to tell them Cut The Crap Investing sent ya 🙂
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 1.25%. You’ll find some higher rates on GICs, recently updated and increased t0 2.05% for short term offerings. They also offer U.S. dollar accounts. We use them, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $60 to $70 every month! And that’s on everyday spending. There are no fees with …
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me pay the bills for this site. That will allow me to keep this site free of ads and easy to read.
Kindly use the buttons below to share this post. Don’t forget to follow this blog, use that subscribe button.
More than two million people have been displaced from Ukraine since February 24, 2022, and aid is urgently needed. Consider making a contribution to the Canadian Red Cross, Canada-Ukraine Foundation, Help Us Help, Save the Children Canada, Global Medic or another charitable organization of your choice. Be sure to donate to reputable charities actually making an impact, and beware of fundraising scams.