We had an inflation reading in Canada. It was a good news / bad news report. There are encouraging signs, inflation is moving in the right direction, but it is also sticky and still above target. I am of the opinion that there is no 2% inflation target in Canada and the U.S. That 2% target might be arbitrary and meaningless. Central bankers might be preparing for a 3%’ish inflation world. But of course, anything could happen. Investors can benefit by way of higher cash, bond and GIC yields. And the oil and gas stocks inflation hedge is working out quite nicely, as the recent earnings reports (and stock returns) suggest. Inflation is sticky, while oil and gas stocks pump the free cash flow – on the Sunday Reads.
Kyle Prevost certainly made sense of the markets at MoneySense. It was a very busy and interesting week. Kyle covered the somewhat sticky inflation and the earnings reports, with a Canadian focus.
Here’s the Canadian inflation watch …
It apears that rates will certainly stay put and high, for now. The inflation print also increases the odds that we will see another rate hike in September.
On the economic possibilities, this is well-put by Stephen Poloz, the former Bank of Canada governor …
Most tellingly, he finished by concluding, “We could have a recession, we could have stagflation, we could have a soft landing, or a softish landing. If someone gives you a definitive answer, they’re making it up. The tools don’t exist to do that. As a business or as a household, prepare yourself for a range of possibilities.”
Economics is like a box of chocolates, we don’t know what we will get.
“We’ll get chocolates” was offered to me on Twitter/X on a few occassions. 🙂
For inflation readings and analysis I’d suggest that you follow Professor Tombe. He sees some encouraging news with the three-month trends. The truth is, inflation is moving in the right direction. It is a wait and see game.
Keep in mind that there are two sides to the higher rate environment. Savers and retirees can benefit. Bond yields are attractive, and GIC rates got another boost at EQ Bank.
The 1-year is now paying 5.6%. There are 5% (or more) rates available from 1-year to 5-year GIC terms.
Why retirees hold bonds and cash and GICs
This week, I offered a post on retirement risk and why retirees usually hold generous postitions in bonds, cash and GICs.
A retiree or near-retiree would be able to secure risk-free income for 5 years, and from today’s numbers yields that top inflation. It is a wonderful event that bonds and cash actually pay something useful, again.
From that post you can see that equity-heavy portfolios can become impaired during recessions and major market corrections. They can fail mathematically, and retirees will often pull the plug on retirement spending (and plans) during major corrections.
You can choose to enter retirement ‘stress free’.
Canadian oil and gas stocks
Some of the biggie Canadian oil and gas stocks have reported over the last couple of weeks. The quarter offered a period of lower oil prices, but the free cash flow is still flowing – to investors. The investment thesis still holds up IMHO. The free cash flow is being used to pay dividends, pay down debt and buy back shares. That is a wonderful combination for investors.
From that MoneySense post …
When it comes to sectors, energy stocks are the most reliable inflation fighters. Canadian oil and gas stocks (XEG/TSX) are up over 16% over the last year and over 8% year to date.
While not advice, I like the idea of (at least) 5% oil and gas stocks and a 5% weighting to the Purpose Real Asset ETF (PRA/TSX).
Don’t let inflation impair your retirement or lifestyle.
With an all-weather portfolio we’re ready for most anything.
U.S. markets still not making sense?
Here’s a chart that says it all …
If you buy the market, you are benefitting and going along for the ride. As FiPhysician points out …
Most lazy, low-cost, broadly diversified ETF investors are momentum investors in disguise.
And not that there’s anything wrong with that, but we should remember the lost decades for U.S. stocks.
Given the valuation issues and U.S. stock market being driven by just a few names, I was asked to come up with U.S. stock portfolio ideas. It was interesting to see the double-asterisked conviction ideas beat the market out of the gate – without over-priced tech.
I will be tracking the performance of that portfolio “idea”.
More Sunday Reads
At My Own Advisor, and on the energy front, Mark looks at investing in CNQ, then and now. In that post Mark goes over some of his stock and ETF portfolio building history. Mark is doing it right, and sets a very good example for Canadian self-directed investors.
On the retirement theme that I introduced above – steps to retiring as planned on Findependence Hub.
At Tawcan Bob serves up Part 2 of his portfolio review for 2023.
At Dividend Hawk you’ll find the quarterly dividend update…
And as always, Hawk has the weekly wrap of earnings and the top stock stories of the week.
And the weekend post at Banker on Wheels would keep you busy for your entire Sunday. In the mix you’ll find a fascinating chart in – why aren’t investors selling stocks to buy bonds? Bonds might be looking to do something they’ve never done before.
And Canadian investors will certainly like the conclusion in this post – does adding dividend stocks improve portfolio performance?
We have now addressed the first two potential benefits of adding dividend stocks to a portfolio: higher returns and lower risk. When evaluated over the full 25 years, dividend stock strategies have been moderately superior on both accounts
Here’s the Canadian stock and REIT page on stocktrades.ca.
Last week in the Sunday Reads I presented several Canadian stock portfolio ideas.
While many investors will build very good ETF portfolios, it is also easy to create and manage a very good stock portfolio.
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I tend to agree that we might now be living with a 3% target inflation rate in Canada — and being told something else! As you mentioned, it’s good for cash-equivalent investors.
Good read!