It is a strange event. The market makers want to see a weak-enough economy so that the Bank of Canada can cut rates. And the stock market rallies on that bad economic news. Bad news is good news. All said, it does make sense. The rate hikes have taken a toll on the consumer and the economy. The longer we stay at elevated rates, the more damage done. We’re trying to avoid a recession of course. Lower rates will take pressure off of the consumer and businesses. They can help fuel the economy and corporate profits over time. But don’t forget, we need to see inflation under control as well. Economists now suggest that we have a weak-enough economy and inflation is being tamed. We might have the all-clear signal as Canada braces for rate cuts on the Sunday Reads.
This headline in yahoo!Finance says that Canada’s economy grew at a weaker than expected pace in Q1 raising the chances of a rate cut.
Canada’s latest inflation reading came in at 2.7%.
The Bank of Canada, which has raised rates 10 times since 2022 as it battled rising inflation, makes its next decision on June 5.
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StatCan also revised its earlier estimates for the fourth quarter of 2023. Following an annualized dip of 0.3 per cent in the third quarter last year, StatCan now says Canada eked out growth of just 0.1 per cent to end the year – narrowly avoiding the definition of a technical recession of two consecutive quarters of declines.
And here’s the real GDP per capita …
Yup, check that economic weakness box. The Canadian stock markets liked the bad news.
U.S. is leaving us in their dust
There is also hope that the U.S. will start cutting rates before year’s end. The U.S. economy grew more slowly in the first quarter than previously estimated after downward revisions to consumer spending and a key measure of inflation ticked down.
Of course the Canadian dollar has been weak. It’s possible that there will be more downward pressure if Canada jumps far ahead on rate cuts. Morningstar says –
‘Like a person’s pulse rate, a country’s currency is a vital sign of its general health. Well, the loonie is listless, sad, and depressed so far this year.’
That risk brings us back to basic diversification and holding U.S. assets in U.S. dollars. You benefit from the Canadian currency weakness. Any trips to the U.S. are hedged. We can make the same argument for holding other international developed market assets.
What is the cost of your Canadian home bias?
As I wrote in 2019, like to head south in the Winter? Don’t let the Canadian dollar stop you at the border.
Cut The Crap Investors also enjoy the ‘free’ gas, with incredible profits from their Canadian oil stocks. Ahhh, isn’t it wonderful when your portfolio pays the way and protects you from the various risks? That oily idea was put on the table in late 2020. Or about 400% ago as I like to write.
I’m still building my oil and gas weighting. The massive free cash flow theme and reality is still in play.
Charge it!
And when you travel to the U.S., how you spend is important. Why not earn points and avoid currency conversion charges?
Here’s the best credit cards for your next getaway form Hard Bacon.
Take a look at the Rogers Red World Elite Mastercard, from GenYMoney.
For local spending, consider the Tangerine Cash Back Card. We use that and earn about $50-70 per month in cashback on everyday spending. That’s a no-fee card.
Cashing in with our Tangerine Cashback Credit Card.
Also on the travel and investing front …
The Canadian banks earnings summary
I updated last week’s Sunday Reads, to include the revenue and adjusted earnings for the Big 6 banks. While TD reported on May 23rd the remaining 5 banks delivered earnings reports last week. There were stars in RBC and National Bank, while BMO was the dog.
The Canadian banks step up to the plate on the Sunday Reads.
Most lenders beat earnings expectations in the second quarter, with the exception of Bank of Montreal, but the six major banks set aside a combined C$4.36 billion in loan loss provisions, 26% higher than a year ago.
More on utilities and natural gas
In a follow up to pipeline stocks and utilities are on the move again thanks to AI, of course natural gas goes along for the ride.
That sets up well for our nat gas stocks and pipelines.
RRIF and LIF deadlines
More Sunday Reads
Rob Carrick reported on how Canadian investors are using the best all-around investment product. Of course those are the all-in-one asset allocation ETFs.
You can own a very well-diversifed global portfolio in one single ETF. They are available at various risk levels. From that Globe & Mail post …
Over $25-billion has flowed into asset allocation funds since Vanguard popularized them six years ago. In a recent strategy note, the ETF team at TD Securities said the amount of money in these funds “consistently continues to grow like a weed each month.
Most of the money is in the growth options – the all-equity or balanced growth models.
While it’s nice to see the growth in these ETFs, use should be in the hundreds of billions of dollars. Most Canadians are still stuck in very inferior high-fee mutual funds. You could very likely create twice the wealth over time choosing an asset allocation ETF over high-fee mutual funds. Who doesn’t want twice as fruitful retirement?
If you want to know how to match the right portfolio (risk level) to the investment goal(s), drop me a note. I performed that task for several years at Tangerine Investments who offer index-based portfolios. They were Canada’s first Robo Advisor.
It’s easy to make the switch. I’ll show you how.
My Own Advisor
At My Own Advisor Mark also takes a look at the Canadian bank earnings, plus an advisor fee comparison, and more.
Here’s the week in review from Dividend Hawk. In the news, more consolidation in the oil patch as …
At Banker on Wheels you’ll find an interesting look at the S&P 500 vs the U.S. economy.
There are some fascinating facts in that post. While the S&P 500 companies only make up 29% of employment, those 500 companies contribute half of the corporate profits in the U.S. Bigger is “better” when it comes to profitability.
Many of the S&P 500 constituents are multinationals, generating enormous revenues and profits overseas. You own a global portfolio when you hold the S&P 500 ETFs. Our U.S. stock portfolio (for me and the Mrs.) has an even greater allotment to overseas profits.
The Dividend Guy’s growth portfolio
Mike Heroux offers a look at his public portfolio. Mike like’s dividend growth stocks, but smartly has total return as the long term goal. He uses the dividend growth history as a divining rod. He then confirms the qualities that he’s looking for in an investment. Mike also smartly considers the valuation of each investment.
My latest for Seeking Alpha – The Dividends Don’t Matter.
On stocktrades.ca – transferring from RRSP to TFSA, understanding the penalities.
And we’ll conclude with a very important investment truth …
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OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
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Hi Dale, long time reader, can you help me on my transition to an asset allocation etf?
Hi Charlie, yes for sure. I’d be more than happy to. I will send you an email.
Dale