On the June 2 Sunday reads Canada was bracing for rate cuts. The Bank of Canada did cut rates by 0.25% the following week. We can thank a weak economy and inflation that is under control. Hopefully inflation continues to cooperate. It is expected that the rate cuts will help the economy (over time) and perhaps give a boost to the Canadian big dividend paying stocks that have underperformed the last couple of years. Well, we may have to wait. The market wants to see proof. That said, BMO research shows that historically rate cuts have done the trick in the near term. BMO’s Belski even goes as far to suggest that rate cuts are a catapult for Canadian stocks. We’re waiting for rate cuts to work on the Sunday Reads.
Here’s the rate cut post on the Sunday Reads.
And Scott Barlow of the Globe & Mail delivers (subscription) the catapult reference.
While the pace of the easing cycle is certainly going to be data dependent, the trend is clear, with historical easing cycles lasting up to a year with nearly 200 bps of cuts on average. Furthermore, our analysis shows that these cycles can be divided into proactive “non-recession” easing cycles (1996, 1998, 2003, and 2015) versus more reactive “recession” easing cycles (2001, 2007, 2020).
Brian Belski goes on to note that the TSX typically posts solid gains six months and 12 months after the first rate cut. This is in clear contrast to the more “reactive” easing cycles where the TSX typically sharply underperforms.
RBC say rates cuts are more like easing off of the brakes compared to stepping on the accelerator. That RBC note suggests that interest rate cuts won’t provide an immediate boost to Canada’s lagging economy or the debt payment relief some households would like to see. We’re about to experience the great mortgage reset in Canada.
The global economic growth backdrop has shown signs of improvement, but Canada’s economy continues to underperform,” Wright said in a report published on Wednesday. “The Bank of Canada’s pivot to cut interest rates in June is more akin to easing off the monetary policy brakes than stepping on the gas.
For 2024, RBC predicts real GDP will come in at one per cent rising to 1.8 per cent in 2025.
Slow motion entertainment
And keep in mind this is economic guessing and market watching for entertainment purposes. I enjoy watching the markets and the economic readings and projections, it’s like watching sports, only everything happens in extreme slow motion.
You can insert Toronto Maple Leafs joke here –
At the most, some folks might conduct some slight portfolio shading based on some of the obvious trends. For example, I started building up the longer bond positions on the first Canadian rate hold. But we’re better off with the main theme of this blog – get an investment plan and stick to it like glue.
Keep it simple, keep it cheap!
On the mortgage battle front
As I noted in that post, these Canadians have had years to prepare. And here’s what mortgage broker Brent Richardson is seeing …
And for all things housing and mortgage related in Canada you have to follow Ron the Mortgage Guy. You can check out his popular podcast as well. Ron’s not afraid to make some very solid predictions/guesses about where rates and the housing market is heading. He will frame the decision-making process for those renewing their mortgage.
Another go-to resource that provides some wonderful research and charts is WOWA.
The return of the Balanced Portfolio
Elon Musk gets his historic $56 billion payday
Shareholders voted to uphold the largest payday in corporate history. That dwarfs the highest-paid executive in the U.S. this year – Hock E. Tan, CEO of Broadcom. His total compensation was $161.8 million.
Next Thursday, Tesla shareholders will vote on Elon Musk’s proposed $56 billion pay package—the highest-ever executive compensation package in history. In January, a judge rescinded his compensation over governance concerns, and so the Tesla board has asked shareholders to ratify it a second time.
Everything seems to be going wrong for Telsa and Musk, except for his payday. On Seeking Alpha I’ve been warning investors (for a couple of years) that Tesla is being repriced as the car company that it is. Share price down, Musk compensation up …
Tesla has fallen from $407 in late 2021 to as low as $122 in 2023. The share price is trying to battle back as Musk sells the notion of robo taxis and self-driving cars. Investing in Tesla is a bet on ‘technology in the works’. Maybe that comes to fruition, maybe not. We don’t know the future. But the stock certainly belongs in the speculative basket.
Investors in the past who got in early enough and who sold shares, certainly could have made money base on the previous hope – that we’d see the mass adoption of electric vehicles. That event is certainly not taking place (Teslas are piling up on lots), or at least the mass adoption has stalled.
The CEOs of the very successful Apple and Microsoft don’t even earn 1% of what Musk is taking home. Microsoft earns about 6x the profits of Tesla, Apple almost 10x.
AI stands for Apple Intelligence
And speaking of Apple, they released their AI strategy and the stock price took note. The stock was up almost 8% for the week. The stock hit an all-time high on Tuesday.
Sheer brilliance to put the Apple sticker on the artifical intelligance offering. Apple is one of the strongest innovators with one of the strongest brands on the planet. That is one of my 3 U.S. picks in our U.S. stock portfolio. Apple is my largest individual stock holding along with RBC.
Of course, the AI ‘products’ will have to be useful and good for the stock to get a meaningful boost over time. For now it’s a price surge based on the potential of AI for Apple products.
Nice to see Daddy beefing up his U.S. position.
A “dividend investor” who gets it
It was nice to see this post on Tawcan – Q & A with Dividend Boomer. While there’s dividends in the handle, DB is a total return investor. He gets it. And as Bob has stated in the past- it’s total return for the win. More money is more better.
I also think younger folks shouldn’t focus on dividends at all, especially if they aren’t pulling money out. Growth is good. Buy good companies and hold them. Some will pay dividends and some won’t, but good companies will make you money in the long run.
And yes it’s about net worth …
We spent a lot of money building our home, which is worth much more than our stock accounts and at some point, we will downsize when both kids are out for good. During the saving period for the house and for some time afterward nothing went into the taxable accounts. But a nice house in Vancouver is also a significant investment.
Index investing is the ‘way to go’ …
I think for most people, who don’t have the time to study markets, index investing is the way to go. It’s simple and has proven to be very effective. Also, most index funds outperform most dividend funds.
You can follow Dividend Boomer on Twitter / X.
I should have been a well-paid stock analyst
More Sunday Reads
At My Own Advisor Mark offers a very good post that takes a look at dividends and capital gains. You’ll find a good chart on risk and corrections. It is crucial that we understand risk and invest within our risk tolerance level.
In the accumulation stage it is ALL about total return. More money creates more income in retirement. That is undisputable. $1.5 million is larger than 1.0 million 😉
At Banker on Wheels you can’t outcycle a bear.
That is a great universal message for investors. We don’t know when the stock market corrections will arrive and we don’t know if they will be a more modest black bear or the greatly-feared brown bear. Those are some grizzly corrections.
Using another anology I have long suggested that we don’t fix a ship in a hurricane. We’re always ready for that bear, black or brown.
There’s a good mix this week with 4 posts on Jonathan Chevreau’s Findependence Hub.
And here’s the stories and blog posts of the week from Dividend Hawk.
The Food Professor shares this development on carbon taxes in Canada. We certainly don’t need another headwind as we try to navigate a soft landing to avoid a recession.
Certainly the capital gains hike is not going to help the Canadian economy and our productivity troubles.
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Great compilation post this week for the Sunday reads! Is it just me or did anyone else notice that it would be especially difficult to “outcycle a bear” when there is no pedal on the left side of your bike (take a close look at the cartoon LOL). Thanks for a great Father’s Day read.