Rate Hike hiatus?

By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

Late in January, the Bank of Canada boosted rates by another 0.25% and signalled that they will now pause and evaluate. I’ve been calling that the rate hike hiatus. As I touched on in mid-January, inflation is moving in the right direction and the consumer is holding up quite well. It’s a Goldilocks scenario, for now. That said, the rate hikes have not worked their way through the economy. In fact, many suggest that we’ve felt almost no economic damage from the rate hikes. There is a lag affect; it can take a year or two for hikes to be felt in full. But let’s call the rate hike hiatus good news.

The big news last month was the announced rate hike hiatus in Canada. Of course, markets are forward “thinking” and they are pricing in a soft landing and rate cuts in 2023. That Yahoo!Finance post suggest that cuts are likely not on the table this year. That would only happen if something breaks and we get a serious-enough recession. Also, inflation would have to be completly under control. The Bank of Canada is not likely to cut rates if inflation is not close to that 2% target.

Rate guesses, not so good …

The consensus appears to be the call that there will be no rate cuts in 2023, though there is a sprinkling of calls for cuts in late 2023. And all said, we should remember the rate predictions from March.  Not even close.

Inflation is so unpredicatable. And inflation might still be driving the bus in 2023.

Coming in for a landing

Lance Roberts looks at the history of soft landing and hard landings. There were 3 past soft landing scenarios, but none in an inflationary environment. The affect of rate hikes have largely not been felt, and likely have had little push on inflation. But that will come over time of course.

Here’s the chart that shows the positive effect of a weak U.S. Dollar for international equities. With bonds looking better and the potential for international markets, the traditional balanced portfolio might ‘be back’ one day soon.

A Weak Dollar Bodes Well For Non-U.S. Equities – ⁦@SoberLook⁩ ⁦@bcaresearch

Originally tweeted by Rob Hager (@Rob_Hager) on January 24, 2023.

Stacking those dividends

Dividend Daddy knows how to stack and count those dividends.

Here is a popular tweet on the simple basics of wealth creation and the path to financial happiness …

That is “covered” in my personal finance book that is so short that it’s a 1000 word blog post.

Oh look, I just found $888,000 in your coffee.

I should update that post, with inflation if might be closer to a $mil found in coffee and other trivial spending. 😉

My two telcos

In the Globe & Mail David Berman highlights the recent outperformance of my two telcos – Bell (BCE.TO) and Telus (T.TO). And Telus is an analyst favourite. I refer to Telus as a boring telco with an entrepreneurial bent. From that post …

According to RBC’s Mr. McReynolds, Telus is compelling for a couple of key reasons.

It has largely completed the expensive work of installing fibre-optic cable to homes and businesses, which means that the company’s capital expenditures will likely fall 31 per cent this year from last year. That will drive free cash flow to $2.7-billion, or well more than double the estimate of $1.1-billion in 2022, which is money that can be used to pay down debt.

As well, he expects that Telus will see its EBITDA (earnings before interest, taxes, depreciation and amortization, which is a measure of profitability) rise by a peer-leading 10.4 per cent in 2023.

That’s twice the pace of what Mr. McReynolds expects from Rogers, and is partly based on Telus continuing to grab significant internet market share and reporting strong growth in its non-telecom health technology and agribusiness divisions.

The Canadian Wide Moat Portfolio

In that post you’ll find the Canadian Wide Moat 7, and the Wider Moat Portfolio.

Dale Roberts is the owner operator of the Cut The Crap Investing blog,  and a columnist for MoneySense. This blog originally appeared on Cut the Crap Investing on Jan 29, 2023 and is republished on the Hub with permission. 

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