Tag Archives: interest rates

The economy in 2016: half-speed ahead

Posted By Financial Independence Hub | January 14, 2016

By Aubrey Basdeo

Special to the Financial Independence Hub

Coming off a tumultuous 2015, Canadians are ready for some good news in 2016. When it comes to the economy, however, they might have to wait a while longer.

This is not to say we foresee uniform doom and gloom. One bright spot remains the U.S. economy, which was given a vote of confidence last month when the Federal Reserve raised its target interest rate. If the U.S. expansion is as robust as the Fed thinks it is, that should bode well for the Canadian economy and exporters, which rely heavily on the American market.

On a broader level, the Fed liftoff was also a signal that monetary policy, which has dominated the macroeconomic landscape for years now, will be less important going forward. The days of easy money may have begun to draw (slowly) to a close, and as they recede we’ll have a clearer picture of other factors – like the business cycle and asset valuations – which have been masked by accommodative monetary policies for nearly a decade.

But we might not like what we see. Growth globally is poised to be slow in 2016. Canada’s prospects will be tied to this low-flying trajectory, in large part because there are so few potential growth drivers in the domestic economy.

5 reasons for only modest growth in 2016

Weekly Wrap: “Heightened uncertainties” from the Fed, hedging risk, bear books

Posted By Jonathan Chevreau | September 19, 2015

I have just returned from a two-week trip to Hong Kong and Taiwan, just in time for the Federal Reserve’s long-awaited decision to delay the first rate hike since the financial crisis.

The key phrase “Heightened uncertainties abroad,” spoke as loudly as the lack of action, as Fed chairwoman Janet Yellen noted the risks of both China and Emerging Markets in generally spilling over into the United States.

Hedging in the Retirement Risk Zone

For those of us who are in the “Retirement Risk Zone,” — including Yours Truly — the caution behind the Fed’s decision could suggest that for some it may be appropriate to dial down portfolio risks. Since late August, I have followed my personal financial adviser’s recommendation to remain invested but to hedge back one third of US and Canadian equity exposure.

Generally, at whatever age, it makes little sense to take more risk than you need to take and the Fed’s decision (or non-decision) underlines that there are still extensive risks out there, certainly in the equity markets as well as fixed income. Fred Kirby, a fee-for-service planner at Dimensional Investment Planning, says it’s time to be cautious and protect profits. As I quoted him earlier this year, he suggests that those who are averse to market timing can consider the newer “low-volatility” ETFs. For Canadian exposure, he suggests the BMO Low Volatility Canadian Equity ETF (ZLB), which holds 40 stocks deemed to have the lowest risk. For U.S. stocks he likes the BMO Low Volatility US Equity ETF (ZLU), which uses the same methodology and holds 100 companies. For international equities, Kirby likes the iShares MSCI EAFE Minimum Volatility Index ETF (XMI). (There’s also an iShares low-vol ETF for Emerging Markets).

“These ETFs automatically position the cautious investor for any additional future gains without having to make a market-timing re-entry decision,” Kirby says. “This could be just the sort of compromise that lets some investors stick with their investment plans even when they do not want to.”

Actively Managed ETFs

On the same subject (ETFs), my latest Financial Post ETF column ran earlier this week, tackling actively managed ETFs. See Why Fund Investors Should Get Active with their ETFs.

Bear books revisited

Poloz stands pat – but now what?

Posted By Jonathan Chevreau | April 20, 2015

By Aubrey Basdeo,

Special to the Financial Independence Hub

Excerpt: With the Bank of Canada holding still on further rate changes, BlackRock’s Head of Canadian Fixed Income Aubrey Basdeo explains why this may not be the end of the story.

The Bank of Canada left its key overnight interest rate unchanged in its April 15 announcement –- no surprise there. Given that the central bank had been signalling for some time that it was taking time to assess the impact of the “insurance” it took out in January with a surprise 25 bps rate cut, most analysts expected Governor Stephen Poloz to stand pat. And he did.

With that out of the way, the more important factor now is what the Bank sees as the trajectory of economic growth for Canada, because that will be fixed-income investors’ guide for how it will react to disappointment or surprises along the way. For the record, we believe there is a lot of room for disappointments that may derail the Bank’s forecast growth trajectory.

Strong rebound expected in second & third quarter

But first let’s look at what the Bank had to say about the economic picture going forward. The storyline goes something like this: Yes, the first quarter was terrible, maybe even atrocious, but things are going to get better real fast. Continue Reading…

A murder mystery: who will kill the global economy?

Posted By Jonathan Chevreau | April 10, 2015

By Jonathan Chevreau

One of the more entertaining financial presentations at this week’s BMO investing conference in Chicago was a keynote talk by author and broadcaster Andrew Busch on who killed the global economy. (I qualify this with the phrase financial presentations because Rick Mercer’s talk was also highly entertaining but could hardly qualify as being financial).

By contrast, Busch had worked at BMO Capital Markets for 22 years earlier in his career and grew up in Chicago. His financial research is available free here.

Billing his talk as a “Murder Mystery,” he ran movie clips from various Film Noirs to illustrate his points.

Among his suspects; the ECB’s Mario Draghi, Japan prime minister Shinzo Abe, China president Xi Jinping and the Federal Reserve’s Janet Yellen. Busch played the role of “Private Economic Investigator.”

Resemblance to Greece?

Starting with Yellen, he submitted clue number 1 as the unemployment rate. With 3 million Americans underemployed, this fact shows up in sluggish wage increases so “we’re not seeing an acceleration in wealth gains so are not seeing inflation.” What jumps out from the latest job numbers is where they are located; 14 million Americans are employed in local government, another 2.7 million in the federal government and 5 million more in the states. Continue Reading…

Secular bull market is very much alive: BMO’s Brian Belski

Posted By Jonathan Chevreau | April 9, 2015

By Jonathan Chevreau

“The largest stealth bull market of our careers” is still very much alive, says BMO Capital Markets chief investment strategist Brian Belski.

In the keynote address Wednesday for BMO Global Asset Management’s Global Vision, Global Perspectives conference in Chicago, the American-born investment veteran said U.S. stocks are now six years into a 20-year secular bull market.

“Bull markets rarely end when everyone is looking for an end to them,” he said, “The media is consumed with negativity.”

Canada “bottoming”

While Belski believes America is setting the pace for global markets, Canada “is in the process of bottoming,” he said. Most of the investment professionals at the three-day conference on mutual funds and ETFs are Canadian. It might not yet be quite time to buy Canada, he added, since the first quarter has been one of “shock and awe” caused by the worldwide plunge in energy prices. Looking further out, though, he said “Canada is the place to be.”

One reason the Canadian market has languished is a call by a large Wall Street firm to “sell Canada.” Continue Reading…