Inflation’s coming

RYANBy Guest Blogger Ryan Lewenza

Since the end of the last recession in 2009, the US economy has expanded for 10 straight years, the unemployment rate has dropped from 10% to 4%, oil prices are up 100%, and the S&P 500 has rallied an incredible 325%. Given these conditions you would think that inflation would be surging leading to some sleepless nights for Fed Chairman Powell and other central bankers.

In reality, inflation remains well contained around the world allowing central banks to be very gradual in their interest rate hikes. But I see this period of low inflation coming to an end soon, which could have significant implications for the direction of interest rates, asset returns and portfolio positioning. Let me explain.

Currently, headline inflation is running at 2.9% Y/Y while core inflation (excludes food and energy) is at 2.3%. The Fed and other central banks have an inflation target of 2% and tend to focus more on core inflation. Given this the Fed has been able to employ a very gradual approach to their interest rates hikes, which has been an important factor in elongating this business cycle and keeping this bull market humming. However, I see some issues on the horizon, which could lead to higher inflation and potentially more aggressive rate hikes.

US Inflation Is Contained At Present

Source: Bloomberg, Turner Investments

First is the incredible strength of the US labour market. Currently the unemployment rate is at a historically low level of 4%. Below I’ve overlaid the unemployment rate with US wage growth, which shows the strong correlation between the two (Note: The correlation is negative and the unemployment rate is inverted on the chart). The unemployment rate is more of a lagging indicator so by advancing the data by one year we can estimate what wage growth could be in a year. Based on this historical relationship, wage growth could rise to 3.5-4% over the next year, which could add significantly to overall inflation.

Higher Wages Could Be Coming In a Year

Source: Bloomberg, Turner Investments

Second is the spiraling US deficit. While I was a supporter of cutting the high US corporate tax rate of 35%, I believe they went too far with the lowered 21% rate as this is going to put a lot of stress on the US government’s fiscal balance sheet. It was just reported that US corporate tax receipts as a percentage of GDP are near a 75-year low in large part due to the corporate tax rate cut. As a result, the US annual deficit is on the rise and is expected to hit US$1 trillion by 2019.

And according to the Congressional Budget Office (CBO), they project the US deficit rising by US$1.5 trillion annually over the next 10 years. This is likely to add to inflationary pressures. So much for the tax cuts paying for themselves!

Rising US Deficits Could Add to Inflationary Pressures

Source: Bloomberg, CBO, Turner Investments

The third likely driver of higher inflation is Trump’s escalating trade war. While I understand his intent to help protect and stimulate job growth in the manufacturing sector, the unintended consequences of this tariff war are rising costs for manufacturers and consumers. We’ve already seen a surge in steel prices following Trump’s tariffs on imported steel and soon we’ll start to see the effects of the tariffs on US goods. The price impact will first be felt by goods producers with a number of companies such as Boeing, GM and Harley Davidson already warning of higher input costs, which will then likely be passed on to the consumer through higher prices. All of this means higher prices in the coming months.

Finally, we could see higher commodity prices driven by a combination of stronger economic growth and Trump’s tariff policies. Oil prices are now sitting near US$70/bl, copper is likely to rebound from its recent sell-off and I see overall commodity prices rising over the next year.

Putting it all together it seems that inflation has only one way to go and that’s up, which should push the Fed to continue its interest rate tightening cycle. I see 1-2 hikes this later year and another 3-4 next year, which would put the Fed Funds rate above 3% by end of 2019, the highest level since 2007. Given this outlook we are positioning our client’s portfolio for rising rates through short-term term bonds (bond prices move inversely to interest rates) since they are less sensitive to rising rates, maintaining a healthy weight to Canadian preferred shares, which generally benefit from rising rates, and keeping our equity weight at 60% since stocks provide a hedge to rising inflation.

Higher inflation is likely coming so make sure you’re prepared both in your monthly budgeting and in your investment portfolio.

Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

 

89 comments ↓

#1 JimStarry on 08.04.18 at 3:14 pm

This is a really great read Ryan. Keep up the good work.

#2 Blacksheep on 08.04.18 at 3:18 pm

Dood # 60,

…..Lack of skilled labour is the biggest problem out here right now. Horgan may doing his best to kill RE but a strong local economy is going to counter his efforts…..
—————————
“Please……..the RE market in the Fraser Valley is as dead as a door nail. Lots of higher end (1 mil +) listings have been sitting dormant for months. Some of the cheaper stuff may still be moving, but it’s all sliding downwards.”
———————
Has the F.V. population suddenly shifted to Garth’s: ‘Rent and invest plan’? If they did, where are all these reasonably priced rental accommodations coming from?

Do landlords invest to lose money? Don’t think so.

Vacancy rates for the Fraser Valley are running @ 0.02%

https://www.missioncityrecord.com/news/abbotsford-and-mission-have-nations-tightest-rental-market-report/

There is a standoff in RE right now and I think the party living in the home, is under less pressure than the party renting, especially with such a restricted supply of accommodations.

Side note:

Last night I met my new, next door neighbours from Iraq (temporarily renting the basement from a family friend). He’s a orthopedic surgeon and his wife is a gynecologist. They are currently jumping through all hoops and retraining required to practice in Canada.
They even need to pass english language tests.

They have been in BC for 6 months and told us they really like the new hood they’ve moved into.

How long before this couple wants to purchase a home for their family, once their 3 kids are allowed to come over from Iraq?

#3 Brett in Calgary on 08.04.18 at 3:21 pm

Great article, thanks!

#4 Axehead on 08.04.18 at 3:39 pm

My first mortgage was 10.5% and I thought I was getting a good deal. So, current rate has a long way to go. Not that long ago – 80’s. When all the good music went away and never came back.

#5 Howard on 08.04.18 at 4:19 pm

A 20-yr second mortgage for a measly $50K at 9.75% (private lender)? Some homeowners are getting a little desperate given the new rules and rate rises.

http://forums.redflagdeals.com/second-mortgage-urgent-help-needed-2211631/

#6 FOUR FINGERS WATSON on 08.04.18 at 4:25 pm

Extra fries ? That is just not funny……2% inflation ? Now THAT is funny. You could get a laugh anywhere with that.

#7 The Real Mark on 08.04.18 at 4:29 pm

Ryan, this is what I call ‘deflation’. I will see if I can find time to go into more depth between my sobs. This personation is too much for me and needs to stop.

#8 Ronaldo on 08.04.18 at 4:30 pm

4 Axehead on 08.04.18 at 3:39 pm

My first mortgage was 10.5% and I thought I was getting a good deal. So, current rate has a long way to go. Not that long ago – 80’s. When all the good music went away and never came back.
———————————————————–
But that was when average homes could still be purchased for 3 times an individuals income. Much different situation today where the same requires 15 to 20 times an individuals income in those over inflated areas of the country. We won’t be seeing anything near to 10.5% anytime soon. Son just renewed his mortgage, 5 yr. variable at prime minus 1.2 or 2.5%. Banks are back to the old game they played prior to the GFC. All about maintaining that market share. Same thing they were pulling off back in 2010 at the same time they were pretending to be concerned about the rising debt levels in Canada. LOL They have us where they want us. Completely at their mercy.

#9 technical analysis?? on 08.04.18 at 4:41 pm

there is an inflation shock coming. you guys think after 10 years of suppressed interest rates we will end up with something normal?? not a chance. youre looking at least at a 10 year rate of 5% shortly and 7-8% within a decade. earnings my rise, but stock valuations will plummet.

#10 Spectacle on 08.04.18 at 4:51 pm

Hello Ryan,

Again, great topic and explaining of the very complicated into substance and clarity.

Question, and I wil read your reply later this evening.

Q?:: I was selling some complex physical Gold the other day. My contact is a very senior Gold/Silver and numismatics dealer. He cautioned me that Physical gold might just be going to 50% of its current value. Recession is here. He also stat that , In keeping with your commodities directin of copper etc, rising, It is Numismatic Silver Map,e Leaf coinage that is worth investing in over the next big cycle.

He noted to stay away from gold and silver in any other Physical form. His calls are always so close it is humbling.

Can You explain this difference in Commodities up, Silver coin ( canadian maple leaf for example) going up, and physical gold and silver rocks ( down seriously) going in different directions .

For example Collector Porsche has gone into high orbit last few years, and now
1) price reductions following
2) sales numbers dropping.

Similar to Garth trying to explain to Us steerage /ballast section, what is now going on with real estate. Volume drop and then prices drop, and then who knows the bottom.
Long winded, but thanks in advance Ryan and always Garth.

Regards, M

#11 Leo Trollstoy on 08.04.18 at 5:02 pm

I like the extrapolation of the debt graph past 2025 where the error bars are probably bigger than the debt lol

#12 Danny on 08.04.18 at 5:12 pm

Very informative with real numbers…..refreshing at a time when Trump is still in election mode with his rants and contradictory cheers against his own security team of experts.

Ryan as you say:
“the US annual deficit is on the rise and is expected to hit US$1 trillion by 2019”

Wow political parties these days are not what they historically stood for.

But seems the Republican Party doesn’t really exist….their elected politicians have lost their tongues lately. Why …because Trump is the albatross of the Republicans.
…who are probably realizing that it’s better for the law to remove Trump and family than themselves…..Therefore they have gone mute.

Those who benefited the most from tax savings are probably also going to be very happy with increased prices for goods because….prices if they go down take much longer than when they rise.
FOMO is not just for housing but for all kinds of goods these days ……commercialism…..is on the rise as well as public and private debt.

Would be interesting to see similar to your US government debt chart one for private/personal debt……to compare….or to what now the American Libertarian Kock brothers are really concerned about…..and publicly are speaking out against reckless spending by Trump who is going to bankrupt the government like he has deliberately bankrupted his own companies…….hurting his past investors not himself or his family who knew really what he was up too.

And now Trump is encouraging increased use of gas.

“See the USA in your Chevrolet “….old slogan is back….spend……spend…..spend…. to help Trumps backers get even richer…….while private debt increases.

Can you see Trump’s fake wide distorted smile on the golf course with his insiders! Money……money….money!

#13 Tony on 08.04.18 at 5:37 pm

Tariffs could increase inflation short term but not long term. America will of course once again change the definition of inflation so nothing is left of middle class America. The middle class will be wiped out completely. The true inflation rate today in America is already 6 or 10 percent depending on what decade you take the definition from and wages are stagnant.

#14 Tony on 08.04.18 at 5:45 pm

Re: #2 Blacksheep on 08.04.18 at 3:18 pm

If Australian real estate and American real estate fall in price Canadian real estate will fall in price.

#15 young & foolish on 08.04.18 at 5:55 pm

It sounds like slower growth ahead … or am I misreading Ryan’s post ???

#16 dakkie on 08.04.18 at 6:05 pm

Vancouver Real Estate Sales Drop a WHOPPING 30%! U.S. Farmland Hits RECORD HIGH!

http://www.investmentwatchblog.com/vancouver-real-estate-sales-drop-a-whopping-30-u-s-farmland-hits-record-high/

#17 young & foolish on 08.04.18 at 6:08 pm

“……2% inflation ? Now THAT is funny. ” — Watson

Does the market recognize the “true” inflation rate as opposed to the constructed version? If so, then is RE still as overvalued as some proclaim?

#18 FOUR FINGERS WATSON on 08.04.18 at 6:21 pm

#16 young & foolish on 08.04.18 at 6:08 pm
“……2% inflation ? Now THAT is funny. ” — Watson

Does the market recognize the “true” inflation rate as opposed to the constructed version? If so, then is RE still as overvalued as some proclaim?
………………………..

No one knows any more….we have been bullshitting ourselves and each other for so long that no one knows the real truth any more. Everything is a sales pitch……Market prices are what a motivated buyer and an equally motivated seller will agree on.

#19 Honey Dripper on 08.04.18 at 6:39 pm

Sold all my bond ETFs. No growth and not safe, contrary to popular belief. My opinion.

#20 Geoffrey on 08.04.18 at 6:42 pm

Thanks for the interesting and pertinent article. Very good read.

#21 Rick on 08.04.18 at 7:29 pm

Yawn…….

#22 Ryan Lewenza on 08.04.18 at 7:46 pm

young & foolish “It sounds like slower growth ahead … or am I misreading Ryan’s post ???”

Quite the opposite. I see decent economic growth which should drive prices higher. The US economy just expanded at 4.1%. – Ryan L

#23 Slowly Boiling Frogs on 08.04.18 at 7:46 pm

Ryan, a 4th thing that will send up interest rates is global tightening by the central banks.

In January, the European Central Bank reduced its quantitative easing from $60 Billion Euros a month to $30 Billion Euros. In September it will reduce to $15 Billion Euros and in December it will end completely. Voila, no new cash infusions to the banks.

We all know that U.S. Federal Reserve ended its easing a while ago and in Q4 2017 began its quantitative tightening by reducing assets on its books and removing $10 Billion U.S. Dollars of global liquidity each month.
In January 2018 that was raised to $20 Billion.
In April to $30 Billion a month.
In July to $40 Billion a month and this coming October to $50 Billion a month.

All the cheap money printed up and given to banks was used to buy up global assets like real estate and sent the bond prices up and their respective yields down.

Now that money is being removed, those bond prices will start falling and their yields rising as the demand for them falls over the next few quarters.

As you can see, it will not just be inflation that will cause rates to rise across the globe.

#24 Shawn Allen on 08.04.18 at 8:14 pm

Where is This headed?

About 500 years ago Europe was in an age of blind faith especially in the church and had been for centuries. The church was rich beyond belief and the people well behaved lest they burn in hell for eternity.

Then came an age of reason and science. Everyone was interested in science and facts and evidence. That all worked out wonderfully. The average person got a lot richer, the influence of the church declined dramatically, but the population was a little harder to manage.

Now where are we? Science and government and the media no longer trusted. Facts and logic pretty much obsolete. People very hard to manage. People are generally well off but whining. Where is it headed?

#25 The Real Mark on 08.04.18 at 8:21 pm

The US economy is so pickled in debt that even if higher wages do come, increases to the cost of debt service will likely consume the entirety of such. And even more.

I’m personally not convinced this is the 1970s in which people weren’t generally indebted much, so any increase they experienced in wages could and was simply spent on goods and services.

Its certainly possible that there’s a supply side shock, ie: Chinese imports become less available due to tariffs, that causes inflation. I will certainly acknowledge the possibility of such.

However, every Chinese good that doesn’t end up in the US is a Chinese good that ends up somewhere else. Places like Canada, for example. Europe. But especially places like Canada with a proven ability to repay China in exports that are actually useful to China.

So the story here may very well be of inflation in the United States, but deflation everywhere else, or at least in the historic trade surplus countries. Its inevitable that no country can indefinitely run a trade deficit, so over time the economy and currencies will move to rebalance themselves. US dollar weakening, which is the natural and “by definition” consequence of inflation, will give strength to other currencies. Even gold perhaps.

#26 Freebird on 08.04.18 at 8:26 pm

Ryan, pls give your take on view of why even tho rates incr over last 12 mths bond ETFs w/ longer avg maturity outperformed and reasoning of interest rates rising but not all (or at same time) incl ETFs w/both corp and gov’t bonds. It made sense and bond returns seem to back it up. This is my cliff notes vers of theory but Im sure you or Garth know the one. Feel free to correct or add to it.

Thx

#27 crowdedelevatorfartz on 08.04.18 at 8:29 pm

Another informative blog topic.

Thanks for all the hard work on your weekdays and weekends guys….Ryan, Doug and Garth….

#28 Gerold Becker on 08.04.18 at 8:46 pm

Ryan actually believes government statistics!

#29 Gravy Train on 08.04.18 at 8:46 pm

“Lebron James was just interviewed by the dumbest man on television, Don Lemon. He made Lebron look smart, which isn’t easy to do. I like Mike!” — Donald Trump

Who’s the real dummy? A man who puts kids in classrooms or one who puts kids in cages? #BeBest — Don Lemon

#30 AB Boxster on 08.04.18 at 8:50 pm

18 Honey Dripper on 08.04.18 at 6:39 pm

Sold all my bond ETFs. No growth and not safe, contrary to popular belief. My opinion.

————————–

Well let’s see.

CLF – iShares 1- 5 year laddered gvt bond fund
CBO – iShares 1-5 year laddered corp bod fund.

CLF – 12 month yield – 2.75
CBO – 12 month yield – 2.72

CLF – 1 year etf value: -2.91 %
3 year ETF value: -8.68%

CBO – 1 year etf value: -2.77
3 year ETF value: -6.56

So the total value of the bond fund should fall in a rising rate environment, but new bonds added to the fund should be of better quality thus raising the yield.

But with these bond funds you are essentially making nothing, or losing money.

Makes no sense to own these bond ETFs.
Better to buy the bond itself and build a ladder.

The market value of your bond may decline in a rising rate environment, but you will get the face value back at maturity, plus your annual interest.

Which is far better than these funds have been doing over the past 3 years.

I mean, rates in Canada did not even start rising until last year, so the fact that these funds returned basically nothing or negatives , over the last 3 years is pretty pathetic.

#31 Dee on 08.04.18 at 9:28 pm

Ryan, thoughts on u.s 20 yr bond etf TLT? If u.s keeps raising is that a good currency hedge vs cad? Boc cant keep up with that many projected fed increases can it?

#32 Jungle on 08.04.18 at 9:31 pm

Thanks for your insightful post Ryan, really enjoy the reads and outlooks.

please keep an eye on recession for us and let us know when indicators start to turn!!

#33 Long-Time Lurker on 08.04.18 at 9:51 pm

Drone attack on Venezuela’s Maduro, just now.

https://www.bbc.com/news/world-latin-america-45073385

#34 Oft deleted much maligned stock.picker on 08.05.18 at 12:02 am

Higher rates…..much higher rates ……rates that reflect inflation reality….finally….with liberal government’s no longer issuing bonds to buy back from themselves in Shady Caribbean bank transactions …..are a welcome sight for bludgeoned savers and seniors who’ve seen thier life savings being stolen by liberals and handed over as political graft to big unions.

Trudeau’s NAFTA clown squad still saying it’s Trump’s demands that slowed negotiations…..while Trudeau insisted on adding new sexual pronouns to a trade deal.

Canada ‘very keen’ on wrapping up year-old NAFTA talks

https://www.reuters.com/article/us-usa-trade-canada/canada-very-keen-on-wrapping-up-year-old-nafta-talks-idUSKBN1KP0K8

Trump has slapped Trudeau/Butts but good. Trudeau was hoping to stall until Obama got back on the campaign trail……meanwhile hundreds of billions in foreign and domestic investment leave Canada because of Trudeau’s uncertain pronouncements and regurgitation of George Soros speeches to globalist racists in Bruxelles.

Like him or not….Trump has dragged the worlds political clown cart back off a increasingly thin wedge. While Trudeau insists that illegal border jumpers will create more businesses than Canadians ….. we must speak up against such ludicrous expensive folly. The people of Markham spoke thier minds …..so should more of you….before what you think is yours becomes a target for confiscation by Trudeau’s goon squads.

#35 FIsh on 08.05.18 at 12:29 am

Respectively saying Number Funge, scramble let’s see what canada will do

#36 jas on 08.05.18 at 12:49 am

#29 AB Boxster
Please understand that financial markets are forward looking, it is not quite related to the fact that interest rate started going up only last year, these etfs perhaps reacted much earlier. Secondly, I am not expert, but yield on bond etfs is not what you see published. Its somewhat more complicated.

#37 Herkunft on 08.05.18 at 12:54 am

Thanks Ryan! I always look forward to Saturday posts. They have been a great educational resource on capital markets. Please keep up the excellent work, Garth and the team.

#38 Smoking Man on 08.05.18 at 1:33 am

If you’re an artist and attempt to produce something while eating salad. It’s going to be shit lacking truth..

Now if you go hard on the bourbon you bypass your bias and programming. You might actually produce something interesting. I don’t care if you’re a lefty or a righty.

The moment your words are censord is the day the music dies and the machine wins.

Fk the machine.

#39 Jim Stojsin on 08.05.18 at 2:00 am

When I left Justin Trudeau’s Canada for Donald Trumps America.

This song inspired me to make the move..
https://youtu.be/e5MAg_yWsq8

#40 Ryan Lewenza on 08.05.18 at 3:26 am

Spectacle “Can You explain this difference in Commodities up, Silver coin ( canadian maple leaf for example) going up, and physical gold and silver rocks ( down seriously) going in different direction”

In a strong economy you can see a divergence between broad commodity prices and precious metals due to 1) stronger growth leads to higher demand for commodities like oil, copper, steel etc more than for gold, 2) stronger growth means higher bond yields which is negative for precious metals since gold/silver doesn’t provide any income or yield and 3) in a stronger economy less people use gold as an insurance hedge. Basically you want gold and precious metals when there is runaway inflation or during a major downturn. I’m not sure about the difference in silver and silver coin prices. They should go up/down together in most cases. – Ryan L

#41 Ryan Lewenza on 08.05.18 at 3:38 am

Freebird “Ryan, pls give your take on view of why even tho rates incr over last 12 mths bond ETFs w/ longer avg maturity outperformed and reasoning of interest rates rising but not all (or at same time) incl ETFs w/both corp and gov’t bonds. It made sense and bond returns seem to back it up.”

That’s easy. There are short and long term interest rates which then impact short and long dated bonds and bond ETFs differently. The yield curve flattened significantly with short term yields rising more than long term yields. So longer dated bonds and bond ETFs performed better than short term bonds. But I see this trend potentially reversing so we’re still recommending investors hold short term bonds. – Ryan L

#42 Ryan Lewenza on 08.05.18 at 3:48 am

Gerold Becker “Ryan actually believes government statistics!”

I believe and focus on what drives the markets! The Fed focuses on core inflation which drives their interest rate policies which in turn drive bond and stock prices. I’m here to forecast these things and position client portfolios accordingly. My opinion of whether governments manipulate inflation statistics is irrelevant. I realized that some time ago and it’s been very beneficial to my market forecasting and portfolio returns. I would recommend you do the same. – Ryan L

#43 Ryan Lewenza on 08.05.18 at 3:52 am

Dee “Ryan, thoughts on u.s 20 yr bond etf TLT? If u.s keeps raising is that a good currency hedge vs cad? Boc cant keep up with that many projected fed increases can it?”

We will switch into long dated bond ETFs like TLT when we believe we’re near the top of this tightening cycle and are more worried about a recession. For now we’re getting our US dollar exposure through our stock holdings. – Ryan L

#44 Oft deleted much maligned stock picker on 08.05.18 at 6:42 am

#28 Gravy…..let’s stick to facts….it was Obamas who put kids in cages, not Trump. The lying leftist media used pictures taken during the Obama era of kids in cages be attributed them to Trump…..sure…sensational..but where was Don Lemon when Obama had kids in cages? Fact #2 Trump administration had separated children from smugglers using kids to cross into the US using the kids as distraction. Fact #3 where was Obama when his hand picked , US trained and armed Al Nusra Front savages over ran , murdered , raped , enslaved and sold the thousands of Yazidi children and women….right, golfing in Hawaii….doing nothing about an atrocity that was front page news internationally but not fit to print in media space shared with scum the likes of Lemon and LeBron…..who should both be ashamed of themselves. Trudeau is also guilty of avoiding the Yazidi as if they were the problem…..Trudeau obviously knows that bringing the Yazidi women to Xanadu from camps in Syria would expose him as Obamas legacy proxy. It seems Trudeau wants to help anyone who received the love from Obama….but people like the Yazidi who are a real PR problem for a cynical Obama regime are also treated like lepers by Trudeau….in defense of Obamas legacy. And in return what does Canada get? Well Trudeau makes out like a bandit….millions going into his foundation through Soros proxies like Tides Foundation which is 100% funded by Soros. And isn’t it a coincidence that Trudeau is allowing foreign lobbies like Soros to continue to fund interference in Canada’s elections? Big stories here for sure…but is Don Lemon right…far from it….does dribbling a basketball make one an international political scholar …sorry LeBron…but being a millionaire doesn’t qualify you to speak for the worlds black population.

#45 Pepito on 08.05.18 at 6:52 am

“So much for the tax cuts paying for themselves!” – Ryan
______________________________________

Record amount of buybacks. Coincidence? I’m just shocked, shocked that all that corporate money saved on taxes didn’t go into the hands of workers, and business expansion as was promised and predicted by folks like you.

Please tell us again how lowering corporate tax rates and the resultant buybacks are a good thing.

#46 Oft deleted much maligned stock.picker on 08.05.18 at 8:21 am

DELETED

#47 Gravy Train on 08.05.18 at 8:42 am

#42 Oft deleted much maligned stock picker on 08.05.18 at 6:42 am

“#28 Gravy…..let’s stick to facts[….]”

Why don’t we? Here are some more quotes:

“It looks like LeBron James is working to do good things on behalf of our next generation and just as she always has, the First Lady encourages everyone to have an open dialogue about issues facing children today. As you know, Mrs. Trump has traveled the country and world talking to children about their well-being, healthy living, and the importance of responsible online behavior with her Be Best initiative. Her platform centers around visiting organizations, hospitals and schools, and she would be open to visiting the I Promise School in Akron.”
— Stephanie Grisham, spokeswoman for Melania Trump

“I support LJ. He’s doing an amazing job for his community.”
— Michael Jordan

“We could not be more proud to have LeBron James as part of our Lakers family. He is an incredibly thoughtful and intelligent leader and clearly appreciates the power that sports has to unite communities and inspire the world to be a better place. Those efforts should be celebrated by all.”
— Jeanie Buss, CEO, Los Angeles Lakers

(Checkmate.)

#48 Penny Henny on 08.05.18 at 8:49 am

As far as positioning client’s portfolios are you still strong on Emerging Markets?
High inflation leads to higher interest rates, leads to stronger US dollar, leads to poor performance in Emerging Markets. No?

#49 Spectacle on 08.05.18 at 9:00 am

#38 Ryan Lewenza on 08.05.18 at 3:26 am
Spectacle “Can You explain this difference in Commodities up, Silver coin ( canadian maple leaf for example) going up, and physical gold and silver rocks ( down seriously) going in different direction”

In a strong economy you can see a divergence between broad commodity prices and precious metals .

“2) stronger growth means higher bond yields which is negative for precious metals since gold/silver doesn’t provide any income or yield”

“I’m not sure about the difference in silver and silver coin prices. They should go up/down together in most cases. – Ryan L”

Guess it could be explained using the old game of Rock , Paper, Scissors :
– time to sell off all the Rocks,
– turning them into Paper,
– and invest the Paper into broad marketplace ETF’s
( of course with the assistance of The Turner Investments Team…)

Thank You for the clarity

#50 Penny Henny on 08.05.18 at 9:07 am

#41 Ryan Lewenza on 08.05.18 at 3:52 am
/////////////

What dedication. Replying to comments at 3:52 am!!
Bravo!

#51 maxx on 08.05.18 at 9:14 am

Ryan Lewenza is a steely-eyed fiscal man.

#52 KLNR on 08.05.18 at 9:22 am

@#42 Oft deleted much maligned stock picker on 08.05.18 at 6:42 am
#28 Gravy…..let’s stick to facts….it was Obamas who put kids in cages, not Trump. The lying leftist media used pictures taken during the Obama era of kids in cages be attributed them to Trump…..sure…sensational..but where was Don Lemon when Obama had kids in cages? Fact #2 Trump administration had separated children from smugglers using kids to cross into …
_________________

LOL

#53 Ryan Lewenza on 08.05.18 at 9:32 am

Penny Henny “As far as positioning client’s portfolios are you still strong on Emerging Markets?
High inflation leads to higher interest rates, leads to stronger US dollar, leads to poor performance in Emerging Markets. No?”

Yes but emerging markets are cheap cheap cheap so we still like them despite the potential for US dollar strength. – Ryan L

#54 Spectacle on 08.05.18 at 9:32 am

“” #17 FOUR FINGERS WATSON on 08.04.18 at 6:21 pm
#16 young & foolish on 08.04.18 at 6:08 pm
“……2% inflation ? Now THAT is funny. ” — Watson

Does the market recognize the “true” inflation rate as opposed to the constructed version? If so, then is RE still as overvalued as some proclaim?
………………………..
No one knows any more….we have been bullshitting ourselves and each other for so long that no one knows the real truth any more. Everything is a sales pitch……Market prices are what a motivated buyer and an equally motivated seller will agree on.””

———————— )-( ——————–

Pretty much my thoughts as well, Watson.
When I Make a real cash return of 40% or 80% on a vintage M3 , or a vintage Truck, or a collectable 911 Porsche, It was real.

Those days are now gone or going. As it is with physical Gold, vintage cars, Real Estate ……

As you stated, it’s all total BS from here for the gamblers. Time to invest as Ryan and the Gents suggest. Pardon the simplification , it is more complicated than I addressed here, but a start.

#55 Oft deleted much maligned stock.picker on 08.05.18 at 9:42 am

Trudeau thinks he’s going to beat Trump in the NAFTA game?

https://www.bloomberg.com/news/articles/2018-08-04/trump-warms-up-for-his-ohio-rally-with-defense-of-china-tariffs

Trump broke the back if the Chinese stock market and establishment…..if the CBC thinks Canada is going for the “Trudeau Great Leader” schtick they better be prepared for the big let down

#56 Vaughan on 08.05.18 at 9:46 am

“Currently, headline inflation is running at 2.9% Y/Y while core inflation (excludes food and energy) is at 2.3%.” Well then. Without including food and fuel, which are rising all the time indicating that there is indeed inflation already present, isn’t any of this moot?

#57 TurnerNation on 08.05.18 at 10:31 am

I’m not buying the USA consumer recovery. Smoke & mirrors driven by tech. S&P 500 apparently would be red this year if not for FANG efforts.

In the past week these US consumer fast causal eateries saw their stock price crater 10, 20, 30%. Where are the consumer’s raises?

Red Robin Gourmet Burgers, Inc
The Cheesecake Factory
Shake Shack, Inc

Add to this:
Boston Beer Company, Inc. (The)

#58 TurnerNation on 08.05.18 at 10:39 am

The UN’s global push to veganism continues.
Most of the side of one street re-branded into mock Vegan places. Add this to the near weekly much publicized protests against normal meat serving places.

CTV, Global news were there yesterday. Making it cool:

https://www.blogto.com/city/2018/08/parkdale-branding-vegandale-toronto/

An article each week..on Vegan, in every media outlet too. It’s like there’s a script. Can’t be…

https://www.blogto.com/search/?offset=0&ordering=-date_published&q=vegan

#59 JoeK on 08.05.18 at 10:41 am

Are we about to relive the 70ies again? Been there…

#60 Gravy Train on 08.05.18 at 10:46 am

Addendum: “I am very vehemently against family separation and the separation of parents and children[….] I do not feel that the media is the enemy of the people.”
— Ivanka Trump

Hey, AB Boxster. Are you enjoying Trump’s tariffs? U.S. soybean prices have dropped from (US)$10.50 to $8.50 a bushel. (Trumponomics.) Some farmers think it’s being unpatriotic if they criticize the U.S. president. (I do predict a blue wave in the midterms.)

Ryan, I’m trying to generate some heat to drive up the number of comments on your blog post. How’m I doing? (I can’t seem to get the big fish to bite!) :)

#61 TurnerNation on 08.05.18 at 10:56 am

And…for over one year now some group has been paying big bucks for ads in Toronto subway cars and stations. Don’t eat me I’m an individual …they say.
It’s to go Vegan
You might ask which group(s) are spending so much time and money to change my mind and then behaviour?

What’s in it for them or their masters? Why is my mind so important them that I be bombarded daily?

I’m not seeing ads for balanced ports…

#62 IMHO on 08.05.18 at 11:12 am

I stopped reading at…”In reality, inflation remains well contained around the world…”

If you can’t diagnose the problem, you have no hope of offering a solution.

IMHO

#63 WUL on 08.05.18 at 11:18 am

Ryan,

The way you take dawgs questions here seriously and work on a quality answer is a mark of a top shelf guy.

Ask Turner for a raise.

The next time I am in TO, I would like to darken your doorway in Scotia Tower for a cold cup of coffee you serve in your office with the two of you. If that is acceptable.

WUL

#64 Trumpenomics 101 on 08.05.18 at 11:23 am

Tariffs are going reduce the deficit Ryan…..!! fear not.. I’m gonna solve everything.. even basketball

Donald J. Trump

..Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people.

#65 Evangeline on 08.05.18 at 11:45 am

#59
“What’s in it for them or their masters? ”

They believe that the meat and dairy industries are destroying the planet., as well as human health.

Dr. John McDougall on youtube has a huge following and lots of speeches about it.

#66 Stan Brooks on 08.05.18 at 11:59 am

So inflation is now official and certain?
How surprising.

No worries, that CPI will still show sub 2 % here.
The finance minister and Poloz will tell you that with bold faces. For another decade and a half.
While inflation rages north of 8 %.

Watch these food banks. And garbage bins for gangs of retirees raiding them.

#67 Stan Brooks on 08.05.18 at 12:07 pm

Ah, and they will blame the borrowers of course for the next credit crises, not the elite. Read the ignorant comments bellow this article.

https://ca.finance.yahoo.com/news/apos-alarming-apos-way-1-144300783.html

Soon Canadians will realize that debt is not savings.

#68 Shawn Allen on 08.05.18 at 12:09 pm

Reaction to a Leader’s Speech

The leader of a large western country made a speech. One of his army generals later said that the speech was boastful, brash and downright repulsive and yet no one spoke out against him.

Was the leader Trump? No, this was a notorious leader in Europe quite a few decades ago. But does it also describe what is happening with Trump and leaders of the republican party (who dare not speak out against Trump)?

#69 AB Boxster on 08.05.18 at 12:32 pm

#58 Gravy Train on 08.05.18 at 10:46 am

Hey, AB Boxster. Are you enjoying Trump’s tariffs?

————————————–
Trump is in if for the long term.
And it is why he will support farmers in the US while the Chinese try to hurt Trump in his base.

Kind of like the 300% tariffs that Canada has and its communist support of supply management.

Buy the way, Trump is the only one suggesting zero tariffs for trade for anyone.

T2, The EU, China, they sure aren’t jumping all over that idea.

But that does not play into the globalist narrative.

You know, the ‘free trade’ economy where every other country can have massive tariffs on American goods, but America must have open and free trade for the world’s goods.

Gee, I wonder why the Americans are pushing back on such a ‘fair’ and ‘equitable’ trade arrangement.

#70 New West on 08.05.18 at 12:43 pm

#56 TurnerNation on 08.05.18 at 10:39 am

What exactly is your concern here? What is wrong with promoting a plant-based diet? (Veganism, if you will).

Why are you not concerned about the overwhelming promotion of animal product based diets in North American society?

#71 NoName on 08.05.18 at 1:33 pm

Higher wages could be coming in a year. -RL

I agree, but in us, not in canada. Deplorable chapter notrh will feel pain, for as long we those two are in office.

https://imgur.com/a/hnhyB9Y

#72 Entrepreneur on 08.05.18 at 1:44 pm

Like graphs, a picture. Trust or not.

“Science, government, and media no longer trusted. Facts and logic, obsolete. People hard to manage…well off but whining.” Then says “Where is it headed?” #23 Shawn Allen. I say this is heading towards one big revolution.

“Trudeau insists that illegal border jumpers will create more businesses than Canadians” #33 Oft deleted much maligned stock picker. That bothers me and if that is true. Not just a business but “more businesses.” Really and has T2 given up on Canadians.

And are the border jumpers being “assisted money-wise” in these adventures? Canadians are having a hard time keeping businesses afloat, closing doors. We need discussions, transparency, a graph.

On the news today someone mentioned that some border jumpers are working in the northern Ontario mines because Canadians refuse to work there. Is it because of the conditions? Or are new mine workers being “assisted money-wise” again?

Is the middle class being ignored again? The Middle Class that is the glue that holds the community, province, country together.

#73 Entrepreneur on 08.05.18 at 2:02 pm

And we do not like the Carbon Tax here in B.C. and never did. Hard on people, hard on small businesses, hard on the communities.

#74 FOUR FINGERS WATSON on 08.05.18 at 2:09 pm

#63 Evangeline on 08.05.18 at 11:45 am
#59
“What’s in it for them or their masters? ”

They believe that the meat and dairy industries are destroying the planet., as well as human health.
…………………………

…….and with all those cows farting all over the place…..there’s the real cause of climate change eh ?

#75 Blacksheep on 08.05.18 at 2:12 pm

Re: #2 Blacksheep on 08.04.18 at 3:18 pm

“If Australian real estate and American real estate fall in price Canadian real estate will fall in price.”
—————————————–
Ya…heard that before.

I learned the hard way, real estate is regional.

Just like in 2008, when the US RE market was tanking, I (and Garth) were sure it was going to collapse in Vancouver, so I sold my home (my choice, alone) and rented for 5 years.

We all know what the market did.
—————
The topic of the day is inflation.

When a currency loses, real world purchasing power, asset costs increase in sovereign numerical price. Does it mean the asset has gained “value”?

Nope…our Dollar was at par circa 2007 and then proceeded to lose buying power, just as Can. housing started it’s rapid rise, all while the states RE suffered.

The meme, “inflate or die” still applies, with Trump charging ahead full steam. Central banks target 2% inflation (most know it’s much higher) so you better own something or your going backwards, fast.

#76 Shawn Allen on 08.05.18 at 2:45 pm

For Every Action an Equal and Opposite Reaction

That’s Newton’s Third Law

The Actions of the economy have led to an increasingly unfairly low share of wealth for (pick a number) the bottom 60% or the bottom 80% of society. Especially in America.

Votes however are distributed equally. These disadvantaged segments of society are going to vote for change (See Trump). So far, they may not have voted for the right fixer but they will keep on voting for big change. In America they also have guns.

More than Inflation, change is coming. The third law requires it.

#77 Shawn Allen on 08.05.18 at 2:50 pm

Debt and savings

Stan Brook said:

Soon Canadians will realize that debt is not savings.

********************************************
Not sure who would think that debt is savings but…

One man’s debt is another man’s savings?

One man’s savings do not create another’s debt but once debt is created by the banking system it is offset by usually a bank deposit owned by someone?

At very least one man’s debt is another man’s wealth?

Thank you debtors!

#78 crowdedelevatorfartz on 08.05.18 at 3:13 pm

@#72 Four fingers

“…….and with all those cows farting all over the place”

+++++

What a waste.
Will a cow fit in an elevator?

#79 Stan Brooks on 08.05.18 at 3:28 pm

#75 Shawn Allen on 08.05.18 at 2:50 pm
You had a CFA/MBA did you not?


Canadian M2 money supply/all savings/deposits

https://tradingeconomics.com/canada/money-supply-m2

Money Supply M2 in Canada increased to 1607547 CAD Million in June from 1597414 CAD Million in May of 2018.

Canadian Total debt: 6 trillions!

With $4.4-trillion in combined corporate and household debt, ‘we’re in a bit of an economic trap,’ expert says

https://www.cpacanada.ca/en/news/canada/2018-04-25-canada-leading-world-in-debt

https://business.financialpost.com/business/canadas-economic-growth-has-come-at-a-price-its-debt-level-is-now-highest-in-the-developed-world

1.6 trillions in public debt.

So explain to me how debt has risen in the last years without savings (savings rate actually declined as people reached out to savings in order to survive the ‘non-existent’ inflation)

and how debt is 4 times all savings?
where did the rest came from?

#80 TurnerNation on 08.05.18 at 3:34 pm

#68 New West the next step is laws banning it. Perhaps under the guise of “climate change” [sic].
You need to learn the fine line between a sales pitch versus being softened up for what’s to come.
Yep I’m concerned the natural order is being flipped.
You can receive a much or more jail time and/or fines for cutting down a tree as harming a human these days.

#81 Stan Brooks on 08.05.18 at 3:42 pm

Ah, and look at the delusional picture of our leader on this article/trying to look intelligent:

https://business.financialpost.com/business/canadas-economic-growth-has-come-at-a-price-its-debt-level-is-now-highest-in-the-developed-world

Canadians really have no f…ng clue of the deep doo doo we are in. Look at the expression on his face. Does this guy really have a clue of the state of the finances of this place?

BoC can only influence variable rates, not long term/fixed mortgage rates determined by 10 years US treasuries.

Inflation is here and it will be nasty and smelly. Take cover.

#82 Shawn Allen on 08.05.18 at 4:34 pm

Debt and Savings

Stan said/asked:

You had a CFA/MBA did you not?

and how debt is 4 times all savings?
where did the rest came from?

*********************************
One does not need an MBA or CFA to know that balance sheets gott balance.

All debt is owed to someone or some corporation or entity.

If one man’s debt is not another man’s savings (bank deposit) then surely it is at least another man’s wealth (bank account, mortgage backed security, government bond, corporate bond, bank share etc).

Some Canadian debt is owed to foreigners. Then again some Canadians hold debt owed by foreigners so that may not be a big deal.

As debt rises someone is owed that debt.

The problem will occur if the debtors default in large numbers. Stay tuned to see if that happens. It’s been predicted basically every year since the first loan in history was ever issued and it does occasionally happen.

Meanwhile, the wealthy can say, thank you debtors.

Surely Stan himself has net financial assets that far exceed his debts. Not everyone is pickled in debt.

#83 New on 08.05.18 at 4:41 pm

#78 TurnerNation on 08.05.18 at 3:34 pm

#68 New West the next step is laws banning it. Perhaps under the guise of “climate change” [sic].
You need to learn the fine line between a sales pitch versus being softened up for what’s to come.
Yep I’m concerned the natural order is being flipped.
You can receive a much or more jail time and/or fines for cutting down a tree as harming a human these days.

————————————————

That’s an interesting take on the “natural order”, which I assume you mean is eating meat. Having lived my life eating very little and now no meat I wouldn’t miss it, but I certainly wouldn’t stop anyone from eating it if that is what they want.

Why do you think there is a program to ban eating meat? Our food supply is controlled for the most part by large corporations that will sell what consumers will buy, which includes lots and lots of meat. I’m doubtful that a handful of vegans promoting veggie burgers will cause the downfall of Tyson, MacDonald’s, Saputo, or Yum! Brands in the near future.

For a blog full of self-proclaimed rebels and individualists I find it interesting that often anyone who deviates from the perceived norm described by the extensive advertising on the MSM can be seen as an Enemy of the People, secretly plotting to Overthrow……something. Do you really think vegans are going to take down global corporatism?

#84 B Wilds on 08.05.18 at 8:22 pm

How much wealth will escape the next large economic crisis is very important because it will set the bar that determines the rate of inflation or deflation in coming years. Pensions, annuities, and even investments in stocks and such all fall into the area of paper promises that are often recorded somewhere far from sight as a digital entry on a computer.

The amount of wealth stored in these intangible areas based on faith have grown at a massive rate during the last several decades and were relatively minor players until recently. Currencies, also known as fiat money, are also just IOUs or paper promises. The article below delves into what might be left standing after the next financial meltdown.

http://brucewilds.blogspot.com/2018/03/how-much-wealth-will-escape-next.html

#85 Freebird on 08.05.18 at 8:30 pm

Freebird “Ryan, pls give your take on view of why even tho rates incr over last 12 mths bond ETFs w/ longer avg maturity outperformed and reasoning of interest rates rising but not all (or at same time) incl ETFs w/both corp and gov’t bonds. It made sense and bond returns seem to back it up.”

That’s easy. There are short and long term interest rates which then impact short and long dated bonds and bond ETFs differently. The yield curve flattened significantly with short term yields rising more than long term yields. So longer dated bonds and bond ETFs performed better than short term bonds. But I see this trend potentially reversing so we’re still recommending investors hold short term bonds. – Ryan L
—————-

Thx Ryan
FB

#86 David l Tindall on 08.06.18 at 1:13 am

So here is what is really happening right before our eyes yet few point out the obvious. Lower corporate taxes and taxes of the super rich and pay for government programs by bringing in higher tariffs. Who do you think will pay these tariffs why the rest of American society mainly. What a scam. If only people would get their heads out of the sand. You think the pot legalization is anything but a scheme to dumben down more people so they won’t noticed how much they are being screwed by our puppet politicians

#87 Ernie on 08.06.18 at 7:46 am

did you say chia seeds

or cheeses

#88 Doug in London on 08.06.18 at 10:34 am

@ Honey Dripper, post #19:
I disagree. Having followed this blog since 2011, I’ve read over and over the idea that some bond exposure belongs in every portfolio. Over the next year, equities should do well if Ryan is right with his predictions. Meanwhile bond funds are cheap and will likely got cheaper so over the next year it will be prudent to cash in some pricey equities and buy some cheap bond funds. In the last decade, that’s what I did and when the big drop in equities came in 2008-09 I cashed in the bond funds and bought back some REALLY CHEAP equity funds.

Here’s something I read in the Globe and Mail recently: After a correction in the price of real estate or any other hot investment, people won’t be urging to buy in anymore. At that point, let the bargain hunting begin. I’d say that describes bond funds right now. Also consider that the expectation of higher interest rates is factored into the present cheap prices. It’s also prudent to follow Ryan’s advice and buy only funds that invest in short term bonds right now.

#89 JD on 08.07.18 at 4:01 pm

a bit of topic question to Ryan or Mark. I was told that main purpose of the life insurance is to cover unexpected/accidental departure in case of the sizable dept burden left to your family, i.e., remaining mortgage loan. 18 years ago I got the insurance which covers 450.000, both H & W for the annual fee of $950 and gradually increasing. Now this coverage looks ridiculously low to be considered as coverage. Do you think that this is going to change any time soon? Do you foresee the drastic turn down for life insurance companies as now a days as it will only cover 30% of the dept?
Thank you