Marshmallows

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DOUG  By Guest Blogger Doug Rowat
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When it comes to willpower, investors are like children.

Specifically, children confronted with the allure of marshmallows.

In the late 1960s and early 1970s Stanford University researcher Walter Mischel conducted an experiment where he presented four- and five-year-olds with a single marshmallow but told them that if they resisted eating it and waited a short time they could instead have TWO marshmallows.

Despite all of the children insisting initially that they would wait for the second marshmallow, only about a third of them actually did. Even though waiting and delaying gratification was the most beneficial choice in the long run, most of the children couldn’t resist the short-term allure of immediate gratification.

Flash forward to June of this year and our client requests for GIC purchases suddenly increased. GICs, with their steadily more attractive interest rates, effectively became a tempting marshmallow. And even though I cautioned clients that they were ignoring the potential upside of a bond- and equity-market recovery that would likely feature returns many multiples of what GICs were offering—effectively, the chance for TWO marshmallows—many simply couldn’t resist the immediacy of the GIC yields.

Locking in a 1-year GIC with, say, a 2% or 3% yield may seem enticing given where yields have been over the past several years, but I argued here recently, at almost the exact low of the bond market, that even boring US Treasuries could be poised for meaningful gains over the next 12 months. You may recall the chart below, which shows US Treasury market recoveries after major sell-offs:

You can’t keep a good bond down.

Source: RBC; chart measures subsequent returns following rapid 10-year Treasury sell-offs dating to 1987. Click to enlarge.

The chart shows sixteen US Treasury market sell-offs over the past 35 years and sixteen instances where US Treasury total returns were positive one-year later (with an average total return of 6.4%). So what’s been happening over just the past few months? US Treasuries have rallied meaningfully. In fact, US investment-grade bonds in general are up more than 5%—a significant move for investment-grade bonds over such a short timeframe. And equities? The S&P 500 alone is up more than 15%. A GIC holder would have realized, at best, a 1% return on their investment over the same period. One can only hope that the GIC marshmallow tasted good for these investors because they’ve already paid dearly for the luxury of a predictable return.

Remember that GICs don’t have a variable price, only a yield. Technically, there’s an informal secondary GIC market but because the inventory and liquidity’s abysmal, it’s not worthwhile.

Therefore as interest-rate policy or other market conditions improve there’s no potential for a standard GIC to price appreciate. Bonds, on the other hand, offer not only the better yields provided by our current interest-rate environment, but, unlike a GIC, their superior market breadth (US Treasuries, as but one example, are a US$23 trillion market!) also offers the full opportunity for price appreciation.

And what will likely drive this appreciation? Mainly evidence that inflation’s peaked thus lowering expectations of endless (and large) upcoming central-bank rate increases.

So has inflation peaked?

Impossible to say definitively, of course, but it’s certainly looking more that way every day.

Gasoline prices are falling, freight and shipping rates are rolling over and even used-car prices are moderating. And trust me on this: bond and equity markets won’t start rallying when inflation hits the US Federal Reserve’s ideal 2% target. By then the entire rally will be over.

Bonds and equities will begin to rebound on the slightest hint of inflation turning the corner, which is one reason why markets have advanced almost continuously over the past two weeks after US CPI dropped to 8.5% y-o-y in July, down from 9.1% y-o-y in June. An 8.5% reading is hardly an earth-shattering deceleration, but when you’re entrenched in a bear market and little is expected, even the whisper of good news drives rallies.

Locking in a GIC and discounting entirely the potential for equities and bonds to rebound from their bear-market lows (which is already happening) is for the short-sighted and impulsive. It’s for the kid who’s already shoved that first marshmallow into their mouth.

It never pays to eat the first marshmallow. Be patient, the second marshmallow’s coming and it will taste twice as sweet.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

 

113 comments ↓

#1 Maggie on 08.20.22 at 10:36 am

What about people that don’t need to make 7% or more and can easily live well with their lifestyle and family with 2.75%, 3%, 3.25%, 3.5% in the past but now get 4% to 5% right now with GICs. The problem is that the whole financial system especially with interest rates have been distorted for decades with really low interest rates and central bank, government intervention over and over. Yes, there are people like me and my family that invest in only GICs but bonds in some years if it is higher interest rates and are told that it is not a good strategy or they will be in dire financial straights due to inflation, taxes etc. but I also see the opposite where people invest just in or mostly stocks, real estate, equity based investments and have a false or miscalculated outcome of they want this much money in the future and do not reach there because they saved too little, where told to save too little or make bad decisions like taking on too much real estate debt, othr debt, using margin etc. along the way even with their advisor telling them not to or do less of it and so they think they would reach that goal but does not materalize. It is more possible to reach a goal or goals financially and otherwise with savings upfront and eliminating, reducing debt first each year and not relying on 7%, 8%, 9% rates of return each year with say 50% less savings every year. This is especially true within RRSPs, RESPs, TFSAs and other tax advantaged accounts over decades and compounding of interest or other returns each year.

The only thing I can say is give people the good advice, show them the facts and it is ultimately their final decision as it is their money, right. People have to learn the hard way when it does not pan out no matter which strategy or decisions they make.

#2 crowdedelevatorfartz on 08.20.22 at 10:49 am

Interesting analogy.
Wait patiently and reap the long term benefits.

#3 Bipolar on 08.20.22 at 11:06 am

Nothing ventured nothing gained. Bonds and GIC’s alone with not keep up with inflation.

#4 Andrewski on 08.20.22 at 11:18 am

1 marshmallow now = GIC, or many marshmallows for as far as 1 can see = Canadian stock divvies!

#5 KLNR on 08.20.22 at 11:25 am

@#1 Maggie on 08.20.22 at 10:36 am
What about people that don’t need to make 7% or more and can easily live well with their lifestyle and family with 2.75%, 3%, 3.25%, 3.5% in the past but now get 4% to 5% right now with GICs. The problem is that the whole financial system especially with interest rates have been distorted for decades with really low interest rates and central bank, government intervention over and over. Yes, there are people like me and my family that invest in only GICs but bonds in some years if it is higher interest rates and are told that it is not a good strategy or they will be in dire financial straights due to inflation, taxes etc. but I also see the opposite where people invest just in or mostly stocks, real estate, equity based investments and have a false or miscalculated outcome of they want this much money in the future and do not reach there because they saved too little, where told to save too little or make bad decisions like taking on too much real estate debt, othr debt, using margin etc. along the way even with their advisor telling them not to or do less of it and so they think they would reach that goal but does not materalize. It is more possible to reach a goal or goals financially and otherwise with savings upfront and eliminating, reducing debt first each year and not relying on 7%, 8%, 9% rates of return each year with say 50% less savings every year. This is especially true within RRSPs, RESPs, TFSAs and other tax advantaged accounts over decades and compounding of interest or other returns each year.

The only thing I can say is give people the good advice, show them the facts and it is ultimately their final decision as it is their money, right. People have to learn the hard way when it does not pan out no matter which strategy or decisions they make.

if you take advice from this comments section you need minimum 5mil to retire or you’ll be living off cat food.

#6 Doug Rowat on 08.20.22 at 11:26 am

#1 Maggie on 08.20.22 at 10:36 am
What about people that don’t need to make 7% or more and can easily live well with their lifestyle and family with 2.75%, 3%, 3.25%, 3.5% in the past but now get 4% to 5% right now with GICs.

—-

This is an investment blog. This is like walking into a car dealership and saying ‘what about the people who don’t drive?’

—Doug

#7 Shawn on 08.20.22 at 11:27 am

Suggested Alternate Title for today’s topic:

“Why I hate GICs, and so should you”

Banks however love them because it is a deposit that cannot leave until maturity. It also has very little admin costs for the bank. Home Capital found out in Spring 2017 that their non-GIC daily interest deposits could leave in a flash when bad news loomed. They had a good old run on the bank. Remember it? Warren Buffett ended up rescuing them.

A bank balance sheet with the typical 10% equity and 90% deposits funding its loans and with about 3% in actual cash rather than loans gets ugly real fast when deposits flee. They quickly run out of cash and need to turn to emergency loans such as from the central bank in that case.

So, banks love GICs. They aliso love diversity of deposits. Many small deposits are far less likely to leave than one mega deposit.

In fact if you have a billion dollars under the mattress you may find that no bank will accept it as a deposit even if it’s proven you got it legally. Mega depositors like Buffett use very short term treasury bills in place of bank deposits. A billion is also a fair bit above the $100k deposit guarantee limit.

#8 Quintilian on 08.20.22 at 11:32 am

“but when you’re entrenched in a bear market and little is expected, even the whisper of good news drives rallies.”

An impulse reaction.

A drop from 9.1 to 8.5 hardly justifies the oversized celebratory reaction.

The meme junkies are out in full force again, and plenty of the dealers are only happy to oblige.

#9 Upenuff on 08.20.22 at 11:32 am

Nice morning coffee read!

Upenuff

#10 Faron on 08.20.22 at 11:34 am

The marshmallow experiment has been refuted handily.

https://anderson-review.ucla.edu/new-study-disavows-marshmallow-tests-predictive-powers/

#11 Dharma Bum on 08.20.22 at 11:39 am

The only usefulness I can see in having any GICs whatsoever, is as a small percentage of holdings, in a registered account, laddered.

Lil’ bit….just about….THAT much.

#12 Søren Angst on 08.20.22 at 11:41 am

Doug craftily (I think irresistibly) sneaks in:

“The S&P 500 alone is up more than 15%.” *

in the middle of a yeah Bonds and down with GICs discussion (incl. an I told you so).

Too funny. Axe. Grind.

Good one Doug. Bonds are a more than viable alternative to GICs for the faint of heart.

* S&P 500
Jun 16 = 3666.77
Aug 19 = 4228.48
+15.32% in 64 days (or 87.4% annualized)

[a.k.a., Doug did his Math beforehand]

RECOVERY ON. Boo hoo Market Timers (64 days late to the dinner table).

Myself seeing stock price recovery. +12.5% in the past 30 days (incl. TWTR the Albatross). YTD price gain of +8.6% vs. S&P 500 of -11.8%. Elated. Still, a Threadbare Portfolio but getting there.

————————-

P.S.:

yeah _ _ _

YTD Cdn Oil, Pipeline Oracle Doug:

https://www.google.com/finance/quote/ENB:TSE?comparison=TSE%3ATRP%2CTSE%3ASU%2CTSE%3APPL%2CTSE%3ACVE&window=YTD

vs.

YTD “Big 5 Banks” (a.k.a., Cdn ETF Boat Anchors)

https://www.google.com/finance/quote/BNS:TSE?comparison=TSE%3ATD%2CTSE%3ACM%2CTSE%3ARY%2CTSE%3ABMO&window=YTD

#13 Sail Away on 08.20.22 at 11:41 am

Hey, a bird in hand and all. But find the best rate.

For any US citizen with $15k or less available for new investment per year, I’d never suggest they invest in anything other than Series I govt savings bonds at 10%. Safer than houses.

#14 Sail Away on 08.20.22 at 11:42 am

This concerns me more than BC’s opioid thingy:

https://bc.ctvnews.ca/humans-behaviour-may-change-if-they-realized-how-many-black-bears-are-killed-every-year-in-b-c-advocate-1.5747815

#15 Sam on 08.20.22 at 11:50 am

5 year GICs @5% at most banks and average historical balanced fund return is 7% minus fees. So for a variance of 1.5%-2% investors are likely gaining peace of mind (decline in markets aren’t over). I think that’s a good trade off especially if older in life. As for the marshmallow – I would take the one and enjoy it while I’m young and healthy. Waiting for two marshmallows down the line is risky as I will be old and grey and likely diabetic so can’t even enjoy them.

#16 Big Bucks on 08.20.22 at 12:11 pm

GIC’s should always be part of a portfolio.Since rates have been rising(and who knows where they are going from here)they’ve beat bonds handily.I just invested some in a 5 year at 5.25% and some at Tangerine(no minimum)in a 1 year @4.5%.That 2 or 3% you mention is not correct.

#17 held-to-maturity on 08.20.22 at 12:17 pm

In regards to your comment on 1-year GIC vs “boring US Treasuries”, this seems to be an apples to orrange comparrison, as I doubt you’re talking about 1year US treasuries.

However, I completely agree that buying a gov-bond (of the same duration) compared to a GIC is favourable due to the liquidity of the bond vs being forced to hold the GIC to maturity.

IF you are 100% committed to holding to maturity, and rates drop (rise), you’ve made the same gains (losses) on the GIC vs bond. The only difference is you don’t get a daily mark-to-market value.

#18 Love_The_Cottage on 08.20.22 at 12:21 pm

#81 Handsome Suit on 08.20.22 at 8:47 am
…he should be looking at Texas…
Great lifestyle, cheaper homes, cheaper cars, more freedom. Just buy your tickets in advance, the seats to Dallas are full in every flight, all Canadians bailing.
___________
That’s great insight. To be able to tell why a plane full of people are there is amazing. Do they just abandon all their possessions? I would have thought I would drive my F-150 down or maybe a moving truck. Boy was I wrong.

Now when you say freedoms, I guess you’re talking about the freedom to buy an assault rifle at 18 with no background check? It’s clearly not the freedom to have an abortion.

Keep posting these valuable insights, I’ve learned so much already.

#19 TurnerNation on 08.20.22 at 12:26 pm

We are living late-state Democracy. Technically it died post-Sept 11the with the Permanent Rules.
Unlimited domestic surveillence, secret trials, unlimited detention clauses; black site detention centres, secretive No-Fly lists.
All was necessarily unleashed upon the citizenry to Keep Us Safe from T3rrorists (they h8 our freedoms!)! There could be no other way.

Now another layer is added, the Permanent Corvid Rules. All to keep us safe from a virus!! (Which we all got anyway). Climate (scary!) also.

—– Travel is under global control. Energy will be limited to government-controlled electricity. No Nat Gas, no gasoline. No independence. You can have a car in any colour as long as it’s a Tesla. (Everything old is new again).

“An Australian bank will stop approving personal loans for new petrol and diesel-powered cars from 2025 as the federal government flags tough new fuel efficiency standards.
Electric vehicles this year have a minuscule 1.6 per cent market share even when Tesla sales were included, with starting prices of $47,000 and a lack of charging stations turning off many potential motorists.
But the customer-owned Bank Australia wants to change that, in a bid to reduce carbon emissions linked to climate change. (dailymail.co.uk)


— War on Small Business continues. Soon your choices will be limited to the permitted Global Corps.
Wal-mart or Amazon , you choice Comrade!

https://finance.yahoo.com/news/flurry-retail-bankruptcies-warns-former-ceo-105209430.html

#20 Big Bucks on 08.20.22 at 12:30 pm

Remember 5.25% compounded after 5 years is 5.83% per year.A ton of mutual funds(balanced and diversified or straight on equity)could have a hell of a time beating 5.83% over 5 years.If you think the economy will just come roaring back,fill your boots but for the older crowd looking for a little security 5.83% provides that and GIC rates are likely to go a little higher in 2023 and possibly even 2024.

#21 Kevin on 08.20.22 at 12:30 pm

Am looking forward to getting some of my money back that bonds have cost me over the last couple years. Am looking for 4 marshmallows.

#22 TurnerNation on 08.20.22 at 12:31 pm

A big thank you to the Tesla drivers. You guys are helping to cool down the globe! As I stepped out into the blazing sun yesterday I felt it a tad bit cooler. Keep up the good work.
Partly due to the Tesla ‘Climate Changers’. Yes, these drivers are altering the weather/climate with their actions.
In 10 years with the prohibitively expensive car battery packs depleted, your station-in-life-wagons will make fine plastic flower pots or lawn ornaments.

The news that Dodge/Chrysler no longer will offer their iconic Charger model with the legendary Hemi V8 engine, instead its conversion to electric, marks the end of Post WW2 USA dominance. Everything they fought for, is gone. That in your face “Yeah, so what?” taunt, the “Lead, follow or get out of the way’ trailblazing swagger, over. The USA forced into adoption of the same nauseating high-pitched Globalist stance as everybody else. Chop chop.

———
Science update in Kanada! This must be kept going at all costs. Years to come.

http://www.bccdc.ca/Health-Info-Site/Documents/COVID-19_Weekly_Report/COVID_weekly_report_08182022.pdf
As of April 2, 2022, deaths are any COVID-19 lab positive cases who have died from any cause (COVID-19 or non-COVID-19, as recorded in Vital Statistics, BC Ministry of Health) within 30 days of their first positive lab result date

#23 Linda on 08.20.22 at 12:50 pm

Doug, I agree with your marshmallow analogy, but as we all know most folks do not have the patience to wait. Or the ability to not panic when they see markets drop precipitously. For all so many like to think they are not influenced by media, headlines proclaiming ‘the END is NIGH!’ any time any disaster or potential disaster may occur does undermine confidence when making or trying to make a decision.

To be fair, it is even more difficult to resist panic when a wrong decision may have an inordinate flow through effect upon one’s lifestyle. While the amount being invested may be small, it could in not a few cases be all the spare $ the investor has. Risk is perceptual; what I find easy may for others be too great a risk & vice versa. I do know that what I am comfortable with these days would have been outside my comfort level when I first started.

#24 Jason on 08.20.22 at 12:51 pm

You can get a 5 year GIC paying 5% right now. Compounding, that is a rate of return of about 5.5% per year. That’s pretty good for an extremely safe investment. Having an extremely safe 5.5% annual return as a portion of one’s portfolio is not terrible.

#25 Sail Away on 08.20.22 at 12:51 pm

#6 Doug Rowat on 08.20.22 at 11:26 am
#1 Maggie on 08.20.22 at 10:36 am
What about people that don’t need to make 7% or more and can easily live well with their lifestyle and family with 2.75%, 3%, 3.25%, 3.5% in the past but now get 4% to 5% right now with GICs.

———-

This is an investment blog. This is like walking into a car dealership and saying ‘what about the people who don’t drive?’

—Doug

———-

Hahahaha!

#26 Stealth on 08.20.22 at 12:54 pm

Hi Doug,

Thanks for taking the time to write a post.

1. Is there there ever a valid scenario for a person/family to hold gics?

2. Regarding bonds Garth illustrated their duration should be short, is that still the case particularly after rate hikes?

Thanks

#27 Dishonest Realtor on 08.20.22 at 1:09 pm

What a piece of garbage today, Doug.

Yet another TNLTB financial advisor giving terrible advice, encouraging vulnerable clients to become morbidly obese through excess consumption of marshmallows.

And when they die early as a result of diet-induced heart disease, no doubt Doug will get a fat ‘account closing fee’ as well.

This is why people should only trust their Realtor®. Property is the only investment you need, folks.

#28 DON on 08.20.22 at 1:15 pm

https://www.bloomberg.com/news/articles/2022-08-18/layoffs-are-planned-at-half-of-all-companies-pwc-survey-shows

#29 Shawn on 08.20.22 at 1:16 pm

Maggie May… be awake and right

Great retort from Doug.

But she is also investing and she made the great point (not one I have seen before) that with her strategy she has a better idea of how much she needs to invest. She knows she needs to invest more than with a B&D strategy but she accepts that and has a certainty that she is comfortable with. Rock on.

But KLNR said

“if you take advice from this comments section you need minimum 5mil to retire or you’ll be living off cat food.”

********* Actually, due to inflation we are upping that to $10 million. But depends on your spending habits. Usually, the more you got the more you spend. People with $20 million might ask how anyone gets by on less than a million a year and they are serious.

#30 Shawn on 08.20.22 at 1:21 pm

Tesla?

#22 TurnerNation on 08.20.22 at 12:31 pm

A big thank you to the Tesla drivers. You guys are helping to cool down the globe!

*******************
You’re welcome. But it’s not only about saving the planet. It’s also virtue signaling, showing off, and it’s a great toy. Did you know it has a toybox feature and can make fart sounds specific to a given seat or outside. That’s worth something, right? And no actual smells are emitted!

#31 Shawn on 08.20.22 at 1:30 pm

But Wait, GICs pay more than government bonds / treasuries

#17 held-to-maturity on 08.20.22 at 12:17 pm
In regards to your comment on 1-year GIC vs “boring US Treasuries”, this seems to be an apples to orrange comparrison, as I doubt you’re talking about 1year US treasuries.

However, I completely agree that buying a gov-bond (of the same duration) compared to a GIC is favourable due to the liquidity of the bond vs being forced to hold the GIC to maturity.

**************************
Actually, you just remined me that retail GICs pay quite a bit more that government bonds of the same duration.

Who cares that a 5 year government bond yielding 3.0% might give a capital gain (or loss) if you plan to hold until maturity. Ans someone has to own it until then.

If a 5 year GIC actually pays 4 or 5% it may be a lot worse than a dividend stock but it is irrefutably better than a 3% 5 year government bond if both are held to maturity.

Maybe I will even buy one myself one of these days.

Garth says (always) “no one buys a bond to hold until maturity”. Yeah they do. Bond trading is a zero sum game. Buy and hold a government bond is clearly a positive sum game with a known interest rate.

#32 Timmy on 08.20.22 at 1:33 pm

I agree, but then the Globe and Mail has a finance writer that is making a case for GICs. I guess the wages are so low they don’t get many qualified people.

#33 Steven Rowlandson on 08.20.22 at 1:34 pm

I have the ability to wait but experience tends to demonstrate that there really is no gratification to be had..

#34 Baba Novac on 08.20.22 at 1:34 pm

Thanks for another thought-provoking post, Doug.

I’ve been back-of-the-mind contemplating this marshmallow investment problem ever since a comment made on the weekly call that (I paraphrase) “the 60/40 is not dead; and the expected avg. return over the next ~10 yrs had inched over 6%” That triggered my thought of how that compared with the certainty of up-to-10-yr GICs in the mid 5%. I’ve not moved yet, and may not (as I am at 80-20 right now, riding the wave). But you see why I was contemplating the marshmallow for a part of the portfolio…

Any light-shedding comments? (on the longer term exposure to GICs in this interest rate climate vs. the more easily discernible shunning of the 1-yr GIC compared to likely upswings in the short-term total return of bonds)

#35 Dr V on 08.20.22 at 1:36 pm

1 Maggie

“What about people that don’t need to make 7% or more and can easily live well with their lifestyle and family with 2.75%, 3%, 3.25%, 3.5% in the past but now get 4% to 5% right now with GICs.”
—————————————————-

Why dont you compare GICs v. bank stocks? Bank stocks currently pay a comparable rates as a dividend, which is tax-preferred. Also, the dividend will grow over time. If you are wanting income, and drawing the interest from the GIC principal, the value never changes, and you are left with what you started with. Bank stocks have probability of appreciation over time (granted temporary downsides are also likely).

I remember a poster who noted that their bank divvy now exceeds their initial investment.

#36 Marshmallows on 08.20.22 at 1:38 pm

Marshmallows are disgusting!

Who would even want to eat the darn things?

Make your mouth all dry and chalky.

People choke and die from these things, and make others rich.

https://www.foxnews.com/story/2m-settlement-reached-in-marshmallow-death-case

#37 Dr V on 08.20.22 at 1:39 pm

Earlier today I read that 30% of the SP500 rally is from just 4 stocks.

Great diversification! As bad as our banks on the TSX!

#38 Ponzius Pilatus on 08.20.22 at 1:44 pm

#87 IHCTD9 on 08.20.22 at 11:41 am
#86 Philco on 08.20.22 at 10:33 am

I employ my neighbour’s he’s 72 and is in great shape he loves it. Got another guy he’s 75 and a machine and 2 good knuckle head hard working kids.
—————

It’s really amazing how much work an old guy can do. Farmers and construction workers that do it for life seem to become blessed with high pain tolerances, and physical endurance. I’ve worked with several and was amazed even in my teens at some of these past retirement guys going full-bore in the hot sun all day, every day. Hope you pay them well.

Most of these guys made it past 90, one is still alive and must be nearing 100. Minds stayed sharp right to the end. Hard work outside seems to have a beneficial effect on lifespan.
—————
Not my experience, at all.
Lots of hunchbacks on the farms.
Saw a study that says politicians live the longest.
And I guess, Royalties come next.
Manual labour is a pain on the body and the mind.

#39 Is anybody listening? on 08.20.22 at 1:48 pm

Keep it coming TurnerNation!

#40 Ponzius Pilatus on 08.20.22 at 1:51 pm

Of course, there’s also the “Law of declining marginal utility” in Economics to consider.

#41 Dr V on 08.20.22 at 1:53 pm

68 Faron

“I snickered, finished my beer and we headed to the Chemainus for a dip.”
———————————————

Excellent! Mosaic site shows the gates for Copper Canyon, Nanaimo Lakes and Northwest Bay open, which surprises me with all the wildfire hazard signs I see now reading extreme. A little T&L out there yesterday as well.

White Sails looks to be located where the old
“Newcastle” pub was. Not sure if it’s the exact same parcel though. I can’t recall ever going into the Newkie.

#42 KLNR on 08.20.22 at 2:11 pm

@18 Love_The_Cottage on 08.20.22 at 12:21 pm
#81 Handsome Suit on 08.20.22 at 8:47 am
…he should be looking at Texas…
Great lifestyle, cheaper homes, cheaper cars, more freedom. Just buy your tickets in advance, the seats to Dallas are full in every flight, all Canadians bailing.
___________
That’s great insight. To be able to tell why a plane full of people are there is amazing. Do they just abandon all their possessions? I would have thought I would drive my F-150 down or maybe a moving truck. Boy was I wrong.

Now when you say freedoms, I guess you’re talking about the freedom to buy an assault rifle at 18 with no background check? It’s clearly not the freedom to have an abortion.

Keep posting these valuable insights, I’ve learned so much already.

I’m curious how this vast amount of Canadians bailing for the US are getting their greencards so easily?

#43 Victor Llearna on 08.20.22 at 2:29 pm

If we use the marshmallow analogy to the CPP, it would be like the government forcibly confiscating your marshmallow then giving you a tiny piece of a marshmallow 40 years later.
Meanwhile the government bureaucrats pig out on the marshmallows they confiscated and try to tell us its all in our best interest because we are incapable of not eating that marshmallow.

#44 Doug Rowat on 08.20.22 at 2:41 pm

#16 Big Bucks on 08.20.22 at 12:11 pm
I just invested some in a 5 year at 5.25% and some at Tangerine(no minimum)in a 1 year @4.5%.That 2 or 3% you mention is not correct.

—-

You could use a lesson in counter-party risk.

—Doug

#45 Peter on 08.20.22 at 2:45 pm

If I can get 4.5% to 5% in GICs for the next 4-5 years for the FI portion of my portfolio with a balanced of 60-70% stocks, then why is that a bad thing? What are bond projected to return based on current yields even with a potential capital appreciation?

Everything I have read is that you should only expect about 1-3% on bonds or even 0% after inflation. Are you telling me if inflation stays at 7-8% for the next 5 years that bonds will keep pace?

#46 Dr V on 08.20.22 at 3:16 pm

“Bonds and equities will begin to rebound on the slightest hint of inflation turning the corner, which is one reason why markets have advanced almost continuously over the past two weeks after US CPI dropped to 8.5% y-o-y in July, down from 9.1% y-o-y in June. An 8.5% reading is hardly an earth-shattering deceleration, but when you’re entrenched in a bear market and little is expected, even the whisper of good news drives rallies.”
———————————————–

Doug – your statement doesnt give me a lot of
confidence in the markets. Shouldn’t it be about fundamentals? I don’t want speculative rallies, or dips
for that matter.

#47 Love_The_Cottage on 08.20.22 at 3:17 pm

#43 Victor Llearna on 08.20.22 at 2:29 pm
If we use the marshmallow analogy to the CPP, it would be like the government forcibly confiscating your marshmallow then giving you a tiny piece of a marshmallow 40 years later.
Meanwhile the government bureaucrats pig out on the marshmallows they confiscated and try to tell us its all in our best interest because we are incapable of not eating that marshmallow.
___________
There are countless ways the government doesn’t use money wisely. Why you think the CPP is one of them and feel the need to repeatedly post about it is confounding.

Ironically the marshmallow analogy better describes the CPP than GIC’s. Most people don’t save enough for retirement, so the CPP is an effective and necessary form of forced savings.

#48 Feds on 08.20.22 at 3:18 pm

Doug, you are just making a prediction, and it could be incorrect. A lot of people are happy with the security of a 1-5 year GIC currently paying around 4.5% pretty much risk free. Put a note in your calendar and let’s revisit one year from now and see how the balanced portfolio performed versus 4.5% almost risk free. In my opinion, there is significant chance of a large downside and less chance of a large upside from here. Remember, you have been really wrong this past year, not sure why you are so confident about next year.

#49 ElGatoNeroYVR on 08.20.22 at 3:31 pm

#27 Dishonest Realtor on 08.20.22 at 1:09 pm
What a piece of garbage today, Doug.«»
This is why people should only trust their Realtor®. Property is the only investment you need, folks.
==================
Perfectly elaborated point. Why settle for ONE stinky marshmallow when one could have a whole house made out of marshmallows ?
Donˋt settle ,find a builder ,leverage your familly income for the next 100 years and build your dream marshmallow house ,or work with your “Always Honest” Realtor to find one already built.
On a more serious note it still baffles me how otherwise very smart bloggers can’t figure out that majority of people can’t do or won’t do complicated.
For the “canˋ’t do” this is how they think:
Investments = that is the stuff where everyone loses money and waay to many stocks , where’s my Netflix shortcut ?
B&D 60/40 = nevear heard of it ,likely you meant the 80/20 rule or that 50 shades of grey stuff !?
Financial Advisor = The nice lady at the bank
Monte Carlo Simulation = Why simulate when flying to Vegas and staying at the real deal while catching a game of Skatey Punchy is so much more rewarding ?
That is why RE is the preffered investment ,it is simple and HGTV shows how you can make a ton of money .

For the won’t do:
Why bother with a managed porfolio when I/we have a signifanct enouhg portfolio invested in GIC/Bond that will last 5 or 6 lifetimes ?
Fair point , why work and be an active investor when you can enjoy life and rebalance once a year !!

#50 Faron on 08.20.22 at 3:41 pm

#41 Dr V on 08.20.22 at 1:53 pm
68 Faron

“I snickered, finished my beer and we headed to the Chemainus for a dip.”

———————————————

White Sails looks to be located where the old
“Newcastle” pub was. Not sure if it’s the exact same parcel though. I can’t recall ever going into the Newkie.

Don’t know the history of the parcel. W/re the structure, the exposed timber frame construction looks fairly new. Either way, a nice stop on the way south. We needed to kill an hour before Roberts Street Pizza in Ladysmith opened.

There was abundant signage entering Mosaic lands, But the gate was open. Not sure if they are allowed to close access to a provincial park which that stretch of the Chemainus is. Excellent swimming hole. We also swam Cameron Lake and Englishman River Falls below the canyon (coooold).

Viva summer. Hope you are thriving.

Forecasts are hinting at a scorching end to August. Still a ways out, but daily or monthly record breaks are possible. May stretch from here all across the Can/US border.

#51 Doug Rowat on 08.20.22 at 3:52 pm

#45 Peter on 08.20.22 at 2:45 pm
Are you telling me if inflation stays at 7-8% for the next 5 years that bonds will keep pace?

—-

Inflation’s been at these levels for barely 5 months. Calm yourself.

—Doug

#52 Love_The_Cottage on 08.20.22 at 4:03 pm

#44 Doug Rowat on 08.20.22 at 2:41 pm
You could use a lesson in counter-party risk.

—Doug
_________
Or perhaps they are just familiar with CDIC. No idea why the hate for GIC’s in these parts.

#53 Stone on 08.20.22 at 4:09 pm

86 Philco on 08.20.22 at 10:33 am
Tim
Never fully quit you have no clue of the future events.
A million will be like $100k in time. It is to me already.
In one years time I’ll have way into 8 digits of RE that pays $400k cash flow a year. I’m going to keep going cause I like it. Change it up you just got bored.
Tim assume nothing your not rich Jeff Bezos is.
Something blows up good luck finding good cash flow when your wrinkly.

Anywho I’m building mini storage building #1 cash cow running the crew. It was like working on the sun this week!
I employ my neighbour’s he’s 72 and is in great shape he loves it. Got another guy he’s 75 and a machine and 2 good knuckle head hard working kids.

Looks like a bit of a roll over in the market.

———

Wow! My interpretation of the above is to live life in fear every moment if you aren’t employed and making an income.

So many people who live in perpetual fear.

Maybe it would be best for only those who are actually early retired to speak on this subject.

All you perpetually employed and consider retired life boring should maybe abstain on a subject you have no clue on.

And for those who advised Tim to only on retire on $5 million or more invested…do you have any clue what that actually represents? What kind of income $5 million generates?

#54 Earlybird on 08.20.22 at 4:24 pm

Was pondering this subject recently……maybe….at say 8.5 …it would be ideal…
Very well written btw

#55 the Jaguar on 08.20.22 at 4:24 pm

Isn’t investing a lot like cooking? You have to invest in quality ingredients to get a quality result. Like the Tzatziki I made earlier today for this evening’s Greek souvlaki grill. You cannot buy the cheap yogurt and expect a quality result. Always buy Oikos.

I suppose a certain amount of cash (GIC’s) in a portfolio make sense or it wouldn’t be true diversification by asset class. But if client requests ‘suddenly increased in June’, that sounds a lot like pulling money out and possibly crystalizing a loss.
Nervous Nellies. Just spend more time in the kitchen.

It’s so much more rewarding. Jaguar will even teach how to get the moisture out of the shredded cucumber.

As for marshmallows and how to get more bang for your buck, …..well, there is always Boyle’s law. Get creative people. Set your inner marshmallow free…

https://www.youtube.com/watch?v=ULdmv-iPQvA

#56 Brett in Calgary on 08.20.22 at 4:25 pm

I think the GIC folks might finally have a case. Getting 4.5% for one year with principal guaranteed isn’t bad in this environment. A lot of forward looking indicators (i.e. credit impulse) aren’t looking so good. True, things could bounce back if we achieve the mythical soft landing, but with QT in full effect we could easily grind sideways/lower for a year.

#57 Leon Smuk on 08.20.22 at 4:35 pm

I did the marshmallow test when I was young. They put one in front of me and I went and got the bag it came from.

#58 tbone on 08.20.22 at 5:07 pm

I got GIC`s at Tangerine, and i have stocks , etfs , and mutual funds too. You dont have to be fully invested in the stock market. Stuck half in @ 4.25 % for one year . The other half later on this year . I know its not tax efficient , but thats ok with me.

#59 Russ on 08.20.22 at 5:12 pm

Faron on 08.20.22 at 3:41 pm

#41 Dr V on 08.20.22 at 1:53 pm
68 Faron

“I snickered, finished my beer and we headed to the Chemainus for a dip.”

———————————————

White Sails looks to be located where the old
“Newcastle” pub was. Not sure if it’s the exact same parcel though. I can’t recall ever going into the Newkie.

Don’t know the history of the parcel. W/re the structure, the exposed timber frame construction looks fairly new. Either way, a nice stop on the way south. We needed to kill an hour before Roberts Street Pizza in Ladysmith opened.

====================

Hey Doc & Faron,

Since you are interested. The Newcastle Hotel was one of the original old era hotels, similar to The Oxy, Balmoral, Queens, the dork, etc.
It’s mainstay was the big beer barn on main floor with separate Men’s and Ladies & Escorts entrances. A partitioned wall to separate same.
It suffered a fire in the mid-80s recession and was eventually torn down.

On this site rose the Foundry Pub (or maybe it was the Ol’ Foundry Pub). Very gentrified with post & beam, timbered construction and “decorated” with the old Nanaimo Foundry molds and plugs of gears and sheaves, etc.

The original foundry building was across the street and this fine heritage building was razed by the City of Nanaimo and paved for a ball court.

Some years ago the Foundry Pub went vacant again and was resurrected as the White Sails brew-pub it is now.
My favourite offering there is the IPA named Mt. Benson. Lotsa hop in that India pale ale.

Good choice on Robert’s St Pizza.

Cheers, R

#60 IHCTD9 on 08.20.22 at 5:13 pm

#38 Ponzius Pilatus on 08.20.22 at 1:44 pm

Not my experience, at all.
Lots of hunchbacks on the farms.
Saw a study that says politicians live the longest.
And I guess, Royalties come next.
Manual labour is a pain on the body and the mind.
———

I’ve have had a lot of dudes in my life that died 90-100, just about all of them did construction or farming for decades on end.

They were almost all the same background though, so maybe good genes are also at play.

#61 Stone on 08.20.22 at 5:25 pm

#87 IHCTD9 on 08.20.22 at 11:41 am
#86 Philco on 08.20.22 at 10:33 am

I employ my neighbour’s he’s 72 and is in great shape he loves it. Got another guy he’s 75 and a machine and 2 good knuckle head hard working kids.
—————

It’s really amazing how much work an old guy can do. Farmers and construction workers that do it for life seem to become blessed with high pain tolerances, and physical endurance. I’ve worked with several and was amazed even in my teens at some of these past retirement guys going full-bore in the hot sun all day, every day. Hope you pay them well.

Most of these guys made it past 90, one is still alive and must be nearing 100. Minds stayed sharp right to the end. Hard work outside seems to have a beneficial effect on lifespan.

———

Have you read FLOP’s posts in the comment section?

He’s advised how hard work outside is very difficult on the body. Changing temperatures and weather conditions don’t help. I believe him. I’ve had my share of it and he’s on the money. I’ll also add that working sitting at a desk all day can be just as detrimental. Without a consistent controlled exercise and stretching regime, it’s a recipe for a deteriorated physical state.

Please provide the link that we can read showing the great benefits of working hard outside. I’d love to be contradicted.

Keyboard warriors extolling the virtues of hard outside labour.

Maybe a good question to ask some of these labourers is how much interest they pay on their credit card(s) and other debt annually. I somehow get the feeling it isn’t $0.

#62 Felix on 08.20.22 at 5:28 pm

Excellent to see two days in a row with no dogawful canine photos.

Did you know:

A marshmallow has 2.6X the IQ of an average canine, and is 52,900,000X less harmful to the environment on an annual basis.

#63 Dragonfly58 on 08.20.22 at 5:33 pm

#53 Stone, it’s not just the income $5,000,000.00 generates. It’s the income that sort of a nest egg would require to amass in the first place.

#64 Penny Henny on 08.20.22 at 5:39 pm

#77 Jane24 on 08.20.22 at 2:46 am
No matter how much he annoys you, never divorce.

//////////////

Fartzy sometimes you disappoint me.
Here is Lady Jane lobbing in a big juicy softball and you let it go for a strike. She basically placed it on a tee for you to hit…… and then nothing.
You, you, you ….. nevermind. :(

#65 Doug Rowat on 08.20.22 at 5:58 pm

#48 Feds on 08.20.22 at 3:18 pm
Doug, you are just making a prediction, and it could be incorrect. A lot of people are happy with the security of a 1-5 year GIC….

—-

Of course I’m making a prediction. This would be a boring place to visit if we didn’t give opinions.

But I’m also cautioning GIC buyers who are “discounting entirely” (and, in my experience, GIC buyers usually are) the possibility that bond and equity markets will recover.

—Doug

#66 Faron on 08.20.22 at 6:09 pm

#59 Russ on 08.20.22 at 5:12 pm
Faron on 08.20.22 at 3:41 pm

#41 Dr V on 08.20.22 at 1:53 pm
68 Faron

My favourite offering there is the IPA named Mt. Benson. Lotsa hop in that India pale ale.

Good choice on Robert’s St Pizza.

Cheers, R

Thanks for the insight Russ.

#67 Wrk.dover on 08.20.22 at 6:11 pm

Shawn: thanks for your compliments yesterday on the success of my wife and I in our marriage. As child #9 of 10, she was determined to be single for life, and live as herself alone. The night she met me and I presented as a fellow thinking “that one marshmallow right there, is all we will need, lets share it a little at a time, and make it last, after all it is an ample one”, my lack of greed, made her grade.

I had no plans to marry money, but money had plans to marry me.
____________________________

I had quietly predicted, Mr. Market was going to lose buyers to GIC’s, as interest raised, but golly the comments today are making it seem like the market will be a lost asset by the time rates peak! No casino buyers!

So, the Davos/Jackson Hole cure will be yet more higher inflation than interest rates can equal, keeping Mr. Market alive. Watch!

#68 Wrk.dover on 08.20.22 at 6:19 pm

Half empty or half full?

I see a glass of water, in a bigger than necessary glass!

#69 Linda on 08.20.22 at 6:26 pm

#46 ‘Dr’ – ‘I don’t want speculative rallies, or dips for that matter’ – Dr., if that is the case then I prescribe no market investing for you. Too stressful!

#47 ‘Love’ – exactly! ‘Victor’ obviously has a beef with having to contribute to CPP. Ironically, the tone of his comments indicate he would be vehemently against government employees DB pensions. I say ironic given CPP is a DB plan & V’s disgruntlement at ‘enforced’ contributions ignores the reality that a hefty chunk of the Canadian population would have nothing in the way of income upon retirement if it were not for said enforced CPP contributions. Apparently some 32% of Canadians between the ages of 45-64 have saved nothing for retirement. CPP to the rescue! (Also OAS/GIS).

#70 Steven Rowlandson on 08.20.22 at 6:30 pm

I think the rule of thumb is inflation plus at least 5% as a return on investment. So if inflation is 7.5% you need a investment that pays at least 12.5% PA. I suspect the governments and real estate market would have a hard time competing with that.

#71 KLNR on 08.20.22 at 6:31 pm

@#61 Stone on 08.20.22 at 5:25 pm
#87 IHCTD9 on 08.20.22 at 11:41 am
#86 Philco on 08.20.22 at 10:33 am

I employ my neighbour’s he’s 72 and is in great shape he loves it. Got another guy he’s 75 and a machine and 2 good knuckle head hard working kids.
—————

It’s really amazing how much work an old guy can do. Farmers and construction workers that do it for life seem to become blessed with high pain tolerances, and physical endurance. I’ve worked with several and was amazed even in my teens at some of these past retirement guys going full-bore in the hot sun all day, every day. Hope you pay them well.

Most of these guys made it past 90, one is still alive and must be nearing 100. Minds stayed sharp right to the end. Hard work outside seems to have a beneficial effect on lifespan.

———

Have you read FLOP’s posts in the comment section?

He’s advised how hard work outside is very difficult on the body. Changing temperatures and weather conditions don’t help. I believe him. I’ve had my share of it and he’s on the money. I’ll also add that working sitting at a desk all day can be just as detrimental. Without a consistent controlled exercise and stretching regime, it’s a recipe for a deteriorated physical state.

Please provide the link that we can read showing the great benefits of working hard outside. I’d love to be contradicted.

Keyboard warriors extolling the virtues of hard outside labour.

Maybe a good question to ask some of these labourers is how much interest they pay on their credit card(s) and other debt annually. I somehow get the feeling it isn’t $0.

anecdotal evidence is the best kind of evidence don’t ya know.

#72 IHCTD9 on 08.20.22 at 6:33 pm

#63 Dragonfly58 on 08.20.22 at 5:33 pm
#53 Stone, it’s not just the income $5,000,000.00 generates. It’s the income that sort of a nest egg would require to amass in the first place.
——- –

It’s 3400.00 every month for 40 years, or 6300.00 every month for 30 years. (@5%)

That’s a tall order either way for most working stiffs.

#73 Damifino on 08.20.22 at 6:41 pm

As a kid, I could have sat and waited forever for that second marshmallow. But if they’d put down an Oh Henry bar… well, that would have been a challenge.

They don’t call it “The King of Candyland” for nothing.

#74 epic bear on 08.20.22 at 6:46 pm

there are times to be invested, and there are times to be in cash.

there is never a time to buy a GIC.

it’s an interest bearing instrument. if rates rise, your capital goes down in value. if rates fall, your capital goes up in value.

you don’t see it because you are being LIED to. the face value of a 5 year GIC does NOT stay the same for 5 years because interest rates change. people buy GIC’s
to feel “safe”, but in reality, they have been LIED to and so, are being taken advantage of.

if you can’t understand that, you should probably not get involved investing your own money.

#75 IHCTD9 on 08.20.22 at 6:47 pm

#61 Stone on 08.20.22 at 5:25 pm
——-

Easy there homie. No one said Farming and Construction work is easy. Hard on the body? Duh, of course. A bad back doesn’t kill you though.

I can only link you to my experience, which is that the oldest males I ever knew (and still know), did hard labour outside for decades.

Fluke? I doubt it. Good genes? Probably.

#76 Ponzius Pilatus on 08.20.22 at 6:55 pm

#32 Timmy on 08.20.22 at 1:33 pm
I agree, but then the Globe and Mail has a finance writer that is making a case for GICs. I guess the wages are so low they don’t get many qualified people.
—————————
In my hometown in Austria there stands an 800 year old building that still serves as the City Hall and Court House.
Above the huge oak entrance door there is an inscription (in gold they say) that says in old German:
“One man’s speech is only halve a speech.
One should listen to them both”.
Words to live by. Don’t you think?

#77 AK on 08.20.22 at 7:11 pm

“In fact, US investment-grade bonds in general are up more than 5%—a significant move for investment-grade bonds over such a short timeframe. And equities? The S&P 500 alone is up more than 15%.”
==========================

10 year bond trading @ a PE of 34X and S&P 500 around 21X. Stock are much cheaper than Bonds.

#78 Russ on 08.20.22 at 7:32 pm

Faron on 08.20.22 at 6:09 pm

#59 Russ on 08.20.22 at 5:12 pm
Faron on 08.20.22 at 3:41 pm

#41 Dr V on 08.20.22 at 1:53 pm
68 Faron

My favourite offering there is the IPA named Mt. Benson. Lotsa hop in that India pale ale.

Good choice on Robert’s St Pizza.
Cheers, R

Thanks for the insight Russ.
==========================

Yur welcome Faron,

But be careful with the “Benson” as it is 7% ABV
https://whitesailsbrewing.com/project/mount-benson/

#79 chalkie on 08.20.22 at 7:35 pm

Your Analogy Doug, works in many departments of understanding how discipline and finances work hand in hand together, the people who would not wait to buy that used car, home, furniture, appliances, cottages etc. etc. “guess what” they are now all deeply discounted. The crowd that could not wait, is now kicking themselves as they watch others snap up the big savings in 2022, lesson understood but still not learned by many.
Knowing the difference between want and need, is very important in the early stages of life. Tomorrow is another day and a fool and their money will soon part again, for some people there are no rainy days ahead, but the forecast calls for rain, and that Marshmallow may get wet, so they eat it up.

#80 Cow Man on 08.20.22 at 8:04 pm

Very well written. Insightful and enlightening.

Thanks.

#81 ogdoad on 08.20.22 at 8:05 pm

Yes, The Social Animal…like us…Although now we’re the duped animal….care to continue, Doug?

Og

#82 crowdedelevatorfartz on 08.20.22 at 8:45 pm

@#64 Penny
“Fartzy sometimes you disappoint me.”

+++
Music to Ponzie’s ears.

It was too easy.
And I have to be mindful of all the easily offended that will rush in to defend JTwoFour because I’m being mean..
Mind you.
A 50/50 divorce would take a bit of wind out of her financial sails.

#83 Flop… on 08.20.22 at 8:52 pm

I see I got a honourable mention in the hard yakka department.

Yes, I’ve worked hard, not smart, most of my life.

Started my apprenticeship at 15, but before that my Dad had taught me to work hard and hustle to put food on the table.

From the age of probably 5 or 6, I would ride my BMX around to neighborhood and collect 1 litre glass Coke bottles that were left laying around, you could get 20 cents each recycling them before that was really a thing, cans by the garbage bag too, and I remember some old timers seeing me hustling and give me car batteries and stuff to take to the plant to get a bit extra.

Maybe around 9 or 10, I got a paper round, used to get up around 5am, deliver a couple of hundred newspapers, come back home and have breakfast and get ready for school.

Then for a few years my brother had a job that paid 20 bucks a week delivering medicine to people with mobility issues, I inherited this job so for a while I was working both before and after school for maybe $40 a week.

Then I got my big break, an after school job at a concrete plant, $50 a week and I stopped delivering papers in the morning, slacker!

I quit that job when I graduated high school, at the ripe old age of 15 years and 4 or 5 months.

Within a couple of weeks of leaving high school, I got a full time job at a dry cleaners, in the meantime I applied for two apprenticeships and got one.

This was back in the time when you got decent interest in the bank, don’t remember if I had some kind of junior GIC or term deposit, but what I do remember is at certain times my Mum and Dad instead of giving me an allowance to play on the Commodore 64, would match what I had made for the summer, so I I hustled for the summer and got $250, they would put 250 in to show me the rewards of hard work.

I know this is outdated thinking nowadays, apparently my Dad had a hard upbringing, he wanted me to able to fend for myself, both by way of saving and investing, which was probably why he got me 2 mutual fund salesmen for my 18th birthday…

M48BC

#84 Doug t on 08.20.22 at 9:51 pm

#19 TurnerNation

Keep bringing it TN – truthisms

#85 Fitgeek on 08.20.22 at 9:56 pm

Not mentioned are the high interest savings ETFs, which are currently yielding 2.99%. Some of a balanced portfolio can utilize this over the short term while the BoC continues its expected rise. They can be immediately liquidated to purchase a bond ETF.

#86 Diamond Dog on 08.20.22 at 10:10 pm

I agree with what you are saying Doug, but unless you are trading (i.e. selling), bear market rallies don’t bear fruit. In other words, one needs to invest with a short term horizon into a current bear market rally with a short term expiry date.

I can blather on as to why in typical fashion, but the economist below will do. She’s a bit political (I think to her detriment), but I agree in the most part with what she says here:

https://www.youtube.com/watch?v=Wgl2FDiCeJI

Quickly if there is such a thing, 3.5 to 4% Fed rate hikes that pause there for most of a year, possibly to a ceiling of 5% but not likely. QT will effect credit conditions but it’s effects remain to be seen. Danielle is talking 4 ugly recession quarters and sounds like the logical medicine to take inflation down to where it needs to go. That is, if the Fed is serious about inflation and they need to be for what it’s worth or high inflation, already self sustaining and seen in wages now, will drag out much longer.

Geopolitically, China is in recession as is Europe. Some commodities such as natural gas and food commodities in general will not abate. The U.S. does have exports and is not an island.

When we look at the world right now, China is coming off a property bubble that was higher valued than Japan’s monster bubble of the late 80’s. Europe is in recession from war. The U.S. is suffering from an overheated economy from a rapid increase in the money supply during the pandemic, coming off of market bubbles of it’s own but there’s more.

There is also the environmental factor effecting economies. There are several large rivers in the world that are drying or have dried up. We all know or should know about the Colorado river reduced to a trickle, a river that feeds California crops of veggies, fruits, nuts & berries of which Cali has a large national market share but its not just the Colorado river. The river Thames in the U.K. has dried up, not a trickle.

https://www.msn.com/en-us/news/world/uk-so-hot-and-dry-the-source-of-the-river-thames-has-dried-up/ar-AA10yLCi

The Yangtze river, the longest river in China dried up, not a trickle:

https://www.nbcnews.com/video/china-s-yangtze-river-dries-up-amid-unprecedented-drought-146464325612

The Rhine river is drying up, down to 10 inches. The Oder river in Germany is also a trickle with a dead fish problem:

https://ca.news.yahoo.com/photos-show-major-river-key-133000431.html

East Asia’s Tigris & Euphrates are a trickle. Italy’s main river, the Po, is a trickle. The Loire river of France can now be crossed by foot. Western Europe’s longest river, the Danube, is a trickle. The Amazon, as usual we don’t want to know. As glaciers continue to recede, fears are real and growing that as La Nina’s come, so will be the end of river flows until La Nina’s end.

So, welcome to climate change. The hots are getting hotter, the dries getting dryer and the wets getting wetter but this is old news for some.

#87 IHCTD9 on 08.20.22 at 10:29 pm

#71 KLNR on 08.20.22 at 6:31 pm

anecdotal evidence is the best kind of evidence don’t ya know.
——-

The idea that regular physical activity can increase longevity is in no way anecdotal.

#88 Ponzius Pilatus on 08.20.22 at 10:59 pm

#37 Dr V on 08.20.22 at 1:39 pm
Earlier today I read that 30% of the SP500 rally is from just 4 stocks.

Great diversification! As bad as our banks on the TSX!
————————-
Almost fits Pareto’s 80/20 rule.
Infallible like Murphy’s Law.

#89 Ponzius Pilatus on 08.20.22 at 11:03 pm

#87 IHCTD9 on 08.20.22 at 10:29 pm
#71 KLNR on 08.20.22 at 6:31 pm

anecdotal evidence is the best kind of evidence don’t ya know.
——-

The idea that regular physical activity can increase longevity is in no way anecdotal.
—————-
Physical activity can improve quality of life.
But quantity is more likely in the Jeans.

#90 IHCTD9 on 08.20.22 at 11:20 pm

#89 Ponzius Pilatus on 08.20.22 at 11:03 pm
#87 IHCTD9 on 08.20.22 at 10:29 pm
#71 KLNR on 08.20.22 at 6:31 pm

anecdotal evidence is the best kind of evidence don’t ya know.
——-

The idea that regular physical activity can increase longevity is in no way anecdotal.
—————-
Physical activity can improve quality of life.
But quantity is more likely in the Jeans
——-

General agreement. There is research out there that gives a handful of extra years to those who stay active though. Way less chance for diabetes too.

#91 IHCTD9 on 08.20.22 at 11:34 pm

#83 Flop… on 08.20.22 at 8:52 pm
I see I got a honourable mention in the hard yakka department.

Yes, I’ve worked hard, not smart, most of my life.
———-

I did the heavy duty construction and agricultural work from 15-23. From there it’s been the cubicle. So I hope Ponzie is right about the Jeans [sic].

#92 PeterfromCalgary on 08.20.22 at 11:44 pm

Doug Rowat gives delicious advice! Well done!

#93 mousey on 08.21.22 at 1:28 am

I see zero down side to investing a portion of a portfolio in a 1 year gic for 4.25%. It has the same function as bond etf funds without the downside of plummeting etf values. If the purchase is in a registered account or TFSA, the tax argument is irrelevant. Not seeing the argument here Doug.

#94 No marshmallow for you! on 08.21.22 at 1:35 am

All the people who ate more than one marshmallow became diabetic and suffered a long, painful and shortened existence.

Don’t be the marshmallow!

#95 The Gold Standard on 08.21.22 at 2:30 am

People’s Trust pays 2.25% on a regular savings account and their term deposits are higher.

#96 Hold la moutarde svp on 08.21.22 at 3:16 am

Give a man a marshmallow and you feed him once, teach a man how to make marshmallows and you fill his pie hole for life.
On another note, what about the Dijon mustard crisis, driven by a shortage of mustard seeds from canada, and who wudda think that it would become a staple food for rap artists?

https://www.bbc.com/travel/article/20220816-why-theres-no-dijon-in-dijon-mustard

#97 Summertime on 08.21.22 at 5:17 am

So Doug, basically you are saying that after humongous increase in asset prices – stock market and housing due mostly to easy money policies and not based on fundamental corresponding increase in productivity, now with skyrocketing inflation of necessities and very small increase in interest rates, suddenly things are under control and another round of assets/stock market appreciation will follow?

What precisely will drive that appreciation apart from the expectations of continued policies of relatively easy money and strongly negative real interest rates for a veeeeeeeeeeeeeeeeery long time?

The growth in assets prices is just another form of inflation – reduction of purchasing power of currencies.

I hope the intelligent reader is taking notes and acting appropriately.

On my part I am all in inflation protected assets and some hard cash.

Good luck in instilling confidence in central bankers with those expectations.

Any meaningful attempt to tighten monetary policies appropriately will result in severe markets decline and stagnation.

Do not underestimate the inflation, we have seen nothing yet.

#98 Wrk.dover on 08.21.22 at 6:52 am

#86 Diamond Dog on 08.20.22 at 10:10 pm
There are several large rivers in the world that are drying or have dried up.
______________________________

Makes one want to go for a daily drive in the car.
(sarc)
We’ve gone through $1350 of gas this year though.
Every little cause has effect. Obvious by now. No?

#99 Big Bucks on 08.21.22 at 8:45 am

#44

Omg have you heard of CDIC?

#100 crowdedelevatorfartz on 08.21.22 at 10:03 am

@#99 Big Buck

Your G.I.C. interest payments are fully taxable are they not?
After inflation….what’s left?
-2%?

#101 Big Bucks on 08.21.22 at 10:25 am

#100

Of course I shelter a GIC in my RRSP or TFSA when at all possible.Dividend paying stocks are outside and are treated favourably if the sock itself is not crashing through the floor.Bank stocks have not performed well this year and have some strong head winds ahead too.

#102 KLNR on 08.21.22 at 10:30 am

@#87 IHCTD9 on 08.20.22 at 10:29 pm
#71 KLNR on 08.20.22 at 6:31 pm

anecdotal evidence is the best kind of evidence don’t ya know.
——-

The idea that regular physical activity can increase longevity is in no way anecdotal.

a life of heavy labour vs physical activity are to different things. You merely pointed out some outliers in your og post.

#103 Faron on 08.21.22 at 11:06 am

#98 Wrk.dover on 08.21.22 at 6:52 am
#86 Diamond Dog on 08.20.22 at 10:10 pm
There are several large rivers in the world that are drying or have dried up.
______________________________

Makes one want to go for a daily drive in the car.
(sarc)
We’ve gone through $1350 of gas this year though.
Every little cause has effect. Obvious by now. No?

There are more than a few troglodytes who comment here that have their fingers in their ears.

These effects are just the tip of the iceberg too. The climate change party is juuuuust getting started.

#104 Doug Rowat on 08.21.22 at 11:22 am

#93 mousey on 08.21.22 at 1:28 am
I see zero down side to investing a portion of a portfolio in a 1 year gic…

—-

Of course not. The problem occurs when GIC holders see zero upside in holding bonds or equities.

—Doug

#105 Ed on 08.21.22 at 12:11 pm

Of course drying rivers are a dire portend of global warming.

I am surprised there was no mention of all the rivers that are flooding this year? A dire portend of global cooling?

I hope the trusty climate models take into account reversion to the mean and use appropriate sample sizes.

#106 David W2 on 08.21.22 at 4:46 pm

Great post. Love the analogy.

#107 Botanical Bob on 08.21.22 at 11:20 pm

Garth,

Thinking of going all in on Bitcoin. Do you recommend buying an ETF like BTCC, or buying bitcoin directly through a reputable brokerage

#108 Tony on 08.22.22 at 8:54 am

Inflation has peaked but only for this year. Inflation will take a second leg up in January 2023.

#109 Philco on 08.22.22 at 9:37 am

This is a world teeming with disinformation,
___________
As mentioned many times here the inet and social media turned most into Tards but they will swear their way smarter now.
The last thing the government wants is a wealthy smart and informed population.
They would be gone if it was so.

#110 Philco on 08.22.22 at 10:50 am

When it comes to willpower, investors are like children.

Lol smack on Doug.
Many come to me for advise I ain’t no guru there’s no such thing. ..
I just know how not to blow up. That’s 1/2 the battle. 2 patients yes. 3 don’t get emotionaly invested.
4 do the opposite of the crowd. 5 work 24/7.
Do everything you can yourself.
.and they keep doing the same stupid stuff so I tell them to piss off as my times is valuable.
I don’t do concrete!

#111 Philco on 08.22.22 at 11:09 am

It’s not a time to be sticking your neck out.
No need to read the news headlines are enough

Stocks shrink, AMC crashes at market open. Read story
European natural gas is up 6,780% since 2020. Read story
Citi projects UK inflation to hit 18% in January as energy prices skyrocket. Read story
China slashes mortgage rate as property crisis deepens. Read story

Big bond investors say era of low inflation is gone for good. Read story
Carmakers hit on China’s power rationing. Read story
‘A fine line’: Canada’s big banks have long stood by the oil patch but ESG pressures are changing things. Read story
OPEC+ missed output targets by 2.9 million barrels per day in July, sources say. Read story
Business investment in Canada is about half what it is in the US. Read story
Rhine river forecast to surge allowing barges carrying vital cargoes to pass. Read story
Loan caution may give Canadian banks first profit drop since ’20. Read story
Cineworld confirms it is considering bankruptcy. Read story
Nearly 75% of Americans think the US is headed in the wrong direction. Read story
Norwegian sovereign wealth fund chief says he is more worried about cybersecurity than markets, even after $174 billion loss. Read story

I built a bunker around me while other became complacent and overly optimistic.

#112 Philco on 08.22.22 at 11:14 am

Lol the party ALWAYS ends. The bigger the P the greater the H
H for hangover. :)
I love sales.

#113 Tony on 08.22.22 at 2:35 pm

Re: #95 The Gold Standard on 08.21.22 at 2:30 am

The e-savings account just got raised to 2.50%