Welcome to September
Hope you all had a great summer. It went by fast for most people and now it is a blur in the past. Fall routines of kids back to school, church and community volunteer programs resuming, cooler weather and busier lifestyles have taken over. Now that the first week is over hopefully you have all settled into the new routines.
The financial markets have been active all summer with a lot more turbulence. The stock market had some sharp drops followed by short recoveries. The unemployment rates have risen, and in Canada unemployment is at a three year high. Tiff Macklem, the Governor of the Bank of Canada has now dropped the interest rate three months in a row and Jerome Powell, the US Federal Reserve board chairman is expected to start dropping interest rates in the US at the end of this month. All this points to uncertainty in the economy.
A year ago, I was speaking at the Money Show in Toronto on Navigating in Turbulent Times. A year later, I think I would give virtually the same seminar. Our economy is still in turbulent times, good and bad, and so it is important not to take on unnecessary risk, but look for opportunities in traditionally strong sectors. We always follow the banks and recommend real estate backed investments like direct mortgages, mortgage investment corporation shares and cashable GICs as good options for stability and liquidity.
Check our out current investments here.
Financial Literacy
We are back to an inverted yield curve which means short term rates are higher than long term rates. If you want to invest in a GIC now our one-year term is 4.80% and our five-year term is 4.15%. Economists normally consider an inverted yield curve to be an early sign of recession. We have had an inverted yield curve periodically in the last couple years and that is one reason why the monetary policy has been to balance higher interest rates against economic strength. The economies health metrics have been faltering lately and that is why interest rates are coming down as the economic managers try to achieve the elusive “soft landing” in the economy. It has been a year long attempt at the soft landing and the outcome is still not achieved.
This month we are staring a monthly quiz segment. We will try to keep the monthly quiz fun with a financial emphasis. To start it off you can check your financial literacy here: Self-assessment quiz - Canada.ca (fcac-acfc.gc.ca)
Many economists thought the soft landing had been achieved in the spring with the rising stock market, the new fintech frontier of AI (Artificial Intelligence). Flash forward to the end of summer and the high up front R&D costs for AI are not achieving the quick profits as promised by their promoters and the markets have returned to traditional economic metrics which seem to be faltering.
CPI Canada still increasing each month
Consumer Price Index, monthly, seasonally adjusted (statcan.gc.ca)
CPI US also high
CPI Home : U.S. Bureau of Labor Statistics (bls.gov)
Unemployment Canada 6.4% highest in over 3 years
The Daily — Labour Force Survey, June 2024 (statcan.gc.ca)
Unemployment US 4.2% Second highest in nearly 3 years
https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm
GDP Canada 1.3% (after inflation a net contraction)
The Daily — Gross domestic product, income and expenditure, fourth quarter 2023 (statcan.gc.ca)
GDP US 3.0%
The run to the end of this calendar year will be quite turbulent in the economy. Stock prices which are based on corporate valuations, express as multiple years to earning to reach the outstanding stock market value, are trading about 20% higher than longer term averages, driven mostly by unfulfilled AI enthusiasm. The US election, and in our home province, our provincial election. International economic forces of tariffs, trade wars, trade competition, etc. But we expect the economies to settle down late in the year after the election results and lowering interest rates take hold.
Sincerely
Norm Holmes, Vice President