There was a 10-week period last year in which I did not put gas in my truck – because, just like most of us, I had nowhere to go.

 

In April 2020, oil prices weren’t just low. They were negative: in that month, an oil futures contract was trading for -$37.63 a barrel. And now, more than a year later, it’s at $73. It’s an example of the fact that prices in many sectors were so low last year, we were bound to experience inflation as they bounced back.

 

But I don’t think that the inflation we’re now experiencing is going to last. I think it’s going to be transitory, as the economists say. Because inflation in the economy is primarily driven by wage inflation: for prices to go up, people have to make more money and spend more money.

 

 

We have clearly had wage inflation since shortly after the pandemic began, because of massive government support programs. But those cheques will dry up as the economy reopens – and the American economy is reopening in a big way. Anyone who watched the Montreal Canadiens play the Las Vegas Golden Nights in the desert can attest to that: 18,000 Sin City fans screaming their lungs out with hardly a mask in sight.

 

This on the heels of a story in the April Marche Monthly: domestic seats on American Airlines, the world’s largest carrier, were already booked at 90% of 2019 reservation levels. Likewise, 40% of Americans intend to take a trip this summer that involves a flight and/or paid lodging, almost exactly the percentage (42%) who did in 2019.

 

Canada is following, not that far behind. Alberta, for example, will be celebrating Canada Day by entering Stage 3, in which most restrictions will be removed. Those of us in Ontario know that bustling patios have been an encouraging sight.

 

Despite all of these promising signs, I still believe that a year from now, prices will not be meaningfully higher than they are today.

 

There is excitement in the air, but we continue to stay focused on the fundamentals. TC Energy – the company behind the cancelled Keystone XL Pipeline – is a case in point.

 

We own TC Energy, and over the past five years, many clients have asked me what would happen to its stock price if Keystone was cancelled. The essence of my answer was, “nothing negative.” Then, this past January, US President Biden revoked TC Energy’s cross-border permit, so the company cancelled the project earlier this month, and here’s what has happened to the stock: it’s up 22% this year and the company is issuing a dividend of 5.5%.

 

With all of the understandable angst among Western Canadians in particular, and all of the sensational headlines, how can this be?

 

It’s called headline risk: the divergence between media headlines and a company’s fundamentals. TC Energy is very strong on the fundamentals, to the point that cancellation of Keystone XL, despite the breathless headlines, has had no bearing at all on the company’s stock price.

 

When clients ask me to invest their money, one of the first things I ask them is, “Will you need any of it in the next five years?” If they say yes, the strategy will be much different than if they are looking at a longer time horizon, say 10 years or more.

 

Why? Preservation of capital. With a short time horizon, I only recommend that you invest in guaranteed instruments, such as short term bonds and GICs. Here our fixed income strategy has not changed: we buy with shorter terms to maturity, and we focus on credit quality. Because interest rates are so low, returns will not be impressive. But your money will be safe.

 

At the same time, we stand firmly with our long-time strategy for longer horizons: invest in high-quality, dividend-paying companies that are primarily in regulated industries and have business models we understand. With a longer time horizon, this is the strategy that will protect your capital better than being invested in fixed income, something we covered in the February and March editions of Marche Monthly.

 

Here’s what’s happening in the very short term: summer. Cases are down, the mood is up, and the opportunity to travel, at least locally and between some provinces, is back. Finally, there is somewhere to go with my truck, if only with the family to a local patio. On behalf of my family and the entire team here at Marche Wealth Management, I wish you a very warm, happy and safe season.

 

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Tyler Marche, MBA, CFP, FCSI

Your life, uncomplicated

 

tyler.marche@rbc.com

1-416-974-4810

www.tylermarche.com