Blog for December 20th, 2023
Ho ho ho…It’s almost Christmas!
Where does the time go? It is only days away from Christmas…again. Each year it comes faster and faster, which means I must be getting older. Ha. The roads and mall are very busy and I try to avoid the rush at all cost. I have finished my shopping and wrapped everything. I have to admit, I shop throughout the year, however, the danger with that is I forget what and how much I have bought for everyone! We even had our extended family gathering last weekend, so even that is in the books for another year. Should be smooth sailing right through to the new year now. Whew…
I continue to marvel at how busy the malls are and the data that indicates people are still shopping and buying goods at a rapid pace. What happened to recessionary conditions and sky-high interest rates? Who’s buying? Then I read a good article on buy now, pay later plans available with the click of a button. It is so easy to gain credit and buy anything with these pay later plans. Even RBC will allow you to defer purchases already made on your visa and pay in installments, just by clicking a button. Current loan rates of 4.99%, that I am seeing, is attractive compared to interest rates on visa and lines of credit. This is almost a shadow borrowing system and there is a big risk that consumers become overwhelmed with deferred debt and monthly payments. Perhaps the ability to satiate one’s buying needs and pay for it later are helping to drive retail sales.
Consumers also continue to travel. I am not sure if you have booked anything lately? In my experience, prices are nearly doubled over last year unless you want to go away this weekend or on off peak periods. Even those prices are up. Crazy! Who can afford to travel anymore? Well…of course you can because you all have significant wealth. But what about the average family out there? This year, Denise, Addison and I have decided we would drive to Vermont for New Years to go skiing at Stowe Mountain. Driving allowed us to cut out the cost of flights and an Airbnb allowed us to find accommodation cheaper than the local hotels. Look at us saving money! I think I have Nancy worried when I start complaining about the cost of things. Ha. Please don’t let the cost of travel stop you from doing it. I hope you are managing on your budget and that you are finding fun things to do within that.
You will notice the picture that accompanies this blog. It is GWM money tree that sits in my office and that is loved up by the team. Money trees can be a curse. I have an ongoing fear of bad things to come if it dies, especially in light of the fact that I manage a lot of money. Thankfully this beauty is magnificent and growing well in its window spot. It must be working for our clients as portfolios are up significantly this year. In most cases, we are above or close to full recovery from the declines we saw last year. Crazy stuff. Please send your love and best wishes for our tree. Please don’t gift me another one as I really can’t handle the stress.
Since the beginning of November, the markets have been on a tear with the anticipation we have hit peak rates and central banks will now start to cut rates. Just a week ago, the Federal Reserve clearly indicated they are now focused on rate cuts! That was an unexpected, about face from Jerome Powell, where expectations were for continued vigilance. Well of course the markets liked that message and surged forward again in the last week.
It isn’t just the stock markets that are on a tear. The bond markets have equally been on fire lately. For example, the USA 10 year government bond yield hit 5% in September and now sits at 3.86% today. The velocity and amount of change is most unusual and would be expected to happen over a year, not over a month or two. In Canada, a Manulife bond maturing in 2027 was yielding 5.25% a month ago, it declined to 4.75% yield, and is now yielding 4.37%! That is crazy. Remember, for that to happen, prices on the bond would have to increase as yield and price work inverse to each other. There are very few bonds now trading over 5% yield when at one point I was able to pick up some bonds at over 6%. The change is remarkable.
It will be interesting to see how everything plays out next year. We are approaching valuations today in the equity and bond markets that some are predicting for the end of 2024. I believe we have hit peak rates and several small rate cuts will be coming in North America as well as Europe next year. With global inflation declining, rates will start to fall back to a new slightly lower normal. We aren’t going to 0% interest rates again, however, maybe we get to 4% central bank rates from the current 5 - 5.25%. That would help to keep the economy simmering along nicely and help the stock and bond markets to move higher. A soft landing for the North American economy is the most likely prediction at this point in time.
That’s it for this blog and for 2023. All the best to you and your families for the holidays and may 2024 be the best year on record for everything in your life.
Miles (honorary mention to the elves, Nancy, Jennifer, and Paula)