Much of the focus on the recent strong-than-expected CPI report in Canada centered around rising energy prices, but persistently elevated shelter costs are likely to be a more concerning dynamic for the Bank of Canada moving forward. The all-in measure of shelter cost is currently running at 10% month over month. There are multiple drivers of this pressure, including mortgage interest (excluded from core inflation measures), rent and energy prices. Most importantly, the persistent imbalance between supply and demand in the housing market could continue to an underlying driver of elevated shelter inflation. Given strong population growth, the normalization in shelter inflation in Canada can reasonably be expected to progress at a slower pace than hoped for. The most striking trend that emerged in recent months has been the return of sellers to the housing market. September was a case in point where new listings increased sequentially in all major markets. The factors driving this trend are many but soaring interest costs no doubt are prompting a growing number of owners to move. High interest rates at the same time dampen demand. RBC economics thinks buyers will stay on the defensive in many parts of Canada despite more choice becoming available to them. High interest rates, ongoing affordability issues and a looming recession are poised to pose major obstacles. Any material acceleration in the market recovery will have to wait until interest rates come down in 2024. 

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(new) Evolve Enhanced Yield Bond Fund (BOND-T) provides investors with a low-cost fixed income solution that will seek to deliver attractive monthly income and long-term capital appreciation. To enhance yield, as well as mitigate risk and reduce volatility, BOND will initially employ an active covered call option writing program on 50% of the portfolio. Initially the underlying portfolio will consist weightings in the iShares 20+ Year Treasury Bond ETF and the Vanguard Long-Term Treasury Index Fund ETF. There are no underlying management fees in the ETF until April of 2024. The vehicle will be targeting a 10% yield. New position in Cash Flow Portfolio.

(+) JPMorgan Chase (JPM-US) The country’s largest bank saw shares rise after it reported third-quarter financial results, boosting its profit 35% from a year earlier to $4.33 per share, a figure not immediately comparable to LSEG estimates. Revenue came in at $40.69 billion for the quarter. Owned in US Portfolio.

(+) UnitedHealth Group (UNH-US) Shares of the health insurance giant gained on better-than-expected earnings. The company posted adjusted earnings of $6.56 per share on revenue of $92.4 billion. UnitedHealth has the highest share price of any Dow stock, giving it the most influence over the benchmark’s performance. Owned in US Portfolio.

Weekend Reading

De-dollarization: The dollar in doubt? For well over half a century the international monetary system has operated under dollar hegemony. Now, as the world realigns under deglobalization, some countries are pushing back against dollar dominance. But the recent push to rein in the dollar’s supremacy is nothing new. RBC

Truflation: US Inflation Update September 2023 They maintain our year-end projection for BLS inflation of 3.5%-4% – well above the Fed’s 2% target. TRUFLATION

Energy Magicians The Brookings Institute estimates that electricity demand will rise 25% by 2030, and Bill Smead believes the use of natural gas to make electricity could grow quite a bit. BILL SMEAD

Window closing on family business transfers using Bill C-208 Fed’s proposed new rules will be more restrictive. IE

Over choice and How to Avoid it - Five Heuristics to Help You Decide In our age of abundance we’re constantly faced with choices, which we must navigate with a brain that evolved for a much simpler life. As such, we’re overwhelmed by options, lost in the labyrinth of possibility, trapped by unfettered freedom. GURWINDER

Inside the Taliban’s luxury hotel The Intercontinental in Kabul was Afghanistan’s first luxury hotel. Once the site of legendary parties, the hotel is now in the hands of the Taliban, and their fighters are supposed to work with outsiders. NZZ

Whose Domain Is It? The politics of the internet’s domain names. Anguilla is entitled to a domain extension: .ai. The AI boom created a new interest in Anguilla’s country code top-level domain. REBOOT

Introduction to the global wristwatch market Commentary on the Apple Watch, polarization of the market, watch collecting and more. ASIAN CENTURY