The Inflation Genie

Over the past several months, in an effort to reduce inflation, central banks around the world have made several super-sized interest rate increases. Even after the interest rate increases, and with more expected prior to year-end, the central banks have been unable to keep inflation from rising. Last year, the US Federal Reserve, who has in their employ hundreds of PHDs in economics, proclaimed that inflation was transitory. Clearly, they were wrong and have lost credibility. For the US Federal Reserve, losing credibility is a very bad thing as markets, at least historically, put a lot of faith in how they communicate their upcoming interest rate plans. Clearly, central banks have a lot of work ahead of them to put the inflation genie back in its lamp.

TINA

For many years, TINA was a popular acronym in the financial press. It stands for There Is No Alternative – to stocks, that is. A silver lining, in what has been an otherwise very challenging year, is that there is now an alternative. With higher interest rates, GICs and high-quality bonds are now paying 4%-5%+.

Markets and Mid-Terms

2022 has been a very difficult year for stock and bond markets. Year to date, the S&P 500 is down 23% and bond indexes are down 15%. The recent volatility reminds us of an interesting quote from Howard Marks: “In the real world, things generally fluctuate between ‘pretty good’ and ‘not so hot’. But in the world of investing, perception often swings from ‘flawless’ to ‘hopeless’”. Although we have not yet heard, we suspect that legendary investor Warren Buffet has recently been investing some of his cash hoard.

The US mid-term elections are a few weeks away. It is currently expected that the Democrats will lose control of the house. We do not expect the outcome to have a dramatic impact on markets. However, once the elections are over, there will be one less uncertainty for markets to consider.

Managed Strategy Portfolio Positioning

The majority of the stocks that we hold pay dividends and have the financial strength to weather these uncertain times. For those who hold fixed income investments, you own high quality corporate and government bonds with an average term of less than two years. We continue to review all positions and may realize capital losses prior to year-end which may reduce income tax bills now and/or in the future.

Webinar with Waratah

Please join us on Wednesday, October 26 at 4:15PM for a webinar with Brad Dunkley. Brad is the Co-founder of Waratah Capital Advisors. If you know of any friends or family who may be interested in joining the webinar, we are happy to extend the invitation.                                   

Wishing everyone a great fall.

Pearlstein Wealth