[james4beach]

I'm also trying to be patient. As rates rise I think we'll get even better opportunity in coming months for higher GIC rates. I'm going to wait for 2 or 3 months before locking in more GIC's.

And what if rates fall in a few months?

 

[GGuy]

And what if rates fall in a few months?

They won't.

I don't think inflation will be controlled in next few months (2-3) so at a minimum rates stay the same or more likely climb as the fed hikes further. IMHO

Under what scenario do you see rates falling in the near term? Not saying it can't happen, I just don't see how.

 

[m3s]

Under what scenario do you see rates falling in the near term? Not saying it can't happen, I just don't see how.

Taper tantrum scenario has played out a few times before

Fed starts to raise rates - market over reacts to the downside - Fed flinches

Fed already started to stutter today

 

[james4beach]

Under what scenario do you see rates falling in the near term? Not saying it can't happen, I just don't see how.

See what @m3s said.

I see many ways interest rates could fall (or QE could increase), both of which amount to the same kind of thing: more stimulus.

First thing that's guaranteed to happen is that investors and real estate investors are going to complain a lot. They're going to say the Fed has gone too far, is destroying prices and destroying the economy, and will push back. They will start begging and screaming to stop raising interest rates.

Average people may complain too. Both households and businesses rely on very low interest rates loans (lines of credit, business loans). These interest rates are going up dramatically and it's going to pinch many households and businesses. So I'm sure they will also beg and scream to stop raising interest rates.

Next is the possibility of a "market dislocation". Something in the financial markets could blow-up. For example, a crash in junk bonds, or maybe another crash in mortgage bonds. You can't ever predict what it's going to be, but when asset prices plummet, something can go severely wrong. If something blows up, then the central banks really could stop raising rates. They might even cut rates.

Another possibility is Trump. He's likely to win in 2024 and the last time he was in charge, he told the Federal Reserve to cut interest rates. He very directly interfered with Federal Reserve policy and he could easily do it again. Reducing interest rates is usually a crowd-pleaser as it's a way to juice up asset prices and the economy.

Trump is also unpredictable. He's mentally ill, so it's really hard to know what he may do. Push the Fed to raise rates? Lower rates? Who knows... a total wildcard.

Another way I see is that inflation could moderate. More supply from manufacturers, or maybe some resolution to the war, could alleviate rising prices. If inflation starts to level off and maybe looks like it's no longer running away, that changes the picture completely. At that point the central bank could stop aggressively hiking rates.

Interest rates continuing to rise for the next 10 years is likely, but not certain.

 

[cainvest]

I don't think inflation will be controlled in next few months (2-3) so at a minimum rates stay the same or more likely climb as the fed hikes further. IMHO

I think this is a highly likely senario for next 2-3 months.

 

[crgf1k]

Not questioning your math that the 5% compounding in a 10 year GIC is like getting a 6.28% dividend. But I guess it depends on what you do with the dividend. If re-invested it can potentially beat the 5% compounding GIC.

Ya you're right, it depends on what you do with the dividend. Bottom line is, even at 5% in this clown world I'm obligated to start locking in some decent rates. If they crash the economy/markets with higher rates, they could use that as an excuse to go back to zero rates or worse. They like to raise rates slowly but when there's a "crisis" they drop them fast.

 

[GGuy]

See what @m3s said.

I see many ways interest rates could fall (or QE could increase), both of which amount to the same kind of thing: more stimulus.

First thing that's guaranteed to happen is that investors and real estate investors are going to complain a lot. They're going to say the Fed has gone too far, is destroying prices and destroying the economy, and will push back. They will start begging and screaming to stop raising interest rates.

Average people may complain too. Both households and businesses rely on very low interest rates loans (lines of credit, business loans). These interest rates are going up dramatically and it's going to pinch many households and businesses. So I'm sure they will also beg and scream to stop raising interest rates.

Next is the possibility of a "market dislocation". Something in the financial markets could blow-up. For example, a crash in junk bonds, or maybe another crash in mortgage bonds. You can't ever predict what it's going to be, but when asset prices plummet, something can go severely wrong. If something blows up, then the central banks really could stop raising rates. They might even cut rates.

Another possibility is Trump. He's likely to win in 2024 and the last time he was in charge, he told the Federal Reserve to cut interest rates. He very directly interfered with Federal Reserve policy and he could easily do it again. Reducing interest rates is usually a crowd-pleaser as it's a way to juice up asset prices and the economy.

Trump is also unpredictable. He's mentally ill, so it's really hard to know what he may do. Push the Fed to raise rates? Lower rates? Who knows... a total wildcard.

Another way I see is that inflation could moderate. More supply from manufacturers, or maybe some resolution to the war, could alleviate rising prices. If inflation starts to level off and maybe looks like it's no longer running away, that changes the picture completely. At that point the central bank could stop aggressively hiking rates.

Interest rates continuing to rise for the next 10 years is likely, but not certain.

Hey James, Thanks for that post. I don't disagree with pretty much everything you said.

But the big caveat is that I'm considering what rates will do in the next 2-3 months before locking in any mid/longer term GIC's. Actually I really think we have at least 12 months with more increases.

Your post mostly relates to why rates could decrease in the longer term, that is longer than 2-3 months.

Yes, investors and real estate investors are going to complain but I think the fed's objective of lowering inflation trumps that. They are in fact relatively early in the cycle of raising rates and gauging the impact on inflation. This is a months long exercise. Likely many months.

The markets are already in turmoil. I think they keep raising rates, monitoring inflation as they try to get closer to the 2-3% objective. Markets be damned.

For sure Trump is a wild card but the next presidential election is not until November 5, 2024. That's 17 months down the road. Not a factor in the next 2-3 months or even 12 months. But I agree, if he gets in then juicing the economy will be a priority so rate cuts then would be likely.

It's a nice convergence of market correction and higher interest rates so can get some excellent dividends and finally good GIC rates to build a pretty good income portfolio.

But I guess it depends on your perspective. My son is not pleased about re-newing his mortgage next year.

 

[james4beach]

But the big caveat is that I'm considering what rates will do in the next 2-3 months before locking in any mid/longer term GIC's. Actually I really think we have at least 12 months with more increases.

Your post mostly relates to why rates could decrease in the longer term, that is longer than 2-3 months.

OK that's a good point, you're talking about the next 2-3 months. And I do agree that GIC rates will likely go higher in that time period.

 

[Covariance]

Hey James, Thanks for that post. I don't disagree with pretty much everything you said.

But the big caveat is that I'm considering what rates will do in the next 2-3 months before locking in any mid/longer term GIC's. Actually I really think we have at least 12 months with more increases.

Yes. short term and central bank overnight rates are moving higher by direct action. However, longer term rates take their cue from market forces. For instance, last week the Fed raised their overnight rate by 0.75% and the market moved the rate on long bonds down. We are past the point in this tightening cycle when the curve is making a parallel shift. It is now changing slope and shape. So in other words you may wish to reconsider your forecast and focus specifically on the expected evolution of the rate at the term you are waiting to purchase.