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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
 
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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.
 

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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.
 

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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.
 

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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.
 

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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.
 

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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.
Steinbach now offering Limited-time GIC special 17-month: 3.80% And Oaken at 5% for 5 year.

With more rate hikes coming we could see these go higher still. Not a bad place to park increased cash allocation to wait out a recession.
 

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They can't lower rates, or even stop hiking them anytime soon, without losing all credibility. That would also create a further de-anchoring of price expectations, which is very dangerous when inflation is this elevated. Anecdotally, I've heard from friends that they are buying more of "x" because the price will only go up in the future. A buddy had the backseat of his car loaded with stuff he was planning to sell on Facebook Marketplace for 3x what he paid. Who knows if he will be successful, but that's the psychology at work due to inflation. Regular people are not even thinking about a recession right now.

IMO, it's gonna take more than 2-3 months to get inflation below 3%. Probably more like a year or longer. Assuming they only hike by .25% at each meeting, that suggests a rate peaking near 3.5% by this time next year. It's probably more likely to be 4-4.5% though. I could be wrong and they stop hiking earlier, but that would further damage their already tarnished credibility.
 

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IMO, it's gonna take more than 2-3 months to get inflation below 3%. Probably more like a year or longer. Assuming they only hike by .25% at each meeting, that suggests a rate peaking near 3.5% by this time next year. It's probably more likely to be 4-4.5% though. I could be wrong and they stop hiking earlier, but that would further damage their already tarnished credibility.
It could have peaked but hard to say how long it stays above 3%

It's like a self fulfilling prophecy where you have people stocking up and paying whatever prices because they assume prices are only going up. Could come down fast temporarily for the same reason - people already stocked up and then expect prices to collapse

I think we will have bullwhip effect for awhile I'm watching to see if the effect increases or decreases (like are we losing control or gaining control) Things are gonna swing back and forth and confuse the hell out of most people

Interesting to see if overstocked retail actually lower their prices
 
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The rates for brokerage HISA's continually oscillate from below competitive to above competitive, but on average they're in the ball park. Their real advantage is reducing any drag on yield from moving cash around to various external HISA accounts.

If I have a stock I am watching and want to buy, it may present an appealing price that I want to act upon immediately. If I make a bid and I'm successful, I have a T+2 settlement to satisfy with the clock ticking to come up with that cash. With a brokerage HISA, it's easy to satisfy at T+1, but what do you do if you are playing the HISA game? Can you get the cash that fast?

ltr
 

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Discussion Starter · #78 ·
Canada’s largest banks block clients’ access to high-yielding funds

Above article is behind paywall (with likelihood of nothing being new) but an update in its entirety is below:

Clara O'Hara, Wealth Management Reporter, The Globe and Mail, August 27, 2022

Several of Canada’s largest banks have blocked their financial advisers from offering clients certain high-interest cash funds during a period in which investors are flocking to safer investments amid shaky stock and bond markets, a restriction regulators may examine in a continuing review of industry sales practices.

Advisers at several major banks are not able to buy their clients high-interest-savings ETFs, also known as cash ETFs or HISA ETFs. These products mainly invest in pools of banks’ high-interest savings accounts and deposits. Instead, the banks’ investment arms are prompting their advisers to offer the banks’ own proprietary savings accounts directly to clients.

Royal Bank of Canada RY-T, Bank of Montreal BMO-T, Toronto-Dominion Bank TD-T and Bank of Nova Scotia BNS-T all block their advisers from buying the HISA ETFs, placing them on “restricted lists” usually reserved for risky, volatile investments.

It’s another stumbling block for independent fund companies in Canada that manage and sell the cash funds. Do-it-yourself investors who use discount brokerage trading platforms at RBC, BMO and TD are also blocked from purchasing HISA ETFs.

Canadian Imperial Bank of Commerce CM-T and National Bank of Canada NA-T provide access to cash ETFs at their discount brokerages and their investment-adviser brokerages, CIBC Wood Gundy and National Bank Financial. Scotia iTrade allows do-it-yourself investors to access cash ETFs but does not allow investment advisers at Scotia McLeod to purchase cash ETFs for clients.

Some of the banks who block sales of the cash ETFs told The Globe and Mail they believe they offer a satisfactory suite of cash products to their clients, making the HISA ETFs unnecessary.

However, Canadians who use independent discount brokerages or other sellers of cash ETFs flocked to the product as interest rates began to rise earlier this year. Investors injected more than $1.6-billion into those ETFs in the first half of the year. In Canada, there are currently six HISA ETFs with almost $9-billion in total assets under management as of July 30, according to data from National Bank Financial.

The draw for many investors is how quickly the yields on the products jump as interest rates rise. The yields of HISA ETFs averaged 1.45 per cent in May and have doubled to about 3 per cent. Traditional high-interest CDIC-insured savings accounts currently pay 2 per cent to 2.3 per cent.

Management expense ratios for the HISA ETFs range between 0.05 per cent and 0.39 per cent.

Julia Mackenzie, spokesperson for the Investment Industry Regulatory Organization of Canada, said that while the organization oversees discount brokerages and full-service investment dealers, it does not regulate the products dealer firms offer.

“Though there are product due diligence requirements, there is no restriction on what dealers can offer or choose not to offer to clients,” Ms. Mackenzie said in an e-mail to The Globe.

However, Ms. Mackenzie says a group of Canadian regulators is conducting a broader compliance sweep, looking to see if there are any potential conflicts of interest among investment dealers. She said regulators will – among other things – examine conflicts associated with proprietary products and related restrictions of firms’ product offerings.

The broad sweep is being jointly conducted by IIROC, the Mutual Fund Dealers Association and the Canadian Securities Administrators – an umbrella group representing provincial and territorial securities commissions – with the goal of examining how investment firms are implementing a set of new rules called client-focused reforms.

The sweep is independent of another review conducted earlier this year by the Ontario Securities Commission on the product offerings of Canada’s largest banks. Ontario Finance Minister Peter Bethlenfalvy launched that review after he said he had concerns about financial institutions halting sales or “unduly” restricting sales of third-party investment funds. The OSC submitted recommendations to him on Feb 28.

The OSC declined to comment on its recommendations, referring questions to the Finance Minister. Mr. Bethlenfalvy’s office has not responded to several e-mail requests sent by The Globe on whether the recommendations would be released to the public.

RBC Dominion Securities Inc., Royal Bank’s investment arm, is one of the country’s largest full-service securities brokerages, with 1,900 securities advisers. RBC spokesperson Kathy Bevan said in an e-mail that although RBC does not currently offer HISA ETFs to clients, the bank offers “a number of competitive products to meet their short-term cash investment objectives.”

“We periodically review and monitor our product offerings to ensure we are able to provide our clients with best-in-class solutions and customized strategies to meet their financial goals,” Ms. Bevan said.

Jeff Roman, a spokesperson for BMO, said the bank only offers CDIC-insured high-interest-savings accounts, while TD spokesperson Derek Kirk said HISA ETFs are not “generally available” to be sold by TD Wealth advisers at this time, but the bank reviews its product offerings on an “ongoing basis.”

Scotiabank declined to comment on its adviser channel.

By contrast, Martin Gagnon, National Bank’s head of wealth management and the co-chief executive of National Bank Financial, said in an e-mail the bank’s advisers have the “freedom to select the best investment product based on their clients’ personal and financial objectives, their personal situation, etc.”

“If a third party HISA ETF is the best solution for a client, they are available,” he said.
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would be interesting to see that a class-action lawsuit doesn't come about on this after the regulator's study of a conflict of interest.
 

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... would be interesting to see that a class-action lawsuit doesn't come about on this after the regulator's study of a conflict of interest.
I always wondered how the big brokerages get away with this, blocking access to a product that competes with their bank.

To me that seems like blatantly anti-competitive behaviour.

For example, some brokerages don't allow you to buy PSA. This high interest savings fund has 2.85% yield or about 2.70% after fees. That's significantly more than the 2.25% offered by TD's own product, TDB8150. But TD Direct Investing doesn't allow trading on PSA, as far as I know.

What could be the reason, other than denying investors access to a competitive product? It certainly isn't for investor safety. There are far more dangerous ETFs that one can trade without restriction.
 
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