[AltaRed]

How is being retired relevant? Perhaps you are under the misapprehension that retired is synonymous with poor?

I get the cash from my trading accounts.

I don't invest like you. Read the endless rants I've posted. My foot remains heavily on the accelerator of the investment car. That is how I mitigate risk.

The WBI has been 210 recently so I have been letting cash build for quite some time.

Most retirees don't have the luxury of cash flow generation exceeding cash flow needs so one can be reasonably excused from that anomaly. It's not called 'withdrawal' or 'draw down' mode for nothing. It's a fair and reasonable comment.

 

[AltaRed]

It is possible to retire with enough resource to fund both a good lifestyle and an active investment strategy. Perhaps you should consider some new investment techniques?

Why be unnecessarily active when buy and hold works long term?

Added: I get that there are times when it is wise to part with something when it no longer measures up to expectations and buy something else that looks better. I do that every now and then, but that is a matter of the cash going from holding A to holding B. It is not a net new purchase.

 

[AltaRed]

I think we collectively think 'broad index' when talking about an asset group.

 

[AltaRed]

The last two years will go down in history as an experiment of what can go wrong when governments lose control of the vehicle. It was reasonable for governments to flood taxpayers with support in the early stages of the pandemic when it was not clear where the pandemic was going to take us, i.e. whether we'd have body bags 100 deep on the edges of our cities and a complete shutdown of society, or whether there would be a vaccine (light) at the end of the tunnel. The problem was in not shutting the valves nearly soon enough and targeting support on a means tested basis to those penniless in the streets. There was no discipline.

All that liquidity (and lack of discretionary spend elsewhere) ended up fueling an RE binge with essentially zero percent mortgages. Twenty or thirty years from now, central bankers and governments will look back on this period with astonishment just like they do today on how we (didn't) manage inflation 50 years ago.

I believe the RE story as it is today will have a great reset, i.e. reversion to the mean, in some form. Either flat lining for years, or with a major correction. Mortgage rates are not returning to what they were just a year ago.

 

[AltaRed]

That graphic is hopelessly out of date. Dec 2021 is ancient history.

As Doctrine said, March (maybe April) was the turning point for sales volume and sales practices (multiple bids) in a number of locations. Timing will vary by geographic location but there was an abrupt and huge change here locally at that time, where there market became as hot as GVR albeit not at the same absolute price levels. Prices are off only 1.6% total over the past 2 months in aggregate but that is going to change as soon as sellers who need to sell have to substantially lower prices to get their properties sold. There is always a lag, sometimes as long as 6 months, before prices start to follow reduced sales activity. I am convinced our prices here will be substantially lower by September.

Quebec will most likely hit the wall just as hard in the not so distant future. I don't know about Calgary/Edmonton though. The surge in O&G prices and the depression that existed in house pricing for 5 years may actually keep those markets rising somewhat for the foreseeable future.

 

[AltaRed]

Grantham is a bit of a drama queen but I think the downturn will be deeper and longer than most investors assume. Investors have short memories and have already forgotten much of the financial crisis and the earlier years of that decade when interest rates were more 'normal'. I assumed earlier this year we would end 2022 in negative territory in equity markets with the only unknown being 'how much'. It may well be negative double digits rather than negative single digits. That is plenty okay though. A 1-2 year bear market would be a good reset.

 

[AltaRed]

S&P500 won't reach new all-time highs for a while. Certainly not in 2023, maybe even new lows. And most likely not in 2024 either.

I agree there will be more pain to come. While central bank rate increases have totaled ~3 percentage points so far this year, all indications (forecasts) are for an additional ~1.5+ percentage points (additional 50%) from this point through to end of 2023. Debt servicing will become an increasing burden as more debt terms are maturing and need to be rolled over.

The cleansing is an important part of healthy markets, especially those who have taken out HELOCs, and companies who have floated short term unsecured debt. Taking on debt has to come at a realistic cost....not some artificially suppressed level.

 

[AltaRed]

It is not an 'if' they have to raise more. They do have to continue reaising but I think that will be over by the end of 2023 and some easing might then occur. It is a matter of how much. The average bear market lasts something like 15-18 months and the S&P500 drops in the order of ~35%. We are not done yet.

 

[AltaRed]

FWIW, in another forum, it was mentioned the average bear was under a year... not 15-18 months. I suppose that depends on how various pundits actually describe a bear market, with the former (<1 year) defined as peak-to-trough in the market. Using that definition, I think the trough will be sometime circa 1Q-2Q 2023. Recovery to a new high will take far longer. My crystal ball is now showing clouds so I will stop before I dig any deeper.

 

[AltaRed]

There is some relevant discussion in this thread It’s time for retirees to get out of bonds about how to mitigate down drafts in retirement. Have some cash and cash equivalents set aside to avoid tapping into invested capital during at least the major part of a down turn. I've been through the 2008-09 financial crisis during retirement so far and now this 2022-2X one which I suspect won't be as severe as the financial crisis.

FWIW, I am down 14.2% YTD on a mostly equity portfolio. The major down components are the ex-Canada ETF holdings which are all bear market down, but is mitigated partly by the 10% drop in the loonie. Plus I have some prefs and my Cdn component is almost exclusively blue chip dividend paying stocks and the TSX is down less than 15% so far. Being down only 14.2% YTD is nothing to lose sleep over. I expect I may be down 20% before this sucker turns around.

Edit: Made an error on YTD performance calculation. Should be down 14.2%

 

[AltaRed]

The vast majority of investors and consumers today (less than about 70 years old) have never experienced a serious bout of inflation and don't really understand what is required to tame it. Add cheap credit post-financial crisis to that mix and one has the potential for a further market (stock and bond) declines. As post #283 articulated, there is major focus on finding ways to offset decreasing disposable income due to inflation and increasing debt servicing rates.

I suspect most consumers are trying to sort out how they can maintain their current standard of living but are failing to recognize they will not be able to do so. It didn't happen in prior bouts of inflation and until we see a considerable drop in consumer discretionary spending* which is what is required to bring inflation down, the pain will continue. The average Canadian is going to have to accept a decrease in standard of living (consumption) for at least many months to come.

* Such as a material drop in air travel and hotel occupancy, Home Depot sales, auto and furniture buying, etc, etc.

 

[AltaRed]

I agree the good news is inflation has started to slow but we need to see a drop in job vacancies and an uptick in unemployment rate, both in the US and Canada, to take some heat out of labour cost increases.That has been one of the key dangers both BoC and US Fed have been worried about.....structural inflation. Until that happens, the central banks really cannot let off the pressure.

Also, Macklem yesterday said they are now seeing some decline in both shipping times and shipping rates as one example of supply chain pressures starting to back off. A lot more of these kinds of things need to show up before we can project declining inflation rates. It would be nice to see some sustained, and less volatile, Brent/WTI oil prices in the $80-85 range as well over the 5 winter months.

 

[AltaRed]

We have little choice but to boost immigration to find the workers to fill job vacancies given our loq national fertility rate, the momentum and impact of boomer retirements (more than half of them have now retired), and lack of business investment (policy headwinds to invest in Canada) to boost productivity growth. Canada is a bit of a backwater when it comes to automation, robotics, and a transition to valued added goods and services to boost GDP. Nor do we have modern and efficient infrastructure to move goods.

Added: Examples: bottlenecks and capacity issues in the Port of Vancouver, inefficient road connections (it appears it will take another 20 years to fully twin the TCH between AB/BC border to Kamloops if they only do 5-10km per year). Trucks are jammed on the two lane highway. Time is money.

 

[AltaRed]

Sound bites are often poorly worded. Call it social media, especially Twitter, talk. What is really meant is the 'rate of price increases is coming down'. Just like inflation (which is a rate) is coming down, but it is not going negative.

if the current trend continues for another month or two, I will have some belief that the worst is over, another wave of major covid disruption notwithstanding. I am not seeing where the pundits are cautioning that a new severe variant is a wild card in their predictions. A possible triple whammy of flu, RSV and covid-19 is possible by Jan-Feb.

 

[AltaRed]

Chips are only one aspect of supply chain shortages. I can't get more excited by them than resolution to a host of other supply chain issues and improvements. Macklem yesterday talked about reduced shipping times and costs, resolving port backlog issues and the like.

We had a variety of food shortages that are now dissipating in supermarkets as truck driver shortages to move all kinds of products are being resolved. Autos used to be stuck in rail yards because there were not people to load and unload them, and a lack of trucks for last mile delivery. My own new vehicle was stuck in a factory yard for 6 weeks earlier this year waiting to be loaded on a rail car. Other local customers had cars sitting in Calgary rail yards waiting to be loaded on trucks for the final leg to the Okanagan. Those are anecdotal examples of perhaps hundreds of supply chain issues that are slowly being resolved.

I am optimistic the majority of our supply chain issues will be resolved over the next 6 months.

 

[AltaRed]

Personally I don't think this is a supply constrained inflation situation. I heard one economist talk about this... he said US production has significantly increased in many areas. Production and goods availability is way up, but demand remains strong.

I agree with the view that the inflation is demand-driven, meaning it's more likely a monetary phenomenon. Too many people feeling too rich, and having too much money to spend. The system was flooded with liquidity and stimulus, everyone became too wealthy and pockets are over-stuffed with cash @m3s

Inflation is caused when supply cannot meet demand driving prices up. That either means supply disruptions (of a wide range of possibilities including labour shortages) reducing production of goods, or excessive demand by consumers with excess billions saved in bank accounts, or some of both. The way to solve it is by eliminating supply bottlenecks, reducing demand of goods and services, or both.

Re-shuffling of supply lines globally is having some effect as is investment in incremental supply but that will take time. Reducing demand will also take time while increasing debt servicing costs works its way through the system as will the 'working off' of excess savings on deposit. The data is showing some trends in the right direction on both the supply side and demand side.

That is the reason why I say we will seem some material change in about 6 months where supply and demand come into closer balance in a variety of goods and services. If we follow the pattern of post #326, it takes 2 years for inflation to get back to 'normal'. Central bankers also know a lot more today than they did 40-50 years ago as well.

 

[AltaRed]

James, the dilemma that existed prior to Jan 2020 was that while easy credit caused significant asset (of all kinds) inflation and high levels of debt, OECD GDP growth was not strong and inflation was 2% or less. The biggest risk then was deflation. It would not have taken much of a global disruption to result in both a recession and 0% or less inflation. I believe that was one of the reasons for the massive pumping of money into the system during the pandemic, i.e. a real fear of deflation and the death spiral such a situation brings (the Great Depression was exactly that)..

I am the first to say easy credit and pumping all that money into the system in the 10 years since the financial crisis has gotten us into the mess we have today, but I also recognize there was real legitimate central bank fear of a deflationary spiral along the way. There simply was a gross over-reaction and a failure to rein in the largesse soon enough, i.e. the Fall of 2020 rather than Spring of 2021.

 

[AltaRed]

Oh yeah, don't we all know that. All Trump really cared about was more asset inflation on his highly indebted holdings. His modus operandi is unabashed 'me...me...me'.

 

[AltaRed]

I would be surprised that would be the case for the recently retired. It takes some time to adjust to different sources of cash flow, usually considerably less than from employment earnings, and sorting out where they want to focus their retirement time. I could see that being more applicable 5-10 years into retirement once the retiree has settled in and seen how their finances are flowing.

 

[AltaRed]

The next central bank rate increase perhaps? Downward revised 4th quarter earning estimates/actuals? There are any number of triggers.