[Covariance]

@Covariance are you leaning towards market timing (staying in cash) or staying fully invested, as a way to beat inflation?

I personally think that sitting in cash is a dangerous game.

Agreed. Sitting in cash is dangerous. I’m not a passive index investor so I don’t see it as moving in and out. My equity allocation is unchanged (from my TAA) although I would think people would call the sector exposures defensive and tilted to oil. Cash is part of FI allocation for me. I view as a zero duration floater and I’m comfortable market timing duration. So for the moment it’s a good place to be. We’ll see what the data tells us in the weeks ahead.

 

[james4beach]

Agreed. Sitting in cash is dangerous. I’m not a passive index investor so I don’t see it as moving in and out. My equity allocation is unchanged (from my TAA) although I would think people would call the sector exposures defensive and tilted to oil. Cash is part of FI allocation for me. I view as a zero duration floater and I’m comfortable market timing duration. So for the moment it’s a good place to be. We’ll see what the data tells us in the weeks ahead.

If you're wiling to share, what's your current portfolio allocation? Mine is

16% Canadian equity, a bit overweight energy
15% US index with a bit of moving average-based risk mitigation
21% gold
24% bonds
24% GIC ladder, tightly spaced, semi cash-like

This is performing quite well YTD, benefiting from no volatility in the GICs, gold (which is flat) and Canada outperforming world equities.

 

[KaeJS]

Some of you are making assumptions.

You say "stocks" as if they have all performed the same. They haven't. And what's the timeline?

I'm still up 22%. So you can't say "cash is beating stocks". Certain stocks, sure. But lots are still holding ground. Look at Fortis, for example.

 

[AltaRed]

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

 

[Spudd]

Some of you are making assumptions.

You say "stocks" as if they have all performed the same. They haven't. And what's the timeline?

I'm still up 22%. So you can't say "cash is beating stocks". Certain stocks, sure. But lots are still holding ground. Look at Fortis, for example.

22% over what period?

 

[james4beach]

Stock market futures are plummeting. Another rough week ahead?

The Federal Reserve and Bank of England both make interest rate announcements in a few days.

 

[MrBlackhill]

Yes, pretty sure we'll reach new lows this week. Maybe even today.

 

[wayward__son]

Bank of Japan is in a pickle as well trying to hold its yield cap and the Yen freefalling. Stuff breaking everywhere (and Japan has a lot of foreign assets to sell)

 

[londoncalling]

Looks like we are heading into a a typical bear market unlike 2008 or 2020. As markets trend down there will be days and weeks of lower highs and lower lows.

 

[james4beach]

Looks like we are heading into a a typical bear market unlike 2008 or 2020. As markets trend down there will be days and weeks of lower highs and lower lows.

Is it possible? A real bear market where the Fed doesn't swoop in to save the day immediately?

The last time we saw that was 2000-2002. Ever since then, the Fed has immediately rescued investors. This has conditioned stock investors to be fearless.

 

[Covariance]

Is it possible? A real bear market where the Fed doesn't swoop in to save the day immediately?

The last time we saw that was 2000-2002. Ever since then, the Fed has immediately rescued investors. This has conditioned stock investors to be fearless.

We will find out Wednesday. Maybe

 

[londoncalling]

@james4beach To answer your question on fed intervention my gut says they will swoop in but shouldn't. In a lot of ways the fed behaves like a helicopter parent. I think they will try to intervene at some point but until inflation heads downwards they will keep raising rates. Very few people were well established investors the last time we had such high inflation and a rapid rate rising environment. During the Volcker years many current investors, bankers and policy makers were just getting started in their careers. As such a lot of the moves are based on theory and not experience. I feel they want to take a hawkish tone and it is needed. Unfortunately, it comes with the likelihood of recession. If the Fed default to what is familiar they will halt QT and rate increases. If they raise too fast a soft landing is unavoidable. Unfortunately interest rate adjustments do not have much influence over supply chain disruption demand and therefore have little effect on inflation. They can't control the price of oil, china lockdowns or end the war in Ukraine. IMO presently these are the greatest concerns for the economy.

I expect 50bps with the more hikes on the way. Powell will send the message that 75 is on the table for fall if needed. Should make for an interesting week. Be curious to hear from those that were around in the 80s to share their experience. I hear lots about paying down the mortgage with double digit rates on homes that were under water but what about from an investment standpoint? Were people buying stocks? bonds?

 

[james4beach]

We will find out Wednesday. Maybe

The Fed funds rate today is just 0.83% and even with a 50 bp hike, it will still be a paltry 1.33%

So when I say chicken out, I don't mean right now (they absolutely have to raise). Bigger question is whether they get to the 3% that the derivatives market expects near year end.

These rates are still VERY low. Even a 3% rate is extremely low, and we don't even know if they'll dare raise it that much.

 

[londoncalling]

I think we'll see 3% or higher before year end. If 3% rates cause fear to borrowers they are in big trouble if we see truly high rates.

 

[Gator13]

I think we'll see 3% by the end of the year as well.

 

[Covariance]

The Fed funds rate today is just 0.83% and even with a 50 bp hike, it will still be a paltry 1.33%

So when I say chicken out, I don't mean right now (they absolutely have to raise). Bigger question is whether they get to the 3% that the derivatives market expects near year end.

These rates are still VERY low. Even a 3% rate is extremely low, and we don't even know if they'll dare raise it that much.

Understood. I was referring more to their comments beginning in the press conference after the rate decision, and in days beyond when they expand on the cadence and quantum of future increases.

 

[james4beach]

I just got an update from my Bay Street contacts who say the derivatives market now points to 3.5% policy rate at year end.

 

[doctrine]

The last two weeks, markets were optimistic that the policy rate would settle lower than expected. Today was a big unwind of that expectation. Growth has to slow or reverse enough to allow people to adjust to higher cost of living driven by energy prices. Because there is zero new investment in lowering energy costs and the cost of living. If anything, new energy projects are going to be amongst the most expensive in history. I suspect after 12-18 months of misery, there may be enough political unrest and/or turnover to begin the process of starting up the "old economy".

 

[james4beach]

This was a thorough ***-kicking today. Can't believe that everything I hold was down... amazing.

That's bear markets for ya.

 

[MrBlackhill]

This was a thorough ***-kicking today. Can't believe that everything I hold was down... amazing.

That's bear markets for ya.

CSU, our best Canadian tech stock... is up +0.84%, lol.