Monthly Debrief August 2022
This video is a brief update on the markets, economy as well as other little tidbits that we feel you may find useful.
Leanne Mamchur (00:06):
Hi, welcome to this. Monthly's this month's monthly debrief. It's August it's the middle of August. We had a pretty good July numbers coming out. And it was a little bit of a reprieve, but this monthly debrief is all the stuff that I've heard from economists analysts and all the videos that I've listened to and news, and that type of thing that I've read that I'm kind of trying to summarize here for you. This one's shorter than last one. And so then let's just jump right in now, before I get into the economic side of it, I wanted to just talk a little bit. I was in a, in a client meeting and this came up, is that what has really happened here? And so then taking a look at the whole scheme of things is important sometimes. And so let's just take a look at a quick star chart here.
Leanne Mamchur (00:56):
And so if you look at this chart and basically what has happened in this downturn, so this is the downturn here that we've experienced. And so what has happened is it's broad levels. Like if you see here or even down to here, if you see all the way back to this chart over here, it brings us back to around may, April of 2021. And so that's just one year of standing still. And so then that kind of allows you to put it into perspective a little bit differently because you are invested in a long term portfolio. Now last year was really, really positive. So people got all quite excited about that, and it really was positive returns. And so this year has negated all the positive returns from last year, but it hasn't really damaged your portfolio more than a one year period. And so during times like this, it's hard to kind of keep that perspective because as you see your December 31st numbers, you feel as though that that is now your funds.
Leanne Mamchur (01:59):
And so it's hard to see the dip after you have experienced the increase. Having said that, one of the things that I would say one recommendation for times like this is don't change your mix right now. And so then if you have a 10, or if you, if you're feeling that it's just too much, it's too much it's you know, like you're not, you're not happy with the decrease or what have you, you might have recognized that you may be in higher risks than you maybe should be in, but you always wanna wait for the recovery or wait till normal market times to make any sort of an adjustment. All right. So let's carry on into economics. So we saw some inconsistencies, even though it was a very positive month us GDP shrunk for the second straight quarter, which a lot of people are reporting as like, are we in recession?
Leanne Mamchur (02:52):
Are we in recession? Now, the problem is, is that there's inconsistencies in the economic data because we also had really good employment in the month of July. So it's not consistent. We wouldn't say that it's recession yet. Now the opposite is happening in Canada whereby we had very, quite strong GDP in the second quarter, but the it's the second month in a row that we've been losing jobs. Having said that we're still fairly good in the job area. So it's again, not quite recession now, C I B C model shows a quite a fairly low recession, odds, six months out. And so that's something to important to keep in mind, because this is just kind of like a whole bunch of economic indicators and what have you that we look at. And then the, we do a probability. And so you can see here, we're still fairly low on the probability over the six month timeframe.
Leanne Mamchur (03:48):
Now that's six months out. That's not to say that we won't have one. We are still feeling that the probability of a mild recession over the long run has increased. And we are going to be seeing decelerating economic growth in our perspective there, because of the strength, because of the disconnect and the strength and the employment, we may continue to see increased inflation and the increased inflation may cause the central banks to continue to act, to continue to increase the interest rates to the point whereby they could push us into recession. Now, businesses also have kind of picked up on this and they are a little bit more cautious in their spending and the potential of like a recession kind of almost could set us straight almost and get inflation back in check and what have you. So that very, very like it, it, it's a good probability at this point, but it's just not an immediate probability.
Leanne Mamchur (04:46):
All right. Let's see here, oh, I didn't click that. And so here's the equities. And so in the equities, you can see over the month, and this is the monthly data, and you can see over the month, what that increase looked like. So you would've experienced in your portfolios, an increase in your portfolios. We aren't anticipating that this will be kind of the next, like continued increase. We are anticipating continued volatility and choppiness in the markets. Okay. And so then on the long term chart, you can see what that little increase has meant, and you can see where the economy, how the economy has just, or, I mean, the markets have been just standing still for that one year period. If you look at the longer term chart, okay. So onto fixed income credit markets, it's a challenging time for fixed income. We've seen large rate swings and pretty much even on a daily basis, we're seeing these.
Leanne Mamchur (05:42):
And what that does is it's unnerving because they're really, really large swings. And so, but it does create some opportunity for our bond managers to pick up when they are swinging like that. So there's a little bit more trading. There's always a little bit more trading in the bond side, but it's a good time in our perspective to hold the quality side, we are late in the credit cycle and you now are getting paid to hold. And so then before it was very, very low interest rates, right? And so then, but because the bonds have priced in a lot of the rate increases that we're anticipating to see, we are seeing quite nice yields now in the fixed income market. So you are being paid to hold bonds. Now the interest rates, we have very flat yield curve and the yield curve is just basically talking about the short term yield short term instruments versus the long term.
Leanne Mamchur (06:41):
And so lots of times it'll be sloping upwards, but right now it's very, very flat. And sometimes it has gone into the inverted stage, which is a recession indicator probably, you know, 12 to 18 months out. So a little bit further out in July, we also saw very large increases from the central banks. And so in Canada, we saw a rate increase of 1%. And so that's quite a bit faster than what we're used to seeing. And in the us, it was point 75. Now in Canada, we're sitting at two and a half percent and the market is pricing in 3.2, 5%. So by that, I mean that the bonds have already priced that in neutral rate is likely a little bit lower. Like what bank of Canada is doing is front loading some of their monetary strategy. And so then their increasing rates really, really quickly with the hope of decreasing inflation, knowing that they very well might need to decrease rates in the future, but that's an eventual reality, not now reality.
Leanne Mamchur (07:46):
So eventually probably not until sometime next year, maybe later in the year, we might see some of those rates coming back down. The expectations for the short term is both Canada and the us that will see continued rate increases. All right. So onto inflation, inflation is high and it's sticky. And even though that the bank of Canada is front loading and increasing all these rates, inflation is a lagging effect. And so then we're not going to really see the impact in inflation for some time. And so that's unnerving because you're seeing all these rate increases and you're not seeing inflation budging. Now a couple of positive things on the inflation front is that supply chains are seeing some correction and some easing as well as in the oil and monetary. And so inflation is also gonna be dampened by the monetary strategy and the fiscal strategy.
Leanne Mamchur (08:40):
Now the monetary has to do with rate increases and when they're selling bonds into the market, because they're taking out money from the market. Now the fiscal it's pretty much no strategy at this point because they they are just doing less spending, which I guess you could call a strategy, but they will be tempted to do some fiscal stimulus and what have you. But if they were then monetary policy probably would need to come into play and counter counteract that because of the aim to get inflation in under control, it may take some time in the inflation side to have any sort of meaningful improvements, all right. Onto taxes. So prescribed rate. The only thing I had to mention this month was that the prescribed rate is increasing in the, in the fourth quarter to 3%. And so it was originally at 1% and then it increased to 2% and it increased.
Leanne Mamchur (09:37):
Now it's increasing now to 3%. Now the prescribed rate is to do with things like when you're doing a spousal loan or you're doing a prescribed rate loan into a family trust or something like that. And so it doesn't affect everybody, but it will affect people who are considering setting up the strategy. Once the strategy is set up, that rate does not change. So it's grandfathered, but you have to have set it up when the rate was 1%. Let's say, if you wanted to have that 1%. So now the strategy is less attractive, I guess, more than anything. All right. So that was it for my monthly debrief. I did try to keep it a little bit shorter this month. And so hopefully you enjoyed, and we'll see you next month in September.