Goooood morning & welcome back from summer,
A LOT has happened. First thing’s first: the Bank of Canada held rates steady this morning but the expectation is that will only last until Oct or Dec at the latest before hopping on the rate drop train.
Global momentum has slowed & commodity prices have drifted down accordingly. The trade war has escalated over the summer & is now turning into a currency war. It’s something like ¼ of all government bonds, $15 TRILLION dollars worth, are negative yielding. Take a moment to consider what that really means.
Bonds have traditionally been where you place money for safety. A negative yielding bond means you are PAYING for the privilege of lending a government money. Think about that. You are guaranteed to lose money if you carry the bond to maturity. This is bananalands. What happened to save your money & be rewarded by having more tomorrow than you’ll have today? What are the implications when you lose money keeping it in what has traditionally been the safety trade? It’s very difficult to wrap your head around how backwards this has become & what impacts this is going to have to the world. Central banks are losing the fight against deflation.
The Bank of Canada expects economic activity to slow in the second half of the year. From what I’m reading, the US needs to drop 50bps at their next meeting & I’ve read as much as 100 bps by the end of the year. That is going to put pressure on Canada to start heading in the same direction. That all sounds great on the mortgage front but when you consider that central banks traditionally need 5% worth of rate cuts to pull an economy out of a recession & we’re a hair under 2%, it’s worrisome to imagine how this is going to end.
I love talking about this stuff so if you have any questions please get in touch. Otherwise, have a lovely day.
Here is a link to the Bank of Canada release: https://www.bankofcanada.ca/2019/09/fad-press-release-2019-09-04/