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HELOC pros and cons
April 2, 2022
5:29 am
savemoresaveoften
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Norman1 said
People are a lot more resilient than the misinterpretations of the statistics suggest.

Prices are also not as bad as those year-over-year CPI percentages are misinterpreted to suggest.

Pre-pandemic January 2020 Consumer Price Index is 136.8. With on-target 2% per annum inflation since then, the February 2022 CPI would be have been about 142.6.

Actual February 2022 CPI is 146.8. That's (146.8 - 142.6)/142.6 = 2.9% above target.

From the drama the media is serving, one would think that CPI was something like 29% above target!  

Actual inflation is 3.6% annualized past 2 years based on your CPI numbers, which is absolute 1.6% per year over the 2% target annualized. Not sure what your 2.9% really measures 🙂

2% inflation will have price doubles every 35 years, vs 20 years at 3.6%. That is a significant impact to most. And based on what I see, do this same math in a few months time, Feb 2022 is just the beginning of this high inflation cycle....

Not trying to scare anyone or telling the OP not to buy a house now, as I dont benefit from it. But this is the reality that especially the younger generation has never experienced nor believed. I am not really old enough to feel the the 70s oil embargos, nor financially hurt by Black Monday. But I am deep in the market from Asian crisis onwards, and have seen what happened when scenarios unfold that people simple dont "believe can happen". Just think of pre 2008, even the most crazy doomsday forecaster would not say "Central banks will cut rate to zero". Even 1% was deemed impossible back then. If you can travel back in time, you can ask Greenspan back then, he will say "what have you been smoking" 🙂

April 2, 2022
10:51 am
Norman1
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The 2.9% is the current overshoot in the price of the CPI basket of goods and services.

Baskets of CPI goods and services that Bank of Canada would like to cost $3,000/month now cost an extra 2.9% x $3,000 = $87/month.

Central banking has advanced over the decades. Central banks have come to realised there are more ways to deal with downturns. Also, money can be injected into an economy in other ways than printing cash and handing it out in suitcases to government cronies at one of the central bank backdoors in the middle of the night.

April 2, 2022
1:00 pm
MattS
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I needed short term funds and even without a mortgage and only asking for 50k both institutions they wanted several hundred dollars to set up. An alternative if you have non registered GIC or TFSA they will do a cash secured LOC at no cost for as much as you have in their institution. Mine is still sitting at 2.95% after the last BOC adjustment… as an alternative….

April 2, 2022
1:12 pm
savemoresaveoften
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Norman1 said
The 2.9% is the current overshoot in the price of the CPI basket of goods and services.

Baskets of CPI goods and services that Bank of Canada would like to cost $3,000/month now cost an extra 2.9% x $3,000 = $87/month.

Central banking has advanced over the decades. Central banks have come to realised there are more ways to deal with downturns. Also, money can be injected into an economy in other ways than printing cash and handing it out in suitcases to government cronies at one of the central bank backdoors in the middle of the night.  

Yes since the financial crisis, we have seen more ways than just interest rate to support the economy, after interest rate goes to zero and they dont want negative rates.
It remains to be seen other than jacking up rates, are there also other ways to cool down inflation, that will be interesting as it has not been done yet. Shrinking the CB balance sheet is simply withdrawing simulation, not adding constraints.

April 2, 2022
8:50 pm
Norman1
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Increasing supply will cool down inflation.

The US will be releasing 1 million barrels of oil per day from their Strategic Petroleum Reserve for the next 180 days to cover some of the Russian oil embargoed:

Biden spurs record emergency oil release in 'moment of peril' for world

By the end of that release, US oil producers are expected to have boosted production by one million barrels per day.

Those will make up for about 1/3 of the 3 billion barrels per day of oil from Russia being embargoed.

Need some other countries to step up for the remaining 2 billion barrels per day.

April 3, 2022
3:46 am
cgouimet
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Norman1 said
Increasing supply will cool down inflation.

The US will be releasing 1 million barrels of oil per day from their Strategic Petroleum Reserve for the next 180 days to cover some of the Russian oil embargoed:

Biden spurs record emergency oil release in 'moment of peril' for world

By the end of that release, US oil producers are expected to have boosted production by one million barrels per day.

Those will make up for about 1/3 of the 3 billion barrels per day of oil from Russia being embargoed.

Need some other countries to step up for the remaining 2 billion barrels per day.  

That math doesn't work ... 1 million barrels/day = 1/3 of 3 billion/day?

Actual Russian oil production is 10 million/day. So 1 million/day = 1/3 of 30% of 10 million/day ...

CGO
April 3, 2022
3:51 am
rodeworthy
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Norman1 said
Need some other countries to step up for the remaining 2 billion barrels per day.  

Maybe the Keystone XL pipeline would have come in handy, Joe.

April 3, 2022
4:05 am
cgouimet
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rodeworthy said

Maybe the Keystone XL pipeline would have come in handy, Joe.  

Not as long as the US consider US oil greener than Canadian oil, as in better for the green-back ...

CGO
April 3, 2022
4:57 am
savemoresaveoften
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Norman meant millions not billions.

The strategic reserve release will help the supply for the next 6 months. It does not address the structural shortage which can only be raised by actual production increase. Even that may be tricky for Europe, as increased production from fracking and oilsands still have to find a way to ship to Europe.
Unless one thinks the embargo on Russian will end completely within 6 months, which I dont think so. So the real fix to the demand supply imbalance is may be a big drop in demand, such as the price induced demand destruction as experts are warning. But by then, its global recession.

April 3, 2022
5:49 am
Norman1
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Yes, that should be 3 million barrels a day from Russia!

We don't need to make up for all of Russia's 10 million barrels per day production. We just need to make up for the part we were buying and now embargoed. China and India are still buying oil from Russia.

It's not just North America that produces oil. Some countries closer to Europe, in the Middle East, for example, do as well.

April 3, 2022
7:01 am
Bill
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Not sure about the numbers on here, this site says "Of the 10.1 million barrels per day (b/d) of crude oil and condensate that Russia produced in 2021, Russia exported more than 45%, or 4.7 million b/d." There's also natural gas to consider.

https://www.eia.gov/todayinenergy/detail.php?id=51618

Our leaders are busy shutting down oil and gas, this "shortage" helps that movement.

April 3, 2022
8:00 am
Norman1
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China is continuing to import their 1.4 million barrels a day share of oil from Russia. Same with India. So, the other oil producers will need to make up less than 4.7 - 1.4 = 3.3 million barrels a day.

Yes, there's other stuff. Russia was a significant world supplier of potash fertilizer too.

I think all those shipping containers are still sitting on this side of the Pacific Ocean causing a shortage of containers in Asia.

April 3, 2022
8:16 am
COIN
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"China is continuing to import their 1.4 million barrels a day share of oil from Russia. Same with India."

A couple of comments about Russian and Middle East oil. We could be heading for another oil price war and lower oil prices.

Not sure where the truth lies but I heard that China is getting deep discounts on their purchases of Russian oil. I'll try to find and post the source.

There is more than just money at stake for OPEC. Should control over the lower bound of oil prices slip out of OPEC's hands, expect uprisings and unrest in the UAE Qatar and the Saudi kingdom. They are being held together by generous public programs paid for by oil, but if the oil price drops below, $70 a barrel (cost of funding welfare programs), these states will go bankrupt and headed the same way as Libya, Syria and Tunisia (Check: http://oil-price.net/en/articl.....prices.php ). So far, in the oil game, points to OPEC for 'well played'. So as the status report goes: Game on.
Yes, I know the article is 9 years old but I think it is still a valid point to-day.
https://www.oil-price.net/en/articles/opec-and-oil-prices-is-the-story-over.php

April 3, 2022
10:57 am
savemoresaveoften
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OPEC has little interest to pump more oil just to help to keep oil price lower.
Their incentive to pump more is only when oil price deems high enough for them to sell more.
Dont forget they flooded the market with oil and crash the price not too long ago, with the intention of killing the fracking and oilsands economics for good. Now with oil back at $100, they are going to try to keep price up so they "avg up" those oil that they dump into the market at $30 at the time.
So No, they have very little incentive to fill the gap, and if they do, its not because they try to help the rest of world against Russia.
India has no choice but continue to keep buying from Russia.
China is either a friend or neutral with Russia, they will continue to buy too.

April 3, 2022
12:45 pm
COIN
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I'm unable to find the source at the moment but I vaguely remember reading something about the Saudis planning for life after fossil fuel as the world moves to alternate energy sources. The thinking is to pump as much oil from the sands as possible now before oil becomes worthless.

April 3, 2022
1:15 pm
Norman1
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Saudi Arabia does have a life after oil. Just that oil has been the easier path for them to date.

This is from an April 2021 Bloomberg opinion piece How Saudi Arabia Can Thrive in a Post-Oil World:

That pessimistic vision may not be quite right, though. The country’s rich endowment of natural assets — not all of them hydrocarbon-based — could fuel new industries and sustain existing ones as carbon emissions fall toward zero. Its reserves of phosphates, copper and gold are world-class, but have been under-exploited thanks to the way crude crowds out everything else. The kingdom’s solar potential, meanwhile, is among the richest in the world, giving Saudi Arabia the chance to be as central to a future green-hydrogen sector as it was to the past century’s petroleum trade.

The same article says their oil production cost is around US$2.80 per barrel!

April 3, 2022
1:23 pm
Norman1
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MattS said
I needed short term funds and even without a mortgage and only asking for 50k both institutions they wanted several hundred dollars to set up. …

That's expected.

The cost of the property appraisal and the registration of the legal charge against the property don't vary with the amount borrowed.

April 3, 2022
2:16 pm
COIN
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"The same article says their oil production cost is around US$2.80 per barrel!"
Yes, I believe the US$2.80 per barrel.
On the other hand, my stockbroker told me they need $90 oil to fund their generous social programs.

"Its reserves of phosphates, copper and gold are world-class"
These raw materials are only really valuable if they can be transformed into something useful. For example, oil is only really valuable if it is refined into gasoline.

April 3, 2022
5:27 pm
RetirEd
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Canada's a major potash exporter, too.

Keep in mind that one of OPEC's original drivers was the desire to be able to lower oil prices to push higher-cost producers (and alternative energy sources) out of the market. For many years, tar-sands oil was uneconomical to produce, as well as being less environmentally sound.

In the U.S., towns with oil refineries generally have HIGHER gasoline prices than town without them. The reason is that the companies owning the refineries have a transportation-cost advantage and can therefore drop prices when any competitors try to enter their market.
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RetirEd

April 3, 2022
6:07 pm
RetirEd
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Loonie said: When people complain to me about their finances, I ask them how much they have spent in interest in their lives.

I have spent less than $100 on interest in my life. And $55 of that was when a delayed transfer to buy a GIC cost me bridge interest for a few days. VanCity had offered to waive the interest, but I said not to because they had after all not had the money. My mistake! I'd expected to pay just the deposit interest on the GIC, but they whacked me the equivalent of overdraft rates!

A note about when one can open a HELOC without paying large extra fees:

When we speak of "purchasing or refinancing," the renewal of a mortgage constitutes a refinancing. That's why my friend paid no HELOC fees when he renewed with a mortgage/HELOC split.

RetirEd

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