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May 28, 2021
6:13 am
Alexandre
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Loonie said
I don't follow the argument that someone getting 2000/month from CERB is somehow getting more than if they'd worked. 2000/month is about 500/week, which is about 12.50/hour for a 40 hour week. That is significantly less than the minimum wage in Ontario.

Look at it this way: someone who managed to live on $5,000 annual income, could definitely benefit from switching to $2,000/month.

These are not only kids - these are also adults, some who don't even qualify meaning their income was less than $5,000/year, but applied, got paid and will be forgiven.

By the way, I suspect many adult Canadians can live on $2,000/month, especially if they don't have to go to work. Some might even prefer that to unpleasant working conditions where they are paid minimum or close to minimum wages.

May 28, 2021
7:12 am
Bud
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The discussion of raising interest rates is a joke it hasn't happened for over a decade and never will until market forces say no. Doesn't matter what inflation is they'll move the goal posts call it temporary. Why would government raise rates do you think they want to pay more.

May 28, 2021
9:36 am
savemoresaveoften
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Bud said
The discussion of raising interest rates is a joke it hasn't happened for over a decade and never will until market forces say no. Doesn't matter what inflation is they'll move the goal posts call it temporary. Why would government raise rates do you think they want to pay more.  

where have u been the past decade....

May 28, 2021
10:11 am
Vatox
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Bud, I think you are looking at Government and their debt. And yes it’s too high and out of control, but the government isn’t calling the shots on interest rates, the BoC is an autonomous entity and makes decisions for the health of the economy. I’ll admit that I think inflation can remain somewhat high because of the many dire conditions we are in, but should it start to get further out of control, they will raise rates, it would be incompetence and immoral to allow inflation to run rampant.

May 28, 2021
10:20 am
Kidd
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Bud in post #62 is correct.

Interest rates have been artificially held down, for many reasons.

Interest rates in the past were used to combat inflation. Since governments manipulate what inflation is... rates are not going up when they should. The effectiveness of rate policy no longer works. Interest rates are also used to stimulate the economy, and jury rig the stock market.

If interest rates were to say... 5%, money would come out of stocks, for a safer more secure return. Result being, the stock market would correct. The cost of debt would become real.

If one were to look at the so called returns... covid has been the best thing to hit planet earth since Noah's great flood. Record high stock markets, record high profits for the banks, walmart, amazon. Bring on the 4th wave of covid, and we'll all be billionaires.

It's called manipulation.

May 28, 2021
12:23 pm
toto
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Thanks everyone for your knowledge on inflation, I personally am learning alot from your posts!

May 29, 2021
8:21 am
Norman1
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Kidd said
Bud in post #62 is correct.

Interest rates have been artificially held down, for many reasons.

Interest rates in the past were used to combat inflation. Since governments manipulate what inflation is... rates are not going up when they should. The effectiveness of rate policy no longer works. Interest rates are also used to stimulate the economy, and jury rig the stock market.

If interest rates were to say... 5%, money would come out of stocks, for a safer more secure return. Result being, the stock market would correct. The cost of debt would become real.

If one were to look at the so called returns... covid has been the best thing to hit planet earth since Noah's great flood. Record high stock markets, record high profits for the banks, walmart, amazon. Bring on the 4th wave of covid, and we'll all be billionaires.

It's called manipulation.

It has been a recovery, not manipulation. The stock markets would have reached the same levels without COVID from natural growth.

A good chunk of the banks' recent profit increases comes from reversing their provisions in 2020 for anticipated losses that didn't actually happen.

Money won't come out of stocks should interest rates go up to 5%. Prices would decline a bit so that subsequent stock purchases would have a 10% per annum return instead of 7% per annum.

The 10% per annum afterwards, even with the decline, will leave GIC's in the dust. Just like the 15% - 18% per annum stock returns left 10% GIC's in the dust in the 1980's.

Measuring from the bottom of a decline can give spectacular but highly misleading results. That's the case with stock prices and earnings. More significantly, it is true with the recent CPI inflation.

CPI went from the 135.7 to 140.3 from April 2020 to April 2021. That's what gives the +3.4% inflation for 12 months.

However, CPI was 136.8 in January 2020. CPI inflation was then

(140.3 - 136.8) / 136.8 = +2.6%

from January 2020 to April 2021. +2.6% over 15 months is just 2.1% per annum.

May 29, 2021
8:38 am
HermanH
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Norman1 said
A good chunk of the banks' recent profit increases comes from reversing their provisions in 2020 for anticipated losses that didn't actually happen

This actually gives me greater faith in the banking system for acting prudently and responsibly.

May 29, 2021
10:43 am
canadian.100
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HermanH said

Norman1 said
A good chunk of the banks' recent profit increases comes from reversing their provisions in 2020 for anticipated losses that didn't actually happen

This actually gives me greater faith in the banking system for acting prudently and responsibly.  

The banks definitely demonstrated their prudence when they provided for possible bad loans when the pandemic set in. Canada's banking system is considered one of the strongest in the world. Canadian bank shares will continue to be a solid investment particularly as we will see the economy boom once almost everyone in Canada is vaccinated by late 2021. Looks like 2022 will be a much better year - but interest rates will likely stay the course - I don't think there will be 5% interest rates for quite some time - maybe for mortgages? That, at least, would cool the housing market.

May 29, 2021
1:47 pm
savemoresaveoften
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canadian.100 said

The banks definitely demonstrated their prudence when they provided for possible bad loans when the pandemic set in. Canada's banking system is considered one of the strongest in the world. Canadian bank shares will continue to be a solid investment particularly as we will see the economy boom once almost everyone in Canada is vaccinated by late 2021. Looks like 2022 will be a much better year - but interest rates will likely stay the course - I don't think there will be 5% interest rates for quite some time - maybe for mortgages? That, at least, would cool the housing market.  

BoC knows that they can not raise interest rate too quickly no matter how bad real inflation is. Otherwise there will be hard landing in property prices, mortgagers lose their house, bank have to record massive pile of loan losses. On top government's interest expense goes skyrocket. Rates rising in any meaningful fashion simply wont happen for the next 3-5 years. May be 3% bank rate tops...

May 29, 2021
5:52 pm
Norman1
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savemoresaveoften said

BoC knows that they can not raise interest rate too quickly no matter how bad real inflation is. Otherwise there will be hard landing in property prices, mortgagers lose their house, bank have to record massive pile of loan losses. On top government's interest expense goes skyrocket. Rates rising in any meaningful fashion simply wont happen for the next 3-5 years. May be 3% bank rate tops...

Bank of Canada is not as constrained as that.

The Big Banks won't be affected as they deal in prime mortgages that are insured or insurable. Only financial institutions that would end up with piles of losses would be those specializing in uninsured or uninsurable mortgages.

Canadian governments won't be affected. Their borrowing rates are locked in when they issue those long term bonds, for better or for worse. Federal government, for example, has been stuck all these decades paying 9¾% on $286 million of 30-year bonds they issued in May 1991 (CA135087UE28). See Bank of Canada's April 2021 list of outstanding federal bonds.

May 29, 2021
6:51 pm
Vatox
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savemoresaveoften said

BoC knows that they can not raise interest rate too quickly no matter how bad real inflation is. Otherwise there will be hard landing in property prices, mortgagers lose their house, bank have to record massive pile of loan losses. On top government's interest expense goes skyrocket. Rates rising in any meaningful fashion simply wont happen for the next 3-5 years. May be 3% bank rate tops...  

If inflation gets out of hand, the BoC will raise rates. You can bet on that. For sure it won’t be quickly, a rise of 25 bps and see the results in a few months and if inflation doesn’t budge, then 25 more. It would be slow unless inflation goes completely nuts. Nobody should ever say rates won’t increase, only that caution about raising is heightened. We have to get high inflation that is sustained.

May 29, 2021
9:57 pm
Bud
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"A good chunk of the banks' recent profit increases comes from reversing their provisions in 2020 for anticipated losses that didn't actually happen."
Government covered the losses and more. Excess capital belongs to taxpayers not shareholders

"Canada's banking system is considered one of the strongest in the world."
That's because it's backstopped by taxpayers.

BoC doesnt control market forces.

What would have happened to the Cdn economy had taxpayers not provided $350billion in stimulus in 2020

May 30, 2021
5:23 am
savemoresaveoften
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Vatox said

If inflation gets out of hand, the BoC will raise rates. You can bet on that. For sure it won’t be quickly, a rise of 25 bps and see the results in a few months and if inflation doesn’t budge, then 25 more. It would be slow unless inflation goes completely nuts. Nobody should ever say rates won’t increase, only that caution about raising is heightened. We have to get high inflation that is sustained.  

Yes I mentioned "they can not raise rates TOO QUICKLY". 25bps every meeting is more symbolic, not much as an inflation fighter.

To Norman1:
Even tho banks dont hold a chunk of mortgages in their own books, if the real estate market collapses (30% drop within a year,) the mortgage insurance will not have enuf capital to pay for all the losses, including CMHC. The market is interrelated that every FI (govt or non govt) will be impacted in a meaningful fashion.
Just like in 2009, all you need is a couple of big names to go under, and the domino effect can bring down the whole system if the govt did not step in.
The general public mostly do not think of how FIs are so "closed knitted" with all the derivatives, insurance/reinsurance, and other so called risk mitigation techniques. Clearing houses are supposed to be a backstop for derivatives contagion effect, but it has not been tested...
Not saying it will happen, but govt is aware of how important the chain reaction of rising rates too quickly can bring.

May 30, 2021
6:14 am
Alexandre
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Speaking about inflation.
Coffee.jpg
Sold at the same price. The one on the left is new arrival. Spot the difference.

May 30, 2021
6:19 am
Bud
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The real estate development industry dumps the liability onto taxpayers when it belongs to their stakeholders. They own
government an example was when a MP said recently we can't let condo housing prices fall a measly 10% that wouldn't be fair to new buyers. Politicians feel threatened. Now more families are being left out in the cold by artificially inflated prices.

The index fund Etf industry another big contributer to inflation was bailed out again like in 08 when the market also froze. Indexing is a liquidity bonanza for insiders when stocks trade at inflated multiples they're added to the various indexes which act like an atm machine for insiders. When the market crashes the government is forced to bail them out an example Blackrock providing consulting services to the fed.

There is no equality till these sectors are fixed. Expect more civil disobedience till these problems are fixed. Canada more real estate focused, U.S. stock market.

May 30, 2021
9:04 am
Vatox
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savemoresaveoften said

Yes I mentioned "they can not raise rates TOO QUICKLY". 25bps every meeting is more symbolic, not much as an inflation fighter.

To Norman1:
Even tho banks dont hold a chunk of mortgages in their own books, if the real estate market collapses (30% drop within a year,) the mortgage insurance will not have enuf capital to pay for all the losses, including CMHC. The market is interrelated that every FI (govt or non govt) will be impacted in a meaningful fashion.
Just like in 2009, all you need is a couple of big names to go under, and the domino effect can bring down the whole system if the govt did not step in.
The general public mostly do not think of how FIs are so "closed knitted" with all the derivatives, insurance/reinsurance, and other so called risk mitigation techniques. Clearing houses are supposed to be a backstop for derivatives contagion effect, but it has not been tested...
Not saying it will happen, but govt is aware of how important the chain reaction of rising rates too quickly can bring.  

Actually, you said no matter how high real inflation gets. You are saying that if we get 6% inflation or higher that they won’t raise say 50 or 75 bps. They will do it if inflation gets out of hand. Don’t say they can’t or won’t no matter how high inflation gets.

May 30, 2021
10:10 am
Bill
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Bud, you say gov't covered banks' losses. Can you elaborate precisely how? You appear to follow this more than me, are you saying gov't just gives banks taxpayer money whenever they need some, or are you referring to more indirect methods like spending to stimulate the economy? Same with your allegations about gov't being owned by real estate industry, how does the gov't give our money to that industry? Real estate prices seem anything but high to me, put your house up for sale and people are lined up to pay over asking, lots of willing buyers suggests real estate is very affordable right now.

Alexandre, I don't doubt your point but those are different products pictured, comparing apples to apples makes the point.

May 30, 2021
11:21 am
Kidd
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Hi Bill.

"The Canadian government plans to triple the amount of mortgage debt it’s buying from banks in an effort to pump money into the economy.

Canada will purchase $150 billion ($137 billion) in insured mortgage backed securities from financial institutions, the agency said Thursday. That’s triple the initially planned $50 billion, and represents about 80 per cent of the value of government-guaranteed mortgage backed securities on bank balance sheets."

excerpt from link found below

https://www.bnnbloomberg.ca/cmhc-triples-planned-purchases-of-mortgage-securities-1.1412797

May 30, 2021
6:28 pm
Bill
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Cool, thanks Kidd, I'd never paid attention to that before. Nice of Canadians to elect govt's that profit us bank shareholders, I guess.

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