Andrew Ruhland on the interest rates hike
Episode Stats
Words per Minute
180.24754
Summary
Corey and Andrew discuss the Bank of Canada's interest rate hike, the impact on the housing market, and the implications for the rest of the economy. They also discuss the impact of higher interest rates on the Canadian housing market.
Transcript
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Usually you come in person, but this was sort of sudden
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because we knew the interest rates were gonna be coming up,
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I think it's caught still some people flat-footed
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and has really sort of given a bit of a slap to the head.
00:00:28.360
You know, they basically were laid out of the gate,
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in terms of starting the interest rate hiking cycle,
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is basically central bankers panicking because,
00:01:04.720
to actually stop the price inflation that we have,
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but it's political because they've been forced into it
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And, you know, the reason why the interest rates are not,
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the price dampening effect that a lot of people think
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And supply shortfall is a direct result of shorter term
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and longer term policy decisions at the government level,
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because one thing that raising the interest rates
00:02:13.760
I guess these, these rates are gonna have an impact on us.
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It will have an economic impact unquestionably,
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but it's not gonna do anything for price inflation
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And most, especially in the, you know, the three,
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And those are the areas where the prices have, have,
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you know, been ridiculous for, for quite some time.
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they have a certain amount of limitations on supply,
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but also driven substantially by having a lot of demand
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And, and so those are the areas that are gonna have to see
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because the, the market always finds a certain equilibrium
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And so when the cost of financing a home goes up
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as, as interest rates go up and the mortgage payments go up,
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the price of the asset, in this case, the home,
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has to come down so that the payment meets the ability of the buyer to pay.
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So we're kind of getting the, the worst of both out of this.
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is signaling that they're going to carry on and, and increase these,
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Yeah. We ain't seen nothing yet is, is my view.
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And I would characterize this as being, you know,
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all kinds of pain for very little gain in terms of intended result.
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The problems with the supply chain are mostly policy driven, as I mentioned.
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Now, so supply chains always are at risk of exogenous events,
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such as natural disasters, as an example, right?
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I mean, if you have a hurricane that's going to close a port,
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if you have an earthquake that might close a port and damage the rail lines
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and highways and, and, and all those kinds of things.
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So supply chains don't need policy decisions that, that are hurting.
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Right. And when I, when I say policy decisions,
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I'm talking about on the supply side, particularly with, with oil and gas.
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But since the beginning of the, of the, the Russian invasion of Ukraine,
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basically all of almost all of the economic pain has been borne by Western countries
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because the, the leaders of the Western countries said, well, you know, we don't want to,
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we don't want to get into a direct shooting war with Russia.
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We'll fight to the last Ukrainian and give them lots of arms,
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but we don't want to get in a direct shooting war with them.
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So we'll try and punish them with economic sanctions.
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Well, those economic sanctions are effectively a giant economic boomerang
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and they've come back and they have smacked the Western nations in, in, in the face.
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Well, I mean, I guess, you know, there's a lot to watch and a lot changing, you know,
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quickly, I guess, before I let you get back to work, like for those of us,
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people of course are worried about their investments, their nest eggs.
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How do you hedge against what looks to be coming here?
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You know, I mean, our bonds going to start looking a little better if we're getting higher interest
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rates or should we just be leaving our portfolios alone or what do we do to ride this out?
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That's an hour long discussion, but I'll be as brief as I can.
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And I know there's a lot more on your website to cover, but.
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Right. Rising interest rates are going to hurt bonds.
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Now, if you're buying bonds fresh, you'll get a higher yield, which is great.
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There may at some point in the future be some room for capital gains if they
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have to drop interest rates again, you know, if we get another economic blow.
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But for the the major trend is upwards in inflation and interest rates.
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So the fact is, is that traditional bonds are actually a very unsafe asset class going forward.
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The stock markets, commodity markets, bond markets, they are all discounting mechanisms.
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They look out into the future and they price in what they think is going to happen.
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They usually overshoot both on the upside and the downside.
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In this case, they priced in a recession and that recession is being driven by by demand
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So it's going to take and, you know, fertilizer, natural gas, all those things that we know
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So in terms of what to do in a portfolio, I would say the worst thing to do right now
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would be to react and turn temporary declines into permanent losses.
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But that doesn't mean you should be oblivious or or passive.
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Start looking for new ways to to actually profit from inflation.
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And it takes time for for stock markets and commodity markets to to adjust.
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But I think that most of the pain is already in.
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But longer term companies raise their dividends.
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Great companies raise their dividends faster than the rate of inflation, which drives their
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And if they're selling a commodity with a long term upward trend, they will also benefit.
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Well, the most important and first part advice, of course, was, yeah, don't panic.
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Just just, you know, work with things with a plan and so on.
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Because, yeah, I know in our quick 10 minutes here, we won't have time to cover it all.
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I mean, you hold entire webinars and things such as that to help people with all those sorts of
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So maybe, you know, before I let you go, then where can people find more information?
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Because a lot of people are worried and concerned.
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I mean, they've been saving their retirements looming or maybe they're already retired.
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They want to make sure that they can weather this storm.
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Well, as you can see by the by the backdrop, we're integrated wealth management and you can type
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So integratedwealthmanagement.ca or i-wealth.ca.
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Well, thanks for coming to, you know, explain a little bit what's going on with this.
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As you know, it's important to know those differences.
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For example, as you said, there's different types of things pushing inflation.
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If it was a red hot economy, that's one thing, because at least that means things are moving.
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But if it's supply chain, then you really got to be careful with that economy,
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because you cool that down, we're going to make a lot of trouble.
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Maybe we'll check in as things develop down the road here.