When will the Bank of Canada raise interest rates?

No one was really expecting the Bank of Canada to touch the overnight rate on Tuesday, which was left at 1%. The key was to try and gauge how serious the Bank of Canada was about raising interest rates in the near future. From reading the press release, it appears that Bank of Canada Governor Mark Carney is seriously considering a couple of rate hikes later on this year. From the press release:

“In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawl of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawl will be weighed carefully against domestic and global economic developments.”

Translation: The economy is doing better than we thought, and inflation is a bit concerning, so we may have to raise rates a bit since they are so low. However, it all depends on what happens in the  US, Europe, and China.

This is starting to look like the same story that played out last year.  About this time last year, The Bank of Canada was getting serious about raising rates, but plans changed when Canada’s economy hit a couple of pot holes and the European mess got out of hand. So while Mr. Carney is talking pretty tough, its his actions that will speak louder than his words. And what people need to understand is that the final sentence from the quote above underscores the reality that Mr. Carney’s final actions will ultimately be determined  by what plays out in a highly uncertain global economic backdrop (click here to read article).

So, to answer the question of when will the Bank of Canada raise interest rates? It could happen as soon as the July 17th announcement, but there is an equally likely chance that this year plays out exactly as last year did. Meaning, about this time next year we will be asking yet again is this the time the Bank of Canada starts raising interest rates.

12 trillion reasons (and counting) to be mindful of your investments

Over the past year the money machine has gone a bit awry. All told, the global money supply (that is newly printed money) has increased by a whopping $12 trillion dollars. That’s a lot of fiat money floating around creating significant pressure on inflation. But probably the most disturbing thing is we haven’t really solved any of the difficult problems with all that new found money.

Looking at the markets, we seem to have come a long way since the crash of 2008. At that time, the TSX was at it’s low of 7,480, the DOW was 6,470 and the S&P 500 was at 667. Two weeks ago the DOW peaked at it’s post crash high of 13,289. Last week the S&P 500 was at it’s post crash high of 1,422. The TSX peaked back on February 29th at 14,817. The market appears to be heavily overbought and sentiment is certainly high. We need to watch the change in daily highs and if volume is declining.

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Gas Prices Explained

This video is quite amusing and very accurate. Enjoy.

watch?feature=player_detailpage&v=40hNSJEKUgo

Gas prices in an election year

A recent Washington Post/ABC poll showed that almost two-thirds of Americans disapprove of how President Obama is dealing with the steadily rising price of gasoline (click here to read article).  How much control does President Obama have over the price of gas? Not much, but don’t tell that to the Republicans. Despite the political theatre, the real concern is how does rising gas prices in the US affect the slow but improving US economic recovery (click here to read article).

It seems to me that Canadians should be just as angry as some Americans are over gasoline prices, if not more. On average, Canadians will pay about 25-35 cents a litre more for their gasoline.

It gets worse when you look at the breakdown of what goes into the price of gasoline in the US as compared to Canada. Notice that taxes account for as much as 30%  of the cost of gasoline in Canada, over twice as much as it does in the US.

Getting back to the US, we haven’t even reached April yet and some states are already seeing gasoline prices over $4 a gallon. This is something that definitely needs to be monitored, as the price of gasoline has become one of the biggest risks to the US economy. Typically, we see gasoline prices peak sometime in June. So we still have several months to go and there is the real possiblity that gasoline prices will come close to $5 a gallon.  More pain at the pump seems inevitable. This is neither good for President Obama nor the US consumers. Its even worse for Canadian consumers.

Investing from an Irish perspective

“In the land of the blind, a one-eyed man is king.”  famous Irish saying

I probably should have written this post on Friday in preparation for St. Patricks Day but the message is relevant even a few days late.  So here I am sitting in Starbucks (my second office) watching the markets in the last half hour of the trading day and watching people.  It is intriguing at how different we all are in our interactions, mannerisms, communication and generally stuff that we do.  Although it is never my intention to eavesdrop on other conversations, when you are sitting less than 3 feet away from people it is hard not to overhear what they are talking about especially those that have somewhat louder voices. 

So what happened today?  Well I got to hear about a new workout, a musician trying to figure out a Chinese website, an older couple discussing money issues (how relevant), three women talking about their teenage children, a guy sharing his relationship woes with a friend and a mom telling her 5 year old to throw out the lollipop that barely touched the table but was now full of germs.  (This is a 5 year old we’re talking about.  I am sure his hands have more germs than the table).
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