June 2024 – Rain’s Coming

Frank Danielson

IG: @frankdanielson66

We built Inukshuk Capital Management to serve the needs of clients looking for a unique approach – void of conflicts of interest, commission sales and pushed products. We began by putting our own money where our mouth is. With low fees and active risk management, we help families achieve financial longevity, that’s the bottom line.

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June 2024: Rain’s Coming

In this issue:

  • Global Equity Market Performance
  • Rates
  • History
  • Median Mortgage Human
  • The Iceberg
  • Wrapping Up
  • Health is Wealth

Global Equity Market Performance

May pretty much reversed April’s losses. The S&P 500 was up almost 5% and MSCI EAFE 4%. The S&P/TSX 60 is still lagging the tech-heavy U.S. market and closed 2.6% higher. And while MSCI Emerging Markets was the worst performer, up 0.8%, it was the only index we follow that did not fall in April.

Our systems remain fully long both the S&P 500 and the S&P/TSX 60.

If you would like to stay current on our measures of trend and momentum in the markets we follow, please click here .

Rates

Interest rates are on Canadians’ minds. That is understandable considering the Bank of Canada (the Bank) raised the policy rate from 0.25% to 5.00% in just over a year and stopped last July.

Last week, June 5, they cut 0.25% to set the rate at 4.75%, where it was one year ago. Expectations in the market are they will continue to ease.

In the accompanying statement, Tiff Macklem, the governor of the Bank said: If inflation continues to ease, and our confidence that inflation is headed sustainably to the 2% target continues to increase, it is reasonable to expect further cuts to our policy interest rate. But we are taking our interest rate decisions one meeting at a time.

Maybe he’s been listening to hockey player interviews. One game at a time. Go Oilers.

The general interpretation is that interest rates are going lower but not, perhaps, as fast as they went up.

History

Nothing is a given in financial markets. But historically, once the Bank cuts they keep on cutting.

From 1981 to 1983 the target rate went from over 20% to under 10%. The next major easing cycle from 1990 to 1992 took rates from around 14% to 5%. More recently, starting in 2007 to 2009, the Bank cut 425 basis points from 4.50% to 0.25%.

Let’s look at what this means for Canadians.

Median Mortgage Human

Last summer we did some analysis of what interest rate increases did to the median borrower.
July 2020, Macklem said:
Our message to Canadians is that interest rates are very low and they’re going to be there for a long time… If you’ve got a mortgage or if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time…

In 2020, according to The Canadian Real Estate Association, the ‘benchmark price’ of a single-family home was $618,400.

Our assumptions: a homebuyer, on the guidance of the sage Bank governor, put a 20% down payment on the median house and got a variable rate mortgage of $500,000 at 2%. The monthly payments would have been $2,100 per month.

Three years later that same mortgage rate had gone to 6.8% and the monthly payment to $3,500.

Let’s assume MMH is still paying the bills and the mortgage rate moves to 6.55% after this cut. What a relief our wise monetary leader provided. He’s managed to lower monthly payments by… $76. That’s not many hamburgers.

Note: we would like to thank our friends out west at Pro Financial Solutions, an asset-liability consultant to financial institutions, for providing mortgage data and calculations.

The Iceberg

Here’s the problem. It starts with central bankers and ends with actual humans being harmed.

In the Bank’s own annual Financial Stability Report published in May they stated: About half of all outstanding mortgages are held by borrowers who have yet to face higher rates because their payments were fixed for five years… 

Half. According to the Canadian Mortgage and Housing Corporation that’s around 900 billion dollars.

This is going to leave a mark.

 

 

 

That $76 is not going to do anything for the 50% who must renew in 2025 and 2026. Mortgage payments are going to skyrocket. The hardest hit will be variable-rate fixed payment mortgage holders with a 52% increase next year and 62% in 2026.

Even if MMH had locked in for five years in 2020, there is no relief on the way.

The captain of this Titanic will be fine. There are no consequences for policymakers. We’ve asked this question before: why do we tolerate it?

Wrapping  Up

The only way this is manageable for the median Canadian is if they have savings or can increase their earnings. Our investment process is focussed on protecting capital. We encourage our clients to work with us to create a financial plan. We stick to our rules-based discipline. They stick to their plan. That’s how we weather the storms.

Rain’s coming.

Our resident music nerd has songs in his head. ‘Another Song About the Rain’ by the band Cracker is playing.

Another song about the rain
Coming down it burns through me
Another song about the rain
It never rained so viciously

Now over to Victoria for some tips on staying hydrated.

Health Is Wealth

As the summer solstice approaches and the temperatures rise, staying hydrated becomes more crucial than ever. Hydration is not just about quenching your thirst; it’s about maintaining optimal health and ensuring your body functions correctly. Water is essential for various bodily functions, from regulating temperature to keeping your joints lubricated. Let’s dive into why hydration is vital, the dangers of dehydration, and practical tips to stay hydrated, especially during the summer heat.

First, let’s understand why hydration is so important. Our bodies are made up of about 60% water, and every cell, tissue, and organ needs water to work correctly. Proper hydration helps maintain the balance of bodily fluids, which is vital for digestion, circulation, and the transportation of nutrients. The brain, heart, and muscles are particularly reliant on adequate hydration to function efficiently. Even mild dehydration can lead to headaches, fatigue, and impaired cognitive function.

Dehydration occurs when you lose more fluids than you take in, and it can have severe consequences. It can cause dizziness, confusion, and in extreme cases, heatstroke, which is a medical emergency. The parts of our body that need hydration most include the brain, muscles, and skin. Without enough water, the brain can’t function properly, leading to mood swings and reduced cognitive ability. Muscles can cramp, and the skin can lose its elasticity and glow.

So, how do we stay hydrated?  The obvious way is to drink plenty of water, but how much is enough? While the classic advice is eight 8 glasses (2 litres) a day, individual needs can vary based on activity level, climate, and overall health. A good rule of thumb is to drink when you’re thirsty and to keep a water bottle with you to sip throughout the day.

In addition to water, certain foods can help keep you hydrated. Fruits and vegetables with high water content, such as watermelon, cucumbers, oranges, and strawberries, are excellent choices. Including these in your diet not only boosts hydration but also provides essential vitamins and minerals.

While staying hydrated, it’s also important to avoid certain activities and habits that can lead to dehydration. Caffeine and alcohol are diuretics, which means they increase urine production and can contribute to fluid loss. Limit these beverages, especially during hot weather. Additionally, avoid excessive sun exposure without proper protection. If you’re spending time outdoors, wear light, breathable clothing, and take breaks in the shade.

To wrap up, staying hydrated is vital for maintaining health, especially during the summer heat. Drink plenty of water, eat water-rich foods, and be mindful of activities and beverages that can dehydrate you. By taking these simple steps, you can enjoy the summer safely and healthily. Remember, your body thrives on water, so keep sipping and stay cool!

‘You have to sustain it, to maintain it’

Victoria Bannister
ICM Health Ambassador

Have a question?  Contact us here

Challenging the status quo of the Canadian investment industry.

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