September 25, 2022

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Kyle Prevost, editor of the Million Dollar Journey and founder of the Canadian Financial Summit, shares financial headlines and provides context for Canadian investors.

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Now we’re all Volker-ian

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Paul Volcker is generally credited as the man who “broke the inflation back” as governor of the US Federal Reserve in the 1970s. I think his name gets Googled quite often these days, because market and investor sentiment is heavily influenced by inflationary concerns.

In the same way that earlier debates about Keynesian fiscal policy ideas seem to be conclusively agreed upon by governments around the world, Volcker’s single-minded determination to use contractionary monetary policy to pull down price inflation Resolution has become a dominant approach.

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Due to the fact that the Fed remains committed to fighting inflation at all costs, it’s no surprise that markets reacted strongly — and negatively — when the news came, according to the Bureau of Labor Statistics’ CPI report. was increased by 0.1%. August and 8.3% year-over-year.

While 0.1% may not seem that significant, it is more than the slight decrease that was widely expected. Even with the gasoline index falling 10.6%, the cost of food, shelter and medical care had increased significantly.

Both fixed-income and equity markets reacted strongly, with the S&P 500 index falling 4.3% – its biggest drop since the panic of the pandemic. Interest-sensitive tech companies on the NASDAQ also experienced a 5.2% drop. Professionals who are valuing assets right now are looking at these inflation numbers, as well as Fed Chair Jerome Powell’s rhetoric, and are concluding that interest rate hikes may be more drastic than previously thought.

Source: Financial Times

Meanwhile, the U.S. Treasury immediately escalated sharply in anticipation of the same “higher, faster, and longer” interest rate forecasts.

Source: Financial Times

While there is still some debate over the extent to which painful interest rates are needed to fight inflation, it appears that for now, Volker-Ian is firmly in the driver’s seat.

MoneySense’s ETF Finder Tool Use Tool Oracle’s Foresight Did a Better Job on Revenue Than on Profits

Oracle (ORCL/NYSE) had major earnings story south of the range this week. The company reported adjusted earnings per share of USD$1.03 (versus USD$1.07 forecast). Revenue was more upbeat at $11.45 billion estimated by analysts, and up 18% on a year-over-year basis.

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Investors didn’t take the news too hard, as shares were down just 1.35% on Tuesday (far below the average loss for the day for the S&P 500 company).

Oracle announced the closure of its $28 billion acquisition of health data software maker Cerner. It shows how much bigger the US market is than our humble Canadian market that a company the size of Barrick Gold (or triple the market cap of Canadian Tire) can be acquired. And it hardly moves the needle when it comes to investment headlines.

Oracle co-founder, chair, and tech chief Larry Ellison took a direct hit at Amazon’s profitable cloud business, saying, “I’m personally talking to some of Amazon’s most well-known brands that are running on AWS. [Amazon Web Services], And the AWS bill is getting huge. And they can save huge amount by going to OCI [Oracle Cloud Infrastructure], And I expect some of the brands we’ll announce next quarter, some companies moving from Amazon to OCI that will surprise you. I’ll stop there.”

Earnings in Canadian markets were not fully known this week, although classic Canadian brand Roots posted mixed news on Tuesday.

If your glass is half full, you’d say Roots’ total sales were up more than 20% year-over-year. If you’re more of the half-blank type, you might be more inclined to point out that the company lost CAD$3.2 million (CAD$1.2 million for the prior year’s quarter).

Overall, Roots believes it’s on track for the all-important holiday shopping season, and won’t be forced to mark down inventory as aggressively as other retailers.

Guardian and Milevsky team up to beat retirement income concerns?

In Canadian Personal Finance News, Professor Moshe A. Milevsky teamed up with Guardian Capital LP to create a new product aimed at Canada’s recent and soon to retire.

I first met Dr. Milewski while researching options in the Canadian annuity world. He is widely known for his extensive work in retirement solutions for Canadian investors such as tontins and annuities. So, what exactly came up with these two? Guardian LP has made three products:

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Guardpath Managed Deccumulation 2042 Fund: It seeks to provide attractive and stable cash flow over a period of 20 years through sophisticated risk management techniques with an aim to enhance the longevity of the portfolio. Guardpath Modern Tontin 2042 Trust: It aims to provide significant payouts to surviving unitholders over 20 years based on compounding growth and pooling of survivor credits. Hybrid Tontin Series: It perfectly combines the strengths of GuardPath Managed Deccumulation and GuardPath Modern Tontin to provide a holistic solution for retirement.

Let’s look at an example of my favorite option: the Hybrid Tontin series. Guardian Capital provides a free calculator for use on their site.

Source: Guardian Capital

So, this calculator is saying that if you invested $100,000 in this product today (and must have been born between January 1, 1957 and December 31, 1961) to be eligible, then Guardian Capital estimates that you will receive an income of Rs. Will receive $6,500 in distribution. Then, if you haven’t been to the “great tax haven in the sky” until 20 years after you made the investment, you’ll be eligible to receive a one-time “tontin” payment. In this example case, you would receive $81,783 at a time in your life when many Canadians are concerned about increased expenses.

When I asked Guardian Capital about the assumptions behind their returns, they said, “Guardian assumptions are, in our view, based on sound actuarial principles and a conservative market outlook.”

I believe this is a fair assessment. To be honest, the combination of actuarial math and investment return probabilities is pretty complicated math to investigate. Personally, I think it’s worth a look for investors, though, especially if they want to ease their mind when it comes to longevity risk (getting out of their nest egg), as well as anyone else. The comfort of managing your money in a responsible way.

A quick note for those interested in this unique product. The Series A version of the fund has a management fee of 1.35% while the Series F version has a management fee of 0.60%.

This is a huge difference worth investigating.

want to know more? MoneySense columnist Jonathan Chevreau is working on a Tontin feature. stay tuned.

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Money doesn’t buy happiness… but it certainly has a high correlation

Our friends at Visual Capitalist are back this week, showing the relationship between the country’s average wealth per resident (data courtesy of Credit Suisse).

You can clearly see that having a high level of average wealth does not guarantee the highest level of happiness, it appears to be a kind of prerequisite. I’m no graph expert, but that best fit line would be pretty strongly angled up and to the right.

Source: Visual Capitalist

While a country in general may be happier when it is wealthy, we see some interesting associations in the data.

For example, while the Czech Republic and Lebanon are quite close in terms of average wealth, there is a huge difference in happiness levels. Similarly, Hong Kong SAR (Special Administrative Region) is one of the wealthiest regions in the world, but residents’ happiness levels lag far behind Denmark and Sweden. Clearly, the political turmoil that Lebanon and Hong Kong have experienced over the years has largely stemmed from residents’ happiness.

I also found it interesting that Asian economic superpowers South Korea and Japan found themselves with slightly lower happiness levels than Brazil, while net worth is 25 times higher. And Brazil is one of the least equal countries in the world, as measured by the Gini coefficient: believed to be a serious negative when it comes to overall happiness. There is obviously a cultural element to happiness in addition to financial factors.

Since we all know that lists and rankings are essential to national pride, we can proudly note that Canada scored very high on both the measure of wealth and happiness, with a happiness score of 7.0 and an average per adult. The property is $125,688.

Go to Canada, go!

Kyle Prevost is a financial educator, author, and speaker. When he’s not on the basketball court or trying to recapture his youth in the boxing ring, you can see him helping Canadians at and the Canadian Financial Summit.

The post Making Sense of Markets This Week: 18 September First appeared on MoneySense.

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