All you can eat

First up, a note from Allison. I think she saw my name and email addy scrawled on a washroom wall in one of those sleazy Queen Street West hip-hop joints:

“Hi Garth: I see that you are highly recommended. I’m 33 and I have about 10-15k I want to invest.  I don’t know anything about anything, but I would really love to have financial freedom in my 40s. Interested in helping me?”

Sigh. There are no words. Financial freedom in a decade, starting with ten grand. And I bet she has two degrees. Advice for this lost chick in a few minutes. First, the big news…

The Canadian dollar’s been beavered again as the US currency surges. Nope, it wasn’t solely that workmanlike speech by Trump, but rather electrifying remarks by Federal Reserve dudes with a simple message: get ready. Rates are going up. Like, immediately.

A week ago the odds of a pre-emptive Fed strike on March 15th were a forgettable 20%. By mid-day Monday they has looped higher to 50%. By the time Trump took the podium in Congress, they were approaching 70%. So what looked like a decided long shot days ago now appears a virtual certainty (at least markets believe it to be so). And if the central bank jacks the cost of money in two weeks, just three months after the last one, then the odds of three rate hikes in 2017 is a decided possibility.

Remember what this pathetic blog has said about having a fifth of your portfolio in US$-denominated assets? Hope you listened.

So what’s going on? Why the sudden rush in monetary policy?

In a few words, Trump’s changed everything. Look at the triple-digit, all-you-can-eat romp for stocks on Wednesday. Gone are the last eight years of low-rate, low-inflation, low-growth, low-T, slow recovery plodding, replaced now with hyperventilating, braggadocio, alpha-male swagger. Tax cuts, infrastructure spending, military surge, border tariffs, America-first – it’s all catnip to investors who see more growth, more profits, more jobs and wealth. (The Dow just blew past 21,000 for the first time.) For the central bankers, it spells stimulus, expansion and inflation, which means they feel compelled to control it.

And they will. Starting, it seems, March 15th.

Says NY Fed boss William Dudley: a rate hike soon “has become a lot more compelling,” since Trump. Says SF Fed head John Williams: “I personally don’t see any need to delay raising rates. In my view, a rate increase is very much on the table for serious consideration at our March meeting.” Says Phill Fed chief Patrick Harker: “Three rate hikes this year.” This is about as definitive as these guys get. So in response there’s been big selling in the bond market, with prices falling and yields rising. Meanwhile stocks are swelling at the same time, since rising rates mean economic strength – a fact being reflected in the muscular greenback.

So where are we in this vat of Yankee testosterone?

The Bank of Canada on Wednesday left interest rates pat, citing economic headwinds, fears of Trump-induced trade barriers and tepid growth. The loonie slumped beneath the 75-cent mark, even as Bay Street stocks rocked higher. Lying ahead (in two weeks) you can probably count on a sliding Canadian currency, rising bond yields and upward pressure on fixed-rate mortgages. If the POTUS follow through with his rhetoric of Tuesday night, then we might also be staring at the dreaded Border Adjustment Tax in the months ahead, seriously bad news for the vital export sector.

And what are the people around you doing in the face of rising rates, a falling dollar, trade tussles, torpid growth and tougher taxes? Collecting windfall gains from inflated real estate and shifting prudently into strengthening financial assets? Nah, not a chance. They’re addicted to the little blue dots on realtor.ca, dreaming of elephantine mortgages and seductive caesarstone counters or, like Allison, looking forward to financial freedom because she’s, well, special.

Did I ever mention this won’t end well?

Listen, kid, you’ve a better chance of landing Evan Spiegel than you do of retiring in your forties (although that would solve everything). Investing and wealth accumulation takes decades, not years. The best chance any young person with ten or 15 thousand has of sustained success is to dump it all into a TFSA, then find $100 a week more to add into the plan, investing it in the GreaterFool Approved ® mix of exchange-traded funds. That means a 60% growth component (by thirds, in Canada US and international, including some REITs) and 40% safe stuff (half in preferreds, the rest divided between government & corporate bonds).

Invest it. Forget it. Add more faithfully. Touch nothing. By your mid-forties you should have $136,000.

If that’s not enough, try this: [email protected].