1000. has kicked off to a jumpy start as stock markets worked to digest the recent increase in government bond yields. A number of systemic and technical factors caused a sudden increase in the key global reference rates like the US 10 year treasury bond, at a velocity catching many by surprise. Canadian banks were quick to take advantage of similar moves in domestic yields with quick upward revisions in many posted mortgage rates . Despite yields and lending rates remaining very accommodative, quick moves in key rates are often unwelcomed by market participants – something we recall from the taper tantrum episode of 2013, and similarly at the end 2018. Given both prior episodes were a result of central banker attempts to taper supportive policy - with the opposite being true today - market pundits have lovingly dubbed the recent bout of yield induced volatility the “taperless tantrum”. 

Inflation has been on our radar ever since the massive stimulus announcements of 2020 were made. It is hard to imagine that injecting trillions of dollars around the globe will not weigh on the value on money in the medium to long term. The US Federal Reserve has been relatively silent despite the recent increase in bond yields, yet overall we feel the market reaction has been overdone. We note that the stock markets tend to outperform other asset classes in rising rate environments when such increases are reflective of a healthy and growing economy. Stocks have historically been an effective hedge against broad inflation as a gradually rising prices of goods and services are passed along to the benefit of corporate revenues and profits.

While rising rates in a reflationary environment can be a positive some assets, the opposite can be true for some fixed income investments, emphasizing the need for carefully managed bond selection and diversification away from traditional core bond exposure. Diversifying your portfolio with substitutes like real estate and short-term loans can be a very effective way of earning consistent income that is protected against inflation, and this is why we continue to favour these alternative income vehicles in our managed accounts.

Holistically, we are quite encouraged by the state of the recovery and the quality of recent corporate earnings. The vaccine rollout is moving faster than many predicted (at least in America) and we view this as one of the most important normalization factors of 2021. Many of the transformations initiated over the past 12 months will have lasting effects on the efficiency of business moving forward. In particular, the ‘work from home’ revolution may represent one of the most significant deflationary pressures of the coming decade as workers move to more affordable neighborhoods, saving a fortune on housing and lifestyle costs. With Spring around the corner, we are just getting warmed up.

Tax Time Approaches

As tax slips start to trickle into mailboxes, we have seen an increase in requests for information. March is usually the best time to start consolidating your information as the tax revisions from investment funds are adjusted and finalized. You can expect to have the last of your investment slips confirmed by the end of March. Please let us know if you have questions.

A great feature of our online portal my.RichardsonWealth.com is the account access that can be granted to your accountant to view your documents and tax slips. If you would like to know how to enable this access you can give us a call.

Tax time usually represents the one time of the year that we collect all our financial information together for our submission to the CRA. While you have all your documents together, now can be a great time to review your overall financial picture and see if it still aligns with your goals and plan. If you notice any material changes to your finances as you start your tax filing, please let us know so that we can update your documentation and plan if needed. These annual check-ups help us stay up-to-date and on point when it comes to helping you navigate your financial milestones.

If there have been any recent changes (or expected changes) to your financial picture, please contact us.

As a reminder, we have multiple resources available on our webpage regarding some of the recent changes to tax deductions for home offices as well as information on pandemic related Government benefits. Please visit our website for more information.
 

In the Shopping Cart: Free the Market!

MercadoLibre (MELI), literally translated as “free market” from Spanish, is a South American e-commerce/digital payments giant that operates online marketplaces, auctions and provides tools for businesses to sell products and services online. Serving over 132 million of active users, MELI is a mash up of characteristics we love about Amazon, Shopify, Ebay, Paypal and Square. With market dominance in the eighteen countries, MELI should continue grow with the needs of the aspirational South American consumer. Their growth to date has been truly impressive and we continue to see significant upside relative to the opportunity of the digital revolution currently underway. With growing aspects of fintech, advertising and web design to compliment their marketplace business, we see this 'free market' as a long term heavyweight in the future of a rapidly growing Latin America.