CIBC Interest Rate Prediction - A.C.T.02024.01.19 The Accredited Canadian's Toolkit

I read an article today by Jennifer Dowty of the globe and mail. I’ve linked it in the show notes.

https://apple.news/AsTqUftr8R3StcKqNGFWjJA

It was an interview article of cibc economist Benjamin tal. Of interest he said the only reason we are not in recession is because GDP growth is being propped up by population growth. I found this funny because it’s this very population growth that is making negative headlines right now about how we need to restrict newcomers to Canada. I hope it is apparent that since immigration only thing keeping our economy from contracting, restricting immigration is the wrong approach. Most people would agree that growth of the economy is a good thing, and the fact is we need people to make that happen so rather than curtailing immigration, we should be building infrastructure to support it. Anyway, one of the first things Benjamin Tal talked about was a rally in the bond market, and how he thinks it has come too early. Higher bond prices means lower bond yields. This means lower bond interest rates are expected by the bond market. If Mr Tal is right, interest rates will remain high for the next six months with central bank cuts starting mid 2024. He predicts very low growth to Canada’s economy in the coming year.





I thought it was interesting that he mentioned the bond market because I have come to understand that the bond market is the leading indicator of all things in the financial system. If you could decipher what the bond market activity means, you know what’s coming next. I think that is because the sentiment of bond traders eventually becomes a self-fulfilling prophecy. The bond market is the largest market in the world. it dwarfs the stock market, and indeed the economies of most countries. The global bond market is 133 trillion. The size US bond market, the largest economy in the world, is 50 trillion. Compare that to other common financial metrics like US debt of 34 trillion, and the US GDP of 23 trillion and you see that bond markets are the biggest, biggest and most important part of our financial system. Bond markets are a reflection of how we choose to interact with each other, so I find it interesting how little bonds are talked about and how misunderstood and misinterpreted bonds are by many people, including me. I struggle to understand how the bond market actually works but I’ll share my findings below. I welcome any comments on this, so please reach out to me because I’d love to learn more about this.

This is a bit of a tangent, but I believe it’s worth saying. I think of the behaviour of the people that make up the bond market as the first mover. Whether there is no bond market activity and no availability of debt, prices and economic activity are low. When people invest in debt, economic activity rises. Similar to how having a positive mindset will generally lead to positive results. If you have hope for the future, then you will take actions today that may cascade into positive results. If you fear a bleak future, you will not take those initial actions. This is a tangent, but I think about how human agriculture was such a turning point in our evolution. The neighbours of those early farmers must’ve thought they were crazy, sacrificing today’s food in the hopes to yield more in the future. In cursory google searching I found some crops are much higher yielding than others. For instance, some US sources site that the average amount of seeds of corn planted per acre is approximately 30,000. 30,000 plants will produce one or two ears each. Each ear of corn has approximately 600 seeds. Ignoring all other inputs This means that nature allows us to turn 30,000 seeds into up to 36 million. 600 to 1200 seeds for each corn seed planted means the return on investment 60,000%. with yields like that it’s no wonder that we have corn in virtually every processed food, and even added to gasoline. Of course, not every seed you plant will ger