Investment Planning - What if Conventional Wisdom is Wrong?

Terri Williams, CFP

Investment Planning – What if Conventional Wisdom is Wrong?

By Terri Williams

According to Dr. Jack Mintz, who spoke at last week’s Distinguished Advisor Conference (DAC), the global economy faces a very uncertain future because of the impact of the pandemic induced supply shock. 

“This is a very different type of recession,” he said.  In the past we had fiscal monetary policy to help us out of a recession and expand the demand for goods and services. But supply shock has impacted a number of economic drivers differently this time.  “We are going to have to adjust our assumptions going forward,” Dr. Mintz says.

These economic drivers include:

• Inflation: Inflation is becoming a concern with rates already getting close to 3%. Dr. Mintz says it is expected that the inflation rate could get to 4% by the end of December of this year.  Why? Demand is outstripping supply.  People have pent up cash to spend but there are supply shortages due to supply chain disruptions and the labour shortage.  Part-timer workers are making more on CERB than working and there has been a significant reduction in immigration.  Plus, those over 55 are retiring earlier than planned.  The employment participation rate has fallen. Those willing and able to work has declined.  Dr. Mintz doubts the inflation rate will come back to the typical 2% in the next few years.
• Monetary policy: Higher interest rates will impact on bond and housing markets. Interest rates remain low now but household debt as a share of GDP is still high. Canadians are taking on extraordinary debt to buy homes and higher interest rates are a major risk to them going forward.
• Energy policy: Much change lies ahead but with frequent energy crises and high costs.
• Urban development: With more working from home and fewer people wanting to work and live in cities, this will impact the downtown cores, commercial real estate, retail trade and public transit.  These industries will not be the same after the pandemic. 
• Fiscal policy: Will the government attempt to tame deficits or fulfill their promises for new social programs?
• Tax policy: The government will be looking for ways to increase revenue and will likely target the wealthy (including corporations) with taxes that impact them the most.

Dr. Mintz points out that much has changed since the pandemic started.  “The next decade won’t be the same as the last,” he said.

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