If the Globe and Mail says it, it has to be true. Commenting
on the day's increase in the prime lending rate, the Globe ran a piece
outlining how Canada's Big Banks were sure to profit from this. In
effect, this widens the gap between what it costs the bank to get money in,
and what it can charge for lending it out. Ca-Ching!
All is not endlessly rosy, however. What happens when those higher
rates make it more difficult for people to borrow, so that the demand for loans
goes down. More worrisome still, does this rise not mean there might
be a higher rate of (mortgage) defaults, as well. Banks have to make room
for that eventuality, as well. In the short term, however, looks good for the
Big Five.
There have been warnings from American Bankers in our curent inflationary
situation. The American Fed started today practicing quantitative restriction.
If Central Bankers were buying up huge quantities of bonds during the pandemic,
thye have just started divesting themselves of what they have on the books.
So not only is the stock market looking less attractive, but the bond market might
be as well.
Let's be clear here: tripleA countries like Canada will still find buyers for whatever
bonds they care to emit. But oops, rates are suddenly higher so they will have to offer
more inerest, and will be hampered in having to pay more for the accumulated debt they
are servicing.
Hoping that dental plan still gets through...
* * *
Finally figured out what the difference is between a registered and an unregistered
account at the Bank. It has to do with taxes. Whatever money we put aside, and the inerest
that is generated in registed accounts such as a Tax_Free_Savings_Account will remain
untaxed (unless ne goes over one's yearly allotment). if one plays from unregistered
accounts,not so. Interestingly, interest is always taxed in this circumstance, but a capital gain is
tax free for the first 50% of the gain.
Should I buy Bank stock. That would rock my banker!! 🧓
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