Interest Rates and Mortgages (1 Year Later)


We think rates will continue to go higher. Locking in your mortgage rate may be more expensive now, but not likely in 3-5 years.

A little over a year ago we blogged and reached out to our clients to lock in mortgages.  Since that time, the Bank of Canada overnight lending rate has moved from 50bps to 1.5% a move up of 200%!  We are constantly encountering people asking what to do now, with rates increasing.

5-year Bank of Canada lending rate up 200% since July 2017:

Source: Bloomberg

A 200% move over one year is likely the largest percentage move of all time, but it is still not close to “back- to-normal”.  If we go back to a normal environment we are looking at a further move of at least 100% higher.

Source: Bloomberg

For many years, the curve gravitated from 2% to 6%, with an average level of 2.87% over nearly 30 years.  We think there is a likely scenario that over time we will gravitate back into that range from our current 1.5%.

Source: Bloomberg

Ultimately the yield on bonds remains un-investable to us. The central banks in North America are currently hiking interest rates. However, in Europe and Japan, central banks are not only holding interest rates at zero, but are also buying bonds to force yields lower.  When this ends, we think we will see a much larger move higher in both bonds and interest rates.

Source: Bloomberg

Over time interest on US Government Ten Year Bonds has spent more time in the 4-7% range than under or over, we think there is a likely scenario they go back into that range.


Feel free to reach out at 647.484.3111 to chat.


Chris Stuchberry

Stuchberry Group Outlook Newsletter | Summer 2018 | Volume 7 Issue 2


The year is turning out better than anticipated and we are happy to report most investment themes are performing well in 2018.  Our strength remains to be technology investments, highlighted by Twilio, which is up over 100% year to date.  We are also witnessing great performance in Amazon, Facebook (post-hacking allegations), and Alibaba – all cloud computing companies.  Our modern portfolios are performing as planned, and year-to-date we continue to add to the tech sector as opportunities have presentated themselves. We have bought some more Tencent in Q2 and will likely add to other names if opportunities arise over the summer.

The sector struggling in the portfolio is Financials, more specifically European Financials. Deutche Bank has been our worst performing stock year-to-date – forced to fire their CEO and generally having trouble with their turnaround plan.  We also face a contradiction in global monetary policy; in the USA we have seen two interest rate hikes, but in Europe, they are actually trying to extend Quantitative Easing (forcing interest rates down).  This has caused both shares of European Financials and the euro to fall, both of which hurt our investment – it’s a perfect storm of what we don’t want.

We were surprised to see the damage done to bond yields. It is important to see just how low European bond yields are; Germany is barely 30bps, where Canada and USA are 2.10% and 2.90% respectively.  Germany is actually down 50% top-to-bottom in yields this year.  In our opinion this is not sustainable, European yields must go higher, and when they do, we will be very happy owning European Financials.

Source: Bloomberg



We think ‘sell in May and go away’ remains short sighted.  We continue to believe there is a lot of value in the market, even in the sectors with such great performance.  The secular growth trend in the interuption stocks and the digital innovators is still early.  Add the fact that these companies generally have terrific balance sheets that make them immune to rising rate environment.  As an example, when we first bought Facebook, it grew at 35% (yoy), it has grown at over 50% for nearly two years. Amazon was growing at 30% when we bought it – now it is growing at 40%. These companies have accelerated growth.

The recentpoliticial skirmishes will certainly cause short term moves in the markets, but it’s important to note how little it impacts our companies.  Tarriffs and trade war issues only affect things that are actually produced and consumed, and most of our holdings do not produce tangible goods, they are only services, and are unlikely to be affected by tarriffs.

Source: Bloomberg

We believe the market is still in the process of completing the January correction, and at 6 months long it is a proper correction in our eyes.  Looking at the chart above is what gives us optimism. This secular bull market has been led higher by technology companies, and the Nasdaq broke out to new highs in June only to correct down to the old highs. It wouldn’t be surprising to see the main markets take a few more months and join to the upside.  That said, it is very possible for the lagging markets to pull the leaders down with them, but we do not think it is as likely a scenario.  As we have said before, the economy remains strong, we don’t think the tax cuts are fully priced into markets and longer term demographics are looking very good for consumption.  We just had a 10% equity market correction, and have yet to break out higher in major markets.

Our strategy remains unchanged, and in this correction, we are going to hold much more cash than usual to prevent any kind of stress knowing we have at least a year of cashflow in client accounts.  Second, we will continue to add selectively to financials, technology and strong balance sheet stocks in order to safely navigate this transitionary period as global bond markets must normalize over the next 1-3 years.  Once complete, we should be able to safely add some income securities to enhance our cashflow.


Update on Business

  1. We have launched our new website – and added quite a bit of our content and blogs on markets. Please have a look, and give us your feedback.
  2. Our Twitter and Linkedin profiles are full of new content.
  3. Chris has taken on a more active role on BNN, doing a marketcall in June.
  4. We are in the process of rolling out Maple as a healthcare benefit for Clients who qualify.
  5. The firm continues to grow and has been recognized as one of the most successful startups in retail wealth management.


Have a great summer,

Chris, Rick, Steve, Sophia