The Bank Of Canada Wants Us All To Pay More Attention To Its Message(s)

And I think, as stewards of your family's wealth, that it is a pretty good idea.

In a speech yesterday in Victoria, BOC Governor Poloz explained that they are making significant efforts to become more transparent to all of us. This transparency is intended to build trust. That is a message in itself: trust in the institution to do the right thing.

As a natural skeptic, I am always reluctant to respect institutions, especially when in my experience they often have an ulterior motive.

Banks and financial institutions want you to be their clients (usually through their "advice" channels), but will always put their shareholders first.

As for the Bank of Canada: as participants in the Canadian economy, we are de facto shareholders because we live in the land of the $C (nicknamed "the loonie", which is never a handle that sits right with me). The BOC's mandate is to provide stability to the purchasing power that we as Canadians rely on to maintain our lifestyle. So we all have a vested interest in what it is that they are up to and why.

"And as we announced earlier this month, we are changing how we communicate about financial stability issues."

"Let me make one last point about connecting with the general public. Yes, we want people to understand our views on the economy and its prospects. But it is equally important that we get out across the country and listen to people. These two-way conversations help fill in the gaps that economic statistics leave behind".

As financial market participants, we and by extension, you (who are High Rock Private Clients) need to be aware of what is going on in the minds of the folks who are at the helm of steering the Canadian economy.

"Financial market participants trade securities based on their understanding of the economic outlook and the Bank's monetary policy. The Bank controls only one interest rate-the overnight rate- so its policy actions are transmitted to the economy through financial markets. This means that market expectations for monetary policy and the economy are embedded in market prices and interest rates. As a result, fluctuations in financial markets provide very useful signals about the future- they summarize the views of a multitude of market participants."

Financial market participants are really anyone who borrows and / or saves / invests, which is a great number of Canadian households.

"There is always a degree of uncertainty when using economic models, but these days there is a litany of things that we simply do not know. These include the degree to which uncertainty about trade policy is holding back business investment, how new guidelines for mortgage lending are affecting the housing market, and how sensitive the economy is to higher interest rates given the accumulation of debt."

"With all these uncertainties, setting monetary policy is a matter of risk management."

How many blogs or weekly videos or client conversations have you all had to listen to me or Paul go on about managing risk being our first priority. 

Friends, most of what we see in the portfolios of prospective clients are way, way over exposed to risk that they and their current advisor have little understanding of.

The Bank of Canada's message is loud and clear: pay attention to the risk that is out there (as they are doing). Prepare your household asset and investment ownership and any debt / leverage that you are carrying and consider the high levels of uncertainty prevalent in not only the Canadian economy, but the global economy as well.

Need help? 

scott@highrockcapital.ca