Eitan’s Coffee: Not Too Hot… Not Too Cold…

Eitan’s Coffee: Not Too Hot… Not Too Cold…
They say that the optimal temperature for brewing coffee is 92°C. And, 60°C is the optimal temperature for consuming coffee (according to me).

I made this image using ChatGPT’s Dall-E – AI Image generator – cool!!

I like to consume my (60°C) coffee over a long period of time; I don’t drink it right away. So, how do I keep it warm? Well, making sure the heat/fire is just right.

Let’s assume that the economy is a big pot of coffee…

A stable economy, if equating it to a large pot of (mmm-mmm good) coffee, would have a warm and consistent temperature. Perfect for sipping 🙂 Or on the economy side, a stable and predictive outlook.

If the coffee gets too cold, we could put a few logs on the fire to increase the heat. If the fire gets too hot and the coffee is in danger of burning, we could spread the logs out and let the fire die down a bit (gosh, I love making fires when camping). There is a sort of equilibrium here with just logs.

But then BANG, Covid happened. 

❄️❄️ A deep freeze swept over the fire and coffee pot. Our coffee was going to get too cold to drink…

Do you remember the first few days of Covid when … we were all at home? The economy was in shambles! There was panic and massive uncertainty. So, what did the government do…?

🪵 The government added fuel to the fire 🔥 to increase the heat.
⛽️ They added gas! ☄️ They added a fireball! 🧨 They even threw in some dynamite.
(I looked for more emojis but this is all I could find) 

Everything the government did was to increase the heat to keep coffee at 60°C.

Economically, governments slashed interest rates, introduced quantitative easing, gave out free money to Canadians (CERB) and Canadian companies (CEWS), introduced freezes on all sorts of payments, and so much more. Canada’s financial response can be found here.

Did governments go overboard with their response to Covid? I’m not one to make that call.

However, the issue is that we have not had a global pandemic since 1918 (Spanish Flu) and most importantly, never in a globalized world. Whether I agree or disagree with policies, I don’t blame governments for their response! We have no idea what would have happened if other solutions were enacted. Notwithstanding, the general consensus, in hindsight, is that interest rates were left too low for too long.OK, so back to coffee and the economy… We now have more wood🪵🪵, gas⛽️, a fireball☄️, dynamite🧨, and a few lightning bolts ⚡️ (the war in Ukraine and China/West’s decoupling) and our fire is hot 🔥! Our coffee might start to burn. 

Inflation speeds up!💧 In comes some water to tame the fire… The government starts to increase interest rates slightly.😎 All the while it’s getting warmer outside. The fire doesn’t have to work as hard to keep the coffee warm. Economically, we’re at full employment and demand for labour (specifically high-paying jobs) is skyrocketing.💦 In comes more water on the fire to put parts of it out. The government introduces the fastest increase in interest rates in history!😎 It’s not enough… It’s still warm outside and wages are increasing. Inflation is peaking.The problem is that our fire was created with wood, gas, fireballs, lightning, and some dynamite.  And the weather is now hot and fanning the flames.So the government introduces more rate hikes ☃️ (variable rate increases) and quantitative tightening 🌊 (fixed rate increases) to try and force a too-strong economy to settle down.🥶 The worry is that the government will go too far to squelch the fire and freeze our coffee while doing so. Economically, we’re scared of a hard landing and a potential recession. 

So, what’s the point Eitan?We now have an economy that has been attacked, viciously attacked, by so many competing forces. It started with Covid and governments’ responses, and continues with: deglobalization, China’s seeming ambition to upend the US, the West’s response to China, the war in Ukraine, Trumps America First policy (Biden has continued), and … more!

Seemingly small circumstances or incidents around the world are now having overweighted impacts on our economy. Think about this for a moment… a medium(ish) bank in the US, Silicon Valley Bank (SVB), went under due to a run on its deposits because of a (true) rumour that they were over leveraged. It happened within a week!

SVB bank’s value ~$15B, compared to RBC ~$125B, BMO ~$115B, and Canadian Western Bank ~$25BAnd, the SVB bank collapse had huge implications for the debt markets. 

Canadian mortgage rates plunged for a month because of the collapse.The point here is that we no longer have an economy built on fire created by logs. The equilibrium we talked about earlier is extremely hard to meet. A small bit of new wood for the fire could interact with the gas, or be doused by water… it’s impossible to tell.There’s a whole lot more affecting us, and seemingly small economic issues half a world away, can affect us quite greatly. Uncertainty is here to stay for a while. Anyone who thinks they know what is going to happen., or has answers, would be right or wrong, depending on unforeseen circumstances. I.E., they have no idea… 

🙄

SO HERE’S THE POINT… with most things financial at this time, I would choose to go with certainty.

For many,

 it means going with a fixed rate as opposed to a variable rate. For all of us, it means trying to minimize “what could go wrong,” and focus on what we have control over.

I hope you enjoyed my analogy 🙂

MONEY WORRIES – What Many Are Thinking About

If you’re worried about your finances, you are not alone.

We are in very strange and uncertain economic times, and for those who have to renew their mortgages this year at double or triple their current rate, or for people who have variable rate mortgages, finances are on your mind!

And yes, inflation has affected almost all of our bills. You don’t need to have mortgage worries to worry about your finances. 

Worrying doesn’t usually result in a solution. Actions and planning does.

If you’re feeling worried or uncomfortable about your finances, I could suggest to start with identifying the reason why you’re worried.

• Is your income insufficient to pay for your lifestyle? 
• Do you think you have an impending layoff?
• Are your debts piling up and you have a lot of bills to pay?
• Do you feel like you’re not saving enough for retirement?
• And so many more…

Once you’ve identified your worry reason(s), you can start to consider solutions.

If it’s budgeting you’re looking for, we’ve created a fantastic budgeting tool for anyone who wants it. Ask us for it here.

If you’re feeling overwhelmed, outline a few small steps to take. When considering a budget, my advice would be to download the last 3 months of your credit card and bank statements, add up all of your expenses in categories, and then divide each one by three to get a good average. If you see yourself spending too much on “Eating out” for instance, you might be able to know where to cut.

If you feel like you need professional assistance to help you cope, or you know someone else who might need it, don’t wait and don’t let them wait. Reach out to family doctors, the emergency health centre, a licensed therapist, or a trusted friend.

There’s no shame in asking for help if you feel so overwhelmed that your mental health is suffering. Talking to a friend could make all of the difference in the world!

With warmest regards, Eitan