Suncor Energy Inc T.SU

Hang on to our Hats

[Experienced]

The market action and pursuit of new highs has been predicated on two major themes.


1...The US Fed would continue to be accommodative by keeping interest rates low and also through the continuing purchase in the Open Market of US deficit financing.

2...the democrats would continue to pump trillions into the US economy and that money would go to the stock market because interest rates would continue to be very low.

Last week, The Fed Chairman said "Not so fast".  The Fed will stop buying US Government debt by the end of next March and then would start increasing interest rates through 2 or 3 rate hikes.  The market absorbed The Fed policy change with thought that even with a hike of say 75 basis points, interest rates would still be so low that the expected trillions in Government spending would still find a home in the stock market.

Today, Joe Manchin said he would not support the Biden Build Back Better proposal which would have pumped trillions into the US economy over the next 10 years.  So in effect those trillions of stimulus are off the table for now.

This combined with The Fed action last weeks, for intents and purposes means that "the party is over".....higher interest rates and no money.  Will be interesting to see how the market reacts, but a safe bet would be not well.

Lack of fiscal stimulus of this magnitude, as any first Economic student would know means less demand in the economy, lower prices and higher unemployment.  In simple terms, commodity prices such as oil are likely to fall as well as the whole market.  Businesses that are highly levered and in debt will suffer from lower demand and higher borrowing costs.

So hang to your hats,things could get rough for the next while depending on how this all plays out and whether the Democrats can pull a rabbit out of the hat and find a way to buy off Manchin.

[Bigbear7405]

Watch it will be one interest rate hike and then pause for a year. The fed will say something like we want to see how this .25 percent hike will work its way into the system. So we will pause for now.

[bigbear4511]

Omicron will also cause them to delay many of the hikes.  Once again its a wait and see.

[Experienced]

That's quite possible.  They have done that many times before. Seems like there is lots more than usual to digest these days in terms of making investment decisions.  That said, my spidey sense is feeling a lot like it was in mid 2006 and early 2007 before all H broke lose.

[bigbear4511]

I feel 2008 was a manufatured collapse.  They were raising way to quickly.   After 2008 it took them so long to raise .25%.  Almost ten years or so.   Yes it is hard to predict. One or two base point raises should take a bit of froth of this economy to a more balanced economy.

[Experienced]

Interesting point. Here's my take. I will be the first to admit that I was not as smart as the guys on "The Big Short".  But I did it see it coming.  The big clue was the leverage ratios of the big banks in the US.  They were in excess of 30X.  I remember being in a meeting where there was a major Income Fund manager giving a presentation before things went

[Chad123]

Bring it on....Canadians deserve what they asked for.

[bigbear4511]

Those are good points.  I get your rational. In Dec 1998 Fed rates were 4.07% then raised them to 6.45% which cause the crash.  Rates fell to one percent by 2004.  In three years they increased back to 5.5% which cause the crash of 2008.  Then the fed rate went to zero for 7 years.  They got to 2.4% before back to zero which is were we are now. .  Since 1980 we never