Interest rates are at rock-bottom levels, inflation has been stagnant, and the loonie's been strong. How will these affect your investments in the coming months?
The head of Canadian Economics and Investment Strategy for Merrill Lynch Canada Inc. was tackling those questions and more of your own questions live at noon on Wednesday, July 15. Your questions and Ms. King's answers appear in the space below.
Ms. King was named head of Canadian Economics and Investment Strategy for ML Canada in May. Ms. King has been a senior U.S. economist at Merrill Lynch since 2004. Prior to joining Merrill Lynch, Ms. King worked at TD Bank Financial Group in Toronto for four years. Previously, she spent eight years at the Bank of Canada. She earned a BA in economics from Concordia University in Montreal and an MA in economics from Carleton University in Ottawa.
Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.
Gordon Edall, deputy investment editor, The Globe and Mail: Hi Sheryl. Thank you for joining us today. With all the lingering anxiety out there about the state of the economy and the markets, we appreciate you taking the time to talk with us. The questions have been piling up, and I am going to dive right in with our first question from Ken:
From Ken: Inflation has been stagnant for a long time, but I do not believe this condition will last. I suspect that central banks will be forced to raise interest rates quickly to contain inflation in about six months, and will either over-react, plunging the economy into a double dip recession, or react too late allowing double digit inflation to take hold. Either scenario is fraught with danger for investors. Looking at theses two scenarios, how would a wise investor react in either case?
Sheryl King, head of Canadian Economics and Investment Strategy for Merrill Lynch Canada: The Bank of Canada’s primary mandate is to achieve a 2 per cent target over the medium term and keep inflation between the 1 to 3 per cent band, believing that is the best way to produce maximum growth in the economy. I do not believe they will alter this objective and will move to tighten policy as spare capacity starts to become absorbed. It is admittedly a tricky situation for them not to overdo it and cause a second dip. So I think they will tread cautiously on removing stimulus, perhaps just backing off on their verbal attempts to keep long rates down, thus allowing the long end of the curve do some of the work for them.
From Carmen: When do you see inflation starting to take hold in Canada and the U.S.? What are the implications on the normal family?
Sheryl King, Merrill Lynch: I do not think that a rise in inflation is a serious possibility in either Canada or the U.S. The Bank of Canada and Federal Reserve will move policy to ensure it does not happen. They are aware that monetizing the federal debt (through inflation) would also impoverish domestic households through diminished purchasing power.
From Lyn: If the U.S. dollar is devalued as a result of the country's massive debt and quantitative easing, will the Canadian economy decouple from the downward trend in the U.S. or track it to the bottom of the economic barrel?
