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Bond yields are lower on both sides of the border in recent days, but, if BofA Securities chief investment strategist Michael Hartnett is correct, this is merely a pause before a new era of inflation and higher rates takes hold.

In a research report released earlier this month, Mr. Hartnett bravely declared that 2020 marked the generational low for borrowing costs and that “the 40-year bull market in bonds is over.” This would signal a wholesale change in market leadership, not least because capital gains will become extremely scarce for bond investors and reliable sources of equity dividend income, like utilities, will underperform.

In Trading the Inflation Theme, Mr. Hartnett presents a six-part argument to defend his claims. These involve loose central bank monetary policy, bigger government that will favour Main Street over financial markets, de-globalization, organized labour, demographics and high levels of government debt.

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Central banks are clearly inflationary, keeping bond yields well below the rate of inflation. This has been enough to cause a significant spike in Canadian home prices thanks in part to rock-bottom mortgage rates. Federal Reserve chairman Jay Powell recently signaled no intention to raise interest rates until 2024, and that the Fed is willing to tolerate inflation pressures until that point.

Bigger governments, which gained popular support because of the necessary interventions of the pandemic, are another reason the strategist expects higher inflation. He expects that major federal governments will continue to be more active in their economies, supporting “workers over capitalists, nationalism over globalization, health over wealth.” This would result in higher wages and lower corporate profit margins leading to product price increases, both inflationary forces.

A BofA survey cited by the strategist found that 67 per cent of companies were planning to re-shore some operations to home countries, another potential driver of higher wages. An increase in organized labour, highlighted recently by unionizing efforts at U.S. Amazon facilities, would provide bargaining power towards higher pay.

The equity market winners in an inflationary environment would be much different than the technology and growth stock-dominated backdrop of the past decade. As such, Mr. Hartnett suggests investors focus on value investing strategies, economically sensitive sectors like industrials and consumer discretionary, inflation-protected dividend yields (companies that are able to raise prices to growth dividend payouts), and energy and materials stocks.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

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Canadian Pacific Railway Ltd. (CP-T) Canadian railway stocks have long beckoned investors because of an attractive operating environment with few competitors. Now, Canadian Pacific Railway’s proposed US$25.2-billion takeover of Kansas City Southern offers a new reason to take interest: The shares are down even as the longer-term outlook improves. David Berman takes a fresh look at the investment case for Canada’s second largest railway.

The Rundown

Mogo set to become second Canadian company offering no-commission stock trading

Digital payments provider Mogo Inc. is set to become the second Canadian company to offer no-commission stock trading as it strikes a deal to purchase online investing company Moka Financial Technologies Inc. Clare O’Hara reports.

Also see: Robinhood, at the heart of retail trading frenzy, files for own IPO

Investors face regulatory nightmare after advisers’ moves trigger big losses

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The lack of a binding dispute-resolution service for Canadian investors has long been flagged as a gap in the regulatory framework. Aggrieved investors must escalate a complaint about an adviser through multiple levels, starting with his or her employer. From there, some firms and banks will divert a complainant to an internal “ombudsman.” If still unresolved, the Ombudsman for Banking Services and Investments can conduct an independent investigation and recommend compensation. But as Tim Shufelt reports, OBSI is a toothless watchdog, relying on voluntary co-operation by dealer firms.

A seasick bond-ETF investor wonders if he’s better off with actual bonds

Medium- and longer-term bond yields have soared in 2021, depressing prices for both actual bonds and the exchange-traded funds and mutual funds that hold them. The FTSE Canada Universe Bond Index was down close to 6 per cent for the year through mid-March. This decline has a reader asking whether he’d be better off holding individual bonds rather than bond ETFs. Rob Carrick responds.

Five-year fixed big bank mortgages below 2% are going, going, gone. Five things you should know

For the first time since last summer, Canada’s major banks are all back above 2 per cent on Canada’s most popular mortgage term. If you’re a mortgage shopper and that sounds depressing, Robert McLister lays out why it shouldn’t.

Others (for subscribers)

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A stunning bull market was born one year ago. Here are the returns of every TSX Composite stock since that day

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: Billionaire businessman invests over $800,000 in this soaring stock

Tuesday’s Insider Report: Former Bank of Canada deputy governor is a buyer of this stock

What’s up in the days ahead

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Rob Carrick will be back with another instalment of the ETF Buyer’s Guide. This time around, he puts international and global equity funds under the microscope.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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