Episode 8: Ali Jaffery – The Canadian Ledger

 

[Speakers: Jeff Van Der Maden and Ali Jaffrey]

 

Jeff:

00:00:02,149 --> 00:00:07,705

Ali, I imagine there's no shortage of headlines and data releases to keep you busy these days. How are you managing through all this?

 

 

Ali:

00:00:10,808 --> 00:00:13,081

It's been fun, know, this is what we live for. uh You know, sometimes it's not too exciting to be an economist and sometimes it is. And this is one of those good times I'd say. We're busy in demand.

 

Jeff:

Yeah, yeah, I bet. Well, let's dive in. ah Obviously, the Republicans have taken the if out of tariffs this year, levying a diverse range of tariffs against countries around the world. And based on pre-election campaigning by the Republicans, I don't think any of us were

really caught off guard with the installation of tariffs. ah What did catch most people off guard was the nature in which they were communicated and implemented. Given the chaos that has ensued since Liberation Day and the fluidity of this topic, let's bypass summarizing tariff rates and the stage of negotiations at the global level. And why don't we focus solely on how Canada is being impacted by these levies? So Ali, can you summarize the current US-Canada tariff environment? And can you also give us your perspective on what the end game might be here?

 

Ali:

00:01:17,914 --> 00:01:20,206

ah That's a great question, Jeff. So Canada right now is facing a range of sectoral tariffs, so tariffs on specific industries. So key amongst them is the auto sector is facing a 25 % tariff on non-US content, although there been some rebates there. ah And parts are so far exempt. ah That's still being thought about though. uh Steel and aluminum is facing a 25 % tariff and lumber is likely to be tariffed at

another 25%. And there's debate about pharmaceutical tariffs and semiconductors, which would very modestly, if at all, impact Canada. And also amidst all of that is everything else that is not compliant with USMCA, the trade agreement we have with the United States. is subject to a 25 % tariff on national security grounds. now, that, that a majority of US-Canada trade should be compliant. And it's just a matter of importers in the United States doing the proper paperwork and that's aggressively being ratcheted up. So overall, you know, we have kind of like a mismatch hodgepodge of tariffs facing Canada, which is still significant. It's not immaterial. Steel, aluminum, the auto sector are obviously very plugged into the US to trade with the US. So they're very exposed to the US economy. And we think that the impact of this range of tariffs, if it's permanent, and I know and I'll get to that. I know that's the big question of what's the end game would be material to that. It would be around one and one and a half to 2 % of GDP over the long run. uh Which could really put a dent in Canada's economy, not something that we can't solve per se, but we would take some fiscal and monetary firepower along with some structural reforms to support the Canadian economy through that period. uh And there could be some material job losses from this over the long run, over 100,000 jobs relative to a world where we didn't have tariffs. that would be 0.2 to 0.4 percentage points higher on the unemployment rate in that instance as well.

 

Now is this the end game? Hopefully not. The good news is that Canada, when you look at relative to other countries, actually the

average tariff rate in Canada is lower than other countries. We're at around 5 to 7 % average effective tariff rate, whereas the baseline elsewhere is 10%. And Prime Minister Carney had a very constructive meeting, it seemed, with with President Trump and his team. And they're going to press them on the auto sector. And I think that as you start to see these tariffs fully roll out in the United States and inventories become slimmer in the US uh and businesses have to pass these costs on and disruptions start to ensue, there might be more amenable to dialing down tariffs on Canada. So I wouldn't be shocked. if you know in the next six months hopefully sooner that we get a bit more reprieve on

some of the tariffs but I would be also surprised if we ended this with no tariffs I don't I think that's unlikely but you know another another thing to keep in mind here is uh the midterms United States are in November 2026 I know that's a feels like long long time away but the coinciding with that is the USMCA renegotiation. The USMCA deal needs to be reviewed uh beginning July of 2026. And there needs to be a tripartite agreement between the three countries for it to continue by the end of 2026. So let's suppose that the Trump administration isn't doing too well in the polls. The tariff strategy isn't working. uh Maybe USMCA would be an easy win for them. So it's not a clean road, right? Because the timeline of that is very supportive to Canada. ah So I can see opportunities for Canada, but that really depends on how the

administration manages itself from here to from where we are now till then. ah But I think there's some hope that we'll be in a, if not slightly better to moderately better situation than we are now.

 

Les:

00:06:02,676 --> 00:06:06,908

Ali, that's really a terrific summary of where we're at now. There's clearly a lot of uncertainty, as you just said. It's not a clean road. uh USMCA, what is the exact end game? Will those sectors that you mentioned get a reprieve or not? lot of uncertainty. Yeah, I guess that makes it exciting for economists, and we're happy for you if you're in

demand like that. Canadians are used to uncertainty when it comes to the hockey playoffs, which are on now. We never know if a Canadian team is going to win the cup this year finally. But what does all this uncertainty mean for our economy, the Canadian economy? If you could look out, say, over the next 12 months, so the fairly short term, what is all this mean? The new tariffs, the uncertainty, how it will all uh unfold.

What are some of the strengths, weaknesses and question marks in the Canadian economy that you see?

 

Ali:

00:07:17,882 --> 00:07:24,948

So uh we can even just start with what the data has told us so far. The labor market, the labor data that we got last week showed a job market that is already struggling a lot. uh If we didn't have the election in April and this subsequent hiring that ensues that

comes with the election, the unemployment rate would be 7 % right uh now. Just for context for the listeners. A healthy unemployment rate, know, what we call the natural, the kind of the long run unemployment rate, natural rate of unemployment. It's usually, you know, for Canada, we estimates around 6%, little above 6%. So we're quite a ways away from there. uh And we expect that the economy in this quarter, Q2, will contract by, you know, minus one and a half percent annualized. And that's not a small thing. So the pain from that uncertainty shock, is going to start to show up very quickly. uh And I've heard it from many, many firms as well that I talked to that even those that are unaffected, that either that are covered by USMCA or not even uh trade intensive firms, that they're pausing hiring, pausing investment and wanting to see how the Canada-US relationship will unfold, wanting to see what the Bank of Canada will do. wanted to see what the outcome of the election will be and what fiscal policy would look like. So Canadian businesses are on hold and that's going to show up in the data in Q2 and in

Q3. So right now our forecast is, as I mentioned, a contraction in Q2. We think growth will pick up again in Q3 and on the hope, and it's right now just to hope that trade tension in Canada and US will be dialed down a little bit by the summer. ah But even then we expect fairly weak growth and overall 2025 will be, we think growth around 1%. So very soft year, slack opening up and subdued inflation as well. So that uncertainty shock is about half of that one and a half to 2 % hit that I mentioned

from the tariffs. So the direct impact of the tariffs is not only half of that as we estimate. So the uncertainty part is very, very big. So it's like we're all Leafs fans now.

 

Les:

00:09:44,409 --> 00:09:45,532

Really? So, okay, that's a little tough for some of us who come from Montreal to accept the part about the leafs. Are there any strengths that you see in the Canadian economy? Anything that can help us kind of, you know, hold the line a little bit? Or does the uncertainty really affect all sectors of our economy?

 

Ali:

00:10:17,026 --> 00:10:19,928

So I think that there's a couple of things. So yes, the short run is going to be a bit challenging, but you know, what you're seeing with the Trump administration being a bit more methodical, you know, a little less aggressive, amenable to negotiation and trying to have kind of a rapprochement, a détente of trade tensions globally. It's going to be good because that's going to change the headlines. You know, then we might see stability there and that will help Canadian businesses. you know, a bit more at ease that maybe we're out of the crossfires, maybe trade policy in United States is going to stabilize soon. And that will help the Canadian consumer too, I think, over time. uh You know, we will see some stability there, hopefully. We're headed in the right direction, clearly. uh And also on the other side, I think what we can do, I think policymakers are going to step up to the challenge. We expect the Bank of Canada to ease rates in June and and likely in July as well. ah Although, you that'll depend a lot on the near term data. So that's not guaranteed. But just looking at the labor market response, I think they're very strong odds that they

do that. And, you know, obviously we have a new federal government and their budget will be coming out soon, probably in a month or a bit more in and around that timeline. And I would expect that they would appropriately respond to, you know, given the weakness in the economy we're seeing in Q2 that They'll pivot a little bit from their plans and provide more fiscal support. And all of that will help Canada get through this ah in the short run. And if we kind of think about the long run a little bit, ah we still have a lower effective tariff rate than other jurisdictions. And we likely will uh at the end of all of this. uh And there's a real push to improve investment in Canada. know, a range of structural reforms are be talking about in this country on, you know,

boosting housing, boosting productivity, supporting inter-provincial trade. And I think, you know, doing all of these things is going to create a brighter outlook for Canada over the medium term. And I'm excited that, you know, we're having that conversation across the country.

 

Jeff:

00:12:51,409 --> 00:12:55,562

here So Ali just in closing here. I know everyone in Canada has an idea of what should be done for our economy from our new prime minister down to the corner store grocer But Ali if you had a magic wand what are three things you would do to help the Canadian economy prosper from here on in?

 

Ali:

00:13:19,130 --> 00:13:24,251

So the first thing is what I mentioned is we need to plug the hole from tariffs and the uncertainty. That's definitely the first thing I would do. ah Second thing I think is housing. And there was political consensus on that housing is really weighs on productivity in our economy by boosting the cost of land and making it difficult ah to engage in a range of uh projects, including infrastructure. So I think And affordability crises impact consumption and investment more broadly, I think. And there's some research that shows that ah that's happening not just in Canada, but in a range of economies. So we really have to put the energy into fixing our housing problem, ah both in thinking in terms of, yes, we need to increase the supply of homes, certainly. But that's really hard to do. Many governments have tried to do that. And it's a long process and a cross jurisdictional challenge. But also, you're going to think about the demand part of that, which might be a little bit

easier. And I think a sensible and stable immigration policy is a big part to fixing housing. uh And we've had very strong, obviously, immigration growth in the recent period. But even when you kind of zoom out, Canada has had above average population growth even

before that. And so maybe a kind of a more strategic sense of our immigration policy. Obviously, we want to continue to bring in high skilled immigrants and manage labor market gaps where they are, but also think carefully about the levels so that our supply and demand can always be in balance and not to put too much hope on really rapidly increasing

supply because that's very hard to do. And the third thing is, and this is also easier said than done, is productivity. You know, we obviously want to boost the economy and raise output. But what we should be really thinking about is equipping workers with the technology to do

their job better. You know, we bring in a lot of workers clearly, but how much investment we do to give them new technology ah has always been a challenge in this country. ah The overall capital stock really hasn't grown very significantly. It's been dented a lot by the decline in oil prices over a decade ago now. So we really need to think about investing in new technologies to make our workers more efficient now. uh And I don't see enough discussion about that. There are very few specifics around that. But if I had a magic wand, that would be my focus to try to incentivize that as much as possible.

 

Jeff:

00:16:15,261 --> 00:16:16,402

That's great. Ali, based on all of our conversations in the past and this one included, I would certainly vote to give you a louder voice at the table on what needs to be done in this country. ah So, you know, we appreciate obviously how busy you and your colleagues are these days. So thank you so much for taking time with us this morning and giving our listeners a bit of a uh glimpse of what the Canadian economy looks like these days.

 

 

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives may receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2025.

 

Jeff van der Maden & Les Kom are an Investment Advisors with CIBC Wood Gundy in Kanata The views of them and their guest speakers do not necessarily reflect those of CIBC World Markets Inc

 

Episode 7: Mike Colledge – What are people thinking?

[Speakers: Les Kom and Mike Colledge]

 

Les Kom:

Hello and thanks for joining us for today's episode of Lunch Money.

My name is Les Kom.

I'm Senior Wealth Advisor and Portfolio Manager for the Kom Vander Maden Advisory Group here at CIBC, Wood Gundy Private Wealth.

We have a really special guest today.

This is something different.

Our guest is going to tell us about the national mood in Canada?

What are people thinking these days?

It's kind of like taking the temperature of our national mood, of Canadian feelings and thoughts at this pretty momentous time.

We're speaking now in late April, a few days before the federal election and a few weeks after Liberation Day occurred in the United States, our close neighbor and trading partner.

So it's a time of change, of uncertainty.

And what a great time to speak with a real expert in measuring the national mood and telling us what it all means.

So to introduce our guest, I am very pleased to welcome Mike College to our podcast today.

Mike is president of Ipsos Canada, he is the ESG lead.

He's also the global lead for ESG services.

Mike has more than 12 years experience in working with the government of Canada in past times within both social and economic portfolios and in joining Ipsos and before coming uh taking on the leadership role for ESG, Mike led Ipsos Public Affairs and Corporate Reputation businesses in Canada. Ipsos is someone that we've all heard of.

Mike is the guy that uh has a real uh bird's eye view and knits together what the different uh teams, survey teams, and analytical teams in Ipsos Canada are doing.

We couldn't be happier to welcome him here today.

Mike, thank you so much for joining us.

 

 

Mike Colledge:

Thanks, Les.

Thanks for having me.

 

Les Kom:

Yeah, our pleasure.

first off, uh just educate us a bit on Ipsos.

How does Ipsos measure and report on public opinion in Canada?And while you're at it, how does that differ from other polling firms?

And who do you do this work for?

So tell us a bit about that.

 

Mike Colledge:

Okay, well maybe I'll start with who we do the work for first and then we're back to how

we do some of the stuff we do.

So we're the largest market research and public opinion research entity in Canada.

think we're the, I'm gonna get this wrong, the third largest in the world now, part of the

Global Ipsos Group. we do, know, best majority of work is for the private sector. It is on the marketing side to help companies innovate, develop, sell their offers, build

their advertising, uh customer service, make sure all those things work really well.ah And then we also do a lot of work on the public opinion side, both for the private

sector and for governments, helping them understand the vote of the country, understand how they view issues, generally keeping, as you said, that pulse of the public

environment.

So we do that for for a broad range of countries from a quantitative perspective We do it

like most other companies do to be perfectly honest in Canada the industry standard for the most part is online surveys of panels that people have joined to be part of a group

that answers surveys We do this and we have our own panel We mix in other people's panels to ensure there's no bias But we also do a lot of qualitative research where we actually

sit down and actually just talk to either through online forums or face-to-face, individual Canadians about how they're seeing the

world, how they're feeling, those kinds of things.

Because we think the two are really important, right?

The numbers on the one side allow us to dig in and understand the depth and really get a

quantitative read. And then the qualitative side, those discussions add a lot of richness, know, things that

you might not have thought to ask, emerge, and you really get sort of the stories of individual Canadians sort of that.

um In terms of how we differ than other companies, I think the biggest one is that size

and scope.

um You know, we're in the field asking questions for clients or for our own use or to

help, more broadly understand the world pretty much every day, at least every week where we're just sort of rolling with surveys, having these conversations.um We also do a lot of global work.

So every month we do a large global survey of 30 countries.

And we're able to look at the views around the world, see trends emerge in one part of the

world and how they unfold, where they move.

we just in 2024, we went through, think half of the world's population had elections.

So we're in election now.

We were actually fortunate to work on most of the elections around the world in 2024. And we learn from those, we understand where it happens.

So that gives us, think, an advantage in all of our markets because we learn from other

markets on sort of what's happening in best practices and where the world is going.

You know, we do an annual study on just global trends that's 50 countries.

So we're able to lean on that, I think, more than other firms in Canada.

The other thing that I think is a big advantage for us on the size and scope side of

things is you mentioned that I'm the guy.

I'm actually one of the guys and one of the gals amongst a bunch who do this for a living,

right?

So we have people who focus on public opinion, the view of the country, whole range of

things in Western Canada, in Quebec, in Ontario, so we get a regional perspective. We have people who focus on different issues, different areas. We also have people who focus on, you know, just specialism on the market research side.

So we have customer service experts, have innovation experts, we have advertising experts.

And so because we have those expertise, we're able to move beyond the collection of data

and actually have conversations and provide advice and some overall look at things.

So I think those things are...

are our big advantages that we can bring to the fold.

 

Les Kom:

Those do sound like big advantages.

uh You've got breadth and depths, the quantitative and the qualitative.

So that's all very impressive.

And uh wow, we're extra delighted to have you with us today.

Let's move on to your findings recently vis-a-vis the Canadian mood.

Some of us may have heard of a man called Trump and the Trump tariffs, which came in on April the 2nd, the day they called Liberation Day. But, you know, if we can cast our minds back before the Trump tariffs, that there was life

before April the 2nd, back then, what was the number one issue on Canadians' minds before this came along and seemed to sweep

everything off the headlines.

What used to be the number one issue?

just as a segue to that, after the so-called Liberation Day, and here we are near the end

of April, are the Trump tariffs very much number one in the national mindset and holding strong? Or are you seeing signs that it's a bit of a passing fancy, to use that word.

What other issues are in, let's say, the top five as you do your survey and analysis?

 

Mike Colledge:

Okay, well, so pre Trump and I think you have to go back to actually before inauguration

because that's sort of when it kicked off.

I know liberation day was when the tariffs dropped, but the discussion around 51st state

annexation of Canada started not long after inauguration when Mr.

Trudeau went down to our former prime minister went down to uh break bread at Mar-a-Lago

and then post that was maybe we should annex and you could join us.

Not necessarily in that polite of terminology.

But before that, the real issue was around uh affordability.

And it was affordability, you know, for some people that was housing, because they're

trying to get into the market, ah or they have children who are trying to into the market, or they recognize that, you know, the importance of being in the housing market and for

people's wealth and, and long term prospects, uh as well as day to day costs.

 

You know, people who were saying, you know, food's gone up.

And that flowed a little bit, not a little bit, a lot from the record inflation we had post pandemic. You know, the inflation went up and while inflation had come back down, most costs didn't come back down.

 

We still had that pent up, that buildup in cost.

And people didn't keep pace.

Their paychecks didn't go up the same rate as inflation did in the 22, 23 period, like

2022 and on.

And so affordability, think, was the biggest issue as we ended 2024.

And then there's a range of other issues that are in there that are important, but I would

say less urgent to Canadians, right? So housing just in general was one of them.

The economy overall comes up.

Healthcare is sort of a consistent top one, two or three issue, depending on the time.

I think it's 6.5 million Canadians don't have a doctor or access to primary care through a

nurse practitioner.

So that's become a constant ongoing issue over the last couple of decades.

It never really falls off the radar screen.

So those were the big issues that drove the population.

And then Mr.Trump came along.

And again, I think it was, you if you look at tariffs, Canadians sort of view those as a

costly nuisance, a bit of a pain in the butt. Something that yeah, it's not to deal with, but particularly post liberation day,

something that we're not alone in dealing with anymore, but it was really prior to the liberation day when it was tariffs aimed at Canada, tariffs aimed at Mexico and the

discussion of you'd make acute 51st state, those kinds of comments that really, uh, insulted Canadians and drove the fear of, of annexation or what Trump might do up above affordability for a little while.

 

And it became, you know, the biggest issue that drove the early parts of the election. became the sort of the focus of Mr.Carney.

 

And it's been fed a little bit, well not fed, but it's been fed a lot over the course of the campaign.

If you hear Mr. Carney speaking, he's back to it all the time, the Trump threat, the Trump threat, the

Trump threat, and how he feels he's uniquely positioned to manage the Trump threat.So he's run very hard on that.

At the same time, you have, you know, the sort of a two-party ratio.

Now the Conservative Party has pushed, no, it's long-term affordability.

It's strengthening the economy.

Those are the things we should be focusing on.

And what's happened over the last couple of weeks of the campaign is that has rebalanced

and we look a lot more like we did in late 2024.

Affordability has come back up as a top issue.

Those concerns around where the economy is going has started to come in.

Canada-U.S. relations and Trump has started to fall down third, fourth, fifth and started to recede. Now I say that, but yesterday, we're on the 24th of April, yesterday Mr. Trump poked his head up out of wherever he was and said, oh, by the way, I may slap those

auto tariffs.

 

I know if we had a 90 day pause, may move that up and then took another shot at Canada

would make nice 50 per state. So he hasn't left our consciousness and it wouldn't take much for that to climb back up.

But that gives you an idea of the issues that have been driving.

There are other issues that are important, uh crime, justice, uh national defense, border

security, climate change, but they aren't the urgent burning issues.

If you ask people about all those things, you'll get a majority to say they're worried

about them, but they get pushed off by the urgency of the day.

There are only so many issues that people's minds can consume at any one time. And there's a lot of subtleties, big issues facing the country.

When you ask people how they're going to vote, shift a little bit, those generally hold those numbers, those rankings.

 

 

Les Kom:

Very interesting.

For those longer term issues, pre-Trump you might say, you mentioned affordability for

sure, as well as housing, healthcare.

Do you or your team find that the importance of those issues depends on where you are in

Canada?

Does it vary by region or are they pretty consistent across the country?

 

Mike Colledge:

So I wouldn't say it varies by region.

It varies if you want to look at it from a geographic perspective by uh urban, rural,

suburban is a bigger split, right?

So we've had over the last decade, I would say reasonable growth in the urban areas, uh

less more so in the suburban areas and even less so in the rural areas. So where we've seen an instant bid bigger centers, right?

 

So where we've seen pockets of growth in the Toronto, the Montreal, the Vancouver's,

Calgary's, know, people have done better.

And we see their financial health is a little bit stronger and they're feeling a little

more, although the cost of living has gone up in those places.

But then when you get into the rural areas and the suburbs, people are less buoyant.

The biggest gap has been across generations.

And what we've seen

Fairly consistency is baby boomers uh doing okay.

They came out of the pandemic with assets, with pensions, both assets in the market as well as homes.

And they tended to weather the storm pretty well, the storm that was the pandemic.

 

People who lost ground during the pandemic, uh middle-aged Canadians.

seem to be struggling more so than younger Canadians. I look at it this way, if you look at, you your focus is helping people retire and make

sure they have enough to do that, right?

As a long-term goal is to quit working.

And so you look at boomers, you know, they've largely made their nest egg.

They reaped a lot of growth by virtue of when they were born, uh hard work, but also when

they were born.

And then you look at Gen Z, the younger generations, they have a long road before they have to get on the off

ramp towards retirement.

 

So they're a little more optimistic, but the middle generations, the millennials, the Gen

X who are squeezed, they have young kids, some of them, have older parents, and they just haven't made the gains that the boomers did.

And so they're really starting to look down the road, whether it be seven years, 12 years,

and starting to see that...

Maybe things aren't going to be as good for me as I'd hoped they were.

Certainly not going to be as good as I hear about other generations and how they're doing.

 

Les Kom:

Yes, yes, that's a difficult issue.

So.to pull this all together, if you will, based on your survey data, the analysis, the

qualitative, the quantitative, the context that you've developed by following other countries as well.

 

Can you take a shot at characterizing the national mood in Canada?

currently, and sharing with us whether that has changed over recent years. I think you may have started to allude to it in our uh previous discussion here, but can

you give that a shot? How would you characterize the national mood today?

 

Mike Colledge:

Well, I hope you weren't hoping for a happy podcast.uh We're in a historically bad mood right now.So if you, no matter how you slice it, if you look year over year, February to February,

just from an emotional standpoint, we are more likely to be afraid, more likely to be frustrated, more likely to be skeptical. all the negative emotions are on the rise, optimistic, calm, sort of sensible, those views

are on the decline.know, short term last year, things have gotten more emotionally raw. um We, we have an index we call the disruption Brommer that looks at direction of the

country, how you feel the economy is going, personal finances, a range of those things.

And it's been tracking on a downward track.

So you know how you want the stock market to go up and to the right? Well, it's been down and to the right pretty much since 2017.

So, you know, anybody who looks at this and goes, this is a new thing with Trump, has it

been looking at sort of the levels now it's, you know, we started down this path in 2017,

the pandemic hit, we actually got more positive in the immediate post pandemic, late 20,

early 21 vaccines kicked in.the cash from governments kicked in and we were pretty good.again, you know, that stopped the decline started again late 21 and it's been steady

downhill.

We're actually overall sentiment is lower today than it was in March, 2020.so you remember when the pandemic hit and you were afraid for your health, your concerns,

the economy, the uncertainty level there.

Um, and that's just, all these things that have built up and we haven't seen progress over

time.

I think what happened during the pandemic,is people became very focused on, and I mentioned urgent versus important.COVID was an urgency.

It was a real crisis.

And we recognized the need to address both the health and the financial issues very

quickly.

And we focused on that.

was a one, was, everybody was aligned around the world.

For the first time in my career, everyone in the world had the same issue, same concern,

same focus.

And so not surprisingly, we were head down.

I equate it to being on a boat when it starts on fire.

We put down, we just got to get the fire out.

But what we didn't see was these impending icebergs called healthcare, immigration, cost

of living, affordability, housing.

None of those changed, right?

None of those got better during COVID.

And when we lifted our head up from the post pandemic fire, we were in the middle of the

iceberg patch.

So we had all of these things surrounding us and now it's much more jeopardy, much more

concerning.

We ask a question on one of our studies.

We ask people to look ahead 10 years.

Do you think your financial prospects, your quality of life will be better, worse, or the

same?

And in 2017, the net difference between better and worse was plus 30.

So you had 50 % say better and 20 % say worse, right?

Okay.

it's minus five.

So more people say that their their 10 year outlook, this doesn't, not a prediction on the

on the next 10 years, but it's how they feel hope and optimism today.

Their 10 year outlook is is net negative, right?

So if you're in, if you're on Bay Street, have folks on Bay Street, do you think you're?

Well, I'll even say, if you're in Reno Street,

I ask people in walking through government, yes, if you think that in 10 years, your

financial looks going to be better, you're going to see about eight and 10, nine and 10

put up their hands and say, I think it'll be better, right?

Because where I am, where I'm sitting, what I'm doing.

So you don't need to go and I'll still stick with the River Street that far, you know,

maybe you get to Smith Falls in Ontario, get that far out of Ottawa, where you get to Low

in Quebec.

Not very far.

And that number drops to about half.

maybe four in 10 who think they can be better.

So you have the majority of the non-urban population saying status quo would be a

wonderful thing in the next 10 years.

you know, and more people expecting it it were.

So that gives you a sense of how worried Canadians are and how concerned.

the Trump doesn't help, obviously, the uncertainty of that direction.

I think that a potential US recession probably has a...

greater long-term impact on us than the tariffs do now, right?

If that tips in the US in Q3, Q4, or sooner, I guess could happen.

That's more likely to pull us down than...

you've frozen, Mike.

I lost you.

Sorry about that.

Okay, no problem.

Here we are.

You're back again.

And you had just said a potential U.S.

recession could have more of an impact.

That's where we lost you.

Okay, sorry about that.

Yeah, so I think tariffs are an issue that we're gonna deal with and they're a drag on the

economy, but I think a potential US recession might have an even bigger impact.

So there's a lot of things in the mix, right?

We have an election gonna happen in less than a week's time.

We'll see what kind of stimulus governments kick in.

We'll see who gets elected.

We'll see if it's a majority or minority.

All those things will play into sort of

sort of sentiment going forward.

I suspect if I had to put money on it, it will be a fairly short honeymoon for whoever the

government is.

Because we're in this crisis mode, because we're anxious and we're concerned, we're

looking for sort of quick actions and quick results.

And some of these issues aren't quick to fix, right?

We're not gonna build 500,000 homes before August of 2025.

um those kind of things that they're saying we need to do.

So we have some long-term problems um and em we're gonna test the patience of Canadians I

think over the next little while.

test the patience of Canadians.

Okay.

Well, you know, it's tax filing time uh also, since we're in the end of April.

So that already tests the patience of many Canadians we know.

you know, we appreciate your honesty.

You're being very forthright here.

And certainly one of our takeaways is that this uh

downswing in the national mood, public sentiment, optimism, however you want to

characterize it, isn't all that recent.

It started seven or eight years ago, according to the index that you keep and measure.

Does this also uh apply?

uh You mentioned a generational divide before.

boomers are in one situation, then you've got the newer generations, then you've got the

people in between.

ah Does the mood ah that you've referred to, and you say it's a minus five right now, I

think you said it's the lowest that you've ever measured.

ah

Does that vary according to the generation, ah just as some of those issues that we talked

about earlier vary by generation?

Or is this overall mood ah more or less consistent, no matter what cohort you belong to?

I'd say it's consistently down, but it does vary by generation in that it's obviously more

down amongst younger generations and middle generations than boomers.

think what we're, one of the growing tensions that the next government or governments,

we're gonna put it on just on the federal government and business leaders are gonna have

to deal with is we've always had sort of these niches, east, west.

Quebec, rest of Canada, uh rich, poor.

And I think we're going to add a generational riff going forward.

um On the one side, you're going to have Canadians who are older, richer, have assets,

know, their pension, they have homes.

On the other side, you have younger, poor to middle income newcomers.

We're seeing, you know, know, a lot of immigrants come to Canada as an ambitious study by

the Institute of Canadian Citizenship.

that newcomers are coming and then leaving five to seven years after they've been here,

after they've spent all the time to get here, going, it's not working out as financially

as I thought it was gonna be, almost always leaving for financial reasons.

So we're starting to see people vote with their abilities.

So you have these younger people and people who are house seekers, and they're very

different in what their expectations are of government and life going forward, right?

The older group is not surprisingly relatively comfortable and secure.

The younger group is more anxious and more afraid.

One group sees, the older group sees institutions failing, but they are hopeful that they

can turn the corner because they've seen institutions work in the past and deliver good

things.

And the other group's starting to question the value of public institutions.

Do we need them?

Should we be broke or down?

So you can see some of that in the US, what's happening with Doge and Musk and some of the

cuts.

Not that it's crazy what he's doing, but you can see where the sentiment comes from.

On the older,

wealthier group, know, not surprisingly, their bottom line is, you know, let's do things

that protect my assets and limit risks, right?

And then the younger group, this is where you see I'm willing to risk it, because I don't

have a lot to risk.

So I'm going to take a risk on growth.

I'm going to try DIY investing.

I'm going to, you know, put some money over here and I'm going to make some change.

I'm going to be, I'm a little more, they don't have a lot to lose, right?

And then overall, if you draw sort of a red line for both groups,

You see the red line for the older group is don't touch my pensions.

Don't put capital gains on my home.

Don't do anything that's gonna, don't privatize healthcare, right?

Those are sort of red lines.

And if there's a red line on the other side, it's the status quo.

If things stay the same, you know, I'm worried that there'll be some quiet quitting on the

country amongst young people.

We don't see as many people going into start business and be entrepreneurs anymore.

I think we'll see, potentially see younger Canadians who have the wherewithal.

the skills to move move.

Right.

So I don't think, you know, I think the you know, there's lots of talk about the West's

succeeding from Canada and depending how the vote goes, those big movements like that take

effort, right, takes a long time to organize a province out of the country.

But it doesn't take that long for a skilled, talented 30 year old

doctor or lawyer or economist or AI proficient young man, woman to say, hey, there's a job

in Europe, right?

Even if they don't like the US because of the climate there, there's a job in Europe and

they want me, right?

And they need me.

And we know that there's a demographic crunch going around the world where, you know,

young people with talent are in short supply almost everywhere.

So I could see more and more young people saying, I'm just going to go live in

You know, France, Belgium, Latam, know, Asia, right?

uh Because the economic opportunities, you know, come back to Canada in 10 years, maybe.

Well, that's fascinating.

That's challenging.

uh Very challenging, but fascinating to have this discussion with you.

You one last question, uh if we may.

You mentioned Europe and other countries.

Are you seeing in your global surveys, are you seeing similar uh shifts or downswings in

net public sentiment?

ah Is Canada all alone in this phenomenon?

We're not alone, but we're near the bottom.

uh We're not alone, whether it's because we had higher expectations and so they're lower

or whatever this scenario is, we seem to feel worse than some other places.

We seem to be a little more squeezed, a little more precarious uh on a range of things.

There are other countries that have been down for a long time.

If you look at Argentina and some of their prospects have been

pretty low because of the political environment, its stability, some of the economies in

those places.

There are places where you feel for your life, right?

Which we don't have that in Canada, although crime is a rising issue in some areas.

You know, I presented this a couple of years ago, probably pre the pandemic, I presented

on sort of the decline in Canada to a uh colleague in Europe who happened to be from

Argentina.

And he was like, what's wrong with Canada?

Right, like why are you?

So upset, and I'll give you just one example more recently, we did a study with King's

College in the UK on youth mental health.

So we looked at three countries that I are interesting from a comparison because of their

culture, Australia, the UK, Canada.

And we know that there's rising levels of mental health challenges amongst young

Canadians, young people across the globe.

But when we asked,

young people and older people, what are the reasons for the youth mental health rise and

youth mental health challenges?

were far more likely to see cost of living, economic prospects over social media, whole

range of other things, right?

Than were the folks in the UK and Australia.

So I think Canadians recognize the challenges.

They see them both short term, long term.

If there's a bright spot, you wanna enter in a bright spot, it's Trump.

Trump has made us to a certain extent,

re-evaluate who we are.

So we're starting to see a rise in pride.

We're starting to see a rise in social creation and unity.

We're starting to see things that had been in decline like support for diversity lift up.

all know those are the things we like about us, right?

So things we maybe took for granted.

It'll be interesting to see how long that holds and whether next round of leaders nurture

it, nudge it forward and continue to feed those notions.

turn the corner because there's not a lot of optimism right now to sort of draw on if

you're looking for social capital to change Canada.

So it needs to be built up a little bit.

So hopefully um we're at a tipping point and we're going in the right direction, but maybe

I'll come back next year and we'll talk about that.

We may hold you to that.

Okay, you know, my takeaways from your last comments here, which are just excellent, a

couple of takeaways for me.

First off, as with everything in life, everything is relative.

So if someone's in Argentina a few years ago, before they started to turn things around

and looks at Canada, ah where we see problems, they see

wealth, comfort, opportunity, prosperity, the rule of law, et cetera, et cetera.

everything is relative.

And secondly, you know, I think you're the first person since Trump was elected to suggest

to us that Trump is actually a positive.

ah in the sense a bright spot.

uh And as you pointed out, it has led to a uh reevaluation, uh a more reflection on who we

are.

We see a lot more flags out there.

uh Elbows up seems to be a very catchy phrase.

I'm not sure that we'll really truly replace double double as the actual Canadian model.

Time will tell.

But uh let's press, let's close here, Mike, this has just been fascinating.

We'll close on a somewhat optimistic note while recognizing that there are many challenges

ahead, that patients may be tested and all the other excellent, excellent observations

that you've shared with us today.

I can only add that the, as we speak, the hockey playoffs are on and there's uh

there are five Canadian teams in the playoffs.

A few of them look like they may make uh an exit uh after round one, but you know, there

might be one or two that hang in and uh perhaps we'll have a Canadian team bringing home

the Stanley Cup again this year.

So it would be a great boost.

We can all rally around that.

Mike College of Ipsos, Canada, thank you so much.

It's been a terrific conversation and yeah, we'd love to have you back next year.

Thanks so much for being with us today.

 

Mike Colledge:

Thanks Les, take care.

 

Les Kom:

Bye for now.

good?

Sorry about that drop off.

 

 

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives may receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2025.

Jeff van der Maden & Les Kom are an Investment Advisors with CIBC Wood Gundy in Kanata The views of them and their guest speakers do not necessarily reflect those of CIBC World Markets Inc

The Tariff Tiff

 

Thumbnail Image:

[CIBC Logo, CIBC Private Wealth]

[Lunch Money]

[Exclusive Interview with Ian Lee to discuss inflation and tariffs]

[Kom vanderMaden Advisory Group]

[Hosted By: Les Kom, BA, MA, FMA, CIM, Senior Wealth Advisor, Senior Portfolio Manager, CIBC Private Wealth (image of Les Kom)]

[Guest Speaker: Ian Lee, BA Law, MA Public Administration, PhD Political Science, Associate Professor, Management Carleton University (image of Ian Lee)]

[Image of the Kom vanderMaden Advisory Group]

 

Les Kom :

Well, hello again and welcome to this edition, a special edition of Lunch Money. My name is Les Kom, Senior Wealth Advisor and Portfolio Manager with the Kom VanderMaden Advisory Group here at CIBC, Wood Gundy. Thanks so much for joining us. It's very topical. We're going to be talking tariffs and we have a very special guest. We're just delighted to welcome Ian Lee.

 

Ian is Associate Professor of Management at Carleton University. He actually teaches the fourth year MBA strategic management capstone course there and has a lot of other experience and excellent experience in his life and background. Ian, welcome to Lunch Money. Thank you so much for joining us.

 

Ian Lee:

My pleasure, Lance. It's a real pleasure to speak on this because these are momentous times and I really do believe this is the most significant election since 1988 because we're going to be making decisions about the future direction of the economy that's going to affect the standard of living and how we're going to respond to the largest economy on planet Earth, which is just 60 minutes, 90 minutes away from us.

 

Les Kom:

Yes, yes, we hear you. We've heard of that economy just to the south. just a little bit more for our listeners on your background. It's quite remarkable. You actually started in banking right here in Ottawa, Wellington and Sparks. From the sound of it, you got a terrific education there on all sorts of things, money management, dealing with people, credits and debits, liabilities.

 

And from there, you moved onwards and upwards. You've worked for the Privy Council office in the federal government. You became an educator and you've taught all over the world. This is fascinating. Some of it virtual, maybe, but some of it in person. I was really interested to read about your time at the Warsaw School of Economics, I think you were the first Western professor to teach in a university in a former communist country under an OECD-funded business management program. I gather that was quite a remarkable experience.

 

Ian Lee:

You're right. I can talk about that very quickly. don't know how much time, a minute or two if you want me to or? I was in my 20s, throughout my 20s in banking, on the credit side, commercial banking, not investment banking, not wealth management, but investment banking, sorry, commercial banking, meaning lending money to SMEs and to people what we now call high net worth, but I didn't know that then. And so I loved it.

I was just having a wonderful time. I was getting promoted, you know, loan officer, loan manager, loan and mortgage manager, then commercial credit officer. And then they called me in one day and said, we've got great news. You've been promoted to first Canadian place in downtown Toronto. And my face must have fallen to the floor, a very unhappy face. And I blurted out, that's a fate worse than death because I knew I was never ever going to live in Toronto. I'm one of those Canadians who wasn't ever going to contemplate that. And the bank was very good to me.

They didn't fire you when you refused a promotion, but you were red circled and you weren't gonna go any further. So I was just in my late 20s. I'd just finished up my undergrad degree and part-time at night. And so I decided to apply for a master's in public policy and I got accepted. And the reason I chose public policy was, there was no MBA in Ottawa. And secondly, very arrogantly, I was 28 years old. I said, I have no interest in doing an MBA because I know more than any professor in any business school because I've had nine years of superb training and on-the-job experience, lending millions and millions of dollars evaluating the strategic direction of companies.

But what I did learn at the main office branch, it was a remarkable branch then and as were the other four banks on the Sparks Street Mall, we had the creme de la creme of the upper class, if I can use those words, of Ottawa. I had one-third of Pierre Trudeau's cabinet on my books. I had Supreme Court judges on my books. I had deputy ministers. I had the ambassador from the Soviet Union and the People's Republic of China’s national journalists from the press club which shared the wall with the Bank of Montreal building that i was in it was just medical doctors partners in law firms and accounting firms it was and there was in my twenties and I realized work those years that while i was learning absolutely everything good and valuable and important about business and economics

I was an absolute ignoramus about public policy and a lot of these people were in government or dealing with government. And then I realized I really didn't know anything about that. And so I had an insatiable curiosity about learning about the government. So that's why I applied for my master's in public policy and I did very well. And then the professor said, well, you know, you really should go on and do a PhD. And so I did. And then I started in 88 and then the wall came down in 89. And I just want to talk about that very quickly because

Almost every trip I made to Central and East Europe for the next 15 years was not virtual, but personal on the ground. And I ended up from 1991 until now, crossing the Atlantic and later the Pacific Oceans to teach in China over 100 times in developing countries. And I assure you that influenced my thinking in a way that most professors have not been influenced because they don't have that experience. I taught in Argentina, which I'll be blunt, I believe is a basket case.

I taught in Cuba, and I don't mean at Veradero in the resorts. I taught in living in an apartment in downtown Havana. I taught in a lot of poor countries, developing countries, where they were doing things like import substitution and state central planning. I taught in China from 1997. And so I learned not to compliment or supplement the theoretical training that I acquired in public policy and masters and PhD. And I did study a lot of the economic theories, you Keynes and...

Milton Friedman, and so I really focused much more on the economic side of public policy rather than social policy. And so going to these countries and seeing these badly managed, often very poor and very corrupt third world or developing countries was just an eye opener and an education that one could not get anywhere else. I was teaching from 91 until 2020, once a year in Warsaw, and in the old central school of planning and statistics, which produced the central planners for the communist party of Poland.

 

And then it got transformed into the Warsaw School of Economics. I traveled all over Poland many times. taught many times in Kiev in Ukraine, which is now being bombed by the Russians. I taught in Moscow. You know, I taught in Prague 10 times. I taught in Romania over 30 times. And these countries back then in the 90s were still very, very poor and they hadn't transitioned completely. They were in this very imperfect state. They were sort of arf and arf, meaning they were still centrally planned, a lot of state ownership, but they were transitioning to capitalism. But it was very uneven and jerky and often not successful. And I saw up close and personal, because I was always teaching in the capital city, know, Bucharest, Kiev, Prague, Warsaw, Moscow, and seeing the policies of these countries that were not even remotely close to Canada or the United States. I mean, we don't know how rich and wealthy we are. When I hear people talking about the poverty of Canada, these are people who just don't know what they're talking about. You want to see real poverty? You go to rural Ukraine, you know, go to rural Russia. So I'll stop there.

 

Les Kom:

Well, you've had amazing, amazing international experience in Central and Eastern Europe, in Latin America. And academically, as we said, you have a BA in law from Carleton and an MA in public administration from Carleton, a PhD in political science from Carleton. And today you are absolutely known as a voice on radio for sure. You're known as the professor on CFRA and we love your commentaries there. I've heard you do podcasts and you've also appeared on TV. So at this very important time, we're really delighted to have you. Now, while we're going to be focusing on tariffs, before we do that, let's just take a step back and turn to what's on a lot of people's mind these last few years, which is the cost of living, inflation. And in just a few minutes, if we asked you why has the cost of living gone up so much in recent years, what would you tell us?

 

Ian Lee:

First and foremost, I lived through and I am completely non-partisan. I do not belong to any political party. I do not donate money to any political party, nor do I allow lawn signs in any federal or provincial or municipal election so nobody can accuse me of being some kind of a partisan. I also don't hide the fact that I, because of my experiences around the world, I believe deeply and profoundly in market economies for raising the standard of living and the World Bank has published on this and the IMF and others.

I was at BMO in 1980 when interest rates peaked at 20, 21%. I lived through the 70s because I started working at the age of 18 in 1972. And I saw the inflation going up, up, up, up, up throughout the 70s. You know, went from three to four to five to six to eight to 10. And it just kept going up. And it was very destructive, very hurtful, harmful to ordinary people. And then finally, the Governor Bowie of the Bank of Canada and that very big tall man from the Federal Reserve in the United States, Volcker, decided to get serious. And there were howls of pain. They drove the interest rates right all the way up to 20, 21, and they killed inflation. They destroyed it for a third of a century. And then it came back.

And I have argued that the pandemic more precisely, because I don't believe in impersonal forces of little green men coming down from outer space and imposing something onto us, you the gods. Our reaction, our policy response to the pandemic, I believe, grotesquely exacerbated and let the genie out of the bottle. And I was doing interviews almost daily on this. I'll give you two instances to support my claims because I always use evidence-based research from, and that to me does not mean academic articles by professors.

To me, evidence-based research means using actual data from Statistics Canada, from the Bank of Canada Monetary Policy Report, that kind of data, macroeconomic aggregates, productivity data, inflation data, interest rate data, and so forth. We drove, we, the Bank of Canada drove interest rates down to 0.25. People say, well, it was warranted. Well, that just didn't make sense to me. And so I went back and looked up the interest rates for the last 250 years in the US and UK. Canada, of course, didn't go back 250 years. I went back as far as I could in Canada and went back to the origins of the Bank of Canada in 1933 or 35. But suffice to say in these three English-speaking countries, interest rates never went down to 0.25, not during the Napoleonic Wars, not during the Prussian War, not during the First World War, not during the Second World War, not during the Great Depression when one third of the entire country was out of work. And so that was a tip to me that, hey, maybe we overdid it. Maybe we panicked. I don't believe there was any malfeasance. I'm not accusing anybody of inappropriate behavior. I'm just simply saying, I think that our elites, our monetary elites called the Bank of Canada decision makers panicked because they thought there were actually people talking about, this going to be the bubonic plague coming back? And on the fiscal side, I believe we panicked.

We overdid it. We shoveled out billions and billions and billions. And I was criticizing in real time. This isn't armchair quarterback after the games over three years later. When the prime minister was at the microphone, I was saying, this is overdoing it. We should focus like a laser beam on the 16.5 % people unemployed and look after them. But we were giving money out indiscriminately to corporations, very profitable corporations that did not need it and we're going out to people are working and I said we are squandering scarce resources because we know it in the future and i don't mean in fifty years another but tough time will come along I had no idea about tariffs by the way I said another recession will come along will have to go on print money pure kinesianism you know response and here we were squandering this money and we doubled the debt but more importantly less this is my criticism we shoved gargantuan, unprecedented amounts of both fiscal and monetary stimulus into the system. And I was quoting Milton Friedman at the time in real time saying, we are going to let the inflation genie out of the bottle that we pushed into the bottle. We stuffed it into the bottle with a brutal recession in 1981, the worst recession since the Great Depression. That's what it took to kill inflation.

 

And we'd forgotten that. And our decision makers, and it doesn't matter what political party they were, mean, the monetary policy people are not partisan anyways, we overdid it. We did way too much fiscal stimulus. We did way too much monetary stimulus. And people can say, well, you know, it's easy for you to sit in there on the armchair quarterback. I said, listen, we could have done exactly what Milton Friedman advocated. I'm just quoting him because he's dealt with these issues. And we could have done it actually a lot better because by this time, I'm talking 2020, we had the entire digitization of the government of Canada, including the CRA. And it's very easy as we know from the rebates for both the carbon tax and for the household rebate for the consumption tax. You can instruct the computers, the deputy minister can instruct the programmers to just reverse the flow, what Bernanke called helicopter money, and just say, credit everybody in Canada with $1,000 a month who have an income of less than whatever you want to cut it off at, 30, 40, 50. We didn't.

We said, we're just going to give it a touch. We threw it like spaghetti at the wall and said, we hope some of it sticks, but we don't even know that. So what we did is we put vastly too much stimulus into the system and we let the genie inflation out of the bottle. It was as predictable as snow in Ottawa in January.

 

Les Kom:

We have had quite a lot of snow this winter. That's a great background. Fortunately, seems that the rate of inflation has slowed a fair bit in recent months. Let's move on to the tariff situation, which is on everyone's mind.

Yesterday, we're now speaking on April the 3rd, and yesterday was the day that the United States, the new administration there, went ahead with their new tariff policy. So the first question on tariffs, why do we face a tariff war with our neighbor, the U.S.? Why?

 

Ian Lee:

Okay, first off, I your listeners to understand I'm going to sound sympathetic to Trump. I am not. I have been a free trade advocate since my time in the bank. In fact, I started in 1988. My tenure track position was July 1. And that summer, I was getting phone calls from local community people events. Will you please come out and talk about in this controversial election and talk not about one party versus another, just talk about free trade, will you speak on behalf of free trade? I said, of course I will, because free trade, I said, is the antithesis of tariffs and they are so destructive, so destructive, so hurtful, so harmful. Of course I will speak out for free trade. And I spoke out frequently and debated many people supporting the FTA and later NAFTA. Okay, so I'm giving that as context. So the academic research going all the way back to Adam Smith, all way down to the present, is unanimously shows that tariffs are a terrible, terrible tax. They do nothing. It's all bad. In fact, the Bank of Canada speech by Governor MacLachlan, who I believe sidebar, I believe after their very bad mistake of overstimulating with too far too low interest rates, they redeemed themselves when they drove up the interest rates to bring inflation back down. That's what brought inflation back down was the Bank of Canada with interest rates.

And so they redeemed themselves. And he gave a wonderful speech two weeks ago in Toronto with summarizing the research of the Bank of Canada. And everybody should read that speech because there is nothing in that speech that says one good thing about tariffs. They're just negative. They're destructive. They drive the dollar down. They drive inflation up. They drive prices up. They create unemployment. They reduce growth. They reduce investment. So then if it's so pernicious and so destructive, what on is going on?

I read Stephen Marin's speech and published an op-ed in the National Post. Stephen Marin wrote a paper. He is now the chief economist of the White House. Technically his title is chair of the Council of Economic Advisers, which was first created by Richard Nixon in 1971. And he wrote a paper only two months before in November. And it's a remarkable paper because I believe it's the blueprint for the Trump administration. I call Stephen Marin Trump's brain.

I'm being a little bit facetious, but I think he's Trump's brain. Stephen Marin has a PhD in economics from Harvard University, and he was at Hudson's Bay Capitol, which is a hedge fund in Wall Street, and he's got tons and tons of experience, people like yourself. And these are people who know what they're talking about. They understand economics deeply. He wrote the paper spelling out the vision, the blueprint, and basically I'll summarize it very quickly so I don't eat up all our time.

He is paraphrasing and summarizing and codifying into more elegant language what Trump's been saying in his usual rambling and disjointed way. He summarized it and codified it. And essentially it goes as this. The US set up the Bretton Woods International System in 1945 with the IMF and the UN and the World Bank and the GATT, which became the World Trade Organization. And it set the rules of the game for multilateralism. And he said, Trump, Trump Marin said, over the next 70, 80 years, all the countries of the world, friend of foe alike, took advantage of the United States. They took advantage of the fact that the US was the hegemon, the world's superpower, spending trillions and trillions of money on national defense, which they have done. Currently, they spend one trillion a year in the current year. There's no other country in the world that comes close. And they said, they're protecting everybody, and all the other countries were free riding, not paying their fair share of defense. And much worse, they were enacting tariffs in their own country against American corporations, while simultaneously demanding the right to have access to the United States.

And he said, success of presidents, you heard this yesterday in the Trump press conference in the Rose Garden, which I did watch. And he said, past presidents said that was okay. He blamed the past presidents for this state of affairs. And so Trump and Marin are saying, and they say it in black and white in this paper, they want to use the tariffs to force, keyword “force”countries around the world that are discriminating against American corporations and denying them access in some markets, not all their markets, but some, we do it, supply management, telecom, and the other protected industries. And they want to force them to open it up. And so they've decided the is tariffs. And why tariffs? Because the US is the largest economy on planet Earth. And just about everybody around the world wants to access and do business in the United States.

 

So they said, are going to, let's be blunt. I'll use the phrase that the Chinese government used yesterday. I don't normally quote the Chinese government, but they said the US is blackmailing every country. Yes, that's what they're doing everybody. They're blackmailing you. Okay. Now I have a, now I know it's simplistic. I have a solution for everybody. If you want them to stop whacking you with tariffs, then get rid of your own damn tariffs. Okay. What was so stunning about that press conference yesterday? And again, I am opposed to all tariffs, of any kind, anywhere, at any time. They don't, they're pernicious and they're destructive.

But what was so stunning about that press conference was he tailored and customized the tariff they're imposing on a country by country basis based on the estimate by the US administration of the average tariff rate of that particular country vis-a-vis the United States. That's surgical. In other words, they said, okay, Poland, know, France, your average tariff against our American companies is this, so we're going to charge you 50 % on a tariff. So they were customized tariffs. In other words, and he even called them reciprocal tariffs, which was clever phrasing, because what he's doing is making all the critics and the journalists recognize that these are his own version of retaliatory tariffs. And so I'm writing an op-ed, which I'm about to send in tonight, I hope, to the Globe and Mail arguing that Trump is actually a godsend. Sounds crazy. A godsend to people like me who believe in free trade. Because what he is doing is he's copying all the protectionists around the world who believe in protectionism. And there's lots of people in Canada who believe in protection. They think supply management is just peachy keen. They think that keeping out foreign telecom companies is really cool. And there's lots of countries in Europe and China.

And so what he did was Oscar Wilde famously said, imitation is the most sincere form of flattery. So what Oscar Wilde is doing is flattering all the guys in the world. He said, I'm going to copy your outrageous tariffs. And I hope he blows up the very idea of tariffs. I hope this leads to a massive repudiation and a massive blowback to tariffs everywhere, not just Trump's tariffs, all tariffs everywhere. My hope and my I think we're going to be going down that road. I don't see how anyone can be defending tariffs after yesterday.

 

Les Kom:

That is a fascinating review and overview and even a look ahead there. In the short term, because we all live day to day, what should we expect to see here in Ottawa? What difference will we see in our lives? Will certain prices go up?

Will certain prices, will certain goods or services no longer be available? Can you comment on that or is it too early to speculate?

 

Ian Lee:

I have to make very broad statements because the different tariffs apply to different sectors at different rates at different times and so on. Having said that, all the research and believe me, there's massive amounts of research on tariffs. I mean, there's no bell process have been written on this. I mean, have been earned for the research on tariffs. John Maynard Keynes talked about it. Adam Smith wrote about it 250 years ago, bad they were. So there is no shortage of really good top quality research on this.

It drives down growth. It takes money out of the pockets of consumers because the tariffs fall on businesses which pass them on to consumers. So it is a tax, plain and simple. It's the opposite of stimulus. Any tax is the opposite of stimulus. Tax, any form of taxation takes money out of the economy and out of the pockets of consumers and businesses. So they have less money to spend on holidays or trips or going to a restaurant or clothing or renovating their house, et cetera, et cetera, et cetera.

So it is to use the classic example of Keynes. So I don't mind quoting a liberal economist or a conservative economist, Milton Friedman and Keynes. So Keynes taught us that a tax is contractionary. It contracts the economy by taking money out of the economy. So what we're going to see the most immediate impact on, I think, is that it's going to cause consumers to dial back for two or three different reasons, but they're all correlated. So there's a lot of correlation here. Number one, just the sheer tax tariff going on a particular product makes it more expensive. So people buy less of it, know, it's the same argument as a car You know, you make something more expensive you buy less of it you consume less of it.

But the second reason which nobody seems to be talking about or at least very few is that this is driving down the dollar, the Canadian dollar, and we import about a third of our GDP and So somewhere on a third of our GDP so that's going to cause all goods to go up in price not just tariffed goods because most goods are priced in USD directly or indirectly. This is my insight. It's not unique, but it's what I've been pushing hard that people think, well, if it's only priced in USD, then those are the only ones affected. Well, that's not true because the US is so enormous, so gigantic, 30 trillion GDP, that it affects all the other currencies of the world directly or indirectly. So we import from other countries of the world but their currencies are all priced off the USD directly or indirectly. So when the Canadian dollar goes down, it goes down against a whole bunch of currencies. So that's the second point. General prices will go up because of the Canadian dollar going down.

The third impact of this is it creates massive lack of confidence and uncertainty and lack of confidence. The latest conference board survey of consumers and individuals in both Canada and the States shows that confidence is going down dramatically. And what do people do when they get frightened? They stop spending. We know this in every recession. So my point is that the impact, to answer your question, I think it's going to show up immediately in consumers by buying less stuff, going to less restaurants, taking less trips, postponing big ticket things like buying a house or buying a car. And so we'll probably be going into a recession depending on how long the tariffs stay in place for. That's all the more reason why we got to get to a deal really quickly to get rid of these pernicious tariffs as quickly as possible to end these destructive impacts. But it'll also have a longer term impact and this will affect people like yourself in investment banking. And I'm saying you're investment banking, I don't know if you are, but I'm calling if you're not in a commercial bank in a branch, you're an investment banker, but maybe that's not fair. But I don't mean that critically.

The longer, and I think the most destructive impact of all, is that it's going to drive out capital investment in our country. And Philip Cross, the former senior economist at the StatsCan, came up to my class about three years ago and it was wonderful what he said to the students because somebody said, where's the economy going? He said, if you want to know where any economy is going, look at aggregate private capital investment in any year because about two, three years from now, that private capital investment is going to be driving the growth two or three years from now. So if your capital investment is going down, your economy is going to be going down.

Now it's a bit of a simplification, but it's a good simplification. So my point is, is that this, all of this uncertainty is causing businesses to say, a minute, I'm not going to build a new plant right now. I don't even know what the rules of the game are. So it causes people to pull businesses to pull back and those have much longer term impacts because a factory not built is not going to be there for the next 30 or 40 or 50 years because that's, you know, the life of a factory or a plant.

And some businesses, the KPMG study says that half of our businesses are looking at relocating to the States to avoid the effective tariffs. So we are in this, what I've described, this is net lose, lose, lose, lose, lose for Canada all the way down the line. There are no redeeming benefits. And that's why retaliatory tariffs are so barking dog mad.

 

Les Kom:

So the logical conclusion is, and you just mentioned it a minute or two ago, we need to get to a deal as soon as possible. And ultimately, I'm hearing that if you had your magic wand, that deal would move forward the reduction of tariffs generally, whether it's between Canada and the United States or, you know, globally around the world. But we need to get to a deal in order to get out of this lose, lose, lose situation is what I'm hearing.

 

Ian Lee:

Exactly so. I've been saying this since January. I had emails from across Canada from individuals calling me a traitor. it was quite funny. I've kept them all to by the way. And all kinds of names about how I was a moron and an idiot and they did use much worse language than that because they didn't understand that Donald Trump would never ever do a deal, which I simply don't believe by the way, he already did one. He did one in 2017 and he keeps saying he wants a new deal. He wants us to get rid of our protected industries. He has a long shopping list.

So, yes, he wants a deal. He's even got a shopping list for the deal. So, yes, he wants a deal. And so I've been arguing that. And then on last Friday, the Prime Minister of Canada, after announcing retaliatory tariffs, which I've already said I completely and categorically reject, he then turned around and said, by the way, I've advised the president or the president and I agreed that we are going to start to negotiate a deal right after the election. Well, that was music for my ears.

That was just magical, that announcement, because what that shows is, in my opinion, and we're not here to talk about politics, and I'm certainly not going to talk about political parties, but it tells me, and I've said this to several people since in the media, I think now the election, because of that announcement, this election has become Kabuki theater. It's not real. And let me explain that. All the people, all the parties are going out, so this is completely nonpartisan, they're all saying, retaliatory tariffs!

Smack Donald Trump in the face, punch him in the nose. So they're all in board. So they all can say, they can all say politically to the electorate, 77 % want this by the way. They can say, don't worry, we're smacking him in the head. But the moment the election is over, then we're going to do the real deal. What we're really going to do. That's what's going to be negotiated in Washington, I believe, shortly after the election and that is what is going to govern Canada going forward. And I do believe we're going to get a much more prudent and responsible and strategic deal that will lead to the elimination of all tariffs or almost all tariffs because I can't believe any prime minister will go back and say, by the way, I've kept all the tariffs. I've got a deal here and I've kept all the tariffs. You can't sell that. You'll be impeached. So, but we're going to have to. I don't ever sugarcoat this.

We're going to have to give up a whole bunch to get that deal. We're to have to open up those protected industries, which I think is a good thing, by the way. And I'm talking about supply management. I'm talking about the telecom act that prohibits foreign competitors from coming in. I'm talking about the airline act, even the bank act. Yes, we allow foreign banks into Canada. You know that, I know that. But there are two separate rules, one for Canadian banks and a more stringent set of rules for the foreign banks. Well, that's just a form of variation of protectionism. We'll have to deal with defense spending and bring it up.

We're going to have to deal with Arctic security because of the inclusions by the China and Russia. We're going to have to deal with the border. So I'm arguing that whatever we do in Washington, I believe it's not just going to be a tweaked Kuzma or USMCA so that Premier Ford can sell a bunch of more cars from Southern Ontario. I'm being a little bit sort of sarcastic there to get my point across. This is not about just another trade deal.

I believe we've got to negotiate, I'll use very slang colloquial English, the biggest honkin' treaty between Canada and United States that has ever been seen. It will not just be trade, it will deal with the border in concrete detail. What is an illegal migrant? How do we catch them? How do we remove them? How do we discipline them? How do we stop in a meaningful, serious way illegal drugs crossing the border. do we crack down? How do we crack down on illegal guns coming into Canada? So how do we deal with people smuggling? It's going to deal with all of these very big issues that are far beyond trade. So it's going to be a trade deal plus plus plus is what's going to be needed in my opinion, because the Americans have become, both parties, have become much more sensitive on these issues. The Democrats, I've read the polls, and I'm talking serious polls like the Pew Research Center, which is probably the most prestigious in the United States, it's a nonprofit, and showing how the Democratic Party probably lost because of two issues, illegal immigration and crime on the streets. And it doesn't matter what the elites say, doesn't matter what professors say. And so they've learned their lesson, I think.

At least I think they have. And so the Americans have become much, much more sensitive to these issues. And I'm hearing Democrats on television saying this, and I'm reading the New York Times, which is a very liberal paper, and there's Democratic liberal analysts saying this. So my point is, we can't sit there and say, well, you know, we really, you we don't mind illegal immigrants and, you know, we're very sensitive and we're good Canadians and warm and cuddly and all that. We've got to take it seriously. And while we're at it, let's deal with the guns coming across from the United States because those handguns are coming in illegally. know that. So I think that we're going to have a much bigger and more comprehensive deal that ultimately, I hope, will lead to the elimination of all tariffs in both directions. So we won't have softwood lumber disputes again, and we won't have supply management, and we won't have barriers on American companies coming into exporting product into agricultural markets and so on.

And I do not buy the argument we're gonna lose our identity. I've had so many arguments over my career in the university with professors that say, you know, we have to keep out Americans and have all Canadian only airlines. I said, why? Because we'll lose our identity? I said, I've flown around the world for 40 years over a hundred times. I've flown on Aeroflot and they've never made me speak Russian. I've flown on Lufthansa, I don't speak a word of German. I've flown on LOT, Polish LOT, don't speak a word of Polish. I've spoken many times on China Eastern Airlines, and I don't speak a word of Chinese Mandarin. So this idea, I am less Canadian because I go to Home Depot or I go to Whole Foods or I fly on United Airlines is specious, bogus nonsense. It doesn't, we don't lose our identity. We've been built with foreign capital in this country going from the very beginning of our country. We don't generate enough because we're too small and we have to bring in foreign capital. The question is, does it raise our standard of living?

And this is where we've gone down the wrong road in many respects over the many years because we've been asking the wrong question. And so we say we pass laws that are hostile or keep out foreign capital investment, which is the wrong way to go. We need to build up our infrastructure. We need to raise our standard. We absolutely must deal with our collapsing productivity, which is down to 50 % of the U.S., which is just catastrophic. So we've got some serious problems inside Canada that we've got to address which we can partially address through a new deal with the United States.

 

Les Kom:

Well, this is fascinating and we're so glad you have an opinion and you're not holding back. So that is excellent. We love that about you and your passion and experience absolutely show through. know, in closing, I'm going to take this as a positive, as an optimistic take and not because of the business that we're in here. It's because of your strong feeling, which sounds very realistic to me, that after the Canadian federal election, a real deal with real negotiations and a bigger deal than ever, more comprehensive, addressing a whole lot of issues that the US has had on its grievance list, and that might help us in the long run to a bigger, more comprehensive, better connection will be struck by a broad agreement that goes beyond trade. It includes border management and the other examples you gave. you know, April the 28th is not that far away. It's three and half weeks away. And if that starts to take shape after our federal election, I think that's the foreseeable future. And I think that's a positive and optimistic take. So I would like to close on that note and thank you so much for your experience, your expertise, your citing of data, your international experience and absolutely your passion. We're a bit taken aback that you don't speak Polish and yet we're able to travel on Lot Airlines and those other examples, but your point is well taken.

 

So Ian Lee, you're a great, great voice of reason and data and inspiration on the Ottawa scene. Thank you so much for speaking with us today. We really appreciate it.

 

Ian Lee:

Thanks very much Les, these are very important issues and I am optimistic about the future of our country. I really am once we get past the election and I do think we're going to go down the right road and because I have grandchildren, I'm sure you do, we all do, and the future is about our children and our grandchildren. We've got to make it better for them and we will, we will.

 

Les Kom:

Sounds good to me. Thanks so much again. Bye for now.

 

Ian Lee:

Thanks, Les.

 

 

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

 

The commentary is for informational purposes and is not being provided in the context of an offering of any security, sector or financial instrument and is not a recommendation or solicitation to buy, hold or sell any security. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.

 

Les Kom is an Investment Advisor with CIBC Wood Gundy in Kanata.  He/she and his/her clients may own securities mentioned in this column. The views of Kom vanderMaden Advisory Group do not necessarily reflect those of CIBC World Markets Inc.

 

For more information about this product, please contact your Investment Advisor.

 

 

[Speaker: Les Kom]

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Hello and welcome to today's episode of Lunch Money.

 

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My name is Les Kom and I'm a Senior Wealth Advisor and Portfolio Manager on the Kom Vander

Maden advisory team here at CIBC Woodgundy.

 

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I'm delighted that you're with us for today's topic, which is, how do you find the right

financial advisor for you?

 

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If you are looking for a financial advisor, this podcast is for you.

 

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Now, if you shop the marketplace out there, you'll see that there are many financial

advisors interested in winning your business.

 

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Finding the right advisor among many can be a challenge.

 

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The reality is there's a lot to think about and dig into.

 

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So for this episode of Lunch Money, we're going to go tapas style rather than a full

course heavy lunch.

 

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We'll concisely discuss five questions we believe you should ask of a potential financial

advisor.

 

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We trust that these five tapas will satisfy some of your appetite.

 

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and encourage you to reach out to us for more tips.

 

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Tapas.

 

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Here we go.

 

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Number one, does the advisor focus on investments only or do they also provide holistic

wealth planning that takes your full picture and goals into account?

 

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If they answer that they do provide holistic wealth planning, ask to see a sample of their

wealth plans.

 

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obviously with client names removed.

 

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Now, over the years, our team has found that families get a lot of value out of the wealth

planning we provide to them.

 

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For our clients, the wealth plan visually portrays their world and really shows what their

investments are for.

 

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Clients want to see whether they are on track.

 

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with their lifestyle and their legacy goals, and a wealth plan shows them.

 

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We review and update these wealth plans regularly with our clients.

 

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Number two, does the advisor have a working set of ears?

 

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You know, sometimes professionals talk more than they listen.

 

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But in this business, listening is a critical skill.

 

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Why?

 

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Because every family situation is different.

 

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If an advisor cannot listen carefully to learn what your world is all about,

 

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and reflect that back to you to show their understanding, then that is a red flag.

 

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It could mean that they run a cookie cutter practice where one size fits all.

 

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Or it could mean that they are running a factory rather than a boutique.

 

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More on that in a moment.

 

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Either way, a lack of listening ability will leave you feeling ignored to say the least.

 

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Number three, how many households does the advisor help?

 

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This simple question can tell you lots.

 

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We'll put it this way.

 

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If the answer is 200 families or more, and certainly if the answer is 400 or 500, you can

safely assume that personalized attention and service will be hard to come by.

 

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Okay, but perhaps the advisor has a large team, say five or six people.

 

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Does that change the situation here?

 

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Possibly.

 

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But in that scenario, you'd want to clearly know how many on the team are accredited in

financial planning and investment management, and which team member would actually be the

 

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advisor for you and your family.

 

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You may be meeting with the head honcho for the introductory meet and greet, but then you

might get delegated to someone else on a large team.

 

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Number four, ask this question, what is the advisor's investment strategy?

 

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If someone is going to manage your investments for you, they must be able to explain

clearly to you what their investment strategy is.

 

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If they cannot do this, walk away.

 

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Now, assuming they do lay out their strategy for you in a way you can understand,

 

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There are a number of aspects to listen for and to probe, such as how do they control

risk?

 

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What benchmark do they use to judge their performance?

 

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How do they try to minimize tax impact where possible?

 

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Do they use any investment solution that is suitable or do they focus on their firm's

house brand products and solutions?

 

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Does their expertise include investments in U.S.

 

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dollars?

 

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So you get the picture.

 

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There are number of aspects to listen for here and to probe so that you have a full

understanding of their investment strategy and capabilities.

 

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So we've now discussed wealth planning, listening skills, size of the practice, i.e.

 

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factory versus boutique, and investment strategy.

 

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It's time for one more tapas for today, and it's a doozy.

 

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Number five, how is the advisor compensated?

 

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Obviously, if you are going to pay for a professional service,

 

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You want to understand the professional's fees.

 

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You also want to know whether they earn revenue from any other sources other than their

clients.

 

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And you want to understand how their compensation model aligns them with you financially

and holds them accountable to you.

 

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So let's go through three models that are out there and we believe that

 

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in your discussions and exploration, you will encounter one or more of these three.

 

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One traditional model is to charge a commission every time there is a transaction.

 

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In this model, by the way, note that there are often other fees that may be charged, often

called administration fees for registered accounts like RSPs.

 

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In the commission-based model, the advisor may also receive revenue from sources other

than their clients.

 

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For instance, payments from mutual fund companies to the advisor, or payments from new

issuers to the advisor.

 

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Also, ask yourself, how would you feel if an investment were to be bought on commission,

regrettably then declines in value?

 

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and then is sold because there's a better opportunity.

 

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Well, how would you feel about paying a second commission in that case to sell the initial

investment and then a third commission to buy the new and improved investment?

 

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Also be aware that commissions may not be tax deductible.

 

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All right, a second compensation model is where the advisor is on salary.

 

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Fair enough.

 

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The salary model is easy to understand.

 

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But ask the advisor, how does this align them with you financially if they are paid their

salary, whether or not you succeed?

 

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In addition,

 

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Ask them whether they are eligible for a performance bonus from their firm above and

beyond their salary, and what is it that they need to do in order to receive that

 

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performance bonus?

 

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Okay.

 

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Moving along, we come to a third compensation model, which is an annual percentage

management fee, which is linked to the bottom line value of your investments.

 

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This model eliminates commissions and administration fees.

 

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It should also eliminate revenue from any sources other than the clients, like mutual

funds,

 

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and new issuers.

 

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And that can mean lower costs while increasing transparency.

 

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This model should also give you access to all the advisors available services beyond

investment management, such as professional wealth planning, educational opportunities,

 

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specialist resources elsewhere in their firm, and help for your children, for example.

 

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In taxable investment accounts, the annual management fee may be tax deductible.

 

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Very importantly, this model motivates and aligns the advisor with you financially.

 

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If you succeed and grow, so does the advisor.

 

91

00:10:45,333 --> 00:10:54,676

But if you experience a decline in your investments in a given year, the advisor's revenue

declines.

 

92

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This is the model our team uses because it is transparent, flexible,

 

93

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and aligns us fully with our clients and only with our clients.

 

94

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And by the way, this model is how large institutional clients are treated.

 

95

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Why shouldn't you benefit from the same approach?

 

96

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Well, we've now covered five key questions at this point in the podcast for you to ask

when you look for a new advisor and want to find that advisor who is right for you.

 

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You may be glad at this point that we went tapas style for this episode.

 

98

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There's a lot to consider.

 

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And we haven't even touched on other considerations like chemistry and rapport.

 

100

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But we're confident that these five points that we've shared with you today give you a

very valuable guide as you look for the right advisor for you.

 

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If you'd like still more pointers or want to discuss the five points that we flagged

today, don't hesitate to get in touch with us.

 

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We'll do our best to be helpful.

 

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In the meantime, be sure to follow our team on social media.

 

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You'll find us on Facebook, on LinkedIn, and soon on Instagram as well.

 

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This is Les Kom of the Kom-Vander-Maden advisory group at CIBC Wood-Gundy saying thanks

for listening today.

 

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Now, please stay tuned for some important disclaimers.

 

No, I borrowed it from Peter to pay you.

 

I still owe Paul.

 

Welcome back to Lunch Money.

 

My name is Jeff VanderMaden, Senior Wealth Strategist and Portfolio Manager with Kom

VanderMaden Advisory Group at CIBC Private Wealth.

 

The expression Rob Peter to pay Paul can be traced back to literature of the late 1300s

with later iterations such as To Unclothe Peter to clothe Paul and Maneuvering the

 

Apostles.

 

English folklore has it that in the 1500s, there was an appropriation of the assets of St.

 

Peter's Church in Westminster, London, to pay for the repairs of St.

 

Paul's Cathedral.

 

It was then that this expression gained its traction, and today you might find an

interpretation of this practice in your portfolio.

 

It's no secret that for the better part of the last 40 years, savers and retirees

 

have watched bond and GIC rates slide from the unthinkable double digit rates of the 1980s

to the sub 1 % rates we recently saw during the early parts of the pandemic.

 

I'll point out that those recent early pandemic interest rates were generating a negative

real rate of return, meaning it was effectively costing people money to hold short-term

 

GICs and money market instruments.

 

Now those listeners who are say my age or younger, you've only heard the tales of the 18 %

mortgage and 15 % GIC.

 

Seems as far-fetched as Bigfoot and the Loch Ness Monster.

 

It's likely that your first mortgage was in the range of say 6 % and rather than become a

saver into that declining interest rate environment, you became an investor and hopped

 

aboard the burgeoning population of NASDAQ investors.

 

The truth of the matter is that the first wave of baby boomers were hitting their mid 50s

by the time the tech bubble was reaching its climax.

 

And although they could still get their hands on 6 % GICs, they were suffering from

interest rate trauma.

 

So they started to turn to the stock market for returns.

 

And hey, who doesn't want to buy stocks after they've appreciated 50 % or more, right?

 

I vividly remember early in my career taking investment orders from what I call GIC

defectors who wanted to invest in the NASDAQ.

 

They didn't know what it was, but they knew it was high flying and everyone was making

money at it.

 

As a precaution,

 

I had to get them to sign disclosures acknowledging they were taking this step against our

recommendation.

 

It was a crazy start to my career.

 

Anyways, savers, those with money who were perfectly content to lend their money to the

bank or government in the form of GICs and bonds, needed to become investors if they

 

wanted their capital to stay ahead of tax and inflation.

 

So some cashed in their savings bonds to buy companies like Nortel and JDS.

 

and others sought refuge in dividend payers like Canadian banks, pipeline, utility, and

telecommunications companies.

 

Skip to present day, and here in Canada, you'll find one of the highest yielding stock

markets in the developed world.

 

In fact, as of June 2024, the Canadian stock market had a dividend yield that was almost

three times that of the U.S.

 

market.

 

Want proof?

 

Pull up onto your screen the top 60 stocks in Canada by market cap and let your eyes

wander down the yield column.

 

Now do the same thing for the top holdings of the S &P 500 or NASDAQ.

 

It's not even close.

 

Now there are theories as to why the US market yields so much less.

 

Bottom line is that Canadians have become very attracted and accustomed to stocks that pay

higher levels of dividends.

 

Now I'm not ignorant to some of the benefits of having Canadian investments drive tax

efficient, steady, and sometimes growing amounts of cash in your portfolio.

 

We're on the same page there.

 

But let me point out the obvious.

 

Unlike your old GICs that had some levels of guarantee to them, the stock market is

anything but guaranteed.

 

In exchange for that 4 % plus dividend yield,

 

you have to accept a level of volatility with your capital.

 

It's unavoidable.

 

This is the point in the podcast where I might offend some yield oriented investors.

 

I'm going to pick on one of your favorite dividend darlings and you're going to probably

have an adverse reaction when you hear it.

 

I'll disclose my victim, then ask that you hit pause, collect your emotions, then hit play

again and hear me out with an open mind.

 

Enbridge.

 

I'm going to pick on Enbridge to prove my point.

 

This is a Canadian pipeline and energy company that pretty much every Canadian adult knows

about.

 

This company experienced phenomenal growth up until 2014 or so.

 

Revenue, cashflow, earnings, dividends, you pick a metric and the growth was substantial.

 

Those who traded in their diminishing GIC and bond returns

 

were reaping dividend yields north of 3 % and pretty consistent capital appreciation that

would have seen their annualized returns into the double digits.

 

As I just said though, this growth seemed to peter out in late 2014 to early 2015.

 

Revenue started to plateau, even decline.

 

Earnings per share flatlined and the share price entered its first real slump.

 

Fast forward to today and these shares are paying out a dividend yield of almost 6%.

 

Not only that, the company has raised its quarterly dividend through thick and thin.

 

Now this all sounds pretty good, right?

 

It sounds appealing?

 

Well, this is where I make my Peter and Paul point.

 

For the past decade, while the dividend per share has more than doubled, revenue per share

is almost half what it was then.

 

Earnings

 

and cash flow per share are only marginally higher than they were a decade ago.

 

So let me restate the obvious here.

 

The dividend has doubled while key P &L figures have either declined or remained

relatively flat over the period of a decade.

 

So I ask you, where is the cash coming from to pay out that growing dividend?

 

Let me share with you a few more points about Enbridge that might put this entire point

into perspective.

 

As of January 23rd, the shares were trading at around $65.

 

Enbridge shares first hit $65 back in 2014, December of 2014.

 

A decade ago, these shares were trading at the same price as they are at the time of this

recording.

 

The number of shares that Enbridge floats in the market has almost tripled over the past

decade and their debt level has more than doubled during this same period.

 

This all says two things.

 

First is that your capital has basically range traded for a decade.

 

So you've taken on exceptional volatility for a bond like return.

 

Second, the company is effectively diluting their balance sheet by taking on more debt and

more shareholders to keep this story alive.

 

They're raising capital and debt, but they aren't raising top line sales.

 

Sounds to me like Peter and Paul might have their hand in this story.

 

If sales and cashflow aren't growing, where is the money for the rising dividend coming

from?

 

It becomes more clear

 

why the share price hasn't really grown for a decade.

 

And just so you don't think I'm picking on Enbridge alone, I could easily rattle off a

dozen Canadian companies just like this.

 

Juicy dividend yield, volatile share price with marginal and or deteriorating financial

fundamentals.

 

You want to get me fired up, ask what I think about Canadian telecommunication stocks as

an investment.

 

Anyways.

 

I'm all for trolling for income in the stock market.

 

Just remember these two words, caveat emptor.

 

And please, if you spend more time on your computer searching for your next putter or pair

of jeans than you do researching the next stock you're going to buy, do yourself a favor

 

and employ a professional to do the stock picking for you.

 

And let's be clear, some of those professionals are going to own some of these dividend

traps in their portfolio.

 

passive index solutions have to, some active managers might be forced to if they're hand

tied to say the Canadian dividend market, and some managers might buy these stocks on the

 

dips.

 

But make no bones about it.

 

In my opinion, there are too many stocks out there, high dividend yielding stocks that are

nothing more than high yield bonds in disguise.

 

Take the time to know what you're buying.

 

Spend the time getting acquainted with the financial statements.

 

Don't take for granted that a blue chip name is a safe play on yield.

 

Know if a company is robbing Peter to pay you.

 

To wrap up, I do appreciate that for the better part of my career, the system, the

economic backdrop, whatever you want to call it, has made it very difficult for low risk

 

investors and savers to maintain pace on a real return basis.

 

Our ask is that you navigate this low-rate environment by taking two valuable steps.

 

First, work with a financial planner to develop a plan to account for your unique

financial and lifestyle goals.

 

Through this process, you might find some unutilized or underutilized strategies, some

risks that maybe you weren't aware of, and you might just find that you don't need to take

 

on as much investment risk as you think.

 

Second,

 

Be open-minded to yield producing investments outside of stocks and bonds.

 

So preferred shares, income generating structured notes, real assets like infrastructure

and real estate, covered call strategies, there's numerous options out there.

 

There are likely more options out there than you can imagine.

 

So please be open to exploring them.

 

Thanks for listening.

 

We really appreciate you carving time out of your day to listen to us.

 

We also post a lot of valuable information through our team Facebook and LinkedIn pages,

so be sure to follow us there also.

 

Have a great day and stay tuned for our next episode of Lunch Money.

 

I'm your host, Jeff VanderMaden.

 

Please stay tuned for some important disclaimers.

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and ÒCIBC Private WealthÓ are trademarks of CIBC, used under license. ÒWood GundyÓ is a registered trademark of CIBC World Markets Inc.

The commentary is for informational purposes only and is not being provided in the context of an offering of any security, sector, or financial instrument, and is not a recommendation or solicitation to buy, hold or sell any security.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.

Jeff van der Maden is a Portfolio Manager with CIBC Wood Gundy in Kanata. He and his clients may own securities mentioned in this column. The views of Jeff van der Maden do not necessarily reflect those of CIBC World Markets Inc.

GIC - For more information about this product, please contact your Investment Advisor.

 

00:00:03.724 --> 00:00:10.916

Hello and welcome to today's podcast from the CIBC Woodgundy Kom Van der Maden Advisory Group.

 

00:00:10.916 --> 00:00:20.339

You know, our clients come to us because they're facing a situation in their financial lives that they need some help with.

 

00:00:20.339 --> 00:00:24.190

And we've dealt with a number of very different situations. Today's issue or situation that people have found themselves in is how to generate income from cash that you have in hand.

So here's the situation. You have a seven figure sum of cash on hand. So $1 million or more of cash on hand, but you need income. You need income from this cash and you need it in a steady, reliable way. That might also come with some tax breaks.

 

00:00:59.201 --> 00:01:02.402

So how to do this is the topic today. And by the way, your stash of cash could have come from any number of sources.

You might have sold a rental property, a farm, a piece of land.

Maybe you exited a business that you built up successfully over many years, took a lot of risk.

 

00:01:21.827 --> 00:01:28.749

Now you've sold it, you succeeded, and you have got your equity out in the form of this

cash. Now you want to put it to work for you.

 

00:01:31.156 --> 00:01:33.547

Maybe you received an inheritance.

 

00:01:33.547 --> 00:01:35.988

Maybe you've gone through a divorce.

 

00:01:35.988 --> 00:01:38.069

Maybe you've even won the lottery.

 

00:01:38.069 --> 00:01:41.990

There could be any number of sources of the cash you have on hand.

 

00:01:41.990 --> 00:01:47.753

But the bottom line is you're cash rich, but income poor.

 

00:01:47.833 --> 00:01:49.393

You need income.

 

00:01:49.474 --> 00:01:56.336

You want the most income you can reliably get with the least amount of tax payable.

 

00:01:56.696 --> 00:02:00.018

And obviously you don't want to lose your capital.

 

00:02:00.018 --> 00:02:00.716

So

 

00:02:00.716 --> 00:02:02.327

How can you do this?

 

00:02:02.928 --> 00:02:13.154

Well, one obvious option that Canadians are familiar with is placing your money at the

bank in a high interest savings account.

 

00:02:13.515 --> 00:02:30.752

Well, today we all know that unfortunately the rates of interest paid on these savings

accounts are fairly modest and in addition, any interest earned in those savings account

 

00:02:30.752 --> 00:02:32.802

will be fully taxed.

 

00:02:33.083 --> 00:02:47.407

So in effect, once you take away tax and you're starting with a modest interest rate to

begin with, then factor in inflation, your money is eroding in value over time.

 

00:02:47.407 --> 00:02:52.688

So this is not a great option for most people in terms of generating income.

 

00:02:53.288 --> 00:03:00.780

Another choice that is very familiar is GICs, guaranteed investment certificates.

 

00:03:00.824 --> 00:03:06.296

These certainly have a place somewhere in a portfolio of investments.

 

00:03:06.296 --> 00:03:14.158

They will earn a little bit more than the interest rates on a savings account at the bank.

 

00:03:14.158 --> 00:03:20.119

However, it's only a little bit more and they are still fully taxed.

 

00:03:20.119 --> 00:03:28.642

And let's face it, interest rates have fallen back so that they're not as attractive as

they were a year or two ago.

 

00:03:30.188 --> 00:03:36.441

consideration with respect to GICs is lack of liquidity.

 

00:03:37.002 --> 00:03:52.260

If you have a three-year GIC, normally if you need to access the capital, you will either

have to wait the full three years or if you're able to break the GIC, you will potentially

 

00:03:52.260 --> 00:03:59.954

lose any interest that you've earned or accrued up to that point in time.

 

00:04:01.518 --> 00:04:03.499

So moving on.

 

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What are some other options beyond savings accounts and GICs?

 

00:04:10.795 --> 00:04:22.284

Well, in our practice, we deploy a professionally designed suite of investments in

different areas of financial markets.

 

00:04:22.304 --> 00:04:31.712

And we customize this portfolio investments depending on your family situation and more on

the customization a bit later.

 

00:04:31.712 --> 00:04:34.232

First, let's go through some of the options.

 

00:04:34.232 --> 00:04:44.307

beyond GICs and savings accounts that we're able to access for our clients in order to

generate the income that you're looking for.

 

00:04:44.488 --> 00:04:47.209

So one option is bonds.

 

00:04:47.209 --> 00:04:49.310

Bonds are a form of debt.

 

00:04:49.310 --> 00:04:51.241

They can be issued by governments.

 

00:04:51.241 --> 00:04:53.533

They can be issued by companies.

 

00:04:53.533 --> 00:05:01.497

They pay a rate of interest in exchange for the government or the company borrowing your money.

 

00:05:01.497 --> 00:05:03.458

Bonds can make you more than GICs, they may come with some potential tax breaks depending on how the bonds are

managed.

 

00:05:13.787 --> 00:05:15.948

So there's one option.

 

00:05:16.929 --> 00:05:21.593

A second option is something called preferred shares.

 

00:05:21.593 --> 00:05:32.864

Preferred shares are another form of debt issued by a company, by a business, and instead of paying an interest rate, they pay a dividend.

 

00:05:32.864 --> 00:05:36.365

A dividend is usually declared and paid quarterly.

 

00:05:36.365 --> 00:05:43.977

The dividend rate is typically higher than the interest rate on bonds.

 

00:05:45.397 --> 00:06:01.792

If the preferred shares are issued by a Canadian company, they will potentially qualify for the Canadian dividend tax credit, which means your rate of tax on that income is lower than it would be on GIC income or really on any form of interest income.

 

00:06:10.924 --> 00:06:15.146

So those are preferred shares.

 

00:06:15.267 --> 00:06:24.333

Moving on, we then have regular shares, also called common shares, also called stocks.

 

00:06:25.014 --> 00:06:31.358

And many companies issue common shares or stocks that pay dividends, again, quarterly.

 

00:06:34.812 --> 00:06:41.074

Many of those dividend paying shares are issued by companies in Canada.

 

00:06:41.375 --> 00:06:49.919

They could be banks, they could be pipelines, they could be telephone companies, they could be all sorts of things.

 

00:06:50.800 --> 00:06:56.108

If they're issued in Canada, then the dividends likely will qualify for the Canadian dividend tax credit, providing the

recipient with that very nice tax break.

 

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However, when we're talking about common shares or regular shares or stocks, it's not all about the dividend income.

 

00:07:19.205 --> 00:07:25.076

We would like those common shares to also grow over time as well as getting paid the income that comes to us through the dividends.

 

00:07:32.820 --> 00:07:49.579

Next, we then move outside of Canada, because outside of Canada, there are many businesses in different sectors that then exist in Canada that also pay dividends on their common shares or on their stocks.

 

00:07:52.681 --> 00:08:02.508

These are not Canadian businesses, therefore their dividends as foreign income will normally be fully taxed.

 

00:08:02.508 --> 00:08:06.680

because they do not qualify for the Canadian dividend tax credit.

 

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So what's the upside?

 

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The upside is, as mentioned, there are many, many more opportunities to own shares or stock in powerful, successful businesses outside of Canada and enjoy the dividend income that they may pay.

 

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Canada is a great place, but we are a small fish in a big world pond.

 

00:08:33.015 --> 00:08:42.900

And so whether it's the United States or elsewhere around the world, there are many

interesting opportunities that we simply cannot get in Canada.

 

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So why not behave like a Canadian pension fund?

 

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They do say imitation is the sincerest form of flattery and make sure we benefit from an allocation to businesses outside Canada as well, including those that pay us dividends and have some potential for growth over time.

 

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Moving on from regular stocks, there are two more categories of income generating investments that our team cherishes.

 

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One is called infrastructure, global infrastructure.

 

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These are investments in bridges, ports, airports, toll roads.

 

00:09:28.754 --> 00:09:38.102

all sorts of long-lived capital assets that generate regular revenue from the users of that infrastructure.

 

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The users of the bridges, the airports, the toll roads, and so on have to pay fees.

 

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That fee is the regular revenue that the infrastructure earns.

 

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This is really a fascinating area and it's a point of success for pension funds.

 

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And we have made it a point of success for our clients as well.

 

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We on our team have cherry picked a couple of infrastructure vehicles that we use for our clients that generate income.

 

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And we also have the potential for growth over time.

 

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Next and quite similarly, real estate opportunities are out there for consideration.

 

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Real estate is very familiar to many Canadians.

 

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In the financial markets world, we can invest in real estate without the hassle of managing the real estate and still enjoy income from the real estate investment.

 

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It might be Canadian real estate, it could be real estate in the United States or elsewhere around the world.

 

00:10:54.688 --> 00:11:08.569

Now, there are still more options that our team uses, but that's a good overview of some of the key ingredients that we will consider in building an income generating portfolio of professionally managed investments for the cash that you want to put to work in order to pay you income.

 

00:11:18.698 --> 00:11:24.024

I hope we've made it clear that in addition to generating income.

 

00:11:24.024 --> 00:11:37.083

There can also be some potential tax breaks for a number of these investments, and there can also be potential for growth in the value of the investment over time.

 

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Now, I did promise earlier that we'd come back to the question of customization.

 

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We, our team, customizes for every family.

 

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We get to know you and your family as deeply and as carefully as we can.

 

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Our ears are wide open to what you tell us, what you answer to the questions we put to you, what we learn about your world, how you got to where you are today, where you see yourself going in the next five, 10 years, what's important to you, what keeps you up at night.

 

00:12:15.184 --> 00:12:22.316

Having listened carefully to each family's story, we then customize and let us give you two examples of customization that we do day in, day out.

 

00:12:31.220 --> 00:12:44.210

One is the recognition that some people are more conservative while other people are less conservative when it comes to taking risk in financial markets.

 

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We adjust for both.

 

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This is not a one size fits all practice that we're running here.

 

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We will adjust according to your risk comfort and that includes when we are working to generate income for your lifestyle needs.

 

00:13:03.816 --> 00:13:06.578

Here's a second example of customization.

 

00:13:06.578 --> 00:13:16.436

Are you a snowbird or do you do other traveling around the world where having US dollar income could be very helpful?

 

00:13:16.436 --> 00:13:22.629

Instead of wondering when you should change your Canadian dollars, what's the right time to convert?

 

00:13:22.629 --> 00:13:25.371

Are you getting a good exchange rate?

 

00:13:25.371 --> 00:13:29.133

Are you paying a commission every time you convert?

 

00:13:29.733 --> 00:13:35.636

What about having income generated by your investments in U.S. dollars?

 

00:13:36.597 --> 00:13:39.028

Well, we do a lot of U.S. dollar investing and our snowboard clients as well as our traveler clients have benefited from this and greatly appreciate the convenience and simplicity that it brings.

 

00:13:54.088 --> 00:13:57.489

Our clients truly love it.

 

00:13:57.489 --> 00:14:00.080

Believe it or not, some of these U.S. dollar income generating investments can even qualify for certain potential tax breaks.

 

00:14:08.752 --> 00:14:10.863

So let's press pause there.

 

00:14:10.863 --> 00:14:14.698

We hope we've given you a flavor of the professional options that are available to you through your team if you have a

seven figure sum of cash that you'd like to put to work in a sensible, thoughtful, prudent way to generate income for your lifestyle, perhaps the potential for some growth and perhaps some potential tax breaks along the way.

 

00:14:38.148 --> 00:14:39.908

How does that sound?

 

00:14:39.908 --> 00:14:44.120

If it sounds interesting and you'd like to learn more, just reach out. Connect with us, drop us a line.

 

00:14:46.712 --> 00:14:52.555

We'd be delighted to hear from you and to have a conversation about you and your world.

 

00:14:52.555 --> 00:14:54.096

Thanks very much for listening.

 

00:14:54.096 --> 00:14:55.857

That's all for today.

 

00:14:55.857 --> 00:14:57.618

We'll see you next time.

 

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and CIBC Private Wealth are trademarks of CIBC, used under license. Wood Gundy is a registered trademark of CIBC World Markets Inc.

The commentary is for informational purposes only and is not being provided in the context of an offering of any security, sector, or financial instrument, and is not a recommendation or solicitation to buy, hold or sell any security.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.

Les Kom is a Portfolio Manager with CIBC Wood Gundy in Kanata. He and his clients may own securities mentioned in this column. The views of Les Kom do not necessarily reflect those of CIBC World Markets Inc.

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Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors