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We are live.
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Alright, good morning everyone and.
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welcome. My name is Nathan Thornton. I'm the branch manager at Wood Gundy here in.
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Calgary and I look after Lethbridge as well and on behalf.
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of our all of our advisors as well as Toby Dragland and.
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all of the advisors and teams up in Edmonton, it is a pleasure.
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to welcome all of you today.
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A little bit of housekeeping before we get started. We do have a Q&A that I've.
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activated. Feel free to throw your questions in there if you.
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would like no promise that we're gonna have time to get to them, but.
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we will do our very best if we have some time towards the end.
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May you live in interesting times. It's often.
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thought to be a Chinese proverb. It's actually more of a modern.
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western curse with interesting being synonymous.
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with unsettled or challenging. And I think there's.
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a large number of us that would be very happy with less.
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interesting times for a little while. We are fortunate here.
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with Gundy to have some very experienced and knowledgeable advisors to help guide.
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you when times do get interesting. And we also have the expertise.
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of some of the brightest economic and financial minds in the.
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world and our guest today would definitely fit into this category.
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You may have read his most recent interview in The Globe and Mail earlier this.
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week, Mr Benjamin Tal. He's the deputy chief economist.
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for CBC Capital Markets, a frequent contributor to regional.
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and National media, advises clients, industry groups.
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trade associations and governments. He is always.
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very entertaining and insightful, and we are thrilled.
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that he found some time in his busy schedule for us today, ladies and.
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gentlemen, it is a pleasure to introduce Mr Benjamin Tal Ben over you.
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Thank you very much. It's a pleasure to be here. Listen, I have about a 30.
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minutes to tell you everything I know about the situation. That's.
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maybe 29 minutes too long because of course, if they're.
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real and ultimate measure of intelligence is.
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what you do, then the next few weeks, months and.
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quarters will test the economic IQ of every central.
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banker in the universe because they are the first admit that they have.
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no clue what's happening. Just the other day, somebody asked me.
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what do you think Putin will do next? And I said.
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what next time I have coffee with you, I will ask. Of course, nobody knows.
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Including Putin, by the way. But we have to ask some questions.
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and see what makes sense and what doesn't and have some working.
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assumptions, reasonable working assumptions, in order to say.
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something about the future. So very, very quickly, if you go to the.
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first chart, I would like to discuss a few things with you over the.
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next 20-30 minutes. The first one is.
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to what extent we are back to the 70s. People are talking about.
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it more and more inflation is back. We know the story, we discuss Putin.
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You read the newspapers. What's going on? I would like.
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to discuss really the economic story as far as North America.
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is concerned, especially to what extent it.
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is a recessionary or inflationary and.
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clearly the long term implications of this.
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crisis that are more predictable, the virus unfortunately.
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still with us, we have to have a working assumption about the coexistence.
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the economy and the virus inflation, the elephant.
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in the room, how high, how long will discuss, of course.
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you talk about inflation.
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You talk about interest rates are rising very quickly, the.
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Bank of Canada in July will go 75.
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How many more moves our aggressive and real estate if?
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we have time because it's very sensitive to higher interest rates so.
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very quickly, let's go to the next chart and discuss the 70s.
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This guy is not bug and that's maybe a good thing.
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or maybe not, I don't know, but maybe other many other things.
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are back. The pricing power of OPEC is bug.
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because as you know, Canada, Alberta.
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The US were not producing as much as we.
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used to because green is a plastic block, we.
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all know that. So the pricing power of OPEC and OPEC.
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plus is back and that's exactly what we have seen in the 70s.
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Back then, there were Soviet tanks.
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Today they are Russian tanks, tanks nevertheless.
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and Baghdad, inflation was rising and inflation.
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today is rising. So it's very similar to the 1970s.
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And remember, the 1970s ended with the.
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Depression of the early 1980s. So we really have.
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to look at this situation and ask very difficult questions there.
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is one significant difference between.
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the 1770s and today and that's.
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the next shot here. We are talking about.
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inflation expectations.
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Something that I would like you to really understand. It's very important.
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At the end of the day, despite the noise in the media despite.
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everything else, at the end of the day this.
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is not about inflation.
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This is about the cost of bringing inflation.
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down to 2%.
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The Bank of Canada and the Fed over the past 40 years.
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Established their reputation as inflation.
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fighters. They have a target they don't want.
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to toss it away. They will do whatever.
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it takes to take that inflation.
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To 2% to target, yes, maybe they will tolerate.
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higher inflation next year. But beyond that, I can tell you that inflation.
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will be 2% and they will do whatever.
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it takes.
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Even if it means taking this economy into.
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a recession, because if you give the Bank of Canada 2.
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o options, one is inflation expectations all.
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over the place.
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The other is a recession. They will take recession any day.
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Therefore, they are telling you they will do whatever it takes to.
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make sure that you and I don't believe.
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that impression will be 5% to 3.
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ree years from now. That's their job, so.
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given the importance of expectations.
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let's discuss it for two minutes and let's go to the next chart.
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When it comes to shipping your expectations in terms of.
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repression, according to service, people focus on four prices.
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The price of bread, the price of milk, the parts of.
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gasoline and of course, of course. Of course, the price.
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of beer.
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And you can see that the IT.
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is much higher now than over the past 20 years.
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although much lower with the exception of gasoline.
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Compared to the 70s, so that's one big difference. Now let's.
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go to the next chart and see how people get their information and.
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where they get this information. And according to service and this.
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is not a joke, this is real, the highest credibility.
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score when it comes to information about inflation is social.
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media really.
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That's where people get their information. Now the good news is.
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that the Bank of Canada has a Twitter account.
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The bad news? Next chart.
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Nobody is following them.
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So maybe Justin Bieber should be the.
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Governor of the Bank of Canada. Maybe somebody will listen, but the.
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point here beyond the joke is that the Bank of Canada cannot tweet.
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its way.
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To lowering your expectations, my expectations.
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They have to show us that they are. They mean business, are you show?
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it by raising it to threats? Not slowly but.
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aggressively. That's why the next move by the Bank of Canada will.
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be 75. The next move after that, another.
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5. So they are moving very, very quickly in order.
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to make sure that people understand.
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That they are very serious about expectations.
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and they are not just.
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Playing games so that's more or less where we are establishing.
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that. Now let's discuss very quickly the.
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issue of the terrible situation in Europe and.
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from an economic perspective, I will set the following.
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to what extent.
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The wall.
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In Europe, from our perspective is recessionary.
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or inflationary. Clearly it's recessionary for Russia.
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the Ukraine and even some countries in.
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Europe, but as far as we are concerned, we.
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are basically twice removed from the situation.
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and Canada actually is benefiting from the situation.
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with the commodity market. So I say from our.
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perspective, the situation is not recessionary, it's clearly inflationary.
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much easier is to predict.
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the long term implications of this crisis.
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And you can sit in front of you. First of all this.
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is the end of the post Cold War order unfortunately.
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we are back to some sort of a Cold War.
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Russia is the papaya country. There is no question about.
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it. And in the Cold War you are a third party you.
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have to choose a side. We know where we are. Where is China?
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s allies are in China. Very interesting.
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We are in the midst of a global arms race. I'm investing in defense.
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because spending everywhere.
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Are going to defense and they are rising quickly, cyber.
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very low probability, high impact scenario the.
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Russians are very good in cyber. The Americans are better.
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Split on it.
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Two Internets that will not be talking to each other. A real possibility starting.
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to open already Deglobalization started with Trump continued.
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during covered, clearly accelerated during the.
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Episode in Europe. So clearly the globalization.
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is a major, major issue and we have a situation which if.
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globalization was inflation, disinflationary.
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guess what the globalization is, we'll discuss and greener.
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faster I believe. So you go back to November.
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of 2011, I believe it.
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was in Japan, the nuclear.
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Accident there and angular, Merkel said. You.
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I don't want any.
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And nuclear in Germany. Shut it down. They did you.
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need energy. What do you call Putin all of the sudden 40%?
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of your energies coming from Russia. Now they're trying to remove.
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themselves from Russia. Greener. Faster. I think so. I'm in this.
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space. So that's something that we have to take into account. So this.
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is the situation now. Given what?
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we see in Europe, it's more inflationary as far as we are concerned.
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less recessionary. Let's go and discuss a few more.
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things. And the next chart is this 2022.
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00:10:20.138 --> 00:10:21.298
The year of the Tiger.
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The most unpredictable creature out there.
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Why? Because of the next job.
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What is this number very quickly?
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It is π.
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In the middle of an economic presentation, because Pi happened.
00:10:41.308 --> 00:10:45.168
to be the next Greek letter that comes after Omikron.
00:10:45.168 --> 00:10:45.168
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You see where I'm going with that?
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If you think that you cannot get a straightforward answer from an economist.
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try a virologist. They have no clue, but.
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hat they're telling me about the end of this madness. We will.
00:11:00.088 --> 00:11:03.768
Because there will be more variance. So let's see what we have we have.
00:11:03.768 --> 00:11:03.768
00:11:05.308 --> 00:11:05.948
The tiger.
00:11:06.608 --> 00:11:09.078
And we have Pi. You see why I could resist?
00:11:10.048 --> 00:11:13.138
It's a great movie, great book if you haven't seen it, so.
00:11:13.138 --> 00:11:16.278
it's on Netflix has no significance whatsoever.
00:11:16.278 --> 00:11:19.378
to what I'm talking about, but I couldn't resist. But the point that.
00:11:24.268 --> 00:11:27.268
We have to have a working assumption about coping.
00:11:28.368 --> 00:11:31.638
And I discussed the situation with many people in the field.
00:11:31.638 --> 00:11:34.848
and there is a consensus the consensus is.
00:11:34.848 --> 00:11:37.918
that the virus will be with us, there will be more variants, but we will be able.
00:11:37.918 --> 00:11:40.978
to handle it. Namely, it's reasonable to assume as they.
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king assumption because you need a working assumption the.
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2022 is going to be.
00:11:48.468 --> 00:11:51.498
A transition you from a pandemic.
00:11:51.498 --> 00:11:54.958
to an endemic it doesn't mean that COVID is dead, but.
00:11:54.958 --> 00:11:58.258
as a society, as an economy, we will be able to handle.
00:11:58.258 --> 00:12:01.298
it. We will be dancing to the tune of COVID.
00:12:01.298 --> 00:12:05.338
It will be a bit volatile, but it doesn't go into control.
00:12:05.338 --> 00:12:08.418
our life. It doesn't going to control the economy.
00:12:08.418 --> 00:12:11.558
the way it did in previous waves. That's a reasonable.
00:12:11.558 --> 00:12:15.298
working assumption, establishing that we.
00:12:15.298 --> 00:12:17.318
can now proceed and discuss.
00:12:17.698 --> 00:12:21.128
The elephant in the room and.
00:12:21.128 --> 00:12:24.328
that's inflation. So let's go to the next chart please.
00:12:24.328 --> 00:12:27.488
and discuss some of the sources of inflation.
00:12:27.488 --> 00:12:30.728
because from the media and everything.
00:12:30.728 --> 00:12:33.378
else, it's very overwhelming. Everybody's talking about it.
00:12:34.428 --> 00:12:37.698
And I find it less overwhelming if you break it down.
00:12:37.698 --> 00:12:38.958
to the sources.
00:12:40.068 --> 00:12:43.278
Of inflation. And then I ask myself for.
00:12:43.278 --> 00:12:46.458
each source, and there are four of them. How COVID.
00:12:46.458 --> 00:12:49.478
sensitivity is? Because if it is COVID sensitive.
00:12:49.478 --> 00:12:51.328
and this is a transition year.
00:12:52.988 --> 00:12:56.338
Then dot source of attraction will diminish.
00:12:56.338 --> 00:12:59.488
with copied. So let's discuss this is the first.
00:12:59.488 --> 00:13:02.838
chart, which is a clearly energy and we are in the midst.
00:13:02.838 --> 00:13:05.918
of an oil shock as very now take.
00:13:05.918 --> 00:13:08.978
oser look at this chart and you can see that every.
00:13:08.978 --> 00:13:11.778
time we add an oil shock.
00:13:12.638 --> 00:13:14.558
Two minutes after where the recess.
00:13:15.558 --> 00:13:18.668
And people say oil shocks lead to recessions. And I said no.
00:13:18.668 --> 00:13:18.668
00:13:19.598 --> 00:13:22.728
It's not that oil shocks led to recessions in the past. It.
00:13:22.728 --> 00:13:25.868
was the response to oil shocks with the.
00:13:25.868 --> 00:13:28.318
higher interest rates that kill their economy in the past.
00:13:29.038 --> 00:13:29.948
So the question is.
00:13:30.738 --> 00:13:34.088
Our sensitive is the economy to higher energy.
00:13:34.088 --> 00:13:37.348
prices and the short answer is the next chart it is.
00:13:37.348 --> 00:13:38.748
less sensitive than it used to be.
00:13:39.768 --> 00:13:42.918
This is basically the measure of sensitivity to.
00:13:42.918 --> 00:13:46.118
energy prices in the economy as well, and it's down at any point.
00:13:46.118 --> 00:13:46.518
in time.
00:13:48.218 --> 00:13:50.708
We have a tug of war.
00:13:51.518 --> 00:13:52.398
Between.
00:13:53.668 --> 00:13:55.358
Efficiency, energy efficiency.
00:13:56.038 --> 00:13:56.758
And usage.
00:13:58.148 --> 00:14:01.168
I will furnaces are more efficient. I will houses are larger.
00:14:01.168 --> 00:14:01.168
00:14:02.308 --> 00:14:05.698
Efficiency, usage, mileage, better cars.
00:14:05.698 --> 00:14:08.998
larger driving more. But as you can see from this chart, it.
00:14:08.998 --> 00:14:11.188
seems that efficiency has been winning.
00:14:12.008 --> 00:14:15.248
Therefore, we are less sensitive to energy prices.
00:14:15.248 --> 00:14:18.578
relative to the past, which means that we are less sensitive.
00:14:18.578 --> 00:14:21.738
as far as inflation is concerned, coming from energy, that's.
00:14:21.738 --> 00:14:24.958
one thing. The other is exactly what's happening in Alberta.
00:14:24.958 --> 00:14:28.278
and that's the next job basically we.
00:14:28.278 --> 00:14:31.858
e don't see a significant increase in investment.
00:14:31.858 --> 00:14:34.368
in the oil sector despite the fact.
00:14:35.688 --> 00:14:38.918
Got oil prices are rising usually when oil prices go up.
00:14:38.918 --> 00:14:42.518
investment goes up. Now it's not happening because.
00:14:42.518 --> 00:14:45.658
many oil executives know that green.
00:14:45.658 --> 00:14:48.798
slowly is replacing black and they.
00:14:48.798 --> 00:14:52.238
said, do I want to spend $10 billion on?
00:14:52.238 --> 00:14:55.288
expansion just because of the fact that the price?
00:14:55.288 --> 00:14:56.978
of oil is up for two minutes?
00:14:58.568 --> 00:14:59.398
So they're not doing it.
00:15:00.278 --> 00:15:03.548
And that's why I'm investing in an LG because the money is coming back.
00:15:03.548 --> 00:15:06.198
to me visibly dividends visibly.
00:15:06.898 --> 00:15:07.788
Stock buybacks.
00:15:08.528 --> 00:15:11.878
But it's not going to the economy, not inflating the economy.
00:15:11.878 --> 00:15:15.578
the way it was in the past. So they reduce sensitivity.
00:15:15.578 --> 00:15:18.798
to higher prices and the response from Alberta.
00:15:18.798 --> 00:15:22.318
suggests that this economy is less sensitive.
00:15:22.318 --> 00:15:25.418
to the inflation forces coming from energy.
00:15:25.418 --> 00:15:28.498
Clearly, energy prices will remain elevated, but.
00:15:28.498 --> 00:15:31.898
I suggest as far as inflation is concerned, on the basis.
00:15:31.898 --> 00:15:35.088
this will not be a major inflationary force. That's.
00:15:35.088 --> 00:15:38.158
that. Now we can discuss some other.
00:15:38.158 --> 00:15:38.758
forces.
00:15:39.178 --> 00:15:42.228
That will impact inflation over the next.
00:15:42.228 --> 00:15:44.188
year, and that's the next job.
00:15:45.738 --> 00:15:46.618
Supply chain.
00:15:47.578 --> 00:15:51.028
Supply chain is the big story. It's.
00:15:51.028 --> 00:15:54.068
60, maybe 70% of inflation that we are seeing.
00:15:54.068 --> 00:15:57.748
now. You remove this and the Barkov Canada can sleep.
00:15:57.748 --> 00:15:58.748
at night.
00:15:59.578 --> 00:16:02.808
So we have to figure this out 60 to 70.
00:16:02.808 --> 00:16:06.208
of inflation is supply chain. So let's start.
00:16:06.208 --> 00:16:09.248
and see what makes sense and what doesn't. Let's look at the chart.
00:16:09.248 --> 00:16:09.768
of the left.
00:16:10.778 --> 00:16:13.768
The point that I'm making at this point is that.
00:16:14.598 --> 00:16:17.628
A lot of these supply chain story is a demand story.
00:16:17.628 --> 00:16:20.988
Look at 2021 we squeezed.
00:16:20.988 --> 00:16:24.648
four years of consumption of goods, not services, goods 4.
00:16:24.648 --> 00:16:27.648
our years of consumption into one year in terms of growth.
00:16:29.358 --> 00:16:30.308
That's unbelievable.
00:16:31.248 --> 00:16:34.558
Why? Because it was easy. You press a button and you get your exercise bike.
00:16:34.558 --> 00:16:35.398
We all know the story.
00:16:37.468 --> 00:16:40.488
Just to put it in perspective, this increase.
00:16:40.488 --> 00:16:43.738
in cells in 2021 of goods was.
00:16:43.738 --> 00:16:45.748
equivalent to a situation in which overnight.
00:16:47.318 --> 00:16:48.378
You parachuted?
00:16:49.228 --> 00:16:52.668
75 million new Americans into the US.
00:16:52.668 --> 00:16:52.668
00:16:53.328 --> 00:16:56.358
And the minute they landed, they started to spend, that's.
00:16:56.358 --> 00:16:59.458
what we're talking about. This is a demand shock and people.
00:17:02.398 --> 00:17:05.438
You cannot really underestimate the.
00:17:05.438 --> 00:17:07.178
American consumer and I said yes, but.
00:17:07.948 --> 00:17:09.888
Really, how much stuff do you need?
00:17:11.318 --> 00:17:12.858
We have been consuming for two years.
00:17:14.438 --> 00:17:17.588
The point here, and that's very important that.
00:17:17.588 --> 00:17:20.708
even a normally functioning supply system will.
00:17:20.708 --> 00:17:23.828
have difficulties dealing with this demand shock, and this is not.
00:17:23.828 --> 00:17:27.458
a normally functioning supply system. It's very sick. So you.
00:17:27.458 --> 00:17:30.688
have a sick supply system dealing with the mother of all demand.
00:17:30.688 --> 00:17:32.858
shocks. Of course, prices will rise.
00:17:33.498 --> 00:17:36.038
Now take COVID out of it for a second.
00:17:37.088 --> 00:17:37.728
Take it out.
00:17:38.528 --> 00:17:41.538
That will disappear. The demand shock is.
00:17:41.538 --> 00:17:44.578
all covered. The supply shock 85% of.
00:17:44.578 --> 00:17:45.148
it is covered.
00:17:46.638 --> 00:17:50.468
So without covering that will diminish and that's why the assumption.
00:17:50.468 --> 00:17:51.348
about it.
00:17:51.508 --> 00:17:54.618
A transition year is.
00:18:02.588 --> 00:18:05.678
We will be discussing supply chain, but not in a way.
00:18:05.678 --> 00:18:08.108
we are discussing it now. It will not dominate.
00:18:08.758 --> 00:18:09.398
Their economy.
00:18:10.278 --> 00:18:13.358
And the only question is to what extent they.
00:18:13.358 --> 00:18:16.368
improvement in supply chain issues will.
00:18:16.368 --> 00:18:19.548
come soon enough to prevent the Bank of Canada.
00:18:19.548 --> 00:18:22.828
from overshooting and raising it as too much we'll discuss.
00:18:24.598 --> 00:18:27.788
Another force there, which is very important, is that now.
00:18:27.788 --> 00:18:30.798
all these consumption energy is going to services because.
00:18:30.798 --> 00:18:31.528
we are opening up.
00:18:32.368 --> 00:18:35.698
And I suggest that services are less inflationary in this environment because.
00:18:35.698 --> 00:18:38.538
services have less of supply chain issues.
00:18:40.498 --> 00:18:43.928
If you start overcharging in your restaurant, I open a new one to.
00:18:43.928 --> 00:18:47.398
compete with you. It's much easier to start a new restaurant.
00:18:47.398 --> 00:18:49.448
than to establish a new manufacturing facility.
00:18:51.288 --> 00:18:54.388
And therefore the supply curve is very different here less.
00:18:54.388 --> 00:18:58.138
inflationary. So this is extremely important to understand 60.
00:18:58.138 --> 00:19:01.758
of inflation, maybe more can disappear.
00:19:01.758 --> 00:19:05.518
over the next year. The bulk calendar is counting on it the.
00:19:05.518 --> 00:19:07.328
next source of impression is the next chart.
00:19:08.048 --> 00:19:11.118
And that's rent. We all know what happened to the housing.
00:19:11.118 --> 00:19:14.158
market. It went crazy during recovery. The question is.
00:19:14.158 --> 00:19:17.358
why? The answer is the S symmetrical nature of.
00:19:17.358 --> 00:19:20.558
this crisis with all the jobs lost in the beginning, where low paying.
00:19:20.558 --> 00:19:20.928
jobs.
00:19:22.278 --> 00:19:22.888
Rentals.
00:19:24.038 --> 00:19:25.028
High paying jobs.
00:19:25.818 --> 00:19:29.008
Loan buyers, potential home buyers actually benefited.
00:19:29.008 --> 00:19:30.278
from this crisis financially.
00:19:31.908 --> 00:19:34.978
So if you think about it for a second home buyers potential.
00:19:34.978 --> 00:19:38.238
l home buyers got the benefit of a recession visibly, extremely.
00:19:38.238 --> 00:19:41.258
low interest rates without the cost of a recession visibly.
00:19:41.258 --> 00:19:44.438
broadly based increase in the unemployment rate, we have never.
00:19:44.438 --> 00:19:45.698
seen anything like that.
00:19:47.318 --> 00:19:50.628
There was a sense of urgency to get it to the market and.
00:19:50.628 --> 00:19:53.308
we borrowed activity from the future.
00:19:54.388 --> 00:19:57.938
And the future has arrived with now activities.
00:19:59.918 --> 00:20:01.308
This is very healthy.
00:20:03.078 --> 00:20:06.168
Projectory, we need this correction in the housing market because it.
00:20:06.168 --> 00:20:09.468
went crazy. You cannot have a situation in which house prices rise.
00:20:09.468 --> 00:20:10.358
by 50%.
00:20:11.238 --> 00:20:11.898
In two years.
00:20:12.898 --> 00:20:15.798
During this process, event was relatively stable.
00:20:16.698 --> 00:20:19.778
Now it's starting to rise and the ratio of 1 price.
00:20:19.778 --> 00:20:23.128
to rent is starting to go down. And that's a very positive.
00:20:23.128 --> 00:20:26.468
scenario, which means that rented flesh and will keep.
00:20:26.468 --> 00:20:29.688
going up and that's something that the Bank of Canada will have to deal.
00:20:29.688 --> 00:20:29.688
00:20:30.648 --> 00:20:31.078
With.
00:20:31.988 --> 00:20:32.618
Interest rates.
00:20:33.688 --> 00:20:34.268
Now.
00:20:35.278 --> 00:20:36.318
Let's discuss the next.
00:20:36.998 --> 00:20:40.748
Inflationary issue and that's the next chart. Here we are talking about.
00:20:40.748 --> 00:20:40.748
00:20:41.378 --> 00:20:43.288
Wages and the label market.
00:20:44.318 --> 00:20:47.428
You cannot find people we have.
00:20:47.428 --> 00:20:50.948
more than 1,000,000 openings. We cannot.
00:20:50.948 --> 00:20:52.298
find people.
00:20:52.958 --> 00:20:53.858
And where are they?
00:20:54.798 --> 00:20:58.048
That's a good question, and most of the demand.
00:20:58.048 --> 00:20:59.568
is for low skilled.
00:21:01.238 --> 00:21:04.448
Walkers, the lawyer, your wages as.
00:21:04.448 --> 00:21:05.468
you can see from this chart.
00:21:06.188 --> 00:21:07.828
The higher your wage inflation is.
00:21:09.098 --> 00:21:11.858
And if you are lucky to find somebody.
00:21:12.648 --> 00:21:16.858
They don't last more than five minutes because of the next chart, the switch.
00:21:16.858 --> 00:21:16.858
00:21:17.788 --> 00:21:19.968
The wage inflation among switchers.
00:21:21.098 --> 00:21:22.528
No, let's say let's go back.
00:21:23.648 --> 00:21:24.298
Let's go back.
00:21:26.368 --> 00:21:27.198
That's the.
00:21:29.118 --> 00:21:31.708
Yes, the wage inflation among Switcher.
00:21:32.638 --> 00:21:36.048
He's doubled the wedge of flesh and amongst tails because.
00:21:36.048 --> 00:21:39.708
it pays the bargaining power is now with.
00:21:39.708 --> 00:21:39.708
00:21:40.688 --> 00:21:43.048
Low wage workers.
00:21:43.788 --> 00:21:46.708
Because if you look at the shelf low wage workers.
00:21:47.818 --> 00:21:51.028
Employment in the economy. It went down during COVID which?
00:21:51.028 --> 00:21:51.698
makes sense.
00:21:53.408 --> 00:21:54.008
Because.
00:21:54.728 --> 00:21:58.098
All the jobs that were lost were not paying, so they disappeared now.
00:21:58.098 --> 00:22:01.298
the market is back to normal, employment is back to normal, the unemployment.
00:22:01.298 --> 00:22:04.398
rate is back to normal. Everything is back to normal. But they're.
00:22:04.398 --> 00:22:07.498
share the share of low wage employment is still.
00:22:10.208 --> 00:22:13.638
And we are going to release a paper explaining all this on.
00:22:13.638 --> 00:22:16.958
Monday. But the point that I'm making here is that I believe.
00:22:16.958 --> 00:22:20.608
that COVID has resulted in a structural change in.
00:22:20.608 --> 00:22:23.938
the labor market. Before the crisis we.
00:22:23.938 --> 00:22:26.028
had a mismatch in the labor market in which.
00:22:27.228 --> 00:22:30.128
University educated people will serving coffee.
00:22:31.718 --> 00:22:34.348
Now copy this opening up.
00:22:35.358 --> 00:22:37.648
The market it's more flexible because you can zoom.
00:22:39.058 --> 00:22:41.578
For your new job without living your basement.
00:22:42.558 --> 00:22:45.648
So if you were walking in Alberta and you.
00:22:45.648 --> 00:22:49.088
were unable to find a job in Alberta and you were serving coffee.
00:22:49.088 --> 00:22:52.298
now you can find a job in Toronto while staying in Alberta.
00:22:52.298 --> 00:22:52.298
00:22:53.508 --> 00:22:56.638
This is a much more flexible labor market a.
00:22:56.638 --> 00:23:00.608
process that started before COVID but clearly accelerated during COVID.
00:23:00.608 --> 00:23:00.608
00:23:01.948 --> 00:23:05.198
All the jobs, all the increase in the label force.
00:23:05.198 --> 00:23:07.048
all 100%.
00:23:07.948 --> 00:23:11.778
The increase in the labor force during COVID was the Mog University.
00:23:11.778 --> 00:23:13.488
educated individuals.
00:23:15.308 --> 00:23:18.748
So the share of high paying jobs rising because of the flexibility.
00:23:18.748 --> 00:23:20.928
but nobody left to serve coffee.
00:23:21.708 --> 00:23:24.738
That's why they're switching. That's why your wages are rising and.
00:23:24.738 --> 00:23:27.768
that's something that will continue at the structural change that the Bank of.
00:23:27.768 --> 00:23:30.818
Canada would have to deal with, higher interest rates. Let's go to the.
00:23:30.818 --> 00:23:33.838
next chart and discuss something interesting although.
00:23:33.838 --> 00:23:37.018
wages because of that arising in Canada, there are rising even.
00:23:37.018 --> 00:23:40.288
faster in the US the question is why and?
00:23:40.288 --> 00:23:41.528
the answer is the next chart.
00:23:42.528 --> 00:23:43.728
Which is immigration.
00:23:44.928 --> 00:23:47.018
Let's go back to October 2020.
00:23:47.758 --> 00:23:49.878
The Canadian government is announcing.
00:23:50.498 --> 00:23:53.668
We would like to see no less, no less than 4.
00:23:53.668 --> 00:23:57.028
0,000 new immigrants in 2021. That's our target.
00:23:57.028 --> 00:24:00.168
people said. Are you crazy? How can you get?
00:24:00.168 --> 00:24:03.608
400,000 new immigrants during COVID? Nobody.
00:24:03.608 --> 00:24:04.878
is flying. Nobody is moving.
00:24:09.338 --> 00:24:11.988
Just to put it in perspective, in the US they got 500,000.
00:24:13.288 --> 00:24:16.088
The last time I checked, the US is still 10 times larger than we are.
00:24:17.738 --> 00:24:20.948
So per capita, we got six times more new immigrants.
00:24:20.948 --> 00:24:20.948
00:24:22.688 --> 00:24:25.828
In Canada, relative to the US, that's amazing.
00:24:25.828 --> 00:24:28.898
That's why we have more people in the labor market by.
00:24:28.898 --> 00:24:29.368
the way.
00:24:30.198 --> 00:24:33.248
70 percent, 70% of.
00:24:33.248 --> 00:24:36.768
those new immigrants arrived from one country.
00:24:36.768 --> 00:24:36.768
00:24:37.998 --> 00:24:39.518
And that country is.
00:24:40.858 --> 00:24:41.308
Canada.
00:24:42.708 --> 00:24:46.158
But how can it be there were already here?
00:24:46.158 --> 00:24:49.348
There were students, there were non permanent residents.
00:24:49.348 --> 00:24:49.348
00:24:50.558 --> 00:24:53.868
Their visa expired, the government said. What don't worry about your.
00:24:53.868 --> 00:24:57.028
expired visa while you are waiting, why don't?
00:24:57.028 --> 00:25:00.148
you apply to be a permanent resident? That's exactly what they did.
00:25:00.148 --> 00:25:01.578
70%.
00:25:02.768 --> 00:25:06.318
Die young girl. They're more educated, they.
00:25:06.318 --> 00:25:10.068
have work experience. They speak the language. There are more employable.
00:25:10.068 --> 00:25:10.068
00:25:11.118 --> 00:25:14.478
And that's exactly what's happening. And many of those new immigrants.
00:25:14.478 --> 00:25:17.698
found jobs in high paying occupations as.
00:25:17.698 --> 00:25:19.728
opposed to low paying occupations. Very interesting.
00:25:21.088 --> 00:25:24.198
And my understanding is that the government would like.
00:25:24.198 --> 00:25:27.648
to continue this trend because if you educate.
00:25:27.648 --> 00:25:30.728
them here, keep them here, that's the direction that's.
00:25:30.728 --> 00:25:34.138
the trajectory. So that's immigration, that's the label market, so.
00:25:34.138 --> 00:25:37.658
we have four sources of inflation energy.
00:25:37.658 --> 00:25:40.738
not a major issue in our opinion, supply chain, a big issue.
00:25:40.738 --> 00:25:43.818
will be dancing to the tune of COVID. That's why the transition here.
00:25:43.818 --> 00:25:47.138
is so important as an assumption, then you have.
00:25:47.138 --> 00:25:50.158
rent and wages that the Bank of Canada and the Fed.
00:25:50.158 --> 00:25:51.038
will have to deal with.
00:25:51.198 --> 00:25:54.548
With higher interest rates talking about interest rates, let's start.
00:25:54.548 --> 00:25:57.718
discussing it and let's go to the next chart. I don't.
00:25:57.718 --> 00:26:00.768
want to start with numbers. I want to start with effectiveness, namely.
00:26:00.768 --> 00:26:03.788
effective monetary policy is in Canada and the.
00:26:03.788 --> 00:26:07.248
US. The chart to the left is the US, the right is Canada.
00:26:07.248 --> 00:26:10.288
The Gray line is policy rate like the Fed.
00:26:10.288 --> 00:26:13.508
funds rate, the overnight rate by the Bank of Canada, namely.
00:26:13.508 --> 00:26:16.568
basically what they can control. The red line is really what's.
00:26:16.568 --> 00:26:17.578
happening in real life.
00:26:19.788 --> 00:26:22.858
Namely, effective interest rates. What you and me pay.
00:26:22.858 --> 00:26:25.938
in real life and you can see that, for example in.
00:26:25.938 --> 00:26:26.798
the 2000s.
00:26:27.568 --> 00:26:30.808
When Greenspan raised into spirits from 1:25 to 5%.
00:26:30.808 --> 00:26:30.808
00:26:31.468 --> 00:26:32.658
Over the course of breakfast.
00:26:33.378 --> 00:26:34.528
The Red line did not move.
00:26:35.328 --> 00:26:38.578
Why? Because back then, the creative imagination of.
00:26:38.578 --> 00:26:40.558
American bankers neutralized the Fed.
00:26:41.948 --> 00:26:44.768
Remember all those ninja mortgages? That's exactly what happens.
00:26:45.628 --> 00:26:48.818
Even in 2017, when interest rates went up.
00:26:48.818 --> 00:26:52.008
the red line was flawed because their mortgages are for 30 years it takes.
00:26:52.008 --> 00:26:54.808
a long time. Canada, the military move, you fill it.
00:26:57.218 --> 00:27:00.668
Because our mortgages are for five years and less, it's very effective immediately.
00:27:00.668 --> 00:27:00.668
00:27:02.788 --> 00:27:05.918
So the market is more responsive to the bank.
00:27:05.918 --> 00:27:08.978
of Canada. That's one thing. The other is the next job and.
00:27:08.978 --> 00:27:11.038
that's the household it.
00:27:11.818 --> 00:27:15.168
2008 the US went through the mother of all the leveraging.
00:27:15.168 --> 00:27:18.308
debt to income ratio went down from.
00:27:18.308 --> 00:27:21.588
160 to 140 hours, went up from 1:40 to 160.
00:27:21.588 --> 00:27:25.108
because 2008 the recession we were second hand smokers.
00:27:25.108 --> 00:27:28.268
It was not our recession. So our leverage went up.
00:27:28.268 --> 00:27:30.928
there, leverage went down. Therefore we have more.
00:27:31.568 --> 00:27:34.778
That per household, therefore we are more sensitive.
00:27:34.778 --> 00:27:38.048
to the risk of higher interest rates, our sensitive double our.
00:27:38.048 --> 00:27:41.138
estimate that 100 basis point increase by.
00:27:41.138 --> 00:27:44.428
the Bank of Canada today is equivalent to 200.
00:27:44.428 --> 00:27:46.578
basis point increase by the Fed.
00:27:47.618 --> 00:27:50.748
So if you wish the tiny Bank of.
00:27:50.748 --> 00:27:53.968
Canada is more powerful than the mighty.
00:27:53.968 --> 00:27:57.108
Fed when it comes to impacting the economy. That's.
00:27:57.108 --> 00:28:00.528
extremely, extremely important. So the sensitivity.
00:28:00.528 --> 00:28:00.528
00:28:01.188 --> 00:28:05.038
Of the economy and especially the housing market, to.
00:28:05.038 --> 00:28:08.138
nterest rates is most significant in Canada.
00:28:08.138 --> 00:28:11.618
which makes you believe that maybe the terminal.
00:28:11.618 --> 00:28:14.828
rate when the stop raising interest rates might be higher in the US.
00:28:14.828 --> 00:28:17.558
and Canada because you have to raise by more to achieve this.
00:28:20.668 --> 00:28:22.208
Now let's discuss numbers.
00:28:23.068 --> 00:28:24.328
And let's go to the next chart.
00:28:25.408 --> 00:28:29.348
And unfortunately, this number this chart is not most up-to-date because since.
00:28:29.348 --> 00:28:30.318
then the market is.
00:28:31.388 --> 00:28:34.438
As well as the expectation. So at this point the market.
00:28:34.438 --> 00:28:37.598
is passing in that the Bank of Canada will.
00:28:37.598 --> 00:28:40.368
rise into space to 3.5%.
00:28:42.598 --> 00:28:43.998
We are about 1:25 now.
00:28:44.648 --> 00:28:47.818
So we're talking about this significant increase in a very short period of time.
00:28:47.818 --> 00:28:50.928
The next move 75, they move after 75, you get to 3.
00:28:50.928 --> 00:28:53.948
like that and then maybe 3.5 that's what the market is.
00:28:53.948 --> 00:28:57.398
estimating and passing it up the market can.
00:28:57.398 --> 00:29:00.488
be wrong. The market has been wrong in the past. Let's go to the next.
00:29:00.488 --> 00:29:01.428
chart and see why.
00:29:02.368 --> 00:29:05.678
The same market a year ago expected that.
00:29:05.678 --> 00:29:08.978
the Bank of Canada will move a full year ahead.
00:29:08.978 --> 00:29:12.108
of the Fed. That was, of course, was wrong. I'm not sure what the market was marked marked.
00:29:12.108 --> 00:29:15.248
then, but even in 2017, eighteen when into?
00:29:15.248 --> 00:29:18.678
suits were rising. We are the situation in.
00:29:18.678 --> 00:29:21.718
which the market expected into threads to.
00:29:21.718 --> 00:29:24.898
rise to 2.5% the Bank of Canada.
00:29:24.898 --> 00:29:28.138
raised it to only 1.75.
00:29:28.138 --> 00:29:31.318
and called it a day. Why? Because of the effectiveness.
00:29:31.318 --> 00:29:32.598
of monetary policy.
00:29:32.898 --> 00:29:36.108
Basically, the disease is also the cure, maybe.
00:29:36.108 --> 00:29:39.228
the increase in sensitivity to higher rates will prevent.
00:29:39.228 --> 00:29:42.428
interest rates from rising to the sky, so that's why we still.
00:29:42.428 --> 00:29:45.528
believe that the Bank of Canada will go to 3%.
00:29:45.528 --> 00:29:48.568
as opposed to 3.5 and stop, however, the likelihood.
00:29:51.218 --> 00:29:52.778
Is very, very significant.
00:29:54.058 --> 00:29:54.608
You see.
00:29:55.348 --> 00:29:58.678
Every economical session was helped if not caused.
00:29:58.678 --> 00:30:02.198
tary policy error in which central bankers.
00:30:02.198 --> 00:30:05.578
residential rates way too quickly and too much.
00:30:05.578 --> 00:30:08.748
and why it happened because of the fact.
00:30:08.748 --> 00:30:12.378
that that's extremely important. If you care about interest rates because.
00:30:12.378 --> 00:30:16.528
of the fact that inflation is a lagging indicator.
00:30:16.528 --> 00:30:16.528
00:30:17.228 --> 00:30:20.448
Inflation tells you about the past, not.
00:30:20.448 --> 00:30:21.198
the future.
00:30:23.468 --> 00:30:24.618
We have a situation.
00:30:25.568 --> 00:30:29.628
In which if you go in the last 4-5 recessions.
00:30:29.628 --> 00:30:29.628
00:30:31.248 --> 00:30:34.638
Inflation peaked, picked on average 6.
00:30:34.638 --> 00:30:36.988
x months after the beginning of each recession.
00:30:38.118 --> 00:30:41.548
But show me the central banker that will have the courage.
00:30:41.548 --> 00:30:43.598
to stop raising interest rates.
00:30:44.868 --> 00:30:46.488
When inflation is still etcetera, I think.
00:30:47.328 --> 00:30:48.748
That's the issue.
00:30:50.258 --> 00:30:53.568
So that's why I'm looking at inflation, not now.
00:30:53.568 --> 00:30:56.708
but in October, November, I need to see some.
00:30:56.708 --> 00:30:59.988
softening. I need to see supply chain easing.
00:30:59.988 --> 00:31:03.318
but it's possible that it will not ease soon enough to prevent.
00:31:03.318 --> 00:31:06.328
the Bank of Canada from raising it as ways to 3.5%.
00:31:06.328 --> 00:31:09.478
in my opinion. And I'm not sugar coating anything here the.
00:31:09.478 --> 00:31:10.428
difference between.
00:31:11.098 --> 00:31:15.108
275 three percent and 3.5 might be the difference between.
00:31:15.108 --> 00:31:15.108
00:31:16.408 --> 00:31:18.048
No recession and the recession scenario.
00:31:20.948 --> 00:31:24.258
The market is now aggressively passing in a.
00:31:24.258 --> 00:31:27.478
situation in which the Bank of Canada.
00:31:27.478 --> 00:31:30.578
will go extremely strong and that might not.
00:31:30.578 --> 00:31:33.858
be the case. And by the way, that would be positive for.
00:31:33.858 --> 00:31:36.358
the equity market. So discussing the market.
00:31:37.568 --> 00:31:38.578
I suggest the following.
00:31:39.378 --> 00:31:43.008
Although the Bank of Canada is moving with in a very aggressive way.
00:31:43.008 --> 00:31:43.008
00:31:45.188 --> 00:31:48.148
The long end of the curve, the five year rate, the 10 year rate.
00:31:49.058 --> 00:31:52.428
Is already there, passing it in therefore.
00:31:52.428 --> 00:31:53.978
I don't see a significant increase.
00:31:54.808 --> 00:31:55.678
In those words.
00:31:56.398 --> 00:31:58.778
Anytime soon, although in Fletcher will continue to accelerate.
00:32:00.448 --> 00:32:03.488
All the damage will be in the short end of the curve because.
00:32:03.488 --> 00:32:05.228
that's where the Bank of Canada and the Fed will move.
00:32:07.058 --> 00:32:10.148
In addition, I believe that a lot of the damage that.
00:32:10.148 --> 00:32:13.168
we have seen in the stock market is reflecting higher.
00:32:13.168 --> 00:32:16.188
interest rates and that's already priced in. I cannot tell you.
00:32:16.188 --> 00:32:20.408
where the bottom is, nobody knows, but I can tell you I believe that.
00:32:20.408 --> 00:32:20.408
00:32:21.318 --> 00:32:23.528
If you have a two or three year time horizon.
00:32:25.288 --> 00:32:27.038
There's some good opportunities out there.
00:32:29.688 --> 00:32:33.118
Talking about some sectors, of course technology.
00:32:33.118 --> 00:32:34.728
is everybody's talking about it.
00:32:36.008 --> 00:32:39.158
The technology is complicated because all the damage that we've.
00:32:39.158 --> 00:32:42.318
seen now was about interest rates, but other things are happening in technology.
00:32:42.318 --> 00:32:45.958
that will be negative. One is regulations that are taxations.
00:32:45.958 --> 00:32:48.278
We all know that. So that's something that will prevent.
00:32:49.248 --> 00:32:51.738
Technology overall from recovering very quickly.
00:32:52.528 --> 00:32:55.898
I like for example dividend paying stocks I.
00:32:55.898 --> 00:32:58.938
I like communications. I like telecommunication I.
00:32:58.938 --> 00:33:02.238
like banks because ironically.
00:33:02.238 --> 00:33:05.778
in this kind of environment, dividend paying stocks quality.
00:33:05.778 --> 00:33:08.778
stocks are doing actually better, historically speaking.
00:33:09.508 --> 00:33:13.438
So overall, I suggest that there are some ways actually.
00:33:13.438 --> 00:33:16.718
to benefit from the current situation. If you have a time horizon.
00:33:16.718 --> 00:33:19.938
of two to three years, and I believe that Canada will.
00:33:19.938 --> 00:33:23.238
continue to outperform the US not just because of the commodity market and.
00:33:23.238 --> 00:33:26.598
the fact that technology is mostly a US story, but.
00:33:26.598 --> 00:33:29.978
also because we provide a much better dividend.
00:33:29.978 --> 00:33:33.138
yield. And if dividend yields would do better if dividend.
00:33:33.138 --> 00:33:36.958
stocks would do better, I believe that Canada.
00:33:36.958 --> 00:33:38.748
will outperform the US because of that.
00:33:39.048 --> 00:33:42.078
Kannada relative to the use is extremely cheap. Very.
00:33:42.078 --> 00:33:45.238
very cheap. So that's another factor when it comes to valuations.
00:33:45.238 --> 00:33:48.378
I do believe that companies will find.
00:33:48.378 --> 00:33:49.348
it difficult to.
00:33:50.258 --> 00:33:53.318
Much the earning earnings expectations that the market is.
00:33:53.318 --> 00:33:56.398
not parsed again and that will put some negative spin on the.
00:33:56.398 --> 00:33:59.808
market in terms of the ability to improve. But at the same time.
00:33:59.808 --> 00:34:03.328
some sectors will do better as I indicated. So overall.
00:34:03.328 --> 00:34:06.748
I like those. I like energy because of dividends and payback, so.
00:34:06.748 --> 00:34:09.988
a lot of things happening in the market that can actually benefit.
00:34:09.988 --> 00:34:13.118
you if you read the economic map correctly, I will stop.
00:34:13.118 --> 00:34:15.078
here and see if we have time for discussion.
00:34:20.028 --> 00:34:23.078
Thanks, Ben. We do have a couple of questions that have.
00:34:23.078 --> 00:34:26.238
that have come in. You mentioned briefly the terminal rate.
00:34:26.238 --> 00:34:29.258
Any thoughts on what the terminal rate?
00:34:29.258 --> 00:34:32.358
has been in past inflationary periods and how?
00:34:32.358 --> 00:34:33.708
close we might be to it today?
00:34:34.408 --> 00:34:37.918
Yeah. So you really have to go back to the 70s.
00:34:37.918 --> 00:34:41.078
and therefore I suggest that we should not compare the two.
00:34:41.078 --> 00:34:44.368
and why because of the fact that the.
00:34:44.368 --> 00:34:47.618
back then you didn't have inflation.
00:34:47.618 --> 00:34:49.368
mandate, it didn't have a target.
00:34:50.148 --> 00:34:53.358
That the Bank of Canada was trying to get, which is 2%.
00:34:53.358 --> 00:34:56.458
inflation expectations were rising. So it was a totally different.
00:34:56.458 --> 00:34:59.588
environment. So comparing this to this is very, very difficult.
00:34:59.588 --> 00:35:03.008
I do believe however that if before the crisis.
00:35:03.008 --> 00:35:03.008
00:35:04.548 --> 00:35:06.708
We were talking about 2%, something like that.
00:35:07.388 --> 00:35:10.918
Now it would be higher because I think that there are some structural inflationary.
00:35:10.918 --> 00:35:14.118
forces in the system, namely the deglobalization.
00:35:14.118 --> 00:35:17.158
story, which is extremely important. It's inflationary.
00:35:17.158 --> 00:35:20.408
and we have a situation in which the labor.
00:35:20.408 --> 00:35:23.688
market, the shortage, is more structural. I believe that's another.
00:35:23.688 --> 00:35:26.738
factor that might require higher interest rates, so.
00:35:26.738 --> 00:35:29.778
I think that the Bank of Canada sees neutral rate as between 2:00.
00:35:29.778 --> 00:35:33.398
3%. I think it would be closer to three than two to keep the.
00:35:33.398 --> 00:35:36.658
economy going. That's one thing. But there is another factor.
00:35:36.658 --> 00:35:37.958
you're talking about.
00:35:38.128 --> 00:35:41.238
Interest rates and pricing, power and inflation.
00:35:41.238 --> 00:35:44.598
and something big is happening in terms of the.
00:35:44.598 --> 00:35:47.608
impact on profitability, if you?
00:35:47.608 --> 00:35:48.908
look at the past 20 years.
00:35:49.628 --> 00:35:52.888
Cop margins profit margins were elevated.
00:35:52.888 --> 00:35:56.178
relative to the previous 20 years. Why? Because of globalization.
00:35:56.178 --> 00:35:59.338
just in time, inventories and label was available.
00:35:59.338 --> 00:36:02.398
in shape. Today, the opposite is happening. You have the globalization.
00:36:02.398 --> 00:36:05.478
you have just in case inventories and label definitely is not available.
00:36:05.478 --> 00:36:05.958
in not ship.
00:36:07.288 --> 00:36:07.778
So.
00:36:08.518 --> 00:36:11.748
Margins are being pushed down so companies have two.
00:36:11.748 --> 00:36:14.848
options. One is to swallow it, the other is to say.
00:36:14.848 --> 00:36:18.108
what I have to do something about it. So you go back to the 90s.
00:36:18.108 --> 00:36:21.368
and you see something very interesting where the situation in.
00:36:21.368 --> 00:36:24.628
which wages were rising but inflation didn't. Why? Because of productivity.
00:36:24.628 --> 00:36:27.968
duringthe.com evolution. If I give you a 10%.
00:36:27.968 --> 00:36:31.148
pay increase and you are 10% more productive, does not inflationary.
00:36:31.148 --> 00:36:34.428
So what we're starting to see more and more companies.
00:36:34.428 --> 00:36:36.808
doing, they're starting to replace label.
00:36:37.468 --> 00:36:38.178
With capital.
00:36:38.998 --> 00:36:42.088
That's exactly how you improve productivity and productivity.
00:36:42.088 --> 00:36:44.268
is the number one protection.
00:36:44.868 --> 00:36:48.138
From inflation and therefore.
00:36:48.138 --> 00:36:48.978
we look for.
00:36:49.668 --> 00:36:52.878
A significant investment by cooperations now.
00:36:52.878 --> 00:36:55.998
because it's not, it's not just, it's a nice thing to do.
00:36:55.998 --> 00:36:59.068
It's a necessity for them and they have the cash to do so.
00:36:59.068 --> 00:36:59.088
00:37:02.968 --> 00:37:06.078
Perfect. Switch into inflation in the Bank of.
00:37:06.078 --> 00:37:09.228
Canada. Any thoughts and wouldn't be?
00:37:09.228 --> 00:37:12.658
specific to Canada either. Any thoughts on why the?
00:37:12.658 --> 00:37:15.938
central banks wouldn't react sooner to inflation given?
00:37:15.938 --> 00:37:18.998
that we all knew it was coming, then we saw this not only the.
00:37:18.998 --> 00:37:22.018
signs, it was real, a year, a year and a half. Two years.
00:37:22.018 --> 00:37:23.718
go. Why wouldn't they react sooner?
00:37:25.918 --> 00:37:27.248
The short answer is Omicron.
00:37:28.308 --> 00:37:31.358
Namely, after delta. That's the reason why they.
00:37:31.358 --> 00:37:34.798
believe that it's going to be transitory. Yeah. Remember this board?
00:37:34.798 --> 00:37:34.798
00:37:35.678 --> 00:37:39.088
Because they believe that after delta, things will go back to semi normal supply.
00:37:39.088 --> 00:37:41.068
chain will improve it and everything will be good.
00:37:41.978 --> 00:37:45.408
And that lasted five minutes. In fact, during the.
00:37:45.408 --> 00:37:45.408
00:37:46.468 --> 00:37:49.698
Period between Delta anomic, Ron supply chain improved very.
00:37:49.698 --> 00:37:51.038
dramatically quickly.
00:37:51.748 --> 00:37:54.888
And then we go to Omicron and back China the story.
00:37:54.888 --> 00:37:54.888
00:37:55.838 --> 00:37:57.848
So there was surprised by Omicron.
00:37:58.558 --> 00:38:01.118
And it was a major force that took us back a year.
00:38:03.148 --> 00:38:06.208
And that's something that we have to recognize. So that's the source of.
00:38:06.208 --> 00:38:09.658
the mistake. It was not an economic mistake. It was really more.
00:38:09.658 --> 00:38:11.278
related to the COVID.
00:38:14.068 --> 00:38:14.558
Perfect.
00:38:16.078 --> 00:38:18.578
Your own opinion on whether we hit a recession or not.
00:38:21.448 --> 00:38:24.468
I think, quite frankly, that we are.
00:38:24.468 --> 00:38:26.898
35 to 40% probability.
00:38:28.418 --> 00:38:29.838
And but at the same time.
00:38:31.828 --> 00:38:34.308
There is a lot of talk about recession, recession.
00:38:35.448 --> 00:38:38.798
Sometimes it can be in the recession and feel that you are not in a recession and sometimes.
00:38:38.798 --> 00:38:40.488
you won't be in a recession, feel like a recession.
00:38:41.308 --> 00:38:44.748
I believe that even if we have a recession, it will be a mild recession.
00:38:44.748 --> 00:38:44.748
00:38:45.708 --> 00:38:47.018
And the reason is the consumer.
00:38:48.248 --> 00:38:51.418
Remember that during COVID we accumulated 3.
00:38:51.418 --> 00:38:54.438
300 billion of excess.
00:38:54.438 --> 00:38:57.298
settings. Because your income was there.
00:38:58.178 --> 00:39:01.098
You're spending was done by 3040% because you didn't do anything.
00:39:02.968 --> 00:39:06.048
So all of a sudden your savings went up and up and.
00:39:06.048 --> 00:39:09.078
up $300 billion. This money is going to be utilized.
00:39:09.078 --> 00:39:12.548
in the economy of the next year or two. So that will defend protect.
00:39:12.548 --> 00:39:14.598
the economy. And that's actually a very good thing.
00:39:17.088 --> 00:39:20.198
Any thoughts on the trajectory and?
00:39:20.198 --> 00:39:21.098
Ultra Ultimate?
00:39:22.758 --> 00:39:25.808
Rate hikes in Canada and the US, and what that might do.
00:39:25.808 --> 00:39:29.208
to currency the Canadian dollar, yes, so.
00:39:29.208 --> 00:39:32.478
the currency, one of the reasons why the currency went up.
00:39:32.478 --> 00:39:33.878
earlier in the story.
00:39:34.598 --> 00:39:37.678
Remember, the Kendall was before because of the fact that the market.
00:39:37.678 --> 00:39:40.138
was passing in a situation which the Bank of Canada would be moving.
00:39:40.928 --> 00:39:44.258
Faster than the Fed, then? Therefore, people were buying Canadian.
00:39:44.258 --> 00:39:47.378
dollars. Then there is reverse this trend because.
00:39:47.378 --> 00:39:50.558
people realize that it was crazy. There's no reason for to do so.
00:39:50.558 --> 00:39:53.838
And during this period, all passes went up. So.
00:39:53.838 --> 00:39:56.918
people say outcome. The Canadian dollar did not go up with the oil prices.
00:39:56.918 --> 00:39:58.728
because of the reversal of this thread.
00:39:59.428 --> 00:40:02.678
That the people believe that now Canada and the US will move together so.
00:40:02.678 --> 00:40:05.178
that compensate for each other, and therefore it was stable.
00:40:06.178 --> 00:40:09.208
The next story is oil and oil. Let's assume for a.
00:40:09.208 --> 00:40:12.288
second that oil will remain stable and therefore.
00:40:12.288 --> 00:40:15.648
it will be neutral for the Council. So what's left is interest rates and.
00:40:15.648 --> 00:40:18.188
if I'm right, there is a possibility.
00:40:18.878 --> 00:40:22.308
That the Bank of Canada will be going less than the Fed eventually.
00:40:22.308 --> 00:40:25.588
because of the effectiveness of monetary policy that.
00:40:25.588 --> 00:40:28.948
will actually help the Canadian dollar that will not open.
00:40:28.948 --> 00:40:31.978
That will not happen over the next six months because over the next six months, they will.
00:40:31.978 --> 00:40:35.198
ove together. But beyond that, we might see these divergences.
00:40:35.198 --> 00:40:38.488
that might benefit the American do a lot. So that's the story, the story.
00:40:38.488 --> 00:40:41.558
is that we'll be stable to loyal kind of dollar.
00:40:41.558 --> 00:40:42.058
a little bit.
00:40:44.328 --> 00:40:47.198
Perfect a little more.
00:40:48.028 --> 00:40:51.078
Personal question for one of our listeners right now.
00:40:51.078 --> 00:40:51.078
00:40:51.378 --> 00:40:54.548
Portfolio that's heavy on bonds any.
00:40:54.548 --> 00:40:55.208
advice there?
00:40:58.038 --> 00:41:01.148
Yes, I think that the bond market remember there.
00:41:01.148 --> 00:41:04.178
was until now there was Tina, there was no alternative. Yeah, everything.
00:41:04.178 --> 00:41:07.388
was stocks. And I suggest that there's an alternative. Not the bond market.
00:41:07.388 --> 00:41:08.048
is an alternative.
00:41:08.768 --> 00:41:12.078
And the bond market can actually give you very nice return.
00:41:12.078 --> 00:41:15.278
at this point. And I believe that over the next two years in terms.
00:41:15.278 --> 00:41:18.438
of capital appreciation, you will see prices rising.
00:41:18.438 --> 00:41:21.838
because I think that eventually rates are a bit too high.
00:41:21.838 --> 00:41:23.508
to where we will be in equilibrium.
00:41:24.348 --> 00:41:25.678
So there is an alternative.
00:41:28.708 --> 00:41:31.778
Perfect. And I think one last one here for the.
00:41:31.778 --> 00:41:35.178
moment, given the current Canadian.
00:41:35.178 --> 00:41:38.288
and the Alberta political landscape, which industries do you think would?
00:41:38.288 --> 00:41:41.898
be the most exposed and the most insulated from?
00:41:41.898 --> 00:41:42.348
a recession?
00:41:45.178 --> 00:41:48.568
That's a tough one. I think that the commodity market.
00:41:48.568 --> 00:41:51.578
will be doing will do OK, energy will do.
00:41:51.578 --> 00:41:54.588
fine. I think that Alberta in fact will lead the Canadian.
00:41:54.588 --> 00:41:57.598
economy in terms of growth, although unfortunately are starting.
00:41:57.598 --> 00:42:00.748
from a low base as you went through hell over the past few months.
00:42:00.748 --> 00:42:04.008
few years. So clearly the improvement would be there.
00:42:04.008 --> 00:42:07.108
because of commodities because of energy, I believe that.
00:42:07.108 --> 00:42:10.188
the green will be a major force regardless where.
00:42:10.188 --> 00:42:13.568
we are in the recession. Defense will be a very.
00:42:13.568 --> 00:42:14.688
good place to be.
00:42:14.968 --> 00:42:18.458
Clearly, energy, as I said, even banking.
00:42:18.458 --> 00:42:21.598
banks financials although.
00:42:21.598 --> 00:42:21.598
00:42:22.558 --> 00:42:25.788
Might feel the pain of a recession if there is a recession, a.
00:42:25.788 --> 00:42:28.888
lot of it is priced in already. A lot of bad news priced in, so I'm.
00:42:28.888 --> 00:42:31.968
very bullish on that. So I will go with the policy.
00:42:31.968 --> 00:42:34.058
with the dividend, paying stocks and stick with that.
00:42:34.658 --> 00:42:38.088
Cyclical stocks? Probably.
00:42:38.088 --> 00:42:41.108
ill fill the pan a little bit more because we're going to slow down so.
00:42:41.108 --> 00:42:42.668
that's something that we have to take into account.
00:42:43.338 --> 00:42:45.468
And yeah, I think that's the direction.
00:42:47.898 --> 00:42:51.098
Perfect. I think we.
00:42:51.098 --> 00:42:54.368
I don't see any new questions now, so.
00:42:54.368 --> 00:42:57.548
at this point, first of all everyone this.
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is being recorded. So we will share the link with your advisor.
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So if you missed a part of it or have anyone else that wants to.
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wants to listen in, we will share that with you reach out to your advisor.
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and really that's.
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about it. Ben, I would like to thank you for taking the time to.
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join us today and wish you have.
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ish you a very.
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Warm and relaxing summer, if that's at all possible.
00:43:21.868 --> 00:43:25.468
Thank you very much and good luck with everything. Talk to this one. Thanks.
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Ben. Appreciate it. Thank you everyone for joining us