Home

 

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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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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.

 

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to be the next Greek letter that comes after Omikron.

 

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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.

 

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Because there will be more variance. So let's see what we have we have.

 

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The tiger.

 

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And we have Pi. You see why I could resist?

 

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It's a great movie, great book if you haven't seen it, so.

 

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it's on Netflix has no significance whatsoever.

 

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to what I'm talking about, but I couldn't resist. But the point that.

 

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We have to have a working assumption about coping.

 

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And I discussed the situation with many people in the field.

 

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and there is a consensus the consensus is.

 

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that the virus will be with us, there will be more variants, but we will be able.

 

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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.

 

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A transition you from a pandemic.

 

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to an endemic it doesn't mean that COVID is dead, but.

 

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as a society, as an economy, we will be able to handle.

 

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it. We will be dancing to the tune of COVID.

 

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It will be a bit volatile, but it doesn't go into control.

 

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our life. It doesn't going to control the economy.

 

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the way it did in previous waves. That's a reasonable.

 

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working assumption, establishing that we.

 

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can now proceed and discuss.

 

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The elephant in the room and.

 

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that's inflation. So let's go to the next chart please.

 

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and discuss some of the sources of inflation.

 

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because from the media and everything.

 

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else, it's very overwhelming. Everybody's talking about it.

 

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And I find it less overwhelming if you break it down.

 

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to the sources.

 

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Of inflation. And then I ask myself for.

 

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each source, and there are four of them. How COVID.

 

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sensitivity is? Because if it is COVID sensitive.

 

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and this is a transition year.

 

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Then dot source of attraction will diminish.

 

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with copied. So let's discuss this is the first.

 

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chart, which is a clearly energy and we are in the midst.

 

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of an oil shock as very now take.

 

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oser look at this chart and you can see that every.

 

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time we add an oil shock.

 

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Two minutes after where the recess.

 

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And people say oil shocks lead to recessions. And I said no.

 

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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.

 

00:42:57.548 --> 00:43:00.908

is being recorded. So we will share the link with your advisor.

 

00:43:00.908 --> 00:43:04.308

So if you missed a part of it or have anyone else that wants to.

 

00:43:04.308 --> 00:43:07.528

wants to listen in, we will share that with you reach out to your advisor.

 

00:43:07.528 --> 00:43:10.588

and really that's.

 

00:43:10.588 --> 00:43:13.928

about it. Ben, I would like to thank you for taking the time to.

 

00:43:13.928 --> 00:43:17.088

join us today and wish you have.

 

00:43:17.088 --> 00:43:18.158

ish you a very.

 

00:43:18.408 --> 00:43:21.218

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.

 

00:43:25.468 --> 00:43:27.618

Ben. Appreciate it. Thank you everyone for joining us