Seed Financial Group
Economic update from CIBC Chief Economist Benjamin Tal: Is recession ahead? What is driving inflation? Where are the opportunities?
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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.
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was the response to oil shocks with the.
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higher interest rates that kill their economy in the past.
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So the question is.
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Our sensitive is the economy to higher energy.
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prices and the short answer is the next chart it is.
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less sensitive than it used to be.
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This is basically the measure of sensitivity to.
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energy prices in the economy as well, and it's down at any point.
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in time.
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We have a tug of war.
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Between.
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Efficiency, energy efficiency.
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And usage.
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I will furnaces are more efficient. I will houses are larger.
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Efficiency, usage, mileage, better cars.
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larger driving more. But as you can see from this chart, it.
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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
July 26, 2023
As widely expected, the US Federal Reserve (the Fed) raised the target rate by 25 basis points (bps) to 5.25%. Today’s rate increase leaves the ceiling on the Federal funds target range at 5.50%. It may...
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