00:00:08.307 --> 00:00:11.357
Thank you very much. I have about 30 minutes to tell.

00:00:11.357 --> 00:00:14.487
you everything I know about the situation that's maybe.

00:00:14.487 --> 00:00:17.617
29 minutes too much because of course nobody.

00:00:17.617 --> 00:00:20.647
knows we're all pretending. But clearly this level of.

00:00:20.647 --> 00:00:23.667
uncertainty is something that we have to deal with and try.

00:00:23.667 --> 00:00:26.777
to make sense out of. So we'll discuss a lot of things.

00:00:26.777 --> 00:00:29.847
They let me start with the list of what I would like to discuss.

00:00:29.847 --> 00:00:32.947
First of all, we must discuss, say, Putin, of course, and just the.

00:00:32.947 --> 00:00:36.267
other day, somebody asked me, what do you think Putin will do next?

00:00:36.267 --> 00:00:38.267
And I said, what next time I have lunch with him.

00:00:38.417 --> 00:00:41.477
Last game, nobody knows, including Putin himself. I.

00:00:41.477 --> 00:00:44.677
don't think he has an exit strategy will discuss clearly.

00:00:44.677 --> 00:00:47.797
the virus. It's not finished. It's not.

00:00:47.797 --> 00:00:50.837
done. We have to discuss the virus and.

00:00:50.837 --> 00:00:54.017
the coexistence Bibles and the economy. See what?

00:00:54.017 --> 00:00:57.257
makes sense. Clearly the elephant in the room. Inflation.

00:00:57.257 --> 00:01:00.837
How much sleep should we lose over inflation?

00:01:00.837 --> 00:01:03.897
And of course, with inflation, rising interest rates are rising the.

00:01:03.897 --> 00:01:07.097
key is how quickly, how quickly will interest rates.

00:01:07.097 --> 00:01:08.277
rise, not just how.

00:01:08.507 --> 00:01:11.877
Hi but how quickly the housing market, the darling?

00:01:11.877 --> 00:01:15.037
of the Covid recession? Is it a bubble will?

00:01:15.037 --> 00:01:18.337
discuss clearly the immigration factor is a very important factor.

00:01:18.337 --> 00:01:21.637
that is changing on a daily basis. We have to understand.

00:01:21.637 --> 00:01:24.797
that and of course investment implications of this.

00:01:24.797 --> 00:01:27.927
crazy situation will discuss let's.

00:01:27.927 --> 00:01:31.057
start with what's happening in.

00:01:31.057 --> 00:01:34.217
Europe. We have to establish one thing Russia.

00:01:34.217 --> 00:01:37.307
is not a superpower economically.

00:01:37.307 --> 00:01:38.897
speaking Russia in South Korea.

00:01:39.117 --> 00:01:40.387
Russia is Brazil.

00:01:41.767 --> 00:01:45.227
The only thing that makes Russia relevant, economically speaking.

00:01:45.227 --> 00:01:46.607
is energy.

00:01:47.387 --> 00:01:50.157
And energy is a major factor in fact.

00:01:51.087 --> 00:01:54.607
Tomorrow, Putin can turn the lights off on Germany.

00:01:54.607 --> 00:01:57.887
This is very important to understand 2011.

00:01:57.887 --> 00:02:01.367
March of 2011, there was the nuclear accident.

00:02:01.367 --> 00:02:02.047
in Japan.

00:02:02.917 --> 00:02:06.047
After that accident, Angela Merkel bugged in the head.

00:02:06.047 --> 00:02:09.307
of Germany, said. I don't want any nuclear in.

00:02:09.307 --> 00:02:12.517
Germany to avoid this kind of situation and.

00:02:12.517 --> 00:02:15.747
therefore they eliminated their nuclear capacity that.

00:02:15.747 --> 00:02:18.907
led to a situation in which there are no natural gas coming from.

00:02:18.907 --> 00:02:21.977
Russia. You wake up and about 40% of your natural.

00:02:21.977 --> 00:02:25.067
gas consumption is coming from Russia. You are totally dependent.

00:02:25.067 --> 00:02:28.307
on Russia and that's the number one reason why Germany.

00:02:28.307 --> 00:02:32.647
and Europe cannot go.

00:02:32.647 --> 00:02:32.647

00:02:32.957 --> 00:02:36.187
With Biden banning input of energy.

00:02:36.187 --> 00:02:39.227
from Russia, that's very, very important, reflecting what's.

00:02:39.227 --> 00:02:42.427
happening. And clearly Putin knows that, and he knew.

00:02:42.427 --> 00:02:44.107
that before we enter Ukraine.

00:02:44.787 --> 00:02:46.927
No, let's go and continue with that.

00:02:47.957 --> 00:02:49.757
Ukraine is actually.

00:02:50.917 --> 00:02:54.057
Potentially an energy superpower, if.

00:02:54.057 --> 00:02:57.157
you look at the natural reserve natural gas reserves in Europe.

00:02:57.157 --> 00:02:59.597
it's the second highest in Ukraine.

00:03:00.297 --> 00:03:02.747
This is undeveloped reserves that can be developed.

00:03:03.587 --> 00:03:06.627
Second only to Norway, what it means it.

00:03:06.627 --> 00:03:09.707
means that an independent Ukraine a member.

00:03:09.707 --> 00:03:13.027
of NATO, can develop that natural gas.

00:03:13.027 --> 00:03:16.047
and replace Russia over time as the men.

00:03:16.047 --> 00:03:19.427
supplier of natural gas to Europe. That's a nightmare.

00:03:19.427 --> 00:03:22.997
scenario as far as far as Putin.

00:03:22.997 --> 00:03:26.257
is concerned. So clearly there are many reasons why is there.

00:03:26.257 --> 00:03:29.467
That's one of them. Energy is definitely one of them. So.

00:03:29.467 --> 00:03:32.617
the question is, what's next? Nobody knows there are many scenarios.

00:03:32.617 --> 00:03:33.647
I will not get into it.

00:03:33.867 --> 00:03:37.077
The best case scenario is that in.

00:03:37.077 --> 00:03:39.297
Ukraine will not recognize Crimea.

00:03:39.577 --> 00:03:42.727
Russia will take parts of.

00:03:42.727 --> 00:03:44.837
the South and they would call it a day.

00:03:44.897 --> 00:03:47.917
They put in will declare victory or.

00:03:47.917 --> 00:03:50.957
Doyle lost and it can get one or two lessons from.

00:03:50.957 --> 00:03:52.357
Mr Trump. How to do it?

00:03:53.107 --> 00:03:56.467
The other option is a partition of Ukraine with.

00:03:56.467 --> 00:03:59.527
a government puppet government in.

00:03:59.527 --> 00:04:02.847
the Kiev and the other government in Lviv. That's another.

00:04:02.847 --> 00:04:05.987
option. The third is taking over Ukraine as they all.

00:04:05.987 --> 00:04:09.447
and basically get into and Afghanistan type scenario nobody.

00:04:09.447 --> 00:04:12.697
knows. But what we do know is that the sanctions.

00:04:12.697 --> 00:04:14.007
that the West is imposing.

00:04:15.317 --> 00:04:18.337
Only Putin will determine the.

00:04:18.337 --> 00:04:23.417
ultimate outcome, so let's discuss those sanctions.

00:04:23.417 --> 00:04:25.507
and clearly we all know about the swift.

00:04:25.937 --> 00:04:28.947
The situation and the ban.

00:04:28.947 --> 00:04:31.997
on the swift transactions, people who don't know what it is, it's.

00:04:31.997 --> 00:04:35.507
basically the Whatsapp of international transaction basically.

00:04:35.507 --> 00:04:39.007
when a bank try to do something, they need this system and most.

00:04:39.007 --> 00:04:42.167
Russian banks now don't have access to it and.

00:04:42.167 --> 00:04:45.977
that's something that is preventing them from doing business. However, it's not complete, it's.

00:04:45.977 --> 00:04:49.547
not 100%. Why? Because we still need to send energy.

00:04:49.547 --> 00:04:52.567
from Russia to the West and therefore.

00:04:52.567 --> 00:04:55.747
you need some banks, especially those that specialize in energy.

00:04:55.747 --> 00:04:55.747

00:04:55.927 --> 00:04:58.997
To have access to SWIFT, and that's exactly what's happening. So it's not.

00:04:58.997 --> 00:05:02.677
complete. Another thing is happening and that's the freezing.

00:05:02.677 --> 00:05:05.697
the FX reserves of Russia, that's.

00:05:05.697 --> 00:05:08.977
huge because Putin put together no less than six.

00:05:08.977 --> 00:05:12.337
billion of FX.

00:05:12.337 --> 00:05:15.537
reserves and now it's frozen in its.

00:05:15.537 --> 00:05:19.117
euro in gold, US dollars, Chinese Ron and.

00:05:19.117 --> 00:05:22.367
all other currencies. Now this is important because they cannot.

00:05:22.367 --> 00:05:25.437
touch, it can sell is goal 20% of the reserves.

00:05:25.437 --> 00:05:26.137
s in gold.

00:05:26.417 --> 00:05:29.587
And, but you need a buyer and this buyer might be.

00:05:29.587 --> 00:05:32.667
China and that's why I'm watching very, very closely.

00:05:32.667 --> 00:05:35.747
what China will be doing because let's face it, we.

00:05:35.747 --> 00:05:37.807
are in a Cold War.

00:05:38.677 --> 00:05:39.857
There is no way back.

00:05:42.137 --> 00:05:43.067
Russia is out.

00:05:43.967 --> 00:05:47.037
And if you are in a cold war and you are a third party.

00:05:47.037 --> 00:05:48.397
you have to choose.

00:05:48.447 --> 00:05:50.217
Whose side?

00:05:51.107 --> 00:05:54.327
In what China will do is crucial, because still.

00:05:54.327 --> 00:05:57.507
China and needs the West, but at the same time it is getting.

00:05:57.507 --> 00:06:00.527
closer and closer to Russia. So this.

00:06:00.527 --> 00:06:03.547
is something that we have to watch very carefully because it will.

00:06:03.547 --> 00:06:06.687
determine the nature of global economy and.

00:06:06.687 --> 00:06:10.467
globalization in the future of very important derivative.

00:06:10.467 --> 00:06:14.187
of this crisis is what China will do and its relationship.

00:06:14.187 --> 00:06:16.107
with the West after the crisis.

00:06:16.997 --> 00:06:18.747
Is over so.

00:06:19.507 --> 00:06:20.687
What are the implications?

00:06:21.297 --> 00:06:24.657
The first question is short term, is it a?

00:06:24.657 --> 00:06:26.217
recessionary situation?

00:06:26.997 --> 00:06:30.317
Or an inflationary situation and I suggest.

00:06:30.317 --> 00:06:33.547
that the Russian crisis is not.

00:06:33.547 --> 00:06:36.597
a recessionary situation for North America.

00:06:36.597 --> 00:06:40.157
You see, when it comes to Russia, Ukraine.

00:06:40.157 --> 00:06:43.317
clearly it is a recessionary situation. Now you go.

00:06:43.317 --> 00:06:45.127
once removed Europe.

00:06:45.717 --> 00:06:48.237
Western Europe, Germany, France, Italy.

00:06:49.377 --> 00:06:52.407
The impact here is about 0.50 point 6.

00:06:52.407 --> 00:06:55.497
of the GDP. Not a big deal.

00:06:55.497 --> 00:06:57.867
quite frankly. And we are twice removed in fact.

00:06:58.677 --> 00:07:01.897
Economically speaking, you might suggest that Canada is benefiting.

00:07:01.897 --> 00:07:05.077
from the crisis, economically speaking, because.

00:07:05.077 --> 00:07:06.517
of.

00:07:06.717 --> 00:07:09.917
GE Potash, which we.

00:07:09.917 --> 00:07:13.027
are major exporters of those goods that we need, so this.

00:07:13.027 --> 00:07:16.057
is a factor that we have to take into account another.

00:07:16.057 --> 00:07:19.997
factor of course is energy and energy.

00:07:19.997 --> 00:07:23.397
prices and what it means for the economy before we get that, let's.

00:07:23.397 --> 00:07:26.497
talk about the long term implications of this crisis which.

00:07:26.497 --> 00:07:29.577
I think are even more important. So we established that this is.

00:07:29.577 --> 00:07:32.797
not a recessionary scenario, it's an inflationary scenario.

00:07:32.797 --> 00:07:36.397
but from a long term perspective, this is clearly going to modify.

00:07:37.247 --> 00:07:40.687
The process of deglobalization Deglobalization started with.

00:07:40.687 --> 00:07:43.647
Trump was accelerated during COVID.

00:07:44.777 --> 00:07:48.357
And now it's actually gaining momentum, so.

00:07:48.357 --> 00:07:51.517
that's significant because that's of course inflationary and.

00:07:51.517 --> 00:07:54.687
has significant implications on trade. I'm not talking about full.

00:07:54.687 --> 00:07:57.817
scale deglobalization and that's why I'm watching China.

00:07:57.817 --> 00:08:01.617
very closely. But I suggest that it's not a stretch.

00:08:01.617 --> 00:08:02.397
to suggest.

00:08:03.277 --> 00:08:06.447
Dot 2025% of what the Americans are buying.

00:08:06.447 --> 00:08:09.497
from China now will come back home for many reasons.

00:08:09.497 --> 00:08:12.677
and that's something that have major implications another.

00:08:12.677 --> 00:08:15.937
factor is green the green revolution.

00:08:15.937 --> 00:08:19.277
will go even faster with the West realizing.

00:08:19.277 --> 00:08:22.457
that they need to rely more heavily because it's not just.

00:08:22.457 --> 00:08:25.737
Russia, it's also Saudi Arabia. It's Qatar, it's other countries.

00:08:25.737 --> 00:08:29.097
that the West would like to minimize the activity.

00:08:29.097 --> 00:08:32.257
in. So that's something that they will happen. So the green.

00:08:32.257 --> 00:08:33.517
Revolution will continue.

00:08:33.597 --> 00:08:36.647
And this crisis will accelerate that, I think.

00:08:36.647 --> 00:08:40.027
that Russia will be a much less significant player when.

00:08:40.027 --> 00:08:43.087
this madness is over and even the.

00:08:43.087 --> 00:08:46.367
crypto currencies I think will be closer to.

00:08:46.367 --> 00:08:49.737
full regulations after this crisis is over because.

00:08:49.737 --> 00:08:52.927
it will expose a situation in which players.

00:08:52.927 --> 00:08:56.267
can outmaneuver bunks when.

00:08:56.267 --> 00:08:59.607
they when they try to restrict the economy. And that's something.

00:08:59.607 --> 00:09:03.087
that the authorities would like to minimize therefore.

00:09:03.087 --> 00:09:04.767
I suggest that we are going to see more.

00:09:05.027 --> 00:09:08.117
Restrictions and regulations in the crypto space so.

00:09:08.117 --> 00:09:11.177
that's the long term implications of.

00:09:11.177 --> 00:09:14.557
the crisis that we are facing now and that's the way I see it now clearly.

00:09:14.557 --> 00:09:17.677
energy prices is a very important factor and we have seen basically.

00:09:17.677 --> 00:09:20.797
an energy shock. I will not get too much into it, but if you.

00:09:20.797 --> 00:09:23.557
go, if you look at this chart, you can see something very interesting.

00:09:24.657 --> 00:09:28.027
You go back to the 70s. Almost every oil shock.

00:09:28.027 --> 00:09:29.027
as you can see.

00:09:30.687 --> 00:09:31.307
Lead.

00:09:32.037 --> 00:09:32.837
Two every session.

00:09:34.177 --> 00:09:36.117
And people say high oil prices.

00:09:36.757 --> 00:09:39.947
Lead to recessions and I say no, it's not high oil prices that little.

00:09:39.947 --> 00:09:43.077
recessions. It's their response to higher oil.

00:09:43.077 --> 00:09:46.187
prices, the monetary response visa vie higher.

00:09:46.187 --> 00:09:49.697
interest rates that led to those sessions in.

00:09:49.697 --> 00:09:52.757
the 90s in the 80s and clearly in the 70s.

00:09:52.757 --> 00:09:56.397
So it's a mistake to suggest based on this chart.

00:09:56.397 --> 00:09:59.617
that oil prices themselves are recessionary. No, it's.

00:09:59.617 --> 00:10:02.717
the response to oil prices. And the question is.

00:10:02.717 --> 00:10:05.897
how sensitive the economy is now.

00:10:05.897 --> 00:10:07.007
to hire.

00:10:07.047 --> 00:10:10.157
Energy prices, and therefore our sensitive interest rates are to.

00:10:10.157 --> 00:10:13.607
higher oil prices and I say much less sensitive.

00:10:13.607 --> 00:10:17.177
than in the past. This is the energy intensity.

00:10:17.177 --> 00:10:20.637
of the economy as a whole and you can see that it's basically 12%.

00:10:20.637 --> 00:10:23.877
loyal than it was ten years ago. So this means that.

00:10:23.877 --> 00:10:26.957
the economy is able to take higher energy prices.

00:10:26.957 --> 00:10:30.237
without the same damage that we have seen a decade or two.

00:10:30.237 --> 00:10:33.337
decades ago. That's extremely important another very.

00:10:33.337 --> 00:10:36.717
important factor that will have major implications.

00:10:36.717 --> 00:10:37.657
on energy.

00:10:37.917 --> 00:10:41.027
Energy producers and investment in energy, in my opinion, is.

00:10:41.027 --> 00:10:44.087
discharged. Look what's happening usually when oil.

00:10:44.087 --> 00:10:48.097
prices go up, Alberta is busy Ceos.

00:10:48.097 --> 00:10:51.107
of energy companies are investing because they want.

00:10:51.107 --> 00:10:54.167
to increase capacity. This time we are not seeing.

00:10:54.167 --> 00:10:57.587
a capacity production response to.

00:10:57.587 --> 00:11:00.987
the crisis. Oil prices went up. We don't see.

00:11:00.987 --> 00:11:04.047
Canadian companies, American companies investing.

00:11:04.047 --> 00:11:07.587
in extra capacity. Why? Because of the green revolution.

00:11:07.587 --> 00:11:07.587

00:11:08.357 --> 00:11:11.487
We know that over time Green will be replacing black.

00:11:11.487 --> 00:11:14.607
and if you are a CEO of an energy company.

00:11:14.607 --> 00:11:18.217
you are thinking twice before committing billions.

00:11:18.217 --> 00:11:21.527
of dollars into increasing capacity. That will not be using.

00:11:21.527 --> 00:11:24.647
in the future. Therefore we are not seeing.

00:11:24.647 --> 00:11:28.067
the production response that we've saw in.

00:11:28.067 --> 00:11:31.237
any other oil shock and.

00:11:31.237 --> 00:11:34.247
therefore the impact on the Canadian economy is not as.

00:11:34.247 --> 00:11:37.327
positive as in the past because usually you get the benefit.

00:11:37.327 --> 00:11:38.527
of extra investment.

00:11:38.787 --> 00:11:42.257
In the oil sector this time around, as you can see from the.

00:11:42.257 --> 00:11:45.367
circled area, it's not opening and it just makes.

00:11:45.367 --> 00:11:48.577
sense to me. So that's the way I see the situation and.

00:11:48.577 --> 00:11:51.997
the energy impact we have to put it in perspective. And we have seen.

00:11:51.997 --> 00:11:55.197
that energy prices recently are starting to slow down.

00:11:55.197 --> 00:11:58.577
People are talking about some sort of resolution to the crisis.

00:11:58.577 --> 00:12:01.737
hina is slowing down because of kovid. That's something that.

00:12:01.737 --> 00:12:04.837
is slowing down expectations regarding demand for.

00:12:04.837 --> 00:12:07.937
energy in the near future. So prices are starting to is.

00:12:07.937 --> 00:12:09.797
but they are still elevated their impact.

00:12:10.097 --> 00:12:10.597
Economy.

00:12:11.517 --> 00:12:15.257
It's not as significant as it used to be, so that's done now.

00:12:15.257 --> 00:12:18.367
let's continue and discuss other things that.

00:12:18.367 --> 00:12:19.497
are important now.

00:12:20.407 --> 00:12:23.827
2022 is the year of the Tiger the tiger.

00:12:23.827 --> 00:12:27.207
the most unpredictable creature audio. And that's.

00:12:27.207 --> 00:12:30.507
very appropriate because 2022 is a very unpredictable.

00:12:30.507 --> 00:12:34.267
year because of so many forces. One of them is this.

00:12:34.267 --> 00:12:34.267

00:12:35.937 --> 00:12:36.737
What is that?

00:12:38.907 --> 00:12:41.887
Go back to your Grade 7 geometry.

00:12:43.507 --> 00:12:45.587
That's the number π.

00:12:46.267 --> 00:12:49.447
No. Why am I showing you the number?

00:12:49.447 --> 00:12:52.787
π during an economic presentation? Because the.

00:12:52.787 --> 00:12:56.227
letter PI happened to be the.

00:12:56.227 --> 00:12:59.467
letter after the Omicron letter.

00:12:59.467 --> 00:13:00.367
in the Greek alphabet.

00:13:02.147 --> 00:13:03.447
So you see where I'm going with that?

00:13:04.487 --> 00:13:08.047
If you think that you cannot get a straight forward answer from an economist.

00:13:08.047 --> 00:13:11.157
try a biologist. Nobody knows but everybody.

00:13:11.157 --> 00:13:14.467
is telling me there will be another variant. Maybe it's already.

00:13:14.467 --> 00:13:14.877
out there.

00:13:16.287 --> 00:13:19.477
So as a society, we will have to learn to live.

00:13:19.477 --> 00:13:22.617
with that. So we have a situation in which we have the tiger.

00:13:22.617 --> 00:13:22.617

00:13:23.737 --> 00:13:26.717
And we have pie and I couldn't resist.

00:13:27.477 --> 00:13:31.157
I don't know if you remember this movie from 2012 life.

00:13:31.157 --> 00:13:34.357
of pi. It's a wonderful, wonderful movie, I.

00:13:34.357 --> 00:13:37.767
highly recommend it's on Netflix. If you haven't seen it, see it.

00:13:37.767 --> 00:13:40.817
tonight. But the point that I'm making here, of course this.

00:13:40.817 --> 00:13:44.157
is not doesn't have any significant, but what I'm.

00:13:44.157 --> 00:13:46.697
saying here is that.

00:13:48.367 --> 00:13:50.777
It's reasonable to assume that this year would be volatile.

00:13:52.267 --> 00:13:55.497
I suggest that with the spring and the summer.

00:13:55.497 --> 00:13:58.637
coming, the economy will be relatively strong with consumers.

00:13:58.637 --> 00:14:01.657
spending a lot of money pent up demand that has been.

00:14:01.657 --> 00:14:04.757
there, but at the same time, we will be dancing to.

00:14:04.757 --> 00:14:07.877
the tune of the virus and if there is another variant.

00:14:07.877 --> 00:14:10.937
and this has an impact on the economy, we will see.

00:14:10.937 --> 00:14:14.417
a kind of zig zag W shaped recovery.

00:14:14.417 --> 00:14:17.637
going up and down, up and down. That's something that we have to.

00:14:17.637 --> 00:14:20.807
learn to live with the hope and prayer is that we have.

00:14:22.717 --> 00:14:25.767
To deal with the next wave of whatever it is in a.

00:14:25.767 --> 00:14:28.887
way that will not damage economic activity in a very significant way.

00:14:28.887 --> 00:14:31.947
but we have to take this into account. It's not over by.

00:14:31.947 --> 00:14:35.407
any stretch of the imagination linked to that is.

00:14:35.407 --> 00:14:38.507
the fear factor, the availability factor.

00:14:38.507 --> 00:14:41.687
is there. We are opening up everything is there. But as you can see.

00:14:41.687 --> 00:14:44.887
in the case of the UK and Germany in the past few.

00:14:44.887 --> 00:14:47.947
months, the UK was basically open Germany.

00:14:47.947 --> 00:14:51.057
was not. But you look at restaurants in the chat.

00:14:51.057 --> 00:14:52.807
to the right basically the same namely.

00:14:52.887 --> 00:14:54.077
The restaurant was opened.

00:14:55.157 --> 00:14:56.057
But nobody showed up.

00:14:56.877 --> 00:15:00.357
Or less people showed up. The fear factor was dominating I.

00:15:00.357 --> 00:15:04.237
suggest in the spring and the summer, the fear factor will.

00:15:04.237 --> 00:15:07.537
diminish in North America. But again, if people are tweeting.

00:15:07.537 --> 00:15:10.697
about the possibility of another variant, the fear.

00:15:10.697 --> 00:15:13.907
factor will be there. So you can open up the economy. You.

00:15:13.907 --> 00:15:17.157
will not get the same amount of activity if nothing happened and.

00:15:17.157 --> 00:15:20.257
that's something that we have to take into account. So given all this.

00:15:20.257 --> 00:15:22.177
now we have to discuss.

00:15:22.767 --> 00:15:27.187
The elephant in the room, and that's inflation. How?

00:15:27.187 --> 00:15:27.187

00:15:27.827 --> 00:15:31.437
Significant is the inflationary force here and.

00:15:31.437 --> 00:15:34.727
outdoor abilities, in my opinion.

00:15:34.727 --> 00:15:37.907
the way to deal with that is.

00:15:37.907 --> 00:15:38.707
to ask.

00:15:39.617 --> 00:15:42.757
A question about the origin of all.

00:15:42.757 --> 00:15:46.117
those inflationary forces, and there are many of them so.

00:15:46.117 --> 00:15:49.367
let's start with the big one and that's supply chain and.

00:15:49.367 --> 00:15:53.187
I'm asking myself how much of this supply chain issue is.

00:15:53.187 --> 00:15:56.277
covered because what we are seeing is something.

00:15:56.277 --> 00:15:58.017
amazing. Look at the chart to the left.

00:15:59.927 --> 00:16:02.747
This is consumption of goods, not service is good.

00:16:04.457 --> 00:16:05.507
In 2021.

00:16:07.217 --> 00:16:10.337
We have seen four years of normal consumption being.

00:16:10.337 --> 00:16:11.437
squeezed into that here.

00:16:12.907 --> 00:16:13.877
In terms of growth?

00:16:14.717 --> 00:16:18.047
Just to put things in perspective, this amount of consumption.

00:16:18.047 --> 00:16:21.237
of goods is equivalent equivalent to a situation in which.

00:16:21.237 --> 00:16:22.837
overnight overnight.

00:16:23.817 --> 00:16:26.997
You parachuted 70.

00:16:26.997 --> 00:16:30.137
million new Americans into.

00:16:30.137 --> 00:16:33.227
the US, and the minute the lender they started to spend, that's.

00:16:33.227 --> 00:16:37.757
what we're talking about. This is a demand shock.

00:16:37.757 --> 00:16:37.757

00:16:39.537 --> 00:16:42.747
And people say yes, but never underestimate the American.

00:16:42.747 --> 00:16:45.917
consumer. And I say yes, but give me a break. How?

00:16:45.917 --> 00:16:47.487
much stuff do you need?

00:16:48.467 --> 00:16:51.937
We have been shopping for two years because it's easy. You press the button.

00:16:51.937 --> 00:16:53.647
and you get your exercise bike.

00:16:56.207 --> 00:16:59.177
And I suggest that all these consumption energy.

00:16:59.797 --> 00:17:02.587
Will be going to services.

00:17:03.417 --> 00:17:05.317
Because this demand shock.

00:17:06.467 --> 00:17:09.847
Would be enough to challenge even a normally functioning.

00:17:09.847 --> 00:17:13.147
supply system, and this supply system.

00:17:13.147 --> 00:17:16.307
is not normally functioning. It's very sick. So you have a.

00:17:16.307 --> 00:17:19.607
very sick supply system dealing with the mother of all demand.

00:17:19.607 --> 00:17:22.827
shocks. But this demand, if we open up in.

00:17:22.827 --> 00:17:23.547
a normal way.

00:17:24.247 --> 00:17:27.847
Will be going to services and.

00:17:27.847 --> 00:17:31.487
the point that I'm making here is that services are less inflationary.

00:17:31.487 --> 00:17:34.727
Why? Because their supply is more elastic.

00:17:34.727 --> 00:17:38.127
If you start overcharging in your restaurant I will open a.

00:17:38.127 --> 00:17:39.747
new one to compete with you.

00:17:41.207 --> 00:17:44.707
It's much easier to start a new restaurant than to establish a new manufacturing.

00:17:44.707 --> 00:17:47.727
facility, so therefore the point that I'm making here.

00:17:47.727 --> 00:17:49.007
is that.

00:17:50.047 --> 00:17:53.057
Tick covid out of it and you have nothing left.

00:17:53.057 --> 00:17:53.067

00:17:53.927 --> 00:17:57.987
60 to 65% of inflation is.

00:17:57.987 --> 00:17:57.987

00:17:58.997 --> 00:17:59.837
Supply chain.

00:18:00.907 --> 00:18:01.727
And all of it.

00:18:03.027 --> 00:18:06.167
Is due to Kovid. If you remove Covid out of.

00:18:06.167 --> 00:18:09.937
it and if we go with our Sumption.

00:18:09.937 --> 00:18:09.937

00:18:11.617 --> 00:18:14.627
Got 2022 is a transition year between.

00:18:14.627 --> 00:18:17.827
the pandemic and endemic. Then I think it's reasonable.

00:18:17.827 --> 00:18:18.667
to assume.

00:18:20.127 --> 00:18:23.287
That this supply chain story will.

00:18:23.287 --> 00:18:25.397
start disappearing in the second half of the year.

00:18:25.997 --> 00:18:29.057
And will not be there in any significant way a year from now.

00:18:29.057 --> 00:18:32.517
That's the hope. That's the prayer. And therefore all these consumption.

00:18:32.517 --> 00:18:35.917
energy will go to services that's.

00:18:35.917 --> 00:18:38.987
one thing. So that's not very durable in terms.

00:18:38.987 --> 00:18:41.477
of inflationary forces, what's more durable.

00:18:42.197 --> 00:18:44.187
Is employment.

00:18:44.837 --> 00:18:45.677
The labor market.

00:18:47.097 --> 00:18:50.117
We all heard about the great resignation trend.

00:18:50.117 --> 00:18:53.497
in the US people are quitting like there is no tomorrow in.

00:18:53.497 --> 00:18:56.717
Canada. By the way. That's not the case and.

00:18:56.717 --> 00:18:59.957
in a recent survey, a record number of Canadians say.

00:18:59.957 --> 00:19:02.997
that we are thinking about quitting. So in the USR.

00:19:02.997 --> 00:19:06.107
quitting in Canada, we are thinking about quitting, that's.

00:19:06.107 --> 00:19:09.467
very Canadian. Nevertheless, it means that the market is tight then.

00:19:09.467 --> 00:19:13.317
you look at a chart of the left and you can see that many older.

00:19:13.317 --> 00:19:16.657
Americans are exiting the market and.

00:19:16.657 --> 00:19:19.277
I say if you are sixty 6568.

00:19:19.537 --> 00:19:22.707
And you decided you weren't copied to exit the labor market. You're not coming back?

00:19:22.707 --> 00:19:22.707

00:19:24.957 --> 00:19:28.077
And that's why the participation rate in the labor market.

00:19:28.077 --> 00:19:30.977
in the USA is below what it was before.

00:19:31.947 --> 00:19:35.047
That's something that we haven't seen in Canada. Therefore the participation rate.

00:19:35.047 --> 00:19:38.327
is actually higher than it was before, but there is another.

00:19:38.327 --> 00:19:41.527
force that is extremely important and that's immigration.

00:19:41.527 --> 00:19:41.527

00:19:42.177 --> 00:19:44.017
In October 2020.

00:19:44.617 --> 00:19:47.717
The Canadian government announced that they would like to see no.

00:19:47.717 --> 00:19:50.777
less than 400,000 new immigrants.

00:19:50.777 --> 00:19:50.777

00:19:51.887 --> 00:19:55.027
Arriving to Canada in 2021 and people.

00:19:55.027 --> 00:19:58.767
said, are you crazy? How can you get 400,000?

00:19:58.767 --> 00:19:58.767

00:19:59.367 --> 00:20:03.467
During Covid, nobody is flying. We got 400 and 1000. How?

00:20:03.467 --> 00:20:03.467

00:20:04.117 --> 00:20:06.677
70% of them were already in Canada.

00:20:07.387 --> 00:20:10.627
There were students, there were non permanent residence.

00:20:10.627 --> 00:20:14.367
for damn it was a change in status, not a change of address.

00:20:14.367 --> 00:20:14.367

00:20:15.077 --> 00:20:18.237
And just to put things in perspective, look at the chart to the right, that's.

00:20:18.237 --> 00:20:21.717
relative to the US we got 400,000.

00:20:21.717 --> 00:20:24.817
they got 500,000, but the last time I checked.

00:20:24.817 --> 00:20:27.927
the US is still 10 times larger than Canada, which means.

00:20:27.927 --> 00:20:31.197
that per capita, we have seen an inflow.

00:20:31.197 --> 00:20:34.917
of new immigrants six times faster than what we're seeing in the US this is.

00:20:34.917 --> 00:20:38.217
a new supply to the labor market that you haven't seen in.

00:20:38.217 --> 00:20:41.357
the USA major force impacting wages in.

00:20:41.357 --> 00:20:44.757
Canada relative to the US and just out of curiosity.

00:20:44.757 --> 00:20:44.757

00:20:45.077 --> 00:20:48.367
I was looking at the skill set of those new immigrants relative.

00:20:48.367 --> 00:20:51.407
to what we need in the economy based on.

00:20:51.407 --> 00:20:51.407

00:20:52.057 --> 00:20:55.457
Because the words and you can see that when it goes across the.

00:20:55.457 --> 00:20:58.497
45 degree line, it's it means that there.

00:20:58.497 --> 00:21:02.457
is nice alignment and you can see there is a nice alignment here however.

00:21:02.457 --> 00:21:05.257
there are few exceptions. One of them is trades and construction.

00:21:07.267 --> 00:21:10.957
One of the most important factors limiting.

00:21:10.957 --> 00:21:14.017
supply in the housing market in Canada is the.

00:21:14.017 --> 00:21:17.517
lack of label, specially thread and clearly construction.

00:21:17.517 --> 00:21:20.137
workers. How many new immigrants we got?

00:21:21.007 --> 00:21:24.107
In construction, basically zero. Same goes for.

00:21:24.107 --> 00:21:25.407
health occupations.

00:21:27.057 --> 00:21:30.257
We need nurses like oxygen. How?

00:21:30.257 --> 00:21:33.737
many did we get? 0. So clearly we need some.

00:21:33.737 --> 00:21:36.897
fine tuning. But overall there is nice alignment.

00:21:36.897 --> 00:21:39.927
between what we need and what they bring. So we have a.

00:21:39.927 --> 00:21:43.017
situation in which all their people exiting the.

00:21:43.017 --> 00:21:46.017
market in the US not in Canada and clearly we have.

00:21:46.617 --> 00:21:47.707
More immigrants.

00:21:48.387 --> 00:21:51.577
Hey, why being relative to the US and?

00:21:51.577 --> 00:21:54.767
therefore the supply of labor in the?

00:21:54.767 --> 00:21:57.887
Canadian market is larger than what you see in the US?

00:21:57.887 --> 00:22:01.047
and therefore most surprise wages?

00:22:01.047 --> 00:22:04.067
in the US are rising faster than wages in?

00:22:04.067 --> 00:22:07.187
Canada with major implications for the Bank of Canada?

00:22:07.187 --> 00:22:10.407
and the rate at which interest rates will be rising we discuss?

00:22:10.407 --> 00:22:11.287
it in a second.

00:22:12.617 --> 00:22:15.667
Now we have a situation which inflation?

00:22:15.667 --> 00:22:18.677
is rising, wages are rising in both countries, more in the U.

00:22:18.677 --> 00:22:22.667
So the question is, what's next in terms of raising interest rates?

00:22:22.667 --> 00:22:25.807
We know that the Bank of Canada already started the.

00:22:25.807 --> 00:22:29.687
Fed will be raising interest rates and we are talking about a situation.

00:22:29.687 --> 00:22:33.037
in which our quickly our fast first.

00:22:33.037 --> 00:22:36.507
we have to examine and look at the effectiveness of.

00:22:36.507 --> 00:22:39.807
monetary policy. Look at this is extremely important to understand.

00:22:39.807 --> 00:22:42.647
Look at the chart of the left. First you have the Gray line.

00:22:43.047 --> 00:22:44.437
And you have the red line.

00:22:45.327 --> 00:22:49.137
The Gray line is the official rate. the Fed funds rate.

00:22:49.907 --> 00:22:51.497
The red light.

00:22:52.437 --> 00:22:55.137
Is effective interest rates basically how much you pay?

00:22:55.767 --> 00:22:58.787
This is actually how much you pay. Look what happened in.

00:22:58.787 --> 00:23:02.087
the 19 in the 2004 five.

00:23:02.087 --> 00:23:03.527
six before the crisis.

00:23:05.007 --> 00:23:08.407
Greenspan Bugden raised into sweats from 1:25.

00:23:08.407 --> 00:23:10.547
basis points to.

00:23:11.867 --> 00:23:12.467
5%.

00:23:14.167 --> 00:23:15.507
Basically, over the course of breakfast.

00:23:16.927 --> 00:23:18.927
What happened to the red line? Basically nothing.

00:23:19.937 --> 00:23:23.237
That's the creative imagination of American bankers.

00:23:23.237 --> 00:23:23.237

00:23:23.827 --> 00:23:27.167
That neutralize the Fed remembered all those ninja mortgages.

00:23:27.167 --> 00:23:28.407
That's what I'm talking about.

00:23:29.167 --> 00:23:32.407
So interest rates went up, but actually interest rates for normal.

00:23:32.407 --> 00:23:35.657
people did not go up. Same goals in 2000.

00:23:35.657 --> 00:23:38.807
Eighteen. You see the red line basically flood. Why?

00:23:38.807 --> 00:23:41.987
Because their mortgages are for 30 years, so it takes a long time.

00:23:41.987 --> 00:23:43.387
to impact actual payments.

00:23:44.047 --> 00:23:47.087
In Canada, I will, mortgages are for five.

00:23:47.087 --> 00:23:47.437
years.

00:23:48.327 --> 00:23:49.047
Therefore.

00:23:49.797 --> 00:23:52.217
When the Bank of Canada starts to raise interest rates.

00:23:54.337 --> 00:23:57.647
I will interest rates, effective interface option actually rise as.

00:23:57.647 --> 00:24:00.867
well. So the effectiveness of monetary policy in Canada is.

00:24:00.867 --> 00:24:04.117
higher than the effectiveness in the US and.

00:24:04.117 --> 00:24:07.147
then you have another force during the two.

00:24:07.147 --> 00:24:10.247
crisis, the Americans.

00:24:10.247 --> 00:24:13.307
went through the model of Aldi leveraging their.

00:24:13.307 --> 00:24:16.427
debt to income ratio went.

00:24:16.427 --> 00:24:19.867
down from 160 to 140 hours in.

00:24:19.867 --> 00:24:23.087
nada went up from 140 to 160 we?

00:24:23.087 --> 00:24:24.107
We assume more debt.

00:24:24.327 --> 00:24:27.357
Because this was not our crisis in 2008, we.

00:24:27.357 --> 00:24:29.017
were basically secondhand smokers.

00:24:30.507 --> 00:24:33.697
So when you have more debt, you're more sensitive to the risk of higher.

00:24:33.697 --> 00:24:36.977
interest rates. Our sensitive more than twice what?

00:24:36.977 --> 00:24:38.907
I mean by that according to this chart.

00:24:40.017 --> 00:24:43.237
Basically, if you raise interest rates in Canada by.

00:24:43.237 --> 00:24:46.437
100 basis point, it's equivalent to the Fed.

00:24:46.437 --> 00:24:49.757
raising interest rates by 200 basis points. In terms of the impact.

00:24:49.757 --> 00:24:52.937
on the consumer, which means that the Bank of Canada.

00:24:52.937 --> 00:24:56.017
is more powerful than the Fed in terms of.

00:24:56.017 --> 00:24:59.187
their ability to slow down the consumer and the housing market.

00:24:59.187 --> 00:25:02.687
So you have inflation in the US rising faster, wages are rising.

00:25:02.687 --> 00:25:05.897
faster and the Bank of Canada is more effective in raising.

00:25:05.897 --> 00:25:09.097
interest rates. You will expect that this wee little situation.

00:25:09.097 --> 00:25:10.497
in which the market will.

00:25:10.957 --> 00:25:14.627
Price in a situation in which the.

00:25:14.627 --> 00:25:17.147
Fed will be moving.

00:25:19.347 --> 00:25:21.537
More aggressively then the Bank of Canada.

00:25:23.247 --> 00:25:26.317
And the opposite was the case until very recently this is.

00:25:26.317 --> 00:25:29.977
a very important chart. If you care about interest rates and the dollar look.

00:25:29.977 --> 00:25:32.157
at the huge increase.

00:25:34.077 --> 00:25:37.217
In November of 2021, towards.

00:25:37.217 --> 00:25:40.737
the end of the year, we have seen the two year rate Canada.

00:25:40.737 --> 00:25:44.157
rising faster than the two year rate. US does this spread?

00:25:44.157 --> 00:25:47.477
between the two of them, which means that the market at this point was expect?

00:25:47.477 --> 00:25:49.297
ng expecting the Bank of Canada not the Fed.

00:25:50.317 --> 00:25:53.677
To be much more aggressive, in fact, at one point the.

00:25:53.677 --> 00:25:56.737
market priced in a situation in which the Bank of Canada would be.

00:25:56.737 --> 00:25:59.897
moving a full year ahead of the Fed, which didn't make any sense.

00:25:59.897 --> 00:26:00.437
whatsoever.

00:26:01.647 --> 00:26:04.867
So we have seen this line rising suggesting.

00:26:04.867 --> 00:26:08.097
that the market was much more aggressive on the Bank of Canada and then just?

00:26:08.097 --> 00:26:11.627
recently over the past few months, the market reversed that.

00:26:11.627 --> 00:26:14.927
red and you can see the number or the trend going down.

00:26:14.927 --> 00:26:16.427
to basically where it belongs.

00:26:17.727 --> 00:26:18.467
So this.

00:26:19.197 --> 00:26:20.097
Situation.

00:26:20.907 --> 00:26:23.007
Is responsible for this.

00:26:24.157 --> 00:26:25.637
Divorce, if you wish.

00:26:26.287 --> 00:26:29.767
Between oil prices and the dollar, usually.

00:26:29.767 --> 00:26:30.567
our dollar.

00:26:31.707 --> 00:26:32.847
Dances to the tune.

00:26:33.657 --> 00:26:36.717
Of oil prices and oil prices went to the sky as we know we.

00:26:36.717 --> 00:26:39.867
obviously the dollar moving. Why? Because over the past few months.

00:26:39.867 --> 00:26:41.427
the market reversed.

00:26:42.087 --> 00:26:43.467
It's a.

00:26:44.657 --> 00:26:48.037
Pricing in situation and basically expected.

00:26:48.037 --> 00:26:51.317
the Fed to move as aggressively as.

00:26:51.317 --> 00:26:54.377
the Bank of Canada as opposed to the Bank of Canada being more aggressive.

00:26:54.377 --> 00:26:57.717
and that basically neutralize all the potential positive.

00:26:57.717 --> 00:27:00.737
impact of higher oil prices on the dollar. That's the.

00:27:00.737 --> 00:27:03.777
reason if you ask why the dollar is not moving up, it's.

00:27:03.777 --> 00:27:06.817
basically the change in expectations regarding interest.

00:27:06.817 --> 00:27:10.177
rates in Canada. So that's something that is very important.

00:27:10.177 --> 00:27:12.977
There is another factor here and that's.

00:27:13.907 --> 00:27:17.177
Our corporations will react because until.

00:27:17.177 --> 00:27:20.257
now we were discussing the inflationary force and.

00:27:20.257 --> 00:27:23.577
the economic implications. Now central bankers.

00:27:23.577 --> 00:27:24.857
they are human.

00:27:25.707 --> 00:27:26.757
And they can make mistakes.

00:27:28.277 --> 00:27:31.417
The Bank of Canada and the Fed are now priced in to raise.

00:27:31.417 --> 00:27:32.077
interest rates.

00:27:32.697 --> 00:27:34.217
Maybe four or five times.

00:27:35.917 --> 00:27:39.027
In 2022 in some places.

00:27:39.027 --> 00:27:42.667
the expectations are for a more aggressive bank of Canada 6 seven times.

00:27:42.667 --> 00:27:42.667

00:27:44.657 --> 00:27:48.817
And that's reasonable. I think that's fraud five times. That's fine, however.

00:27:48.817 --> 00:27:48.817

00:27:50.097 --> 00:27:53.117
If for some reason, and that's extremely important from your perspective, if you care.

00:27:53.117 --> 00:27:54.517
about the market and interest rates.

00:27:55.337 --> 00:27:58.637
We know that inflation will be elevated over the next few months. That's not interesting.

00:27:58.637 --> 00:28:01.817
That's irrelevant. Almost. It will be elevated over.

00:28:01.817 --> 00:28:04.957
the next two or three months. The media would be all over it, but it's.

00:28:04.957 --> 00:28:07.457
almost irrelevant from your perspective, however.

00:28:08.697 --> 00:28:09.537
If by.

00:28:10.467 --> 00:28:14.137
August, September, October. We don't see a significant.

00:28:14.137 --> 00:28:16.097
softness in inflation.

00:28:17.417 --> 00:28:18.457
The Bank of Canada.

00:28:19.287 --> 00:28:22.297
Is risking a situation in which there will be raising it as.

00:28:22.297 --> 00:28:25.597
well as two rapidly. You see every economic recession.

00:28:25.597 --> 00:28:28.677
was helped, if not caused by monetary.

00:28:28.677 --> 00:28:32.007
policy error, in which central bankers raise.

00:28:32.007 --> 00:28:33.337
interest rates way too quickly.

00:28:34.627 --> 00:28:35.787
And derail the economy.

00:28:37.727 --> 00:28:40.897
And again, there are human they can make mistakes, and if you raise.

00:28:40.897 --> 00:28:43.937
interest rates and inflation is still there, what do you raise?

00:28:43.937 --> 00:28:47.497
again and again and again, something that people have to understand.

00:28:47.497 --> 00:28:50.857
in this environment. It is not about inflation.

00:28:50.857 --> 00:28:53.917
Inflation will go back to 2% eventually. It's about the.

00:28:53.917 --> 00:28:57.237
cost that it will take to bring inflation back to 2%.

00:28:57.237 --> 00:29:00.617
namely how much you have to raise interest rates. And if you don't see.

00:29:00.617 --> 00:29:03.677
inflation easing in the second of the year, the.

00:29:03.677 --> 00:29:07.187
risk of a monetary policy error will rise.

00:29:07.187 --> 00:29:07.187

00:29:07.877 --> 00:29:11.297
And that's something that can plant the seeds for recession.

00:29:11.297 --> 00:29:14.537
in 2023. Again, that's not my focus.

00:29:14.537 --> 00:29:17.877
My forecast is that the Bank of Canada will go.

00:29:17.877 --> 00:29:21.397
slowly when I see the Bank of Canada see them very often.

00:29:21.397 --> 00:29:21.397

00:29:22.187 --> 00:29:24.197
Unfortunately, I can tell you.

00:29:24.917 --> 00:29:27.957
That this is the conversation that we are having, the Bank of Canada knows.

00:29:27.957 --> 00:29:31.237
that and they basically said we do not want to repeat past mistakes.

00:29:31.237 --> 00:29:31.237

00:29:32.017 --> 00:29:35.537
But again, inflation can change their mind and the risk.

00:29:35.537 --> 00:29:35.537

00:29:36.097 --> 00:29:36.557
Of.

00:29:37.367 --> 00:29:40.397
And recession in 2023 is there and?

00:29:40.397 --> 00:29:43.517
I'm waiting to see what will happen to inflation in the second half of.

00:29:43.517 --> 00:29:46.597
the year and if it doesn't slow down, I will.

00:29:46.597 --> 00:29:49.797
increase the probability of recession in my calculations, that's.

00:29:49.797 --> 00:29:53.077
more or less where we are, but it doesn't mean that.

00:29:53.077 --> 00:29:56.257
if interest rates and inflation go up, corporations cannot.

00:29:56.257 --> 00:29:59.427
do anything to fight it. Look at this.

00:29:59.427 --> 00:30:00.567
is very interesting.

00:30:01.597 --> 00:30:04.007
This is perfect. This is profit margins.

00:30:04.707 --> 00:30:07.787
And you can see that there was a significant change.

00:30:07.787 --> 00:30:10.857
upward changes, structural change after the year.

00:30:10.857 --> 00:30:14.427
2000. Why? Because of many forces.

00:30:14.427 --> 00:30:17.707
that helped profitability chief among them.

00:30:17.707 --> 00:30:20.867
of course was globalization, which is always good.

00:30:20.867 --> 00:30:24.907
for business. It's the cost structure is lawyer just in.

00:30:24.907 --> 00:30:28.187
time. Inventories of course was very.

00:30:28.187 --> 00:30:31.847
helpful. We also saw a situation in which pricing.

00:30:31.847 --> 00:30:34.927
power in the economy namely fuel.

00:30:34.927 --> 00:30:34.927

00:30:36.157 --> 00:30:39.337
Players controlling more and more of the economy as reason.

00:30:39.337 --> 00:30:42.457
especially in technology and labor, was available.

00:30:42.457 --> 00:30:45.597
and cheap. You can see that the share of labor in production.

00:30:45.597 --> 00:30:48.687
went down and the share of people that in.

00:30:48.687 --> 00:30:51.977
low paying jobs went up so clearly that also.

00:30:51.977 --> 00:30:55.277
helped ability. I suggest that all those forces.

00:30:55.277 --> 00:30:56.017
are being reversed.

00:30:57.247 --> 00:30:58.927
Globalization is being.

00:30:59.587 --> 00:31:02.667
Replaced by an element of Deglobalization.

00:31:04.147 --> 00:31:07.687
That's not good for profit, just in time inventory is.

00:31:07.687 --> 00:31:11.037
being replaced by just in case inventories. People realize that they need more inventories.

00:31:11.037 --> 00:31:14.067
label for the first time in generations.

00:31:14.067 --> 00:31:16.327
Labor has the bargaining power.

00:31:17.107 --> 00:31:19.507
You don't have people you cannot find. People wages are rising.

00:31:20.527 --> 00:31:22.567
And companies are starting to react to it.

00:31:23.317 --> 00:31:25.247
And the react in a very interesting way.

00:31:26.337 --> 00:31:27.557
You have a situation.

00:31:28.367 --> 00:31:31.537
That is like I believe in the 1990s. Look at what happened.

00:31:31.537 --> 00:31:32.557
in the 1990s.

00:31:33.647 --> 00:31:34.977
We're just went up like now.

00:31:35.977 --> 00:31:39.597
Inflation didn't. Why? Because of the Charter, the right productivity.

00:31:39.597 --> 00:31:41.537
went up significantly.

00:31:43.837 --> 00:31:46.857
This was the Internet revolution that led to a huge increase in.

00:31:46.857 --> 00:31:50.267
productivity, and if I give you a 10% pay increase and.

00:31:50.267 --> 00:31:52.987
you are 10% more productive, that's not inflationary.

00:31:53.857 --> 00:31:57.107
And that's something that we have seen in the 1990s and I believe.

00:31:57.107 --> 00:32:00.497
that we have the opportunity and the chance to do it again. Why?

00:32:00.497 --> 00:32:03.557
Because people are starting to realize companies are starting to.

00:32:03.557 --> 00:32:06.637
realize that label is simply unavailable.

00:32:06.637 --> 00:32:10.127
and way too expensive. You can see that labor as a share of.

00:32:10.127 --> 00:32:13.437
production is rising. So what companies are doing?

00:32:13.437 --> 00:32:16.637
they're starting to invest more in capital there simply replacing.

00:32:16.637 --> 00:32:19.657
labor with capital, as you can see from the chart to the right.

00:32:19.657 --> 00:32:22.717
And they have the means to do so, yes.

00:32:22.717 --> 00:32:24.777
individuals are sitting on a mountain of cash.

00:32:26.627 --> 00:32:29.687
But also companies 130 billion.

00:32:29.687 --> 00:32:33.077
n of excess cash, so they use it to buy back stocks.

00:32:33.077 --> 00:32:36.577
the user to raise dividends and they use it.

00:32:36.577 --> 00:32:36.577

00:32:37.267 --> 00:32:39.787
To invest and this investment.

00:32:40.537 --> 00:32:43.697
Will enhance productivity and might be the number one.

00:32:43.697 --> 00:32:43.697

00:32:44.567 --> 00:32:45.367
Protection.

00:32:46.177 --> 00:32:47.217
Form inflation.

00:32:48.147 --> 00:32:49.717
So what does?

00:32:50.557 --> 00:32:53.787
All the above mean for.

00:32:53.787 --> 00:32:56.727
investment. First of all, I think that we have to realize.

00:32:57.347 --> 00:32:58.847
That interest rates will be rising.

00:32:59.617 --> 00:33:02.737
And that's something that makes the situation much.

00:33:02.737 --> 00:33:06.577
more interesting in terms of the impact on economic growth in.

00:33:06.577 --> 00:33:09.597
this environment, I suggest that.

00:33:09.597 --> 00:33:11.267
when you look at the PE ratio.

00:33:12.747 --> 00:33:16.337
The price to earnings ratio 80% of the advance in.

00:33:16.337 --> 00:33:18.417
valuations over the past.

00:33:19.077 --> 00:33:22.177
10 years, including the last two years, was in.

00:33:22.177 --> 00:33:25.537
the P, not in. It was the price, not the earning.

00:33:25.537 --> 00:33:28.607
And it's very difficult to see in this environment hourly earnings.

00:33:28.607 --> 00:33:31.797
will catch up. Therefore, I suggest that.

00:33:31.797 --> 00:33:35.137
we have to be very defensive when it comes to the stock market.

00:33:35.137 --> 00:33:38.157
I believe that the stock market will be positive this year, but we.

00:33:38.157 --> 00:33:41.577
have to be defensive. So what do I like? First of all, I like companies.

00:33:41.577 --> 00:33:43.537
that pay you back.

00:33:44.137 --> 00:33:47.297
Companies with cash, I suggested that energy is 1.

00:33:47.297 --> 00:33:50.317
e of them. Why? Because although oil prices.

00:33:50.317 --> 00:33:53.657
are rising, they are not using the extra money that they have.

00:33:53.657 --> 00:33:56.177
to invest because of obvious.

00:33:56.887 --> 00:34:00.107
Considerations. Therefore, they take this extra money and they pay.

00:34:00.107 --> 00:34:03.267
you in terms of dividends in terms of buyback.

00:34:03.267 --> 00:34:06.547
and basically some sort of investment in maintenance.

00:34:06.547 --> 00:34:09.647
Therefore, I suggest that I would like to be in this.

00:34:09.647 --> 00:34:13.987
environment and simply collect. That's one thing banks always.

00:34:13.987 --> 00:34:16.047
benefit from higher.

00:34:16.797 --> 00:34:20.187
Interest rates, especially Canadian banks, relative to American.

00:34:20.187 --> 00:34:21.427
anks, American banks see.

00:34:22.097 --> 00:34:25.257
Why did the yield curve Canadian banks benefit?

00:34:25.257 --> 00:34:28.367
from the absolute increase in interest rates and interest rates?

00:34:28.367 --> 00:34:31.477
will be rising, especially low, low short term interest rates?

00:34:31.477 --> 00:34:34.857
by about 200 basis points over the next two years?

00:34:34.857 --> 00:34:38.047
So I would like to be part of it. In addition, Canadian banks.

00:34:38.047 --> 00:34:41.557
are sitting on a mountain of cash. This cache will go to again.

00:34:41.557 --> 00:34:45.037
bye bye bug stocks and.

00:34:45.037 --> 00:34:48.537
clearly increased dividends, something that I would like to be in.

00:34:48.537 --> 00:34:52.027
commodities in general, I like commodities at copper.

00:34:52.027 --> 00:34:53.017
because copper is the.

00:34:53.077 --> 00:34:56.147
Future given the electric car, I.

00:34:56.147 --> 00:34:59.207
like nickel.

00:34:59.207 --> 00:35:02.767
I think that it's China. Sorry, Russia is a major.

00:35:02.767 --> 00:35:05.787
supplier of nickel. It will not be in the market for a while. I would like to.

00:35:05.787 --> 00:35:08.847
be in this space as well. Agriculture will be part of it. I.

00:35:08.847 --> 00:35:11.867
would like to be there as well. In addition, I like.

00:35:11.867 --> 00:35:15.247
Big Rosales. Why? Because they can transfer.

00:35:15.247 --> 00:35:18.327
the cost to the consumer and many of them in.

00:35:18.327 --> 00:35:21.427
Canada are not linked to the supply chain issues and.

00:35:21.427 --> 00:35:24.707
they have the pricing power. So I would like to be there. So as you can see.

00:35:24.707 --> 00:35:24.707

00:35:24.817 --> 00:35:28.487
A lot of moving targets here, but if you ask the right questions.

00:35:28.487 --> 00:35:31.647
you can make sense out of this madness. I will stop here.

00:35:31.647 --> 00:35:33.587
Thank you very much for your attention.

00:35:33.657 --> 00:35:43.657