2023 Economic Update with Benjamin Tal
Benjamin Tal is the Managing Director and Deputy Chief Economist at CIBC World Markets. Watch now to hear Benjamin’s insights for the year ahead.
Ben is managing director and deputy chief economist.
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at CIBC World Markets.
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He's a member of the CBC's economic team that is responsible.
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for analyzing macroeconomic developments and their implications.
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for fixed income equity foreign exchange.
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e and commodities markets.
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He has over 20 years experience and advising clients, industry leaders.
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Corporate boards, trade associations.
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Governments on economic and financial issues.
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Ben's a regular commentator on BNN, CNBC and.
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many national newspapers. In fact, yesterday we're reading the.
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global mail. There's a great article.
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where Ben's featured talking about the pain and real.
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estate markets.
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Please join me in welcoming Ben tell.
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Thanks Ben.
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Hi, good evening everybody. Listen.
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I have 45 minutes to tell you everything I know about the situation.
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That's a 44 minutes too long because.
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nobody has a clue. We all pretend nobody has a clue. Of course, this uncertainty.
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that we are dealing with is significant, so I'm going.
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to divide my presentation today into 3 segments.
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nts. The first part will be about inflation.
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The second part will be about inflation.
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And the third part, you guessed it, would be about inflation because.
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inflation is everywhere. You want to know where the stock market is going, you.
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have to have a view about inflation. You want to know about into sets are going.
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Clearly inflation is the center of attention and after.
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talking about inflation for half an hour, I will tell you.
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This is not about inflation.
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This is about the cost of bringing.
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inflation down to 2%.
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which is the target for the Bank of Canada and the Fed, the.
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Bank of Canada, the Fed over the past 40.
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0 years established their reputation.
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as inflation fighters.
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They're not going to toss it away. That reputation they will do.
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whatever it takes to bring inflation.
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down to 2%. That's the way to look at it. So it's not inflation being 5.
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ve, 6% forever.
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They will do whatever it takes. You give them two options. One.
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is the recession, the other is inflation rising there.
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will take a recession any day.
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That's the way to understand where we are going over the next few.
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months and why the Bank of Canada and the Fed are so militant.
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when it comes to raising interest rates and.
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maybe taking this economy into a.
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recession. So it's a mind game that we have.
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to understand. So we'll discuss this and then see.
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what it means. Interest rates, inflation, the labor.
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market, the housing market and clearly investment.
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allocation. The stock market does as the bond market so.
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let's start the first question. We are asking ourselves.
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Is to what extent what we are seeing now, inflation, rising energy?
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prices is equivalent to what we have seen in the 1970s.
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that led to the double dip recession.
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of the 1980s. So I'll be back.
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to the 70s. I want you to take a very close.
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look at this chart and focus on the left for a second.
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In 1973, in flesh and went up.
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No. What the Bank of Canada and the Fed care about is not inflation.
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What they care about is this red line.
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inflation expectations. What you and I think about inflation.
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tomorrow, a year from now, two years from now in flesh and.
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expectations are the key focus.
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So 1973 inflation went up. We all know the story.
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ficantly look what happened to expectations moved.
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a little bit. That's it. Why? Because the Fed.
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in the US went to the market and said everything is.
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under control.
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Inflation will just pick this is from the Minutes.
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The.
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Shared with their left, basically telling them that within.
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few months inflation will pick and it will start going down. Everything is.
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under control of course. The chart to the right is telling you that reality.
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did not happen.
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Actually, inflation continue to go out for more than a year, look.
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what happened in 1977.
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The next time we fashion reduction, look what happened expectations.
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like that.
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The Fed lost credibility.
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And the market did not believe that everything is under control.
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and inflation expectations went up and the minute they are up.
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wages go up and it's very difficult to control, that's.
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the nightmare. Look where we are now.
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Inflation is rising inflation expectations trying to figure.
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out where to go.
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That's why the Bank of Canada and the Fed have to be so militant.
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in their language and their action to make sure.
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that this red line is not going up like 77, that's.
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more or less where we are.
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Now in this environment.
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We have to understand a few things.
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One is that as of today.
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Expectations for the next year are makes sense because nobody.
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believes that inflation will go down to 2% over the next year, which?
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makes sense. So far, so far, the market is giving.
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the Fed the benefit of the doubt for the next five years.
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that inflation will remain stable. So now.
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let's discuss that. Look at that.
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That's a survey that was done in the US.
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85% of respondents thought.
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it's wrong that the question is today is the highest.
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inflation ever. Most of them said yes or we don't know.
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Only 15% got it right that the 70s inflation.
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was higher, so people are not very educated about.
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inflation, why it's happening.
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Because of this.
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This is not a joke.
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Social media is perceived to be.
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the most reliable source of information.
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about inflation.
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Not a joke reality.
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So think about this for a second. The Bank of Canada is.
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trying to figure out what we are thinking. We are heavily.
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influenced by social media, which means that the bank.
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of Canada is heavily influenced by social media. That's.
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how crazy the situation is. This is the first crisis.
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that we have with social media. So dominant.
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Now there is good news. In fact, extremely good news.
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The Bank of Canada has a Twitter account.
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Really.
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So the final I'm making here is that the back of.
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Canada cannot tweet its way out of inflation.
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They have to be very aggressive in their.
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action and in their language to make sure that we understand.
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that they mean business, so we will not think about taking those.
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expectations up. That's more or less where we are.
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Now we are ready to discuss.
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What's going on in terms of where inflation is going but?
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before that we have to get one thing out of the way.
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Let me give you.
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One number.
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3.114159.
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2.
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3.14.
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Wow, congratulations. Just graduated.
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7 geometry.
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Why pie?
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Because Î is the next Greek letter that comes after Omicron.
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You see where I'm going with that? If you think that you cannot.
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get a straightforward answer from an economist, try biologist.
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They have no clue, but what they're telling me by the end of this month.
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is we will be fluent in Greek.
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Namely, we need to have a working assumption.
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about Covic. You cannot continue investing and.
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thinking about the economy without a working assumption about COVID.
00:14:05.465 --> 00:14:05.465
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And we know that COVID will be with us if, in a year from now. But.
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what everybody is telling me in the field and they know I think is.
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that we are in the process of moving from a.
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pandemic to an endemic namely, Kovit will be there.
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but we will dominate it. We will be doing that.
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That's a reasonable walking assumption, in my opinion.
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So we can proceed given that let's.
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take a look at what's happening overall at.
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any point in time.
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There are three sources of inflation.
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Demand driven inflation supply.
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driven inflation and we don't know, driven inflation like something.
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in between.
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Some people say all this inflation that is coming is because of the.
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fact that the government was printing money during copy, that there is no tomorrow.
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You remember all those checks.
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And we were printing money and printing money and printing money, so people.
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say all these impression is coming because of this money to an.
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extent. But the printing of money in.
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the US and Canada was doubled. What we have seen in Europe.
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In terms of government spending, but inflation in Europe is actually higher.
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So it's not just that it's also supply, it's.
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Russia supply chain. We know the story we have.
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seen the situation in which.
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The increase in spending in the US.
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During COVID on goods, not services goods.
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Was something that we haven't seen before. We squeezed 4 years.
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of consumption into one year because it was easy. Remember you.
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press a button and you get your exercise bike.
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It was like.
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Parachuting.
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450,000 new Americans.
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Into the US overnight and the.
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minute the night they started to spend.
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So it was a shock.
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So supply chain is extremely important. The good news.
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it's improving.
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Supply chain is improving. So when I look.
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at inflation, the first thing I look at is at.
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t this index, which is the New York Fed supply.
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chain pressure index, it's going down and.
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down and down.
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Shipping costs down dramatically.
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Shipping activity back to basically normal today in.
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the US there are 20% more truck drivers.
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Then, before the crisis.
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This is significant. Now, why is it important?
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Because if all the information is coming from supply.
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from outside.
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Then the Bank of Canada can talk about inflation until they are blue in the.
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face. They cannot do anything about it. They cannot do anything about.
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China, about Putin, about supply chain.
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So if this is going down every basis point decline.
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in this.
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Index is enhancing.
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The ability of the Bank of Canada and the Fed to deal with the situation.
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because when the residence mates it's impacting the economy.
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that is domestic.
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And that's where reflection is.
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That's extremely good news.
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And we are starting to see the good news already.
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Commodity prices are actually falling.
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because the global economy is in a semi recession.
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Europe is definitely in a recession, demand is slowing commodity.
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prices slowing, which is actually good news, look at this.
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is called goods inflation.
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namely without energy and food.
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Look at this.
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It's approaching 0.
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This is really good news about inflation.
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That's something that you don't see in newspapers that you don't see the.
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Bank of Canada admitting that you don't see the Fed admitting why.
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We'll discuss why in a second, but we'll continue.
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The Federal Reserve Bank of Atlanta as two.
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Types of inflation that they're measuring, sticky and.
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flexible, flexible inflation is already negative.
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Sticky is down to 4% from 8%, so.
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we see significant progress when it comes.
00:18:19.485 --> 00:18:23.265
to inflation. To me, that's extremely, extremely important.
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So why aren't we seeing the Bank of Canada in the?
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Fed?
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Discussing.
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That's important to ask because we meet one, understand.
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the.
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Rationality.
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Because inflation is starting to move in the right direction, so we know.
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and that's almost a given that the move from 7.
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inflation to 4% inflation will be like that, it's.
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all supply that is improving even the service.
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the demand inflation is starting to improve, look at this.
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00:18:55.925 --> 00:18:59.255
Look at this is rent inflation.
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and as investors you really have to understand that this.
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is rent inflation in the US.
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Which is 40% of core.
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inflation in the US rent.
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And it's rising by 8%, to put it in perspective if.
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tomorrow all prices in the US are zero, everything.
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is 0. This trend will lead to steel.
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3.8% inflation justement because.
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it's 40% of core inflation. Now you have.
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two types of friends. You have what the government is measuring.
00:19:32.395 --> 00:19:32.395
00:19:33.225 --> 00:19:36.175
Which has been red line. This is what goes to the CPI.
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And there is new nesses which is the.
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red number.
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It's almost 0.
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This is the flow and the stock. The Grey line is all.
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And the red line is the new Ulysses, and the new leases.
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are basically 0. Every day, more new noises getting into.
00:19:58.305 --> 00:20:01.645
the stock. So clearly we all know that within.
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This red line would go down dramatically.
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40% of US CPI.
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Will be going down dramatically.
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We are going to see major progress in.
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fighting inflation.
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So the move from 7% to 4% would be very quick.
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But still we have to deal with service impression.
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and we have to deal with the crazy.
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labor market.
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This is a real science somewhere.
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As you in I told you, the past every first.
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Friday of the month.
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At 8:30 in the morning, we get the employment.
00:20:47.095 --> 00:20:50.115
numbers from such calendar 8:30 in the morning, first Friday.
00:20:50.115 --> 00:20:53.555
of the month. So at 8:29 in the morning, every economist.
00:20:53.555 --> 00:20:56.965
is sitting in front of his hair, computer, looking, waiting, anticipating.
00:20:56.965 --> 00:20:59.375
the numbers. Believe me, it's very exciting.
00:21:01.975 --> 00:21:05.245
And every time we look at those vacancy rates and they are.
00:21:05.245 --> 00:21:08.255
in the sky and people say, where is everybody?
00:21:08.255 --> 00:21:08.255
00:21:09.235 --> 00:21:11.345
So people said they're at home watching Netflix.
00:21:12.345 --> 00:21:15.635
No, they are not. Something else is happening here, but.
00:21:15.635 --> 00:21:18.735
just to illustrate how crazy the level market is, this is.
00:21:18.735 --> 00:21:20.275
what we got last week.
00:21:21.495 --> 00:21:25.335
The Jordan labels for December the market expected.
00:21:25.335 --> 00:21:28.805
5000 new jobs. That's.
00:21:28.805 --> 00:21:32.105
the market expecting we got one.
00:21:32.105 --> 00:21:33.545
and 5000.
00:21:35.505 --> 00:21:37.235
So much for economic forecasting.
00:21:38.975 --> 00:21:42.685
It's crazy. This volatility in the market is unbelievable.
00:21:42.685 --> 00:21:45.805
and that's one of the reasons why people are talking about the Bank of Canada.
00:21:45.805 --> 00:21:47.345
moving again. We'll discuss it in a SEC.
00:21:50.625 --> 00:21:51.915
No, look at this.
00:21:52.785 --> 00:21:53.825
It's not so simple.
00:21:55.615 --> 00:21:57.095
This is the number of jobs.
00:21:58.985 --> 00:22:01.765
This is the number of hours worked.
00:22:04.055 --> 00:22:07.265
Much, much loyal. So people are being employed.
00:22:07.265 --> 00:22:08.645
but they're not working long hours.
00:22:09.335 --> 00:22:12.485
The question is why and one of the answers.
00:22:12.485 --> 00:22:15.505
and let's call it as it is, we are here in the business of.
00:22:15.505 --> 00:22:18.525
investment. We cannot sugarcoat anything we have to.
00:22:18.525 --> 00:22:21.545
look at the market as it is. And one of the reasons why.
00:22:21.545 --> 00:22:24.625
the number of hours down is because of the fact that.
00:22:24.625 --> 00:22:25.495
people are sick.
00:22:26.595 --> 00:22:30.025
Let's face it, let's call it as it is today in the US.
00:22:30.025 --> 00:22:33.565
you have 16 million people.
00:22:33.565 --> 00:22:35.065
with long COVID.
00:22:38.225 --> 00:22:41.455
You look at the Gray line in Canada, this Gray.
00:22:41.455 --> 00:22:43.215
area, this about.
00:22:45.455 --> 00:22:48.705
This is the number of excess extra hours.
00:22:51.045 --> 00:22:54.105
It's more than in 2020 and 21 during coffee.
00:22:54.105 --> 00:22:54.105
00:22:55.415 --> 00:22:57.595
People are sick, so they don't have to work.
00:22:58.445 --> 00:23:01.715
In fact, we are talking about 230,000 people.
00:23:01.715 --> 00:23:05.155
in terms of equivalent number that are missing.
00:23:05.155 --> 00:23:08.695
So basically if you assume that all of them are unemployed.
00:23:08.695 --> 00:23:08.695
00:23:11.795 --> 00:23:14.845
It's basically like taking the unemployment rate from 5% to 6%.
00:23:14.845 --> 00:23:14.845
00:23:15.825 --> 00:23:19.035
What I'm telling you is maybe the market is as tight.
00:23:19.035 --> 00:23:19.885
ght as perceived.
00:23:21.305 --> 00:23:24.775
OK, something interesting is happening again.
00:23:24.775 --> 00:23:24.775
00:23:25.795 --> 00:23:28.905
And we have to recognize that that's the case now that will.
00:23:28.905 --> 00:23:31.045
improve over time, especially after the winter.
00:23:31.855 --> 00:23:35.645
But for now, companies have to hire people.
00:23:35.645 --> 00:23:38.945
to replace the people that are sick but are not working very long hours.
00:23:38.945 --> 00:23:42.285
That's basically what we're seeing. That's one thing, but more is happening.
00:23:42.285 --> 00:23:45.695
Look at this, look at. This is fascinating.
00:23:45.695 --> 00:23:45.695
00:23:46.715 --> 00:23:50.055
We created 600,000.
00:23:50.055 --> 00:23:53.065
new jobs since the beginning of COVID went.
00:23:53.065 --> 00:23:56.315
up and down, up and up 600.
00:23:56.315 --> 00:23:59.865
000 new jobs since the beginning of COVID basically.
00:23:59.865 --> 00:24:03.415
all of them. Basically all of them are university.
00:24:03.415 --> 00:24:05.065
educated individuals.
00:24:07.165 --> 00:24:08.535
I find it fascinating.
00:24:09.895 --> 00:24:13.165
I believe something big is happening here I.
00:24:13.165 --> 00:24:16.865
believe that COVID opened up the market for.
00:24:16.865 --> 00:24:17.685
educated people.
00:24:19.515 --> 00:24:23.165
Before COVID we are this mismatch in the labor market we.
00:24:23.165 --> 00:24:26.285
are people without jobs and jobs without people we.
00:24:26.285 --> 00:24:27.685
are educated people.
00:24:29.315 --> 00:24:32.485
That are unable to find a job in the field serving coffee at Starbucks.
00:24:34.235 --> 00:24:37.545
Today you are educated, you have skills. You cannot find a job.
00:24:37.545 --> 00:24:41.025
in Toronto or London. You can find it in.
00:24:41.025 --> 00:24:41.025
00:24:41.805 --> 00:24:45.155
Alberta in BC in New York, zooming.
00:24:45.155 --> 00:24:45.155
00:24:45.995 --> 00:24:46.505
Beautiful.
00:24:48.165 --> 00:24:50.155
COVID opened up the market.
00:24:51.295 --> 00:24:52.025
Fall.
00:24:52.985 --> 00:24:56.475
Educated people. That's extremely important to understand, but.
00:24:56.475 --> 00:24:58.555
nobody's left to serve coffee.
00:24:59.775 --> 00:25:02.865
And what we know that the vacancy rate is very.
00:25:02.865 --> 00:25:05.965
very high. And what we also know is.
00:25:05.965 --> 00:25:07.145
this correlation.
00:25:08.185 --> 00:25:10.735
70 the lawyer the wedges.
00:25:11.395 --> 00:25:15.265
The higher the vacancy rates, namely the demand.
00:25:15.265 --> 00:25:17.335
is for low wage individuals.
00:25:19.655 --> 00:25:22.545
Hotels, restaurants, we all know the story. You cannot find them.
00:25:23.765 --> 00:25:25.835
So economics 101 is telling you.
00:25:27.405 --> 00:25:30.675
That if there isn't enough of something, the price.
00:25:30.675 --> 00:25:32.515
of this something will rise.
00:25:34.175 --> 00:25:37.785
Namely, the wage of low wage individuals will rise faster.
00:25:37.785 --> 00:25:41.235
than the wage of other individuals. Makes sense.
00:25:41.235 --> 00:25:42.705
but it's not happening.
00:25:43.815 --> 00:25:44.945
It's not happening.
00:25:45.825 --> 00:25:47.235
We have a situation.
00:25:48.325 --> 00:25:51.715
In which the wage of low wage individuals.
00:25:51.715 --> 00:25:54.815
namely the bottom 20, is rising basically along the.
00:25:54.815 --> 00:25:59.145
line of other individuals. It should be double this.
00:25:59.145 --> 00:25:59.145
00:26:02.165 --> 00:26:03.215
It's not happening.
00:26:04.175 --> 00:26:07.205
The market is not clearing economics 1.
00:26:07.205 --> 00:26:09.085
01 is not working.
00:26:11.945 --> 00:26:15.275
And the question is why? And the answer is that small businesses that employ.
00:26:15.275 --> 00:26:18.485
80% of those low wage individuals are.
00:26:18.485 --> 00:26:21.615
telling us, listen, we simply don't have the margins.
00:26:21.615 --> 00:26:24.815
we cannot pay just a few years ago minimum wage.
00:26:24.815 --> 00:26:28.255
went up dramatically. Our margins are very, very narrow.
00:26:28.255 --> 00:26:31.355
And we are talking about this recession coming. Do we really want to start?
00:26:31.355 --> 00:26:34.735
raising wages just before the recession? We're not doing it so.
00:26:34.735 --> 00:26:38.045
the market is not clearing and that's extremely important.
00:26:38.045 --> 00:26:41.165
to understand. Another interesting story in the labor market.
00:26:41.165 --> 00:26:41.595
that is.
00:26:42.035 --> 00:26:45.335
Unfolding is the following. In a normal recession.
00:26:45.335 --> 00:26:45.335
00:26:47.765 --> 00:26:49.695
Not this one and normal recession.
00:26:50.505 --> 00:26:53.855
Let's assume that you were an employee for Air Canada. You lost.
00:26:53.855 --> 00:26:56.815
your job, you got employment insurance for six months.
00:26:58.325 --> 00:27:01.435
The recession is over. You go back to Canada or any.
00:27:01.435 --> 00:27:04.255
other airline today after three years.
00:27:04.995 --> 00:27:06.345
You moved on.
00:27:07.315 --> 00:27:10.705
You are in a totally different industry doing totally different things.
00:27:10.705 --> 00:27:12.385
So if you are.
00:27:13.345 --> 00:27:16.355
Air Canada, you have to start fresh.
00:27:16.355 --> 00:27:19.415
and that's exactly why yesterday my flight was delayed by.
00:27:23.635 --> 00:27:26.785
They eventually will find the people they would train them, but it takes longer.
00:27:26.785 --> 00:27:30.105
This is very, very different.
00:27:30.105 --> 00:27:33.305
than any other recession. Something big is.
00:27:33.305 --> 00:27:36.525
happening in the labor market, but the labor market is as tight.
00:27:36.525 --> 00:27:39.665
ght as perceived, although it is tight, it's not as tight as.
00:27:39.665 --> 00:27:42.745
perceived. And the question is to what extent all those vacancies.
00:27:42.745 --> 00:27:46.005
are nothing more than a mirage when the economy.
00:27:46.005 --> 00:27:49.045
slows down, they will disappear. That's something that we have to.
00:27:49.045 --> 00:27:49.685
figure out.
00:27:49.945 --> 00:27:53.655
They will discuss it in a second. So that's more or less where we are now.
00:27:53.655 --> 00:27:57.475
You are the Bank of Canada, you are defended you.
00:27:57.475 --> 00:27:59.295
see the good news about deflation.
00:28:00.065 --> 00:28:01.905
But you would never admit it.
00:28:03.255 --> 00:28:06.335
You will never admit it. In fact, the opposite is the case.
00:28:06.335 --> 00:28:06.335
00:28:07.865 --> 00:28:08.975
We have a situation.
00:28:09.725 --> 00:28:10.475
In which?
00:28:11.175 --> 00:28:13.565
The Bank of Canada in the field are telling the market.
00:28:14.705 --> 00:28:17.385
Don't get too excited.
00:28:19.065 --> 00:28:22.395
We don't want you to get too excited about inflation slowing.
00:28:22.395 --> 00:28:25.765
down. Those mean misinterpret our message. Why?
00:28:25.765 --> 00:28:27.155
Because of this.
00:28:28.165 --> 00:28:31.455
As investors, we have to understand this in the very.
00:28:31.455 --> 00:28:31.455
00:28:33.595 --> 00:28:34.475
Particular way.
00:28:35.855 --> 00:28:39.125
This is something that can impact returns.
00:28:39.125 --> 00:28:42.405
over the next six months in a very significant way, so let's cancel.
00:28:42.405 --> 00:28:45.705
This is the reaction of the market to.
00:28:45.705 --> 00:28:46.805
go news on inflation.
00:28:47.565 --> 00:28:49.865
In November we go we got some very good news.
00:28:51.305 --> 00:28:53.525
From US inflation, it was better than expected.
00:28:54.155 --> 00:28:55.485
Within a second.
00:28:56.645 --> 00:28:59.775
The 10 year rate went down by 40 basis.
00:28:59.775 --> 00:29:00.395
points like that.
00:29:02.095 --> 00:29:03.585
Now think about it for a second.
00:29:04.265 --> 00:29:07.335
The Bank of Canada and the Fed are raising interest rates to.
00:29:07.335 --> 00:29:10.435
slow down the economy. All of a sudden. Long term rates are going down.
00:29:10.435 --> 00:29:11.175
by 40%.
00:29:11.965 --> 00:29:15.115
It's undoing what the Bank of Canada is trying to do.
00:29:16.955 --> 00:29:20.305
Because the Bank of Canada and the Fed can control what we call the short.
00:29:20.305 --> 00:29:23.665
end of the curve, short term rates, they cannot control the Tenny rates.
00:29:23.665 --> 00:29:26.825
So if the tenure rates gets too excited and.
00:29:26.825 --> 00:29:27.745
goes down.
00:29:28.585 --> 00:29:32.005
It means that the Bank of Canada and the Fed have to raise more to achieve.
00:29:32.005 --> 00:29:35.215
what they want to achieve. We call it monetary conditions.
00:29:35.215 --> 00:29:35.215
00:29:37.695 --> 00:29:41.145
So you have two things moving in this different directions, it's.
00:29:41.145 --> 00:29:44.175
like putting a humidifier and a dehumidifier in the same room and.
00:29:44.175 --> 00:29:45.025
let them go at each other.
00:29:47.165 --> 00:29:50.175
So that's why Can you imagine for a second that the Fed and the.
00:29:50.175 --> 00:29:53.315
Bank of Canada announced that listen, we?
00:29:53.315 --> 00:29:56.415
are very happy about inflation is moving in the right direction, everything is.
00:29:56.415 --> 00:29:57.635
under control.
00:29:59.075 --> 00:30:00.575
What will happen to this right?
00:30:02.225 --> 00:30:05.285
It will continue to go down and that's exactly.
00:30:05.285 --> 00:30:06.785
the opposite of what they want.
00:30:08.135 --> 00:30:10.785
Because that can lead to overshooting.
00:30:12.295 --> 00:30:15.435
I believe and that's key. I believe that every.
00:30:15.435 --> 00:30:16.385
economic recession.
00:30:17.905 --> 00:30:21.075
Over the past 40 years, was helped.
00:30:21.075 --> 00:30:22.215
if not caused.
00:30:22.875 --> 00:30:26.085
By monetary policy error in which central?
00:30:26.085 --> 00:30:29.495
banks raise interest rates way too.
00:30:29.495 --> 00:30:31.015
much and kill their economy.
00:30:32.005 --> 00:30:35.075
You look at the 1990s as a.
00:30:35.075 --> 00:30:37.715
good example in flesh and targeting.
00:30:39.115 --> 00:30:42.405
Was established in February.
00:30:42.405 --> 00:30:45.465
1991 inflation back then.
00:30:45.465 --> 00:30:46.545
was 6%.
00:30:47.885 --> 00:30:51.235
And the Bank of Canada said, listen, our goal is that inflation.
00:30:51.235 --> 00:30:54.395
will reach 3% by the end.
00:30:54.395 --> 00:30:55.375
of 1992.
00:30:56.105 --> 00:30:59.135
Actual inflation reach 1% by.
00:30:59.135 --> 00:31:01.045
the end of 1992, better than they expected.
00:31:01.765 --> 00:31:04.975
By 1994, they wanted inflation to be 2 1/2%.
00:31:04.975 --> 00:31:05.615
It was zero.
00:31:06.505 --> 00:31:10.335
Basically, inflation was lower than expected.
00:31:10.335 --> 00:31:13.735
Why? Because they're raising this was too much and kill the economy.
00:31:13.735 --> 00:31:17.095
at the very significant cost in terms of unemployment, how long the?
00:31:17.095 --> 00:31:20.175
recession was we all know the story, so overshooting.
00:31:20.175 --> 00:31:21.095
is very costly.
00:31:21.765 --> 00:31:25.205
And the question is to what extent the Bank of Canada and.
00:31:25.205 --> 00:31:27.865
the Fed are starting to overshoot. I believe they're starting.
00:31:29.155 --> 00:31:30.185
I believe that started.
00:31:31.205 --> 00:31:33.275
I meet with the Bank of Canada very often.
00:31:34.935 --> 00:31:35.895
Unfortunately.
00:31:37.545 --> 00:31:41.155
And I can tell you that my message to them is talk now.
00:31:41.155 --> 00:31:44.455
Why? Because you are very powerful.
00:31:44.455 --> 00:31:44.455
00:31:45.395 --> 00:31:48.405
First of all, the Bank of Canada is more powerful.
00:31:48.405 --> 00:31:49.445
than the Fed. Why?
00:31:50.165 --> 00:31:53.795
Because in 2008, during the crisis.
00:31:53.795 --> 00:31:56.615
the US went through the mother of all the leverage.
00:32:01.085 --> 00:32:04.115
This is not. This was not our recession, but.
00:32:04.115 --> 00:32:07.065
then in 2008, we were seconds more second hand smokers.
00:32:08.735 --> 00:32:10.925
So I will then actually went up.
00:32:11.725 --> 00:32:14.895
So they're there to income, went down our debt to income ratio went up.
00:32:14.895 --> 00:32:18.735
So we have more debt. Also we have five few mortgages.
00:32:18.735 --> 00:32:19.915
they have 10 year mortgages.
00:32:20.935 --> 00:32:23.565
So therefore, when interest rates rise.
00:32:24.475 --> 00:32:27.685
We are much more sensitive to it. So what I'm telling you is that one.
00:32:27.685 --> 00:32:30.785
ncrease by the Bank of Canada in my opinion according.
00:32:30.785 --> 00:32:33.845
to my calculations, is equivalent to 2% increase by defend.
00:32:33.845 --> 00:32:33.845
00:32:35.105 --> 00:32:38.855
What I'm telling you is that the tiny Bank of Canada is.
00:32:38.855 --> 00:32:42.095
more powerful than the mighty Fed.
00:32:42.095 --> 00:32:42.095
00:32:43.275 --> 00:32:46.665
When it comes to interest rates, more than that, the.
00:32:46.665 --> 00:32:50.025
Bank of Canada is more powerful than itself.
00:32:50.025 --> 00:32:50.635
in the past.
00:32:51.755 --> 00:32:54.925
Look what happened in the 1970s.
00:32:54.925 --> 00:32:58.345
The interest rate increase that led to.
00:32:58.345 --> 00:33:00.355
the recession of 1991.
00:33:01.045 --> 00:33:02.995
650 basis points back then.
00:33:03.805 --> 00:33:05.405
Today we are at 400 basis points.
00:33:06.495 --> 00:33:09.825
So they said back then it's smaller than today. No if.
00:33:09.825 --> 00:33:12.885
you adjust to the level of that back then compared.
00:33:12.885 --> 00:33:16.025
to today there increase back then in.
00:33:16.025 --> 00:33:19.225
19 in the 90s was actually 300 basis.
00:33:19.225 --> 00:33:19.225
00:33:21.535 --> 00:33:24.685
So monetary policy today is more restrictive.
00:33:28.195 --> 00:33:30.845
If you compare it to the right level of debt.
00:33:36.735 --> 00:33:38.065
And I think they're very close.
00:33:38.705 --> 00:33:42.075
To stop him, the only reason why they will not be stopping.
00:33:42.075 --> 00:33:45.125
now and they will do it only in two weeks or now is.
00:33:45.125 --> 00:33:48.175
because of the fact that we got 100,000 new jobs and the.
00:33:48.175 --> 00:33:51.375
last thing they want to see is a situation which you and I believe.
00:33:51.375 --> 00:33:53.675
that they are behind the curve, remember.
00:33:54.445 --> 00:33:57.155
You don't want to be sound too davish.
00:33:58.445 --> 00:34:01.895
So they would take the risk of raising an overshooting.
00:34:01.895 --> 00:34:01.895
00:34:03.345 --> 00:34:06.595
Because if they don't do it, the bond market will adjust.
00:34:06.595 --> 00:34:09.795
and will undo what they're doing, so they know.
00:34:09.795 --> 00:34:11.705
that they're overshooting, but they are cornered.
00:34:12.925 --> 00:34:16.315
So my guess the Bank of Canada will.
00:34:16.315 --> 00:34:19.415
have to continue to listen to switch. The only question is.
00:34:19.415 --> 00:34:22.175
by how much today we are at 4:25.
00:34:23.565 --> 00:34:26.595
Maybe 434 in the half, maybe 475 I.
00:34:26.595 --> 00:34:30.005
really don't know. It's 5050, but I hope.
00:34:30.005 --> 00:34:33.235
and pray that this is the last move it's already.
00:34:33.235 --> 00:34:36.365
starting to be a bit of overshooting. Not much, but.
00:34:36.365 --> 00:34:39.395
a bit. And they know that they know that and.
00:34:39.395 --> 00:34:42.575
one of the reasons why they will stop soon is the real estate.
00:34:42.575 --> 00:34:45.775
market. I believe that housing is starting to get.
00:34:45.775 --> 00:34:48.795
into the psyche of the Bank of Canada, the housing market.
00:34:48.795 --> 00:34:51.975
is slowing. So we have to understand what's happening in housing.
00:34:51.975 --> 00:34:54.535
We add a crazy COVID.
00:34:54.925 --> 00:34:58.125
Period in the housing market, when prices went up.
00:34:58.125 --> 00:34:59.485
by known as.
00:35:00.565 --> 00:35:01.215
Then.
00:35:02.125 --> 00:35:05.175
Why by how much? 46% in two years?
00:35:05.175 --> 00:35:05.175
00:35:06.985 --> 00:35:08.755
Both the 6% in two years. Why?
00:35:09.955 --> 00:35:13.485
Because the S symmetrical nature of the crisis.
00:35:13.485 --> 00:35:13.485
00:35:14.635 --> 00:35:17.225
The fact that all the jobs that were lost were low paying jobs.
00:35:19.935 --> 00:35:23.425
Led to a situation in which rentals young people.
00:35:23.425 --> 00:35:26.475
lost their jobs, rent actually went down during.
00:35:26.475 --> 00:35:29.845
the pandemic, home buyers, potential home buyers.
00:35:29.845 --> 00:35:29.845
00:35:32.875 --> 00:35:35.925
Their job was there were assuming and interest rates.
00:35:35.925 --> 00:35:39.095
were in the basement. So if you want to understand the housing.
00:35:39.095 --> 00:35:43.185
market, you want to understand the following COVID.
00:35:43.185 --> 00:35:46.345
and during COVID homebuyers got the benefit.
00:35:46.345 --> 00:35:49.625
of a recession because of the extremely low interest rates without.
00:35:49.625 --> 00:35:52.905
the cost of a recession visible broadly based increase.
00:35:52.905 --> 00:35:53.985
in the unemployment rate.
00:35:54.945 --> 00:35:58.055
We have never seen anything.
00:35:58.055 --> 00:35:58.555
like that.
00:36:02.765 --> 00:36:05.915
There was a sense of urgency to get into.
00:36:05.915 --> 00:36:06.505
the market.
00:36:08.295 --> 00:36:11.465
And parents told their kids you do that and we will help.
00:36:11.465 --> 00:36:14.555
you. Gifting reached a record high during.
00:36:14.555 --> 00:36:17.815
covet in terms of parents giving money to kids for down payments.
00:36:17.815 --> 00:36:17.815
00:36:19.135 --> 00:36:19.925
Let go down.
00:36:21.285 --> 00:36:24.315
So there was a sense of urgency to get into.
00:36:24.315 --> 00:36:27.555
the market and people were front loading.
00:36:27.555 --> 00:36:30.595
activity. People were borrowing activity from the.
00:36:30.595 --> 00:36:33.915
future and the future has arrived.
00:36:33.915 --> 00:36:37.135
at the market is now going down. This is not a crush.
00:36:37.135 --> 00:36:40.635
This is not the meltdown. This is not.
00:36:40.635 --> 00:36:44.395
a freefall, this is reallocation.
00:36:44.395 --> 00:36:46.675
of activity over time.
00:36:50.625 --> 00:36:53.785
And we see a situation in which for the first time.
00:36:53.785 --> 00:36:53.785
00:36:54.495 --> 00:36:57.545
Stop lying. Still going down usually.
00:36:57.545 --> 00:37:00.885
when there is a correction, supply goes.
00:37:00.885 --> 00:37:04.345
up. People are selling, people are listing their homes, not.
00:37:04.345 --> 00:37:07.465
this time around, not yet. They are not listing their.
00:37:07.465 --> 00:37:10.865
arms that's protecting process and that's why the.
00:37:10.865 --> 00:37:13.225
price level is done by only 10%.
00:37:13.945 --> 00:37:17.175
Since February, it could have been much worse if you mention.
00:37:17.175 --> 00:37:18.675
it correctly apples to apples.
00:37:20.175 --> 00:37:24.385
I believe passes will continue to go down and I believe that's a good thing.
00:37:24.385 --> 00:37:24.385
00:37:25.095 --> 00:37:28.225
If you have a situation in which prices are going up by 46%.
00:37:28.225 --> 00:37:31.365
and nothing happens, this is a bubble and we don't want that.
00:37:31.365 --> 00:37:31.365
00:37:32.005 --> 00:37:32.745
More than that.
00:37:33.525 --> 00:37:35.135
We see a situation in which.
00:37:36.605 --> 00:37:39.135
The cost of buying a home now.
00:37:39.865 --> 00:37:42.995
Is higher dramatically than the cost of renting so.
00:37:42.995 --> 00:37:46.075
more people will be renting and the rental market.
00:37:46.075 --> 00:37:49.315
will be on fire. Rent is rising and not.
00:37:49.315 --> 00:37:52.695
only are we seeing potential home buyers becoming renters.
00:37:52.695 --> 00:37:56.305
but also we are seeing newcomers becoming renters.
00:37:56.305 --> 00:37:59.755
and here we have to talk about immigration and demand for.
00:37:59.755 --> 00:38:00.395
real estate.
00:38:01.475 --> 00:38:04.345
Listen to this. We have to go back to October.
00:38:05.595 --> 00:38:06.545
2020.
00:38:07.875 --> 00:38:11.065
The Canadian government is announcing we would like to see.
00:38:11.065 --> 00:38:14.175
no less, no less than 400,000 new.
00:38:14.175 --> 00:38:16.105
immigrants in 2021.
00:38:17.325 --> 00:38:20.495
And people said, are you crazy? How?
00:38:20.495 --> 00:38:24.035
can you get 400,000 new immigrants during coffee? Nobody is flying.
00:38:24.035 --> 00:38:25.785
Nobody is moving. Maybe you get 4.
00:38:28.255 --> 00:38:30.875
We got 405,000 new immigrants.
00:38:33.735 --> 00:38:35.645
70% of them.
00:38:36.565 --> 00:38:39.615
Came from one country 70.
00:38:39.615 --> 00:38:44.335
from 1 country and this country is.
00:38:44.335 --> 00:38:44.335
00:38:45.205 --> 00:38:45.875
Canada.
00:38:47.645 --> 00:38:49.355
How can you get to Canada from Canada?
00:38:50.565 --> 00:38:52.335
You were already here.
00:38:53.355 --> 00:38:54.865
You were a foreign student.
00:38:55.535 --> 00:38:58.645
Your visa expired the Canadian.
00:38:58.645 --> 00:39:01.965
government came to you and said don't worry about that expired visa.
00:39:01.965 --> 00:39:05.085
while you wait, why don't you apply?
00:39:05.085 --> 00:39:07.315
70%?
00:39:09.635 --> 00:39:12.745
This year, this number will go down to 40%, so we have.
00:39:12.745 --> 00:39:15.905
more newcomers this year. I mean to 2023 in.
00:39:15.905 --> 00:39:18.925
2022, we got no less than.
00:39:18.925 --> 00:39:22.205
700,000 newcomers.
00:39:22.205 --> 00:39:22.205
00:39:23.205 --> 00:39:24.105
New immigrants.
00:39:24.925 --> 00:39:29.135
Non permanent residents, students and people from Ukraine? Nobody.
00:39:29.135 --> 00:39:31.455
None of them is carrying their house on their back.
00:39:33.205 --> 00:39:36.275
Demand for rental units will continue to.
00:39:36.275 --> 00:39:39.375
rise in rent will continue to rise, and that's the reality.
00:39:39.375 --> 00:39:42.395
that we are facing. While the housing market has always slowed down on the.
00:39:42.395 --> 00:39:44.365
2023, but beyond that.
00:39:46.325 --> 00:39:49.455
We are seeing a mismatch because builders including.
00:39:49.455 --> 00:39:51.955
in London are not building.
00:39:52.675 --> 00:39:53.345
This is.
00:39:54.495 --> 00:39:57.535
Can you please set of condominiums in Toronto? But if we are?
00:39:57.535 --> 00:39:58.435
seeing it everywhere?
00:40:02.615 --> 00:40:03.825
Builders are not building.
00:40:04.685 --> 00:40:07.875
Because the cost of building is too high, it is which are too.
00:40:07.875 --> 00:40:11.455
high. They cannot find the label. Wages are too high, they simply.
00:40:11.455 --> 00:40:14.835
don't bill. So two years from now, three years from now, when all this demand.
00:40:14.835 --> 00:40:17.875
is ready, the supply that's supposed to be built now.
00:40:17.875 --> 00:40:19.075
is not going to be there.
00:40:19.765 --> 00:40:22.835
You don't have to be an economist to predict what will happen, so this is.
00:40:22.835 --> 00:40:26.025
not a across from the housing market. This is not.
00:40:26.025 --> 00:40:29.355
a long time story. This is a reset here in.
00:40:29.355 --> 00:40:32.635
the housing market to undo the crazy conflict.
00:40:32.635 --> 00:40:35.895
period. But the fundamentals of the housing market, the lack of supply.
00:40:35.895 --> 00:40:39.365
is still very, very significant, we definitely.
00:40:39.365 --> 00:40:42.465
have some stress in the system. We have a situation.
00:40:42.465 --> 00:40:43.735
in which many.
00:40:44.535 --> 00:40:48.425
Boils we love to reset their.
00:40:48.425 --> 00:40:51.255
mortgages at the higher rate.
00:40:51.935 --> 00:40:55.025
Significantly higher rate, some of them would love to sell.
00:40:55.025 --> 00:40:57.665
their units, not many, but some.
00:40:58.785 --> 00:41:02.115
And that's one of the reasons why we are so sensitive to iron into.
00:41:02.115 --> 00:41:04.955
Certs. And that's one of the reasons why we have to stop pressing into sports.
00:41:06.235 --> 00:41:07.825
The most vulnerable court.
00:41:08.715 --> 00:41:11.825
Is the Court of 2020 and 2021 the people who?
00:41:11.825 --> 00:41:14.945
took mortgages during COVID when interstitial 0 when?
00:41:14.945 --> 00:41:17.965
there is new in 20262027?
00:41:17.965 --> 00:41:21.315
interest rates would be much higher than the.
00:41:21.315 --> 00:41:21.875
got it?
00:41:22.715 --> 00:41:25.905
The hope and we'll discuss it in a second, is that interest rates will be fully.
00:41:25.905 --> 00:41:29.125
2024 and the wind in 2025 six.
00:41:29.125 --> 00:41:32.665
we'll discuss it, but clearly there would be a shock and some.
00:41:32.665 --> 00:41:35.845
borrowers will have to give up the latency rates that are not.
00:41:35.845 --> 00:41:38.985
rising yet would start rising, but it's not.
00:41:38.985 --> 00:41:42.225
a 2008 story by any stretch of the imagination, but.
00:41:42.225 --> 00:41:45.305
clearly the housing market over the next year will slow down.
00:41:45.305 --> 00:41:48.775
And I believe overall overall it is a good.
00:41:48.775 --> 00:41:51.885
thing because we need to reset this market otherwise it's.
00:41:51.885 --> 00:41:52.265
about them.
00:41:53.115 --> 00:41:56.005
So where are we? You are the Bank of Canada.
00:41:57.095 --> 00:41:58.275
You have to make some decisions.
00:42:01.325 --> 00:42:02.115
Where are we?
00:42:04.015 --> 00:42:06.675
When interest rates now at 4:25.
00:42:07.455 --> 00:42:08.295
They are not done.
00:42:08.985 --> 00:42:12.035
They're going to raise them again by the end.
00:42:12.035 --> 00:42:15.255
of this month. The only debate is 4 point half.
00:42:15.255 --> 00:42:18.285
or 475, but they are going to use it again and.
00:42:18.285 --> 00:42:20.505
then we call it terminal way they will stop.
00:42:23.055 --> 00:42:25.715
The next question is OK, what's next?
00:42:27.005 --> 00:42:27.995
When are you cutting?
00:42:28.805 --> 00:42:29.855
When are you cutting?
00:42:30.895 --> 00:42:33.405
Usually the gap between.
00:42:34.095 --> 00:42:37.125
The last type and the first cut is very short.
00:42:37.125 --> 00:42:40.145
not this time. This time I believe that.
00:42:40.145 --> 00:42:44.185
the Bank of Canada and the Fed will wait until 20.
00:42:44.185 --> 00:42:47.205
4 before they cut into switch. They will.
00:42:47.205 --> 00:42:50.445
live with the elevated into sweats for a fully.
00:42:50.445 --> 00:42:53.505
why? Because you want to make sure.
00:42:53.505 --> 00:42:55.245
that inflation is dead.
00:42:56.325 --> 00:42:59.435
Before you cut into sweats, you don't take any.
00:42:59.435 --> 00:43:02.935
chances. Remember the 70s. You don't take any chances.
00:43:02.935 --> 00:43:05.665
You want to make sure that reflection is dead.
00:43:07.435 --> 00:43:10.945
And then you cut into sweats. You cut into sweats by.
00:43:10.945 --> 00:43:11.535
how much?
00:43:13.125 --> 00:43:16.375
We started this saga at 175.
00:43:16.375 --> 00:43:16.375
00:43:17.805 --> 00:43:21.295
We are going to fall and 1/2 for 75. We stayed there for a year, then we cut.
00:43:21.295 --> 00:43:21.295
00:43:23.125 --> 00:43:25.105
To what I say 3.
00:43:26.425 --> 00:43:29.695
Almost Dublin, where it was before. Why? And that's extremely.
00:43:29.695 --> 00:43:32.995
important to understand. There are some major.
00:43:32.995 --> 00:43:34.445
inflationary forces.
00:43:36.075 --> 00:43:38.225
That are beneath the surface.
00:43:39.095 --> 00:43:42.135
We had before globalization that was anti.
00:43:42.135 --> 00:43:45.275
inflationary. Now we have deglobalization that is inflationary.
00:43:45.275 --> 00:43:48.345
Back then we have just in time inventory now we.
00:43:48.345 --> 00:43:51.535
have just in case inventory inflationary back then the label market.
00:43:51.535 --> 00:43:54.615
was very giving and cheap. Today the labor market.
00:43:54.615 --> 00:43:57.695
is not as available and not as cheap and back then.
00:43:57.695 --> 00:44:00.825
the environment was not so inflationary today the.
00:44:00.825 --> 00:44:01.945
environment is inflationary.
00:44:02.885 --> 00:44:04.725
In terms of the extra cost to companies.
00:44:05.775 --> 00:44:09.045
So all those forces are inflationary, the inflation.
00:44:09.045 --> 00:44:10.655
target is still 2%.
00:44:11.415 --> 00:44:14.755
The Bank of Canada, I can tell you that we're not change it anytime soon so.
00:44:14.755 --> 00:44:17.915
the inflation target is 2% the inflationary forces.
00:44:17.915 --> 00:44:20.985
are stronger by definition, interests have to be higher to.
00:44:20.985 --> 00:44:24.145
keep this target at 2%. So that's.
00:44:24.145 --> 00:44:27.165
why 3% from 175 after all.
00:44:27.165 --> 00:44:27.895
these coincidences.
00:44:28.555 --> 00:44:32.075
That's the new reality. That's the new normal, and that's healthy, that's.
00:44:32.075 --> 00:44:34.765
more or less where we are because I think that cash was.
00:44:36.805 --> 00:44:40.215
Miss Price, until no, it was simply.
00:44:40.215 --> 00:44:40.655
too cheap.
00:44:42.505 --> 00:44:45.565
This also means that companies.
00:44:45.565 --> 00:44:48.755
will face some difficulties dealing with their profitability.
00:44:48.755 --> 00:44:51.795
because all those forces are also going to put.
00:44:51.795 --> 00:44:53.995
downward pressure on profit margins.
00:44:55.205 --> 00:44:58.215
The globalization is not good for profit just in case in the.
00:44:58.215 --> 00:45:01.295
Tories clearly not good for profit, the labor market being.
00:45:01.295 --> 00:45:04.245
expensive, not good and the environment is not good, at least in the short term.
00:45:05.095 --> 00:45:08.585
So companies will have to adjust. And one of the reasons.
00:45:08.585 --> 00:45:12.305
why we're starting to see the stock market now moving in the right direction.
00:45:12.305 --> 00:45:12.305
00:45:13.585 --> 00:45:16.855
Is because of the fact that companies are now adjusting and the market.
00:45:16.855 --> 00:45:20.005
is adjusting expectations. Until now the market expected.
00:45:20.005 --> 00:45:23.655
earning per share to be about 6.
00:45:23.655 --> 00:45:25.895
in a recessionary year.
00:45:29.075 --> 00:45:32.245
And now the adjusting downward towards 0 and that's.
00:45:32.245 --> 00:45:35.275
why all of the sudden the market saying earnings more or.
00:45:35.275 --> 00:45:36.705
less where they should be.
00:45:38.405 --> 00:45:42.065
In terms of expectations and interest rates are already in the market and.
00:45:42.065 --> 00:45:45.075
that's why the market is starting to go out I.
00:45:45.075 --> 00:45:48.195
don't know how long it will last, but I'm clearly more.
00:45:48.195 --> 00:45:51.275
positive about the stock market this year than I was last year.
00:45:51.275 --> 00:45:54.795
And I believe that we will get more and more good news.
00:45:54.795 --> 00:45:58.125
from inflation that will appease the market I still.
00:45:58.125 --> 00:46:01.195
believe that earning will be under pressure. We are.
00:46:01.195 --> 00:46:04.215
entering a period in which we are going to have a semi recession.
00:46:04.215 --> 00:46:07.435
a mild recession because I hope that the bank.
00:46:09.785 --> 00:46:12.825
Significant depression, but they might recession. Still learning would be.
00:46:12.825 --> 00:46:16.205
under pressure and that will put some pressure.
00:46:16.205 --> 00:46:19.225
on companies and the stock market. But I do see.
00:46:19.225 --> 00:46:22.395
the Canadian stock market outperforming the US.
00:46:22.395 --> 00:46:25.795
stock market the way they did last year because of the fact that valuations.
00:46:25.795 --> 00:46:29.405
in Canada are much better dividend.
00:46:29.405 --> 00:46:32.465
paying stocks there. Our yield is higher than in the.
00:46:32.465 --> 00:46:35.825
US and we don't have the tech sector that is still facing significant.
00:46:35.825 --> 00:46:39.605
difficulties in the US over the next year in terms of taxation.
00:46:39.605 --> 00:46:39.605
00:46:39.805 --> 00:46:43.685
And liquidations, I do believe that.
00:46:43.685 --> 00:46:46.715
beyond if you look at the next few months, the bond market can.
00:46:46.715 --> 00:46:50.165
be tricky because now the market is expecting the Fed.
00:46:50.165 --> 00:46:53.275
to actually start cutting in 2023 when the market starts.
00:46:53.275 --> 00:46:56.475
realizing that develop will be cutting in 2024 yields.
00:46:56.475 --> 00:46:59.675
will go out over the next few months. So I will not get into the bull market.
00:46:59.675 --> 00:47:02.685
now, but after that after the first quarter after it happens.
00:47:02.685 --> 00:47:05.815
I will enter the bull market because I think the bond market will be a very.
00:47:05.815 --> 00:47:09.165
good place to be because I think that the tenant will go down within flesh and.
00:47:09.165 --> 00:47:09.975
trending down where.
00:47:10.055 --> 00:47:13.105
Surprising on the downside, that's the rest of the situation.
00:47:13.105 --> 00:47:14.345
So we have to realize.
00:47:15.815 --> 00:47:18.845
Everybody's talking about this recession. Recession is coming, but we.
00:47:18.845 --> 00:47:22.045
have to understand that this recession is going to be relatively mild.
00:47:22.045 --> 00:47:25.255
and you hope and pray because of two reasons. One is the labor market is.
00:47:25.255 --> 00:47:28.485
relatively tied and the other is the consumer sitting on 300 billion.
00:47:28.485 --> 00:47:32.045
of excess cash, excess savings that will buffer.
00:47:32.045 --> 00:47:35.265
the economy and the consumer is still able to spend that.
00:47:35.265 --> 00:47:38.305
is very different than any other recession I hope and.
00:47:38.305 --> 00:47:40.675
pray that interest rates will stop pricing after.
00:47:41.855 --> 00:47:45.155
The next meeting and that will be sufficient to prevent a significant.
00:47:45.155 --> 00:47:48.275
overshooting that will benefit the stock market and the.
00:47:48.275 --> 00:47:51.765
bond market. I also suggest that inflation will surprise on the downside.
00:47:51.765 --> 00:47:54.905
especially supply chain type of inflation.
00:47:54.905 --> 00:47:58.005
and even the rental market in the US will surprise on the downside.
00:47:58.005 --> 00:48:01.425
that would be beneficial for the market and sentiment.
00:48:01.425 --> 00:48:01.425
00:48:02.555 --> 00:48:04.535
And cooperations will adjust.
00:48:06.165 --> 00:48:09.735
They're not just going to see the profit margins going down, they will start investing.
00:48:09.735 --> 00:48:12.855
They will replace labor with capital that will lead.
00:48:12.855 --> 00:48:16.235
to higher productivity, higher productivity is the number.
00:48:16.235 --> 00:48:19.295
one protection from inflation that is not priced in the market.
00:48:19.295 --> 00:48:22.525
A lot of things are going to happen in reaction that maybe.
00:48:22.525 --> 00:48:25.815
ybe you're not going to be in 2024, but in 2025 and.
00:48:25.815 --> 00:48:29.505
remember, while the economy is going to slow down over the next two.
00:48:29.505 --> 00:48:32.695
quarters, the stock market has already seen it.
00:48:32.695 --> 00:48:35.835
Last year, the stock market is a leading indicator, so.
00:48:35.835 --> 00:48:36.745
we have to realize.
00:48:37.355 --> 00:48:40.675
After this crisis, after corvid after the huge increasing.
00:48:40.675 --> 00:48:43.805
inflation, clearly what was normal in the past is.
00:48:43.805 --> 00:48:47.125
not normal in the context of today's economy.
00:48:47.125 --> 00:48:47.125
00:48:48.225 --> 00:48:50.805
OK. Thank you very much for the attention.
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