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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.
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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.
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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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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.
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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.
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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.
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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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