'The Next Age of Uncertainty' with Stephen Poloz, former Governor of the Bank of Canada

Episode Transcript
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Leon Goren (00:00):
Hi, I'm Leon Goren, president of PEO leadership, a
peer to peer leadership advisoryfirm. We're an amazing community
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(00:23):
out of this COVID crisis abetter leader and your
organization ready for what'snext, take the first step at
PEO-leadership.com. Well, it'sgood to have everyone out here
today. Welcome to our first whatwe call 'the eye of executives,'
it's part of PEO leadership, werun these eye of the executives

(00:43):
four times a year. It has been along two years since we've
actually had our last eye of theexecutive. So once again, thank
you for coming today. Obviously,I've got a very special guest
sitting beside me. Let me do aquick introduction. And I think
everyone already knows very muchabout Stephen, but there were a

(01:03):
few things that I thought I'dshare that maybe you didn't
know. Well, the first one is-born and raised in Oshawa,
Stephen was the first member ofhis family to attend university.
In fact, he went to Queen'sUniversity, but- and the
elective was economics was theluckiest elective possible. In
terms of where you went withyour career, on the side what he
was doing, because he ended witha scholarship and he had worked

(01:25):
three jobs to go to Queens. Hewas a disc jockey. So I don't
know if there's ever been agovernor of the Bank of Canada
was a disc jockey, or you couldcall it a Spin Master or
something. Anyway, graduated ineconomics went off to the
University of Western Ontario.
And then we have you know, therest is history became a widely
recognized economist with nearly40 years of experience in the
financial markets, forecastingand economic policy, including

(01:48):
35 years in the public sector,which ended with his role as the
Governor of the Bank of Canada.
Prior to that, he spent timewith the Export Development
Canada starting as their ChiefEconomist, and later as their
president CEO. Stephen is acertified international trade
professional and also a graduateof Columbia University's senior
executive program. He has been avisiting scholar at the IMF in

(02:11):
Washington, DC, and at theeconomic planning agency in
Tokyo. He is a frequent speaker,and has taught economics at
Western University Concordia andthe Queen School of Business.
Today, Steven is at Osler,providing clients on their
strategic guidance regardingtheir financial system, trade
and economic policy. This pastFebruary, Stephen, as many of

(02:34):
you know, and I know you've allpicked up the book, he wrote his
first book, The next stage ofuncertainty and how the world
can adapt to a riskier future.
And this morning, for those ofyou that read the news, he was
nominated for this ShaughnessyCohen award. So congratulations,
Stephen on that. That's a hugefeat. All right. So just from a
logistical, I'm going to spendabout 30 minutes, we're gonna go

(02:57):
back and forth with some q&a.
And then I really want to openit up to the audience and let
you ask your questions, andreally direct them to Stephen,
really want to thank focus assetmanagement. And there's a number
of you in the crowd, Greg, Ted,James, thank you for helping us
put this on today. You're a realpart of our PEO leadership

(03:17):
community and really allowing usto do what we do. Thank you,
again, focus on that. So I'mgoing to start with an easy
question. And then we can reallyget into this. So anyway, what
motivated you to write thisbook?

Stephen Poloz (03:32):
Well, you're right, that that is easy, I
guess. I mean, you know,everybody sort of thinks maybe
someday, I wouldn't mind writinga book, you kind of have that in
mind. But after the retirementproject, I can assure you
because there's no time for anyof that nonsense when you're on
the job. But when I when Iretired, I thought yeah, maybe

(03:54):
maybe I could write a book. Butwhat would it be about I'd what
I wanted to do is contribute tothe conversation around long
termism for corporate, corporateobjective setting, you know, so
in this sense that companies arejust a very short term focus,
get- make the numbers, okay,another quarter, make the
numbers. You know, 10 of thosedoes not make a long term plan.

(04:15):
So what could I bring to thatconversation, and that would be
to try and bring a frameworkthat really was long term in
nature, that they could use as aframework to have those
conversations. That's how I kindof started out. The honest truth
is that I didn't tell anybody Iwas reading a book, not even my
wife. She did call asked me afew times, like what are you

(04:37):
working on all day? You'resupposed to be retired at all,
you know, this is a COVIDproject. So who cares? It's not
we're not going to Hawaii oranything. And and so I was
working with and I just said,Well, you know, I work I'm
giving speeches here and theresomewhere. I'm working on a
little thing on demographicsthat I can insert into my talks
or, you know, industrialrevolutions, that kind of thing

(04:59):
because I thought When peoplesay to you Well, now that you're
tired, what are you doing tosay, Oh, I'm writing a book, it
was just sort of sound a littlepompous. For some choice, at
least, you know, because well,who knows, will forever go
anywhere, right? So I never eventold Valerie until after. It was
basically all done. And AmandaLang took a look at it and told

(05:20):
me, yeah, you can do that. So.
So I don't know. The motivationwas that, but then when I once I
got the bit of my teeth, youneeded motivation, because it
does take a lot, a lot more timethan it looks. I admire writers
so much now. Like the people whoactually have made their living
year after year this way. It's areally hard job. Yeah. But

(05:43):
anyway, it's been turned out tobe a lot of fun.

Leon Goren (05:48):
No, it's great.
Absolutely great. So what youknow, you're talking about the
longer term and the one thing Idid pick up in your book that
I'm going to come back to at theend as well was it sort of you
wanted to, I got the sense thatyou want to provide individuals
and leaders with a perspective.
So we're looking outside thewindow, we see all these risks
in front of our life, oureveryday life. And the

(06:11):
challenges that we you know, asleaders, you got to start making
decisions, you got to createaction plans. And I sense from
the book and how you wrote it,it was really a tool for us to
think about in terms of how dowe make those decisions? And
what risks are we lookingthrough that window on?

That's right.

Leon Goren (06:30):
So before I even jump back to that, let's let's,
we're gonna come back to thatbecause you defined it as five
tectonic forces, which I'll getyou to define. But let's do an
economics one on one class. Thisis probably for me as a
refresher, because I think weneed the fundamental basics
here. Okay, to do so. Growingworkflow force plus productivity

(06:50):
equals growth. That's right.
Okay. Anything more than thatany context that we should know
more to that point? No. selfexplanatory.

You know, think of it like if you had 1%, labor
force growth, that 1% populationgrowth in the economy, yeah,
that would mean you'd have 1%more workers every year. And
that would put a floor underyour growth rate, economically
around 1%. And assuming you havesome growth in productivity,

(07:19):
you'd add that on. So say, ifyou're lucky, 1% per year, then
you'd have 2% economic growth.
And then you'd have 2%, let'ssay inflation. So what we when
you look out the window as acompany, you'd see around 4%
nominal headline growth in yourbusiness, unless you're gaining
market share, once you have ahigher number, if you're losing,
it'd be less those the basicframework. And what I you know,

(07:40):
what I set out to do this, Ithought, well, I've what kind of
a framework can i lay out and Irealized none of the stuff that
I thought was a constant isactually a constant. That's
where where the book came from,because I realized it couldn't
really assert any of thosethings. You could hang your hat
on them, because we're at a timewhen they're actually moving a
lot. And that means if you'regonna plan, you need to

(08:01):
understand that better. Not thatyou can just figure it out a
plan. Exactly. But you need toplan with the with that
variability in mind. Yeah.

Leon Goren (08:13):
So what is the optimum growth?

Optimum growth?
Well, you know, I mean, when youlook at that, you want it to be
as much as it can be. And thatmeans since you since population
growth is kind of a given you,we can adjust that by having
more immigration or something,but let's just assume that away,
you're only producing newworkers at a certain rate. And
so like, it puts the base onyour growth, and then

(08:38):
productivity is something you'dlike to have more and more of,
because that means there's moreper person or more to divide up
more tax revenues, more thingsyou could do. And so that comes
from innovating or moreefficiency at companies, that
kind of thing. So there'snothing optimal about it in a
sense, in that sense, but it iskind of a speed limit, if you

(09:01):
like. And if you were to try andsomehow get more out of the
system without generating moreproductivity or more workers,
government policy to try andboost drove? Well, usually it
wouldn't work, it would justcause inflation, right, because
it'd be too much pressure to tryand produce more. And that's a
lesson that was learned the hardway in the 1970s. But you know,

(09:23):
we've learned it. Yeah.

Leon Goren (09:28):
Okay, and then understand, so got the first to
the third one, the role of thecentral bank. Because I know
there's gonna be an issue rightwhen you're talking about
government and the central bankand the relationship, but what
do you think the role is-

So, the role of central bank is to is to provide
a the ideal environment in whichcompanies can make optimal
decisions without worrying aboutthe context. So one element of
the context might be whileprices are going up, five or 10%
per year while and they don't gooff altogether. They're, they're

(10:03):
all it's all uncertain. Well,it's a tough planning
environment. But imagine if itwas predictably, around 2%,
which is what we had for thepast almost 30 years. Well, that
takes more important pieces ofuncertainty off the table from a
corporate point of view. Andthat's almost the most of the
central bank can do. It as itturns out, by stabilizing

(10:23):
inflation around that 2%.
Because of the way inflationhappens, and happens through
excess demand and excess supply,like that fluctuation economy,
aiming for a constant inflationrate actually stabilizes the
fluctuations in the economymakes them smaller means you
have fewer ups and downs andunemployment and stuff or at
least smaller one. Because it'sactually the other big one

(10:47):
that's going to throw inflationoff target. So the central bank
acts to make that deviation inthe economy smaller, and that
reduces how much inflationfluctuates later. So what we've
shown is that the past 30 yearshave not just been a more stable
inflation environment. They'vebeen on average, throughout the
world, a higher productivityenvironment, companies made

(11:09):
better decisions in that lowinflation environment. And
there's been less variability inemployment. Use smaller business
cycles. So all good. So that'scentral bank's role. It's kind
of like just making sure theenvironment is well, there's one
other I should mention, and thatis, the financial system needs
to be safe and you know,reliable. So there's, you know,

(11:30):
a couple of times when itwasn't, so you know, the so I'm
not claiming that was perfect.
But all that to say that centralbanks are meant to play a role
in the background for me, ifyou've never heard from the
central bank, that would havebeen just fine. You know, that
would mean everything's goingwow. Not in the news.

Leon Goren (11:51):
Okay. All right. We got we have the base layer here.
So in your book, now, we'llstart to break it up. You talked
about five forces, right? byforces that really, you know,
we're all searching, you heartalk? When's normal coming back?
When's normal coming back?
What's the new normal look like?
And from what I've read in yourbook, the new normals really

(12:12):
uncertainty and volatility.
That's that's the new normal,and you brought it down into
five areas, and agingpopulation, really technology in
terms of the progression,growing inequality, rising debt?
And the last one was climatechange. Okay, we're not going to
touch on all the agingpopulation. I think we get
really, yeah, we understand theaging part. Because we know you

(12:32):
get a year older every year.
Yeah, we're good on that. Wedon't like that part, Stephen.
Okay. Give us a context for thetechnology piece and the impact
on the economy. And we're goingto try and keep this tight on
we'll do that one, theinequality and maybe rising
debt, and then I'll come to theMy big question.

Okay perfect. So the importance of this is, if
you want to think of the economyas always being hit by
something, you know, it justalways is. So think of the
economy and much like a bobblehead ball doll, you know, like,
it's always doing this. And ifyou leave it alone, it'll settle
down. Alright, and so usingthese forces to identify where

(13:10):
will it settle down? So when yousay, Well, what does normal look
like? Where do we end up? Over?
And the answer is, well, someare different, because the
forces are actually in motion.
So you know, the demographicones and obvious one, because we
are getting older, the wholeworld is getting older, because
50 years ago, we had the postwar baby boom, and now we get

(13:30):
the opposite. So we get theexit, folks like me out of the
workforce. So we we've had 50years of stability on the
demographic front. And we kindof think of it as normal, or
what I'm arguing is not normal,we're going back to normal now
after this 50 year thing. Sothat's a really important for us
to understand. But technology isby far the most important. So

(13:53):
I'm glad you want to focus on.
So we know technology changesevery day, there's always
something new you're supposed tobuy or something new, you're
supposed to use it work or fine.
But actually in history, there'sonly been three major waves of
what we call general purposetechnologies, that's when they

(14:13):
invent a new technology thatgets used by everybody across
the whole economy. And so thatthey are course the first
industrial revolution, or theone that we usually just call
the Industrial Revolution wasthe steam engine. Right? So it
replaced all those folks, youknow, that were doing hard
labor, you know, with withthese, these machines. And at

(14:35):
the time, everybody said, well,that's just a story for why I
lost my job. Right. So there'salways this thing about
technology, displacing people.
That's the first one. The secondone was electrification and
watch Downton Abbey and it's allfor the funny how, you know, now
we got a refrigerator, you know,and lights, all that sort of
stuff. It's really cool to watchthat happening, but that's
again, have affect productivityeverywhere. And the third one is

(14:58):
the computer chip, which wenteverywhere. And so what happens
when you have new technology?
Like, how did you get a wave ofproductivity? Okay, so there's
only been three of these. Andnow we're just entering the
fourth one. That's the, that'sthe digitization of everything.
So the AI, artificialintelligence, robotics, biotech,

(15:22):
you know, those things that areall feeding on these big
databases and stuff. And sothat's the next one. And it's
only begun, it's beenaccelerated by the pandemic, you
know, everybody bought, youknow, overnight, you that's why
we're shorter chips. Overnight,everybody ordered truckloads
worth of laptops and everythingand you bought exercise bikes,

(15:42):
they've all got computer chipsin them, right. So that's, that
was amazing demand for computerchips. And we're still
recovering from that surge. TheAI revolution, arguably, we were
just guessing it could take 10to 15 years, the computer chip

(16:03):
revolution really started inaround 1980, there about '78-80.
And you remember all during the80s, that people were talking
about should be productivity bynow. And the quip that was said
then was the productivity seemsto be everywhere, except in the
statistics. And it took reallyuntil around 1995, when the

(16:25):
productivity really started toshow up in a macro way. What
happens is when there's moreproductivity, there's more
capacity in the economy, toproduce all kinds of things. And
of course, people are losingtheir jobs, because the
technology, you get the risingincome inequality, which is part
of the side effect. And ofcourse, other new jobs you never

(16:47):
heard of being created. And theprice of everything starts going
down, because you're using thenew technology. And if you don't
re-lower your price, yourcompetitor well, and they'll
steal your lunch. Okay, so thatdeflation that comes from from
productivity is a very commonfeature. Well, in the first two
industrial revolutions, thatdeflation, happen without

(17:09):
central banks, eitherunderstanding or even having the
ability to provide more money tofinance all the new activity. So
what we had was a truedeflation, run to the gold
standard, both of those, and wehad the Victorian depression 23
years long, and the GreatDepression of the 30s, which was

(17:29):
only 10 years long, but it wasonly that short, because World
War Two caused governmentspending to explode. So the
lessons from those, apply themto the mid 90s to the 2000s.
Well, you know that remember,the missing inflation? Well,
that was what Greenspan wasdealing with during his time.

(17:50):
And he kept interest rates lowfor far longer than anybody
believed possible. People werescreaming at him that he was
taking inflation risk. And hesaid, No, no, I don't see any
inflation. So it did did theright thing from a macro point
of view, but also caused theglobal financial crisis. Okay,
so little side effect there thatwe kind of skipped over. But but

(18:11):
you know, the the imbalanceswere building up, and we didn't
have the safeguards that we havetoday. So anyway, lesson
learned. So we're heading intothat now. And I think that's
something we need to understandwell from past industrial
revolutions, and understand howcompanies can best deal with
that. So that's, that's, Ithink, is the most important

(18:31):
force. And mainly also, it's aforce for good. I mean, it's a
positive force, even though thedislocations are real.

Leon Goren (18:38):
So what what about so you tied into the growing
inequality piece throughtechnology? So let's skip that
one. But what about rising debt?
As a big force? Because yeah.
What can you tell us about that?

Well, so rising debt, we're all familiar with
how households have accumulatedall kinds of debt. Every every
year, it's a new record. Andit's, you know, the chickens are
gonna come home to roost and allthose kinds of statements. But
the fact is that we've we'veinnovated enough in our
financial system that people cancarry higher debt interest rates

(19:11):
of track lower for the past 30years. So the ability to service
debt has improved throughoutthat period. So households out I
mean, of course, it's avulnerability. If you're if you
got a lot of debt and you loseyour job, well, then you'll see,
you know, like they say, whenthe tide goes out, you see who's
swimming without without abathing suit on. And so that, of

(19:34):
course, is a risk, but fact isthe system can carry more debt
now. But the big one that peopleare more concerned about now is
the government debt, which hasratcheted steadily higher, and
of course, during the pandemichas exploded higher. And
something like 20% of global GDPwas borrowed in the last two
years by governments and we noware at a position where it's

(19:56):
very similar to where we wereafter World War II terms of
government in debt, so how weget from here to a more
resilient, you know how we paythat back, you know, without
just taxing future generations?
You know, I'd feel guilty aboutthat. That's how we did it.
Well, you know, yeah, exactly.
So somehow or other, we need toget there. So when people say,

(20:17):
Well, same as after World WarII, oh, he's during the 50s and
60s, I, when I was a kid, when Iwas a kid, my dad never said,
you know, there's an awful lotof debt from World War. I never
heard discussion of that at thekitchen table. But the economy
was growing really fast, right,we had the baby boom, people
were getting jobs. And ofcourse, the debt to GDP ratio

(20:40):
was just collapsing.
Government's never had to paythat money back. It just it just
kind of eroded as the economygot bigger. But now, that won't
happen. Because we're not havinga baby, boom, we're having the
opposite of the baby boom,you're gonna have slower
economic growth. The only goodpart of that is that we'll also
have perpetually really low realrates of interest to the ability

(21:03):
to serve as debt is there. Andas long as governments have a
sustainable plan, where debt isfalling relative to the economy,
just like a company, you know,no, no, no major company goes
around with any without any debtin their capital structure. Nor
should the government youshouldn't be worried if the
government's using debt tofinance long term investments,

(21:23):
like infrastructure and thatsort of thing. That's perfectly
fine. You just don't want themto throw the money away.

Leon Goren (21:31):
So let's look at in the context. And you and I
talked about this a couple ofmonths ago. So it's free, COVID.
Free, and you would you'd sayjust say January 2020. The
Canadian economy is in prettygood shape. You got buffers?
Yes. You would say I got room tomaneuver. Yeah. Then we go. Post
COVID. That's when you and I setin January 2022. Actually, there

(21:54):
was no war at the time. Andyou're like, all right, the
buffers have kind of eliminated,but I'm still optimistic in
terms of where we're going. Wegot inflation and stuff. Yeah.
To where we are today. Yeah. Andwe got a budget coming out
tomorrow, too, which we can wecan come back to Right. Right.
So I'm a business leader.
Actually. We're all businessleaders. Were looking out the
window right now. Rightstatement. So what do I see? We
got a war. So we got Dglobalization going, right. We

(22:16):
got rising inflation, which whenwe talked about two months ago,
we thought second half, not sobad anymore, Supply Logistics
would work its way out, right.
And it's not necessarilyhappening that way. For most of
the businesses here today,right. And we got commodity
prices. So we got rising bypeople. We're looking out the

(22:37):
window here, and we're thinkingabout our own talent. wages are
rising, people are quitting.
They're not as motivated. Atleast we don't feel that way.
And unemployment is really low.
And there's tons of Open Doorjob openings. So that's what's I
see out the window, too. Andwe're in the fourth technology,
rebel industrial revolutionright now. So all of us are

(23:00):
looking through this windowright now. Where do we go? Like,
what actions because what youtalk about is, in the book is
giving guidance, right, seeingthe risks, so we're seeing these
risks, right. But how do weactually plan for anything in
terms of especially for businessleaders? Right, you need to plan
out for a year or two years ormake decisions? Yes. Any advice?

(23:24):
Like where do we go on and throwthat in? Are we going now into a
recession in the second quarter?
Because that would be helpfuland under or into the back end
of this year? Or 2023? Okay,I'll leave it at that. I touched
a lot there.

Yeah, you did.
Yeah. Why don't we just move onto the next question? Okay, so,
yeah, so of course, as youdescribed, the situation is
incredibly complex. And it wouldbe nice to be able to say, well,
you know, the bobblehead dollwas like this, but here's what
it's gonna look like six monthsor a year from now. And, and the

(23:59):
truth that truthful answer is wedon't know that the the
uncertainty that we face isprobably historic. We've never
had the, the, all these forcesacting all the same time and
getting bigger at the same time.

(24:22):
And so that means the underlyingequilibrium is vastly disturbed
and not predictable. And whatI'm arguing in the book is that
actually, many of the tools thateconomists use to try to make
sense of all that also will notbe able to cope with that. We
those some of those things thatare moving or things we assume

(24:43):
are constant, you know, and whenin our models, making them all
so they can move is justimpossible to do, you know,
model the way economists do. Sothe way I see it is it's like
this, you say an economist says,Well, I've analyzed all Look at
all the stuff you've justmentioned. And, look, it's okay,
it's going to be 2% growth, onaverage, over the next four

(25:09):
years. So go ahead and make yourplan around that. And inflation
should come down, you know,progressively, maybe not as fast
as you and I talked about beforebecause of the war. But it'll
get it'll come down, becauseit's just gonna mathematically
come down. And the central banksare back are on the job. So,
okay, so it gives you that asjust as forecasts is, what's the

(25:31):
best I can do is there's a lotof uncertainty around it. That's
the best I can do. So that'svery similar to asking an
economist, can I walk acrossthat river? And he says, yeah,
absolutely. It's only 12 inchesdeep on average. Okay, turns out
is 60 feet deep in the middle.
Okay. So when I, one of myadvice is take swimming lessons,

(25:54):
because chances are, you mighthave some 60 foot water in front
of you right now. It's a bit ofa metaphor for that. And that
is, it's not conceivable thatyou can create the perfect path
and say, I figured it all out.
And that's where it's going tobe. Because the range of
possibilities around that pathwill be enormous compared to in

(26:17):
the past. Now boards, andmanagement, often, they get this
stage of their planning, andthey're like, Okay, well, let's,
let's analyze some, some otherscenarios. Like, what if this
happens, or what if the warbecomes true? What World War you
know, okay, bad scenario, right?
So that, you know, that kind ofthing. So they do a really bad
scenario. And our company islike, Okay, well, we do well,

(26:38):
we, we conserve cash, and we dothis and that the other thing,
okay, if that happens, we knowyou do. I don't know if we can
survive it. But least we know wedo. A lot of things are really
great. Oh, things are reallygreat. We do this, that and the
other thing. Okay. So you havethese two scenarios, one of the
opposite of the board, the boardgoes, Okay, I think the base
scenario is about right. Theyfall in love with it, because

(27:01):
they've seen these extremeideas, and they don't believe
them. And the problem is thatour normal concept of a bell
curve with the most likely thingbeing that main scenario is
gone. This is what actually,Taleb argued in the Black Swan,
his book. So the distribution ofpossibilities is much wider. And
we need to be prepared for moreextremes. And that means saying,

(27:24):
I don't know what's going tohappen, but I've got a buffer,
so that I can defend myself ifI'm wrong on that side. But I
also if I'm wrong on the otherside, I got that buffer, too,
that allows me to capitalize ongood news. And we know that good
luck outweighs bad luck onaverage. Okay, so it's really
important to remember, a lot ofcompanies prepare themselves for

(27:45):
downside risk, but don't reallythink about, well, what if
something good happens, they'renot really ready to pounce on
it, or willing. So all I had tosay, it's about risk management.
And it's not about making it upin the boardroom. It's about
dedicating actual resources.
Having a team or his managementteam, that's always looking for

(28:06):
new opportunities, or reoptimizing the plan as the data
unfold, so that you're no morenimble. I think that's kind of
the where we're headed for. Ithink companies that look at a
really risky situation, most ofthem are going to be like, well,
the return on that investmentthat you're offering me is looks
okay, except it's if I adjustedfor risk, it's too low. So I'm

(28:28):
just not going to do it. Notworth it. I think that's where
the mistakes will be made, thatpeople should think of high risk
opportunities as an opportunityto manage the risks down to
enhance the return to convertthe risk to returns for the
shareholder. And we don't reallythink of risk that way these
days. Okay, if we let thoseopportunities go by somebody who

(28:51):
thinks longer term, it's goingto snap them up.

Leon Goren (28:56):
Makes sense. What do you do with them? So what about
the government though? Oh, whatdo you tell the government about
that in terms of a buffer andhow they look at?

Yeah, so the government is saying, Look, we
here in Canada, we were, youmentioned before the economy was
in great shape just before thishappened in, we think of I
always call it home, you know,home is at the intersection of
2% inflation and fullemployment, where else would you
rather be? Right? And try andtry to move neighborhoods and

(29:26):
just mess it up? Okay, so that'sit's a neighborhood, though,
it's not an exact address, butwe were there before this
happens. So there's no betterplace to be when something big
is coming your way that requiresyou to react. So like a healthy
individual can shake off COVIDThe way a healthy economy can
shake off COVID. And from thebeginning, I have a lot of faith

(29:48):
in the resilience for thatreason, and economy. At the
time, they said oh, there'ssunny Steve again. You know, and
the headlines were, oh, thiswill be the worst recession
since the Great Depression andAll that kind of stuff. And none
of that happened, right? None ofthat happened. That's really
good news. And we shouldn't losesight of that, you know. So we
now we are now in a stage where,of course we're not on but we're

(30:12):
heading back home again. And thegovernment was in such a well
placed place because of pastsuccesses, fiscal consolidation,
the debt to income ratio inCanada federally was about 30%.
So just to remind you that in1994, when we had a little, not

(30:32):
quite a crisis, but a lot oftension in international
markets, the Canada's debt toincome ratio was way way over
60% was more than double that.
And the debt service ratio waseating up all kinds of money
every every day. So that's whenwe were called the northern
peso, the Canadian dollar wascalled the northern pay. So by
The Wall Street Journal, well,we've come a long way since

(30:56):
then, we've had lots of leadersthat we should give credit for,
for getting there. They're wellplaced for this. And so when
this happened, and they put theprograms in place that people
said, Well, how much is thatgoing to cost, sir? Well, it
costs what it costs, we'reputting it there and the number
of people who are unemployed andapply for serve, they'll get the
money. When they get the jobback, they won't get the money.

(31:16):
We don't know how much it'llcost. But we're allowing for at
least this much in our budget,because there's the government
spending all that money, well,no, they were just making it
available. So at the time,people thought we were gonna go
back more or less to where wewere back in the mid 90s, like
60 something percent of GDP as aas a debt ratio. As it turned

(31:37):
out, because the economy wasmuch more resilient, we used far
less of that capacity thanexpected. That's been a
persistent pattern, or all thebudgets since the pandemic, and
we'll see it again tomorrow.
Okay, the economy hasoutperformed expectations, and
the government has borrowed farless than they provision for

(31:58):
question is, what are they dowith the capacity? That's the
question, but it means that thedebt ratio, I don't really know
what it'll be in the budget, ofcourse, but I can, I can guess
that, it's gonna be like, under50, you know, like, there's
going to be 40, something, benice to get back down to the 30
Sure, 30, something you know, sothat we're more prepared for the
next, whatever happens. Sothat's what I mean by rebuilding

(32:21):
your buffers. So that we're ableto respond just as we just did,
whatever happens next. Becauseif it happened again, tomorrow,
we're not actually prepared.
There's other ways in whichwe're not prepared, right? We
know, like the medical systemwas not prepared, there just is
no excess capacity at all. So assoon as something like this
happens, all the surgeries getcancelled for a long time. So

(32:42):
there are a lot of downsidecosts there to pay to ordinary
people. And that's regrettable.
So that's another place where weneed more buffers to be built,
this will cost money. But incompanies need buffers,
households need buffers, they'vegot a lot of savings from the
pandemic, because they couldn'tspend a lot of their money. I

(33:03):
think they're gonna keep bunchof it.

Leon Goren (33:05):
So so if I'm just gonna come back to the corporate
world for one sec, because whatyou described about risk
management, I understand butyour time it up from a very
large perspective, right, thosethat have those boards in place.
Yeah, corporate Canada, themajority of businesses in
Canada, small midsize businessesare not setting up risk
management teams to do this.
Yes. You know, again, you'relooking out the window, you see

(33:26):
all this stuff today. What isthe SME do like if you're in
their position today? Are youbuilding your cash reserves
here?

Yes. So the, so the SME needs to think in
exactly the same way. I mean, Iknow they can't have a big staff
of risk management people oranything like this, but they
need to have reserves, theycan't spend all their capital on
their plan and then be caughtnaked when the tide goes out.
Okay? And they have to assumethe tide is gonna go out a lot

(33:58):
more often. And maybe biggerthan in the past. So they need
to be more prepared. Eitherfinancial intermediaries may be
in a position to help theiraudit firm may be in a position
to help analyze some of therisks that they face. So that's
a good resource and the auditfirm anyway. You know, a little
extra money to them can go along ways because they're

(34:20):
exposed to such a wide range ofcompanies and could give you
that kind of insight into whatwhat might be faced and how
would you deal with it. But Idon't see an alternative to
preparing yourself for morevolatility. And, and knowing
what you would do and but Butbear in mind. There's just as

(34:40):
much good luck out there as badluck. That's a really important
thing to remember from history.
And, in fact, good luck isvastly outweighed bad luck.
Okay. So so being ready doesn'tjust mean having a bunch of cash
that you can just throw it outthe door. You know, to keep the
company going. It means beingready to pounce opportunities to
be being opportunistic. So youneed a chief risk officer, but

(35:02):
you also need a chiefopportunities officer, kind of
like that idea. And, and ifthere's other ways of, you know,
there are ways for smallcompanies to manage some of the
other risks that they'd bepresented with, like HR risks or
things related to HR. You know,there are insurance companies

(35:24):
around, you know, you can youcan work with in order to cover
some of those risks. Some mightsay, well, that's kind of an
expense, I say, yeah. Butthat's, you know, it's like when
you insure your car, that's anexpense. But when it comes for
renewal time, do you go, oh,shoot, I shouldn't have insured
my car, because I didn't have aclaim. No. Right. So I think you
mentioned deglobalization. It'sanother example like people are

(35:48):
worried about their supplychains now, like they weren't
before. Well, that's good. Sowhat will they do? Well, they
won't necessarily just bringeverything domestically, they'll
look for ways to reduce the riskin their supply chain, having
more than one company be theirsupplier, different countries,
that will cost a little bit moremoney, but it's just money well

(36:09):
spent in an insurance. So Ithink we'll see a lot of that
there are many different ways ofmanaging risks, I can only talk
about the broad kinds of issues,every company is going to be
different.

Leon Goren (36:24):
So it's interesting because I look at the ultra high
net worth today. And if I lookat their asset allocation, their
buffer today is they're holdingabout 11 to 12% of cash.
opportunistic. Yeah. Right. Sothey sit on their cash
understood, you're a betting mantoday, and you're running an
SME, what percentage of cashlike what type of debt equity?
Or what type of cash would yoube holding today?

Well, I don't know. I mean, 10% or more sounds
like a lot, doesn't it? Locationsense. But in a in the real life
of a company, a company is asmall company is almost always
start, start for cash. So there,there may be other ways, for

(37:05):
example, you know, you've got adeep pocketed investor that's
there and says, you know, look,I think, you know, don't worry,
we've got if you needed 5%injection, I'm still here,
because I believe in this longterm play. That's one form that
could take but I just think ingeneral, it's gonna vary from
company to company, what are youactually exposed to? Like, I

(37:29):
really can't give you a numberof that. But but that's that's
the kind of behavior that we'retalking about. Yeah.

Les Mandelbaum (37:34):
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Leon Goren (38:05):
Okay, well, why don't we open it up to the
audience? And maybe I'll kick itoff, Greg, over at Focus. We'll
just take somebody

Greg (38:15):
maybe a bit off, maybe a bit off the fairway? I guess we
have played golf question. Butyou talked about accumulated
government debt. And one of thetools in your world is more
around interest rates andcontrolling the central bank
rate. We don't hear much aboutimmigration policy in terms of
stimulating economic growth, youknow, above that 1% that would

(38:39):
come from immigration growth,which I think is about 1%. Right
now. And you know, you justdon't hear about it much yet. We
hear all this about interestrates and, and government
spending. And does this justhappen by accident? Or who? Who
really is on the ball in termsof what are we doing
deliberately there? And whydon't we hear about it a whole
lot? And could we could weactually go to 2% growth in our

(39:02):
population annually to hit atarget on reducing our debt to
GDP? Just you never hear aboutit? I'm curious in your
thoughts, a couple of

good questions in there. So let me start with the
last part first, which is thatthe government was has been
pretty clear about what theycall it, their fiscal guardrails
that, for them, the singlemeasure of that is the debt
government debt to GDP ratiothat I mentioned, you know,

(39:29):
could have been as high as 60%.
When the crisis first happened.
I think it was planned to be inthe mid 50s. And the first the
fall update that year, I forgetexactly those numbers. But as I
said, we've done probably, youknow, 5,6,7 percentage points
better than this. And that's abig saving compared to what it

(39:51):
could have been like. So Sothose guardrails are there and
they'll be that'll be acenterpiece again and the tables
tomorrow like what's the fourcounts for that ratio. And and I
know that the government iscommitted to being clear about
that. And hopefully having itcome down through time, as I
said, build and rebuild thebuffers. So we'll see tomorrow

(40:14):
now, but get beginning back tothe demographics side, it
actually has been a centerpiece,this government recognized,
actually, both the previousgovernment did too. And so we
had increases in population,immigration allowances under the
Harper government, and thenagain, under the Trudeau

(40:36):
Government, and then yet again,under the Trudeau Government, so
like, they're, they're basically400. And I get the number out
440,000 Is the target, I think,for this year. So that's a good,
you know, 5060 70,000, morethan, say, 10 years ago. And and
I think it's kind of judged byhow much can the system handle I

(41:01):
was just at a conference, theGlobe and Mail put on this
afternoon on the role ofemigration and innovation and
productivity. And, you know,there's some basic facts here
that we know, like, immigrationis not just people that do work
gives us that 1%, you talk aboutimmigrants, on average, create

(41:23):
more businesses than then therest of us.
There, they come from usually asituation which is less than
ideal. So they're like, Wow, newopportunity. They're hard
working, and all this. So sothey're highly productive. And
so they are part of thatproductivity generating scheme.

(41:48):
And so we should be facilitatingas much as we can, or as much as
we think the system can handle.
Now, one Cuthbert has been tothat Congress said that he
estimates there's 1.8 millionpeople waiting in line, to
immigrate to Canada, that, infact, we're what we're what
we're bad at is the execution,you know, actually getting the

(42:09):
paperwork done getting themapproved getting the man. And I
think that's probably true. Sowe, it's we put out numbers, but
we don't necessarily give theresources to the department
that's in charge of approvingeverybody. They did expand that
budget for them a bit. But Ithink it sounds like they need
to do some more there. I'm notan expert on it. But I get that

(42:32):
impression. But I'll tell youjust this week, they announced
they're expanding the temporaryforeign worker program. Even
when I was governor, the bank,we use that a lot to get a PhD
in economics. It there aren't,there aren't that many. In
Canada, we are the biggestemployer of PhDs in economics.
And once you do fine want to gobe professors and stuff, so

(42:53):
you're always trying to competeto get them. And lots of really
high quality students in ouruniversities from afar. By you
get them in under the temporaryforeign worker program, they get
a couple of years, they love ithere. You know, then they're in
the queue, the 1.8 millionqueue. So it's again about
execution. That's our mostimportant channel of

(43:15):
immigration, actually. And soit's the wrong time to be nickel
and diming. Our universitiesright to think that's the most
important attraction channel forpeople. So anyway, it is a live
issue. I think you'll hear stuffabout it tomorrow. I mean,
they'll least remind us how muchthey've increased, you know, the
targets. And if we're lucky,though, give more resources to

(43:36):
those who are trying to dealwith that high flow. And of
course, we now are welcoming anextra bunch of folks from
Ukraine, which is great. I mean,my, my grandfather came from
Ukraine and in between the twowars, and talked to a
construction company this week.
And they said, well, we'll hirewe're shorter workers. We long

(43:59):
as they got a little bit ofexposure trades were, we'll
train them. That's the kind ofattitude like my grandfather
were he was a shoemaker. Buthe's from East firm, sorry,
Western Ukraine. And but heworked in the mines and Sudbury
for I guess, three years or soand then made the big move down

(44:19):
to Oshawa to open up his ownshoe repair shop, you know, as
entrepreneurial. There you go.
So his story, thank you.

Leon Goren (44:29):
Next question will go right to the backward or
we'll go over there and then tothe back.

Always a [inaudible]. Sorry, Joanne.

David (44:40):
I always find it interesting how, you know, we
got the macro environment whereyou're kind of dwelling live in
and then as a business owner andmultiple business owner. I find
that whenever I hear from you,it's not exactly aligning with
what the reality is for me. Andthere's the gap is good. Bigger

(45:02):
instead of smaller. Yeah, muchmore. So Ontario, and I find it
so frustrating because it'slike, you know, you know,
inflation, you're talking maybefive, whatever percent? Well, my
reality my own business is20-30%. And how do you recover
that money? Then you say, Okay,well, your margins, you can go
and get this insurance and thisand you can do that all the

(45:25):
strategies that you spoke of.
But if you're not bringing inthe same amount of money as you
used to, I'd like to know, Idon't have an angel investor.
I'm my own angel investor.
Right. Okay. So I'm limited withopportunities. And then Canadian
banks, on the overall are sorisk adverse for Canadian
business that has, it's justthat joke. So I like to know how

(45:47):
you guys can kind of get yournarrative and be so different to
where I think it is. Okay.

Well, you mentioned a lot of things there.
And this is why when I wasgovernor and before that, when I
was with EDC, spend as much timeas I could, actually talking to
companies, okay, every time Iwas in to give a speech are
always out either breakfast orlunch or dinner with, you know,
a dozen or- Well, there you go.
There we go. That's what I'mtalking about. So. So I mean, of

(46:13):
course, I don't have that quickanswer for for your specific
situation. And I know like rightnow, the gap between reality and
what is actually going on? seemsbig. You mentioned inflation in
particular. Okay, so, so let'sspend a minute on that. Okay,
because that's, I'm fairly sureeverybody's wondering about

(46:35):
inflation, and sure they shouldbe. So I know, when you when you
see the price, let's say theprice of oil doubles. Well, I
mean, I mean, of course, that'sthat's inflation, right? But But
no, that's seriously the priceof pricing, something doubles.
That's inflation, isn't it?

(46:56):
Yeah, of course it is. Butactually, it isn't not an
economist sense. It just meansthe price went up. Okay, I'm
gonna be totally blunt with you,it just means the price went up,
you really think it's gonna goup another $100 Next year, and
another $100. A year after that,it's literally impossible,
because the economy would cavein and oil will be $10. Okay, so

(47:19):
we know that oil prices arenever a source of actual
inflation. Inflation issomething that goes on, you
know, forever. That's, you know,so you got to change your whole
business model, and you got topay people in extra 5% per year
or something to cope with it. Sothat's what we're trying to
avoid that kind of inflation.
Factor prices go up. Theeconomists say, exogenous Lee

(47:41):
are literally by themselves.
There's nothing you can do aboutthat. Now, let's say you wanted
to do something about it, wehave a 2% inflation target, and
the price of oil doubles. Soinflation goes up to 5%. Because
of that, well, two things areimportant here. First is, if I
was religious about keepinginflation at 2%, I would raise

(48:03):
interest rates really fast, andcrushed the rest of the economy.
So there was deflation and yourcompany and every other company
in the room. Except for Suncor.
Right? And so those prices wouldgo down enough to offset the
higher oil price. Oh, that'sjust nonsense. No one would no
one would ever advocate doingthat. So all it's really going
on right now is an attempt totry to keep you to still believe

(48:26):
that inflation can be around twoor a little above percent, when
this is all over. And if youcan, if you can believe that
expectation stays solid, then wedon't have to change the whole
world in order to get there. Andso what are the ingredients
there, in fact, is that if theprice of oil doubles, it takes

(48:47):
for 12 months, the inflationrate looks like it's five or 6%.
But when the 12 months are done,the tail end of that 12 month
calculation has popped up to adoubling. And inflation looks
flat again. Unless you're okaywith me, because the price goes
up from 150 to 100. So it lookslike 50 100% inflation until the

(49:11):
base of the calculation becomes100. That is 100 Compared to
100. Now at zero, so oil stopsbeing a source of inflation
after 12 months. That's a lot ofthat going on right now. So,
example hotel rooms for thepandemic, just the day before

(49:31):
the shutdown. I was here inToronto, women's capital market
women and capital markets at theRoyal York and it was $449 for
the hotel room. Okay, I stayedthere last night. $300 is that
inflation? Well, it's twice whatit was 12 months ago. So the
price of a hotel room hasdoubled over the last year and

(49:54):
that's in your inflation comic,right? But it's still below what
it was before the pandemic. Soit's kind of like deflation and
inflation all at the same time.
It's understandable that it'sconfusing. So there's a lot of
that in the numbers. And whatI'm telling you is that over the
next 612 months, that's justgoing to keep drifting down as
the base keeps coming up. What'sunderneath that, though, is

(50:17):
there's excess demand in theeconomy. So you could be seeing
the real deal. And that's thepart the Bank of Canada will be
very interested to try toprevent. Same thing with the
Fed. Jay Powell says, well,there's 10 million next excess
demand and jobs, 10 millionpositions open, I got to raise
rates enough so that it getsback gets down closer to equal,

(50:38):
and then you're taking theexcess demand or the economy, or
the economy is still fine. Okay,so we don't have to have a bad
cycle, a big recession, notnecessarily still could happen.
But you have to try to, I know,it's not easy, we have to try to
see through all that. Andsomehow you're juggling what
your employees are demanding.
And I get it, it's not easy. AndI'm saying in the book is, if

(51:02):
you think that's hard. Fiveyears from now, it's going to
feel a lot harder. So find waysto prepare yourself for a lot
less predictability and what youdo. And everybody will have
their own way of doing that. Andit might be harder to make
money.

Leon Goren (51:22):
Well, that's the challenge. I think, I know,
David's business, but itresembles a lot of business
here, you have oil prices thatgo up and well, that's part of
your cost of goods, right? Sothere's 12 months while it's
been 18 months of essentiallybeing squeezed on margin, right?
So if you didn't have anybuffers as a company, whether it
be cash or anything, yeah, it isvery, very difficult right now.

(51:44):
So that's why we're sit thereand you say, Okay, what's
inflation? Next year? Will theoil can? Will it go up even 25%?
Next year, right? How do I planfor that? Because my margins are
going to continue to be squeezedto the point where we don't have
a business anymore understood?

I understand it perfectly. But I don't have an
answer for it. No, but I mean,so So you have to figure out,
you know, do do a scenario andsay, well, let's just assume it
stays on $100 forever. Forexample, how would I manage my
company? Okay, now I've donethat. I think I can manage. But

(52:22):
I have to do this and that theother thing to manage it. Now,
just to be safe. Let's try 150.
Just, you know, and of course,at a certain point, you think I
couldn't survive it? Okay, well,that's, that's your last
contingency plan. Butunderstanding what that looks
like, is what I'm talking about.
It's not like pretending itcan't happen. Because that's,

David (52:43):
we're in a place where we have to, it's not that we get a
choice. It's like, it's want tosurvive. Another year. Yeah, in
under these kinds of situations.
And like you said, well, we'llput a higher range. Where are we
going to be at if that happensat this level? Where are we
going to be at if it getsbetter? So we're actually
considering all those things.

(53:03):
Okay. I mean, that's just thenature of being a business
owner, entrepreneur.

Leon Goren (53:09):
Yeah. I guess the difference though, David is also
you know, pricing. Right. So yougot to maintain the mark. So,
yeah, being reactive versusproactive, right. So a lot of
businesses were very reactiveover the last 12 months around
pricing increases, yes, right.
Now they're thinking, I don'twant to go through being
reactive again. So let's thinkabout the next 12 months and the
rest of their should I alreadybe thinking about price

(53:30):
increases over the in the nextsix months, right?

So so if there's a permanent rise in your cost,
and you adjust your pricing inorder to account for that, and
let's say just keep your margin,like it was small as it might
have been, alright, just so andyou talk to your customers, I'm
not talking about creating someprice spiral with you here, I'm
just trying to, you know, sharethe risk about these oil prices

(53:56):
are really important part of mybusiness and the customer led me
to whatever so he worked out.
That's one thing, but But whatwe're concerned about is that it
becomes a spiral, you know, andif it becomes a spiral, then the
whole game changes big time. Andthat then we really are back to
the to the 70s. So that's,that's what we call a supply

(54:19):
chain issue. You know, if you'recoming down the DVP to get here
today, and somebody has a flattire or whatever, it takes you
an hour and a half to get hereinstead of the usual 30 minutes.
Well, it's just what happened tothe global system. Okay, so
there's bunching up problems andpeople pay a price. But you have
to ask yourself are supply chainissues likely to get twice as

(54:40):
bad next year? If they saidliterally impossible, because
there are people in the businessof moving that stuff that are
making a fortune, okay? And sothey'll invest around that and
they're gonna like, Okay, nowwe're through the traffic jam
and it's gonna cost this much.
So So again, it's It can'tactually be a spiral, otherwise,

(55:02):
everything just stops. Allright, and then there's excess
supply and no demand, and theeconomy falls off a cliff. You
know, that's not a scenario,that's very likely. So it's
usually not a source ofinflation, what happens is you,
but look, I want I wantsomething else I want to say,
which is that the situation thatwe're headed for, is one in
which I believe on a lot of thepower that exists to the extent

(55:25):
that you have it now, it's goingto shift from the employer to
the employee. So a vastshortages of workers, especially
the skilled ones, thetechnological revolution will
make it more acuteness in the,in the skilled space. And so
you're going to be faced with,like, if you got a profit
margin, you're gonna give someof that away, I think that's

(55:46):
that's kind of what's anactually an aggregate sense. The
share of total income in theworld going to labor has never
ever in the history of economicsbeen as low as it is today. So
it's the sort of stuff that inother industrial revolutions has

(56:08):
literally led to revolutions.
Okay. And so that when you see,you know, Amazon losing a vote,
or Walmart, anticipating a voteand giving people higher
reservation wage, those kinds ofthe you're seeing companies
trying to prevent unionizationand and that while they're given

(56:30):
away profit margin in order todo that, that I think is going
to be a trend, not just a onetime thing. And the income
inequality will just get worse,over the next five to 10 years.
And so the pressure for thatwill just keep growing. That's
part of your reality. I don'thave the answer for you. Next
question.

Unknown (56:53):
I thanks so much for your your remarks tonight. I
know we're gonna hear the budgettomorrow. And I feel like when
I'm reading, whether, you know,I read the globe or the post,
you're kind of whipsawed by howthe think about this kind of
expansion of governmentspending, you know, on the one
hand, it's, we need universaldaycare and childcare. There's

(57:13):
no debt has never been cheaper.
On the other hand, it's, youknow, we've abandoned the fiscal
guardrails, you know, the era ofbig government, you know, no one
is talking that this is anissue, how should we think about
it, you know, have the worldlike modern monetary policy hips
has how we should think aboutdebt fundamentally change? Or
should we be concerned with themassive expansion of government
spending now that the pandemicis waning?

Just as a general, a general proposition,
let's just all agree that prettywell, everything you read, is
going to be exaggerated. Okay.
So that's just the way it is.
Okay. So I think, pay attentionto the numbers tomorrow, as I
indicated, I think there's beena lot of good news in the

(58:01):
economy. So it should bereflected in the fiscal
framework. And the guardrailsshould look respectable. But,
boy, I don't know no one reallyknows till tomorrow, will this
fiscal dividend all be spent onnew initiatives? Or will some of
it be put in the bank to rebuildour resilience? That's a, that's

(58:23):
a for me a key question. Fortomorrow. We know that there's
pressures to do some new thingslike, oh, not childcare, we get
that finally signed up, right.
So that's in the baseline now.
And by the way, I was an avidsupporter of that, because we
proved in Quebec, that itincreases the capacity of the

(58:44):
economy, it brings more womeninto the workforce, it did an
amazing job over the past 20years. And if we replicate that,
in for the rest of Canada, we'retalking about maybe a percentage
point of productivity growth, ifyou like, forever, right? You
think about taking a $2 trillioneconomy and adding 1% to it

(59:07):
every year, forever, just byinvesting in a social gap, a
social infrastructure gap, suchas childcare. So I think that
thing will pay for itself. Ihave no issues with that at all.
And give me some more of that,you know, if you're going to
invest in infrastructure that'sgoing to pay for itself. Whether
it's digital or physical orother social. Now, there's going

(59:30):
to be pressure on defense, weknow there's going to be a big
bump in the defense line. Andyou Canadians gonna vote against
that, you know, maybe but I kindof think people were like, wow,
look what's going on. We're,we're caught flat footed here.
So, you know, we're notprepared. So it's again, we're
not resilient on that front. Solet's get that up. And new thing

(59:53):
dental I guess I don't reallyknow what that might look like.
So there are things that need tobe fit in there somehow
politically? How does it end uplooking? Well, we'll see
tomorrow, but provided theguardrail is still there front
and center and is demonstratinga downtrend. I will say well,

(01:00:14):
though, least they've satisfiedwhat I call the sustainability.
Minimum, that was long asdeclining. What that means is
that we were able to service ourdebt, just ordinarily. And that
the indebtedness is fallingthrough time all by itself. So
it is kind of a minimumsustainability criterion, you
might wish it goes faster. Andthat would represent if they

(01:00:38):
take some of the dividend andactually put it in the bank to
make it go down faster. Kind of,you know, we'll have to see. But
anyway, that's, that's I thinkthe things to watch for
tomorrow. Do that they'll haveroom to maneuver, they'll have
choices to make. And I don'treally know what choices they
will make and therefore I'llwatch it will add up to but but

(01:01:01):
I'm pretty confident that theywill they still believe in and
will respect those guardrailsthat they've set set up.

Unknown (01:01:13):
So I know you touched on the innovation technology,
we're just about to startanother, like the next evolution
of that. And definitely over thepast couple of years that I'm in
the tech space, you know,Amazon, Microsoft, they're
talking about AI, artificialintelligence, augmented reality,
everything to do with that. Soproductivity is going to go

(01:01:34):
through the roof, output andproduction is going to go
through it autonomous checkouts,everything in the sense of I've
even seen now going toMcDonald's is going to be like
completely autonomous, you won'teven need a teller anymore.
They've got a new Alexa versionof ordering your drive thru now.
So with that happening, and thenat the same time we have an

(01:01:56):
aging population, the crosshairsis going to be the production
capability is going to be threeto 5x. But yet the demand
potentially is going to be halfover the next five years or
seven years, as people are alsoexiting the workforce. And
they're not having the samedemands on the economy. And you
can emigrate to offset theamount of people that we're

(01:02:18):
talking about here from whatI've seen numbers wise across
North America. Okay?

Stephen Poloz (01:02:23):
So you're suggesting that this
juxtaposition gives us adeficient demand kind of
scenario. There's just so, youknow, to extent that happens in
every industrial revolution. Sowhen it first happens, we have
this old parable, this was aneconomist called Arnold
Harberger, and is reallyimportant economist because he

(01:02:47):
developed what we call theHarberger triangle. So as a tool
that economists use, nevermindthat point is he gave a speech
once and he says, you know, whenthere's, when there's
technological progress, aseconomists, what we imagine is
that the productivity goes outthere, like yeast, everybody
gets some, like, it just fillsall the cracks, everybody gets

(01:03:09):
some. And that's what we have inour models. productivity goes
up, everybody feels it,everybody's feeling good. They
have more money to spend, right?
That's what productivity wouldbe like. And he says, but the
thing is, in the real world,it's actually more like
mushrooms. Productivity pops uphere and there. And of course,
who gets it, Amazon or Google orsomebody like the big the big

(01:03:31):
companies pluck the mushrooms.
And that's why income inequalitygoes up so much during these
industrial revolutions, becauseyou get left out who's your job?
You know, people protest againstnew technology, they, they
decide they're going to have aunion again, prevent, prevent

(01:03:52):
Alexa from taking the orders atMcDonald's, or whatever they all
do. So this is what happens inevery Industrial Revolution was
tensions come up and politicalpolarization erupts. Right,
because especially now with asocial media YuLing at all, it
means that politicians are no,no, their job was hard enough
before, but now it's impossibleto reconcile all these loud

(01:04:13):
voices. So I'm adding it up tobe quite a mass. But what
happens in the next stage, whichis only not long, they this is
like a continuous process whatyou're describing. So you know,
these, the tech workers did, youknow like, the great, amazing
job growth right in that sector?
What are they doing with allthat money? Are they spending it

(01:04:34):
on iPads or? No, they'respending it on clothes and
houses and furniture, cars,ordinary stuff, renovating their
new house, you name it, okay.
That's where it gets met. Sowhat happens is they're creating

(01:04:55):
jobs across the entire economy.
And you know, if you Is your jobat McDonald's because it Alexa
is doing the ordering now. Andyou think, Oh, now I have to
learn how to write code in orderto get a job. No, you just have
to learn how to hang drywall or,you know, a very good driverless
truck comes along and you loseyour job as a truck driver while
you have to learn how to writecode in order to get back in the

(01:05:17):
workforce. Now, you can pick upsome trades type skill, you can
be an electricians apprentice,or, or do furnace maintenance. I
mean, you know, it's not,there's a lot more furnaces
because of what I've described.
So the point is that this is thepart that nobody ever talks
about. They talk about thedisplacement of workers and all

(01:05:39):
these. That's absolutely true.
It's been true every time. Butthrough history, I mean, we've
thought about it back in 186750%, of Canadians were working
in farms. How did we get fromthere to here? I mean, they
aren't still out there lookingfor jobs on farms. Okay, we got
here because of the generalimprovement and living standards

(01:06:02):
that came from the technology.
And, okay, China, much morerecent example, land reform, big
farms, that a little farms,you'd like, no, I lost my job, I
lost my farms, because all dayI'm moving to the city. Now I'm
gonna make iPads, you know, andmake them really cheap, because
this is huge for man get makinga great living now. And for us,

(01:06:24):
it was very inexpensive labor.
But so that's, that's thecontinuous process that we're
gonna go through. And it'salways there to a degree, but as
well had these major ways threetimes, and this is going to be a
really big one. Think about theone for the computer computer
chip. And the book, I estimatethat this, this gave us about 10
percentage points of GDP out ofthin air. That's a big number to

(01:06:46):
then to receive every year fromthen on. And that money is
spread everywhere, and createslivelihoods in all kinds of
sectors. I know that sounds likea little bit of hocus pocus.
That's, that's why economistsare always-

Leon Goren (01:07:07):
-no, but I read about that in your book talked
about the k, right? It's thetime it just takes time to track
the jump-

we need to be ready to buffer those folks, as
they go through it. Help themmake those transitions. If
necessary, give them aguaranteed basic income, you
know, the universal basic incomeor something are you serve like,
kind of thing. And so help themtap into training, if that's
what they need, and so on, andhelp them move if they have to

(01:07:34):
move. We don't do a lot of thosethings. We have programs, but
they're kind of like, you know,they're there, you got to take
all the rest of yourself. Ithink society owes it to these
folks, you know, to do a betterjob than we did through
globalization. I mean, we gotthis whole generation that kind
of feels like well, I got leftout of that, you know, the

(01:07:54):
desert, what Harper in his bookcalls, you know, the somewheres
versus the anywheres. Mobileprofessional can be anywhere but
the person where the mill closeis still living in that town and
no work for them. So they needto be able to move. And some of
the risks can be borne bysociety, because when they match

(01:08:17):
with a new job, then we allbenefit. Right? So anyway,
talking kind of abstractly toyou. But I think it's an it's
hard for people to be convincedthat let's let's do it the
opposite, right? Let's let's deglobalize and or Let's prevent
technology from doing what itcan do in order to preserve
jobs, right? People find it hardto believe that that means

(01:08:41):
there's fewer jobs for people torenovate your kitchen. But
that's exactly what happens.
They don't see a connectionbetween those things. Well,
there's just less income. So oneof the things that doesn't
happen is you don't renovateyour kitchen. And there's fewer
jobs for the people that youknow, destroy your kitchen and
then rebuild your kitchen,right? So these are not jobs
that you have to go touniversity for years and years

(01:09:03):
in order to train up for and wecan make those transitions. We
will we have in the past, butnot as quickly as we should be
able to. Yeah, the central bankplays an important role. Let me
just finish with this. Becauseproviding a relaxed monetary
policy at a time when that'shappening was what exactly what

(01:09:25):
Greenspan did, intuitively. Andas I said, one of the byproducts
was the build up and pressuresand that was an unfortunate side
effect, but you'd still say as amacro thing that was the right
thing like to accommodate it. Soyou didn't get deflation people.
You know, the economy grew fast,and we were able to fill in all

(01:09:45):
those jobs. Remember,unemployment was the record low.
That's what should happen thistime, except we've got more
safeguards to protect us fromfinancial excesses than we had
back in the mid 90s.

One last question, then I'll go over to James. Oh,
okay. Are you okay with that?

Well, I'm fine.
I'm here. I'm here I go, I go tosurgery. We're gonna start
drinking wine. And that's a gooddeal.

Unknown (01:10:13):
First of all, thank you, Steven, for your insights.
You've got my mind racing. AndI'm sure a lot of us in here
with the opportunities and thepossibilities of the future and
things. Question for you. Thisis a little global because the
impact the global world has onCanada can be pretty significant
as well. And Ray Dalio re wrotesomething greatly lately called
the New World Order. Now, ifyou're familiar with that work,

you know, and you'll look at my book it says,
on Amazon, it says, oftenpurchased with Ray Dalio. Ray
Dalio. I know I know, Ray, andI'm an admirer of his book. But
of course, I didn't buy my ownbook on Amazon. But I look to

(01:10:55):
see how I'll get some of thereviews from people, which is
kind of cool. You have to clickon it to see what the reviews
say. And it's often purchasedwith [inaudible] pretty cool.

Unknown (01:11:06):
I could see why is too brilliant pieces of work, by the
way. But you know, in the NewWorld Order, you know, he goes
back, and it's the Dutch andthen the British and the
Americans and ties thefinancial, to the social parts
of how they all rose andeverything. And the one key
element that really kind of hitme was that so often the change

(01:11:29):
was driven by internal division,right? Yes. And what we're
seeing stateside more thananywhere else in the world right
now is a significant amount ofthat. Yes. And, you know, are we
is there going to be what's theimpact going to be globally? Do
you think we're going to have achange there? You know, from a
US perspective? And are welooking at significant changes

(01:11:51):
in Canada, right? Because, youknow, a lot of people don't
realize it, you know, the totalpopulation in Canada is actually
less than the state ofCalifornia. But we've got a
global imprint and personalitythat is huge, you know,
globally, and how do you thinkthat's going to play itself out?

Yeah, so you're onto something that, in fact, in
Canada, it matters a lot more inthe sense because we're, we're
exposed to the internationalside, we can't be who we are
without that exposure, right.
And so whereas the US could bethe US could shut itself off
from the world. I mean, ofcourse, there'd be downsides, D
globalization and Trump style,you know, would be would reduce

(01:12:27):
the standard of livingsignificantly in the United
States, but at least they'd havestill a big, self contained
market. And hopefully, we couldstill tap into it all manage,
but we wouldn't manage as well,as we do. And we were
particularly exposed. Getting toyour political is really a
political question that you'reasking. And, and, and, you know,
Ray, as is touched on thisthing, so what I what I do in

(01:12:52):
here is I talk mainly that, tome, the the both globalization
and technological progress hascaused this K shaped the K
shaped trajectory for theeconomy. So the folks who lose
out end up in the bottom partand of the K. And the top part
of the K just accelerates,that's, you know, the tech tech
space, but it's all theperipheral, like, during the

(01:13:15):
pandemic, we've had tremendousgrowth in the top part of the K,
which is one of the reasons whywe have shortage of workers,
because folks in the bottom partof the K, you know, maybe
students that were waiting ontables, they've graduated there.
Now they're lawyers, they'reChartered Accountants, they're
engineers, whatever they are. SoSo we've had that, and we need
the immigration side of pickupspeed. So we have people for

(01:13:36):
that, for that lower part of theK, because it still exists, it
just won't grow fast. Right, butit still needs people. The what
I what I think is going tohappen, is that that growing
sense of disenchantment, whichis very obvious, so obvious
enough that there's lots ofbooks written about it. And you

(01:13:58):
know, we think that's whysomeone like Trump could tap
into that discontent. So I'llfix you up, you know, we saw the
same thing, not just in the UK,but in Europe, you know, shift
towards a more populist kind offramework. Maybe that momentum
is eased off a little, maybebecause of geopolitical

(01:14:20):
tensions. I'm not sure. Butpoint is, it's still there. And
we're not immune to that. Imean, we're culturally, we're
got some similarities there. Andwe can certainly put our fingers
on folks who feel like they'vebeen left out, you know, and so
we need to be aware of that. ButCanada has done a better job
than most on the incomeinequality front. Remember, the

(01:14:40):
very first thing that theTrudeau Government did right,
was they they tax the highincome earners and they gave a
tax cut to the low incomeearners before they even had a
budget. Right. And, and so inthe OECD, you know, when you say
things like well, the incomeinequality has worsened in All
these countries, the oneexception is Canada. Now, that's

(01:15:01):
not to say that it won't worsenfrom here, because we'll have
the same tech thing probablywill cause to resume
deterioration. So we have toremain attentive to that. Well,
as that's happening, it givesrise to this sense of
disenchantment, and therefore,political alliances get more

(01:15:21):
divisive, you know, morepolarized. And I think that
social media may makesfacilitates that, it just makes
it seem like a higher volume,and makes it tremendously
difficult for politicians togather a consensus around and,
okay, here's the policy we'veall agreed on, we're gonna do
this, you know, look, whatBiden's going through, you know,

(01:15:44):
to try and try to address theincome inequality issue like
he's negotiating, and notgetting very much progress on
it. All right, just aspolitically really hard than to
suggest to me, I get kind ofthis dismal conclusion, which
is, I don't think politics isgoing to become more effective,
I think it's even become lesseffective through time. And so

(01:16:05):
to add on top of that, off thepublic debt is a is a legacy of
the pandemic, so not much roomto maneuver fiscally. And
interest rates will remainreally well, because of the
demographic or maybe four. Socentral banks don't have a lot
of room to maneuver. So who'ssupposed to take care of all the
rest that shows up, and it coulddestroy our businesses? Not

(01:16:27):
those folks. That's why I'msaying the bottom line of the
book, that it's a new age ofuncertainty, or the next stage
of uncertainty is going to washup on your doorstep. And
therefore you need to bethinking about how you will
manage it. And it's, it's notjust companies when we're
talking mostly to companiestonight. But that's when I

(01:16:48):
realized things weren't sittingstill, I realize this is going
to matter a lot to households towrite the decision to buy a
home, have a big mortgage,there'll be so much more
volatility and employment, andlots of churn and searching for
new jobs, and you know, all thatkind of stuff that is going to
make all those decisions muchriskier than in the past. How
will they react? So that's whatthe other half of the book is,

(01:17:12):
is about adapting? And what sortof directions would it take? So
I've gone along too long withyour question, he prompted, you
know, basically a stream thatallows me to summarize the but
but I think it means thatcompanies will need to be more
of the kind of social leaders inthis respect. And I think, and

(01:17:32):
it'll be in your interest to doso if you have you're going to
have a shortage of workers,especially the skilled ones, how
do you how do you ever attractand retain? Oh, I know, the
biggest risk you face is thatyou might lose your job, because
I've got a volatile business. SoI got your back. I know there's
ei programs and all that stuff.

(01:17:54):
But I'm going to make sure youget a little extra because I
want you to be there after theafter the downturns over, I want
to keep here. Or I know thebiggest decision you face is
designed to own a home insteadof renting a home. How about if
I have a word with the bank, andyou know, I'm there in case we
go through six months where youare constrained? I think those

(01:18:16):
there'll be this broader senseof we're in this together from
companies and their employees.
And that's what I meant aboutthe power shifting to the
employee from the employer. AndI think your shareholders will
reward you if you can maintain astable and productive and loyal
workforce. So that'll be anotherway in which you get paid. More

(01:18:36):
of a partnership. Yeah. Yes. Andif you want, you can just sit on
your hands and wait till theunionize, which I think would be
a less desirable path, at leastbased on history. I mean, it's
not necessarily enough, lessdesirable, but, but I think
historically, it shows that thatkind of confrontational thing it

(01:18:59):
can work has worked for longperiods. But of course, it has
not worked in certain keyperiods. I'm an actual boy, I
grew up with, you know, peoplelike Bob white and Buzz
Hardgrove. And watch my town getlaid waste by what I thought
was, I call the generous motorsin my book, because that's what
we call it when I was a kid. AndI think it kind of got overdone,

(01:19:24):
you know, it was and it madethem very vulnerable. And well,
now we see now, of course, therejuvenated but that's a lot has
happened between, you know, the1980s and today and so we
shouldn't have to have all ofthat in order to survive this
next industrial revolution.

(01:19:46):
Thank you great.

James. You want to close this out?

James (01:19:51):
I did buy the book.

Oh, well, thank you, James.

James (01:19:57):
I'm gonna wait for the movie to come out on Ray Dalio.

Okay. It is a lot bigger and heavier. I'm working
on it myself.

There were no economic models in here. That's
what I loved about no economic-What was it this statistical
modeling with all the differentvariables?

Not a single footnote? There were a lot of
phenomena single acknowledgmentsalways wants. Yeah, but no
footnote. No.

True. Okay. Yeah, there were no footnotes-

If it's worth writing, it's worth writing in
the texts.

All right, James, we've been handed over

James (01:20:27):
I'll keep this brief, I should say, I'll keep it
transitory to bear for a coupleof people. Paraphrase a good
friend of Stephens. As Leonalluded to Focus Asset
Management is a proud sponsor ofPEO. And we're proud and we're
humbled that a growing number ofmembers in the PEO community
trust us to manage the wealththat they predict that they've

(01:20:50):
built into protect theirfamilies, prosperity through
this environment of volatilityand uncertainty that we heard
about this afternoon. So I justlike to say on behalf of our
partners, thank you very much tothe dynamic PEO team for putting
on this spectacular event thisafternoon. And of course, thank
you so much to Stephen Poloz forbeing here as our our special

(01:21:12):
keynote and sharing your uniqueperspectives on some of the the
risks and the uncertainties thatwe're all seeing in our
businesses and financial marketsand, and the world at large,
really. And even as these risksare daunting, I thought you made
a very interesting admonitionwhich is almost to say, hey,
don't forget about theopportunities. And in an

(01:21:35):
environment of risk, there arealways going to be opportunities
to be had. And I think hearingthe discussion we heard this
afternoon and hearing theinsights and perspectives of
somebody with your level ofknowledge and experience. We're
all better equipped now to meetthose challenges and to go out
and find some of thoseopportunities. Finally, thank

(01:21:55):
you all everyone in attendancefor joining us this afternoon.
We hope you enjoy the eveningand you'll stay a little while
with us longer to maybe discussand debate what we heard or at
least have a glass of winemaybe. On that topic. I'm not
saying that we might have gone alittle over budget on the food
and beverage spent. But if youare you know if you're thinking

(01:22:17):
that used car prices andgasoline are showing signs of
inflation, you should see whattempura shrimp and shrimp
coutries going for this place.

I am hungry. Do you have a flight till 11 o'clock
time?

James (01:22:36):
To the no leftovers tonight that's perfect. please
avail yourself for therefreshments. And with that we
hope you have a great eveningand we look forward to seeing
you again soon. Okay.

Focus Asset Management (01:22:51):
Focus Asset Management is a
progressive wealth managementfirm. We strike a fine balance
between embracing new investmentideas, while holding firm to the
principles which have resultedin long term success. trust and
reputation are central toeverything we do. We're employee

(01:23:11):
owned, we have investing in ourDNA, and we invest exclusively
alongside our clients. We offerinvestment strategies across
multiple asset classes includingpublic and private options,
which gives us the ability tomeet your investment objectives.

(01:23:34):
Our relationship with clientsranges from a single investment
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approach. We look forward tostarting the conversation with
you

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