September 19, 2024 • 17 mins
Both the Federal Reserve and Bank of Canada have kicked off interest rate-cutting cycles. Both the U.S. and Canadian economies are facing questions about recession risk. And both U.S. and Canadian investors are wondering what’s next for stocks, real estate, currencies, and commodities. That’s why I sat down with Benjamin Tal, Deputy Chief Economist at CIBC Capital Markets, just ahead of our wildly successful 2024 MoneyShow Toronto conference. He covered all the bases for the benefit of investors in this week’s MoneyShow MoneyMasters Podcast segment.
We begin with a discussion of Canada’s economy, and how Benjmain believes it’s already in a “per capita recession” – with immigration the big factor keeping GDP from looking worse. He next covers labor market conditions on both sides of the U.S./Canada border...the past, present, and future direction of interest rates...and whether our two economies are headed for a soft landing or not. Benjamin then discusses the “tale of two markets” in Canadian real estate, how the changing economic and rate environment will impact currencies and gold, and what the upcoming U.S. presidential election could mean for taxes, trade, and growth. Finally, he covers the one factor that could drive more cash OUT of one asset class and IN to another in Canada.
If you missed our Toronto event, you can catch many more market experts like Benjamin at the 2024 MoneyShow Orlando. It’s scheduled for Oct. 17-19 at the Omni Orlando Resort at ChampionsGate. Click here to register: https://orlandomoneyshow.com/?scode=061246
We begin with a discussion of Canada’s economy, and how Benjmain believes it’s already in a “per capita recession” – with immigration the big factor keeping GDP from looking worse. He next covers labor market conditions on both sides of the U.S./Canada border...the past, present, and future direction of interest rates...and whether our two economies are headed for a soft landing or not. Benjamin then discusses the “tale of two markets” in Canadian real estate, how the changing economic and rate environment will impact currencies and gold, and what the upcoming U.S. presidential election could mean for taxes, trade, and growth. Finally, he covers the one factor that could drive more cash OUT of one asset class and IN to another in Canada.
If you missed our Toronto event, you can catch many more market experts like Benjamin at the 2024 MoneyShow Orlando. It’s scheduled for Oct. 17-19 at the Omni Orlando Resort at ChampionsGate. Click here to register: https://orlandomoneyshow.com/?scode=061246
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Benjamin, thank you so much for joining. I know there's
a lot to talk about what comes to the big
picture for Canada's economy, the political backdrop, monetary policy out
look and everything. So if we were just start from
a view from sort of thirty thousand feet up, where
are we in this economic and market cycle?
Speaker 2 (00:21):
Yes? Interesting.
Speaker 3 (00:23):
I think that many of you by now must be
very disappointed because everybody promised to a recession in Canada
and we didn't get one. Well, let me tell you
one thing. We are in a recession. We are in
a per capitalized session, per capitalizession. The Canadian GDP has
been going down, down, negative for the past five six quotels.
(00:44):
So the only reason why the overall economy is still
barely above zero is because of the fact that we
got one point five million people into this country over
the course of breakfast. That's the only reason why GDP
in Canada I still pose. And that's not a way
to grow an economy. You need GDP per capita to
(01:07):
expand and that's not happening. So clearly we are in
a peer capitalized session. The economy in the last quarter
was surprising on the upside two point five percent, but
what we are getting into the third quarter is something
along the line of zero point five percent, very close
to zero. The Bank of Canada is already recognizing that
the economy is slowing down. Clearly the level market is
(01:29):
slowing down. So the Bank of Canada is willing and
able to continue to cut. The only thing that was
complicating the picture was that this US economy was extremely strong,
was refusing to slow down, and lately, as we all know,
it is slowing down under the way to fire into spats.
So with the US slowing down, the Fed willing to cut,
the Bank of Canada is the green line to continue
(01:51):
to cut. That's more as where we are very close
to a recession per capitalizession for sure.
Speaker 1 (01:57):
Let's talk a little bit about interest rate policy as
we speaking. Obviously, there were already two rate cuts earlier
this year. We've just seen a third from the Bank
of Canada. How do you see the BOC moving forward
from here? And what did you maybe pick out in
the commentary today that kind of implies something about the future.
Speaker 3 (02:12):
Yes, I think that the Bank of Canada is on
a cruise control now. They will continue to cut every meeting,
the next meeting and the we're meeting after that, which
means that overall we are going to see Red's going
by another fifty business points by the end of the year,
and they will continue to cut into sweats in twenty
twenty five. That's automatic. As I said, what was the
(02:33):
complicating the picture was the Fed. The fear until a
month or two ago was a the Fed, we'll not
cut at all this year. And the Bank of Canada.
Can you divorce yourself from the Fed? What does it
mean for the value of the Canadian dollar?
Speaker 2 (02:48):
Now?
Speaker 3 (02:48):
The Fed is tweeting about the willingness to cut some
people say by fifty business points the next meeting. As
you all know, so clearly the Bank of Canada is
the green light. They clearly will continue to advantage of it.
The FED is not limiting them in terms of their
ability to cut. And there is all the reason to
cut when it comes to Canada. As I said, we're
(03:09):
in a capitalized session. Inflation is no longer a story.
If you take inflesh and minus mortgage, it was payments,
it's basically one point five below target. In fact, the
Bank of Canada is starting to talk about the possibility
of inflection going below two percent and basically that're telling
us our focus now is the fifty percent risks that
(03:30):
it's above and fifty percent risks that it's below two percent.
So a year ago, everybody was panicking about inflesh, and
we all knew that it was not about inflesh. It
was about the cost of bringing inflation down to two percent.
And I submitted in the past that this cost has
been way too high in Emily. The Bank of Canada
(03:51):
was overshooting and that's exactly why they have to undo
the damage and continue to cut on a regular basis.
So I see the Bank of Canada cutting, I see
the FED cutting start ex September. Now, the question is
by how much, namely, what will be the terminal rate
As far as the Bank of Canada is concerned, I
believe that the Bank of Canada will go down to
about two and a half, maybe even twenty five. This
(04:15):
is a bit below their neutral rate. And the reason
is the following. We need the teny rate and the
five FIU rate in Canada to go down. Those rates
are determined by the market, and the market now is
passing the Bank of Canada to take rates to about
two seventy.
Speaker 2 (04:33):
So if you go to only to seventy.
Speaker 3 (04:35):
The five fire rate that is so important to the
housing market and the TENU rate that is important for
everybody else will not move from them. That's not good.
The Bank of Canada needs to see them going down.
Therefore they will have to go to go below what
the market is expecting. And that's why I say to fifty,
maybe even to twenty five by the end of twenty
twenty five.
Speaker 1 (04:54):
In the US, we obviously talk quite a bit about
the debate soft landing, hard landing, no landing, and I
know some speakers that have fallen down on one side
or the other of that debate. How would you describe
the severity if we say that Canada is sort of
in this borderline recession anyway, how hard do you think
the landing could get?
Speaker 3 (05:11):
Yes, I think that the reason why the US economy
has been out performing and not crushing is because of
the fact that they are less sensitive to higher interstrates.
They don't have as much debt as in Canada because
they went with the mother of all deleveraging during the
financial crisis, and their mortgages are for thirty years.
Speaker 2 (05:30):
Our mortgages are for five years. So when interstratets go up.
Speaker 3 (05:33):
We feel the impact immediately in the US, wake me
up when it's relevant. So the impact on the US
economy and the US consumer and investment is not as
significant as it is in Canada, and therefore interstreats in
Canada have to be higher than into sweats in the
US when you end the cycle.
Speaker 2 (05:50):
Now where are we with the FED?
Speaker 3 (05:52):
Until now, the Fed was basically talking about the possibility
of not cutting at all. The market was talking about
no lending or all these scenarios. And now we know
that if you look at the level market, it is
slowing down. If you look at the quid thread, if
you look at employment unemployment, everything is moving in the
right direction.
Speaker 2 (06:08):
When I say right direction, I mean slowing down.
Speaker 3 (06:11):
Because bad news is good news as far as the
market is concerned, because you need to see the economy
responding to iron into sweats, and that's exactly what's happening now.
So the FED will cut another by twenty five, another
twenty five, and maybe another twenty five this year, so
altogether fifty or seventy five business points and will continue
(06:32):
to go down in twenty twenty five.
Speaker 2 (06:33):
That's a given.
Speaker 3 (06:34):
I think that we have a situation in which the
economy will be responding. The economy is slowing down, and
I do believe that we can achieve with lower interswrts
a soft lending. And if you want a scenario that
is similar, it's the nineteen ninety five soft lending. Back
then the FED res intersweats by three hundred basis points.
(06:54):
The economy is slowed down but landed beautifully, very softly.
Speaker 2 (06:58):
That can happen.
Speaker 3 (07:00):
That can happen, and I think that we are seeing
a trajectory to achieve this kind of target. I don't
think that the FED will go crazy with into sweets,
but fifty is a possibility in September or after.
Speaker 1 (07:13):
I feel like we have to talk about it, just
given where we are in the Argingly, the political cycle
in the US as well as in Canada, there's been
quite a bit of discussions about the elections coming up
and what that might mean in terms of fiscal policy
and impact on the economy. Any thoughts there on what
investors should be watching out for and how you see
things shaking out over the next year or two There.
Speaker 3 (07:30):
Well a lot, of course, there is going to be
a lot of volatility when it comes to the elections.
Listen I don't know it's going to win. Nobody knows.
It's fifty to fifty, so I'm not going to speculate.
But if a Trump wins, we have a few things here.
It's going to be taxes, it's going to be tread,
and it's going to be regulations. Taxes will be basically
(07:52):
cutting corporate taxes and making personal tax income relief permanent.
So that's something that is a given and Canada will
have to respond, especially when it comes to businesses and
taxes on businesses.
Speaker 2 (08:04):
The most important story is trade.
Speaker 3 (08:07):
If you look at what the Trump administration or the
future Trump administration is talking about, we are talking about
a significant tread world deterioration. They will go after Mexico,
they will go after Canada, and clearly they will go
after China. Now we have to remember that if you
look what happened between twenty sixteen and twenty twenty when
Trump as the president, we have seen exports from China
(08:32):
to the US going down dramatically because of terif It walked. However,
exports of other countries to the US went up. So
it's not the globalization, it's reglobalization. It's real location now,
so we have Vietnam, we have Malaysia, we have Mexico,
we have India. All those countries again market share in
(08:56):
the US and the expense of China. Now, guess what
China is doing. If you look at China's foreign direct
investment and exports to those countries, it went up to
the sky over the past few years. So basically they
are entering the US through the back door. It's a
threat policy by poxies and Trump knows that, and therefore
(09:17):
he can go after Mexico, India, Malaysia, Vietnam in addition
to China, and that will make things more complicated. You
also might go after Canada. We also have to remember
that he wants Canada to spend more on defense. Clearly,
the budget deficit in Canada will be rising. And regardless,
regardless regardless who wins Harris or Trump, we have a
(09:38):
situation in which the budget deficit will widen. Trump is
all about taxes and spending with taxes is the main focus,
and clearly that will widen the deficit. Harris is spending
and tax with a focus on spending again will raise
the deficit. Regardless of what you going to see the
long end of the curve will suffer because of those policies,
(10:01):
so a lot to anticipate. This is going to be
very very interesting economically speaking and clearly politically.
Speaker 1 (10:08):
Speaking, understood understood. In the second half of our conversation,
I want to pivot to some of the impacts on
markets here, maybe starting with Canadian real estate, since we're
obviously focusing on interest rates. You have an interview with
Canadian mortgage professional back in July and talk about there
being almost a tale of two markets in Canada and
noting that every basis point is going to help with
mortgage borrowers. How do you see that checking out again
(10:29):
at the back half of this year and as we
roll on the twenty twenty five.
Speaker 3 (10:32):
Absolutely, a tail off two markets is right because we
have the low rise segment of the market doing extremely
well or relatively well, given the fact that Into Sweats
went up by five hundred business points, still holding.
Speaker 2 (10:43):
There is demand there, there is.
Speaker 3 (10:45):
A reasonable inventory, so the market is functioning in a
normal way. That's the low rise. The touched segment of
the market, the conto market. The conto market in the
big cities is basically dead. Absolutely. I released with Urban
Nation study recently about how many investors are renegative cash flow,
(11:08):
and about eighty percent of them are renegative cash flow,
which means that there is no motivation to invest, so
you don't have this demand that was there before coming
from investors that are fifty sixty percent of the market.
At the same time, builders cannot build, why because of
higher intustrates, the cost of label construction costs. They simply
cannot afford building.
Speaker 2 (11:27):
So pre sell.
Speaker 3 (11:28):
Activity, pre construction activity is absolutely dead. You're not able
to sell anything. So the only mechanism that is softening
is the resale market in the condospace, and that's why
the price gap between pre sell and resell is at
a record high. This is a frozen market. Now, this
(11:49):
is a situation in which we've been seen in a
long time. What I'm telling you here is that if
you are in the market for a condo, the next year,
year and alf is the best time because you have
a window in which the condo market will be very weak. However,
we are not building anything new, so two years from now,
three years from now, when the demand is still there,
(12:13):
the supply that's supposed to come now will not be there.
You don't have to be an economist to predict what
will happen to prices. So we have a window of
opportunity in which the market is clearing. The market has
to get rid of those inventorys. The recent market will
be software and software a golden opportunity to get into
the market because the overall fund the methods of the
market are still strong with immigration demand and limited supply.
(12:36):
So that's what I see unfolding in the housing market,
the low rise versus the condo space, which is a
tale of two stories.
Speaker 1 (12:45):
Let's shift to the stock market then. I mean, as
we're speaking, the TSX is about up ten eleven percent
on the year stow, even with some of the recent
volatility we've seen in the US, how do you.
Speaker 2 (12:54):
See that shaking out?
Speaker 1 (12:55):
And you know within the TSX are particular sectors that think,
given your understanding or expectations for the economic cycle, could
outperform or underperform.
Speaker 3 (13:04):
Yes, I won't get too much into the stock market.
Other people will do it better, I believe. But what
I do want to say is the following. We are
in a very interesting situation in which intersweats are going down.
Now if you look at what happened over the past year,
year and a half, we have seen a situation in
which GC investment went up dramatically. There is a basically
(13:27):
ninety five percent correlation between GC volumes, let me term
deposits and into sweits. So when into sweats went up
to five percent, GI s Rett, everybody was there taking
money out of equities or sacrificing money that was supposed
to go to equities. So the equity market was actually
suffering because of that, not just because of the punishing
(13:51):
impact of fire into sweats, but also because of the
movement to term deposits. People didn't didn't say, he said,
you know, basically, I want to sleep at night five percent.
I'm happy. Now those rates are going down for three
at one point maybe two percent, and it's coming people
say that's not enough. I'm going back to the stock
market where in the stock market dividends paying stocks, because
(14:14):
there is still get four or five percent. So I
believe that there will be a significant shift in aset
ale locations from time deposit, namely GICs to dividend paying stocks,
and I will like to be part of it.
Speaker 2 (14:26):
Excellent.
Speaker 1 (14:27):
I guess the other markets we haven't yet touched upon
would be that would be of interest to attend this. This
here would be currencies and commodities. I'm curious about your
thoughts on the Canadian dollar as well as what you're
seeing in the commodity market. And we have kind of
the split where oil has been struggling, gold's been hitting
neat highs. For example.
Speaker 3 (14:42):
Yes, I think that gold is definitely reaching new heights
and will continue to basically improve over the next year,
I believe, or at least would remain elevated. The oil
market reflecting some sentiment regarding the global economy. China is
slowing down, the US is slowing down, Europe is still
slowing down. We are in a transition period in which
the economies are still reflecting high intersweds, and therefore the
(15:04):
commodity market is selling you telling you the economy is fine,
it's not a recessionary economy, but the global economy is
slowing down. Therefore, I don't see any significant recovery in
the commodity market until mid to late twenty twenty five.
The currency, I think that the Canadian dollar will remain
vulnerable for the next few months, but at one point,
and this point is getting closer and closer, when the
(15:27):
market is sure that the FED is very serious about
cutting into sweats. That's something will lead to a relatively
weaker US dollar in general, against the yen, against the euro,
against the pound, and clearly against the Canada dollar. So
show them stable to Loyer. Beyond that, beyond the next
(15:47):
few months, when the FED is still in full swing,
I suggest that the US dollar will waken, the Canadian
dollar will regain a few cents.
Speaker 1 (15:57):
And I mean I always like to wrap up these
discussions for the I guess the final question, and that
would be what would make you, I guess, more bullish
on the outlook for markets and the economy, And what
are maybe an unspoken risk or a risk we haven't
discussed that would make you more bearrass generally.
Speaker 3 (16:09):
Speaking, Yeah, I think that two things. One inflection is
always a risk and it can come back, and something
that the bank is not expecting, although that's very low.
Speaker 2 (16:21):
Probability. So I say, no big dealer, clearly.
Speaker 3 (16:24):
And everybody knows that the geopolitical issue is extremely sensitive.
We have China, Taiwan, we have Russia, Ukraine, and of
course we have the Middle East. So I don't have
to tell you how fragile the situation is, especially when
it comes to the impact on supply chain, so that's
clearly a risk that everybody is aware of. I think
that if inflection goes down more rapidly than expected, you
(16:46):
will see into switch going down more rapidly than currently
anticipated by the market. That would be a boost to
both equities market and the economy as well, so that
will be the positive scenario.
Speaker 1 (16:58):
Benjamin, again, thank you so much for taking time out
here to discuss the markets in the ecomomy with our audience,
and I really do appreciate it.
Speaker 2 (17:04):
My pleasure. Thank you.
Speaker 1 (17:06):
We'll have more interviews for you every week, so I
encourage you to subscribe to the Money Master's podcast so
you can stay up to date with the insights from
top money experts. You can follow me on Twitter at
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and trading content on Twitter, Instagram and YouTube at Money Show.
Thanks for listening, See you next time.
Benjamin, thank you so much for joining. I know there's
a lot to talk about what comes to the big
picture for Canada's economy, the political backdrop, monetary policy out
look and everything. So if we were just start from
a view from sort of thirty thousand feet up, where
are we in this economic and market cycle?
Speaker 2 (00:21):
Yes? Interesting.
Speaker 3 (00:23):
I think that many of you by now must be
very disappointed because everybody promised to a recession in Canada
and we didn't get one. Well, let me tell you
one thing. We are in a recession. We are in
a per capitalized session, per capitalizession. The Canadian GDP has
been going down, down, negative for the past five six quotels.
(00:44):
So the only reason why the overall economy is still
barely above zero is because of the fact that we
got one point five million people into this country over
the course of breakfast. That's the only reason why GDP
in Canada I still pose. And that's not a way
to grow an economy. You need GDP per capita to
(01:07):
expand and that's not happening. So clearly we are in
a peer capitalized session. The economy in the last quarter
was surprising on the upside two point five percent, but
what we are getting into the third quarter is something
along the line of zero point five percent, very close
to zero. The Bank of Canada is already recognizing that
the economy is slowing down. Clearly the level market is
(01:29):
slowing down. So the Bank of Canada is willing and
able to continue to cut. The only thing that was
complicating the picture was that this US economy was extremely strong,
was refusing to slow down, and lately, as we all know,
it is slowing down under the way to fire into spats.
So with the US slowing down, the Fed willing to cut,
the Bank of Canada is the green line to continue
(01:51):
to cut. That's more as where we are very close
to a recession per capitalizession for sure.
Speaker 1 (01:57):
Let's talk a little bit about interest rate policy as
we speaking. Obviously, there were already two rate cuts earlier
this year. We've just seen a third from the Bank
of Canada. How do you see the BOC moving forward
from here? And what did you maybe pick out in
the commentary today that kind of implies something about the future.
Speaker 3 (02:12):
Yes, I think that the Bank of Canada is on
a cruise control now. They will continue to cut every meeting,
the next meeting and the we're meeting after that, which
means that overall we are going to see Red's going
by another fifty business points by the end of the year,
and they will continue to cut into sweats in twenty
twenty five. That's automatic. As I said, what was the
(02:33):
complicating the picture was the Fed. The fear until a
month or two ago was a the Fed, we'll not
cut at all this year. And the Bank of Canada.
Can you divorce yourself from the Fed? What does it
mean for the value of the Canadian dollar?
Speaker 2 (02:48):
Now?
Speaker 3 (02:48):
The Fed is tweeting about the willingness to cut some
people say by fifty business points the next meeting. As
you all know, so clearly the Bank of Canada is
the green light. They clearly will continue to advantage of it.
The FED is not limiting them in terms of their
ability to cut. And there is all the reason to
cut when it comes to Canada. As I said, we're
(03:09):
in a capitalized session. Inflation is no longer a story.
If you take inflesh and minus mortgage, it was payments,
it's basically one point five below target. In fact, the
Bank of Canada is starting to talk about the possibility
of inflection going below two percent and basically that're telling
us our focus now is the fifty percent risks that
(03:30):
it's above and fifty percent risks that it's below two percent.
So a year ago, everybody was panicking about inflesh, and
we all knew that it was not about inflesh. It
was about the cost of bringing inflation down to two percent.
And I submitted in the past that this cost has
been way too high in Emily. The Bank of Canada
(03:51):
was overshooting and that's exactly why they have to undo
the damage and continue to cut on a regular basis.
So I see the Bank of Canada cutting, I see
the FED cutting start ex September. Now, the question is
by how much, namely, what will be the terminal rate
As far as the Bank of Canada is concerned, I
believe that the Bank of Canada will go down to
about two and a half, maybe even twenty five. This
(04:15):
is a bit below their neutral rate. And the reason
is the following. We need the teny rate and the
five FIU rate in Canada to go down. Those rates
are determined by the market, and the market now is
passing the Bank of Canada to take rates to about
two seventy.
Speaker 2 (04:33):
So if you go to only to seventy.
Speaker 3 (04:35):
The five fire rate that is so important to the
housing market and the TENU rate that is important for
everybody else will not move from them. That's not good.
The Bank of Canada needs to see them going down.
Therefore they will have to go to go below what
the market is expecting. And that's why I say to fifty,
maybe even to twenty five by the end of twenty
twenty five.
Speaker 1 (04:54):
In the US, we obviously talk quite a bit about
the debate soft landing, hard landing, no landing, and I
know some speakers that have fallen down on one side
or the other of that debate. How would you describe
the severity if we say that Canada is sort of
in this borderline recession anyway, how hard do you think
the landing could get?
Speaker 3 (05:11):
Yes, I think that the reason why the US economy
has been out performing and not crushing is because of
the fact that they are less sensitive to higher interstrates.
They don't have as much debt as in Canada because
they went with the mother of all deleveraging during the
financial crisis, and their mortgages are for thirty years.
Speaker 2 (05:30):
Our mortgages are for five years. So when interstratets go up.
Speaker 3 (05:33):
We feel the impact immediately in the US, wake me
up when it's relevant. So the impact on the US
economy and the US consumer and investment is not as
significant as it is in Canada, and therefore interstreats in
Canada have to be higher than into sweats in the
US when you end the cycle.
Speaker 2 (05:50):
Now where are we with the FED?
Speaker 3 (05:52):
Until now, the Fed was basically talking about the possibility
of not cutting at all. The market was talking about
no lending or all these scenarios. And now we know
that if you look at the level market, it is
slowing down. If you look at the quid thread, if
you look at employment unemployment, everything is moving in the
right direction.
Speaker 2 (06:08):
When I say right direction, I mean slowing down.
Speaker 3 (06:11):
Because bad news is good news as far as the
market is concerned, because you need to see the economy
responding to iron into sweats, and that's exactly what's happening now.
So the FED will cut another by twenty five, another
twenty five, and maybe another twenty five this year, so
altogether fifty or seventy five business points and will continue
(06:32):
to go down in twenty twenty five.
Speaker 2 (06:33):
That's a given.
Speaker 3 (06:34):
I think that we have a situation in which the
economy will be responding. The economy is slowing down, and
I do believe that we can achieve with lower interswrts
a soft lending. And if you want a scenario that
is similar, it's the nineteen ninety five soft lending. Back
then the FED res intersweats by three hundred basis points.
(06:54):
The economy is slowed down but landed beautifully, very softly.
Speaker 2 (06:58):
That can happen.
Speaker 3 (07:00):
That can happen, and I think that we are seeing
a trajectory to achieve this kind of target. I don't
think that the FED will go crazy with into sweets,
but fifty is a possibility in September or after.
Speaker 1 (07:13):
I feel like we have to talk about it, just
given where we are in the Argingly, the political cycle
in the US as well as in Canada, there's been
quite a bit of discussions about the elections coming up
and what that might mean in terms of fiscal policy
and impact on the economy. Any thoughts there on what
investors should be watching out for and how you see
things shaking out over the next year or two There.
Speaker 3 (07:30):
Well a lot, of course, there is going to be
a lot of volatility when it comes to the elections.
Listen I don't know it's going to win. Nobody knows.
It's fifty to fifty, so I'm not going to speculate.
But if a Trump wins, we have a few things here.
It's going to be taxes, it's going to be tread,
and it's going to be regulations. Taxes will be basically
(07:52):
cutting corporate taxes and making personal tax income relief permanent.
So that's something that is a given and Canada will
have to respond, especially when it comes to businesses and
taxes on businesses.
Speaker 2 (08:04):
The most important story is trade.
Speaker 3 (08:07):
If you look at what the Trump administration or the
future Trump administration is talking about, we are talking about
a significant tread world deterioration. They will go after Mexico,
they will go after Canada, and clearly they will go
after China. Now we have to remember that if you
look what happened between twenty sixteen and twenty twenty when
Trump as the president, we have seen exports from China
(08:32):
to the US going down dramatically because of terif It walked. However,
exports of other countries to the US went up. So
it's not the globalization, it's reglobalization. It's real location now,
so we have Vietnam, we have Malaysia, we have Mexico,
we have India. All those countries again market share in
(08:56):
the US and the expense of China. Now, guess what
China is doing. If you look at China's foreign direct
investment and exports to those countries, it went up to
the sky over the past few years. So basically they
are entering the US through the back door. It's a
threat policy by poxies and Trump knows that, and therefore
(09:17):
he can go after Mexico, India, Malaysia, Vietnam in addition
to China, and that will make things more complicated. You
also might go after Canada. We also have to remember
that he wants Canada to spend more on defense. Clearly,
the budget deficit in Canada will be rising. And regardless,
regardless regardless who wins Harris or Trump, we have a
(09:38):
situation in which the budget deficit will widen. Trump is
all about taxes and spending with taxes is the main focus,
and clearly that will widen the deficit. Harris is spending
and tax with a focus on spending again will raise
the deficit. Regardless of what you going to see the
long end of the curve will suffer because of those policies,
(10:01):
so a lot to anticipate. This is going to be
very very interesting economically speaking and clearly politically.
Speaker 1 (10:08):
Speaking, understood understood. In the second half of our conversation,
I want to pivot to some of the impacts on
markets here, maybe starting with Canadian real estate, since we're
obviously focusing on interest rates. You have an interview with
Canadian mortgage professional back in July and talk about there
being almost a tale of two markets in Canada and
noting that every basis point is going to help with
mortgage borrowers. How do you see that checking out again
(10:29):
at the back half of this year and as we
roll on the twenty twenty five.
Speaker 3 (10:32):
Absolutely, a tail off two markets is right because we
have the low rise segment of the market doing extremely
well or relatively well, given the fact that Into Sweats
went up by five hundred business points, still holding.
Speaker 2 (10:43):
There is demand there, there is.
Speaker 3 (10:45):
A reasonable inventory, so the market is functioning in a
normal way. That's the low rise. The touched segment of
the market, the conto market. The conto market in the
big cities is basically dead. Absolutely. I released with Urban
Nation study recently about how many investors are renegative cash flow,
(11:08):
and about eighty percent of them are renegative cash flow,
which means that there is no motivation to invest, so
you don't have this demand that was there before coming
from investors that are fifty sixty percent of the market.
At the same time, builders cannot build, why because of
higher intustrates, the cost of label construction costs. They simply
cannot afford building.
Speaker 2 (11:27):
So pre sell.
Speaker 3 (11:28):
Activity, pre construction activity is absolutely dead. You're not able
to sell anything. So the only mechanism that is softening
is the resale market in the condospace, and that's why
the price gap between pre sell and resell is at
a record high. This is a frozen market. Now, this
(11:49):
is a situation in which we've been seen in a
long time. What I'm telling you here is that if
you are in the market for a condo, the next year,
year and alf is the best time because you have
a window in which the condo market will be very weak. However,
we are not building anything new, so two years from now,
three years from now, when the demand is still there,
(12:13):
the supply that's supposed to come now will not be there.
You don't have to be an economist to predict what
will happen to prices. So we have a window of
opportunity in which the market is clearing. The market has
to get rid of those inventorys. The recent market will
be software and software a golden opportunity to get into
the market because the overall fund the methods of the
market are still strong with immigration demand and limited supply.
(12:36):
So that's what I see unfolding in the housing market,
the low rise versus the condo space, which is a
tale of two stories.
Speaker 1 (12:45):
Let's shift to the stock market then. I mean, as
we're speaking, the TSX is about up ten eleven percent
on the year stow, even with some of the recent
volatility we've seen in the US, how do you.
Speaker 2 (12:54):
See that shaking out?
Speaker 1 (12:55):
And you know within the TSX are particular sectors that think,
given your understanding or expectations for the economic cycle, could
outperform or underperform.
Speaker 3 (13:04):
Yes, I won't get too much into the stock market.
Other people will do it better, I believe. But what
I do want to say is the following. We are
in a very interesting situation in which intersweats are going down.
Now if you look at what happened over the past year,
year and a half, we have seen a situation in
which GC investment went up dramatically. There is a basically
(13:27):
ninety five percent correlation between GC volumes, let me term
deposits and into sweits. So when into sweats went up
to five percent, GI s Rett, everybody was there taking
money out of equities or sacrificing money that was supposed
to go to equities. So the equity market was actually
suffering because of that, not just because of the punishing
(13:51):
impact of fire into sweats, but also because of the
movement to term deposits. People didn't didn't say, he said,
you know, basically, I want to sleep at night five percent.
I'm happy. Now those rates are going down for three
at one point maybe two percent, and it's coming people
say that's not enough. I'm going back to the stock
market where in the stock market dividends paying stocks, because
(14:14):
there is still get four or five percent. So I
believe that there will be a significant shift in aset
ale locations from time deposit, namely GICs to dividend paying stocks,
and I will like to be part of it.
Speaker 2 (14:26):
Excellent.
Speaker 1 (14:27):
I guess the other markets we haven't yet touched upon
would be that would be of interest to attend this. This
here would be currencies and commodities. I'm curious about your
thoughts on the Canadian dollar as well as what you're
seeing in the commodity market. And we have kind of
the split where oil has been struggling, gold's been hitting
neat highs. For example.
Speaker 3 (14:42):
Yes, I think that gold is definitely reaching new heights
and will continue to basically improve over the next year,
I believe, or at least would remain elevated. The oil
market reflecting some sentiment regarding the global economy. China is
slowing down, the US is slowing down, Europe is still
slowing down. We are in a transition period in which
the economies are still reflecting high intersweds, and therefore the
(15:04):
commodity market is selling you telling you the economy is fine,
it's not a recessionary economy, but the global economy is
slowing down. Therefore, I don't see any significant recovery in
the commodity market until mid to late twenty twenty five.
The currency, I think that the Canadian dollar will remain
vulnerable for the next few months, but at one point,
and this point is getting closer and closer, when the
(15:27):
market is sure that the FED is very serious about
cutting into sweats. That's something will lead to a relatively
weaker US dollar in general, against the yen, against the euro,
against the pound, and clearly against the Canada dollar. So
show them stable to Loyer. Beyond that, beyond the next
(15:47):
few months, when the FED is still in full swing,
I suggest that the US dollar will waken, the Canadian
dollar will regain a few cents.
Speaker 1 (15:57):
And I mean I always like to wrap up these
discussions for the I guess the final question, and that
would be what would make you, I guess, more bullish
on the outlook for markets and the economy, And what
are maybe an unspoken risk or a risk we haven't
discussed that would make you more bearrass generally.
Speaker 3 (16:09):
Speaking, Yeah, I think that two things. One inflection is
always a risk and it can come back, and something
that the bank is not expecting, although that's very low.
Speaker 2 (16:21):
Probability. So I say, no big dealer, clearly.
Speaker 3 (16:24):
And everybody knows that the geopolitical issue is extremely sensitive.
We have China, Taiwan, we have Russia, Ukraine, and of
course we have the Middle East. So I don't have
to tell you how fragile the situation is, especially when
it comes to the impact on supply chain, so that's
clearly a risk that everybody is aware of. I think
that if inflection goes down more rapidly than expected, you
(16:46):
will see into switch going down more rapidly than currently
anticipated by the market. That would be a boost to
both equities market and the economy as well, so that
will be the positive scenario.
Speaker 1 (16:58):
Benjamin, again, thank you so much for taking time out
here to discuss the markets in the ecomomy with our audience,
and I really do appreciate it.
Speaker 2 (17:04):
My pleasure. Thank you.
Speaker 1 (17:06):
We'll have more interviews for you every week, so I
encourage you to subscribe to the Money Master's podcast so
you can stay up to date with the insights from
top money experts. You can follow me on Twitter at
real Mike Larsen and follow money Show for more investing
and trading content on Twitter, Instagram and YouTube at Money Show.
Thanks for listening, See you next time.
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