| | | Today I was present for a live private presentation by one of Canada's top banking execs. We were not allowed to record the presentation and I was busy listening rather than taking notes, so this is all from my memory.
A lot of what he said was things that I have discussed here before. Things like the amount of money being printed, interest rates rising, inflation etc. He confirmed everything that I said here and had a few other points.
First a rehash of the past discussions that was confirmed:
(1) The government has been printing a ton of money. In fact, in Canada, the government printed $7 for every dollar lost in wages!
(2) Both in Canada and the US this debt is showing up on the central bank's balance sheet (this is another way of saying that nobody is buying our debt).
(3) Inflation is on the horizon, but it has not really picked up b/c the money velocity has been low (you need both excess money and high velocity for inflation).
(4) The interest rates are headed back up to where they were before the pandemic.
.
Now for some of the things we have not deeply delved into:
* The era of Big Government is here and will stay for quite some time. Expect government expenditure to make up a *much* bigger percentage of GDP than in the past.
* Forget about the idea of government repaying its debt; they will just print more money and roll it over.
* Also forget about central bank independence. Monetary and fiscal policy are now closely tied to each other.
* Canada is way behind the US in recovery and vaccination and just about everything else. Nonetheless, the expectation is for 6% - 7% GDP growth. As the earnings pick up, the valuations become justifiable.
* All the lost jobs were low paying service jobs. This is what the government will emphasize. It is also why the recovery will be swift once the vaccination is fully on the way; services sector recovers much faster than others.
* There is a ton of money sitting on the sidelines waiting to be deployed. All it needs a green light via vaccination.
* There is pent up demand for services, vacations, etc - *and* for office spaces. The NZ experience shows that once the pandemic is over, people will go back to offices in large numbers and all the talk of remote work is overstating the remote work case.
* Expect higher corporate taxes and carbon taxes and if the government really gets desperate various pay-as-you-go taxes such as sales tax, toll/road tax, etc.
* The situation is unique enough that nobody, not even the central banks, has a really good model for managing inflation and the interest rates and/or how best to coordinate monetary policy with fiscal policy.
* There is little chance of stagflation.
* Mortgage debts are fairly safe b/c the people who borrowed them had good credit rating and were still working (unlike the poor working class who lost their jobs).
* Expect robust economic growth for at least the next 2 years.
* Because the interest rates are so low, the central banks only need to raise them a bit to choke inflation. E.g. a 1% increase in the bank rate more than doubles the interest rates. Therefore you are not going to see as high of the rates (in absolute terms) as some people expect.
* The market has priced in the expectation that the Bank of Canada will raise rates a year before the Fed - this is not going to happen.
* Biden has continued Trump policies vis a vis China (and is doing it stronger by building coalitions rather than doing it solo). So at least when it comes to transfer of technology, countries are going to be careful.
* This situation is ok for countries like Canada who know where they stand (with the US), but is problematic for countries like Australia where their security is tied to the US while the economy is tied to China.
=========
This is about all that I remember. I will post more if I can think of something. BTW, the above means that services sector (esp. in Canada) and all those unwanted REITs, esp. medical and office REITs are probably good buys.
My personal take has also been that tech companies, esp. chip makers and semicaps, have an ambiguous future as I expect some restrictions on tech exports to China to be balanced against on-shoring.
I also think that longer term, small caps will do better than large - the past few weeks of breather not withstanding. |
|
