The end of affordability in Canada—and what to do about it
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Summary
In this episode, we talk to Martin Pelletier, a portfolio manager with Trivest Wealth and a regular columnist in the Financial Post, about what's going on with the economy these days and how to navigate the months ahead.
Transcript
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Hey, it's Anthony Fury. Welcome to the latest episode of Full Comet.
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It has been a crazy year and a half for the economy. There have been a lot of people left
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behind and a lot of people who made off like bandits. The stock market plunged. Then it soared.
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Then real estate soared. Again. Interest rates are low, but inflation is not. The price of staple
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goods like meat is soaring. Meanwhile, governments want to have a say in how we transition and
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how we reset. How's that going to work out? Are things just going to get crazier? How should
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you navigate the months ahead? Martin Pelletier joins us now, the perfect person for this
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conversation. He's a portfolio manager with Trivest Wealth and a regular columnist in the Financial
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Post. Hey, Martin, thanks for stopping by. You betcha. Yeah, great to have you. But, you know,
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you can tell from the opening there, I've pretty much got it all wide open basically to ask you
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what on earth is going on with the economy these days? And I'm sure you have a lot of people calling
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you up and pretty much asking you that very question. Yeah, there's a lot of uncertainty
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out there, especially given the ramp up in the very end with COVID and stock markets that seem
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to be defying gravity thanks to massive liquidity being injected by central banks. So, you know,
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younger investors have really, you know, have a good sense of a prolonged downturn as what happened
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last year certainly came back in a quite quick fashion. And then you have older folks like myself,
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Gen X or baby boomers, who have been more conservative with their balance sheets wondering
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what the heck's going on with governments and households leveraging up again. And so there's a
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lot of uncertainty out there. And so you're going to have to, you know, reposition portfolios,
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I think, to reflect that uncertainty. And sitting in cash certainly isn't going to do you any good,
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especially if you believe the inflation narrative as it's going to eat away at your savings. You're not
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going to be able to meet sort of your goals and objectives for retirement. Yeah, well, let's talk
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about that for a bit about inflation, because that was an issue that it materialized during the
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campaign trail. A lot of the political leaders talking about the cost of living, something that
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especially for people just getting by, it's making life all that much more difficult. What's fueling
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this? Because I can't remember the exact stat, but it was the highest year over year that we've seen,
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you know, I don't know, 10 years or something like that. I mean, we're looking at pretty high numbers
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now in a lot of sort of basic staples of consumer life. Yeah. And so, you know, we have a cost of living
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crisis in Canada, that's for sure. There's a couple of factors behind that. And it is happening globally,
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not just here. And I think it's getting compounded here, given what's happening in our housing
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market. So the first thing you have is you have, because of the Bank of Canada, making
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credit readily available through printing money and providing that liquidity through to the banks
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and keeping interest rates low. As a result, you're seeing, I read this morning that people in Canada
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with fourth mortgages outpace those with first-time homebuyers in regards to buying homes.
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Fourth mortgages. Break that down for me. What does that situation entail? What sort of
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stress would they be under in terms of that? That's a lot.
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Well, it just goes to show that people are leveraging and going all in on housing speculation.
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And that's creating a real problem for first-time homebuyers who want to set roots,
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especially in cities like Vancouver and the GTA. It's basically impossible to buy a home,
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a starter home for young people. And that's a problem. I also read this morning that
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in Toronto, the city itself has more cranes combined, more, sorry, more cranes than New York,
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Boston, Chicago, Los Angeles, Seattle, San Francisco, and Washington all combined.
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So, yeah. And so we have a massive housing speculation being driven by, there are foreign buyers,
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but Canadians themselves who are leveraging up and buying real estate for the sake of
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it going higher. And you can't blame them because if you're looking at the Canadian stock market
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over the last 10 years in US dollar terms, it's only posted an annual return of 3.7%.
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And so Canadian investors are, well, you know, I'm going to make 20% a year in my housing. I'll just
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keep doing that and keep leveraging to do so. And that's creating a cost of living crisis in this
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country. And that's driving inflationary pressures in this country. And then there's things that are
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happening globally that are starting to take root here. You've got energy crisis that's developing a
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supply chain crisis and an evolving labor crisis. So you throw that all together and you're starting
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to see inflationary pressures that are not being reflected by central bankers in their stats that
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they're providing to consumers where, you know, we're seeing it on boots on the ground.
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Yeah, I've certainly had people email me. I've seen people tweeting at me saying, yeah, I'm going out
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doing grocery shopping for family four or five or what have you. And it used to cost me, you know, whatever the
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bill was, I'd be paying $200. Now I'm buying the same stuff and it's costing me $240, $250 or what have you.
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They're seeing that. And Martin, I understand there's a bit of a debate among people who are just sort of
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watching the economy, various economists, and they're saying, oh, this is just a temporary thing.
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Others saying, no, this is caked into the system now for quite some time. For those people who are
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concerned, I mean, Martin, would you tell them, well, you know, don't worry, just ride the wave and things
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are going to be okay coming up sooner? It's like, no, this is actually a reality and this is a challenge
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that may get worse. What do you think is transpiring here?
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Yeah, this is a real threat. This is something that has to be taken seriously. I think this is the biggest threat
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since 2008 financial crisis. And central bankers and governments don't want you to realize it because
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it will hijack an agenda that I believe is directed towards climate change. Now I'm a believer in
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climate change, 100%. But it's an all or nothing strategy that's directing trillions of dollars of
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capital towards converting systems towards renewables and infrastructure, which again, I agree with,
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but that has resulted in a mass underinvestment in supply of investment in supply on oil and gas,
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for example, which is 85% of the supplies, 85% of the global energy needs. At the same time,
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you have COVID disrupting supply chain channels, and they're resulting in freight costs and container
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shortages, some of which will be permanent. And then you have labor that is demanding increases.
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And, you know, I also read the other day on Twitter that McDonald's is paying $17.50 an hour,
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which is good. I mean, we need to see higher wages. But that's in itself, all of those combined
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are going to drive inflation higher, going to make it much harder for families to get by.
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And at the same time, governments and power are saying that's not a problem. We're going to keep
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spending all this money on climate change, and it's going to only exasperate and create more troubles
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in the energy space. And you're seeing that happen in Europe right now and Asia, where they're fighting
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over spot LNG. And gas prices are $27 an MMBTU, compared to $3 here in Alberta, and $5 to $6 in the US.
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And their Citibank came out saying that it could go to $100 an MMBTU. And if you apply that to,
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let's say I took that for fun and applied it to my home heating, that would be $2,000 a month,
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just to heat my home. And so we have to be careful about that. And there are things that
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we can do to protect ourselves. Okay, so break it down a bit more simply. I'm going to ask you
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some questions from a non sort of savvy mind here. So we talk about renewables and everything. And
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I'm a believer that well, it seems like you know, the industry is kind of organically heading that
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way in some direction, lots of R&D being put into it. I'm totally, you know, fine with that. I mean,
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the free markets dictating that I'm a little uncomfortable with the government talking about as Trudeau
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does, I got to phase out the oil sands, and they're just tossing so much money into it and
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sort of forcing it by government fiat. But then I guess one can still shrug and say,
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well, it's just one sector, it's just a few billion here and there. But you're actually saying
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no, this sort of this all in on on sort of climate policies and pushing this sector is in fact having
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distortionary effects beyond that sector. And that the fact that we are pushing so much for this
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climate economic issues and climate financing, that that is actually fueling, you know, this cost
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of living crisis. Absolutely. And, and so I mean, I think that that we can still take an aggressive
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approach dealing with climate change, but just take a different approach and what's being done now,
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rather than attacking the supply side. So you've got increased regulation and protesting that's
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scuttling pipeline and infrastructure on purpose. And so as a result, you have at and at the same
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time, sorry, you have ESG and capital from pension plans and endowments moving capital outside of
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resource oil and gas resource development. And so you've got a mass under capitalized oil and gas
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sector globally, that is certainly not going to be putting that money back in the ground because
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there just isn't the capital to do it. And so these companies are taking cash flow and buying back
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stock and paying down debt, which in some cases, it can do that within four years. So the return on
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investment from deploying it through financial engineering is much more attractive than putting
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it in the ground. And so as a result, again, you have 85% of the global energy needs being supplied by
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oil and gas. And as a result, it doesn't take a couple of, you know, it doesn't take very many
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barrels to swing the price dramatically higher. And we're seeing that right now. And so, you know,
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as an individual or consumer, when your power prices and gas and gasoline prices and home heating
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prices, natural gas go through the roof, you're not really going to care about where that's coming
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from, whether it's from renewables or, you know, from wind or solar, you're just gonna look at your
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bill and say, Oh, my God, what's what's happening here. And so, yes, we do need to make some serious
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changes in regards to the infrastructure and how we consume. Absolutely. But the way of going about it
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by attacking supply side is is outright dangerous. We saw that in the US and Biden. I mean, he's
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implemented a number of policies, anti fracking, anti drilling policies. And as a result, now he's
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going to OPEC asking OPEC to increase production rather than the shale producers domestically. And so
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and in Europe, you have Europeans held hostage by gas problem in the Russians with Nord Stream 2. And
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and as a result, you know, you're seeing what's happening there. And so we need to take a different
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approach, an approach that will get us to net zero, but at the same time, isn't going to really hurt the
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middle class and low income. Is that approach just letting the free market do its thing? Because
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there's obviously people out there who want to go in the direction of green revolution or what have
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you. So well, there you go, the consumer, you know, asks for what they want, they get what they want,
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money talks, and there you go, we don't necessarily need all these sort of international agreements and
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deals that are basically pushing us, you know, sometimes the way they talk about it, pushing us by
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gunpoint to do these things. So we need to change consumer behavior. And the best way to scale out
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is through cost and convenience. And so electric vehicles, for example, are a good longer term
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solution. However, they're very expensive, and they're not very convenient. And so and we don't
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have the infrastructure to support it. So, you know, when you had the rollout of the iPhone,
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you had the internet and the infrastructure already built out. And it was expensive, but you know, not
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in affordable. And it was a game changer, because all of a sudden, you had all of this power and
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convenience at your fingertips, you could do all of these amazing things. So we need to find a way to
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do the same thing with electric vehicles. And we need to change consumption patterns. And that's going
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to be tough now with COVID. Getting, for example, more people to take public transit, which I'm a huge
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proponent of, and using said public transit and converting it to electric is, again, outstanding.
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But how are we going to get people on buses when we have we're having a tough time getting people
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vaccinated, and getting people feeling comfortable going back in public transit again. So we've had
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some challenges. But, you know, you know, the approach we need to take is, you know, how do we
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change consumption patterns, instead of attacking oil and gas supply.
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Now, Martin, when you talk about a cost of living crisis, I also mentioned in the opening,
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those people who have lost their livelihoods, the people who have lost their life savings,
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I know there's been data out that shows that it's not a sizable percentage of the Canadian population
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who is in that situation. There was a lot of doom and gloom headlines early. And when you're told,
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you know, don't go to work and so forth, first lockdown, that was really scary. It's,
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it's, I guess, nice to know that this is not a sizable percentage of the population in this
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situation. But it is still a percentage of the population, there is still a cohort of people
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out there, a large number of people out there who have been left behind, and who I feel like are
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still going to be left behind. Yeah, and we saw that in the election, the liberals, and I'm trying
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to leave partisan out of it, but the liberals led with an agenda of climate change versus cost of
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living. And they got reelected in, in big cities like GTA and Vancouver, where there is a serious
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cost of living crisis. So that tells me that the majority are still focused on real estate,
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and driving real estate higher, and having policies will that will actually make the cost of living
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worse for younger people. And, you know, you that's a serious problem, because the next generation
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are going to be the innovators, the disruptors, they're going to enable us to be competitive on
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the global scale, to increase our level of productivity. And when you have a situation where
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they can make 25 to 50% more income by moving to Denver or Austin, Texas, and have a house that's
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half the price, they're going to, they're going to do that, they're going to take it under serious
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consideration. So we have the real risk of losing, losing young people and the investment for the
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future, for the sake of, of investing in a non producing assets like residential real estate.
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That's crazy. And we're allowing it to spiral out of control. Now, it's a real tough problem. And I
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don't have any solutions. And that's a, that's a tough thing to do. From a government policy standpoint,
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but it's one that certainly has to be recognized. Are we just addicted to this cheap debt right now?
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Because as I'm sure you know, well, in Vancouver and Toronto and other cities, it's, it's the big
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conversation and all the papers and the glossy magazines and neighbors, they're just, Oh, did you
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see what that house went for? Oh, did you see what that one went for? And then of course, my parents
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and in-laws, they'll tell me stories about 18% interest rate that they paid a number of years ago,
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a couple of decades ago. But meanwhile, people in my age category, when they sit down for beer,
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they go, I can't believe I locked in at 3.7. I'm such a fool. Why didn't I could have locked
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in at 3.1? I mean, we're almost kind of fighting over table scraps compared to how things used to be.
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And potentially, I guess how they could become.
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Yeah. And so one of the things that we have to be cognizant of everyone's saying that,
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hey, look, governments are different than households, because they don't have to pay that
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back. I mean, or economists look at academic economists primarily will say, hey, our debt
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servicing costs are so low. But when you combine household and government provincial debt in this
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country, we're right behind Japan, and we're actually worse than Greece. So we we've gone all
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in on leverage. Now, the problem is, is that the Bank of Canada is going to be very reluctant from
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raising interest rates, because that's really going to hurt the economy, given how we've gone all in
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on levered real estate. And and it's also going to hurt the Bank of Canada, because they're going
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to have to rely on actual buyers, not the Bank of Canada putting money in buying their debt to support
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the largest deficit in the OECD. And so it creates a real problem. Now, the issue is, is that if you
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look at what's happened in Brazil, is they've the currency was devaluing. And so they had they had no
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choice but to raise interest rates because inflation went to 9% and they raised interest rates to 5%
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and it's wreaked havoc on their economy. And so that is a concern for Canada is if we lose control
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over the currency and oil is not there this time around to provide a backstop, then the Bank of
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Canada may not have any choice but to raise interest rates to support the dollar. And as a result,
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that's going to cause a lot of damage for those fourth mortgage people here that are larger than
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first time home buyers who are buying real estate. And so we're walking a very fine line here. And I
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don't know which way it's going to go. But as a wealth advisor to families, we say, hey, look,
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why don't you take steps to protect yourself? Why don't you reduce your leverage if you have an
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opportunity to or lock in that leverage, like you said, at a really low interest rate and look at
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ways of diversifying your portfolio, maybe start taking some of that money off the table on real
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estate and start looking at hedging yourself by investing in energy materials and commodities,
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for example. And then at a very simplistic level, do what I did. I locked in my natural gas and power
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rates for five years. I've never done that before. And so and if I'm wrong, I can you know, I can I can
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do some changes there. But it's not going to cost me anything versus if if I'm right, and I didn't
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hedge myself. Now you're talking about taking a very balanced and measured approach to investing in
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your future. But what we've also seen since the pandemic is a whole new category of these cowboy
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investors. There's this new website, a new platform out called Robin Hood that got very popular.
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Lots of headlines out there, people wondering what's going on here, where young people are
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are tossing a few thousand dollars here and there or more than that money that they have,
00:19:00.400
but probably shouldn't have or probably shouldn't be spending that way. They're going all in and
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wild on these random stocks that that they probably don't even know what the stocks actually are.
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And then they meet on these online forums, they say bye bye bye. And they kind of, you know,
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pump it all up in a way that is, I guess, completely, you know, within the law for people to rally behind
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these stocks in ways that seem totally disconnected from the underlying fundamentals. What's going on
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there? Is that a thing that's still happening? Or was that just okay, these these kids, their
00:19:27.120
universities in lockdown, and they just want to have some fun with their 500 bucks?
00:19:31.600
There's always been that side of the market. And throughout history. And, you know, before these
00:19:40.160
meme stocks came out, I mean, there was marijuana, for example, and how it's going to change,
00:19:45.920
change the world valuations were completely unreasonable. So, and today, you've got meme stocks,
00:19:52.640
you've got clean tech stocks, that are you bought electric vehicle companies that haven't even
00:19:58.960
produced, produce anything that are large, any automobiles are larger, some of the main manufacturers.
00:20:03.840
And so, you always have those segments of the market. And, and, and, you know, that's,
00:20:09.440
that's no different than going to the casino and bidding on red or black. And, and, and if you happen
00:20:16.080
to get, you know, red, right, a number of times, you think that you've got it figured out until you
00:20:22.240
don't until something happens that you, you lose your money. And so the house typically wins because
00:20:28.000
you tip it, you don't know when to get out. And the longer you play the greater chance of you losing
00:20:32.240
and coming out worse or for wear. And so time is a great equalizer on when it comes to investing in
00:20:39.440
those sorts of things. Now, on the other side, there is a positive to it because it does encourage
00:20:45.840
some innovation. And, you know, we're getting blockchain that's come out of this. You've got digital
00:20:50.800
currencies that are really interesting. Again, very speculative, but I think that they're onto
00:20:58.240
something there and you've got clean technology that's really interesting. So you're getting all
00:21:04.800
that speculative money that's driving some of this innovation, some of which will stick around.
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But as an investor, I don't call that investing. That's more speculating than anything else.
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Do you find the very kind of nature of the economy may be set to shift in Canada? I mean,
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we talk about people making these wild investments and buys and in green energy and putting tons of
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money into it and so forth. And then at the same time, we're also talking about people who are having
00:21:32.320
trouble affording meat because of inflation and the price is going up. And I almost feel like we're
00:21:37.840
talking like Russian plutocracy territory here. I mean, I'm being very exaggerating. That's obviously not
00:21:44.080
the situation we're in in Canada, but you see beginning signs of a further divide. I mean,
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when people basically talk about the split between the rich and poor, or perhaps you can categorize it
00:21:54.080
another way. Yeah. And so fortunately for a lot of younger people, they've got mom and dad
00:22:01.360
dad who have real estate and, and so, you know, they can, they can help. Um, and some, in some areas
00:22:09.600
like Vancouver, they can't because it's just, it's just gotten so ridiculous. Um, so for the younger
00:22:16.000
people in regards to, but you know, you're not going to want to live at home to your 40. Um,
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you would think most not yet. Well, I got a 16 and a 13 year old and, you know, when they hit 20,
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I'm turning off the internet in the house and maybe that'll be a motivator, but all kidding aside. Um,
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so that is, uh, you know, for, for those who have mom and dad or grandparents who have exposure to
00:22:42.160
real estate through Gen X or baby boomers, that's okay. But for those who don't, or even immigrants
00:22:48.000
coming into the country, it's going to be real chat, really challenging, uh, for them to, to build
00:22:53.840
something. Um, especially when it comes to some of the anti, uh, uh, small business policy that we've
00:23:01.360
seen implemented with calling them tax cheats and, and not allowing for intergenerational transfers,
00:23:08.960
not allowing for dividends and to flow through to spouses who are both putting capital in. Um, and
00:23:15.280
so there's been an attack on small business and then, you know, the, the nail in the coffin was
00:23:20.560
COVID and the lockdown that really impacted these small businesses. At the same time, Costco was
00:23:27.280
allowed to, and Walmart were allowed to have open doors and, and that's very troubling. And so, and
00:23:34.720
immigrants typically have come in and started businesses that have, have grown tremendously and,
00:23:40.160
and hired lots of people and, and, and that's going to be a challenge going forward. And so we need to
00:23:45.760
find ways to, um, increase the level, the opportunities for, especially now where you've
00:23:53.200
got work from home and technology like Shopify, that's done phenomenal. We need to find ways to
00:23:58.320
encourage more of that. Um, so that, um, young people and, and, and new people to this country can,
00:24:04.560
can really, uh, innovate and grow and, and, and, and transform this country. And that's a real
00:24:11.040
challenge when you don't have that opportunity to, to get out of break that poverty cycle.
00:24:16.720
And I'll add to this is that, um, typically in the past, you would go to university, uh, to break
00:24:23.280
that or send your kids to university to break that cycle. Now kids are graduating from university and
00:24:28.720
there's no jobs. And, and so we need to address that as well. How, which, how are we going to
00:24:35.360
deal with poverty? How are we going to create opportunities for young people to, to get out of
00:24:40.880
their situation? Martin, I remember over a year ago during the first lockdown, or as we were coming
00:24:45.120
out of the first lockdown, there's a lot of questions about, okay, our small businesses,
00:24:48.320
they're going to be decimated, but then some people pushed back and they said, well, look, no,
00:24:51.520
really the companies that are going to go under the stores that are going to close,
00:24:54.960
those are the ones they were just hanging on anyway. I mean,
00:24:57.600
this is really just what's pushing them over the edge. We're going to see a period of,
00:25:00.800
of really, this is a period of creative destruction where yes, unfortunately people are going to lose
00:25:05.520
out, but then there's all these opportunities, these empty, you know, empty physical, uh, store
00:25:10.400
fronts and locations. And there's going to be all this money that's lying dormant and people are just
00:25:14.320
going to get out and they're going to start doing amazing, creative things. And we're going to see
00:25:17.360
this boom, unlike never before. And there was a lot of talk about that a year ago. And, and yes,
00:25:22.640
you're seeing some things open, but I got to say, by and large, Martin, that's not happening right now.
00:25:28.000
No, it isn't. And it's actually quite cruel to say that because, um, you know, if you have
00:25:32.960
businesses and I was a business owner and we sold, uh, our firm into Wellington Altus, uh,
00:25:38.800
which has been really good for us. Um, and you need size and scale in this market environment,
00:25:44.880
um, because the regulatory and the, and the compliance and all of the red tape, uh, has increased
00:25:51.920
dramatically, not just, not just in the financial industry and it's across the board.
00:25:55.920
And so we've become a nation of oligopolies. And, and so all we're going to do is further,
00:26:01.440
uh, increase the level of consolidation. And we're seeing that in oil and gas. We've seen
00:26:06.160
that in the financial services. We've seen that in telecom and that's terrible because,
00:26:10.480
um, from the innovator standpoint, cause I mean, and the small business standpoint, because that's,
00:26:16.400
that's the future. They like to say, we're going to challenge the status quo
00:26:19.920
to see businesses shut down because of lockdowns is not, uh, uh, uh, cleaning out of inefficiencies.
00:26:27.280
It's just pure outright awfulness. It's the word I only think to describe it. And so, um,
00:26:34.800
looking at, at, is that going to change? Well, okay. You've got massive increases in labor costs
00:26:41.680
and labor shortages. So if you're a restaurant and you want to start up a creative restaurant,
00:26:45.840
you can't find workers to work in that restaurant. Right. And you don't know if you're
00:26:49.680
going to get shut down again. Then you've got supply chain issues. You can't even buy a mountain
00:26:53.680
bike. So like, for example, there was in Banff, uh, like boots in the ground examples, there's a
00:26:59.040
neat little bike store out there and they're not a bike store anymore. They're doing bike servicing
00:27:03.280
because they can't get bikes because the big bike stores in Calgary have them all. And that's terrible
00:27:08.240
because now you've got a small business guy or a woman that, that, that was, you know, uh,
00:27:14.640
doing a, um, uh, a unique service to local residents in Banff. And then you've got the cost of those,
00:27:20.800
of all of these, uh, supply chain issues and are going to get it passed along. They can only pass it
00:27:26.240
along to the consumer so much because they can't compete against the big, uh, box outlets like Costco,
00:27:31.760
whose model is to, um, to provide, uh, these, uh, provide the, these goods at, or at, at their cost
00:27:41.120
and to make other money off of memberships. And so how are you going to compete against that?
00:27:44.960
And so, no, I don't think we're going to see that transformation like you just described.
00:27:49.920
In what way do you think the response to whatever is going on right now is going to be an organic one?
00:27:54.960
And in which way is it going to be a managed one? One when government attempts to direct it,
00:28:00.480
take it by the horns, lead it in a direction because, you know, to get edgy here, I know we're
00:28:04.400
not supposed to use these phrases, but the bank of Canada, they put out a couple of documents
00:28:08.080
talking about the great reset and how they see that, you know, now is an opportunity to
00:28:12.240
sort of harness what's going on. Just before the election, the liberal government quietly
00:28:15.760
announced something called a just transition, which is their program to, well, yeah, to phase
00:28:20.720
out the oil sands, to do what you were talking about, to basically micromanage, uh, the phasing
00:28:25.120
out of oil and gas and the introduction of, of their more favored, uh, green companies and technologies.
00:28:31.120
I mean, how do we, how do we make these things happen in a way that is, is consistent with
00:28:36.320
what the businesses, with the consumers, with the people want?
00:28:39.920
Yeah. I mean, I I'm, I'm in favor of, I like open source. I like it led from, from, from people on
00:28:47.200
the ground. Um, that's, that's where you're going to get the most efficient change, right. Rather than
00:28:54.160
top down, um, in our company, Wellington, um, Altus, uh, everything is open source. The best ideas come
00:29:01.120
from those in the front lines. And it, and it works its way up to the top. And as a result, we could
00:29:06.400
be highly disruptive and, and, and we're seeing that in our growth and the same thing in, in any other
00:29:12.800
industry. Um, I mean, you want to encourage that you want to, uh, remove the barriers for that rather
00:29:20.240
than saying, we're going to tell you where we're going to go. And so we've got this whole build back, better
00:29:25.120
agenda that, Hey, we're going to transform our economies based on the way we see it going.
00:29:30.800
Right. And that's going to be a really tough thing to do. And you're going to get a whole
00:29:34.560
bunch of unintended consequences. Whereas if you say, Hey, our main goal is to increase
00:29:40.800
innovation, disruption, and to increase the level of productivity. So we can compete on a global scale.
00:29:47.200
How do we do that? And consult with those on the front lines and get their ideas and then make it
00:29:53.440
really easy for them to do it themselves rather than spending trillion printing money and spending
00:29:58.720
billions of dollars or trillions in the U S to direct it a certain way. You're going to get a
00:30:03.360
lot of inefficiencies. You look at Canada, we had this massive infrastructure fund and it's been a
00:30:08.320
complete gong show. They haven't, they haven't spent anywhere near the money that they were going to
00:30:12.480
spend and where they spent it. We have no idea what it looks like because there's been no transparency.
00:30:16.800
And so, um, there's a balance between free market and, and government intervention.
00:30:22.400
Absolutely. We have to strike that balance, but having a top down lead is going to lead to all
00:30:29.040
kinds of unintended consequences. And we saw that in 2008 financial crisis in the U S.
00:30:34.080
And I think that there's a potential to see something, uh, along the same lines along with
00:30:38.480
an energy crisis. If we continue down this path. Well, again, let me use extreme examples here,
00:30:43.040
just how things can go when you, you know, in an exaggerated way. I mean, that is the history of
00:30:47.600
the 20th century. That's why that stuff they did in Eastern Europe from, you know,
00:30:52.160
the sort of early and middle part of it, they don't do it anymore because that stuff basically
00:30:57.440
led to poverty for most people, aside from the few people who did actually flourish from it.
00:31:02.080
So I find there's a Supreme arrogance from, you know, however smart the bank of Canada governor
00:31:06.240
is, or the deputy minister, the finance minister, what have you, how can they micromanage
00:31:10.720
the transportation logistics industry when there are people who have 30 years experience in
00:31:15.920
transportation logistics and the people in government do not?
00:31:21.040
You need to start listening more than talking. And, and, and we're just, we're seeing more of that,
00:31:27.120
of that level of, of parenting where we know, and we're going to tell you exactly how things are.
00:31:33.280
And the more they've gone down that path and the more removed they are from society. And so,
00:31:38.160
unfortunately, I mean, there's a lot of really good people in academic academia doing some good
00:31:44.080
things, but there are also some not so many good things happening because you have, you're being
00:31:50.080
very polite. Yeah. Well, you know, you've got a nice tenured position and your pension plan is
00:31:57.600
indexed against inflation. You're kind of living in a vacuum and, and then you're advising government
00:32:02.800
on policy that has nothing to do. It has no impact on your own life. And so, so what I'm talking about
00:32:11.680
government is they should be listening to a whole wide range of sources and not just confirmation
00:32:16.560
bias. So, you know, I'm not, I mean, there's, there are extremes. You've got the Fraser Institute on the
00:32:22.800
other side. Why not listen to them? Why not listen and listen to both sides and, and gather as much
00:32:30.080
information as possible and start by asking, how am I wrong? That's some, that's the best way of
00:32:36.640
dealing with these things. I'm always asking myself as a portfolio manager, how am I wrong?
00:32:42.240
Tell me how I'm wrong. And I'm going to seek out information that's going to tell me if I'm wrong.
00:32:47.040
And I'm trying to objectively as much as possible, try and take that side and say, okay, does it have
00:32:53.520
merit? Is there facts or is it just the narrative? Right. And people like narratives and narratives
00:32:59.760
are okay in the near term, but they'd be catastrophic in the longer term. Speaking of narratives though,
00:33:03.920
I want to lay out a scenario for you, get your thoughts on it. Cause you talked about the
00:33:07.200
intergenerational wealth transfer and how some people are able to get support from their parents.
00:33:11.920
When I think of, of that generation of parents, those baby boomers, you know, you had people who entered
00:33:16.800
the workforce post-1945 and, and what they were able to do, many of them was you work a job.
00:33:23.280
Generally, you didn't need a university education for it. Some had, some did not. They worked that job
00:33:28.000
for, for 30 years. That job enabled one person working, one parent to work to both buy a home
00:33:34.400
and then a little later on buy a cottage. Some of them could retire in their late fifties after
00:33:39.440
getting their 30 years in and had to define benefit pension. Every single thing that I just said there,
00:33:45.760
that's done. That's not happening anymore. I mean, we have here in Toronto, as you noted,
00:33:50.000
you'll have two individuals, you'll have two spouses who are both professionals. Uh, they've
00:33:55.600
gone to university. They're probably still paying off some of their student loans. They cannot afford
00:34:00.080
a house. They're not buying a cottage. And when are they retiring? They don't have a set pension.
00:34:05.440
What's going on here with this, with this incredible generational difference?
00:34:10.000
Yeah. So, um, we have to adapt. Um, we have to look at different ways of doing things
00:34:17.680
than the way of the past because, and this is where as a parent, um, we, we have to do,
00:34:23.600
we have to learn different parenting skills that we, that we, we were taught from our parents
00:34:28.400
when it comes to new technology primarily. And so, for example, um, I have no problem with my kids if
00:34:36.320
they want to go into the trades, for example. Um, I mean, plumbers and electricians make more
00:34:41.280
than lawyers now. Trust me. I know I just got some work done on plumbing work done in my basement.
00:34:47.040
And, and so you can't disrupt the plumber. How are you going to have that automated? It's not going
00:34:52.480
to happen. Right. And so, um, there's, you know, looking at your career path is, is the first place
00:34:58.400
that you want to start to, to, to, to evaluate. Um, Google, for example, has a six month program
00:35:05.360
where you pay 50 bucks a month. And when you're done, they count an equivalent to a four years
00:35:10.720
undergrad and competing science degree and Apple and others. Sorry, what? Say that again. I've never
00:35:15.520
heard of that before. Spell that out again. Yeah. Google has a six month course you can take,
00:35:20.800
I think it's 50 or $60 us a month at the end of that four months, Google. And I think Microsoft and
00:35:27.120
others will consider that equivalent to a four year undergrad in computing science for you to work
00:35:32.480
for Google. They will basically recognize that as a BA. Yeah. Yeah. And yet there are other people
00:35:38.640
who are paying, I don't know what it is in Canada. It's a lot less in the U S there's people paying
00:35:42.080
$6,000 a year for that. And they're doing it for four years. Well, or more than that. Um, when you
00:35:47.520
count your everything else, you're not making an income. And I mean, you can get out of school at
00:35:52.160
$40,000 in debt and you know, somebody who's taken a six month course gets the job ahead of you.
00:35:58.720
And, and so, I mean, again, I'm think we've got to think differently. We've got to think about,
00:36:03.120
and people say, well, my kid's not going to take a six month course. It's ridiculous. You need to get
00:36:07.600
that undergrad degree. And, and that's a whole different mindset. And then you have to take a
00:36:12.880
look at the living and mobility of living and work from home and, and, and starting your own
00:36:17.920
business, like, you know, using tools like Shopify and getting out and hustling and, and, you know,
00:36:24.000
these looking at things like, uh, NFTs and, and, you know, I have a client that is a, uh, a world-class
00:36:31.360
artist and she's just done some phenomenal work and she's getting done a lot of research on NFTs and
00:36:37.920
she's NFT-ing her non-fungible tokens, um, some of her artwork and she gets a royalty on that artwork as
00:36:44.480
it gets purchased indefinitely. And so we have to think about how we're going to make our money.
00:36:50.640
And then we also think, have to think differently, how we're going to live our lives and where we're
00:36:54.800
going to live. And so with mobility of labor, I wouldn't live in, I mean, I love Toronto, great
00:36:59.520
city. Um, I wouldn't live there. Um, I would move to, I love Calgary because I love outdoor living.
00:37:05.840
But, um, if I wanted to find a similar city in the U S I could do so and make, you know, twice,
00:37:11.600
or 50% more money and be able to buy a house and work from there and maybe even work for a Canadian
00:37:18.720
company down there. And so we have to think differently and take advantage of the connectivity
00:37:23.280
and the ecosystem that's been developed. The old style of working for the same company for 30 years
00:37:27.680
and buying that house and cottage, that's no longer the case. Okay. You're, you're talking about really,
00:37:33.440
when you say doing these innovative ways, uh, to make your income, you're talking predominantly
00:37:38.240
about the knowledge economy, about the creative class. And there's a lot of questions about
00:37:42.960
how do we strike the balance there? Because, you know, we still need, we still need the food. We
00:37:47.440
still need the clothes. You mentioned the plumber who's actually doing pretty well, uh, with their
00:37:51.040
income. Then there's conversations about onshoring, whether or not it's more in the bombastic way,
00:37:56.000
Donald Trump talked about it, just bringing back, uh, manufacturing by hook or crook or, or tariffs
00:38:00.880
against China or what have you, or doing more, you know, more nuanced approaches to onshoring,
00:38:05.600
bringing manufacturing back to Ontario. Let's start making those cars here again.
00:38:10.400
Is there still a conversation to be had there or are those days numbered? Are they gone?
00:38:15.440
No, we're thinking in the past. We're thinking, we're thinking, I mean, China, for example, is,
00:38:22.560
is reshaping its whole economy and it's going through some troubles now, but it's, I mean, that's,
00:38:28.560
that's the benefit of being a state control is that it can direct it the way it wants to. And if
00:38:33.040
anybody who disagrees, well, we'll leave it at that, but, but, but, you know, they're going to
00:38:39.840
try and focus on their own internal economy rather than servicing other countries. Now,
00:38:44.480
do we want to create that kind of environment? Um, maybe in some areas, if we can implement
00:38:51.920
artificial intelligence and robotics, can we do that? Do we have the ability to do that? No. I mean,
00:38:58.320
we have university of Alberta, which is ranked top five or top three in the world for artificial
00:39:04.400
intelligence research and name an AI company in Edmonton, Alberta. There's none. So we need to
00:39:09.520
start looking at ways of capturing the R and D that we've done. Unfortunately, we've been in,
00:39:14.800
we've under invested in the last five years and R and D dramatically, but you know, how do we kickstart
00:39:19.520
that and how do we leverage that? And, and instead of trying to focus on onshore and let's just focus
00:39:24.720
on R and D and converting that into a manufacturing from automation. And that's not going to create
00:39:30.800
union jobs. It's going to create technology and efficiency and enable us to, to, to generate cash
00:39:37.840
loan growth that will drive our economy. Um, but we need to find other ways of offsetting labor
00:39:44.800
and helping transform people. Some of the same things that I just told you about is redirecting
00:39:50.320
labor towards areas that are going to be in demand. Okay. Let me try and I'll move away from the cars,
00:39:56.720
but you earlier pointed out that there is a great demand for bicycles in Banff right now and other
00:40:02.240
communities and cities in that part of Canada. And actually I've heard similar stories in Toronto.
00:40:06.480
So we've got this demand. Okay. I want this. I want this thing that needs to be built to be
00:40:11.040
manufactured. I know you're saying China is saying, okay, well let's not continually be the supplier of
00:40:15.840
cheap goods for the world. Let's find different ways to service our own economy. Where do we build
00:40:20.320
these bicycles or do we just build them at such a high price point that it's a boutique, uh, uh,
00:40:24.960
manufacturer. It's a thousand dollar bicycle built in Banff. I mean, how, how, how do you solve that,
00:40:29.200
uh, supply demand issue? Oh, I have no idea. 30 seconds. Answer the bicycle supply chain question. Go.
00:40:38.080
Yeah. I have no idea. I mean, that, that's a, that's a tough one. It really is. Um, you know,
00:40:45.360
you need to source materials and you know, it's, it's, it's, that one's going to be really tough and
00:40:52.240
in any industry, but again, we have to think about it from a scale and convenience. And so you have to be
00:40:59.840
able to have size in order to, and efficiencies and, and, um, and utilize those efficiencies so that
00:41:08.640
you can scale it out and you need cost and convenience. And so you need to have lower costs.
00:41:13.440
And how are we going to do that? Um, if we're not, uh, uh, uh, we're have a lower productivity
00:41:19.120
rate than the U S for example, we need to maybe start there and then we need to, um, make it convenient.
00:41:26.320
And, and, and so those, those are the, that's in any sort of focus in any business, it's cost and
00:41:32.320
convenience are, are the two biggest things and people will pay more if they get more convenience.
00:41:38.880
Right. And, and, and you get away from, um, you get away from, uh, many low cost manufacturing,
00:41:46.000
which is democratized and commoditized. And then you're a price taker. Whereas if you can offer
00:41:50.960
something that's unique and very convenient, um, then people will pay more money. And so I think
00:41:56.080
people are going back to the holistic, especially with COVID and you look, go back to your bike
00:42:00.480
example, people pay a little bit more. They get that nice personal level of service. And you seeing
00:42:06.240
that in bike shops here in Calgary, for example, where people are extremely loyal to a bike shop
00:42:10.640
because not necessarily because of the pricing, but more so on the convenience and the level of
00:42:15.440
service that they're offering. And I think Canadians, uh, are, are known for our great personalities.
00:42:21.200
So why don't we leverage that and offer world-class service?
00:42:24.320
And there you go. Great point. Martin, this has been such a great conversation. So wide reaching
00:42:28.720
before we go, I got to ask you in your capacity as a portfolio manager, as a columnist, people reach
00:42:34.720
out, they ask you for advice. You get a regular guy, come up to you, regular income, regular line of
00:42:39.680
work, regular amount of savings. And he says, Martin, what's going on right now? What do I do now?
00:42:45.600
Um, there's a time and a place for leverage and, um, and make sure there's good, good leverage and
00:42:53.680
bad leverage. Um, make sure you've got your, a financial plan that, you know, the inflows and
00:42:58.960
outflows of your money. That's very important. And there are some tools online and even some of the
00:43:04.880
banks will implement that into your own banking, but get a good picture, overall financial picture
00:43:11.440
of your cashflow, what's going in and what's going out and make sure there's more coming
00:43:16.160
in than going out. And if you do want to lock in some of these low rates and deploy that leverage
00:43:21.520
effectively, um, be careful about that, but there are opportunities for that. Um, and, and just,
00:43:28.640
you know, take that diversified approach, uh, to everything and, and try not to swing for the fence.
00:43:33.920
When you try and make a quick buck, uh, it tends to be a quick loss. So keep that in mind.
00:43:40.400
And so just getting a good picture of where you're at. And then if there is, uh, from a lifestyle
00:43:46.080
change, uh, opportunities to increase the cash flows in versus out by moving and looking at
00:43:52.800
opportunities, then think differently. Uh, think outside the box. Don't be scared of taking risk,
00:43:59.040
um, when it can improve your financial situation. Martin Pelletier, your portfolio manager with
00:44:03.360
TriVest Wealth, regular columnist and Financial Post. Great conversation. Thanks for stopping by.
00:44:10.400
Full Common is a post-media podcast. I'm Anthony Fury. This episode was produced by Andre Proulx with
00:44:16.880
theme music by Bryce Hall. Kevin Libin is the executive producer. You can subscribe to Full
00:44:21.600
Common on Apple Podcasts, Google, Spotify, or wherever you get your podcasts. You can help us
00:44:26.560
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