00:00:00.000All right, so interest rates went up a quarter percent today and I'm lucky enough to have
00:00:10.000Moshe Lander with me. Hi, how are you doing today? I'm well, thanks. Good, good. So,
00:00:16.580not unexpected. We had heard for a few days that interest rates were going to go up and
00:00:22.580potentially, I guess they could go up even more. We heard today after Tiff Macklin kind of gave
00:00:27.680his speech from the Bank of Canada. Your thoughts? I'm disappointed. Normally, I'm in full agreement
00:00:35.960with the Bank of Canada. I'm one of their biggest supporters and advocates. I don't get this one. I
00:00:41.380was part of the 20 to 25 percent that was thinking that interest rates were going to stay where they
00:00:46.140were. I know a lot of mainstream economists as well were kind of raising their eyebrows at the
00:00:50.460thought that it was going to go up. Now that it has, and even now that I've heard Tiff Macklem
00:00:55.920speak i'm not sure that i'm entirely convinced that this was the correct decision yeah i agree
00:01:01.360with you i you know i'm uh not comfortable with the decision at this point i thought it didn't
00:01:07.600pay attention to a lot of other factors to tell you the truth and a stagnating economy as basically
00:01:14.000a slow real estate market uh housing being in disarray manufacturing activity being slow i
00:01:20.880honestly i just i didn't understand why he would want to make this move and it seemed like it was
00:01:25.840solely on gas prices, on oil. Yeah. And if you look at what's causing inflation to run a little
00:01:35.660hot in consumer markets, it's Russia, Ukraine. It's the Strait of Hormuz. It's tariffs and trade
00:01:42.400disruption. All of those are supply side issues, not demand side issues. So where the Bank of
00:01:48.240Canada is at its most effective is when it addresses a demand side issue. Let's say the
00:01:53.000consumers get a little overconfident businesses get a little too full of themselves and they go
00:01:57.980on these spending binges that's the type of thing that would lead to inflation so with one move of
00:02:03.220the interest rates you take some of that consumer confidence away you take some of that spending
00:02:07.280away and you remove some of that inflationary pressure works very nice and cleanly in addressing
00:02:12.180all things at once but when you have this supply shock that's happening whether it's the disruption
00:02:16.880through russia and ukraine whether through it's the closure of the straighter four moves or whether
00:02:20.860it's just the uncertainty for businesses trying to negotiate trade and the current state of North
00:02:26.300American markets. The problem is that when you do increase interest rates, you push the economy
00:02:31.200further into stagnation. So you might solve the inflation problem, but you don't solve the
00:02:36.080stagnation problem. If the Bank of Canada had sat on its hands, I guess their fear was that fine,
00:02:41.140it might help the economy have a little more space to grow in some of those sectors that you
00:02:44.840outlined, but it might let inflation run a little bit hotter. I think that the solution here though
00:02:49.620is probably outside of Canada's control, and it's 10 days away. It's those midterm elections in the
00:02:54.920U.S. If the Democrats take control of the House, if they take control of the Senate, I can promise
00:03:00.200you that come January, they're going to wrestle control of the trade negotiations with Canada.
00:03:04.180A lot of those tariffs will come down. There will be an agreement, maybe not as good as the
00:03:08.620original NAFTA agreement, but there will be an agreement. And so that removes one of the big
00:03:12.400bottlenecks. And of course, the Democrats are going to be much more pro-Ukraine, much more
00:03:17.100anti-Russia. And the fact is, Russia was being starved of funds. They were probably going to run
00:03:21.480out of momentum to keep up the fight, and they would have had to sit down and negotiate. And of
00:03:25.460course, maybe the Iranian regime might say, now that Trump's worst excesses aren't going to be
00:03:30.100encouraged but discouraged, maybe there's room to negotiate an opening of the Strait of Hormuz
00:03:34.220and get energy supplies back online. Yeah, no, no, I totally agree. You think a strategic mistake,
00:03:41.520and I get that the Bank of Canada and the Prime Minister of the government are two different
00:03:45.680entities. But you have to think that you're sitting in Prime Minister Carney's seat right
00:03:50.620now and you're thinking, oh, you know, was that a great announcement for me today, given the fact
00:03:55.960that I might be close to negotiations that I might be doing and I have the midterms coming up.
00:04:00.480And I thought the same thing. I thought, how bad of, you know, and I just a delay for one more
00:04:08.280rate announcement strategically made so much more sense. And you think, quite frankly,
00:04:14.000that coordination would have gone on that conversation because and i was hoping that
00:04:19.360you could shed some light on this because i was uh reading the last couple days i'm reading how
00:04:25.040they make their decision uh whether to hike the rates or not rate the uh or to lower them and they
00:04:33.280basically from what i understand is they do a central bank survey of consumer expectations
00:04:39.360So they go out and they survey 2,000 households, if I'm close, and they basically get it back.
00:04:46.280They sit down, they look at it, they dissect the information.
00:04:48.880And then I guess they look at all the different indicators across the economy.
00:04:56.160And is that kind of the thumbnail they use to make that decision?
00:05:00.320Yeah, it's certainly the high-level approach, right?
00:05:02.240So the bigger issue is not the inflation rate itself.
00:05:05.380It's the expectation of the inflation rate.
00:05:07.820so inflation will go up and down all the time and it's really not the bank of canada's
00:05:12.620responsibility to micromanage it to keep it at exactly 2.0 at all times so they'll let it move
00:05:19.020within that one to three percent range what they want to see though is what do consumers think it's
00:05:22.740going to be and if consumers say that we believe it's going to be between one and three then even
00:05:27.420if it falls below the lower bound and even if it goes above the lower bound the bank of canada
00:05:31.140probably puts their hands in their pockets and says we're okay with that because at least consumers
00:05:35.300understand that this is a temporary phenomenon. The issue becomes, what if consumers start to
00:05:39.940think that it's not going to stay between 1 and 3? Or what if consumers have a trend where it's
00:05:45.220showing that they used to think it's 2, now it's 2.5, then it's 2.9, then it's 3.3? The Bank of
00:05:50.260Canada says, maybe we need to send a signal to consumers that the Bank of Canada is committed
00:05:54.040to keeping inflation between 1 and 3%. And yes, you're right. When they do that survey,
00:05:58.260maybe Canadians are starting to lose confidence that inflation will be kept in that target range.
00:06:03.680And so here's the signal then. Unfortunately, that wasn't quite what we heard today from the Bank of Canada. It almost seemed to me as an Albertan that it sounded like they were saying that the oil and gas sector is doing particularly well. So here's an interest rate hike, especially where you're talking about the prime minister.
00:06:21.360I thought the direction you were going to go is we just came out of an extremely damaging, foolish referendum in the province where the prime minister was trying to show that Alberta matters.
00:06:31.900And here comes the Bank of Canada swinging and saying Alberta is doing well.
00:06:34.780So here's an interest rate hike beyond the fact that it seems to be punishing Alberta.
00:06:38.700It's not going to endear Alberta to the rest of Canada.
00:06:41.180They're going to say our sectors are not doing well.
00:06:43.480Why are you hitting us with an interest rate hike?
00:06:45.720And of course, the other part of it as well is that Mark Carney, among all people, is a former governor of the central bank himself. And while he has no control over policy, nor should he, you're right, there are these backdoor channels where the Bank of Canada, at a minimum, will at least have a conversation with the finance minister saying, this is what to expect.
00:07:10.140But the idea here, at least, is expect that this is coming so that you can get in front of the mics as well and not express stunned reactions to what happened.
00:07:30.520But it's interesting because I don't know that the dollar necessarily goes up because of the interest rate increase today.
00:07:38.720I think the dollar started rising in the last couple of days.
00:07:41.500And so this is one of those basic ideas of finance.
00:07:44.020It's called the efficient markets hypothesis.
00:07:45.540So based on all publicly available information, markets should be incorporating that into the prices of shares and bonds and things like that.
00:07:52.700And if you look, the Bank of Canada gave a signal a few days ago at some meeting halfway around the world that there might be an interest rate increase coming.
00:08:02.360And so markets probably would have seen that.
00:08:04.980And that's why betting markets had it at a 75 to 80 percent chance that today was going to be the interest rate increase.
00:08:09.960So probably a couple of days ago, they started buying up the Canadian dollar in anticipation.
00:08:14.200Today, when the announcement comes, markets might shrug and say, we already priced that in.
00:08:18.460But as a broader picture, yes, when the Bank of Canada increases interest rates, whether it started happening a few days ago or right now, the Canadian dollar will appreciate in value.
00:08:29.160Right. So then if you're exporting things, it's not as good for you if you're importing or sorry, if you're importing, it becomes more expensive.
00:08:37.880Right. A stronger Canadian dollar. No, that's bad for exports and it's good for imports.
00:08:42.700But if you think about it, that weak Canadian dollar prior to this announcement or prior to the signaling of the announcement, that was good for exports.
00:08:52.980And a lot of Canadians appreciate then that a weaker Canadian dollar does have some value.
00:08:56.800But think about what that means domestically for inflation.
00:08:59.400If the Canadian dollar is weak, which means it's good for exports, one way to think of it is that there's a whole bunch of foreigners that are in line with us Canadians to buy Canadian goods and services.
00:09:08.820So if there's this extra source of demand coming from foreigners, great, good for exports.
00:09:13.800But it also means that there's this inflationary pressure that exists as well, because there's
00:09:17.160now all these customers that want to buy our stuff, too.
00:09:20.020But the other channel in which there's inflationary pressure is that what we're buying from the
00:09:24.080U.S. is now more expensive in Canadian dollar terms than it would have been if the dollar
00:09:29.900So here, too, is another source of inflation.
00:09:33.240So even with all of that weak Canadian dollar stuff, if only 3.1% inflation surfaced, I don't know that there was really that compelling argument.
00:09:42.060If the Canadian dollar gets stronger, it does remove some of the inflation through the export channel because foreigners will walk away from Canada.
00:09:48.820And it will remove some of the inflation through the import channel because now buying an iPhone is going to be less expensive in Canadian dollar terms than it otherwise would have been.
00:09:57.420right okay but you're sitting you know to your point about Alberta and trade in
00:10:02.860the rest of Canada you're now sitting with higher interest rates quite frankly
00:10:06.740on whether it be lines of credit mortgages bank loans car loans whatever
00:10:11.300whatever you know you're actually doing traditionally you know banks don't hike
00:10:17.480their interest rates much as far as what they pay you so you're now your cost of
00:10:24.480living's higher and quite frankly you're exporting things less frequently so how is it
00:10:32.020i just couldn't i just i guess i'm looking at it i'm thinking and on top of it on top of it you're
00:10:38.700now at the pump so you're now your interest rate's higher and the rationale is your interest rate is
00:10:44.480higher now um because your gas prices are higher yeah so it's a bit of a an odd one to try and
00:10:53.920scratch your head through. I agree with you. Higher interest rates then are going to raise
00:10:58.060all the borrowing costs. And Canadians are massively indebted. So this is going to take
00:11:03.860more and more of your disposable income that you're now going to have to allocate towards
00:11:06.700just paying the interest on your debt. Forget about actually retiring the debt. That means
00:11:11.080there's less money to buy actual physical goods and services. So this is bad news across the board
00:11:15.920then for the consumer sector. That makes up about 60 to 65% of the economy. But it's bad news for
00:11:21.140businesses too, right? So for anybody who's looking and saying, well, the energy sector is strong,
00:11:25.380the energy sector right now is making some complicated decisions about whether they
00:11:28.860actually want to invest in more pipelines, expanding the oil and gas sector, and a lot
00:11:33.880of the infrastructure that the Prime Minister wants to try and orient Canada east to west rather
00:11:38.560than north to south. But if you look at the bottom line, then, if interest rates go up,
00:11:43.180if you're borrowing costs go up, these profitable projects become less so, or they even become
00:11:48.560unprofitable projects. And so what any reasonable business would do then that's pursuing profit is
00:11:54.140going to say, I'm delaying the project, I'm canceling the project, or I'm even going to
00:11:58.880move the project to a different location if I can, where this isn't going to be a concern for
00:12:03.140me then. So that harms business investment, capital formation, long-term potential for
00:12:08.600the economy. And of course, if businesses scale back, there is the risk that they start firing
00:12:13.420people because we don't need you anymore because we're not taking these projects on anymore.
00:12:17.740So there's that risk factor there, too. You mentioned that the foreigners disappear. Fine. So there's another source of demand disappearing. We start buying more foreign goods. That doesn't show up in Canadian GDP. And of course, the other play card here is the government's now going to have more expenses as well.0.53
00:12:36.440governments have huge amounts of debt at the federal and provincial level their cost of
00:12:41.500borrowing just went up as well so now when they refinance their debt and roll it over they're
00:12:46.340going to have to pay higher interest rates than they would have 48 hours ago uh where are they
00:12:49.980going to come up with that money they got to go to their taxpayers and say sorry kiddos uh taxes
00:12:54.000either need to go up or spending needs to go down uh in either of those cases that's another hit to
00:12:59.420consumers and businesses that are now going to have to fend more for themselves than they otherwise
00:13:03.140would have yeah we just did a show um with the pbo the federal pbo it was very interesting
00:13:09.300and uh in her in her report in her october report she talks about the fact that um corporate tax
00:13:15.940has actually almost doubled since 2021 so again you have these corporate taxes uh you know almost
00:13:23.380to a hundred billion dollars from like 50 billion it's crazy how that number has uh gone up so much
00:13:29.620and it's such a bigger part of the revenues of the government.
00:13:32.980And then at the same time now, they jack up the interest rate to hurt corporations and themselves
00:13:40.340because they're, you know, in that report, she talks about, quite frankly, by 2030,
00:13:47.760the interest going up to about $83 billion a year.
00:13:53.540So it's just skyrocketing the interest cost, the interest charges on our statements for the government.
00:14:02.580And for everybody who says, well, this is 10 years of liberal rule, yes, but it's 30 years of liberal and conservative rule that have been pushing this trend.
00:14:11.920So it's not just the recent liberal government.
00:14:15.060And it's ironic, too, because, you know, if you're old enough, I'm old enough to remember, I would call Mark Carney one of those blue liberals.
00:14:24.120You know, he's certainly got that pro-business streak in him that, you know, we saw in Jean Chrétien, we saw in Paul Martin, but generally is not very strong within the Liberal Party.
00:14:32.700And that's usually what makes them electable nationally is when they kind of drift to the center and they adopt some of that conservative thinking, they usually find a path to government.
00:14:42.180The problem with increasing corporate income taxes so much over the last five years, whether through legislation or otherwise, is that that chokes off investment.
00:14:51.720And any economist will tell you that in order to have long term growth, long term standard of living increases, you need capital formation, whether that's capital formation in your head, human capital, physical capital with machinery, equipment, factories and stuff like that, or technological advancement as well.
00:15:09.460those things only come about when firms feel the need to innovate, when they sense that there's a
00:15:14.820profit opportunity. And if it's all going to be taxed away, then that's the type of thing that
00:15:19.260could actually not just harm the economy in the short run, but in the long run as well.
00:15:22.680I'm surprised that a centrist liberal would be taking such ideas as orthodoxy here and not trying
00:15:30.140to push back a little bit. But I think that the Canadian public these days just want to go after
00:15:34.540the rich and indiscriminately i don't care who that means as long as it's not me just go get
00:15:39.420money out of them and right now that anti-corporate sentiment uh might be political uh popular
00:15:45.020politically uh but it's really bad economics well in the in you know you and i've talked uh mostly
00:15:51.100about the the productivity and the lack of productivity in canada right now um and the
00:15:55.980challenge we're having as a nation to get that that productivity per capita number up but i
00:16:02.140find it interesting because in the last budget they spent uh well they they included a lot of
00:16:08.860economic development uh tax breaks they they did a lot of things and even recently in some
00:16:14.540of the capital projects that they put on the table they've actually allowed uh different
00:16:19.420tax breaks to get to incentivize people to actually do those developments so in this case
00:16:25.340now you know if we hit another interest rate increase by the end of the year we're going
00:16:30.860against our tax incentives disincentive again it just it looks a little bit like and i know the two
00:16:38.300are two different arms but it looks like kind of the finance minister and and uh the bank of canada
00:16:45.020and and uh tiff mackham need to sit down and have a long conversation about strategy here it looks
00:16:51.580it looks a little it looks disjointed truthfully it looks it looks like almost one hand's not
00:16:56.220talking to the other hand yeah it you're right to some extent um you know there there's these
00:17:01.740two different ideas there's policy coordination there's policy conflict um so i agree that policy
00:17:07.420works best when it's coordinated and that's not any sort of nefarious cigar smoking brandy sipping
00:17:13.580backroom dealing that's going on here it's just merely a matter of communicate what it is that
00:17:18.060you're seeing and for sure with the bank of canada uh you know one of their roles is that they act as
00:17:23.020the advisor and agent to the government uh the agent bit is merely if the government runs a
00:17:29.020deficit and they say we need to come up with this money they go to the bank of canada and say find
00:17:32.620it the bank of canada of course can go the nuclear route where they print the money but much likelier
00:17:36.780is the bank of canada is going to be the ones that's issuing the bonds to the public collecting
00:17:40.060the money to finance that uh nothing uh wrong there but the agency bit is interesting as well
00:17:46.620then uh or the advisor bit is interesting where the government should say look this is what we're
00:17:52.220we're thinking of doing, the Bank of Canada could say, look, this is what it'll mean for inflation
00:17:55.980or what we think it'll mean for unemployment, similar to the Parliamentary Budget Office.
00:17:59.820Here's our analysis. You're free to do whatever you want. You are the elected people. You have
00:18:04.640your representatives that you have to answer to. We are not elected, nor should we be elected.
00:18:12.020And so we can offer you impartial advice. Do with it as you please. And that coordination then
00:18:16.520would maybe lead to, hey, if you're looking to try and offer these breaks here,
00:18:20.360We might be willing to tolerate a little bit of inflation a little longer than we otherwise would.
00:18:24.920Remember, though, that at the end of the day, the mandate of the Bank of Canada is to keep inflation between 1% and 3%.
00:18:29.020So there is a certain heartlessness that has to come with monetary policy in Tiff Macklem's office where I get it.
00:18:34.680It's not good for the economy, but that's not what's on my table as my responsibility.
00:18:42.080So I was just, as you were saying that, I'm thinking to myself, if I'm sitting in, you know, our banks, quite frankly, is there any...
00:18:49.900you know, they're, of course, they, they lose business. They have default challenges. Well,
00:18:58.020you know, what are there coming out of this? Well, I think within the 20 to 25% that were
00:19:04.440not anticipating this hike, I said, I was one of them. I think a lot of the heads of the big banks
00:19:09.060were in that camp too, that they were saying, I don't think that you need to do this, or at least
00:19:12.920you don't need to do it now. Of course, they're going to increase their borrowing rates across
00:19:17.620the board. And so at least as a very, very short term phenomenon, this should mean extra profits.
00:19:22.720I'm not saying race out and buy shares of BMO or CIBC or anything like that. By the time this
00:19:27.360makes it to air, that will have already been incorporated into those share prices. But you
00:19:31.800know, one thing to consider, you're right, is it will this lead to higher default rates going
00:19:36.520forward? As more and more Canadians say, I was barely able to make ends meet with the debt load
00:19:41.280that I had at the interest rates that were there as of Wednesday morning, I can no longer do this
00:19:46.020at these new interest rates. But the thing is with the banks, I always say this to people when
00:19:50.820they ask about this, the banks aren't interested in your home. They're not interested in your
00:19:54.780business. They're not interested in your car. That's not the business they're in. The business
00:19:58.480they're in is lending you money and they want the money back. So if you're transparent with your
00:20:03.320bank, they will probably do anything and everything they can to restructure your loan to ensure that
00:20:09.940they get their money back, not that you have to fire sale your home and then they have to try and
00:20:14.020drag you through the court system to get their money. So, you know, I think that there's an
00:20:17.660opportunity here that if Canadians at least have enough confidence to go to their bank and say,
00:20:21.140look, this is the situation I'm in. If you have enough equity, if you have enough years of
00:20:26.920amortization that you can renegotiate, if you have a stable enough income, banks would probably
00:20:32.160be willing to renegotiate your mortgage. They might even be willing to waive some of the fees
00:20:36.520if they know that, hey, at least this is going to lead to some run on bankruptcies, whether those
00:20:41.400personal or business bankruptcies because it's just an area that they don't want to get involved
00:20:45.960in and they also don't want to have to necessarily scale back their lending because they've been once
00:20:50.600burned twice shy right right no it's interesting um so at the end of the day we wait now for the
00:20:58.760next announcement and so you know you were just saying you know you didn't think this one was
00:21:02.920happening so crystal ball with me for a minute you don't you know it won't hold you i'm just saying
00:21:08.520do you think he goes again before the year well my credibility is shot when i said that i didn't
00:21:13.160even think they should be doing this so i don't know what my prediction is worth um look i i would
00:21:18.120have argued that if things are not moving in the right direction after those midterm elections then
00:21:23.400go ahead increase interest rates in december so i think the fact that we got it now in october
00:21:29.080should give a little bit of leeway then that we shouldn't really be talking about an interest
00:21:32.760rate increase in december i think there's enough stuff that's going to change in the next month or
00:21:36.360So that some of that inflationary pressure should come out. I think the real thing to watch, though, is that we're going to get an inflation number in November, and that's going to be the one that you want to circle on your calendar, because if that thing comes in above 3.1 substantially, so if consumer sentiment is moving towards that 3% upper limit or outside of it, then yeah, there's probably a good chance that another one's coming.
00:21:57.280But if the numbers come in that they're at least reasonable within the Bank of Canada's range, and certainly if you strip out energy and food and see that that core inflation is kind of hanging around 2%, then I think we saw the worst of it.
00:22:10.460And that might open the path then for 2027 to allow for a little bit of recovery, a little bit of space for the economy to grow.
00:22:15.480And if there's a trade agreement, if the tariffs come down or go away entirely, and if energy starts flowing, then I don't know that the Bank of Canada is necessarily going to undo it in December, but we could easily be talking about that this was it. And in 2027, we might even be able to see that quarter percent come back.
00:22:31.120Well, that'd be good news. You know, it does feel like the economy is kind of the sacrificial lamb in this senseless, and I figure, senseless fight to reduce inflation. You know, and we've sacrificed kind of the state of our domestic, because domestic demand hasn't had any real input on it, right, other than what's going on. And I feel that now in this announcement. So I hope that does happen.
00:22:57.820Yeah, look, I'm a big believer in keeping inflation low and under control and stable. I just think that there's probably a little bit of space here where we could have given some room for the economy to grow, or at a minimum, we could have seen if that major event in the US is going to change anything on the ground.
00:23:17.600So because the election should be clear by the time we get to the beginning of December, when the Bank of Canada meets again, fine, the new Congress won't be sitting.
00:23:25.560But we know who's going to be chairs of the various committees.
00:23:27.800We know who's going to be Speaker of the House.
00:23:29.400We know what the Senate is going to look like, because if that flips to the Democrats, then we know exactly who's going to be running the thing up there, too.
00:23:35.680And we can start to now start parsing what their legislation is going to look like and what they're going to want to try and introduce or repeal or what Trump's going to even do in response.
00:23:45.600You know, why make a decision before that, especially when that decision is 10 days away?
00:23:50.240It's not like I'm asking for hold off for a year and let's see what happens.
00:23:54.580It's let's hold off for six weeks when one week from now we're going to know what that decision is.
00:23:59.400And I'll tell you that the Bank of Canada does not want to get into the business of some yo-yo interest rate where they increase it in October and decrease it in December.
00:24:06.740That becomes a source of uncertainty as well, and they shouldn't be contributing to that.
00:24:10.880So if this thing's gone up, I don't know that it's coming down anytime soon.
00:24:13.580So it's really going to take something then to make them say, OK, we can undo this.
00:24:18.800Right. That's a great point. Well, we'll wait and see. And hopefully, you know, we're not going up again, but I look forward to chatting with you when he makes the decision again.