Western Standard - The challenges of investing in our current chaotic environment

00:00:00.000 Having Andrew Ruland in from Integrated Wealth Management is an ideal person to talk about these things.

00:00:04.540 So thanks for joining us in the studio today, Andrew.

00:00:06.140 My pleasure, Corey.

00:00:07.680 So, I mean, to start with, I mean, we're in such a tumultuous world.

00:00:11.560 Everything's turned on end.

00:00:13.520 I mean, I was talking earlier about health care.

00:00:15.600 Those are challenges from COVID-19.

00:00:17.660 But we've got government spending.

00:00:18.920 We've got currencies going up and down.

00:00:21.620 I guess the key point with investment is stability, and we're not seeing a lot of that right now.

00:00:26.280 Right. Well, ultimately, we're in probably, for our lifetime, it's one of the most chaotic periods of investing.

00:00:33.760 There's always been volatility, but it always seems to be the worst when we're close to retirement or in retirement.

00:00:40.460 And right now, of course, we've got a lot of geopolitical events that are driving the agenda.

00:00:44.800 And that's, of course, in addition to the economic factors that are behind the geopolitical events and things like that.

00:00:52.560 Yeah. Well, I mean, it's almost impossible to predict.

00:00:56.400 I think, you know, I mean, we've saw warnings and so on.

00:00:58.300 But the situation that unfolded in Russia and Ukraine with what's going on over there.

00:01:03.220 But now that it is happening, trying to forecast and look ahead and how that's going to impact things is kind of where we're sitting.

00:01:08.620 And a lot of people might not realize it's going to have a very strong impact on the agricultural sector in general, or at least agricultural commodities.

00:01:15.400 I would think that that is actually going to be the single biggest effect of this war in Ukraine, and especially if it leaks a little bit further out from Ukraine, which NATO seems to be poking the bear, so to speak, to try and get to happen.

00:01:28.640 But the secondary and the tertiary effects from the supply disruptions that come out of Ukraine and Russia are really, really significant.

00:01:37.440 And I think, yes, we're going to see the worst of them in the food supply area.

00:01:42.600 Yeah. And I mean, that gets into things that are critical needs, foodstuffs, when inflation starts hitting there, and that's what will happen.

00:01:49.360 And how do we start preparing for that?

00:01:50.980 What do we do ourselves as, I mean, on this part of the world to at least try to shield ourselves from some of those impacts?

00:01:56.380 Well, on a personal level, we have to think about what does our own food security look like?

00:02:01.120 So there's a big trend towards homesteading for a lot of people, or like I do, grow a lot of vegetables in the backyard.

00:02:07.820 I've done that for years just because I like gardening.

00:02:10.420 But on the financial level, really what we need to focus on is investing in things that are actually going to go up because of the chaos.

00:02:18.700 Now, some people don't like the thought of that because they feel bad that they're profiting off of the…

00:02:24.000 It feels like you're taking advantage of a bad situation.

00:02:25.820 Correct. But I mean, unless you're actually someone who's actually helping to create the situation, you're just responding to what other bad actors are doing.

00:02:33.140 So really, it's just about following trends that are going to work to your advantage.

00:02:36.460 And right now, we're in the beginning of what I think is more or less a stagflation environment, where the economy is not really expanding, but we have so many supply chain disruptions that prices are going up.

00:02:49.660 So the economy is stagnant, but prices are inflating.

00:02:53.000 And that's a very dangerous place to be.

00:02:54.940 The last time we were there was in the 70s.

00:02:57.460 So would it help with some of the economic development, though?

00:03:00.660 I mean, we are kind of well-placed as a parallel to Russia and Ukraine.

00:03:04.740 I mean, Central Canada is a big agricultural producer.

00:03:07.860 Potash as well, which is another commodity.

00:03:09.980 Yes.

00:03:10.280 Very big, and it is a Saskatchewan commodity.

00:03:12.600 So we could get some economic growth, at least within Canada, with our resources to counter some of the stagflation, perhaps.

00:03:20.380 Yes.

00:03:20.920 However, we have some factors that play into it, like there's wage inflation, which is pushing up prices at the grocery store.

00:03:26.960 So if you work in an industry that doesn't benefit from inflation, you're going to be in trouble because your income is not going to go up.

00:03:35.440 But if you live or if you work in an industry that does benefit from inflation, you're going to be positively affected by it.

00:03:42.240 And it's not just things like potash and wheat, which are essential, but it's also in things like uranium.

00:03:49.220 That's a big one going forward.

00:03:50.880 Yeah.

00:03:51.460 Well, people are starting to move towards zero emission targets and goals and things such as that and expanding their nuclear generating capacities.

00:03:57.700 Again, Canada is well-placed to supply, hopefully, on those sorts of things with northern Saskatchewan and areas and deposits.

00:04:04.060 Absolutely.

00:04:04.440 The Athabasca Basin is one of the best areas in the world for actually for mining of uranium and Cameco in particular is, well, they're a world-class operator.

00:04:15.880 Yeah.

00:04:16.460 So suddenly looking at another area of hedges and so on, the interest rates are low, but then the bond markets are starting to get forgotten.

00:04:23.200 This is what I'm saying.

00:04:24.020 How does that tie into things right now?

00:04:26.280 I mean, it's a complex area of monetary policy.

00:04:29.460 But when we've got a government trying to deal with inflation, then often the banks, we're talking about issuing bonds to try and, that's where I'm now hoping for your expertise to expand on it.

00:04:40.800 Well, actually, the biggest worries that we have, the biggest risks that we have in the financial markets going forward are actually not in the stock markets because stock markets are really about equity, right?

00:04:51.180 And so they're companies and they adapt very quickly to the environment that they're operating in.

00:04:57.780 The biggest problem we actually have is that we've gone through basically a 34 or 35-year decline in interest rates supported by central banks monetizing debt or what we call quantitative easing.

00:05:09.580 But we're actually past the bottom of the interest rate market.

00:05:14.540 I'll remember this well because the bond market actually peaked on my 53rd birthday, which was August 4th of 2020.

00:05:21.820 And so when interest rates start to rise, that's when we get big problems in bond markets because the price of bonds is inversed to the rate of interest that's prevailing in the markets.

00:05:34.740 And interest rates can go up for a couple of reasons.

00:05:37.160 One is inflation, cost push inflation from a growing economy.

00:05:40.780 But the other reason, which is actually much more worrying, is when we have a declining confidence in government as a borrower.

00:05:47.740 And that is what we are on the precipice of seeing.

00:05:50.440 So people don't think that bonds can really go down in value and that that's always the safest part of their portfolio.

00:05:57.560 But what we've seen recently is that bonds can go down pretty quickly in value.

00:06:02.480 In fact, the first quarter of 2022 was the worst quarter ever in the bond markets.

00:06:08.120 Most people don't realize that, right?

00:06:09.880 And if that's supposed to be the safe part of your portfolio, you need to come in with alternatives to traditional bonds, which is a big part of what we do.

00:06:17.180 Yeah.

00:06:17.580 So what kind of alternatives are we talking about?

00:06:19.920 I mean, safety and money is always just, I mean, you know, you work so hard for it, you save it.

00:06:23.800 It's a horror story as we're starting to get a little grayer in the muzzle.

00:06:26.440 You start thinking of retirement.

00:06:27.620 You want to make sure that nest egg is going to be there when the time comes.

00:06:30.560 Nobody wants to go back to work at 75.

00:06:32.540 Exactly.

00:06:32.860 So when it comes to investing in things that are safer, there's dividend-paying stocks, and dividends typically go up faster than inflation, so that's a good thing.

00:06:43.320 But on the part that isn't in stocks, in your portfolio, you have to have things that are alternatives to government bonds.

00:06:50.380 So we look at corporate bonds, which tend to be shorter-term in nature, and there's actual physical security for corporate bonds, unlike government bonds.

00:06:58.980 Because when you buy a U.S. Treasury, you don't get, you know, the left arm of the Statue of Liberty.

00:07:04.400 It's just based on the full faith and credit of the borrower.

00:07:07.420 But with corporate bonds, there is actually physical security behind it.

00:07:10.640 The other part of it is to actually look at what we call private alternatives, which would be private lending, the secondary market, or what we call our business-to-business lending primarily, and also in real estate, because real estate is also an inflation hedge.

00:07:26.500 Okay, and then real estate, yeah, well, that's something that's really been, well, I would say almost disrupted as well.

00:07:32.980 I mean, we've got some markets like Vancouver and Toronto are superheated, and in Calgary, for a while, it was kind of flat.

00:07:38.160 I think it's kind of rising a bit now, but it's unpredictable as many these days.

00:07:42.580 It is, and longer term, inflation, or sorry, real estate, even including principal residence housing, is an inflation hedge.

00:07:51.540 But we also have to recognize that over time, the value of real estate has been driven by declining interest rates.

00:07:57.900 And so as interest rates continue to rise, people will not be able to afford to pay as much for a home because their income hasn't gone up.

00:08:05.280 And people, the price of real estate is usually based on how much payment people can afford who are still working.

00:08:12.060 So that's going to be a little bit of a counterbalance, right?

00:08:14.700 It's going to be a little bit of a headwind on the real estate market.

00:08:18.720 Yeah, well, and people with a fixed income, I mean, there's people with a very tight budget, and interest rates, I mean, even a small rise could really put them under a lot of financial strain if they don't have a fixed mortgage or if they're carrying a lot of personal debt.

00:08:30.540 Absolutely. About 25% of outstanding mortgages in Canada are variable rate, which we think is quite a trap.

00:08:38.600 If people are in a situation where they have, you know, 5, 10, 15 years left on their mortgage and they're on a variable rate, we'd strongly suggest that they look at locking in for the longer term.

00:08:48.980 Because interest rates can go up a whole lot faster than people think.

00:08:52.440 Okay. There's something called availability bias. It's one of the cognitive biases in investing.

00:08:58.860 And if we haven't experienced something before, it's not available in our memory.

00:09:03.680 And so the vast majority of people today who are borrowing money for housing or for anything else, they've never had the experience of 10%, 12%, 14% mortgage rates.

00:09:14.540 So they don't think it can happen.

00:09:16.440 So it's one of those things.

00:09:17.320 I don't think it can happen because this never happened to me before.

00:09:20.280 And that's just ancient history.

00:09:22.360 Yeah. And it wasn't that long ago, but for a lot of younger homeowners, it certainly wouldn't remember the 80s and the 90s with some crazy double-digit interest rates.

00:09:32.940 And things are secular. It tends to come back to those.

00:09:36.940 It does. And actually, those people of that age would do well to actually talk to their parents about how they dealt with the incredibly high mortgage rates because their parents would have been in that situation.

00:09:46.680 Well, in Alberta, I mean, just to tie in a little politics, but there was the national energy program.

00:09:50.880 That was coupled with those double-digit interest rates, massive inflation going on.

00:09:55.340 And people literally had to walk away from their homes because they couldn't make the payments.

00:09:59.140 Nobody wanted to buy the place.

00:10:01.100 The mortgage was too high.

00:10:02.380 I mean, we aren't there yet, but we always got to remember if it could happen before, it can happen again.

00:10:06.420 Yeah. Yeah.

00:10:07.160 Hopefully, it's going to be a while before we get there.

00:10:09.220 But the reality is that the longer that governments go on with spending out of control, making drunken sailors look like they could pass a sobriety test, the fact is that governments are spending public finances into a high interest rate trap.

00:10:25.680 Because the more that they spend, the less they have from their government revenues to actually go towards interest payments.

00:10:33.700 And then you get trapped into increasing taxes, and yet you have interest payments on your new debt that go up and up and up.

00:10:41.920 So you get into a very, very dangerous corner.

00:10:45.820 Yes.

00:10:46.600 And then it doesn't look like we're going to be seeing stability anytime soon.

00:10:51.640 What?

00:10:52.260 Yeah.

00:10:52.720 Stability?

00:10:53.140 What's that?

00:10:53.540 Well, I mean, I think there were periods in the past, at least for years at a time, but right now the world's just in a crazy place.

00:10:58.960 Yeah.

00:11:00.280 Something I guess that's been interesting is the world hasn't been eager to jump in and get in on a ground war with Ukraine and Russia, which is good.

00:11:07.740 I mean, we didn't have to live through that, but our parents and grandparents, you know, dealt with World War II and massive things.

00:11:13.340 They're awful.

00:11:14.500 But we've gone into economic warfare, sanctions, and that's perhaps less immediately dangerous to people and harming people.

00:11:22.280 But it's really, again, causing our world economy a whole lot of fluctuation.

00:11:25.900 I think that sanctions are actually the equivalent of economic warfare.

00:11:28.880 So it's not a kinetic war.

00:11:30.760 But the reality is that if you look at different places around the world that have incredible dependence on the supply chains coming out of Ukraine and Russia, so this would be, you know, areas like Turkey and Egypt, you know, in particular for wheat and different things like that.

00:11:46.720 But the entire world is really dependent on the use of fertilizers in agriculture production.

00:11:52.540 You've got, you know, non-hydrous ammonia, and you've got, you know, potassium.

00:11:58.420 You've got all kinds of nitrogen, different things like that, that are incredibly important inputs to create fertilizer.

00:12:04.300 And without fertilizer, the world's food supply gets unstable and unreliable.

00:12:10.040 And if, so if you consider what happens thereafter, what happens when people get hungry?

00:12:16.400 We get more war. 0.55

00:12:17.680 We get more war, right? 0.71

00:12:19.060 We get angry, right?

00:12:20.520 You know, if a person misses a meal, they might get hangry.

00:12:23.160 But what happens when your food supply is genuinely compromised?

00:12:27.600 And when people think that they have nothing to lose, they lose it.

00:12:31.160 Well, and again, getting back to people who don't remember, but that was a huge thing in the 80s and 90s.

00:12:36.560 Northern Africa, I mean, they were suffering under a horrific famine.

00:12:39.680 Ethiopia, Somalia, I mean, it was terrible. 1.00

00:12:42.060 And that instability through the famine, you know, carried over for decades afterwards.

00:12:48.020 And when we're starting to, yeah, impose sanctions or cut off of world's bread baskets, that's going to have long-term repercussions.

00:12:55.000 Yeah, and I mean, there are going to be some winners out of this.

00:12:57.540 You know, wheat growers in particular, if you can get your hands on it, and if you can manage to carry the cost of higher fertilizer prices.

00:13:06.100 You know, Saskatchewan and Alberta wheat farmers, and to a certain extent in Manitoba as well, are going to do well.

00:13:11.060 And northern BC, of course.

00:13:12.520 They're going to do well because they're going to be able to fetch good prices for it.

00:13:16.500 But the difficulty outside of North America is going to actually be accessing supply.

00:13:21.940 That's the problem.

00:13:22.820 And that's when we get more political unrest.

00:13:25.720 And then what about energy?

00:13:26.600 I mean, that's something that impacts everything.

00:13:28.680 And we are a conventional energy producer and exporter.

00:13:31.420 I think we're kind of maxed out right now, but that's at least to the higher prices.

00:13:34.780 Maybe we should try and build a pipeline.

00:13:36.400 That would be a novel concept.

00:13:39.360 Come on, man.

00:13:40.360 Yeah, speeding up at least the ones we've got.

00:13:42.820 You know, it's just been agonizingly slow.

00:13:45.120 But we're not seeing many indications on our federal front that they're eager to facilitate this any further than they have, unfortunately, yet.

00:13:53.000 No, you're right.

00:13:53.740 And I mean, you mentioned right at the beginning of the interview that, you know, Canada is well positioned with agriculture and energy.

00:14:00.040 Well, that's true, but we actually have to be in a position where there is a regulatory environment that actually encourages the harvesting, not just of agriculture, but of energy.

00:14:10.500 Yeah, and delivering.

00:14:13.340 I mean, it's the whole thing all the way along the line.

00:14:15.500 And some people might want to, you know, rely on supply chains.

00:14:18.620 I mean, nobody ever talked about those more than five years ago.

00:14:21.040 And now it's so acute.

00:14:22.360 But we have to remember, too, we've been making up for the lack of pipelines through shipping oil through rail.

00:14:27.300 But that's putting pressure on our agricultural producers because they bring in their fertilizers by rail and they export their produce through rail as well.

00:14:34.720 And it's just punishing ourselves all over the map.

00:14:37.740 Yeah, absolutely.

00:14:38.400 It's like shooting ourselves in the foot and saying, see, take that, Vladimir Putin.

00:14:42.680 Yeah.

00:14:44.780 No, I mean, I guess just morally, you know, if people could keep that in mind when it comes to calling for economic sanctions is it's not going to hurt Putin, but it's certainly going to hurt a lot of people on the ground.

00:14:53.980 The common people who really wanted no part of this whole mess in the first place.

00:14:58.060 Well, it's not the people that ever make war.

00:14:59.880 It's only governments.

00:15:00.840 Yes.

00:15:02.860 And they're unfortunately very good at doing so.

00:15:05.500 Lots of practice.

00:15:06.160 Yeah.

00:15:07.020 So, I mean, again, I guess just kind of bringing things back to home.

00:15:09.620 You know, how can that's your job and role is helping us navigate those waters or try to at least make sure we can weather this current, the latest storm is as efficiently and safely as possible.

00:15:21.080 What tools do you guys offer for that sort of thing?

00:15:23.220 Well, we have a great website with a great video library that we've built up over the last four or five years.

00:15:29.080 And this Saturday, we're actually doing a live webinar at noon.

00:15:32.500 So Saturday, April 9th at noon.

00:15:34.780 And it's called Grace Under Pressure.

00:15:36.460 And it's actually about how to invest and how our managers invest during, you know, the chaotic environment that we're in.

00:15:43.880 And if you can attend live, that's great.

00:15:46.340 But if you can't but would like to get a recording, you can register for that.

00:15:49.960 So you can do that by register or by going to our website, which is i-wealth at i-wealth.ca.

00:15:57.520 And you can register for free there and attend that and gives you a sense of who we are and how we do things.

00:16:03.820 Great.

00:16:04.080 With the live webinar, I mean, live versus recorded, is there opportunities for questions to be posed then in that case and answered?

00:16:09.660 Yes, absolutely.

00:16:10.880 Yeah.

00:16:11.220 Generally speaking, the content itself goes somewhere between 50 and 55 minutes.

00:16:15.780 And then we do about 15 minutes of Q&A.

00:16:18.200 Great.

00:16:18.480 Yeah.

00:16:18.620 Just kind of wrap around to that homesteading thing.

00:16:20.500 I'm taking up beekeeping this year.

00:16:21.740 This is a side digression.

00:16:22.720 And I'm doing YouTube University mostly to learn from it.

00:16:25.300 And videos are fantastic online and everything and a lot of resources.

00:16:28.420 But sometimes I have another question on this and I don't necessarily have a live person on the other end to ask.

00:16:33.240 I still can root around and find it and then the recorded product is great.

00:16:36.520 But it'd be nice to catch these instructional beekeepers live so I can avoid some stings down the road rather than learning the hard way.

00:16:44.240 Absolutely.

00:16:44.880 Yeah.

00:16:45.380 Okay.

00:16:45.860 Well, I appreciate you coming in.

00:16:47.280 I hope folks get out to that webinar.

00:16:48.580 As I said, I mean, I'm the political weenie.

00:16:51.100 I know all the names and the players and so on.

00:16:53.200 But in finances, I'm a little weak.

00:16:54.500 And that's why I rely on other people to show me and teach me about it.

00:16:58.180 I didn't understand quite how the bonds are working and how that's impacted.

00:17:02.020 There's just so much more.

00:17:03.180 But it's important to all of us.

00:17:04.420 So, I mean, if I can't navigate it myself, I want somebody who knows how to do it to help me.

00:17:08.820 Well, that's the beauty of a developed economy, right?

00:17:11.620 We have specialists.

00:17:12.600 Yes, exactly.

00:17:13.720 Yeah.

00:17:14.360 All right.

00:17:14.800 Well, it's been great talking to you.

00:17:16.300 Thank you very much for coming in today.

00:17:17.880 And I'm sure we'll be talking again soon.

00:17:20.020 Sounds good.

00:17:20.540 Thanks, Corey.

00:17:20.880 Great.

00:17:24.500 Thank you.

00:17:39.020 Thank you.

00:17:43.040 Thank you.

Western Standard - April 05, 2022

The challenges of investing in our current chaotic environment

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