Transcript for:
Economic Outlook - Jason Meyer & Peter Hall

appreciate you joining us here today and i want to turn it over to jason meyer ceo of engen to get us started jason thanks a lot john that's a pretty daunting task that you've uh outlined for both peter and i and i hope we uh we live up to it uh really glad that everybody has been able to join us uh yet again for uh another round of uh of not only economic foresight but i think uh insight from one of the best from the best uh economist in in canada and a a great friend of ours and a vengeance but before i introduce peter uh i'd like to thank uh salesforce uh who is our major sponsor for today and and of course a great uh supporter of manufacturing industry across canada you know with all the uh the uncertainty the challenges that are facing manufacturing uh today a company like salesforce really helps to not only modernize uh commercial operations and you know and of course uh uh being able to reduce revenue leakage uh you know transforming the entire service experience for manufacturers uh helped to channel uh or strengthen channel partnerships uh uh and really easing the way that business is done today um salesforce is platforms built for agility and it really allows manufacturers to pivot into those new business models to prove out new business models which is a real asset in today's world of uncertainty and i i think we'll be talking about that later on today so visit salesforce.com to learn more uh thank you again salesforce not only to for support for this uh uh for this particular webinar but uh all of the sponsorship and all of the support you provided to um ingen and to the advanced manufacturing community as a whole you know it's always a pleasure for me to to be able to introduce uh peter hall uh peter's former uh economist for uh edc uh he is now running his own consulting firm and peter i'll let you speak about how that's uh keeping you busy uh these days and uh and out of i hope not out of trouble but uh but at least busy uh here um peter is a great friend we've been working together for for many many years uh and as i say the the insights that he can provide in terms of not only what's going on here in canada but uh but around the world and the global economy is really really crucial today uh for our advanced manufacturing sector now uh peter joined us in two in 2020 to do a similar type of economic outlook and at that time uh of course we're in the midst of uh or the the pandemic had just struck a lot of uncertainty around that there's a ship caught in the suez canal uh here it looked like supply chains were really really going to be under under stress uh that just seems like pages ago and the supply chain problems that we've been facing have become more and more acute over the past uh two to three years not just covet of course uh and not just the suez canal and and bottlenecks in logistics but the entire the entire shipping industry around the world shortages of critical parts and now uh you know growing geopolitical tensions the impact of the war in ukraine all of that's affecting uh affecting the manufacturing sector in canada and around the world and then of course the uh the impact of uh growing inflation which peter actually warned us about a couple of years ago said look you know there's a lot of money out there people are saving saving money there's a lot of cash out there but unless supply is able to keep up with uh with that demand we're going to see inflation and uh and that's what exact exactly what's happening right now so great to have peter uh join us you know this this sets the stage for discussion not only about what's happening right now in manufacturing and global supply chains but about some of the bigger transformations that are happening uh in the business of manufacturing around the world clearly supply chain uh restructuring supply chain resilience is one of them but it's only one of three major transformations the other of course is the the potential uh and some of the the challenges the opportunities uh in the field of advanced technology uh that's that's clearly a focus of ours and it's but it's one of many challenges and one and one of many transformations that are affecting manufacturing the other challenge and and and uh trend that is going to have a huge impact of course is the transition to a lower carbon economy uh that's something that uh the manufacturers also have to be aware of and it's it's impacting in many cases through simple things or not maybe some simple things costly things like insurance premiums today and the fourth area of course is labor labor shortages skill shortages acute problem not only in canada not only for manufacturers not only for the tech sector uh in canada but we're seeing these labor shortages around the world and companies having to respond to uh to that as well so some big things going on and and it's time to pass it over to peter and ask him to put some of this into into context so over to you peter and thanks again for joining us thank you so much jay for those very kind words i'm not sure all of those words were deserved um but uh very appreciated um i i'm an admirer of the work that engine is doing i believe it's on the forefront of of really where canadian business is developing at the moment we're in a small open economy and uh one of the key uh tenets really of engine and i hope i'm not getting this wrong jay but is is to create ecosystems or uh to bring industry together to create those economies of scale that often don't exist inside of a large economy i've actually um you know through no efforts of my own been pulled into to these ecosystem exercises in more than one industry and it's very interesting to see just how the conversation is going right now so jay i wish you all the very best in the work that you are doing to spearhead this inside of canada i believe it's going to make all the difference as to how canada goes forward and of course um salesforce thank you for putting all of this together for the opportunity to uh to talk today a couple of words on what what it is that i'm doing i've already said a couple of words uh about uh about what i'm doing but really in my final years at edc i found myself doing a lot more bespoke advice to key customers and um this was something that thrilled me and it was amazing just to see some of the thought transformations that were going on around the executive tables and boardrooms of the country and uh so i decided um uh you know not long ago i guess uh that it might not be a bad idea to get out and do that full time so that's what a connoisseur is really all about i'm a numbers guy jason knows that i love to play with the numbers play with the models keep myself current on what it is that's going on in the economy and of course i'm leveraging that to assist primarily canadian businesses to uh to go forward and to know where those growth sources are and that's really what our talk is going to be uh about today because as jason has really uh very uh aptly said and here's my deck you should see that um on your screens right now great big purple mass there that's my my brand color um there is a tremendous amount of chaos uh in the world economy and the world is um being influenced in terms of its thinking it's asking itself you know with all the chaos that we are surrounded with with a global financial crisis that we never really recovered from with all the mayhem of that you know that interim period there then you know just as we might have been about uh to be recovering along comes the pandemic takes our feet out from underneath us lots of mis-messaging around all of that and the question that many have been asking and prominent prominent pundits have actually been opining on this is is forecasting actually a lost art now a quick question over to you uh jay are you hearing this as well i'm i'm appealing to the sort of the writings that are being done by stephen poloz and mark carney and klaus schwab actually uh and others like them people that people are actually really listening to talking about the models being broken talking about it being very very difficult to wrap ourselves around this paradigm jay couple thoughts on that is that what you're hearing not only from you know pundits like us but but from business in general yeah you know uh very much i i think models are being broken in many areas you know the these big challenges uh on the innovation side are also breaking lots of models about how business has to think about about growth uh as well um you know i i always uh am reminded uh when we took our microeconomic courses and i think this is still what is taught in microeconomics that you know the micro economy works on the idea that there's number one perfect information uh well you know the last three years have shown that that not only is there not perfect information but it's really difficult to to kind of forecast what we don't know uh there so so that's uh that's one thing that's really changing some of the models and i think the way economists need to think about uh about the economy the uh the second thing is of course we're taught that uh in a perfect market um companies come into the market uh you know for for uh particular products until profits are driven to zero uh you know that's the way the economists look at uh the micro economy and approach market uh market development of course that's uh that's the basis for how businesses operate because nobody wants to be in that situation that's the beginning of business strategy how do i avoid that how do i make money nobody wants to see their profits driven to zero so that that too is becoming much more important and then the third part of this is just the impact of technology and the how a connected economy works which is very much different than how individual companies operate and as you said you know what is important for competitiveness is not only how supply chains compete but how value chains compete today so no company can can do this on on their own so lots of lots of stuff going on and i think one of the big issues that i'm going to ask you about a little bit later is you know we've there is an assumption that people in central banks actually know what they're doing and it's based on monetary assumptions and monetary theory that's been around for quite a long time and is that the right type of assumption that we need to operate on when you know a lot of these price increases are coming from international uh factors that uh are beyond the reach of any central bank well thanks for the heads up on on that question that's not a simple simple question simple question well exactly and you threatened to pit me against my former boss mr paul laws but um you know i'm i'm good for that he knows that inside the tent i've disagreed with him a number of times so we'll see where this goes today well those are you know those are the kinds of observations that we're hearing about uh all the time but you know the interesting thing jay is you know this doesn't take um regular people operating in a business off the hook for for being responsible for a forecast i mean that's the crazy thing is that you know if the professionals are finding it difficult to actually do a forecast can you imagine an entry-level buyer in a firm you know who's trying to actually you know get the inputs the raw inputs for the firm and and they're sort of handed on first day okay you know you've got to get some of this and some of that and some of the other things and here are the contact numbers and you better negotiate really well i was like i don't know what prices are going to be two months three months down the road do i lock myself in do i go with a spot price now and so forth and you know all of a sudden all of that education that they brought into the job with them hangs on a forecast and so when professionals are having a hard time doing a forecast i don't know how it is is possible to actually get your mind around doing a forecast inside of business but we still have to do it because that's where we make the money isn't that right you know we've got to know what's actually coming down and so all of this chaos talk that is going around is very disturbing now what i think is important to distinguish between is the things that are different and the things that aren't and that's where we actually can form a basis of doing our forecast so before i actually get into the outlook what i wanted to do is to share a couple of thoughts on how globalization has actually changed things and how it has not changed very simple diagram here is going to take us sort of back to our school days but i'll try to make this as light as possible the economic cycle now jay you remember uh when we were in our entry-level macro classes and one of the first things that they talk about is the four phases of the business cycle and those four phases are still there what are those four phases well there's the peak of the cycle there's the recession phase of the cycle there's the recovery phase of the cycle and then there's the growth phase of the cycle okay so three of those are growth phases the peak the recovery and the growth are all about growth inside of the economy now this isn't to scale because i did a mathematical sine wave here and so it's sort of messing me up a bit because it's taking my phases and it's making it look like recession is the biggest thing that happens in a business cycle it's actually the smallest thing you know a bad recession is about six quarters that's a year and a half and you know if there's such a thing as a good recession it's you know it's a two-quarter recession that's pretty shallow you know that's that's the technical definition of recession only two quarters and so you can see there's a bit of an accordion there that happens 1990 and 91. that was a long one that was a sixth quarter recession sort of that was a fourth quarter recession um you can get up to six quarter recessions those are those are particularly bad ones the great depression and so forth multiple quarters back to back where you see really big ones but all for all intents and purposes they don't last very long and you can have you know the other phase of the cycle take about eighty percent of the entire cycle that's the way that you need to think about it growth is about eighty percent of this and the recession is about 20 of this rough rule of thumb alrighty so what does that uh then mean uh for us well um [Music] we uh normally see this happen over a 10-year period of time so roughly every 10 years you'll see a wiggle in the economy either a big one or a little one and that's that's something that you can regularly or generally depend on now back in the great depression uh the economists at the time were frustrated with the fact that there were ups and downs in the economy it's you know it was looked at as being a really you know a bad thing i guess about the capitalist system and sort of like what winston churchill said about politics you know capitalism is about the worst economic system ever invented by man except for all those other ones of course that we try from time to time so it's a really poor system but it's been the best one really in terms of efficient outcomes that we can see so cycles are something that we sort of have to live with all right now along comes globalization and what happens to the business cycle well nothing it's exactly the same as it was before we see the same the same four phases of the cycle but what i believe and this is not something that is in the literature yet this is something we are still debating as economists so i i warn you with that but i believe that what we've done is we've taken a 10-year cycle and we stretch it into 20 years now how has that actually come about why the stretch well technology has actually enabled us to grow for longer why is that well technology enables us to do a number of different things it enables us to mechanize more processes so we don't need as much labor per unit of output as we used to and so we can get more out of the population there's more productivity there productivity increases actually lengthen the amount of cycle that we can get now we've had productivity increases over time that haven't had a huge impact on the length of the business cycle in the past but i believe that the exponential increase in technology that we're seeing right now is something that's actually done that for us number two and it's related to technology communication we can now communicate on a 24 7 basis all over the planet so wherever the sun is up you can actually be doing business you can just move around to where the sun happens to be and um there we are now the sun's not the one that's moving okay i didn't get my uh astrophysics uh wrong there but communication is the point here and that is you can run a factory just about anywhere you want in the world full 24 7 monitoring of what it is that you're doing through communication technology logistics have been vastly improved by all of this as well and so we can time the movements around the world so we don't have to have extraordinary inventory accumulations all over the place we've been able to mitigate that and of course the efficiencies there have actually stretched out the business cycle as well labor constraints have actually pushed us to globalize and to use the labor inside of other countries and so that is stretched out business cycle why well the inclusion of these countries into the global continuum has actually taken countries that are well behind the technological curve and given them a great deal of growth runway they can outperform the rest of the world for long periods of time and of course this actually adds to global growth and stretches the cycle out as well of course the readiness of emerging markets for all the free trade agreements and the openness and the world trade organization advances and and so forth uh the readiness for that particularly of china but not just china everybody else getting on to the bandwagon as well well that has stretched the cycle out as well you might say well i don't care i just just give me growth you know i don't need to know all this stuff here you know um why why did you spend so much time and why are you so passionate about all this well strategic decisions that you make policy decisions that government uh levels make are all contingent on our understanding of this thing so when the global financial crisis comes along and people go wow why was that so punishing well it's like we grew for 16 years we normally grow for eight and so what happens in a stretched out cycle is you get exaggerated everything you get longer longs you get higher highs you get more uh dramatic corrections and deep corrections in the economy and then it takes longer to actually recover from that why is that well you had a bigger bubble so you got to get rid of that bubble well all of these dynamics are not the kinds of things that we have factored into our increasingly impatient impaired brains in a high-tech society like our own okay you know i got this theory about information the more information that is generated out there and we've got an exponential increase in the amount of information that's out there the less our brains can actually cope with further out history you know further back history we're focused so much on the deluge of information that we're trying to pack into our heads that has just come out that it's very very easy to forget about things that that are two or three years old now that's ancient history to us in an operation like that well if you've got a recovery period that takes five or six years to occur that feels like new normal to a lot of people if you've got a very long bubble period of time and the last bubble was about five to seven years long people start saying well this is this is sort of like the normal paradigm right now you know i i i'm not going to expect a recession i think this you know you know we can probably just keep this thing going forever and anytime somebody whether it's a professional economist or anybody else says to you it's different this time boy get out your warning lights right there because that's almost the moment when things are going to start to show that they're just like they were before so what's different about this time the cycle has been stretched out everything's exaggerated what's the same the phases of the cycle still happen and so we need to get our minds very much around how it is that we accommodate these exaggerated movements inside of the cycle and if you're making decisions based on that well you're much better off i believe than anybody else so this takes us to our current uh situation here all right so we had a big recession back in 2008 2009 you could see from this series here that retail sales were punished and punished bad and they went down and they took an awful long time to um to revive to get back to the previous level well the pandemic came along let's fast forward over here and you see this enormous v downward and then we took off again and we've we've gone nuts you know look at the end of this now why do i pick on retail sales retail sales are important because they are about 60 of economic activity in the average economy that's the same for canada the consumer is 60 of everything that goes on in the economy so if this thing is going well you can pretty much conclude that you've got a strong economy all right let's not talk about the strong economy yet let's talk about this recovery now many were saying oh man it's going to take a long long time to recover from this whole thing well let's just zap out that period there that we see and you can see that we dropped for two months and in just two months we were back to above previous levels so this was a v-shape recovery if ever there was one now is that what you were told was going to happen absolutely not jay you remember you know many many were out there saying oh this is going to be just like the global financial crisis you know we're going to go down we're going to be going down for we're going to be down for a long time this is not a chasm we're going to get out of easily and we were out there saying uh hold on like we did not have the global bubble situation preceding this downturn in the economy that we had in the global financial crisis time we had five to seven years worth of excess that we needed to get rid of you know big recession big chasm this time around pent up demand we actually had the opposite that led into this whole thing so we were out there right from the start saying hold on this is a policy induced recession and so when policy allows us to actually go back out there and and operate normally i mean even we didn't think it was going to be a mere two months and we would be back above previous operating levels that was lightning fast but we got the spirit of that right and we said hold on to your hats businesses everywhere don't lay people off you know don't go crazy on this and if you do have to lay people off for cash flow purposes just make sure that you're staying in contact with them because you're going to need them back real fast um hang on to the inventory that you need make sure that you have capacity don't sell off your factories don't sell off your equipment in fact if if somebody else is doing that buy it and there's they're looking at me and saying are you nuts we're in cash conservation mode the economy has just taken this enormous hit and i said i i know i know i know this pencil pushing economist is asking you to do something that nobody else is asking you to do you're going to love me if you take uh my uh advice on this um but everybody else in their crush to actually accommodate this fast return of demand prices are going to be shooting up all over the place and central banks are quickly going to get behind the curve and so jay said you know peter and his team actually called this we did we actually saw that this was going to happen and that is what's occurring right now okay all this retrospective stuff is no good for us because it's already happening right well if we're right and what led us to these conclusions is true then there is still something to know about the future inside of the paradigm that we're looking at okay let's just keep going here um we also see a v-shaped recovery in the unemployment rate in the united states and this is an inverted unemployment rate okay so i've negativized it all so it's upside down but i just wanted there to still be a v just like that retail salesy and by by the way there was a retail sales fee in the united states as well and for something like unemployment to come back this quickly is really really a challenge normally this is a lagging indicator of economic activity it usually sits behind everything else and it's not that responsive well you can see that in terms of the inflation barrier to economy we call that neighbor the non-accelerating inflation rate of unemployment if you go below this in this case it's above it here because i've inverted it you're in trouble and your wage costs are going to start to rise now you see that prior to the pandemic we were already in a searing hot us market and it's very quickly come back and it's done the same thing as well now we're dealing with the same kind of thing in the in in canada here our nehru is a bit higher than in the united states we were only just there at the end of uh the last or not the end of the last cycle but prior prayer pry pre-prank pandemic get my tongue sorted out here um we came back and we actually went into the danger zone now this down blip that you see at the end or it's the an uptick in the unemployment rate actually that's an end of summer statistical quirk thing we just didn't get the return to school right inside of the seasonal factors and so i don't think that that's something that's going to persist and statcan seems to agree with me there they wouldn't say it the same way but uh effectively it's uh it's the same thing and so we've got a searing hot labor market here as well and that's another thing that we said was going to happen hang on to your labor love them because you know if you if you leave them they're not going to be too keen about coming back to the people that ditched them and so um so here we are with a tight situation there again that speaks to the kind of cycle that we have right now and the intensity of demand that we see in the economy so let's spend some time talking a bit about the inflation issue that we have right now let's ask ourselves the question why inflation like if we had enough if we had enough capacity in the economy prior to the pandemic that was not kicking off inflation pressures and that's exactly where we were you know the economy was hot but we didn't have inflation pressures then why when we came back with the same capacity still existing in the economy why do we have inflation well i think number one is we simply did not expect it um i'm gonna have to you know pick on some people here and i'm hoping that they can forgive me for this none of them are sitting around the table here but a very very prominent book came out uh when the pandemic hit and it was called the great reset and it was published by klaus schwab the head of the world economic forum and it was a book with some incredible like incredible because they were huge and revolutionary projections of what was going to happen and the remedies that were actually needed well i believe this was highly influential in people's thinking well some of the things that were said in that as presuppositions to the policies that would actually follow um are on the screen here it's hard to imagine how inflation could pick up anytime soon well if you're going to put a policy into place anytime soon is not just in two weeks you know you're talking about a near-term horizon at the very least and perhaps the medium term five years uh out there okay so no inflation anytime soon well that was sort of a mess how about this one the unemployment situation is bound to deteriorate further and this is when we were going to double-digit unemployment rates it's bound to deteriorate further it cannot improve significantly well the numbers that i showed you just proved that to have been horribly off what actually happened now these are forecasts right okay every forecaster is circumspect about picking on other forecasters but you know this is why we are dealing with a situation where we are wondering if the models are actually broken what does it say here and we'll constrain wages for years and put strong downward pressure on inflation for the same period of time i would assume and that didn't happen either strong consumer demand is unlikely well the retail sales figures that i showed you which we could replicate for the united states and for western europe proved that to be way off the mark the capitalist economy that has been derided by many right now actually showed itself to be remarkably resilient in face of a recession that was caused by policymakers and it was because of a misread of where the economy actually was at the time well no wonder we've got inflation right now we were so conditioned to believe that everything was going to be soft for a long period of time that in an effort to conserve cash we made permanent decisions that disabled our um ability that's that's overseeing things too much but um to actually come back to jump back onto our feet again and to do the thing that we were doing just a couple of months prior okay so the inflation actually sets in what are some other reasons you know not expected is just the first one pre-pandemic pent-up demand well what do i mean by this well let's go to a leading indicator of economic activity in the leading economy on the planet the united states now here is my characterization of the u.s housing market and you know it's not a great stretch um to um to actually put this one together because you can see that around the orange line of demographic requirements in housing demographic requirements are broadly agreed by many institutions in the united states to be somewhere around 1.4 million units annually and demographics don't change very much you know they've all been determined pretty much 20 years ago you know when babies were being born and you know they get older and older and eventually they need a house they form a household and then they need a housing start and then there's some immigration that comes in people die people are born and so forth that's the demographic um uh dynamic but it doesn't change very much right jay you know like we know demographic economics it's like it it's they change at a glacial pace but why do you then have a housing market that is so volatile well housing is very related to the welfare of the economy and if things are going well people say well why not have a second house or a third house or what have you and then the speculators get involved in that and so forth then it magnifies things and of course housing is something that's very visible to most people so prior to the global financial crisis we all know how much of a bender the us housing market was on the reason it dropped by 75 percent and stayed there for two and a half years was the extent of the bubble that was actually there and it took an awfully long time for people to feel confident enough to start building more houses in the u.s well somewhere around 2012 that shaded line that you see in the back there the enormous bubble went down to zero but this market took so long to recover that a deficit started to occur and folks that deficit is huge it's more than a year's worth of supply of deficit of of need of housing in the us economy and so the fact that it's gone above that that housing starts the dark purple line have gone above the orange line does not indicate a bubble they're actually trying to get rid of an anti-bubble here so they can stay up there for a long period of time and here we are you know with u.s housing starts at 1.8 million units for a number of years and we only just wear down and balance we wear down this deficit and balance the us housing market folks this is very sustainable inside of the u.s market and this for me is a perfect illustration of pent-up demand in the number one economy in the world that's why the economy came back now it could do exactly the same for western europe and folks add that up we get 45 of global gdp we were not on the verge of a recession we caused the recession to happen when there was still pent-up demand there was still lots of growth runway in the global economy now many economists will disagree with me on this but this is probably the best news that you're going to hear in this entire presentation and what i'm saying is global growth has actually got a long runway now there is a twist and i'll get around to the canada situation in a bit but it's important to understand that we had pre-pandemic pent-up demand and that's still with us now we have mid-pandemic pent-up demand as well you might say well isn't pre-pandemic pent-up demand enough well maybe it is enough but this is another bonus now what do i mean by all of this well folks when when output shut down most people actually still hung under their jobs and they still got fully paid that was part of the plan behind all of this and those who didn't actually got generous subsidies but most people still hung onto their jobs well what happens when your income stays the same but your ability to actually spend it gets compromised by shutdowns well that money piles up inside of somewhere and you think okay the savvy person would actually invest this well i'm going to choose one of the most boring series that exists in all of the data world to show you that a remarkable change actually happened now what is this boring series what's the amount of money we keep in our checking accounts like why would you keep anyone why would you keep that nickel in a checking account well that's for cash flow purposes because you're not getting a return on that the return is almost negative when you account for service charges on that account and so you know your interest rate is like something really really meager and more than that gets taken away by service charges so you really don't want a lot of money piling up inside of your checking account except the pandemic comes along and this happens something that just so predictable over time you could set your watch to it all of a sudden took off now to illustrate just how um dramatic this is by the time we get to the end of the series this additional pile up inside of demand deposit accounts primarily checking accounts is worth 20 of us gdp if you have the number one economy in the world that has this kind of extra accumulation of cash happening inside of it you got to sit down and take notice now forecasters like jay and i will look at a number like this and say okay so if all this money comes into the economy all at once what do i need to revise my u.s growth forecast up by now we get excited about revising the u.s forecast up by one percent in any given year but folks if all this money came in all at once i would have to revise my u.s forecast up by 20 that's right just let that sink in for a minute this is a lot of years of mid-pandemic pent-up demand inside of regular checking accounts now why do i believe that people are going to spend this why else would you keep money in a checking account folks you're intending on spending it there's a lot of pent-up spending happening in the u.s economy and this is one of the reasons there's a lot of inflation right now it's not central banks printing money it's not you know it's partly that but folks you have to understand what has actually happened inside of this dynamic you take a fully functioning economy you shut it down by policy people still earn their incomes and this is what happens and they're waiting to spend this on something on housing on consumer goods on trips around the world whatever whatever we allow them to do this is so this is a phenomenal um [Music] realization of the state of demand now this didn't just happen in the u.s it happened in canada it happened in western europe it happened in emerging markets as well the same phenomenon led to the pileup of cash that we actually see now does anybody tell you that this is going on now they're saying oh no we're gonna fall into recession you know inflation is eating away at this it will eat away at some of this but you know the lion's share is still going to be there and um so i'm just waiting for the moment when you know we actually see the evidence of this coming out of the economy as it happens right now this is just being maintained inside of checking accounts and so this remains pent-up demand to be seen in the economy when regular consumers figure it's safe enough to go out there and travel the world or spend on cruises or you know whatever it is their hearts desire so um so this is something that's still coming our way what's the fourth thing supply chain disruptions uh jay spoke about this and this of course is a concern to everybody around the table here what you know actually happens in a situation like this well as far as i'm concerned the ability to create the supply is still there it was there pre-pandemic nobody came along and destroyed it during the pandemic there was no sort of destruction that happened there it wasn't a natural catastrophe that that got in the way of things it was simply that we had to shut the economy down for a little while so all the capital is still there why the supply chain disruptions well covet decided you know didn't decide to actually be uniform around the world right you know it's one economy there's a shutdown that happens that it's another one a couple of months later it shuts down and so forth well what it's taken is a finely tuned instrument around the world all of these logistical arrangements around the world and severely discombobulated them by saying okay this one's not going to work now okay it's back wrong this one's off you know and so on and so forth that's not how supply chains work as you and i both know and so we're now about subsidizing you know chip factories in the united states and western europe and goodness knows where else um and um trying to do all kinds of gap-filling investments at the moment that i believe are going to add to our aggregate supply to the tune that in a couple of years time i'm wondering whether we're going to say to ourselves oh boy you know we got way more we've actually got way more supply uh capacity to supply the economy than we need and you know ultimately what does that do to prices well it takes them down as well it takes a while for that to come into the system uh but i think that that's where we're headed right now in the panic where we're wrongly concluding that we don't have appropriate amounts of supply we're making all of these adjustments we're near shoring we're reshoring and all that good stuff but we've got to think to ourselves okay as long as we're not taking supply that existed before offline are we actually net adding to uh to aggregate supply out there so um they're hanging us up right now they're causing inflation but um they're actually going to be quite an inflation remedy as we go forward final thing is we had a protracted period of under investment in the economy and that might sound like okay i'm arguing with myself now i'm on the one hand on the other hand but understand that we got to 2019 and we were just at the point there okay we had enough capacity but we only had enough capacity utilization rates were very very high at that point in time now if we still have pent-up demand in the economy that's a problem because you have just enough supply to be able to meet demand but you've still got a lot of runway on growth and sustainable growth going forward my illustration of the us housing market so how did that come about well the lack of gdp performance and people calling it a new normal following the uh global financial crisis caused a lot of underinvestment now remember we over invested in the bubble years of okay so we had to use up some of that spare capacity but we were also we also did that for so long that all the newbies that were coming in and making investment decisions in their businesses and so forth thought well this is just the way the world operates you know we can get by with under investing you get to 2019 you realize ah we've under-invested and so what happens at a point in time like that well you've got to change your investment behavior not to a new normal that's higher but to the old normal that was higher you know that's just the way uh the economy actually works so we have underinvested we have only enough capacity to go forward and i think all of these new investments that we're actually making right now are going to be more appropriate to the old uh style of investing that we actually did in the past i hope i haven't confused with that but it's important to understand what the sources of inflation are because we can't forecast going forward if we don't understand what they are now the difficult thing with with inflation jay you remember when we talked about long and short run phillips curves and so forth and how it was that you know we actually uh we actually processed this let me just ask you a question i'll take a little bit of a breather here but can you actually believe that after 35 to 40 years of appropriate inflation management all of a sudden all the wheels uh seem to be coming off one or two thoughts on that i know i and it's really worrying i guess my one of my questions is here we've got uh a potential 20 growth in the economy uh are we aiming to use the blunt instrument of higher interest rates to chew up twenty percent of uh of gdp and and uh deja dan just came up with a with a an analysis the other day saying that the only way that we're going to tame inflation is to induce a recession which um raises all sorts of problems about about uh you know the way that we are actually trying to manage this problem and um yeah so back you know back to your uh initial thoughts uh peter about uh about how we understand what's going on in a global economy uh here and uh and particularly in this kind of chaotic time uh i'm i'm sure not confident that we're approaching it in the right way i guess the other thing i wanted to say too is and you're talking about some of these other the factors that uh uh that are are behind inflation and going back to the under investment problem and of course that's that's also having a big impact on supply chain um and and to some extent uh the issue of for many manufacturers for many shippers was well why would number two two things why would we invest to increase capacity when basically we're making all this profit and uh maybe it's better to pay off our or to pay dividends maybe it's better to acquire other companies to consolidate the market here or maybe it's better to focus on high value and high profit uh products for uh uh for a market where there's that much demand and and so you know we're seeing a lot a lot of the trends that you were talking about in terms of the economy as a whole uh in the in manufacturing supply chains is uh as well and it's it is worrying because uh the investment the capital that should have been going into expanding capacity uh increasing production to keep up with that that demand that was in the economy uh seems to be you know the capital is being used for other for other purposes uh there so that uh you know that um it goes back to what you know what you're saying to or telling us two or three years ago we've got tremendous opportunity uh here but uh but we're not seeing that uh uh that investment giving you know in in the capacity for for the entire manufacturing sector around the world to keep up with uh with that demand and that's that's very worrying as well and without that investment then you begin to you know then you look at inflation then you look at at interest rates um and as you say you know much of that inflation was caused by uh uh by government policies that were off uh off-kilter as well well you know you you make a bunch of really good points in there jay the the thing that i think it boils down to on a policy side is is this too much demand or not enough supply and i got into a debate with one of the bay street economists actually in a presentation downtown a couple of months ago where he stood up and initially said no there's too much demand out there and we've got to quell demand that's the issue and most policy makers agree with that you know we're going to have to bring the big hammer of interest rates down to to to quell this demand because we simply have too much of it out there and i couldn't disagree more um i believe this is a supply situation and that's of course the case that i just made we under invested um we we convinced everybody you know to to to shed and to uh to conserve cash and so forth and to get rid of their labor and so on and they created a big problem for themselves in terms of being able to come back but those are all errors that were made on the supply side of things you know demand is just what it is and um you know i i weep i guess every time i hear somebody talking that way because um you know interest rate policy when you still have a fair amount of pent-up demand in the economy can actually take a good thing and undermine it and of course all policy makers would say well peter we're not trying to kill the economy we're trying to engineer a soft landing it's difficult to engineer that soft landing when it comes to investment because as we all know investments take years to you know from from shuttle in the ground to realizing the capacity it's not a quick fix and um so i i'm concerned that the uh that the misread of that is is really uh a problem however you know what we what we're faced with is something that we haven't seen for 35 or 40 years and that's the psychology of inflation and so what actually happens well we have specific shortages you know people say ah there's no chips so you know we're not going to be able to make cars or ooh now uh oil is constrained you know we've we've been on this carbon reduction thing and all of a sudden you know uh we've got wars or other supply chain disruptions that are actually compromising our ability to get a hold of what we need to run the economy now copper was having a particular problem at a particular point we've got a question already about steel you know where is that all going to go we get these specific shortages happening inside of the system and what does that do for us well specific prices start to go up so it's very targeted and central banks are coming out and saying look it's only oil we're focusing on core and so it's okay for a while there um we can we can deal with that you've had to always deal with volatile food and energy prices before but when the fast recovery happens and now a broader range of goods are compromised by that through supply chains it starts to become a bit more of a general condition then we start thinking to ourselves is two percent actually going to be something we can count on or not if this thing actually snowballs we've uh we've got a big problem on our hands and that's where economists get terrified because if general expectations change it's very very difficult to get somebody's mind away from you know a six percent mentality back to a two percent mentality now how does that work in practical life well are you resisting price increases that are getting passed on to you well no what are people saying well if you want to actually get this thing um there's not much of it that's actually there and i got somebody else that's willing to pay 15 more so i'll give them all the stuff and you say well look i can't shut my business down i'll pay the 15 more and boom all of a sudden your expectations around price increases have changed now what's the more sinister thing that can happen when this starts to become a general condition well businesses can't resist the opportunity to make a buck the opportunism comes in and says well i'm not short of anything right now but everybody's believing that there's shortages of everything so let's just try this one out we don't have to get out there and lie we just have to say well the price of this has gone up 20 and people go oh not them too okay well i guess i'm going to have to pay 20 more for this and whether it's needed or not it goes right to the bottom line of the company and they go you know glad we got away with that but when everybody gets involved in this game then it does become a general condition and all the profits are gone it just becomes this crazy cycle now uh where it just goes through the continuum here and becomes entrenched in the economy can you believe how quickly after 35 to 40 years of price discipline right around the world how quickly we've actually switched uh gears here and come to this okay so this is not an easy thing to fix and that's why central banks have to bring the big stick out and say okay we got to break this thing and the only way that we've ever figured out of breaking this thing is to increase those interest rates until people get that we need business and so there really is no ceiling on where they would drive interest rates too if we don't stop increasing prices at these extraordinary rates then they're just going to keep driving things up there right now and that's the bad news i think that even although we've been through this charade a number of times central banks have not figured out how exactly you use a blunt tool like monetary policy and engineer um a a slowdown we're quickly running out of time here so i just wanted to talk about two different economies here us in the united states and here's our map of uh core cpi in the united states versus um the regular uh uh sorry its core cpi versus the four month moving average of growth in core cpi and when the orange line is above the purple line you have not quelled inflation and so they still have their work cut out for them canada is even worse now this is a little bit dated i'm sorry about that my up-to-date slide did not come through it's not quite as dramatic as this but it's still up there core inflation is continuing to drive uh sorry the monthly increases that we are seeing right now are continuing to drive expectations of year over year core inflation upward of course that's the one that the central banks actually worry about we're not through this thing yet and um so hang on to your hats now it's important for me not to confuse you here i've argued for pent-up demand that's a global story okay it's a global story it's not the canada story our cycle has gotten out of sync with the united states you need to understand that it's pivotal to this presentation so you recall the housing chart i showed for the united states the dark or the light shaded purple bars were upside down here they were underneath we have actually a housing bubble that is going on and folks if we're going to wear this calculation of the housing bubble down here we're going to see an awful crunch in housing starts and it's going to take years at very low levels around 130 000 housing starts now understand we're at about 230 000 right now plus and so that's a massive massive drop and according to our calculations on demographic requirements here um we're we're not in good shape if this is a leading indicator of all domestic canadian activity this is this is not a happy situation i am not bullish on the canadian economy for another reason and that is our indebtedness situation our consumer indebtedness situation is way out of whack so in the united states they were the worst in the world and their debt income ratio back in 2008 was 165 percent the latest read on canada is 185 we are 20 percentage points higher than the united states was when they were the worst of um debt management centers at the uh at the personal level okay so we have got a big big bubble that uh i believe is gonna burst on the domestic side now what's the good news the good news is if you're shipping outside of canada with all of that pent up demand that is there exporting is going to be red-hot and the weak domestic economy in canada might well free up resources to deploy over to the export side of things to actually really lift our economy up what i've just told you is back to this 20-year cycle the us i believe is still towards the end of the recovery phase of their cycle so they still got a lot of runway canada not so much we're at the tail end of ours right now in sort of that peak phase where you get the bubbles actually occurring and that's what scares me about where we're at i know that's not great news but if you're going to have any kind of domestic recession inside of canada it's a good thing to know that you've got a backstop in the rest of the world so even with interest rates increasing in the rest of the world doing that in a context of pent-up demand i think people can sort of afford three to four percent interest rates in a situation like that now they'll go through an adjustment period but it's going to be a lot lighter than the adjustment period that i predict for us here in canada okay so as we bring this to a close i know that i have not gone through everything with you i have given you my currency forecast i haven't given you you know the actual pinpoint of where interest rates are at let's cover that in q and a but what do we actually do with a story like this how do we actually bring it together so a quick summary we have a stretched out cycle us and canada are at different points in the cycle so that's key in terms of the strategic decisions that we make the sources of growth globally or changing that's not something that's immediate that's been happening for quite some time so this is really you know the transformation from our traditional export customers out there to our non-traditional markets the emerging fast-growing emerging markets of the world those sources of growth globally are actually changing investment badly needed right now badly needed to compensate for labor shortages for capital shortages inside of the economy and badly needed because growth outside of our economy is so red-hot uh in in places that we're not even doing business uh that we need to invest to keep up from that growth is an elixir when we can find the growth out there even though we have soft spots that we have to deal with the growth sources that we um that we can find out there are an awesome opportunity for the transformation that i would argue was needed a long time ago but it's never too late to actually keep uh up with that okay strategy options as we go forward then well we even in canada here will have temporary pent up demand because we we socked up money inside of our demand deposit accounts as well so all is not lost immediately but that's only going to last for so long we have very very strong or very very strong domestic weakness if i can say that we've got we've got a really uh a difficult situation there we need to keep uh our eyes on the shifting sources of growth and so i've written strategy papers that talk about china as a destination india as a destination and the southeast asian economies as a destination right now it's sort of like goldilocks china's too hot politically india is too cold in terms of its economic development i'm actually looking more and more at southeast asian economies and saying they're the right ones actually to deal with and in fact you can deal with the other two through southeast asia very effectively singapore not being the only place indonesia also a place that is a transit point for trade to india and trade to china and so uh some some keys to uh to look at there investment in capacity keep your eyes on this this is really going to be so important for canada going forward and not just private investment public investment in infrastructure as well finally labor well thank goodness we've got the kind of technology that we have right now because labor is in short supply and as jay has already said it's very very difficult to change that overnight demographics do not change quickly and immigration i believe is a false hope it's a partial remedy for uh what it is that we need we need to think about things differently so number one we still need to think about the labor supply that exists in labor-rich economies around the world and figuring out how to leverage that to get the labor that we need not bringing it over here but using it there importing labor without moving it i guess is the way that i would put that but also to look at tech solutions that displace labor you might say you're not allowed to say that out loud did you just say that did you just say displaced labor well unlike the first industrial revolution this one is displacing labor that doesn't actually exist we have such a paucity of labor right now that if you actually bring machines in to do things it's because you don't have the people you just can't get a hold of the people to do it so it's almost the best situation to have the technology in now you know that's not exactly that's partially just disingenuous of me because it's not a perfect match we can never do these kinds of things perfectly yes there will be labor displacement but because of the paucity of labor um we have the opportunity to retrain people quickly to do the things that are needed in the economy we simply don't have enough people to do all the things that need to be done well i'm hoping that some of that inspires a conversation that i haven't vacuumed up all of the q and a time uh that we have uh for ourselves today i'm gonna pass it either back to jay or shawn whoever wants to take the microphone here at this point and we can either discuss or we can have a q a about uh all of the controversy that i've just dumped onto the table here now that's great uh peter and uh what a great overview of what's uh of what's going on uh you know i i think uh certainly living up to our expectations and your and your reputation of being uh controversial but in so many ways uh asking the right questions uh here and and uh so i've got i've got a few questions and then we can um we can open it up to more general questions from uh from the audience um let me start with uh an observation i guess about the last point that you made about labor and uh and displacing labor with automation uh you know that shouldn't be that shouldn't be too surprising the most automated companies the most automated countries in the world are also the ones with the slowest growing populations and the biggest labor problems uh here are at least uh labor shortages uh when you look at europe when you look even at china uh japan south korea uh the the link between demographics and automation is pretty is pretty clear and when you look at you know the the business of manufacturing writ large uh there's been quite a quite a bit of analysis out of mit of all places in the united states is basically making the point that you know they're trying to say that the globalization hasn't displaced uh workforce and manufacturing sector in the us as much as technology has and um but when you look at the the sec the kind of advanced manufacturing sector writ large when you consider the jobs that are being created in the tech sector because of the solutions they're creating for manufacturing what you actually see is yeah sure there are fewer people working in manufacturing industries but there are more people working to provide those those high-tech solutions and therefore the the the labor is actually counter to the workers are actually counted in other sectors of the economy in engineering and and tech development and uh i.t uh industries for for example and and if you look at you know total total compensation in labor and manufacturing and then include these other sectors in not much has changed at all to your point anybody who says uh things are different this time beware especially if it's your financial advisor um here but it's it isn't that different but the i think what we're seeing in in and it is a and question to you and you you like me like looking at numbers uh here but one of the the big uh challenges i think economists have and policy makers and business strategists have is really trying to make sense of numbers that and statistics that were defined probably according to an economy that worked 40 years ago and not necessarily reflective of a modern integrated economy where you do have this intersection for instance of technology and manufacturing so you know when we asked the survey our members and ask are you a manufacturer are you a technology uh company are you a services company uh the you know the answer we get is yes because that's the reality of the business today yeah um so it that makes it very difficult to to to do some some pretty uh uh pretty detailed analysis if we're working on old stats you know what's interesting about that though i gotta jump in here jay because um you know the raw material that we work with is fundamental to coming up with the solutions um and you know this is this is often an argument that that is raised and yes when it comes to official statistics you know most of them have a 60-day lag you know which in a world like ours right now is is just like you know that that's just that's just like way too late to be able to to react in real time but at the same time what we see happening is the generation of this data through online means um where where we actually have lots of real-time information that says okay now we can develop an up-to-date you know almost a daily proxy on how retail sales are going because we've got satellite images of parking lot activity inside of a walmart right and these are very effective actually so i would say we're not there yet we're still dealing with these old data but companies that are really putting uh ai systems to effective use are finding these data series those continuous time series j i think we're going to get to the point in the not too distant future where we have real-time daily gdp i i i believe that's going to happen and so you started off the presentation by saying i remember microeconomics you know we assume perfect information you know at the same time as things are chaotic we're getting more real-time data series at the moment that that i think that quietly you know without anybody noticing it the remedy for all of this chaos is let's have more data receptors out there and let's put them into a big data lake and let's be able to use them let's have little data bots swimming around inside of that data lake that are going to tell us what's actually going to happen and i believe leading edge companies are doing this for themselves right now they can't wait for the official agency to actually come up with things well i think you know once we get to a position like that we're going to be able to make even way more instant monetary and fiscal policy decisions that i'm hoping are going to be far less disruptive to the economy so i don't know if that's where you're going uh with your question but um i'm actually very excited about what i see happening from an economist statistician point of view because i believe that whereas we've always been in sort of way up in the ether of theory uh before um something revolutionary is happening to make economists very very practical and very relevant to what's going on right now and the high-tech companies are the ones that are actually leveraging this more than any other did you have another question for me jay uh there yeah so you know and just kind of riffing off that i i think i think you're absolutely right and and you know in many cases it's uh it's a question of how do you use that data like data with a purpose here data's data but how do you actually turn it into intelligence uh as well but uh but i think that's that's uh another issue that a lot of companies are struggling with uh uh as well maybe too much data and not enough thinking about how is that data going to be useful and driving value uh from this and yeah that's a that's an issue we hear about um all the time too i i did want to ask you though i mean you've painted a great picture in terms of some of the risks around uh the canadian economy and uh and the potential for instance uh in the us which you know frankly is is probably the biggest opportunity for many canadian companies uh uh given the integrated nature of of the of the economy of the supply chains that uh here between canada and the united states and ensure there are other global risks out there but it but it's also very uh you know it we've the the trade data that uh that we've seen over the last two or three years show the you know the how important that u.s market is for canadian exporters uh or for canadian companies that are linked into those uh to the north american supply chain but it's also uh you know there were big expectations uh that particularly built up over the last three years that all of this uh cove and all the supply chain risks were going to lead to a massive reshoring of manufacturing back to the united star back to the united states and back to uh to canada um and if anything what we've seen or we haven't actually seen a lot in terms of the changes in where manufacturers are sourcing their other products at all but what we have seen is that canadian economy the manufacturing economy in canada has actually become even more dependent on imports for instance from china so i i'd like to get your perspective on this this idea that we're all that globalization is at an end and we're all going to become you know um at least regional and uh but but much more localized in terms of uh of our our supply chain connections mm-hmm you know the thing about investment that we all know is that you can't fix it overnight so if you decide you're going to reshore you're going to nearshore you're going to localize um you can make a decision in 2021 and maybe by 2024 or 2025 you're going to have things you know up and running at 100 so when the economy comes back and when it comes back as quickly as it did this time around what's your default well your default is what you have now yeah and that's exactly what we saw when sars one happened everybody was saying i don't want to get on an elevator with anybody anymore i'm never gonna you know sit on an airplane with anybody i'm not going to work shoulder to shoulder with somebody and you know a couple of months after the thing was sort of over it was like do you remember the crazy things that we were saying during sars and one of those of course was supply chains and then the japanese tsunami happened and we said it all over again and a couple of other things happened we said you know we really need to do that thing and you know when we've really had a bone shaking experience you would think that we would actually you know after two or three of these things say okay we keep saying we're going to do this thing my question is yes when we say we're going to do these things we really mean it why is it that we that we change our minds well it's just so efficient the way that we set it up before and once things get back to some semblance of the normalcy we realize that we really had our smarts when we designed all of this and we've got to take a chance you know we default initially to what exists and then we price out what it takes to create the new and they go well i'm okay to do this everybody's going to do it at the same time because my costs are going to rise by 10 or 15 or 20 or 30 percent whatever you know so i i don't know that i'm going to have a business model and so between the costing side of things and the sheer laziness of just defaulting to what you have right now i think for the most part we end up just doing things the way that we were doing them before we're more serious this time because we were more traumatized but i don't have a lot of faith in the longevity of our memories once things actually get up and running again and become normalized now is it a problem i don't know um it all depends really how the geopolitics of the situation shake out and so the one thing that really has has put a wrench into the spokes of defaulting back to normal is the conflict in russia and ruminations about a conflict between china and taiwan and so if those are are the case and and we really have to sort of cut and paste from the russia situation where we say okay sanctions cut paste put sanctions over to china that's a whole that's a whole different series of considerations can we actually do that you know without bringing walmart to its knees for example you know um and and so you know easily said not so easily done and i wonder if you know sort of our our geopolitics is very related to the acrimony that we all encountered at the onset of the pandemic it's your fault it's the fault over here okay we've got to you know take the opportunity build walls around our economies because we can't trust the phytosanitary conditions of country x or y or z you know and and you know then there's the cynicism about that are you just doing that because you always wanted to be protectionist but now you've got a good excuse to be you know that everybody's going to swallow and so there's this tip versus tat that actually happens it's it's very unnerving for the economy and very very deleterious i guess to growth to use a million dollar word and um so does an economy you know does a rising tide lift all boats in a situation like this do we actually get over our protectionism when our job becomes okay let's just get the economy back up and running again um that's a whole other phd thesis because you know there's some who don't actually want to get the economy growing again and those are the ones that i find actually quite scary um because growth is in our dna you know growth is something that from birth is so fundamental to us as humans that any talk of why do we need to grow uh really really scares me uh because uh i can't take something like that at face value anyway you know that would lead to a whole other discussion um you know the point here is uh i do think that it will be increasingly safe and um expedient to use what exists so it doesn't surprise me that the canadian trade numbers are as they are um that we are defaulting back to our sources of supply and maybe overdoing it a bit because of this this puff of demand that we have right now this desire to spend when we couldn't spend during the pandemic i know that was a lengthy answer but not an easy question no i you know i i think it's really a very very accurate answer too and and uh if there is an opportunity to localize production attract investment product mandates in canada and north america it's probably going to come in in more innovative sectors that are setting up businesses rather than than trying to restructure existing existing supply chains and you know the the one big uh issue here is uh is the geopolitical uh impact and uh you know clearly uh you know the war in ukraine is a is a big problem but you know growing trade tensions with uh with china and and geopolitical tensions with china too is uh can't help to be uh a major consideration going forward so peter let me uh i think we've got a couple of questions and maybe sean do you want to um to help us out here in terms of uh of uh fielding questions from the audience and um and let's turn let's turn over to our guest sounds good so i'm just gonna read them here and and leave you both spotlighted so uh by the way if you are still here it looks like most most everybody has stuck around make sure you use the q a box to type your question and we will read it out so the first question uh comes in from rosamalia she asks and this was during your session peter how do you foresee commodities uh products specifically steel in this global chaotic environment well it's uh it's a great question rosamalia um the um [Music] this has really become a situation where we've had to look at commodities on a commodity by commodity basis what is its supply chain actually doing uh where are the sources of demand in the rest of the world um and um how are we actually to fix ourselves inside of this market well i go straight to the places the uses i guess of this in an environment where interest rates are increasing typically you would look at housing you would look at particularly multiple units that need structural steel for them you would look at commercial building as well you look at the auto sector uh a lot of uh intensive steel need there and of course machinery and equipment and uh so in terms of these needs boy it all depends which part of the world you're actually looking at we've got this property implosion that's happening in china every day there seemed to be new videos out on youtube there about whole apartment blocks that were never occupied just being blown up demolished and um so as a yeah it's been one of the key sources of of demand for steel around the world and china of course tried to supply as much of that as it could internally china turned itself around from becoming a low-quality producer that had to import a lot of steel in the early 2000s it flipped around to a place that was exporting huge quantities drowning the market in high quality steel because they were creating state-of-the-art plants to actually do this whole thing so i'm looking at china's own need for steel and its capacity to supply the rest of the world and saying we could be in a glut situation now maybe not right away because we've got enormous pent-up demand for vehicles uh in the north american economy and the western european economy uh the chip shortage has created very very long lineups for new vehicles and of course price increases to go with them and so it'll be very interesting to see that once these log jams are cleared and there is a flow that's actually occurring there what it's going to do to to the demand for steel so i think things are going to get hot before they cool down again and then when they cool down they're going to cool down in a big way so maybe as much as two years of runway for uh for steel being you know supply constrained and higher cost and then uh seeing that run off and still being quite a bargain at that point in time so that's sort of how i'm seeing it at this point in time i i hope the answer to that question is uh is useful to you back to you sean thanks peter so rosamelia had a second question and this might be interesting for both of you to to answer um it said how would you suggest to the government to manage the canadian current inflation yeah um i could i i could be a mean guy and say okay jay you handle this one but uh let let me take let me take a look at this and then you can disagree with everything i say one of the things that we observe and i'll keep it close to the canadian economy but it's not unique to us is that fiscal policy and monetary policy can often be in conflict with each other so um you know clearly governments are concerned about affordability of goods and services right now and so taken on its own one of the remedies for that you know if you didn't really know what the sources of inflation were what have you how could we get more money into people's pockets well if you've got a supply constraint out there and you say okay well i'm going to give people more money well there's just more money chasing the same fixed amount of goods and services that are on the shelf so what happens there pure price increase so you're actually feeding inflation with fiscal policy at the same time as the bank of canada is cripping down on the economy with higher interest rates and you find things actually battling each other now i'm not going to wade into the politics of today but you know there is some of that that is going on in policy announcements i go back to the late 1980s when john crowe the governor of the bank of canada and david peterson the premier of ontario were dueling it out with each other because at the peak of the cycle you know the peterson government was dumping money into the economy creating all kinds of class a office towers in downtown toronto and together with the mayor of toronto at the time you know there was all these permits that were being approved and the bubble was just being fed and john crow had a famous meeting with david peterson where he said you know i don't think you're going to win this game so let's talk with each other about how can we tone this down how can we how can we take some of the heat out of the economy and they didn't agree and so interest rates went up and you know a massive recession actually occurred and all kinds of drama around all of that but a classic case where you're actually trying to get inflation down and even government can't agree on a coordinated policy to do that so that's always a danger and it's important for fiscal and monetary authorities to be talking to each other so that they're on the same page that so they're not fighting each other and so they agree on policy now we've had a lot of stimulus in the economy over the pandemic period very hard to actually say okay that time is over uh it's hard for you know a government of any stripe to do that because it you know the danger is ooh you know when we pull the stimulus rug out from under people's feet um it's it could be painful and you know the news is going to show you know the vignettes of particular people who are suffering as a result of all this and everybody's going to extrapolate that to the entire economy well the truth of the matter is with a low unemployment rate you shouldn't need to be stimulating you can pull all of that stimulus out and free up resources to the hot running sectors of the economy and actually aid monetary authorities by toning down that fiscal stimulus so if you're tempted to actually keep it there you're working at cross purposes so you know the big thing here really is uh intelligent coordinated policy and thankfully you've got a hot economy that can just continue to run uh it's the best of conditions for actually either tightening monetary policy or withdrawing fiscal policy now i hope i haven't stirred up too much controversy jay over to you to disagree with everything i've said no i think that's true and and i i guess i see another uh another part of this uh problem too in terms of the disconnect between government policy and uh uh and and monetary policy the which is regulatory policy uh here we've got uh for a number of years regulatory changes that made it easier and easier and easier for people to get mortgages to you know buy houses and and that was a part of the uh particularly a couple of years ago a part of what cmhc was was trying to do you know provide more more support for young families to buy uh to buy homes and and now of course uh uh you know many people working in or taking out lines of credit mortgages that they're going to find it very difficult to afford uh when um when interest rates go up i think the other the other area that we see in terms of regulatory uh policy where that is so uh discouraging uh are the the problems that many manufacturers are seeing and particularly uh companies that have you know over the course of the pandemic have have focused on on new therapeutics and medical devices on ppe in canada uh and really struggling to get that onto the canadian market in many cases it's because either we don't have standard product standards or regulations or regulatory approval processes that that will enable them to do that so part of the the supply constraint in canada is because of regulatory problems that we're seeing and of course and i don't want to get into the issue about competition policy uh either but but we've got to we really do need as you say peter to align fiscal and i would say regulatory uh policies with you know and maybe taking uh and clearly taking a longer-term view in this and uh uh and you know in the context of this pan-up demand but a longer term view about what the potential impact could be on on inflation and i i don't see i i you know for many many reasons the focus is on urgent short-term situation or has been over the past uh several years rather than you know thinking about what the longer longer-term consequences are how to unravel uh these policy changes no absolutely i think i think that puts us pretty much on the same page sean back to you yeah so there is one final question here and i'm thinking this is more for you peter but i guess it's your call what could you foresee for the canadian mutual funds market this might be a desire to more look at personal investment strategies but going back to your earlier point maybe this would be helpful to some folks so i'll leave that one well i'd like to hear this as well because i'll just be taking notes here well this is this is where i should you know end the session just by by uh going through my very lengthy disclaimer uh here i uh i'm not in the business of giving investment advice and i want to be entirely clear that you should talk to your investment advisor about uh questions like this i can offer an opinion uh that you can put into the mix but in no way you know would i be liable for any of uh any of the things that i would say in terms of whether they work out or not generally speaking when you look at my presentation you you know that i'm not bullish on the domestic economy inside of canada so those things that are very domestically oriented i would say would be in a higher risk bucket now all of those things there are some things that are staples okay so grocery stores and food supply chains and so forth are the kinds of things that you still need to actually have and for the moment you know until we get to a carbon-free economy gasoline is one of those things as well so when you look um at the hierarchy of let's say needs inside of consumer spending and so forth well um you know keep an eye on those things you know when you're actually picking and choosing if you have to be uh in canadian equities then you know that's uh that's what you uh that's what you need to look at in an interest rate increase environment as interest rates are going up of course that's actually um depreciating the value of bonds because the price of the bond as we all know is is inversely related to the actual uh coupon rate on that bond so you know it's a bear market for bonds uh for a while so you know i'm trying to say okay when it's between fixed income and when it's between equities that we're actually looking at that's sort of the paradigm that we're in what i am personally far more interested right now in is canadian companies whose primary uh obsession whose primary bottom line is really coming from the export side of things and it's a risk because uh my pre presupposition there is outside canada strong inside canada week and so when you're actually picking and choosing the ones i'm more interested in are either canadian companies with a significant domestic presence that are in the middle of an international push because it won't be realized in their stock price yet or ones that are actually out there and they are succeeding and they continue to have expansion plans particularly in fast-growing markets of the world so it involves doing due diligence what is the company's strategy where are they actually looking for things they may not agree with me in terms of you know where the growth is going to be stronger where it's going to be weaker that doesn't matter if they've already got a footprint there then you know that the growth is going to take care of itself if indeed what i'm saying about the world economy is ultimately what transpires in the next one to five years i hope that helps great thanks peter so that's it for questions uh jay alternative how are you yeah i've got one uh zinger for you uh peter and uh i'm expecting a really straight answer um we've got this panned up demand lots of lots of potential well lots of cash uh here sitting uh on uh you know unchecking accounts personal but i think you you know take a look at that uh profit margins in a lot of industries too there's a lot of cash uh inflation's eating into that and uh even in manufacturing that you know the uh selling prices are up but they're not up nearly as much as uh as input prices in uh in manufacturing so inflation's eating in uh in general into into cash flow um then we're into a world of higher interest rates um not only in canada but in in the us western europe around the world uh here too um higher interest charges interest charges are also eating up cash um you know higher interest rate one way to get rid of all that pent up demand is to take the cash that's available and pay off higher interest rates uh and higher debt charges i guess the from the point of view of uh a manufacturing company where the the real issue is how do we invest and and as you were saying how do we incent more investment to be able to increase supply uh my question is what is more dangerous to the economy long-term health of the economy higher interest rates or inflation the great question um it's i'm going to answer it in this way i don't think inflation is ultimately the problem and i know that you know that makes me sound like a cold-hearted capitalist you know only interested in business kind of kind of person here that's that's not what i mean by that i know that the pain that's being inflicted on regular people right now is widespread and and it's hard the reason i say that inflation is not ultimately the problem is central banks know what to do about inflation so inflation is going to go away they're very determined uh to do this they've demonstrated that with some of the most aggressive interest rate increases that we have seen ever in history um and so um inflation is going to go away i think the the bigger problem is the medicine our reaction to the medicine of actually taking inflation down so inflation goes okay what's left and you know did you drop a nuclear bomb on it that you know has sort of taken everything out and then literally there's nothing left um that's what central banks try assiduously to avoid and it's very very difficult for them to figure out okay how much is enough and you know we've we've at least got two episodes of this in our own memories and the existing memories of this of this is actually occurring um i think the impact of interest rates i'm going to go right back to my presentation because i think you know it answers it although i didn't say it this way initially really the impact of interest rates on an economy uh depends on the preconditions we got a bubble interest rates are going to do they're going to recover with our domestic economy and i don't think there's really any way of getting out of that now that's what's going to bring inflation down and our next problem is going to be okay does it bring in disinflation does it bring in deflation that's really what we're going to be asking ourselves if we get to a point where we're so successful with this that prices actually start to drop you know i wouldn't actually be overly concerned about prices dropping as long as they only dropped to the trend two percent curve that they were rising by in the first place and then we get back to two percent that's a full restoration of the actual price level but that's going to take a while and we will have repeated monthly declines in the consumer price index until we get to that point enough of them that people will say this looks like a new normal now we've got deflation now we're japan we don't know what to do with this there are no remedies for this and so what i think we will actually see is that we have a permanent increase in the price level we get ourselves back to two percent growth but from a much higher level and we continue on with that and just by virtue of having done that we have permanently reduced the net wealth position of um of consumers inside of our economy canada won't be the only place that does that uh the question is the faster you actually get to two percent the less the damage and um that's what makes all of this so tricky because just getting ourselves down to two percent is is a tricky tricky thing to do we always overdo it and if we create a bad recession the probability of actually having either bad disinflation or worse uh deflation um is uh is is what we need to watch out for and so and and we don't have a playbook for that frankly you know central banks have not figured out how to do the disinflation and deflation thing um they have a playbook for inflation it works very well uh not so much for the other guys so that would be my concern that we actually turn this thing around so much that we that we create deflation we don't know how to actually get out of that situation i don't believe that's going to happen central banks are very sophisticated and um you know i believe that that they would act very instantly to say okay now we're at two percent okay everybody got that two percent okay let's think two percent okay it's two percent now okay phew glad that episode is over okay let's all do two percent and you know after the price increases that we've seen in the psychology and the cycle of that and so forth i think they'll be reasonably successful in uh bringing that about and i i guess the biggest the biggest risk is that bubble that you see in the canadian economy uh right now too that's right also us in australia are perhaps the places uh that really uniquely have that um just because of the way our cycles got out of sync with the rest of the world uh for different reasons but we both uh seem to be in in that paradigm but i would say most of the rest of the oecd is where i characterize the world as as being and that's why we can count on the export growth that we have sorry i just tacked that on to the end i just wanted people to be clear uh about where we where i stood on on that issue sorry back to you jay yeah no that's uh that's super listen peter thank you very much uh what uh provocative insightful uh exactly why we uh why we like to have you with us right now and uh uh and always so looking forward to the next outlook and uh maybe in a few months time and i hope it's a little rosier for the canadian economy but uh uh but clearly i i think you you fit the nailed the head in terms of the uh the opportunities that uh that exist globally so well i would like nothing better than for it to be rosie for the canadian economy i could just editorialize anyway sorry yeah exactly exactly but thank you very much for joining us my pleasure all of our guests as well all right thank you thanks for joining us today folks thanks everybody so that concludes today's presentation appreciate you joining us thanks again to salesforce for supporting us and as always uh here at engen uh you can always visit their website for more information on whether salesforce is the right solution for you thanks peter for joining us always as jay mentioned insightful thank you jason and thank you to everybody for joining us here today recording will be sent soon have a great day