Our reports: Economic Impact

Hello, everyone and welcome to the economic impact. Today we are November 6, 2023 and as usual, I am with our Chief Economist, Stéfane Marion. Hello, Stéfane.

Hi, Denis.

Once again, another very, very volatile month. And if we look at what happened, give us a little bit of the trend of the last few days or weeks.

Well, you put the finger on it, volatility is the name of the game. After only three days in November, it's, been a great month so far, after three days for global equities, up 4%, almost 3.6%, but as you see, the quarter is flat. So, some days you'll make 10% in certain sectors, some other days you'll lose. And that has to do with the environment in which we're in and higher interest rates. We have yet to assess the full impact of previous rate hikes. All of this brings into questions and sets the table for higher volatility.

Yeah. In the month, we had a peak in interest rate, but they fell quite a lot in the last few days.

Yeah. So, the good performance of equity market reflects the fact that 10-year treasury yields in the US on which equity markets are normally priced are down significantly in three days, they're down 50 basis points in the above, that's a lot, but we're still at high levels. So again, understand that you know earnings did well in the third quarter better than anticipated. You know, interest rates are now down because maybe the Fed is finished when it's tightening cycle. But Denis, the uncertainty about growth in the economy and earnings is still very much present for the next few quarters.

Yeah. And we're seeing a discrepancy between manufacturing and non-manufacturing, in fact.

Well what we're seeing is the manufacturing sector is already in contraction that reflects the fact that global trade flows are actually contracting by 4% which is observed outside recessions. But what we're noticing now, Denis, is that after a very strong third quarter, even the service sector, the red line, on that slide is showing anemic growth. So it's not because third quarter was very strong in the US and earnings were great that we're not going to feel the impact of previous interest rate hikes on the economy. I think we're starting to see this.

Yeah, but OK, now we're seeing non-manufacturing and manufacturing slowing down, the employment. You know we had a number last week. How does it look, you know, in parallel?

It's a good point. If production slows down, historically, employment follows. And what we saw for the month of October is notwithstanding the impact of the auto strike in the US, whereas it decreased willingness of employers to add to their headcounts. And that reflects what you're seeing here and slowdown in manufacturing and economic activity. And that's, you know, it goes before employment. Employment is probably the next shoe to drop.

OK. But at the same time, you know, you've been telling us that not all the impact of the rate hikes are already in the economy and I think you have a very interesting slide on that.

Well, that's it. So, before you decide on whether it's a soft landing or hard landing for the economy, then you have to take into account that so far given the transmission lags of monetary policy, we felt the impact of 60% of previous rate hikes. There's another 40% to come. So basically, even if the central banks stop raising interest rates, there is still 40% coming on the pipeline. So basically, what it means from a Canadian standpoint is even though the policy rate is at 5%, the economy is operating as if it was at 375 and we're going to feel another impact in the quarters ahead. That's why you have to be prudent in assessing the outlook.

Then it's not a good time to get excited. There's more bad news to come.

There's probably a little bit more bad news than what the market currently anticipates, particularly for earnings. I think interest rates will go down, Denis, but the challenge will be earnings.

Yeah! But at the same time, we have a kind of a sticky inflation somewhere.

Yes. And that's why the central banks are not promising to cut interest rates anytime soon. If we take the example for Canada for example, I mean I'm really happy that compared to last month and inflation, the blue line is actually down a little bit from last time we saw each other which was at 4%. Yeah. So at least it's moving in the right direction, but very slowly.

Yeah. But at the same time, there's a one component which is pretty high, which is a shelter.

Yeah, it's 28% of the CPI. And what you're noticing on this slide, Denis, if you look at the CPI excluding shelter, it's below 3%, but the shelter component is keeping inflation higher than it would otherwise be the case in a normal cycle.

And that's the one that's gonna be very, very difficult in the economic context that we are in right now to bring it down.

Because it's not a normal cycle. And if you wanna look at, you know, the best way to illustrate this is the fact that population in Canada is growing at a record pace and the first ten months of the year were up 880,000 people. And that's, you know, based on the most recent month, which is the month of October.

I'll stop you.  We are OK now because, you know, the Fed just announced that we're gonna have half a million people, not 800.

They want to reduce the well, they want to reduce their immigration or not raise them. But that's a story for 2025 and beyond. In the meantime, we still have to cope with the fact that the population will grow 1,000,000 this year, which is for the working age population, will be a new record. And that puts pressure on anything related to housing, which means that the Bank of Canada cannot cut rates quickly because of the shelter component. Or the Bank of Canada will accept a 3% instead of a 2%.

Because of the shelter component.

It's an interesting assumption and we'll see this in the coming months, coming quarters. It's a reality for many central banks, but even more so for Canada given the surge in population.

Well, at the same time, when we look at affordability, affordability, it's not good.

No. And I think that's what will depress consumption in the months ahead, right. If you look at the home affordability in Vancouver or Toronto, Victoria, only to name those cities, it's actually worse than the 1980s when interest rates were at 20%. So that's the challenge for the Bank of Canada. What do you want interest rates to do to fight against the population surge and again what you're suggesting is that maybe they'll have to tolerate slightly higher inflation because the shelter component will remain sticky. Again, this is unprecedented.

Yeah, that means that we're going to need unprecedented action from government to keep that level not going higher or even at least stabilize and if it's possible going down. But it's very, very tough to see that in the very close.

We need more supply for housing, which means more capital or we want to reduce the immigration targets as soon as next year. And that will be a big decision from Ottawa standpoint.

Why you opened the door, talking about capital. You know, I think we have a problem in Canada and then you mentioned that in the past, but you know it's even worse than worse right now than it used to be.

Well, what's it's not helping you need and I know there's a debate about pension funds in Canada currently and the reality is not all pension funds have a mandate or a mission to invest in Canada. And the latest data suggests that their willingness to get exposure to the domestic market continues to decline. It's not that they're not investing in Canada, but as a share of their total assets, these pension funds are not so exposed to the domestic economy. And maybe that's a question we need to raise at the political level is should we change the missions to allow more capital to stay in our country.

Or we have to prove to them to invest in Canada, makes sense for them. Then we need a really good environment for that. We'll deploy policy that makes Canada even more attractive. That's also a good point. But clearly there is we need to address this lack of capital coming to our country.

Well, thank you, Stéfane, and thank you for being with us. We'll see you next month, early December. Thank you and have a good day.

Hello everyone and welcome to Economic Impact. Today is October 10, 2023, and as usual, I am with our Chief Economist, Stéfane Marion. Stéfane, another very volatile month in terms of geopolitical economic news. Let's start with the equity market.

Yeah, Denis and we know that the month of October tends to be difficult for financial markets and I don't think that 2023 will be the exception. If we start with equity markets, we can see that global equities are down roughly 6% since they're high at the end of the month of July. And what we're noticing is, we're barely holding above the 200-day moving average, which is the upward trend and it's we are threatening now to fall below the 200-day moving average. So again, from an equity market perspective, things are quite volatile at this point in time with a lot of uncertainty.

And how about the interest rate, are we back to the bond vigilantes of the 1990s that we saw way back then about 30 years ago.

I think there are some vigilantes out there. If we look at the 10-year treasury yield in the US, we notice that, you know, we touched close to 5% in recent days, annual yield is down a bit as of late, but these are levels we haven't seen since the mid-2000. So when we talk about the vigilantes, we talk about how are investors behaving in this environment where there's a lot of uncertainty. And what we've noticed in recent weeks is part of the upward movement on 10-year treasury yields, a large part of it is coming from investors amending higher compensation for holding these government bonds. And you can see, Denis, that the term premium 10-year treasury yields which used to be negative over the past two years is now back in positive territory. So again, these are the bond vigilantes or investors demanding higher compensation given the uncertainty about government indebtedness down the road and also volatility on inflation.

Yeah, there's probably a lot of good reasons for that premium, but one of them is probably, you know, the borrowing program of the US government, which is quite big compared to what we saw in the past and even bigger.

You're absolutely right, Denis. And all this against the backdrop where the central bank is doing quantitative tightening, so purchasing less of these government bonds and the uncertainty or the demand for a higher premium comes from the fact that debt to GDP in the US is that 100% level that has not been observed since World War II. Now at the end of World War II, we saw a big drop, Denis, but that's because the government was able to stop spending on military expenditure. At this point in time, I don't see this happening with the new armed conflict opening in the Middle East, Ukraine is not solved. So that means a lot more spending on military spending globally, I think. All of this against a backdrop where the US is a very aggressive policy to reindustrialization. The Inflation Reduction Act means a lot of government spending. And Denis, let's not forget, the population is aging, so spending on social programs is also rising. So that means debt to GDP ratios of government indebtedness will be high for the foreseeable future.

Yeah. And that brings me an idea here. After a very extended period of economic growth, we saw the government borrowing, borrowing more because you know they're carrying bigger deficit and now we're getting in a situation where the economy is, is slowing down and you know the borrowing is at it’s highest. That means it's going to be quite interesting for the future in the in the financial environment either stocks or bonds.

Oh yeah, Denis. And it's a good point because the reality, it's not abnormal for the US government to incur such large deficits when you're virtually at full employment. So imagine what it means for government spending or government revenue if the economy starts to slow. Some people say, well that's not going to happen because you know, labour markets are strong. But, those labour market data is quite volatile too.

Well, talking about the labour market, you know, the last report showed that either, you know, South of the border or North of the border, the employment was quite important in both countries.

Yeah, so some people will rejoice and say the US created almost 400,000 jobs, I'm going to be a little bit more cautious on this one, Denis, because yes, it's almost 400,000 jobs, but they're all part time jobs. If you look at full time employment in the US, the way the corporations are reacting to pressure on profit margins that are hiring part time and full-time employment was down for the third consecutive month in September and the cumulative losses over the past three months is almost 700,000 people. This is the type of full-time employment job losses that we haven't seen since 2000. So again, that argues, Denis, that if you create part time jobs as opposed to full time employment, you get less bang for your buck in terms of consumption in the months ahead. So that argues for a tangible slowdown of the US economy by the end of this year in my opinion.

Are we seeing the same thing in Canada in terms of, you know, part time job creation?

Yeah, a volatile employment report in Canada. Also 60,000 jobs. But they were not in the private sector. They were self-employed or some government workers. So the quality of the report was less than what the headline figure would have suggested. So yes, Denis, for both Canada and US you can look at the total job creation. But if you dig a little bit deeper you see that the details of the report is not as good as what the headline number was suggesting.

Hmm. And one of our past favorite subjects is you know population growth. We haven't seen a slowdown on that front in the last month.

Oh Denis, you know, when you look at the jobs report for Canada, I think one of the most important data points was the fact that it revealed yet another big increase in the working age population. And the working age population in the third quarter in Canada was up 270,000 individuals. Denis, there's no precedent for such an increase in population and that only exacerbates the supply-demand imbalance for residential housing in this country for both buying a home or renting an apartment. So again, we have a supply-demand imbalance that is growing deeper and deeper and that probably means a little bit more inflation down the road from a Canadian perspective and anything related to housing.

Yeah, talking about inflation, you know, at our last meeting we had a bit of a, you know, good news about the inflation being at 3%. But Ouch. We had, you know, a call back on that in September when we saw the inflation surging at 4%.

Yeah. So people that were expecting imminent relief on mortgage rates are likely to be disappointed because inflation actually reacts later in Canada from 3 to 4%. And part of that in my opinion reflects the surge. The unprecedented surge in population growth and anything related to housing accounts for 20% of the CPI basket in Canada. So, if you know rent inflation is surging by the most since 1980s and home prices are not falling because the lack of supply that argues for inflation, that is likely to be more resilient. So again that limits the ability of central banks to accommodate the geopolitical uncertainty at this point in time because inflation remains resilient. ¸

Well, Stéfane, once again a very volatile environment. Things haven't changed since the last time and probably won't change for October. Then we need to be cautious here once again.

I think so, Denis. So I hope for better news, don't get me wrong. But at this point in time, given the volatility and uncertainty about the ability of corporations to grow their earnings as aggressively as what the market expects at this point in time, to me means that we have to be cautious, more defensive. I think the US economy is going to slow as well as the Canadian economy. So against this backdrop, you know more defensive would be our recommendation for investors and we do hope for better news in the next few months. But the central banks have to be in a position to reduce their monetary tightening or be more accommodative which we're not seeing right now. So again, Denis, our story about volatility and playing the defensive, playing defence as opposed to offence at this point in time is still quite valid at this point in time.

Well, thank you Stéfane, and thank you for being with us. We'll see you next month.

Welcome to economic impact of September 5th, 2023 edition. As usual, we have a lot of subjects to talk about today. But what about the price performance in August? You were quite pessimistic, Stéfane, at the last edition and it was true.

Well last time we met Denis, it was a difficult start to the month. It didn't end so well. And you noticed that globally most stock indices, well all of them were down, Denis.The quarter's still up, year to date. We'll see how –

That is a positive note.

That's the positive note. But clearly there seems to be some impact of tighter monetary policy.

Yeah. And you know when you look at the trading discount and everything, you know the S&P 500 in Canada, how do they compare? So we know the market is down in August and you look at valuations and they're still quite high. So the market is trading at you know 19 times forward earnings in the US - that's historically high Denis, not the case for Canada. So, clearly some indices that have been pushed higher now have valuation issues and I think the US is part of that and you also need to take into account what's happened to interest rates when you do your tradeoff between investing in the stock market versus the bond market.

Can we say though that the, you know, the, the P of the, the Americans U.S. stocks are still very linked to technology or it's widespread.

You could argue that they have a greater emphasis on technology, they're shares much higher still, but I would say it's been relatively widespread as of late. So I think P ratios are elevated throughout most sectors of the US economy.

OK, then how about, you know, risk reward perspective?

Well that's the thing. So if you look at what's happening to treasury yields in US adjusted for inflation above 2% for US real interest rates, Denis, that's not nominal, that's real interest rates. And normally when you do your tradeoff between investing and equities versus the stock versus the fixed income market, you look at the earnings yield versus real interest rates and the gap between the two is, is one of the lowest since 2003 - over a generation. So the risk reward, well the risk reward for investing in equities right now is not as enticing as what we've seen in the past. So I think this is where you have to be careful with the cycle.

Then are you saying that down the road we might see equity market, you know adjusting for that?

Valuations are high, the risk reward is not as enticing. So you would think that you have to be a little bit more prudent unless you believe the economic outlook is set to improve. OK. And how about that? You opened the door!

No, but the third quarter was relatively good for the US, Denis, and I get that. But you know and the consumer sector really helped propel the economy higher this summer. That used to be true though, not anymore. Yeah. Well, what's happening now is that households are spending out of their savings rate which is not quite depleted, and you have you know at 4%, Denis, that's you know half less, you know 50% lower than what you saw prior to the pandemic. So 8% versus 4%. So clearly there's little room to spend out of your savings rate going forward.

OK, your chart is starting in 2015. If we go back then and you see 4%, does that mean that you know we can see the economy slowing down faster?

This is as low as what we saw after the great financial crisis. So, it's quite low by historical standards. Like we've seen 2% in the US in the past, but you know 4% is quite low given where we are right now.

OK. Then the households are slowing down. How about the corporate? So I think there's an impact of higher interest rates on household spending. And for corporations, Denis, with interest rates at the multiyear high, we've seen a significant increase in bankruptcies, corporate bankruptcies since the start of the year. So over the first seven months of 2023, we're talking about 400 corporations that are listed or that are followed by the S&P Global that have gone bankrupt. We've seen this is as high as what we saw during the pandemic, right 400 bankruptcies over seven months.

The issue, Denis, that I have is that in the past when we've seen 400 bankruptcies interest rates were cause kind of low 0.25%. So my view Denis, is that unfortunately for the next few months we're likely to see more bankruptcies as the impact of higher interest rates makes its way to through the economy. And we're seeing that even more in Canada because now we are we're seeing you know company, we're very small company giving back the keys because they cannot reimburse the government with all the loan that they had during the pandemic. They are a small companies, very small though.

But yeah, don't think that there's, you're absolutely right, the small companies: that's not the full universe of all companies. These are like you know publicly listed companies or companies that issue corporate bonds. So again this is a trend that is not necessarily economy friendly for the next few months or labour market friendly.

Yeah. And we had last Friday the employment in the US. How is it going over there? Because this is a team that we kind of like here. What happened?

No, no. But it's important because if you talk about the, if you're expecting US soft landing a rebound and profitability just you know, labour markets have to hold up relatively well. So what we saw in the US is that, yes, full, you know, total jobs were up on the month, but Denis, there's more bankruptcies, corporations have to be prudent, they're managing their headcounts differently. So what we saw in the US for the month of August, total jobs were up close to 200,000 but full time employment were down half a million, more than half a million and that's big numbers. So I think there's something happening in the US economy that suggests that labour markets will weaken over the next few months. And if you want to bring inflation down, you have to cool the labour markets.

And we'll see more of this Friday with Canada and we'll see, we'll see what how Canada reacts to this week.

Yes, so how is the Canada economy? Higher, interest rates are taking a chunk out the Canadian economy because we had a big surprise for the second quarter where the real GDP economic activity was down that's the second time in three quarters Denis. So clearly there is an impact of higher interest rates that is starting to surprise people. And the good news I think it, it will stop the Bank of Canada from hiking again this week. Then you're making a prediction because tomorrow we have the Bank of Canada.

I have to make a prediction all the time Denis, but I think that based on the economic data, I think it would be very aggressive for the bank of Canada to hike interest rates when you have weak economic growth the way we have right now,

Then we've been quite negative today so far. You know about the, you know, the economic perspective, but we're seeing the interest rate getting at a plateau. If there's not anything, is this changing your view about the future interest rates?

No, we've had, we've had a forecast where rate cuts would happen in the second quarter of next year because you can't cut interest rates right now because inflation is still quite sticky. But I think interest rates are coming, but that's a story for next year. And talking about price going up commodities again. Yeah, especially crude oil.

Yeah. Well, crude oil is on the rise. Yeah, it's on the rise $80.00. I think this is a geopolitical component to that, Denis. But at the same time, I just wouldn't come back on what we've seen in the media over the past month where it Canada's depicted as a pariah because of very large subsidies to the energy sector. There's an interesting study that just came up from the International Monetary Fund that actually demystifies the whole thing and saying well, yes and we have the smallest, the lowest energy subsidies in the G20 and what's troubling, Denis, is our trading partners, Mexico, US, they are actually increasing their energy subsidies. So I think when we position Canada on the rest of the world versus energy subsidies, I think we don't have to be overly pessimistic on our energy sector. I think we've done a relatively good job in terms of managing the sector -  

And making a transition too –

It helps for the transition. So people are saying, well Canada can't do the transition. We're spending too much on subsidies. Not the case. I think where the problem is, is with our trading partners. I think we can actually help the transition.

And I think Canada should show the rest of the world that this, the way we're doing it is not that bad. And that chart is not coming from you?

Oh, it's not my calculations, Denis, it's the International Monetary Fund. So I don't think they have a Canada agenda there. So clearly I think it's nice to have this international comparison.

Yeah. Put things in perspective here. Absolutely. Well, thank you, Stéfana. Thank you for joining us today. And thank you all of you to joining us. Hopefully, it's gonna help with your investment strategy. We'll see you next month. Thank you. Goodbye.

Welcome to this August 2023 edition of Economic Impact. Today, we have many subjects. First of all, we're going to talk about stock performance. Once again, we're going to talk about inflation. We're going to talk also about inverted yield curve and at the end the real estate in Canada. Stéfane, can you talk a little bit about the stock performance, especially beginning of August, it's not that great.

Not great. It's still early in the month, Denis, but everyone is down. Every stock market, major indices are down. The quarter is still positive, Denis, barely, but certainly not as strong as what we saw in previous quarters.

But still pretty good since the beginning of the year.

You're right. If you look at it from a year-to-date perspective, it's up more than 10% globally and every region of the world is showing positive returns. And I think part of that is due to the fact that despite you know rate hikes, we still had a few this summer. The good news is on the inflation front, it's coming down relatively quickly and for both Canada and US now being at below surprisingly quick, it's true. It's surprisingly faster than you expected and obviously, Denis, the expectations now is that maybe the central banks will stop with the tightening cycle.

But with the inflation going down that fast, why is the stock market not showing a better sign of what we're seeing so far?

Expectations of a soft landing, Denis, and expectations that rate cuts are not too far down the road and I doubt they will happen this year.

And is it because the yield curve is so inverted that not a stock market is taking that into account.

 Well, the issue right now from a valuation perspective in the US, if you look at the S&P 500 trading at 20 times forward earnings with an inverted yield curve that's never been observed in the past. So, it's the highest valuations.

So uncharted territory right now.

Uncharted territory. And people are saying, well, if the Fed can cut rates quickly because inflation is coming down, therefore we will achieve a soft landing for the economy.

Which is rare.

It's not impossible, Denis, but yes, it doesn't happen very often. So we are now in the midst of the 11th episode. Since the mid 1960 where the yield curve is inverted, 8th of the previous ten episodes turned out to be recessions. So, it is not abnormal for the economy to continue to grow nine months after the inversion. But we're getting into challenging territories. The only two exceptions that we've seen in the past where you had an inverted yield curve without a recession was the mid-1960s and the late 1990s.

So it's been a while.

It's been a while and also it doesn't happen very often. So it remains to be seen whether a soft landing can be achieved. Again, a soft landing is the exception, not the norm. And so far, the market has said well with inflation coming down, mission accomplished, we will get a soft landing.

But at the same time that we're seeing the inflation going down that fast, probably what we're seeing is the easy part of the inflation, inflation, you know that we're losing, but at the same time, you know the salaries inflation in the US market and the US economy is quite high.

Yeah. So the base effects are unwinding for overall CPI. But the issue from the Fed's perspective is how quickly can I cut interest rates when wage inflation is growing at 5%? Which is twice the inflation rate that we saw prior to the pandemic. So, basically maybe they're done with rate cuts today, but I can't promise you, with rate hikes, but I can't, but I can't promise you rate cuts this summer, definitely not with inflation, wage inflation growing at that speed.

And if you had all the geopolitical that we're seeing right now that seems that we have an intensity, you know what's going on in Ukraine and Russia, once again.

That's not helping because the issue is now, we know that, you know, grain shipments from Ukraine have been stopped or certainly curtailed and at the same time, Ukraine is starting to attack Russian energy infrastructure. So, you have a situation where both food and energy prices might remain resilient, limiting the ability of central banks to cut rates. So, the geopolitical backdrop, you're absolutely right - that's part of the equation and makes it a little bit more complicated to cut rates quickly.

Okay, those are variables that may keep the inflation high, but at the same time we're seeing factory in the state that production is kind of low compared to what we used to see.

So, the impacts of previous rate hikes is clearly apparent on the global economy and this is why manufacturing production is being cut down, being reduced and it's impacting China. Denis, it will also impact earnings. So, the issue at this point in time, can profits rebound quickly in an environment where the economy continues to slow? So that's the big challenge from an equity market perspective and it's certainly a challenge to achieve a soft landing if the central banks cannot cut rates at the time where inflation is sticky because the geopolitical factors tight labor markets and at the same time the impact of previous rate hikes is becoming much more apparent.

At your point of view are we delaying the rate cuts further in 2024 instead of let's say you know mid-24, maybe you're seeing postponing because of those variables that are inflationary.

That's the risk, Denis, and that's part of the reason why we've seen a backup in long term interest rates this summer. The reality is the market was expecting rate cuts this summer or you know just a few weeks ago they were expecting rate cuts by the end of this year. It's unlikely to happen now. The market says earlier early next year it might be delayed till the second quarter of next year, Denis. So, hence the probability of a soft landing must be reassessed under these scenarios. So, again a complicated backdrop.

And even more complicated for the Bank of Canada because of the real estate situation, the demography in Canada.

So, we all have challenges. So from the US perspective, wage inflation is an issue. From a Canadian perspective, it's surging population growth which puts upward pressure on anything related to housing costs, which is a big component to the CPI. So, it gives you a just give you a sense of what's happening in Canada right now is the population is growing at, the working age population, Denis, that is, is growing at roughly 300, 240,000 people per quarter.

That's massive.

It's three times the historical norm and housing starts just can't keep up. We would need 140,000 starts per quarter to accommodate this population.

 We don't have the infrastructure to do that, not enough workers, not enough machinery and it's impossible.

No, plus it's you know we're in the midst of the most aggressive tightening cycle and over in a generation. So, these are interest rate sensitive sector. So, again the issue is that the federal government has increased immigration quota at a bizarre time when you consider that we're in the midst of very aggressive tightening cycle. So, we just can't accommodate the population influx. To give you a sense, normally we have 0.6 home starts for population growth. We're at only half that level right now 0.3 every province is suffering. PEI, I mean the smallest problem I mean they have 10 people per home starts right now this is, this is such a low ratio and every province is feeling the impact this. So what that means, Denis, is from the Bank of Canada standpoint given the population surge which is unprecedented, anything related to housing is inflationary. So, it's good if you're a homeowner because home prices will continue to trend up. But from the Bank of Canada standpoint, like the Fed, you can't cut rates relatively quickly.

And now the road that's mean is there, there will probably a social cost attached to that. You know then the Government of Canada will have to come with some solution down the road.

Politically, we have to find a solution because again currently we have working age population growing at roughly 1,000,000 per year right now, which is unprecedented, and we just can't accommodate.

But we need immigration but not at that rate.

You're absolutely right. And we've always been big proponents of immigration, by the way.

Yeah, but absolutely. So, you know the government says 500,000 but right now it's a million. So that, Denis, that doesn't work, right. So, I think 3 to 500,000 is where we should be from a Canadian standpoint.

Which is pretty big when you compare to other countries.

Massively big. But right now it's way too big.

Then a lot of variables, not enough equation to find a solution. Then the name of the game is being prudent here.

Oh, listen, we don't know what how the scenario will unfold in the coming quarters - there is more uncertainty. If you can't cut rates quickly, you have to reassess your outlook for profit growth and multiple expansion. So again, we recommend being more prudent going through the second half of this year and let's see what happens. This is a cycle for the record books and I - the probability of sunstanding still exists, Denis. but I don't know that it should be the baseline scenario at this point in time. The next few weeks will be very telling.

Well, thank you Stéfane for all those info. Hopefully it's helping you in your investment process. I will see you next September. Thank you very much for joining us.

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