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GVPOD is the podcast of the Greater Vancouver Board of Trade. President and CEO Bridgitte Anderson talks to leaders in the business community about the challenges and opportunities they experience, as well as issues impacting our region.
0:00:02.1 [BRIDGITTE]: Welcome back to GVPOD everyone. Greater Vancouver’s business podcast. I'm Bridgitte Anderson, President and CEO of the Greater Vancouver Board of Trade. We're continuing our series, the R-Word, and today we're talking about the markets and how a potential recession could impact investors. I'm joined by Debra Doucette, President and CEO of Odlum Brown and Murray Leith, Executive Vice President of investment research. Welcome.
[DEBRA]: Good morning.
0:00:27.6 [MURRAY]: Thanks for having us.
0:00:28.9 [BRIDGITTE]: Okay, so let's start with the 64 million dollar question. What are your views around the potential of a recession and Debra, I'll get you to kick things off.
[DEBRA]: Well, I think we're expecting to see a slow down, but I think as Murray will confirm, the market see - the markets are forward-looking, so I think we will definitely see a slow down in the next year, year and a half, but I don't think that we expect it to be as deep and as difficult as a lot of people think it is, I think is gonna happen.
[BRIDGITTE]: Murray, what are your views?
0:01:11.9 [MURRAY]: Now, the world economy slowed down last year to about 3%, from 6% the year before roughly speaking, and I think it's gonna continue to slow down. The thing that most people don't appreciate is that it takes upto two years before changes in interest rates work their way through the economy, and we had significant interest rate increases in North America and around the world for that matter, and the big increases in interest rates that we have last year are gonna work their way into the economy this year, and then to 2024. I think the odds are pretty high that we do have a recession, but I agree with Debra, I think it will be a mild or one... Not a severe one.
0:01:59.3 [BRIDGITTE]: Well, Murray, just even the last couple of days, there's been a lot of discussion about this. Inflation is certainly persistent, the labor market continues to be tight, and there was some thinking even a month ago that perhaps interest rates could come down slightly at the end of this calendar year, early next, that seems to be changing a bit that maybe... In fact, interest rates aren't gonna be cut, and if that could go up even a little bit more, what do you think?
0:02:27.9 [MURRAY]: Erm well, we have to talk about shorter term and longer term interest rates, and the central banks control the short... Shorter term interest rates are the building blocks for a short-term and longer-term interest rates, but longer-term interest rates peak to while ago and have been coming down, which is the market's way of anticipating that the economy is gonna slow and ultimately, the central bank will lower interest rates, but the hope that they reach a peak sort of middle of this year and come down later in the year, that hope is dissipating somewhat now, in part because the job market remains strong and inflation is preventably persistent.
0:03:14.9 [BRIDGITTE]: Yeah, like a lot of people with a variable mortgage rate like myself, I was hoping, and I think that hope is now gone out the window. Now, both of you have been in autumn Brown for a long time for decades. So Debra, is there a different kind of attitude this time that you're seeing investors around this economic cycle, there does seem to be... Maybe every one of them is different, but this time seems a little bit different than previous ones. What do you think about that?
[DEBRA]: You know, I know people say that. Yeah, I think it always feels different 'cause it's new again, and I think that each time it's different as people become... People are a lot more aware. It's everywhere, it's not just 15, 20 years ago, you might see it in the paper or see on the news now, it's all encompassing and it's everywhere, so people, I think talk about it more, but I don't really feel that it feels different, I just feel that it's been such a long time where we haven't seen one, that it's the newness of it again…
[BRIDGITTE]: and maybe that's a good point, especially for some of those who are younger and just kind of getting their careers started is they don't remember the 80s and they were pretty painful.
[DEBRA]: Yeah and you know it's funny, I was having this conversation with one of my kids the other day, and she's in university, and she was talking about, you know, gas prices and everything's getting more expensive, and of course she's having to pay for a few things now, so that's all changing and you know, I was thinking back, my university years were during that time, and 18-20% interest rates, and it seemed awful at the time, in fact, I remember getting my first mortgage and it was 12.5%, and I remember thinking, Oh my gosh, I got a great deal.
0:05:18.4 [DEBRA]: So I think it has been a very long time since we've seen a great increase on a percentage basis like we've seen, and I think it's just – it’s the newness of it.
[BRIDGITTE]: Yeah, probably a bit of a false reality that interest rates were gonna stay so low and we were all probably every one of us in some way or another, we're getting a little ahead of ourselves thinking it was free money, right.
[DEBRA]: Yeah, well, I think Murray, you were saying yesterday, what we've had over the last 15 years – nine of them, have I got that right? Have been…
0:05:55.0 [MURRAY]: …Nine of the last 14 years, since the... Since the financial crisis, interest rates - administered interest rates have been zero in the US.
[BRIDGITTE]: a long time..
[MURRAY]: in Canada as well, and in my opinion, that's too long, we've conditioned people to expect ultra low interest rates, and we've inflated asset values, you know home prices went up 40% during the pandemic. We needed to get people back to work and tied them over when we were locked down, but we didn't need to inflate asset prices that much, but people who have gotten used to central banks that come to the rescue of any sign of trouble, and they've been able to do that over the last number of decades, because there's been deflationary forces largely coming out of China and other emerging markets with abundant cheap labor that I've kept a lid on wages and goods prices, but we don't have that deflationary force in the world that we live in today, we have the worst inflation or had the worst inflation in 40 years, so we have to normalize. We've been living through a period that I would describe as abnormal, money being an abundant as it has been, and so there's generations of people that aren't used to an environment where money is not just cheap and abundant.
0:07:23.7 [BRIDGITTE]: Yeah, Debbie, like you, my kids are University and I think a bit of a wake call for them what's happening right now, so standing back, a lot of changes, a lot of changes in the market, a lot of fluctuations - We're talking about inflation continuing to rise, interest rates going up, how are you seeing decision-making being done different by investors Murray, maybe you could kick this off, like What are people doing differently to react to what they're seeing unfold?
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0:07:53.4 [MURRAY]: Well, our clients aren't reacting, and that's the good news, is that we want investors to have a long-term orientation, economic setbacks are inevitable, but there's a saying that economists predicted eight of the last three recessions, and the problem is, if you manage your money trying to anticipate setbacks, you end up on the sidelines, missing out in the good times, and I've said... We've been going around the province doing our annual address to the clients, and one of the points that I make in terms of standing the course as people would be wealthier, if they treated their stocks like their home. For most people, their home is their most valuable asset. And it is because they hang on to it through thick and thin, they don't react to nasty headlines and think about selling the house, and if they did that with their stocks, there are pieces of businesses that grow over time and they'd be wealthier or they didn't react to the shorter term noise about what's gonna happen day-to-day.
0:09:07.0 [BRIDGITTE]: So reaction aside, Debbie, are you seeing people then maybe foregoing some big purchases, whether it's a vacation home or a new vehicle, are people talking to you about that and just waiting to see what the next few months might bring?
[DEBRA]: I haven't seen that. We had a big..reception yesterday, and it was interesting when you're talking to clients and all of them were very forward-looking in terms of, you know, wanting to get out and do the things that they hadn't been doing, and I heard a lot of vacation plans yesterday…
[BRIDGITTE]: …A lot of pent up demand…
[DEBRA]: …Yeah, and so I'm not saying that that's not happening because I certainly see it myself, you go into a retail store. It was slower at Christmas, I was surprised at the lack of crowds, so to speak, I don't know how much of that is a colded holdover and how much of that is just concern. Economic concern. So we're not... So I'm not personally seeing that. That's not to say it doesn't exist. But I think that the demand side of that just getting out and taking advantage of that service sector again, it's definitely there.
[BRIDGITTE]: ..and I know that you advise individuals, but a lot of the people who be listening to this would perhaps be business owners or business executives and thinking about investing in their business and is now the time to do that, what kind of advice or conversations are you having from that perspective..Murray, maybe you could handle this one...
0:10:54.9 [MURRAY]: Well, I think every business is different, but often slow downs are an opportunity to invest in your business and maybe take market share... Everybody knows the labor market's been so tough, so I think we're all feeling a little bit of ease up and trying to find talent, it's been so hard for so long, so there's a lot of businesses, I think that will look at this opportunistically. I think there's also businesses that are feeling the pain from the price and pressures, inability maybe to pass on price increases to customers, but they're somewhat reluctant to let go of or employees that were so hard to get in the first place, and that's contributing to the ongoing tightness in the labor mark, but I think people have their eyes open and are prepared to pivot if need be, and they're waiting to see what happens to the economy.
0:11:56.7 [BRIDGITTE]: As you mentioned, in every crisis or in this situation, we're talking about a downturn, there's opportunity. So let's focus on that as we round out the conversation, I think everybody recognizes there are challenges out there and some economic headwinds, but in that there are opportunities, so what are you advising clients around opportunities at this point and the approach to take – Murray I’ll begin with you.
0:12:21.8 [MURRAY]: Well, the main message is stay the course, we have balanced portfolios, we've been stressing the need to be diversified and because the possible economic outcomes are many and varied, and we don't wanna be betting on one specific outcome, but another point that I've been making is the market is..the stock market is forward-looking, it anticipates what's gonna happen in the future. We had a really tough year last year, if you look at history, the market tends to go down the year before a recession, and then actually ends up in the year of the recession, it doesn’t always happen, but it's what happens most often. And there was a lot of specular froth that was expunged from the stock market last year, but also if you think about the big technology, the Fang stocks, the Facebooks, that apples, Amazon's, Netflix, Google, and Microsoft, that group of companies - they were down 40% last year. They're having a better year this year. But I think a lot of the slow down that's anticipated has already been discounted in the stock market, so I'm actually feeling pretty constructive about the businesses that are clients owned, they're all solid businesses, they have strong financial position, and then we look three to five years out, and I don't have trouble believing that they're gonna be bigger, stronger and more valuable down the road.
0:13:53.7 [BRIDGITTE]: And Debbie, what are you saying to your clients then?
[DEBRA]: Well, I think the other opportunity that's out there that we haven't seen for a very long time is the ability to ballast portfolios with fixed income, There at rates at 0-1%, they don't offer much to a client who's at that point a stage of life where they wanna have more protection in their portfolio, less equity exposure, and so they've been just sort of sitting in cash, which isn't always the best.. isn't the best thing either. So I think to have an opportunity now to see some real rates in the fixed income market and ballast portfolios in a better way is actually a bit of a silver lining of where we are at.
[BRIDGITTE]: A great point. Before I let you go, I understand that Odlum Brown is celebrating 100 years in operation this year. Both of you have been with the organization for a long time. What is your you... What are you thinking in this really milestone here? Murray and then I’ll go to Debby. Murray, what are you thinking? That's a long time for an organization to be around... A very long history.
0:15:13.3 [MURRAY]: Yeah, well, I'm not the only one that's been at this firm for a long time, I feel really grateful to – A. Be in the business that's flourished over the 30-plus years that I've been in the business, but be able to hang my hat here in a firm that doesn't have the conflicts of interest that exists in a lot of other firms, 'cause we have a singular focus on the individual investor, and I enjoy coming to work every day, and I'm looking forward to the next number of years, I'm not gonna be around another 100, but…
0:15:44.8 [BRIDGITTE]: Yeah, just be clear. Neither Murray nor Debbie have been there for 100 years. Debbie you have been here 30 years as well.
[DEBRA]: Yeah, yeah, a long time. You know I think for me, it's a funny place to be looking back and looking forward at the same time, it's done 100 years, especially in a space where there's been so much consolidation, it's really... It's a fantastic achievement. But I think when I look forward, I'm really confident that there'll be somebody sitting in this chair celebrating the 200, and I know that's because you know the firm, and I know people say this all the time, but it really... It really is the case here that it's a firm but built on values, and even though the circumstances around us change all the time, those values haven't... And I know that they're gonna see us through for the next 100, whoever happens to be here, and it's a really nice place to be to be able to look backwards and forwards and see the same things in a load of ways.
[BRIDGITTE]: Well congratulations once again on a really significant milestone, and thank you for the conversation today at a really important reminder around opportunities, so I really appreciate your time, Debbie and Murray, thank you.