Barenaked Money

Colin and Josh covered some ground in this episode of Barenaked Money. Crypto, Tesla, Real Estate, Inflation...you name it, they talked about it. As Colin says, "Just accept the fact that the world is going to continue to be interesting." He's not wrong; listen in to find out everything that captured the guys' interest this week.

What is Barenaked Money?

Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.

Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.

Speaker 1:
You're about to get lucky with the Barenaked Money Podcast. The show that gives you the naked truth about personal finance with your hosts, Josh Sheluk and Colin White, portfolio managers with WLWP Wealth Planners | iA Private Wealth.

Colin White:
Welcome to the next edition of Barenaked Money. Colin and Josh here with you for another exciting, titillating, mind-expanding commentary on what's on our desks right now. Well, Josh's desk because as normal, Josh has come up with bullet points and told me what we're talking about. So he's going to guide us from this point on. Josh, where are you going to take us today?

Josh Sheluk:
I'm taking us into the weekend, Colin. It's Friday afternoon.

Colin White:
Whoop whoop.

Josh Sheluk:
Trying to send us off right. But before we get there, we've got, obviously, lots of financial stuff to talk about as we obviously do always on a Friday afternoon. So I wanted to start with CPI. Inflation numbers came out this week. Did you see those?

Colin White:
Uh-uh. The work of fiction. Excellent. Yes, yes. We seem to be gleaning some optimism, that the pace of inflation is coming under control, as some watchers were expecting, others were hoping for. It probably has surprised a few people, but as always, there's more to it than just the headline, isn't there, Josh?

Josh Sheluk:
Yeah, well at least we're seeing, what you said, optimism there. We're starting to see things go in the right direction. We've been seeing them go in the right direction on the inflation front for maybe, we'll call it, three or four months now. It took a lot longer to get there than we thought it was going to, but the year-over-year number for December came in at six and a half percent. Now this is the US consumer price inflation number or a consumer price index, rather. And on a month-over-month basis, it actually declined. So prices actually went down from November to December, that's what they're telling us. Kind of hard to believe.

Colin White:
No, it's impossible. Prices aren't going down because I've been listening to people on TV and prices are just going up from here because that's how things happen. They go in one direction forever.

Josh Sheluk:
Okay, so who's right, the commentators on TV or the raw data numbers that we have?

Colin White:
Well, is it really raw data, Josh, or is it data that's the subject to some massaging and or some interpretation?

Josh Sheluk:
Well, I'm glad you... I knew you were going to go there, but I'm glad you went there and I thought you were going to say, "Well, they're both BS, none of them are right." That [inaudible 00:02:34]. And that would've been probably pretty accurate. Because we were talking about it earlier this week how they just keep kind of moving the goalposts, a little bit subtly, here and there to make the numbers or bend the numbers in the way that they want to go.

Colin White:
Well, I'm not sure how subtle it is, but yeah, I mean. And it's so funny, history of Jesus, Sal. And you can go back because this is in the podcast that we recorded on why inflation's a big deal and why everybody's paying attention to it back in the '80s. This is kind of playing out similarly in some respects, because what Josh is alluding to is the fact that they're now talking about all... And again, we've spoken of this in the past, but this is coming this new cycle as well. The different ways of looking at inflation.

Like imagine a worlds where we didn't worry about the inflation that was inherent in messy things like food, energy, housing. Let's take all that out of the mix because those things are too volatile to be reliable as any kind of an indicator for anything. So let's just take all that out of the mix, and how much are things really going up in price to which, of course, the informative observers say, well, what does it matter? If you're not looking at housing, energy or food, that that's pretty much where people spend the bulk of their lives and it's the bulk of what's important to people. But let's talk about an abstract number that excludes all that.

Josh Sheluk:
Yeah, I saw an article that said we're going to start excluding, like the three that you said, housing, energy, food and vehicles as well. Because the vehicle prices have been all screwed up over the last couple years. But I thought for two minutes, what else do I spend money on that's actually meaningful?

Colin White:
[inaudible 00:04:11].

Josh Sheluk:
You answer the question, what do you spend money on that's meaningful beyond those four things?

Colin White:
University, education, refrigerators, healthcare.

Josh Sheluk:
How many refrigerators are you buying? [inaudible 00:04:23].

Colin White:
You asked you what else to spend money on, this is most top of mine.

Josh Sheluk:
Yeah, like clothes, that's pretty small. I guess entertainment, maybe we can call that. For you, university education is probably a lot higher than for most people. But yeah.

Colin White:
And I guess my observation on this, and again, we've gone into the weeds with inflation and how it's talked about and conclusions that are drawn. Is it a fact that things are getting more expensive? Yes. Does that matter? Yes. Is it going to shape economic growth and influence monetary policy? Yes. Can we predict or understand this with any kind of precision? No.

When the Bank of Canada gets temporary price inflation confused with long-term price inflation, what hope does a commentator looking at a rear view mirror because all these numbers are 30, 60, 90 days old that we're looking at, getting too precise with observations or too precise with what the anticipation of what happens next is, it's all gray. So we can accept the direction, we can accept the importance and stay away from trying to overly quantify this. Is that a fair, because I don't want to come off as making fun of inflation as a thing, because that's kind of what we're doing. But inflation is a thing and things are getting more expensive and that does matter. The way we talk about it and quantify it, get into 10 basis points this way and a 10 basis point that way, that's what, to me, is just filling column images or minutes of air type.

Josh Sheluk:
Yeah. Well, for sure this year, it's gotten a little bit out of proportion with all the different measurements of CPI and then you have all the adjustments to it. And then you have, "Well, we don't really care about that number. We care more about this number." And then somebody over here saying, "Well, we care about this number, not that number." It's gone on a little bit too much in that respect, for sure. And then to your point, what are the actual meaningful implications of it? That part's hard to say as well, but I think it's fair to say that high inflation, very high inflation over the last 12 months has been a detriment to the economic world and has certainly been reflected in asset prices. And I think it's also fair to say that if we could get this back to a more normal level in a fairly short period of time, that we would see some more strength or consistency from an economic perspective. And similarly on asset prices too.

Colin White:
Yeah, it reminds me of watching the weather blow in. We've had a couple of ice storms here in East Coast this year or last year, I guess. So with storm blowing in, you can probably consume all of the information available about said storm and its potential track in five to eight minutes. You could get all of the packs available, but you're so fascinated with it, "I'd like to know more." Well, if I'd like to know more, somebody wants to tell me more. Why? They want my eyeballs.

So if they can keep talking about the storm, I'll keep watching. Maybe there's going to be another picture or maybe I want to get another piece of information. But really I've already consumed all there is to know, just because it was really impactful and really interesting doesn't make it any more detailed. There's nothing more to know about big storm sitting, waves are going to be big, the wind's going to be strong, you should stay inside. "Really? Tell me more." It's like, "Well, what more do you want?" "How strong exactly is the wind going to be like, is it going to be different in different places?" Well, yeah [inaudible 00:08:08].

Josh Sheluk:
I mean, you're inside, so what's it matter?

Colin White:
Eight minutes in, I have all I need to know. I'll sit and watch the news for an hour to see if I learn something else. That's kind of what we're going through here with inflation. Inflation's a thing for sure. Some of the complexity and details people are digging into are a little manufactured, and we're going to fix it, it's on the way being fixed. In my opinion, we have enough data pointed in one direction and the month-over-month decline, actually prices going down. That's a big deal if it's true. It's in the right direction anyway, so it's a problem that's resolving itself. I think that we can take.

Josh Sheluk:
Yeah, the parallel that you're drawing with the early '80s is they made some changes to how they capture CPI data in the early '80s too. Now, as I was saying earlier this week to our group, it's not entirely stupid to do this or ridiculous to do it because there's a belief out there that higher inflation feeds more inflation. Because people see high inflation, they are willing to pay more for prices. If you tell them that prices are higher, they go to their workplace and demand higher wages. And it kind of is a self-fulfilling prophecy. So if you started telling people that inflation is not a thing and use some numbers to back it up, make yourself sound smart, then maybe people start to believe that. And that maybe is what happened in the early '80s when inflation started to coming off. And that maybe is to some extent what's happening now.

Colin White:
Well, yeah. Because you have very real effects, like right now pensions, indexed pensions are being indexed through inflation. So based on these numbers, there's more money getting paid in on the pensions. And so there's actually is a real effect on some of these derived numbers. Let's call them derives, I think that's a nice middle ground of not being too disrespectful, but yet giving it the proper amount of flexibility. So it does actually change real numbers on consumption in society, so it has a real effect. I'm not sure to what magnitude that is, but it does affect real things. And I think wage expectations, it does affect them quite a bit. So yeah, you're right, it's a derived number, but it does move real numbers.

Josh Sheluk:
Yeah. Now this week, Colin, I saw the first headline that said real estate is or could be in a bear market. Scary, I know. So it's interesting-

Colin White:
[inaudible 00:10:29].

Josh Sheluk:
Well, whether it's down 18% or 22% or whatever, we talked about real estate a lot. It's definitely challenging market for real estate out there. But what I found more interesting than maybe the price declines is that they're looking to change the mortgage qualification rules again. And there's a few very high level points that they're talking about changing or proposing changing. One, capping the amount that banks can lend to high loan to income borrowers. Two, tightening the rules on debt servicing ratios used to qualify for a mortgage. And three, changing the stress test rules for different mortgage terms. So for example, a variable mortgage might get different stress test rules than a five-year fixed term would, which kind of makes sense to me.

Colin White:
Yeah, I mean those are all prudent moves. I mean, because again, at the extreme, like if anybody's gone into a bank and pre-qualified for a mortgage based on the system, I've seen some really absurd numbers come out of that. It's like, you've got to be kidding. There's no way I can make that payment. So yeah, there's probably room for them to tighten the rules up a little bit. But let me ask you this, Josh, because you use a term that's more associated with equity markets than with real estate and calling it a bear market. Typically, in a bear market in the equity world, everybody's going to run out and sell their house now. Isn't that the natural human reaction? The value of my house has gone down, I should sell it.

Josh Sheluk:
That's fate, that's what behavior tells you. But I guess it's not so easy to sell a house these days. So it's easy to sell a stock when things go down. It's not so easy to sell a house, so we talked about this before, and maybe not the most prudent thing to do either.

Colin White:
Well, selling a stocks is not the most prudent thing, but we aren't talking about human nature. Anyway now, it's just my way of pointing out the fact that your house may have gone down by 20% in value and it doesn't feel nearly as, you're not reacting to it the same way you would react as if your RSV went down by 20%. And which is bigger, your RSP or the value of your house? I guess, it depends where in Canada do you live, but anyway. It's just interesting to draw that parallel.

But no, I think that right now there's a comfort level and an acceptance of making things tougher. Everybody is expecting that things are going to get tougher and there's room for the regulators of all the different stripes to tighten regulations, and they're not likely to get the kind of pushback they would get if things were more robust. So it's almost like, "Yeah, okay. I mean this is what it is." Whereas in other times, I think you would see far more of a lobby opposition to this like, "You're strangling the economy and your whole holding us back." And that noise, from what I'm reading and what I'm seeing and everything in my zeitgeist isn't there. You're not having the people push back. It's like everybody's kind of saying, "Yeah, this really sucks. This is bad. We obviously have to accept things like this are happening."

Josh Sheluk:
See, I disagree because I see people feeling like, "I'm already getting screwed by the higher interest rates. I can't qualify for a mortgage right now. Prices are already sky high and you're making it harder for me to qualify for a mortgage. Thanks a lot." And then of course, the real estate people are always saying, "Well, this is going to push market prices down", et cetera, et cetera. It seems like everybody that's involved in the real estate market itself and have their livelihood tied to it in any way, they don't want any regulation whatsoever. It doesn't matter what it is.

Colin White:
Well, let me start by saying thank you for disagreeing with me. That's way more interesting to listen to than you and I just agreeing all the time. So that's fantastic. But keep in mind, the game right now. Game right now is we want things to slow down. That's what the interest rates are going up for. They're trying to slow the economy, they're trying to bring the values of everything down. And again, the math that I've played with and the math that I've seen, for an increase in interest rate on a mortgage and a 20% decline in the actual purchase price, your monthly payment hasn't changed a whole lot. So what are you upset about? Just do the math.

Josh Sheluk:
Well, I think the qualifications are getting a lot harder too. So it's not just the dollars and cents anymore, some of these are external to that. It's more qualities rather than quantities that the lenders are looking at. So not only is it maybe more expensive, and maybe that's broken even, who knows, but it's becoming harder to actually get that mortgage even if you had all the same sort of metrics fulfilled as you did 12 months ago.

Colin White:
To the extent that the average person is now unable to qualify per home, it will drive prices even lower, right? So the individuals standing in life is relative to everybody around them. If you were on the borderline before, you're on the borderline now because prices are going to come down to that same point. That's how an efficient market works. So if you're on the borderline before, you're on the borderline now, but now you've got something to complain about, "I'm on the borderline because they changed all these rules, the price came down. Yeah, I don't want to hear about the price coming down, all these rules are the reasons." No, it's because you're not managing your finances well enough. You need to do better than the person beside you in order to be successful.

Josh Sheluk:
Oh, okay. So you're telling me that everyone who can't qualify for a mortgage is not managing their finances well enough? That's what I'm hearing, Colin.

Colin White:
If you were on the borderline before and you're on the borderline now, just because you can point to something that is external to you and not take responsibility, no, that's not progress. If you were on the borderline before and you're on the borderline now, because again, what this is doing is bringing down prices in the market. We've already seen it and they want that to happen. That's the needed outcome from all of the monetary policies out there right now. Yeah, fair enough.

Josh Sheluk:
Yeah.

Colin White:
I was a really tough parent, can I say-

Josh Sheluk:
The problem with the regulation is, just like central banks, they bend, bend, bend until it breaks, it seems to me anyway. So they're going to go too far, and what is that going to do? Is it going to break the market? I don't know. Maybe that's a strong term. It will fix itself eventually, but they never hit exactly the right mark.

Colin White:
Well, no, nothing ever hits. There's not a mark to hit, there's just a direction. What's a broken real estate market look like? It goes zero bid, like nobody's buying houses?

Josh Sheluk:
Well, I don't know. I'd say the US market in '07, '08 and beyond was pretty broken. That was pretty messed up.

Colin White:
Messed up, yes.

Josh Sheluk:
And that was a lack of regulation in some respects that caused that to happen. So I don't know where the right balance is. I'm just saying the market is already bending a little bit and we're kind of throwing a few extra pounds on top and we'll see what it does. I don't know.

Colin White:
All right, so let me just, to summarize for our listeners, you don't know what the right answer is, but you're sitting at the cheat sheets throwing shit at the answer that's being provided right now.

Josh Sheluk:
Isn't that what having a podcast is all about?

Colin White:
Well-

Josh Sheluk:
That's what this is.

Colin White:
You're particularly spot on. You're particularly spot on tonight, Josh. Well done.

Josh Sheluk:
[inaudible 00:17:41] Good. So my favorite story, Colin, Tesla is hitting a bit of a rocky patch and I don't know if I could be happier about it.

Colin White:
Well, see you threw yourself on your sword not that long ago and said you were wrong about Tesla because you had been anti-Tesla, for lack of a better way of describing it, for a long time, and it kept going up. So you actually surrendered not that long ago, I believe, on a podcast and said, "I think I was wrong.

Josh Sheluk:
Yeah.

Colin White:
And I told you just give it time. But I never lost a game of basketball as a coach in my entire career. And I coached for 20 years. Now, from time to time I ran out of time, but I don't consider that a loss. I just wasn't given enough time to be successful. See, you have the ability in predicting that demise of Tesla to say, just wait for it, man. You're now looking really right, Josh.

Josh Sheluk:
Well, I'm still wrong. Thank you. If you looked at the timeframe when my first negative viewpoint on Tesla was to today, I still would've been a rich man if I had to put all my wealth in Tesla back then. But no, very shorter timeframe, now I'll take a little bit of a win here. It's kind of like a moral victory. Right now, Tesla's stock is down about 70% from its peak, and Elon Musk has lost $200 billion worth of wealth. So I'll take the wins where I can get them because they don't come around all the time.

Colin White:
Well, that's funny because you pointed that out and it was coming to the podcast. I was just scrolling my news as I always is, and the headline comes across that Tesla's actually cut its price by 20%, and Canada now qualifies for the federal electric vehicle rebate program or whatever, which I found, I guess, I just read the headline, I didn't get into it too deeply. But to me that sounds a little bit panicky. Inflation's a thing, everybody else is raising prices and the price of everything is going up and you're cutting the price of your vehicles up to 20%. That doesn't sound like something you do when you're in a strong place, but hey, who knows how it's all going to work out.

Josh Sheluk:
Yeah. Well, our thing with Tesla was always looking at it thinking, okay, the margins on the vehicles that they have are extremely high compared to the margins that every other car company in the world has. So if you believe that Tesla's stock is worth whatever, $300, $400, whatever it is, pick a number. You have to believe that either A, they're going to sell more cars on this planet than any other car company or B, they're going to be able to make double the margins that any other car company ever has made on a sustainable basis. And it was a stretch for us to get there, that's why we were negative on, not because we hated driving Teslas.

Colin White:
And the other thing that's what's not understood is what the actual business model here is because traditional internal combustion cars sold through a dealer network are sold at a relatively small margin, but there's a ton of money made on service. That's kind of the model. Way back in my university days before the internet, we looked at companies where the whole operation ran off service. They would sell a car, basically break even, and then make all their money on service.

The new electric vehicles require less service if you're removing parts. So that is going to be a different model, but they also have the capability of more data side of things and making money and having subscription services and all these other kinds of things. It's a whole different business model that I don't think we understand. And this parallel that's being drawn between gas powered and electric vehicles and Tesla and other companies, there's a whole bunch of hair on that because we don't know what the actual business block is going to be for an electric car. I don't believe we know because all the kinds of things are possible that haven't been explored yet.

Josh Sheluk:
Yeah. Anyway, I think bottom line is when you cut prices 20%, that's going to really take a bite out of your margins as well. And maybe it's just coming back down to earth now, the margins here, so we'll see.

Colin White:
Maybe it can make up negative margins on fire, maybe that's the thing.

Josh Sheluk:
Well, I'll wait for Elon Musk's tweet to let me know.

Colin White:
Awesome.

Josh Sheluk:
So Colin, a new year in Nova Scotia, I read last week that the Nova Scotia Securities Commission, the chair there has said that crypto investors in North America regulators estimate that they've lost about a billion dollars on crypto scams. Thoughts?

Colin White:
Yeah, I'm still stuck on what's the difference between crypto and a crypto scam, isn't it all-

Josh Sheluk:
The whole thing's a scam?

Colin White:
Which reminds me of a, again, I told you about this before, I had a question on exam one time, which of the following is not an illegal way to launder money? So there's a legal way to launder money? I mean, you're saying there's only a billion worth of the crypto stuff was a scam, all the rest of it is legit? I struggle with, again, calling the rest of it legit. Uh-huh, I think they'd probably got a fairly narrow definition of a scam. And maybe it's got to do with, all of these, the call centers calling people and using the word crypto and getting money from people. They used the word crypto, therefore it was a crypto scan compared to I bought Dogecoin that was made up in a couple hours on the weekend by a couple of guys who wanted to come up with something really funny to do and put money for people. I still think that's a scam.

Josh Sheluk:
Yeah. Well, I saw a billion and I was like, well, yeah. No shit, I could have told you that. I just saw a headline that there's $8 billion missing from FTX, so I mean that. But maybe they're thinking, "Well, no, that's not a scam, someone just stole your money. They didn't scam you." So I don't know. It depends where you draw the line, I guess, and how you define this stuff, where you put the goal posts.

Colin White:
I just started watching the Bernie Madoff thing that's on Netflix, going back through that, and that is a scam that started in the '50s. So we've had multi-billion dollar scams as long as we've had money or adjusted for time as to what the value is. Crypto is just the latest flavor. It's just a little bit easier and more anonymous to get away with, maybe. So it'll be fascinating to see how this plays out over the next little bit because there's still believers, there's still people out there trading it. There's still an ecosystem that has got a belief in this that hasn't died. It still exists. I don't know how big it is or how robust it is now. I can't wait to hear what the next theory that they put forward reduces to, what their survival's going to.

Josh Sheluk:
Yeah. So we've hit all my favorite topics today, Colin, crypto, Tesla, real estate and inflation. Anything that I missed?

Colin White:
I think that you've done a great job of hitting all of the things that are at the top of the news cycle right now. It'll be interesting to watch. It always is. This one had a conversation with a client, a prospect, it was a brand-new person considering investing money. We went through the list of everything that was going on, the lawyer goes, "I think I'll wait for a year and let all this sort of sell over." I said, "In the entire history of life, everything has never sorted itself." There's just a different narratives every time you sit and look at and at a certain point you make a decision. But waiting for everything to settle down, it is never going to happen. So just accept that The world's going to continue to be interesting. Pay attention and subscribe to our podcast and get the highlights and you'll be just fine.

Josh Sheluk:
Yep. Bonus prediction for 2023. There will be a new set of stuff going on at the end of the year, then at the start of the year.

Colin White:
Yes.

Speaker 1:
This information has been prepared by White Leblanc Wealth Planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only and do not necessarily reflect those of iA Private Wealth, Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates. [inaudible 00:26:09].

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Speaker 3:
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