GOLD: Day of Reckoning Is Near, FED Decision | Martin Pelletier
Summary
Market Outlook: The podcast discusses the current liquidity-driven market with asset prices reaching new highs, driven by expectations of rate cuts and large fiscal deficit spending, which are seen as inflationary.
Federal Reserve Decision: Anticipation surrounds the Fed's upcoming announcement, with a 25 basis point rate cut expected. The discussion highlights the potential impact of the Fed's messaging on market dynamics.
Economic Concerns: There is a focus on the weakening labor market and the disparity between economic indicators and fiscal/monetary policies, with concerns about political polarization and its impact on economic stability.
Inflation and Tariffs: The podcast explores the inflationary effects of tariffs and the potential responses from monetary and fiscal policies, emphasizing the impact on Main Street and the broader economy.
Housing Market: Discussion on the housing market highlights demographic challenges and the potential for a shift towards a renters' market, with concerns about long-term affordability and the impact of interest rate cuts.
Investment Opportunities: Opportunities are identified in stock picking and global infrastructure, with a move away from passive investing. The potential for a bond market rally is also discussed.
Oil Market: The oil market is expected to remain range-bound, with OPEC's role in maintaining stability and the challenges facing US shale production being key points of interest.
Fiscal Responsibility: Emphasis is placed on the need for fiscal responsibility and higher interest rates to ensure economic stability and address the widening wealth gap.
Transcript
Markets are trading at record high levels. On Wednesday, we are expecting a Fed announcement and maybe a Fed cut. 97% of you probably expect a 25 basis point cut. But what is the messaging going to be? What is Joron Powell going to say in the press conference? We will pay very very close attention. Join us for a live interview on Wednesday night with Lobo Tigra right after the press conference of the Fed to dissect what has been said and where things are headed. So really, really interesting. But before we get to that, I've invited a fantastic guest to discuss sort of the data that the Fed is using that to make its decision. And of course, he he's based in Canada. So, we'll take a look at the Bank of Canada decision on Wednesday as well. They're supposed to cut by 25 basis points as well. So, lot lots to discuss in a very short time. But before I switch over to my guest, who is Martin Pellet, by the way, he's a senior portfolio manager over at Travest and Wellington Altas Private Council. Really looking forward to catching up with him. It's been way too long. But uh before I switch over, as I said, hit that like and subscribe button. Helps us out tremendously and we much much appreciate that. Martin, it's great to have you back on the program. Thank you so much for joining us. You >> betcha. Thanks for having me. >> Yeah, it's it's been way too long. It's been over a year. I look I looked up the date and it's it's been too long. Martin, um so let's start fresh. Let's start with a white piece of paper before we get into the details. Martin, what is your assessment of the economy and the financial markets right now? We're in a liquiditydriven market. Um, a couple of uh about a month and a half, two months ago, I went as far as to say that, you know, there was potential for a meltup and we're seeing it now. And, uh, the big question is how long is that going to continue? Uh, the market's factoring in several rate cuts in the US m the market's factoring in a continued large fiscal deficit spending. All of these are extremely inflationary to asset prices. And so you're seeing Bitcoin for example move higher, the devaluation of the US dollar and gold setting new highs and equity markets especially long duration equities uh pushing new highs and uh continuing to establish some really strong momentum. So, you know, we'll take it as a as an investor and uh for for our clients uh with we'll accept the asset price momentum here, but um you know, longer term, we do have some concerns. OB >> obviously I think the labor market and even inflation I think we need to dissect those two uh together here. Martin, maybe we'll start with the labor market. What what is your impression here? Like what kind of signals or what kind of signal is it sending to the Fed and how will the Fed use it to make a decision? Well, there's a looking at the US in particular, the labor market is showing signs of of weakening. There's been some revisions to the to some of the data that we've seen. How however you zoom out and take a bigger picture. You know, we're still at of at 4% and change in unemployment. That's a pretty good number. certainly uh a lot better than uh where it has been in the past when the Fed has cut rates and better in the past when you've seen fiscal deficit spending like we're seeing now similar to the financial 2008 financial crisis and so there's a disparity between the econ uh between some of the economic numbers we're seeing in the US um and the fiscal and monetary policy and some of the concerns. >> No, 100% and I think the trend is the worrisome topic here. It's not really the the number itself, 4.3%. Although even the 4.3% is debatable cuz after the revision, that number hasn't changed because we lost almost a million million jobs and we're still at 4.3%. Um the trend cuz you were talking longer term trend. Hence, I brought up the employment topic. Where do you think see things head? Where do you see the cracks uh in in the in the in the industry in the market or not markets but in the industries? Where where do you see pressure coming from? >> I think we're going to see political polarization. I think that's the biggest risk. Um, asset inflation from money printing over the last uh, 15 years has widened the economic gap between the wealthier and the poor, main street and Wall Street. And um, undergoing another round of stimulus and and money printing is only going to widen that gap further. It's not going to help Main Street whatsoever. So yeah, 4.3%. you look at the unemployment level among younger people, it's much higher and there isn't the same kind of job opportunities for younger people in the US. And so when there isn't the opportunity for employment or even to buy houses um given the lack of affordability um and Canada's a much different story um much worse um then you're going to have some of that polarization and that's could be a destabilizing factor within the US and that's a concern of ours longer term and and so the approach being taken by the Federal Reserve under tremendous pressure by the White House to cut interest rates in a period of time where um the economy is still doing okay. Um a period of time where inflation still exists and we have had a material increase in asset prices or cost of living uh since co that we haven't seen any sort of a deflationary return to where we were precoid um that it's just going to make the problem worse. So, I think it's just kicking the can down the road and it's going to create more instability and uh in the near term, if you are long stocks or long anything that's going to benefit from that, then you know, you're going to you're going to win. But if you're on Main Street looking for a job, you're not and this isn't going to help. >> Yeah. It's like one one statistic that has me worried uh is the youth unemployment. People just coming out of college or just out of high school is over 10% if I'm not mistaken in the US. um reminded me a bit of Spain which has very high youth unemployment as well. I'm you know comparing apples to oranges here but is worrisome is my point here. Um do you see that change at all and like what can we do? I I don't think a fed rate cut will make it make it any different here. >> And tariffs I mean the the thesis behind tariffs is it'll cause more reshorting and more jobs um for for these younger people. And I don't think that's going to play out exactly. corporations are holding on to uh the from passing those tariffs along to consumers. So, they're not going to be hiring because they're taking a hit on their margins and uh and eventually that will have to get flowed through. the the what what you really need is you need to address some of the underlying uh issues around that and and so you have to focus on the education. Um how to uh repurpose the the job market for a lot of these younger people and and and you know not just blame immigration on it although it is an issue in Canada with temporary foreign workers not nearly the extent. um as uh as what we're you know what's happening south compared to what's happening up here where unemployment for young people is 14 to 16% in Canada. So we've got a much bigger issue. You need to grow the economy and you need to grow your way out of it and the policies are more inflationary on assets than uh broader economic growth in my opinion. >> Yeah, it's a it's tricky uh because you need to get out of that GDP to debt bubble as well meaning that ratio needs to shrink as well. So you do need to grow, but where do you see growth potentially happening? You you you touched on tariffs bringing some of the production home. I think we also discussed Martin before the AI boom to a degree maybe helping with productivity but also having just the industry onshore meaning in in the US might might help. What can the US government do? Is is that enough? Um just the CBO just put the Congressional Budget Office by the way just put out numbers for August I believe. So the the budget deficit is shrinking slightly um due to tariffs, but uh I think it's more of a drop in the bucket than anything else. I'm curious what your take on that is and what can the US actually do to really stimulate growth besides print more money? >> Well, printing money is is is stimulating not necessarily economic growth, but financial engineered growth. And so that's going to again probably make things worse for the person on Main Street. uh the person on Main Street um is actually going to suffer from tariffs in my opinion. Farmers are suffering um from this ongoing trade war and uh and various segments of the market are going to be suffering in my opinion. Tariffs, there's been talk about giving that those tariff revenue back in the form of some sort of special dividend. So the fiscal deficit is what you need to get under control. So if you really want to help um Main Street, you have to have um a deflationary impact on asset prices to actually make it more affordable. So for example, um you're much you were much better off when you could buy a house at an 8% interest rate when a house was two times your income whereas um if interest rates are at one at 3% and housing is 10 times your income. So, you're better to have, in my opinion, longer term, higher interest rates um with fiscal responsibility and uh and and eliminating the deficit. There's no need for running a deficit in the current economic times. Um we're out of COVID. Um we've been out of CO uh for a long period of time in regards to the necessary uh repercussions of shutting down the economy. And so we need to adjust back to a normal baseline and that means fiscal responsibility. Now the bond vigilantes are going to uh hold governments accountable. Maybe not a near-term and I, you know, near-term, you know, longer end of the yield curve probably could come down and there's a trade there. But in the longer term, it's going to continue to stay high and that's not good for bond markets. And that's going to hold these governments accountable and you're going to see devaluation of currencies like you're seeing with the US dollar, which is not good for uh necessarily for uh for Main Street, depending on if they can harvest uh harvest that and and turn it harness it, sorry, and turn it into uh export growth. But globally, uh, fiscal irresponsibility needs to get under check. >> Yeah, you're you're touching on a lot of topics and we'll get back to the housing market in a minute here, Martin. But first, let's stay on the inflation topic real quick. Curious what your take on is like. Do you think tariffs are inflationary, deflationary? I've heard all sorts of things here on this channel over the last few months, and I'm curious what your take is on it because it's a good segue to to the next topics here. I think they're inflationary because of the response um from them, not necessarily the terrorists themselves. Um it's going to be the response to it. And so uh if you look at the US government, if they do a dividend back to the consumers as tariffs eventually get passed along to consumers, um and and they will, there's going to be uh a response potentially from the government to to react. That means forcing interest rates lower by the Federal Reserve. That means fiscal spending continuing to remain high and that's going to create uh uh an inflationary type of environment which isn't good for Main Street. So it's not necessarily the tariffs themselves, it's the response to the tariffs on monetary and fiscal policy that I think will be inflationary. And uh it's the same argument that people have said, well we haven't had inflation for the last 15 years. book. Um, we have just look at the the debasement of the the of the dollar over the last, you know, 24 months and look at gold and what the gold market is telling you and uh and try living daytoday on a, you know, $50 $60,000 I think that's the average income level um you know a year. try living on that um when housing prices is high are high, rent prices are high, albeit coming down a bit and food prices are extraordinarily high. And so yes, uh I think this is not the proper response of deglobalization um is going to compound the uh the the rising price pressure. >> Talking about rising price pressure like the housing market is a very interesting topic. I've been talking like last week I was in Beaver Creek at the mining conference and a few people told me that housing prices in Canada in Vancouver for example are down by 10% roughly. Um how much false hope is also sort of connected with a cut in interest rates in Canada but also in the US uh when it comes to housing prices, the mortgage market and things like that. It seems like there's a lot of false hope being priced in or expected uh when it comes to that discussion. >> Well, I think this where you have to look at demographics. Um, you have a baby boomer generation that has benefited tremendously from uh rising housing prices and and from falling interest rates. 30 40 years of falling rates have been uh very inflationary for um their their probably their largest asset now. They're going to have to offload this eventually and who's going to be the buyer of it? And so basic supply, my son's taking economics 101 at at uh Mount Royal University here in Calgary. And and it's fascinating to see how majority of society has removed themselves from the economics 101 scenario and uh supply and demand. And so there's going to be a very large supply of housing um and not a lot of buyers. And you look at Japan for example and what that's done to its housing market. So eventually um you're going to see uh that end of the market come down and if you have an opportunity to uh to capitalize on it and if you're looking at your benchmarking well yeah how prices are down from their co highs but let's take a look at let's go back five years ago or six years ago or seven years ago and look at where the prices are compared to then and you're still up significantly or even up from a decade. And and this is a time probably not not so bad. If I was a a baby boomer, I'm Gen X. Um but if I was and I had a nice big house and my kids weren't living in it, then there's nothing wrong with the four-letter word rent. And and uh you know, I talked with a a friend of mine in Toronto and he rented a place. He rents a place in Italy for six months of the year and he loves it and it's it's renting and he's he's furnished it and done everything he he he's done. It's a beautiful place. there's nothing wrong with renting and this individual is a very very wealthy individual and so putting your capital to work in other areas of the market um besides your housing because I think that trades yesterday's trade. >> Yeah, it's an interesting topic because in Germany we're a renters's market for example in the US is more an owner market. That's it's the part of the American dream to own your own uh house but I I see that shifting slowly. I know nobody should be attacking the American dream here, but the market fundamentals are sort of dictating that. Is that a statement you would agree with that we're moving more towards a renters than than a buyer market or owners market? >> Well, as a young person, you have no choice. I mean, especially in Canada, you're I mean, the average income required to buy a home in Canada is 220,000, I think, or something like that. And Canada consider considers you the wealthiest at that. So the average first-time home buyer is 40 years old in Canada and you're taxed at the highest level. Anything above what you earn, you can't pay down the house. And so we're already there. Now, if housing price is correct and you're renting and prices come down far enough, then you're going to benefit from it. Now, lowering interest rates is just going to delay that. um it's just going to maybe create some some temporary demand because people leverage up at 10 times their income, whatever the number is to buy that house and it it just prolongs the cycle. But eventually, you know, ages and and demographics are going to work against the housing market. It has to. So maybe it's five years from now, maybe it's 10 years from now. What's the average age of a baby boomer? Is it 75 or 70, 75? and uh you go another decade from now, you know, 85, I mean, you've sitting on a multi-million dollar house um and it's just you or you and your spouse, um you know, eventually that's going to get sold. >> No, it's it's a nice nest egg to have, of course, but uh it it'll hit the market as quickly as it can sometimes, and uh I've I've seen that happen. Um Martin, let's get to the here and now. Wednesday is the Fed Fed decision, of course, press conference. We're all waiting for it, holding our breath more or less because we don't really know what Jeron Powell is going to say. Market expects around 69 basis point cut over the by the end of the year. 25 points now expected for for Wednesday. Um what should investors do? I've been hearing quite a few stories that are investors starting to get out of the market waiting for Wednesday to happen before maybe considering coming back in. Like what are you doing? What are you looking at? And is that the right strategy? Oh, well, trying to make predictions like that are is impossible to do. Um, it's akin to gambling. But, um, bidding on red or black. If I was to place that bet though, I think you're going to see the Fed, who's under a lot of pressure by the White House, um, try to keep everybody happy. And by keeping everybody happy, they're going to disappoint everybody. I've learned that from personal experience. And so, you have to make tough choices. But I think they're going to go 25 points and provide more of a um you know, what would I call it? A um being, you know, somewhat hawkish, but um but not over overly hawkish. And and they're going to, you know, take that approach. So that I think that's probably going to upset the White House and it's probably going to upset those who think they should be doubbish and maybe markets pull back a little bit. Um now markets are expecting like you said some material rate cuts over the remainder of the year. They're pricing that in into the long duration side. You can see that in the tech stocks and that's probably going to continue to happen. >> Yeah. I've been asking other guests about the potential deflationary scenarios, meaning 25 basis points now, 25 basis points at the next meeting, 25 basis points later on. All depends, of course, on the messaging by Jerome Powell. But why would you now invest or buy a property or get a mortgage when you know it's going to get cheaper in December? That's sort of the question like what what what do you make of that sort of messaging here? And uh what what do investors make out of it as well? Is it is it deflationary? And what is your take on that? Well, I think if you're going to be buying a house, your house is not no longer an investment. So, I think you want to remove that from the equation. If you're going to be buying a home, um I think you're you're probably, you know, just look at the opportunity set, look where the situation is and do it for a lifestyle choice. from an investment standpoint. I mean, that's going to be really hard because um if there are rate cuts coming, more rate cuts, is that going to be inflationary to the housing market? And so, maybe you want to buy now ahead of those those rate cuts. Um I'm not sure. I mean, that's a really hard call to make. From an invest in investment standpoint, I think we're continue to see some strength in the strong momentum as markets are are lobbying very very hard for for rate cuts. And I think there's probably a near-term trade in the bond market on this. Now, longer term, there's going to be some serious consequences from this because um I think the US economy does not warrant um material rate cuts. I think inflation levels do not warrant material rate cuts. I think the Fed holding pat and a lot of people would would very much disagree with me, but I think we need to have fiscal responsibility and we need to have interest rates that can uh enforce that fiscal responsibility from a household level and from a government uh spending level. um in the US anyway, Canada's we'll talk about this, but Canada's is in a much different scenario where it would warrant uh some some rate cuts. But um having said that, the world's largest market economy is still doing okay. It's not collapsing. It's not I mean things are things are okay and uh I think rates match uh the level of the economy right now. Yes, some guests have been saying that maybe the 2-year or the sorry, the Fed funds rate should more or less match the two-year bond yield, which is about 3.5% right now. More in the neutral territory here. Is that something you would agree with? That's something that beg agreeable for the markets as well. >> Yeah, I wouldn't disagree with that. I mean, I I like the I mean, I'm I'm if you look at the the the impact of my thinking and my generational thinking, it's it's I'm more conservative. Um and and and and I think that's probably more of a of a prudent course of action. I think we need to have higher rates. Um higher rates will encourage um smart actions and and remove some of the froth that we're seeing and but you know the markets want their want their fix and they're going to get it. >> True. And we've tried removing some of that froth earlier the year and uh it ended in disaster at least politically for some. Uh we we don't have to talk about the fallout between President Trump and Elon Musk here trying things to to change course but it's not really working quite honestly. People have gotten too used to the easy fix which is cheap money and >> yeah and you're going to get it again. So yeah, but as an as a portfill manager and investor I mean it's good for me and my clients. I mean, um, and and that's that's that's that's great from a, um, what I believe in ethically and what we should be doing for Main Street, that's a whole different story. And I I I think we don't need to have uh, a widening of the gap between the wealthier and the and the poor. And the wealthier have have have done okay. and and if they can generate a rate of return that is uh sufficient to meet their lifestyle goals, which is often um high mid to high single digits, they don't need double digits. Um and if that allows asset prices to come down a little bit, not have the same kind of of growth that we've seen, then you have younger people that don't need to take huge risks or huge swings in the market so they can be able to afford a home so they make money in the market so that they can come up with that down payment. and uh it just it just it's more of a balanced type of approach, but you know, we haven't seen that in in 15 years. And you have the average age of a trader that's 35 that has never been through any sort of material correction and uh they're always expecting the Federal Reserve to to bail them out and that's going to continue um until it can't until bond bond vigilantes say, you know, we're pushing back. You can cut rates all you want. the long end of the curve is staying high. And uh if you try doing bills to to fund your deficit, that's not going to that's going to run out of out of time. Maybe try and do uh Coinbase or some sort of uh um governmentbacked crypto that you can devalue, but that's going to hammer your dollar if you devalue that. And we're going to hold you uh accountable. And there will be a day of reckoning from that aspect. And gold markets are telling you that. And uh and and so you know, enjoy it now. It feels good, but you're gonna have to pay for it at one point or another. >> 100%. And I've been saying that since 2008, and I've been proven wrong. I've been proven wrong again and again and again. Um, yet we're kicking the can down the road. And yet, here we are chatting, Martin. But maybe to turn this thing around a little bit. And you know, we're always doom and gloom here. But where do you see some opportunity? You touched on the bond market that there might be a bit of a bond rally happening with Fed cuts um imminent here. Where where else you see opportunity with the S&P at 66, what is it? 66.50. 50, gold at 36.50. Um, where do you see opportunity? >> Well, okay. So, uh, I think you want to move away from passive investing and, uh, you need to get some good oldfashioned stock picking and we've added another portfolio manager in our team who's really good at that. Um, and, uh, it's been beneficial for us. So, for example, we were able to to reduce our S&P broader exposure and go into some individual names like Google. That's worked out well for us. Brookshshire has worked out well with the Apple uh, participation recovery. Um, so if you do some stock picking, there's some some good opportunities there. I like the global infrastructure space. Um, I think governments are going to continue to try and and help uh boost their economies through infrastructure spending. You're seeing it in Canada. And so there's some some good Canadian stocks that are um going to benefit from that. And so I think if you if you really, you know, roll up your sleeves, there's going to be some good um buying opportunities um that haven't uh participated to the same extent from yet um that the long duration equities have and uh there'd be some good returns there. >> 100%. Like what do you make of commodities? I know you're in Calgary right now, so we do have to touch on oil. Um you can't escape it when you're there in in in Alberta. What do you make of the oil market right now trading around $60 a barrel? Should we go higher, lower? What's the trend here? >> It's going to be rangebound. Um, we reduced our energy position materially at the beginning of the year and we're quite happy about that. Uh, we've taken our energy position down to probably underweight even compared to the TSX for sure. And uh, and that the energy trade really helped us in 2022 um, when you saw rates rapidly increase. So, we're not the whole point is we're not shy away from we won't shy away from going to a large overweight position. Really helped us. we're only down 1.7% and our balanced fund compared to our peers are down 15 to 20%. So it really helped us and we've reduced that trade down significantly and so I think energy is going to be rangebound. I went to uh Vienna and met with OPEC back in March. Um I I feel confident in OPEC's ability to maintain a stable oil market. Um they are coming after US shale. I I think US shale is in trouble. I think um longer term that that end of the market is going to uh probably really disappoint and you're going to see some production shortfalls there as if you look at the well data um they are experiencing higher water levels and uh gas to oil ratios and so that that trade in itself is setting things up. Global inventories are low. So in the next 5 years probably a good trade but not a lot of not a lot of money made in the next I mean some M&A in Canada we benefited from the MAG trade so that's worked out well looking for the next one. So there'd be some some nice little trades but overall oil it's probably flat dead money. >> Maybe as a followup there Martin like how important is the oil price to the global economy right now? If gold were at be at $80 or $100 a barrel right now, do you think we'd already be in massive global recession or even depression? >> No. Um the the oil price is really is it's in the sweet spot. is fantastic given the state of the global economy and like I said I think OPEC's done a really good job of of recognizing where the economy is at and having the OA price uh reflect that and the markets are are you know when it when the price gets higher um it it's been pushing back and and selling it down and and you're having some extra you know the the OPEC volume's coming back on uh you've got Russia which is a wild card we see what happens there um Trump had a good point if if Europe really wanted to help uh push back against Russia. They stopped buying Russian oil, but they're still doing it. Overall, I I think it's in a great spot right now. And I think we're going to see a chug along US economy, chugalong global economy. China's chugging along and so it's it's just kind of a flat uh outlook. >> Yeah, I was just in the US last week and I saw like in Idaho gallon a gallon of gas was $242, I believe. Then down in Colorado is $3.40. still extremely cheap. So I always call it the low gas price QE for the people, right? Um what happens if we take that away, right? >> That that really does help Main Street. So if you if you look at um forget about interest I think interest rates we t I talked about that how that's that that isn't beneficial. Um you want asset deflation, but if you don't get that at least if you can get gasoline prices down, but you know what's gasoline price? Look at your budget. How much is gasoline as a percentage of your budget compared to food? And uh and ga I mean I like fast cars so I burn through gas like there's no tomorrow. Um so it it is a higher you know amount but it's not as a percent of my budget isn't. And food prices are are really high and and and that's the other area that we need to that needs to get addressed. So yes, lower gasoline prices fantastic for uh our grand all of us on main all of us on Main Street, especially those who are are poor. Um it's great, but um we need more than that. >> No, fantastic. Martin, really appreciate your insights. It's great having you on back on Soore Financially. Really great uh discussion here with a Canadian perspective. Martin, where can we send our audience to follow more of your work? >> Um go to my website at trivswealth.com or also on Twitter. Um, I'm sure you can probably post my Twitter handle on here. I've got a good following base there. And I also uh do a write for the financial post on a weekly basis. You can find me there. And uh we have a monthly newsletter that please, it's free for now. It won't be free forever, but we talk about some of the trades and some of the ideas that we uh share with our clients. >> Fantastic, Martin. Really appreciate you coming on. Fantastic insights. And everybody else, thanks so much for tuning in. Really appreciate you watching. sore financially ahead of the big Fed Fed decision. I think we're overhyping it almost a little bit here, not just on sore financially, but globally. The media is hyping it. We we'll see what Jerome Powell says on Wednesday. Join us for a live interview with Lobo right after the press conference here on Sore Financially on our YouTube channel. We'll put up a live link here shortly as well. Thanks so much for tuning in. If you have any comments, put them down below. Go follow Martin, follow us, and we much appreciate your support. Thank you so much for tuning in. We'll be back with lots more. Take care out there. [Music]
GOLD: Day of Reckoning Is Near, FED Decision | Martin Pelletier
Summary
Transcript
Markets are trading at record high levels. On Wednesday, we are expecting a Fed announcement and maybe a Fed cut. 97% of you probably expect a 25 basis point cut. But what is the messaging going to be? What is Joron Powell going to say in the press conference? We will pay very very close attention. Join us for a live interview on Wednesday night with Lobo Tigra right after the press conference of the Fed to dissect what has been said and where things are headed. So really, really interesting. But before we get to that, I've invited a fantastic guest to discuss sort of the data that the Fed is using that to make its decision. And of course, he he's based in Canada. So, we'll take a look at the Bank of Canada decision on Wednesday as well. They're supposed to cut by 25 basis points as well. So, lot lots to discuss in a very short time. But before I switch over to my guest, who is Martin Pellet, by the way, he's a senior portfolio manager over at Travest and Wellington Altas Private Council. Really looking forward to catching up with him. It's been way too long. But uh before I switch over, as I said, hit that like and subscribe button. Helps us out tremendously and we much much appreciate that. Martin, it's great to have you back on the program. Thank you so much for joining us. You >> betcha. Thanks for having me. >> Yeah, it's it's been way too long. It's been over a year. I look I looked up the date and it's it's been too long. Martin, um so let's start fresh. Let's start with a white piece of paper before we get into the details. Martin, what is your assessment of the economy and the financial markets right now? We're in a liquiditydriven market. Um, a couple of uh about a month and a half, two months ago, I went as far as to say that, you know, there was potential for a meltup and we're seeing it now. And, uh, the big question is how long is that going to continue? Uh, the market's factoring in several rate cuts in the US m the market's factoring in a continued large fiscal deficit spending. All of these are extremely inflationary to asset prices. And so you're seeing Bitcoin for example move higher, the devaluation of the US dollar and gold setting new highs and equity markets especially long duration equities uh pushing new highs and uh continuing to establish some really strong momentum. So, you know, we'll take it as a as an investor and uh for for our clients uh with we'll accept the asset price momentum here, but um you know, longer term, we do have some concerns. OB >> obviously I think the labor market and even inflation I think we need to dissect those two uh together here. Martin, maybe we'll start with the labor market. What what is your impression here? Like what kind of signals or what kind of signal is it sending to the Fed and how will the Fed use it to make a decision? Well, there's a looking at the US in particular, the labor market is showing signs of of weakening. There's been some revisions to the to some of the data that we've seen. How however you zoom out and take a bigger picture. You know, we're still at of at 4% and change in unemployment. That's a pretty good number. certainly uh a lot better than uh where it has been in the past when the Fed has cut rates and better in the past when you've seen fiscal deficit spending like we're seeing now similar to the financial 2008 financial crisis and so there's a disparity between the econ uh between some of the economic numbers we're seeing in the US um and the fiscal and monetary policy and some of the concerns. >> No, 100% and I think the trend is the worrisome topic here. It's not really the the number itself, 4.3%. Although even the 4.3% is debatable cuz after the revision, that number hasn't changed because we lost almost a million million jobs and we're still at 4.3%. Um the trend cuz you were talking longer term trend. Hence, I brought up the employment topic. Where do you think see things head? Where do you see the cracks uh in in the in the in the industry in the market or not markets but in the industries? Where where do you see pressure coming from? >> I think we're going to see political polarization. I think that's the biggest risk. Um, asset inflation from money printing over the last uh, 15 years has widened the economic gap between the wealthier and the poor, main street and Wall Street. And um, undergoing another round of stimulus and and money printing is only going to widen that gap further. It's not going to help Main Street whatsoever. So yeah, 4.3%. you look at the unemployment level among younger people, it's much higher and there isn't the same kind of job opportunities for younger people in the US. And so when there isn't the opportunity for employment or even to buy houses um given the lack of affordability um and Canada's a much different story um much worse um then you're going to have some of that polarization and that's could be a destabilizing factor within the US and that's a concern of ours longer term and and so the approach being taken by the Federal Reserve under tremendous pressure by the White House to cut interest rates in a period of time where um the economy is still doing okay. Um a period of time where inflation still exists and we have had a material increase in asset prices or cost of living uh since co that we haven't seen any sort of a deflationary return to where we were precoid um that it's just going to make the problem worse. So, I think it's just kicking the can down the road and it's going to create more instability and uh in the near term, if you are long stocks or long anything that's going to benefit from that, then you know, you're going to you're going to win. But if you're on Main Street looking for a job, you're not and this isn't going to help. >> Yeah. It's like one one statistic that has me worried uh is the youth unemployment. People just coming out of college or just out of high school is over 10% if I'm not mistaken in the US. um reminded me a bit of Spain which has very high youth unemployment as well. I'm you know comparing apples to oranges here but is worrisome is my point here. Um do you see that change at all and like what can we do? I I don't think a fed rate cut will make it make it any different here. >> And tariffs I mean the the thesis behind tariffs is it'll cause more reshorting and more jobs um for for these younger people. And I don't think that's going to play out exactly. corporations are holding on to uh the from passing those tariffs along to consumers. So, they're not going to be hiring because they're taking a hit on their margins and uh and eventually that will have to get flowed through. the the what what you really need is you need to address some of the underlying uh issues around that and and so you have to focus on the education. Um how to uh repurpose the the job market for a lot of these younger people and and and you know not just blame immigration on it although it is an issue in Canada with temporary foreign workers not nearly the extent. um as uh as what we're you know what's happening south compared to what's happening up here where unemployment for young people is 14 to 16% in Canada. So we've got a much bigger issue. You need to grow the economy and you need to grow your way out of it and the policies are more inflationary on assets than uh broader economic growth in my opinion. >> Yeah, it's a it's tricky uh because you need to get out of that GDP to debt bubble as well meaning that ratio needs to shrink as well. So you do need to grow, but where do you see growth potentially happening? You you you touched on tariffs bringing some of the production home. I think we also discussed Martin before the AI boom to a degree maybe helping with productivity but also having just the industry onshore meaning in in the US might might help. What can the US government do? Is is that enough? Um just the CBO just put the Congressional Budget Office by the way just put out numbers for August I believe. So the the budget deficit is shrinking slightly um due to tariffs, but uh I think it's more of a drop in the bucket than anything else. I'm curious what your take on that is and what can the US actually do to really stimulate growth besides print more money? >> Well, printing money is is is stimulating not necessarily economic growth, but financial engineered growth. And so that's going to again probably make things worse for the person on Main Street. uh the person on Main Street um is actually going to suffer from tariffs in my opinion. Farmers are suffering um from this ongoing trade war and uh and various segments of the market are going to be suffering in my opinion. Tariffs, there's been talk about giving that those tariff revenue back in the form of some sort of special dividend. So the fiscal deficit is what you need to get under control. So if you really want to help um Main Street, you have to have um a deflationary impact on asset prices to actually make it more affordable. So for example, um you're much you were much better off when you could buy a house at an 8% interest rate when a house was two times your income whereas um if interest rates are at one at 3% and housing is 10 times your income. So, you're better to have, in my opinion, longer term, higher interest rates um with fiscal responsibility and uh and and eliminating the deficit. There's no need for running a deficit in the current economic times. Um we're out of COVID. Um we've been out of CO uh for a long period of time in regards to the necessary uh repercussions of shutting down the economy. And so we need to adjust back to a normal baseline and that means fiscal responsibility. Now the bond vigilantes are going to uh hold governments accountable. Maybe not a near-term and I, you know, near-term, you know, longer end of the yield curve probably could come down and there's a trade there. But in the longer term, it's going to continue to stay high and that's not good for bond markets. And that's going to hold these governments accountable and you're going to see devaluation of currencies like you're seeing with the US dollar, which is not good for uh necessarily for uh for Main Street, depending on if they can harvest uh harvest that and and turn it harness it, sorry, and turn it into uh export growth. But globally, uh, fiscal irresponsibility needs to get under check. >> Yeah, you're you're touching on a lot of topics and we'll get back to the housing market in a minute here, Martin. But first, let's stay on the inflation topic real quick. Curious what your take on is like. Do you think tariffs are inflationary, deflationary? I've heard all sorts of things here on this channel over the last few months, and I'm curious what your take is on it because it's a good segue to to the next topics here. I think they're inflationary because of the response um from them, not necessarily the terrorists themselves. Um it's going to be the response to it. And so uh if you look at the US government, if they do a dividend back to the consumers as tariffs eventually get passed along to consumers, um and and they will, there's going to be uh a response potentially from the government to to react. That means forcing interest rates lower by the Federal Reserve. That means fiscal spending continuing to remain high and that's going to create uh uh an inflationary type of environment which isn't good for Main Street. So it's not necessarily the tariffs themselves, it's the response to the tariffs on monetary and fiscal policy that I think will be inflationary. And uh it's the same argument that people have said, well we haven't had inflation for the last 15 years. book. Um, we have just look at the the debasement of the the of the dollar over the last, you know, 24 months and look at gold and what the gold market is telling you and uh and try living daytoday on a, you know, $50 $60,000 I think that's the average income level um you know a year. try living on that um when housing prices is high are high, rent prices are high, albeit coming down a bit and food prices are extraordinarily high. And so yes, uh I think this is not the proper response of deglobalization um is going to compound the uh the the rising price pressure. >> Talking about rising price pressure like the housing market is a very interesting topic. I've been talking like last week I was in Beaver Creek at the mining conference and a few people told me that housing prices in Canada in Vancouver for example are down by 10% roughly. Um how much false hope is also sort of connected with a cut in interest rates in Canada but also in the US uh when it comes to housing prices, the mortgage market and things like that. It seems like there's a lot of false hope being priced in or expected uh when it comes to that discussion. >> Well, I think this where you have to look at demographics. Um, you have a baby boomer generation that has benefited tremendously from uh rising housing prices and and from falling interest rates. 30 40 years of falling rates have been uh very inflationary for um their their probably their largest asset now. They're going to have to offload this eventually and who's going to be the buyer of it? And so basic supply, my son's taking economics 101 at at uh Mount Royal University here in Calgary. And and it's fascinating to see how majority of society has removed themselves from the economics 101 scenario and uh supply and demand. And so there's going to be a very large supply of housing um and not a lot of buyers. And you look at Japan for example and what that's done to its housing market. So eventually um you're going to see uh that end of the market come down and if you have an opportunity to uh to capitalize on it and if you're looking at your benchmarking well yeah how prices are down from their co highs but let's take a look at let's go back five years ago or six years ago or seven years ago and look at where the prices are compared to then and you're still up significantly or even up from a decade. And and this is a time probably not not so bad. If I was a a baby boomer, I'm Gen X. Um but if I was and I had a nice big house and my kids weren't living in it, then there's nothing wrong with the four-letter word rent. And and uh you know, I talked with a a friend of mine in Toronto and he rented a place. He rents a place in Italy for six months of the year and he loves it and it's it's renting and he's he's furnished it and done everything he he he's done. It's a beautiful place. there's nothing wrong with renting and this individual is a very very wealthy individual and so putting your capital to work in other areas of the market um besides your housing because I think that trades yesterday's trade. >> Yeah, it's an interesting topic because in Germany we're a renters's market for example in the US is more an owner market. That's it's the part of the American dream to own your own uh house but I I see that shifting slowly. I know nobody should be attacking the American dream here, but the market fundamentals are sort of dictating that. Is that a statement you would agree with that we're moving more towards a renters than than a buyer market or owners market? >> Well, as a young person, you have no choice. I mean, especially in Canada, you're I mean, the average income required to buy a home in Canada is 220,000, I think, or something like that. And Canada consider considers you the wealthiest at that. So the average first-time home buyer is 40 years old in Canada and you're taxed at the highest level. Anything above what you earn, you can't pay down the house. And so we're already there. Now, if housing price is correct and you're renting and prices come down far enough, then you're going to benefit from it. Now, lowering interest rates is just going to delay that. um it's just going to maybe create some some temporary demand because people leverage up at 10 times their income, whatever the number is to buy that house and it it just prolongs the cycle. But eventually, you know, ages and and demographics are going to work against the housing market. It has to. So maybe it's five years from now, maybe it's 10 years from now. What's the average age of a baby boomer? Is it 75 or 70, 75? and uh you go another decade from now, you know, 85, I mean, you've sitting on a multi-million dollar house um and it's just you or you and your spouse, um you know, eventually that's going to get sold. >> No, it's it's a nice nest egg to have, of course, but uh it it'll hit the market as quickly as it can sometimes, and uh I've I've seen that happen. Um Martin, let's get to the here and now. Wednesday is the Fed Fed decision, of course, press conference. We're all waiting for it, holding our breath more or less because we don't really know what Jeron Powell is going to say. Market expects around 69 basis point cut over the by the end of the year. 25 points now expected for for Wednesday. Um what should investors do? I've been hearing quite a few stories that are investors starting to get out of the market waiting for Wednesday to happen before maybe considering coming back in. Like what are you doing? What are you looking at? And is that the right strategy? Oh, well, trying to make predictions like that are is impossible to do. Um, it's akin to gambling. But, um, bidding on red or black. If I was to place that bet though, I think you're going to see the Fed, who's under a lot of pressure by the White House, um, try to keep everybody happy. And by keeping everybody happy, they're going to disappoint everybody. I've learned that from personal experience. And so, you have to make tough choices. But I think they're going to go 25 points and provide more of a um you know, what would I call it? A um being, you know, somewhat hawkish, but um but not over overly hawkish. And and they're going to, you know, take that approach. So that I think that's probably going to upset the White House and it's probably going to upset those who think they should be doubbish and maybe markets pull back a little bit. Um now markets are expecting like you said some material rate cuts over the remainder of the year. They're pricing that in into the long duration side. You can see that in the tech stocks and that's probably going to continue to happen. >> Yeah. I've been asking other guests about the potential deflationary scenarios, meaning 25 basis points now, 25 basis points at the next meeting, 25 basis points later on. All depends, of course, on the messaging by Jerome Powell. But why would you now invest or buy a property or get a mortgage when you know it's going to get cheaper in December? That's sort of the question like what what what do you make of that sort of messaging here? And uh what what do investors make out of it as well? Is it is it deflationary? And what is your take on that? Well, I think if you're going to be buying a house, your house is not no longer an investment. So, I think you want to remove that from the equation. If you're going to be buying a home, um I think you're you're probably, you know, just look at the opportunity set, look where the situation is and do it for a lifestyle choice. from an investment standpoint. I mean, that's going to be really hard because um if there are rate cuts coming, more rate cuts, is that going to be inflationary to the housing market? And so, maybe you want to buy now ahead of those those rate cuts. Um I'm not sure. I mean, that's a really hard call to make. From an invest in investment standpoint, I think we're continue to see some strength in the strong momentum as markets are are lobbying very very hard for for rate cuts. And I think there's probably a near-term trade in the bond market on this. Now, longer term, there's going to be some serious consequences from this because um I think the US economy does not warrant um material rate cuts. I think inflation levels do not warrant material rate cuts. I think the Fed holding pat and a lot of people would would very much disagree with me, but I think we need to have fiscal responsibility and we need to have interest rates that can uh enforce that fiscal responsibility from a household level and from a government uh spending level. um in the US anyway, Canada's we'll talk about this, but Canada's is in a much different scenario where it would warrant uh some some rate cuts. But um having said that, the world's largest market economy is still doing okay. It's not collapsing. It's not I mean things are things are okay and uh I think rates match uh the level of the economy right now. Yes, some guests have been saying that maybe the 2-year or the sorry, the Fed funds rate should more or less match the two-year bond yield, which is about 3.5% right now. More in the neutral territory here. Is that something you would agree with? That's something that beg agreeable for the markets as well. >> Yeah, I wouldn't disagree with that. I mean, I I like the I mean, I'm I'm if you look at the the the impact of my thinking and my generational thinking, it's it's I'm more conservative. Um and and and and I think that's probably more of a of a prudent course of action. I think we need to have higher rates. Um higher rates will encourage um smart actions and and remove some of the froth that we're seeing and but you know the markets want their want their fix and they're going to get it. >> True. And we've tried removing some of that froth earlier the year and uh it ended in disaster at least politically for some. Uh we we don't have to talk about the fallout between President Trump and Elon Musk here trying things to to change course but it's not really working quite honestly. People have gotten too used to the easy fix which is cheap money and >> yeah and you're going to get it again. So yeah, but as an as a portfill manager and investor I mean it's good for me and my clients. I mean, um, and and that's that's that's that's great from a, um, what I believe in ethically and what we should be doing for Main Street, that's a whole different story. And I I I think we don't need to have uh, a widening of the gap between the wealthier and the and the poor. And the wealthier have have have done okay. and and if they can generate a rate of return that is uh sufficient to meet their lifestyle goals, which is often um high mid to high single digits, they don't need double digits. Um and if that allows asset prices to come down a little bit, not have the same kind of of growth that we've seen, then you have younger people that don't need to take huge risks or huge swings in the market so they can be able to afford a home so they make money in the market so that they can come up with that down payment. and uh it just it just it's more of a balanced type of approach, but you know, we haven't seen that in in 15 years. And you have the average age of a trader that's 35 that has never been through any sort of material correction and uh they're always expecting the Federal Reserve to to bail them out and that's going to continue um until it can't until bond bond vigilantes say, you know, we're pushing back. You can cut rates all you want. the long end of the curve is staying high. And uh if you try doing bills to to fund your deficit, that's not going to that's going to run out of out of time. Maybe try and do uh Coinbase or some sort of uh um governmentbacked crypto that you can devalue, but that's going to hammer your dollar if you devalue that. And we're going to hold you uh accountable. And there will be a day of reckoning from that aspect. And gold markets are telling you that. And uh and and so you know, enjoy it now. It feels good, but you're gonna have to pay for it at one point or another. >> 100%. And I've been saying that since 2008, and I've been proven wrong. I've been proven wrong again and again and again. Um, yet we're kicking the can down the road. And yet, here we are chatting, Martin. But maybe to turn this thing around a little bit. And you know, we're always doom and gloom here. But where do you see some opportunity? You touched on the bond market that there might be a bit of a bond rally happening with Fed cuts um imminent here. Where where else you see opportunity with the S&P at 66, what is it? 66.50. 50, gold at 36.50. Um, where do you see opportunity? >> Well, okay. So, uh, I think you want to move away from passive investing and, uh, you need to get some good oldfashioned stock picking and we've added another portfolio manager in our team who's really good at that. Um, and, uh, it's been beneficial for us. So, for example, we were able to to reduce our S&P broader exposure and go into some individual names like Google. That's worked out well for us. Brookshshire has worked out well with the Apple uh, participation recovery. Um, so if you do some stock picking, there's some some good opportunities there. I like the global infrastructure space. Um, I think governments are going to continue to try and and help uh boost their economies through infrastructure spending. You're seeing it in Canada. And so there's some some good Canadian stocks that are um going to benefit from that. And so I think if you if you really, you know, roll up your sleeves, there's going to be some good um buying opportunities um that haven't uh participated to the same extent from yet um that the long duration equities have and uh there'd be some good returns there. >> 100%. Like what do you make of commodities? I know you're in Calgary right now, so we do have to touch on oil. Um you can't escape it when you're there in in in Alberta. What do you make of the oil market right now trading around $60 a barrel? Should we go higher, lower? What's the trend here? >> It's going to be rangebound. Um, we reduced our energy position materially at the beginning of the year and we're quite happy about that. Uh, we've taken our energy position down to probably underweight even compared to the TSX for sure. And uh, and that the energy trade really helped us in 2022 um, when you saw rates rapidly increase. So, we're not the whole point is we're not shy away from we won't shy away from going to a large overweight position. Really helped us. we're only down 1.7% and our balanced fund compared to our peers are down 15 to 20%. So it really helped us and we've reduced that trade down significantly and so I think energy is going to be rangebound. I went to uh Vienna and met with OPEC back in March. Um I I feel confident in OPEC's ability to maintain a stable oil market. Um they are coming after US shale. I I think US shale is in trouble. I think um longer term that that end of the market is going to uh probably really disappoint and you're going to see some production shortfalls there as if you look at the well data um they are experiencing higher water levels and uh gas to oil ratios and so that that trade in itself is setting things up. Global inventories are low. So in the next 5 years probably a good trade but not a lot of not a lot of money made in the next I mean some M&A in Canada we benefited from the MAG trade so that's worked out well looking for the next one. So there'd be some some nice little trades but overall oil it's probably flat dead money. >> Maybe as a followup there Martin like how important is the oil price to the global economy right now? If gold were at be at $80 or $100 a barrel right now, do you think we'd already be in massive global recession or even depression? >> No. Um the the oil price is really is it's in the sweet spot. is fantastic given the state of the global economy and like I said I think OPEC's done a really good job of of recognizing where the economy is at and having the OA price uh reflect that and the markets are are you know when it when the price gets higher um it it's been pushing back and and selling it down and and you're having some extra you know the the OPEC volume's coming back on uh you've got Russia which is a wild card we see what happens there um Trump had a good point if if Europe really wanted to help uh push back against Russia. They stopped buying Russian oil, but they're still doing it. Overall, I I think it's in a great spot right now. And I think we're going to see a chug along US economy, chugalong global economy. China's chugging along and so it's it's just kind of a flat uh outlook. >> Yeah, I was just in the US last week and I saw like in Idaho gallon a gallon of gas was $242, I believe. Then down in Colorado is $3.40. still extremely cheap. So I always call it the low gas price QE for the people, right? Um what happens if we take that away, right? >> That that really does help Main Street. So if you if you look at um forget about interest I think interest rates we t I talked about that how that's that that isn't beneficial. Um you want asset deflation, but if you don't get that at least if you can get gasoline prices down, but you know what's gasoline price? Look at your budget. How much is gasoline as a percentage of your budget compared to food? And uh and ga I mean I like fast cars so I burn through gas like there's no tomorrow. Um so it it is a higher you know amount but it's not as a percent of my budget isn't. And food prices are are really high and and and that's the other area that we need to that needs to get addressed. So yes, lower gasoline prices fantastic for uh our grand all of us on main all of us on Main Street, especially those who are are poor. Um it's great, but um we need more than that. >> No, fantastic. Martin, really appreciate your insights. It's great having you on back on Soore Financially. Really great uh discussion here with a Canadian perspective. Martin, where can we send our audience to follow more of your work? >> Um go to my website at trivswealth.com or also on Twitter. Um, I'm sure you can probably post my Twitter handle on here. I've got a good following base there. And I also uh do a write for the financial post on a weekly basis. You can find me there. And uh we have a monthly newsletter that please, it's free for now. It won't be free forever, but we talk about some of the trades and some of the ideas that we uh share with our clients. >> Fantastic, Martin. Really appreciate you coming on. Fantastic insights. And everybody else, thanks so much for tuning in. Really appreciate you watching. sore financially ahead of the big Fed Fed decision. I think we're overhyping it almost a little bit here, not just on sore financially, but globally. The media is hyping it. We we'll see what Jerome Powell says on Wednesday. Join us for a live interview with Lobo right after the press conference here on Sore Financially on our YouTube channel. We'll put up a live link here shortly as well. Thanks so much for tuning in. If you have any comments, put them down below. Go follow Martin, follow us, and we much appreciate your support. Thank you so much for tuning in. We'll be back with lots more. Take care out there. [Music]