If there is a recession on the horizon, it appears that markets are hoping for a short, sharp pullback that blows in like a hurricane, does a bit of damage, and then blows out. Our next guest says we may be in for more of a grind. Joining us now, Ben Gossak, portfolio manager at TD Asset Management. Ben, great to have you here. This topic fascinates me in the sense that it seems to be across the market. If we are to get sharp, hard interest rate hikes like we have from the central banks, we'll be getting cuts in no time. If we get a recession, don't worry. It'll go away in a long time. You think a little too optimistic on that front? Well, great, thanks for having me. Yeah, recession is the topic du jour. And it's affecting all asset classes and asset prices. And I think, when people think about recession, we get that classic definition of two quarters of contraction. The first quarter of this year, the US saw a contraction. And we get the update for the second quarter GDP tomorrow. And there's a mix. I think economists do show that they'll be quarter over quarter growth. But if you use the Federal Reserve's own models, it shows that there's contraction. So it's very likely tomorrow we could see a technical recession. Having said that, what we're looking at today is definitely a slowdown. We see companies holding back from hiring. You saw yesterday Shopify is going to cut 10% of its workforce. You're seeing that across many different sectors, and then in just initial jobless claims-- so people lining up for employment insurance. It's off a small base. But the rate of the increase is consistent with other slowdowns and other recessions. So there definitely is a slowdown. And I think, to your point about this hurricane, I think people think recession-- hurricane blows its way in, causes a bunch of damage. That damage could be jobs. It could be companies, and then sort of blows its way out, and then eventually we recover. And so what I'm putting into our models, our expectations is-- what if we slow down, but the recovery is slow and sluggish? And what does that mean for companies and earnings going forward? We have been accustomed, as investors over the past decade, of the central banks riding to the rescue the first sign of trouble. Don't worry. They're going to make money cheap. And the party will rage on. Obviously, they have a different problem on their hands now. After the great financial crisis, they made money cheap and never said, just watch it for inflation. That never arrived. And now, we have it full force right in front of us. Is that setting up a scenario where the central banks will not ride to our rescue at the first sign of trouble? Well, this is-- arguably, people are going to watch for the press conference today at 2 PM and see how Chairman Powell reacts to-- we're assuming there will be a 75 basis point increase. But how many more increases are coming? Arguably, the Fed has said, at this point now given the rate of inflation and the impact that it's having on the consumer-- they want to fight inflation even if it means the cost of jobs. And so, if we take them at their word, then it feels like that put that the market has sort of talked about since even maybe 1987, Alan Greenspan coming in and supporting the market-- that strike price might be a lot lower than people's expectations. And so, yes, could it mean that the central banks continue to raise interest rates even though everything is slowing? I think I was remarking before-- people said there used to be a rule of thumb that, when the yield curve inverts, so the short end is higher than the low end-- the central bank would never hike interest rates. And yet today, the yield curve is as inverted as it was back in 2000. And we're probably going to see a 75 basis point increase. Is that part of the grind that we're going to have as investors, that everything that we thought that logically follows one on the other-- like, the Fed would never do this, and then inverted yield curve. This would never happen in this situation. It's all been sort of torn apart by the pandemic? Well, I always put it down to-- there are rules of thumbs and heuristics. And so that helps us get through life on a day to day basis. And it helps us get through markets. But then again, it's just a rule of thumb. And so I always believe that there's a playbook, and then yes, arguably with COVID, we've had to throw out the playbooks. And everything's been brand new. My bigger concern about the sluggishness coming out is that the issues that we face prior to the pandemic-- people talked about rising debts, demographics, or population aging. Disinflationary forces-- so whether that had been technology or just banks not extending loans at the rates that they were doing before-- would hold us down in terms of our long term growth potential. And so, as we are working our way out of COVID, yes there are geopolitical tensions that add noise. But those forces that were holding us down they kept interest rates low never disappeared. It's just that COVID took over our lives for the past couple of years. And as that abates, those tensions-- we're three years older. The debt got bigger, we had to get ourselves through this health care crisis. And we might not see good returns on the debt that we took out. Again, that's borrowing from the future. And so that would bring about slower growth. And there's still disinflationary forces about. Even though people would say, that's crazy, when I go to the gas station, when I go pay for food, it's going up. But there are still monetary deflationary forces at play. Are these themes being fully reflected in this earnings season? We're in the thick of it right now on both sides of the border. Obviously, we're getting a lot of forecasts, some revisions. Do you think that corporate America, corporate Canada is fully reflecting some of the challenges ahead? So I don't think it's fully reflected in the earnings forecasts. I think, going into earnings, the last time we spoke about I spoke about earnings and Q2 earnings, we were talking about the fact that prices had adjusted. Earnings forecasts were slow to come down. We're starting to see that roll over in terms of earnings expectations for 2022, 2023. We're seeing in the earnings expectations come down faster in Europe. But I think it's easier for people to look at Europe and say, yes, there are lots of challenging issues. Companies are asked to ration production, there's not enough energy to be shared amongst everyone. So it's very easy for people to take down their numbers in Europe. But numbers do have to come down more in the US and Canada. And so the reactions that we're seeing from earnings this week is a bit more about relief and, in some cases, disappointment. I know you talked about Microsoft. You talked about Google. For all intents and purposes, Microsoft missed expectations. And they had already come out and told analysts that the dollar was going to be a headwind and to start taking down numbers. And they still came out below. It's just that their outlook for 2023 was a lot better than what people had expected. They obviously have to deliver on those expectations. But as an investor, it was a relief, hence the stock price goes up. Google also missed on the bottom line. But after Snapchat reported that they're having so much trouble in terms of revenue growth, can't provide guidance, the fact that Google search and the cloud came in line, is a relief. And hence, that's why the stocks rally. So even though we're going to be in for this grind if we did fall into a recessionary environment, it seems that investors are desperately looking for the bright spot in anything. Let's give us some hope in the sense that-- after the very rough first half of the year we've had, that maybe we won't get beat up quite as bad for the second half. I mean, I know we don't have a crystal ball. But I think a lot of people are trying to figure out, where are we even headed from here? Yeah, and I think it goes back to this idea of, well, if someone says there's a recession, it must be the sudden drop in activity and then recovery. I think what we might be seeing is that the slowdown is going to be long and a bit of a grind. And that's why you get this relief rally, where yeah, Microsoft was slower. We will get growth, not at the same pace of what it was. But that's not that bad, I was expecting things to be dire. So especially when it comes to stock prices, something that's less dire, less bad, it lowers the lower bound of the expected outcome. And so you get an expected price that's higher. That's why the stock would rally. But it doesn't mean that we're not out of the woods in terms of slower growth for the future.