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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to be joined by TD Wealth's chief while strategist Brad Simpson to discuss why he says for the first time in a generation, the world is becoming less synchronized and what that means for investors.
MoneyTalk's Anthony Okolie is going to have a look at our new TD Economics report about the best ways to measure how tight financial conditions are actually getting.
And in today's WebBroker education segment, Hiren Amin is going to shows how you can find dividend information on the WebBroker platform. Here's how you get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. First trading day of November. Let's check in on the TSX Composite Index. Triple digit gain on our hands. Up 114 points, little more than half a percent. We have a long way to go to regain the ground that we lost through September and into October but it is green on the screen.
I want to check in with Athabasca Oil. At four bucks and $0.30, you got Athabasca up about 4 1/3%.
First Quantum shares continue under pressure. We found out over the weekend that Panama is going to hold a binding referendum about their Cobre Panama mining project, perhaps breaking the contract. A lot of uncertainty around the name.
Another down day. At 14 bucks and seven cents, you've got First Quantum minerals down 12 1/2% today.
The Fed is well into its two-day meeting, it means that at 2 PM Eastern time today, officials are going to come out, we will hear from Jerome Powell about rates.
Ahead of that, we are up 25 points are a little more than half a percent on the S&P 500. The tech heavy NASDAQ to start the month, how are we looking?
Up 77 points, a little more than half a percent. AMD coming out reporting after the close yesterday. At first there were some concerns about what they were saying about the order have but then they give some commentary about next year and that seems to be pleasing the market.
105 bucks and change, we will render up to 106 bucks roughly per share, there up to 7 1/2%. And that is your market update.
The prospect of higher for longer interest rates has been making investors consider what it means for the markets and their investments. Our guest today says that picture is further complicated by global economies that are becoming increasingly divergent. Joining us now to discuss, Brad Simpson, chief while strategist with TD.
Great to have you back.
>> Thanks for having me.
>> You just published your portfolio strategy quarterly report. The title is we. What does that mean for investors?
>> Well, I think what it means for investors is I think we are increasingly hearing these words along the lines of what a period of dramatic change that we are in the middle of and sometimes we get that, oh, here they go again, but we go forward 20 or 30 years and think historians are going to look at this time and go this kind of 2020 onwards was a pretty pivotal moment.
And part of that is think about the conversations that we have about the global economy.
What's global inflation? What's global interest rates? What are global markets doing?
And I think that if you went back and found the origins of that it really started during the Clinton administration in the early 1990s where you had the US really adopt this idea of free-trade and globalism and the spread of democracy around the world.
It was like a 30 year ambitious effort that we became accustomed, we heard about and, unfortunately, that we are now in a period of one of our long-term themes which is de-globalization. We first started writing about this in our portfolio strategy quarterly in the spring of 2022.
When I was writing it, I wasn't feeling great about it.
But the reality is that when we are looking at investing, we have to be very careful of the words we use because that guides our thinking and so really the starting point is I want us to start thinking about less about we and how are we doing and think about more the opportunity of saying we've got a break the world down into blocks or think about it in different regions and start thinking about that because if you look at the world today, we have a lot of different, we have countries that are functioning in a very deep synchronized way, so not exactly functioning simultaneously with one another. I think there are going to be ramifications of how we allocate capital going forward.
>> You and I have discussed over the past year this idea of economic cycles. If we are not talking about we anymore, obviously there are parts of the world at different points in the cycle.
>> Even now, where are we in the cycle and how do we allocate that? Well, I think the starting point of this is we are going to have to look at it and say, where are we in the cycle? The answer is we are not necessarily anywhere in that cycle. Where we are as in a place that says that we have to look at it in terms of where each of those nations are. Let start with the first one on the far left there, where is China? China is at an early stage in the economy.
The early stage of what investments are moving there. We also have to think about when we look at China, where are they in the economic cycle?
They are really into about month nine of opening up after COVID. They were the last major nation to do so. We got really used a kind of off until 2020 talking about this huge growth, seven and 8% growth there and the story was going to be when they open up it will be that way again.
It's not. They're growing at 4 to 5% and they are having a hard time getting things going there.
They are early-stage but it is not robust.
You look over at the next one over and it's Japan. Japan is at the peak of their economic cycle. You and I could probably talk for the last five years and not even mention Japan. But during this last year and 1/2, two years of a changing interest rate cycle with inflation hitting, all of a sudden, Japan started coming to life again. When we look at them, when we are thinking about allocating, we have to look at where they are in the economic cycle.
You look over at the next one, I believe the US, you look at Canada, it's going into that late stage, teetering unfortunately on a recession. Some people say we are pretty close to a technical recession right now.
Let's just say were slow and then when we look over at the furthest way down, it's the euro zone.
The euro zone, if you look at their services and manufacturing, both of those are in contraction. They are in a world of hurt their end so if you look at an investor, I'm going to invest in the euro zone because it's really expensive, it's dirt cheap, if you want to buy an index there. They don't have a whole lot of growth that you can see the companies moving towards over the next coming quarters.
So you have to think about how I'm going to allocate there. And I think if you start looking at the world like that, it's going to change your perspective and I think it's also going to have a great deal of change in how you should be allocating capital and not thinking that the whole world is just moving like one big economy because it just isn't and if anything this trend we think is going to continue. I think one of the things I showed in the article I wrote as I took what world trade looks like over the last 18 months, now this is cyclical, but what it showed is world trade just did a nose dive.
What I was trying to show there was this is the cyclical reality of what we are in the middle of.
It does have me quite worried that this is going to be more secular than it is cyclical and we are going to have to think about it in those terms too.
>> If we take a look at the chart again, obviously we walked through what we have on the screen, but the last part is intriguing in terms of the landing. We've got soft landing, a middle ground, we have a hard landing.
This is the unknown that a lot of investors are worrying it wondering about?
>> That's the one we didn't touch on.
First of all, no one knows. But I think you have to look at what's the most healthy part of this?
One would, if you wanted to gauge out and said what was your highest chance of a hard landing?
They would put you up in that camp and say it's on a call but if you look at the trajectory, that certainly where, especially when you have Germany which is the engine of their economy, has issues both on their manufacturing and extracting but that they also are going through the same real estate build up that we have seen here in North America and they haven't seen a lot of repricing. You think they are already in difficulties and that's happening and that's a concern.
The big one here is the United States.
The big one, and this is a good news story, the good news story on this is that the United States, if we went back a year ago and I'd say we are accountable for this, we would be saying the United States is going to be slowing. There is the potentiality that the United States could see a recession by the time we got to the end of 2023. We are nowhere near that. And we are getting closer to the end of 2023.
So one of our mantras or principles when it comes to investments is this idea of what we call our philosophy of risk priority management.
I know I've said that he before. But one is you have to adapt.
Some people, Say I have this decision and I'm never going to move. Clearly, the United States is when you look at the health of that from the consumer side of it manufacturing side today, in September we saw the manufacturers come out that surprised the market.
You see manufacturing fall off the table and if anything you look at that manufacturing and you start looking at the surface side of the economy, you look at it in those terms, the United States, the increasingly start to see this idea that we may get the soft landing.
At the opening, you are talking about an article that Beata wrote and what she's talking there is our star, looking at what is your real growth in the economy, how do you think about it in those terms and I would highly recommend it.
It's a great article. And the basis of this ultimately is that the Federal Reserve Board was thinking about setting interest rates to slow things down and what she is suggesting is that because of the change that is going on inside of the economy that the measures they are taking aren't slowing things as quickly because of the way they have been measuring it.
And so by chance they thought they were causing a certain amount of slowdown but it might've been a little less but by doing that, he took some of the bluntness out of this instrument and maybe the United States is turning around and starting to move closer to an early stage and there's a lot of economic indicators that would start pointing to that.
So that's super interesting.
But more than it's super interesting, our committees have gone, we have to start thinking about how we can allocate in a world that starting to look more like that. It's a pretty significant change for us right now.
>> You said you have to be nimble and move with the facts on the ground.
What about asset allocation? What are you thinking right now?
>> I think a couple of pieces. The first one answers, if we replayed the last three or four times I've been here, we've talked a lot about fixed income and it behooves me to do it again because at the end of the day, I think the bottom line is we saw late last week we saw a 10 year US Treasury got its ties at 5.09%. We see right now in the United States if you take back, if you take a 10 year treasury rate, say you set mortgages off of that, we have a jumbo mortgage in the US at 8%. Try that on for size.
Those were the crazy numbers your parents are talking to you about in the early 80s.
Saying, oh, remember when… So you have to think about as those interest rates go up and the reality is is when we look at what's happening in fixed income markets is that in a year when you thought there was going to be a lot of recovery and interest rates would work their way down and create capital gain in bonds, that's not how it's planned out.
And so after fixed income investors having a very difficult 2022, and when I say difficult, that's our code word that investors lost money there in an area where they are not accustomed to losing money, you have to look at it and say from a fixed income standpoint, we are in a position where we are modestly overweight in fixed income, we were maximum overweight a couple of quarters ago, we are still very comfortable with our positioning there.
When you think we are very close to peak rates and what we do know is that when we are close to peak rates, what do I mean by peak rates? The central banks are, the opening of your show, you're talking at 2 o'clock, the whole world is sitting on pins and needles and I think if you look at the positive market environment that you see today, why is it green on your screen?
The ISM number came out this morning and the expectation that the Federal Reserve will raise this morning is 99% thinking they won't.
99% can be wrong.
But if you had that little tingle of doubt, that ISM number comes out and goes, no, okay, there goes. We don't think that's going to happen.
Where does the geopolitical Park coming?
Well, there's an awful lot of strain in that part of the world, in that part of the financial market on how that is being impacted. I guess we could connect it, I'm happy to talk about anywhere on that as well, but if we are close to peak rates, which if you look at, if you look at the way the global economy is going, if you have China a little slower than you thought they were going to be in the early stage of a picking up, if you saw Europe over here really getting slow, Canada getting quite slow, Japan kind of piqued by getting a little bit slower, then you would have to look at it and say there's not many more interest rate increases to go. Maybe one, maybe two, and two would be a real outside.
The aggregate Bond Index in the United States, the United States is the largest market in the world and it's going to tell you an awful lot about how your portfolio is going to move. When you get to peak interest rates and you look at the bond and using the aggregate bonds Index as our proxy, your rate of return for bonds in the next 12 months after peak rates on average going back into the early 1990s is about 10.4%. That's pretty good.
So that's our waiting there. On the equity side of the market, couple of months ago, we increase our cash position saying we were going to increase cash but because we wanted to have the opportunity to reallocate that into the equity market if we have an equity correction and two is earning start to grow into it.
Another thing you talked a little bit about in your intro was saying that well, it's green on your screen today, but the performance, if you look out over the last three months, you take the S&P 500… >> I think we have a graph or that that we can show the audience.
>> Sure. If you look at the last three months, we've been in a market crash in Canada and the US and the NASDAQ and the TSX. Part of what's been correcting her the big Magnificent Seven. We have talked about this. I'm sure everybody watching today is going, oh no, not the Magnificent Seven, I can't hear about them again.
One of the things we are allocating capital is your thinking about valuation.
At some point that's going to be criteria.
Momentum movers, forget about it, all that kind of stuff. At the end of the day, you're buying something for value.
Earnings are going to grow so you get those earnings down the road. What we are showing on the screen is this. If you take the S&P 500 with those Magnificent Seven, it's trading at 20 times earnings, that's expensive.
We take them out by saying we are going to go equal weight on the index. We get that down 16 times which is a pretty reasonable market.
Then you will look at that and go through kind of sector by sector. I really look at it, it's called the S&P 500 but ironically there is more than 500 names in it, right?
Solicitors 503 names. Take the seven out.
You kind of have this remainder of 496 companies that nobody gave any consideration to. So if you think you're going from late stage moving into this early stage, the reality is is that 16 times earnings for the S&P 500 is pretty darn good and then you can look through and go across sectors and what you'll find is some really good investment opportunities that are priced like we are still in this late stage at near recessionary environment but lo and behold, if you start moving into the next stage, you will start to see the movement towards that. So for us, we have moved our more conservative waiting.
We were modestly underweight equities. We moved out to neutral and then we took the United States indirectly and we move to modest overweight equity.
I would look at that as, we backed the truck up and say this is it.
But we are in a period of more interest rate volatility and we are in a period of more equity volatility and what you are seeing is doing is going, okay, let's start moving capital back into the equity market here but as it corrects, you can kind of keep working your way in and we think that the way we are doing this right now, it makes an awful lot of sense and those were the two big changes that we made, neutral equity, modest overweight US market and on the tone of it, certainly when you look at especially the United States economy, far more positive territory there.
>> As always fascinating stop at Brad Simpson. As always, make sure you do your own research before making any investment decisions.
we will get your questions for Brad Simpson nonmarket strategy in just a moment's time. A reminder that you can get in touch with us at any time. Just email moneytalklive@td.com.
Let's get our educational segment of the day.
Whether or not a stock pays a dividend is something some investors want to consider before making a trade. Joining us now to discuss where you can find that information on WebBroker's Hiren Amin, Senior client education instructor with TD Direct Investing.
Great to see you. Where do you find the information on the platform?
>> Great to be back again. Let's talk about dividends.
When you are on WebBroker, I've actually got a stock symbol cued up. This is Enbridge, it's a utility company that Scott operations in Canada and the US just as our example here today.
The first thing for audience to know is dividends. So to find dividend information on a particular stock, you can load up the stock profile.
As you come down, there's going to be a fundamental section right here and this is where you will spot the dividend if it does pay dividend yields and I will show you an actual amount in its actual currency that is paying out. Now for investors who are wondering what exactly are dividends, they are paid out of corporations earnings to shareholders of record usually on a quarterly basis.
Now if you bring up the fundamental screen for a second over here and we go to the financial statements, they are actually paid out of companies retained earnings.
So when you bring up the net income… Sorry, we want to go in the balance sheet to find the retained earnings and you're going to find that under shareholder equity and this is where the company takes basically the profits it makes each year and keeps it within the business and the dividends get paid out of this retained earnings balance and then they are trackable to the cash flow statement as well. If we go to the cash flow statement, we will minimize this. There are three sections. It will be found under the section that says financing is where you are going to see that over here.
Then you are going to be able to track and see if those that dividends are increasing year-over-year and what the total essential amount that was paid in that particular year.
The last thing I will mention is researching. If you're not sure which company want to look at and you want to do a broad market search, come to research under the tools category, click on screeners and within the screeners, we are going to run a screener to be able to spot these dividends.
We are going to click on screening here. I will clear out anything that might be in here and we are going to edit, add it quick few criteria. There were data shared type to begin with and we are going to add our stock price and of course there's going to be a dividends section right over here where we are going to add in dividend yield. There are other things you can look at. We will keep it broadly based today.
Now we are going to plug in some numbers.
The shared type, I want to focus on common shares. I only want to look for stocks priced at $10 or higher. Maybe you want to look for dividends they are paying at least 3% on the downside and nothing really more than about let's just say 10% given our market and let's get our Canadian market place up here to search for those companies.
Then it will populate results. That's a quick way to do a search on dividend stocks.
>> So we know how to search them out.
Some investors might do that screen, they are interested in dividend. What other consideration should they be thinking about?
>> Once you've narrowed down which companies you might be interested in, you might be thinking, if I buy the stock, am I entitled to the dividend?
It's not that simple. We are going to go back to our stocks. There are a couple of things you want investors to keep in mind.
Going back to ENB, you want to look at some dates and when you come to the fundamental section, they have something that's called an ex dividend date. What the state really represents is the day on which a stock no longer trades with the dividend amount. In other words, they have taken it out and it's ready to be paid to the shareholders. So when you are interested in purchasing or accumulate more shares, you want to do the purchase of the stock prior to this date.
One day before, in order to get paid that dividend for the upcoming quarter that you might have. The other thing to keep in mind is even come to the events page here, last thing I will mention, and then you can track under the dividend section the previous historical dividends that have been paid out and anticipate when the next schedule dividends might be if you want to try to figure out when I should be looking to buy it. You will see those ex dividend dates over here as well.
Those are the main considerations you at least want to have and keep in mind when it comes to actually getting those dividends there.
>> Great stuff as always. Thanks for that, my friend.
>> You're welcome.
>> Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
We are back with Brad Simpson taking your questions about market strategy.
We have of you are wondering about your view on the health of global real estate?
>> So as I said at the top of the show we just published our portfolio strategy quarterly and we dug into that. We dig into real estate a fair amount and the argument that we make is that I think when we say real estate like the starting point is is that I think we take commercial real estate in 11 major urban centres in the United States, round kind of like raptors and the leaves, take that other crazy one north of the border and colour Toronto in say let's think about and when we say real estate we take the commercial grade space and those 12 centres.
I think that's a real mistake and so right out of the gate, we are max underweight domestic real estate and max underweight global real estate.
It's not like we are saying this is the perfect investment today.
However, one thing I want to caution is I notice when we say things are right things, when you are allocated, when we are allocating, we are always making changes on the margin.
We are going to have allocations into real estate. We are just saying we are not over weeding it right now.
So we are max underweight and a lot of it is you've got in the United States you've got 20% in commercial space, you got 20% vacancy.
About 18% in Canada. That's tough.
And then, if you look at it in those terms, you go, wait a minute though, and I think I brought a chart, but what about all the other sectors?
That's where the opportunity is is you're not just investing in commercial space, there are other parts of the economy.
Let's look at logistics. If you look at logistics today, there vacancy rates are 4%.
The demand for them is off the charts and you have to be willing to pay almost any price to get in there. If you look at it and say, we all here saw the boom in cloud computing and the need for data centres.
Well, this small thing that I have no doubt, we have this small thing called a… >> It takes a big room full of computers.
>> So will those all create real estate opportunities as well. So I think from the logistics and the industrial side and multifamily residential depending on what part it is, that you have to think about it in those terms.
Public and private, you need to be able to separate those two.
In the public space, you kind of look at it across those sectors and look at that as what we were showing there is a publicly traded REITs as a proxy for real estate up, it's no secret that there are headwinds for real estate. We've had some incredible correction go on there.
Anybody will tell you, anybody looking at their statement for a REITs in North America will tell you this.
Back to where we are in the economic cycle, where you can actually start looking at that. If you look into the private space, there is another area of the market where since the banking crisis that we had here in the spring when we were on talking about Silicon Valley Bank and the like, credit conditions have really, really tightened up.
That has all moved into the private space.
So if you think about it, you are in the middle of a correction in all kinds of different sectors in real estate and you have the lender as a private lender and they are flush with capital and they are able to lend.
You can read, I'm not giving a recommendation, but you could read the Globe and Mail for the last three days, you will hear in downtown Toronto, there are all over the world there are opportunities where you've got, where you've got projects going sideways that look like that. And private lenders have the ability to go in and dictate terms of what that's going to look like.
So if you think about it in that way, that real estate we think, let's be careful to make these huge moves and say I'm not going to be a real estate investor anymore because commercial is in pretty tough shape right now. There's a lot of ways to still allocate capital through the sector both publicly and privately and didn't even mention that if we go that there is no we there. If you take a look at price corrections around the world, for example, you can go to Nordic countries and look into the UK and see there's been a lot of price corrections there. If you look at Germany, they haven't had the price corrections there. If you look at the United States real estate stock, you can see they are about three quarters of the way through their correction. I think if you look in Canada, you would find that a lot of that space is owned by pension funds and they probably haven't been as quick to change their places on a lot of that.
So I would think you'd want to be, show some caution there. But it does show you that again, this we defame that we have is also working in the real estate sector.
>> Homework to be doing on that space indeed. We will get back to your questions for Brad Simpson on market strategy and just a moment time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Let's talk about financial conditions.
They have been tightening over the past two years. Of course, there have been aggressive rate hikes from central banks including the Fed. Financial condition indices may not be adequately reflecting borrowing costs that are actually facing real businesses and households. Anthony Okolie joins us now with the new TD Economics report.
>> Fed officials often talk about monetary policy working through financial condition. They look to financial conditions indices as a useful measure to capture financial and stability or stress but these indices which encompass a number of financial and economic variables into a single metric don't necessarily capture borrowing costs of businesses and households so in fact borrowing costs have continued to rise even as some financial condition indices have eased. Now TD Economics suggests that using changes in borrowing costs adjusted for inflation may be a good alternative. Here's the reason why. They looked at some interest sensitive areas such as a real corporate yield, and real corporate yields have surged significantly since the end of 2021 amid the series of aggressive hikes by the Fed. Also corporate bond issuances have dropped sharply from the pandemic era surges when firms locked in low borrowing costs. Additionally, business capital spinning intentions fell sharply starting in the second half of 2021. From a helpful perspective, Harley borrowing costs have had a profound impact on US housing demand and higher real mortgage rates are actually at levels seen since 2007 with mortgage borrowing levels dropping to its lowest level since 95. Some of these indices have eased in recent months. The rise of real borrowing costs indicates that the Fed's aggressive tightening is working in higher borrowing costs.
Resilience in the overall economic activity may suggest the financial conditions have to tighten even further in order to bring inflation to target.
>> Fascinating stuff. Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This is the heat malfunction.
A nice neutral representation of what's happening out there. So let's check the market movers. We will start by spinning for the TSX and C by price and volume.
As in the last couple sessions, First Quantum is taking up a lot of realist rate, down another 10% today. This is on the news that the government of Panama plans to put their big Coppermine project to a binding public referendum. There's been a lot of opposition to the Cobre Panama project.
The stock is bidden under a great deal of pressure under that news and under the 10% today. Let's check in on the SP 100.
Screen through there and see what's happening ahead of the Fed we will know what they had to tell us at 2 PM Eastern time today.
Before we get that we have some companies moving off of her earnings.
We will start with AMD, the chipmaker, up 7 1/2%. At first blush reaction in the after hours yesterday was a bit of downward pressure on the name because that gives the forecast for the current quarter a little bit more softly.
There was commentary from the company about the opportunity and AI next year for its GPU chips and that seems to have changed the markets mind, up 7 1/2%.
And then a few other names on the screen right now old, sort of in a rallying mode in the tax base. We will see if all of that holds after we get the Fed at 2 PM Eastern time. You get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now with Brad Simpson, TD Wealth, chief strategist answering your questions on the market. If you want to know where your outlook is for rates and one might we get some cuts?
Seems like a moving target.
>> I was just thinking about Anthony's comments that I really have to look at my life and I go, my goodness, that sounds like an interesting report.
>> Some light reading.
>> What that really ties into is the overwhelming number of the population we have, how many are really innumerate. You sit down and say to yourself, I was paying 022%, now I'm paying like a high-yield bond is 9%. If you are company out there and you are borrowing money, it is going to cost you!
And not only is it going to cost you and your borrowing money we used to have bond folks would say Covey light, meaning there is covenants when you borrow in these covenants, when times are loose, you're like, well, I don't want you to have a lot of restrictions, just give me the money.
Times like this cylinder sits down with you and takes the pen out and says this is going to be tough. If anything goes wrong, here's all the things I'm going to want from you.
So to the question is I think the starting point to one what are we going to see interest rates go lower? I think you're gonna have to go across nations for that.
So the starting point I think you would see and then how do you drop interest rate? Yes it isn't necessarily just dropping interest rates. So we saw last week in China with things going slower, something they have never done, halfway through their fiscal year going out and actually loosening up borrowing restrictions at the provincial level there which is something we very rarely do.
That's like dropping interest rates. It says you have to go out and get things moving. So in the Chinese example, you're talking about the second world economy, they are still pulling levers to reduce interest rates, maybe not using an interest rate as a lover but doing things that are similar.
So then you go into Europe and I think I've said it a couple of times here, you will hear folks like me always say that monetary policy is a blunt instrument.
You are running through the forest and your chopping trees down in your thinking, will think about what the impact of this is later. We're just going to do this.
That's what raising interest rates is a little bit like. So you get 10 interest rate hikes at the ECB, that it's low there are, they still, let's call it, let's call it inflation there now is finally making its way below the 3% number. You can start thinking about that interest rate hikes if they were in the major nations higher for longer, the window you're going to have, we think we are going to hang in more, you would think if this inflationary trend continues on, if the war in Ukraine with Russia continues to go on, that strain that's causing on Germany is that I would think you can see it, you kind of get your third and fourth quarter into the ECB comments and have to start thinking about dropping interest rates there. We saw the Bank of Canada come out yesterday and talk about that while there interest rate increases are probably done or if not done pretty darn close to it, and that they are starting to think about what does that next move look like and that you could still have them battling the inflation component and dropping interest rate so I think you could look again at the third and fourth quarter where you can start seeing them thinking about doing that and we look in and over to the United States, I think the bets are off there.
You are likely looking at into that fourth-quarter next year but certainly nothing in the next couple of quarters here unless we see a dramatic shift in what's happening in the economy there.
And what would that dramatic shift look like? What would be the input?
That would be… The consumer there continues to astound and I'm always careful when I say that because Canadians have this idea that those Americans, their crazy borrowing, we are the crazy Americans now.
We are the ones who have debt problems.
America's fiscal balance sheet is actually a lot better than ours. The American consumer continues to cruise along. Yes, we are starting to see increasing concerns for the car loans and the spike in that and not paying those back, that is sleepily concerning. Having to start paying the student loans off, that definitely is a headwind that there. The increase in mortgage cost, that certainly is a headwind there.
So there is a strain on the consumer in the US. However, they do continue to spend. They actually still have a pretty good credit profile and keep that going for a while longer so you have to see that consumer fall apart on the employment side, we are seeing the settlement in the car companies right now which are significant but they are less of the, less of an impact on the greater economy for the proportion of folks that are unionized, autoworkers, as much as if we were doing this back in the 50s here.
So the other one is the two things when you look at the original founding of the Federal Reserve Board and two things that it was really mandated to do, one set an overnight raid to think about keeping the economy going and money moving through the system to keep the economy healthy. That's job number one.
Job number two is make sure that you are managing inflation and taking care of that and job number three is employment.
And right now, when you and I were in university, we were talking about, we would go to class and they'd say, look, you can of 7% unemployment, you're living the dream.
Go back to Rome and say that's what unemployment looks like. We are sitting at 3.3 to 3.8%. That's a pretty strong employment number. If we started to see real strong wage growth and more wage settlements that were… That would be the other area that could have the impact and change the trajectory of the US economy.
>> Always fascinating to get your thoughts. Appreciate you being here and look forward to the next time.
>> Thank you, it's been great.
>> Our thanks to Brad Simpson, chief strategist at TD Wealth.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show, Chris Whelan, Senior Canada rate strategist and head of portfolio and ESG strategy with TD Securities will be our guest to get his reaction to the US federal rate decision which we are going to get in about an hour and 15 minutes time and also taking your questions about the economy and rates.
Get those questions in ahead of time.
Email moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to be joined by TD Wealth's chief while strategist Brad Simpson to discuss why he says for the first time in a generation, the world is becoming less synchronized and what that means for investors.
MoneyTalk's Anthony Okolie is going to have a look at our new TD Economics report about the best ways to measure how tight financial conditions are actually getting.
And in today's WebBroker education segment, Hiren Amin is going to shows how you can find dividend information on the WebBroker platform. Here's how you get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. First trading day of November. Let's check in on the TSX Composite Index. Triple digit gain on our hands. Up 114 points, little more than half a percent. We have a long way to go to regain the ground that we lost through September and into October but it is green on the screen.
I want to check in with Athabasca Oil. At four bucks and $0.30, you got Athabasca up about 4 1/3%.
First Quantum shares continue under pressure. We found out over the weekend that Panama is going to hold a binding referendum about their Cobre Panama mining project, perhaps breaking the contract. A lot of uncertainty around the name.
Another down day. At 14 bucks and seven cents, you've got First Quantum minerals down 12 1/2% today.
The Fed is well into its two-day meeting, it means that at 2 PM Eastern time today, officials are going to come out, we will hear from Jerome Powell about rates.
Ahead of that, we are up 25 points are a little more than half a percent on the S&P 500. The tech heavy NASDAQ to start the month, how are we looking?
Up 77 points, a little more than half a percent. AMD coming out reporting after the close yesterday. At first there were some concerns about what they were saying about the order have but then they give some commentary about next year and that seems to be pleasing the market.
105 bucks and change, we will render up to 106 bucks roughly per share, there up to 7 1/2%. And that is your market update.
The prospect of higher for longer interest rates has been making investors consider what it means for the markets and their investments. Our guest today says that picture is further complicated by global economies that are becoming increasingly divergent. Joining us now to discuss, Brad Simpson, chief while strategist with TD.
Great to have you back.
>> Thanks for having me.
>> You just published your portfolio strategy quarterly report. The title is we. What does that mean for investors?
>> Well, I think what it means for investors is I think we are increasingly hearing these words along the lines of what a period of dramatic change that we are in the middle of and sometimes we get that, oh, here they go again, but we go forward 20 or 30 years and think historians are going to look at this time and go this kind of 2020 onwards was a pretty pivotal moment.
And part of that is think about the conversations that we have about the global economy.
What's global inflation? What's global interest rates? What are global markets doing?
And I think that if you went back and found the origins of that it really started during the Clinton administration in the early 1990s where you had the US really adopt this idea of free-trade and globalism and the spread of democracy around the world.
It was like a 30 year ambitious effort that we became accustomed, we heard about and, unfortunately, that we are now in a period of one of our long-term themes which is de-globalization. We first started writing about this in our portfolio strategy quarterly in the spring of 2022.
When I was writing it, I wasn't feeling great about it.
But the reality is that when we are looking at investing, we have to be very careful of the words we use because that guides our thinking and so really the starting point is I want us to start thinking about less about we and how are we doing and think about more the opportunity of saying we've got a break the world down into blocks or think about it in different regions and start thinking about that because if you look at the world today, we have a lot of different, we have countries that are functioning in a very deep synchronized way, so not exactly functioning simultaneously with one another. I think there are going to be ramifications of how we allocate capital going forward.
>> You and I have discussed over the past year this idea of economic cycles. If we are not talking about we anymore, obviously there are parts of the world at different points in the cycle.
>> Even now, where are we in the cycle and how do we allocate that? Well, I think the starting point of this is we are going to have to look at it and say, where are we in the cycle? The answer is we are not necessarily anywhere in that cycle. Where we are as in a place that says that we have to look at it in terms of where each of those nations are. Let start with the first one on the far left there, where is China? China is at an early stage in the economy.
The early stage of what investments are moving there. We also have to think about when we look at China, where are they in the economic cycle?
They are really into about month nine of opening up after COVID. They were the last major nation to do so. We got really used a kind of off until 2020 talking about this huge growth, seven and 8% growth there and the story was going to be when they open up it will be that way again.
It's not. They're growing at 4 to 5% and they are having a hard time getting things going there.
They are early-stage but it is not robust.
You look over at the next one over and it's Japan. Japan is at the peak of their economic cycle. You and I could probably talk for the last five years and not even mention Japan. But during this last year and 1/2, two years of a changing interest rate cycle with inflation hitting, all of a sudden, Japan started coming to life again. When we look at them, when we are thinking about allocating, we have to look at where they are in the economic cycle.
You look over at the next one, I believe the US, you look at Canada, it's going into that late stage, teetering unfortunately on a recession. Some people say we are pretty close to a technical recession right now.
Let's just say were slow and then when we look over at the furthest way down, it's the euro zone.
The euro zone, if you look at their services and manufacturing, both of those are in contraction. They are in a world of hurt their end so if you look at an investor, I'm going to invest in the euro zone because it's really expensive, it's dirt cheap, if you want to buy an index there. They don't have a whole lot of growth that you can see the companies moving towards over the next coming quarters.
So you have to think about how I'm going to allocate there. And I think if you start looking at the world like that, it's going to change your perspective and I think it's also going to have a great deal of change in how you should be allocating capital and not thinking that the whole world is just moving like one big economy because it just isn't and if anything this trend we think is going to continue. I think one of the things I showed in the article I wrote as I took what world trade looks like over the last 18 months, now this is cyclical, but what it showed is world trade just did a nose dive.
What I was trying to show there was this is the cyclical reality of what we are in the middle of.
It does have me quite worried that this is going to be more secular than it is cyclical and we are going to have to think about it in those terms too.
>> If we take a look at the chart again, obviously we walked through what we have on the screen, but the last part is intriguing in terms of the landing. We've got soft landing, a middle ground, we have a hard landing.
This is the unknown that a lot of investors are worrying it wondering about?
>> That's the one we didn't touch on.
First of all, no one knows. But I think you have to look at what's the most healthy part of this?
One would, if you wanted to gauge out and said what was your highest chance of a hard landing?
They would put you up in that camp and say it's on a call but if you look at the trajectory, that certainly where, especially when you have Germany which is the engine of their economy, has issues both on their manufacturing and extracting but that they also are going through the same real estate build up that we have seen here in North America and they haven't seen a lot of repricing. You think they are already in difficulties and that's happening and that's a concern.
The big one here is the United States.
The big one, and this is a good news story, the good news story on this is that the United States, if we went back a year ago and I'd say we are accountable for this, we would be saying the United States is going to be slowing. There is the potentiality that the United States could see a recession by the time we got to the end of 2023. We are nowhere near that. And we are getting closer to the end of 2023.
So one of our mantras or principles when it comes to investments is this idea of what we call our philosophy of risk priority management.
I know I've said that he before. But one is you have to adapt.
Some people, Say I have this decision and I'm never going to move. Clearly, the United States is when you look at the health of that from the consumer side of it manufacturing side today, in September we saw the manufacturers come out that surprised the market.
You see manufacturing fall off the table and if anything you look at that manufacturing and you start looking at the surface side of the economy, you look at it in those terms, the United States, the increasingly start to see this idea that we may get the soft landing.
At the opening, you are talking about an article that Beata wrote and what she's talking there is our star, looking at what is your real growth in the economy, how do you think about it in those terms and I would highly recommend it.
It's a great article. And the basis of this ultimately is that the Federal Reserve Board was thinking about setting interest rates to slow things down and what she is suggesting is that because of the change that is going on inside of the economy that the measures they are taking aren't slowing things as quickly because of the way they have been measuring it.
And so by chance they thought they were causing a certain amount of slowdown but it might've been a little less but by doing that, he took some of the bluntness out of this instrument and maybe the United States is turning around and starting to move closer to an early stage and there's a lot of economic indicators that would start pointing to that.
So that's super interesting.
But more than it's super interesting, our committees have gone, we have to start thinking about how we can allocate in a world that starting to look more like that. It's a pretty significant change for us right now.
>> You said you have to be nimble and move with the facts on the ground.
What about asset allocation? What are you thinking right now?
>> I think a couple of pieces. The first one answers, if we replayed the last three or four times I've been here, we've talked a lot about fixed income and it behooves me to do it again because at the end of the day, I think the bottom line is we saw late last week we saw a 10 year US Treasury got its ties at 5.09%. We see right now in the United States if you take back, if you take a 10 year treasury rate, say you set mortgages off of that, we have a jumbo mortgage in the US at 8%. Try that on for size.
Those were the crazy numbers your parents are talking to you about in the early 80s.
Saying, oh, remember when… So you have to think about as those interest rates go up and the reality is is when we look at what's happening in fixed income markets is that in a year when you thought there was going to be a lot of recovery and interest rates would work their way down and create capital gain in bonds, that's not how it's planned out.
And so after fixed income investors having a very difficult 2022, and when I say difficult, that's our code word that investors lost money there in an area where they are not accustomed to losing money, you have to look at it and say from a fixed income standpoint, we are in a position where we are modestly overweight in fixed income, we were maximum overweight a couple of quarters ago, we are still very comfortable with our positioning there.
When you think we are very close to peak rates and what we do know is that when we are close to peak rates, what do I mean by peak rates? The central banks are, the opening of your show, you're talking at 2 o'clock, the whole world is sitting on pins and needles and I think if you look at the positive market environment that you see today, why is it green on your screen?
The ISM number came out this morning and the expectation that the Federal Reserve will raise this morning is 99% thinking they won't.
99% can be wrong.
But if you had that little tingle of doubt, that ISM number comes out and goes, no, okay, there goes. We don't think that's going to happen.
Where does the geopolitical Park coming?
Well, there's an awful lot of strain in that part of the world, in that part of the financial market on how that is being impacted. I guess we could connect it, I'm happy to talk about anywhere on that as well, but if we are close to peak rates, which if you look at, if you look at the way the global economy is going, if you have China a little slower than you thought they were going to be in the early stage of a picking up, if you saw Europe over here really getting slow, Canada getting quite slow, Japan kind of piqued by getting a little bit slower, then you would have to look at it and say there's not many more interest rate increases to go. Maybe one, maybe two, and two would be a real outside.
The aggregate Bond Index in the United States, the United States is the largest market in the world and it's going to tell you an awful lot about how your portfolio is going to move. When you get to peak interest rates and you look at the bond and using the aggregate bonds Index as our proxy, your rate of return for bonds in the next 12 months after peak rates on average going back into the early 1990s is about 10.4%. That's pretty good.
So that's our waiting there. On the equity side of the market, couple of months ago, we increase our cash position saying we were going to increase cash but because we wanted to have the opportunity to reallocate that into the equity market if we have an equity correction and two is earning start to grow into it.
Another thing you talked a little bit about in your intro was saying that well, it's green on your screen today, but the performance, if you look out over the last three months, you take the S&P 500… >> I think we have a graph or that that we can show the audience.
>> Sure. If you look at the last three months, we've been in a market crash in Canada and the US and the NASDAQ and the TSX. Part of what's been correcting her the big Magnificent Seven. We have talked about this. I'm sure everybody watching today is going, oh no, not the Magnificent Seven, I can't hear about them again.
One of the things we are allocating capital is your thinking about valuation.
At some point that's going to be criteria.
Momentum movers, forget about it, all that kind of stuff. At the end of the day, you're buying something for value.
Earnings are going to grow so you get those earnings down the road. What we are showing on the screen is this. If you take the S&P 500 with those Magnificent Seven, it's trading at 20 times earnings, that's expensive.
We take them out by saying we are going to go equal weight on the index. We get that down 16 times which is a pretty reasonable market.
Then you will look at that and go through kind of sector by sector. I really look at it, it's called the S&P 500 but ironically there is more than 500 names in it, right?
Solicitors 503 names. Take the seven out.
You kind of have this remainder of 496 companies that nobody gave any consideration to. So if you think you're going from late stage moving into this early stage, the reality is is that 16 times earnings for the S&P 500 is pretty darn good and then you can look through and go across sectors and what you'll find is some really good investment opportunities that are priced like we are still in this late stage at near recessionary environment but lo and behold, if you start moving into the next stage, you will start to see the movement towards that. So for us, we have moved our more conservative waiting.
We were modestly underweight equities. We moved out to neutral and then we took the United States indirectly and we move to modest overweight equity.
I would look at that as, we backed the truck up and say this is it.
But we are in a period of more interest rate volatility and we are in a period of more equity volatility and what you are seeing is doing is going, okay, let's start moving capital back into the equity market here but as it corrects, you can kind of keep working your way in and we think that the way we are doing this right now, it makes an awful lot of sense and those were the two big changes that we made, neutral equity, modest overweight US market and on the tone of it, certainly when you look at especially the United States economy, far more positive territory there.
>> As always fascinating stop at Brad Simpson. As always, make sure you do your own research before making any investment decisions.
we will get your questions for Brad Simpson nonmarket strategy in just a moment's time. A reminder that you can get in touch with us at any time. Just email moneytalklive@td.com.
Let's get our educational segment of the day.
Whether or not a stock pays a dividend is something some investors want to consider before making a trade. Joining us now to discuss where you can find that information on WebBroker's Hiren Amin, Senior client education instructor with TD Direct Investing.
Great to see you. Where do you find the information on the platform?
>> Great to be back again. Let's talk about dividends.
When you are on WebBroker, I've actually got a stock symbol cued up. This is Enbridge, it's a utility company that Scott operations in Canada and the US just as our example here today.
The first thing for audience to know is dividends. So to find dividend information on a particular stock, you can load up the stock profile.
As you come down, there's going to be a fundamental section right here and this is where you will spot the dividend if it does pay dividend yields and I will show you an actual amount in its actual currency that is paying out. Now for investors who are wondering what exactly are dividends, they are paid out of corporations earnings to shareholders of record usually on a quarterly basis.
Now if you bring up the fundamental screen for a second over here and we go to the financial statements, they are actually paid out of companies retained earnings.
So when you bring up the net income… Sorry, we want to go in the balance sheet to find the retained earnings and you're going to find that under shareholder equity and this is where the company takes basically the profits it makes each year and keeps it within the business and the dividends get paid out of this retained earnings balance and then they are trackable to the cash flow statement as well. If we go to the cash flow statement, we will minimize this. There are three sections. It will be found under the section that says financing is where you are going to see that over here.
Then you are going to be able to track and see if those that dividends are increasing year-over-year and what the total essential amount that was paid in that particular year.
The last thing I will mention is researching. If you're not sure which company want to look at and you want to do a broad market search, come to research under the tools category, click on screeners and within the screeners, we are going to run a screener to be able to spot these dividends.
We are going to click on screening here. I will clear out anything that might be in here and we are going to edit, add it quick few criteria. There were data shared type to begin with and we are going to add our stock price and of course there's going to be a dividends section right over here where we are going to add in dividend yield. There are other things you can look at. We will keep it broadly based today.
Now we are going to plug in some numbers.
The shared type, I want to focus on common shares. I only want to look for stocks priced at $10 or higher. Maybe you want to look for dividends they are paying at least 3% on the downside and nothing really more than about let's just say 10% given our market and let's get our Canadian market place up here to search for those companies.
Then it will populate results. That's a quick way to do a search on dividend stocks.
>> So we know how to search them out.
Some investors might do that screen, they are interested in dividend. What other consideration should they be thinking about?
>> Once you've narrowed down which companies you might be interested in, you might be thinking, if I buy the stock, am I entitled to the dividend?
It's not that simple. We are going to go back to our stocks. There are a couple of things you want investors to keep in mind.
Going back to ENB, you want to look at some dates and when you come to the fundamental section, they have something that's called an ex dividend date. What the state really represents is the day on which a stock no longer trades with the dividend amount. In other words, they have taken it out and it's ready to be paid to the shareholders. So when you are interested in purchasing or accumulate more shares, you want to do the purchase of the stock prior to this date.
One day before, in order to get paid that dividend for the upcoming quarter that you might have. The other thing to keep in mind is even come to the events page here, last thing I will mention, and then you can track under the dividend section the previous historical dividends that have been paid out and anticipate when the next schedule dividends might be if you want to try to figure out when I should be looking to buy it. You will see those ex dividend dates over here as well.
Those are the main considerations you at least want to have and keep in mind when it comes to actually getting those dividends there.
>> Great stuff as always. Thanks for that, my friend.
>> You're welcome.
>> Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
We are back with Brad Simpson taking your questions about market strategy.
We have of you are wondering about your view on the health of global real estate?
>> So as I said at the top of the show we just published our portfolio strategy quarterly and we dug into that. We dig into real estate a fair amount and the argument that we make is that I think when we say real estate like the starting point is is that I think we take commercial real estate in 11 major urban centres in the United States, round kind of like raptors and the leaves, take that other crazy one north of the border and colour Toronto in say let's think about and when we say real estate we take the commercial grade space and those 12 centres.
I think that's a real mistake and so right out of the gate, we are max underweight domestic real estate and max underweight global real estate.
It's not like we are saying this is the perfect investment today.
However, one thing I want to caution is I notice when we say things are right things, when you are allocated, when we are allocating, we are always making changes on the margin.
We are going to have allocations into real estate. We are just saying we are not over weeding it right now.
So we are max underweight and a lot of it is you've got in the United States you've got 20% in commercial space, you got 20% vacancy.
About 18% in Canada. That's tough.
And then, if you look at it in those terms, you go, wait a minute though, and I think I brought a chart, but what about all the other sectors?
That's where the opportunity is is you're not just investing in commercial space, there are other parts of the economy.
Let's look at logistics. If you look at logistics today, there vacancy rates are 4%.
The demand for them is off the charts and you have to be willing to pay almost any price to get in there. If you look at it and say, we all here saw the boom in cloud computing and the need for data centres.
Well, this small thing that I have no doubt, we have this small thing called a… >> It takes a big room full of computers.
>> So will those all create real estate opportunities as well. So I think from the logistics and the industrial side and multifamily residential depending on what part it is, that you have to think about it in those terms.
Public and private, you need to be able to separate those two.
In the public space, you kind of look at it across those sectors and look at that as what we were showing there is a publicly traded REITs as a proxy for real estate up, it's no secret that there are headwinds for real estate. We've had some incredible correction go on there.
Anybody will tell you, anybody looking at their statement for a REITs in North America will tell you this.
Back to where we are in the economic cycle, where you can actually start looking at that. If you look into the private space, there is another area of the market where since the banking crisis that we had here in the spring when we were on talking about Silicon Valley Bank and the like, credit conditions have really, really tightened up.
That has all moved into the private space.
So if you think about it, you are in the middle of a correction in all kinds of different sectors in real estate and you have the lender as a private lender and they are flush with capital and they are able to lend.
You can read, I'm not giving a recommendation, but you could read the Globe and Mail for the last three days, you will hear in downtown Toronto, there are all over the world there are opportunities where you've got, where you've got projects going sideways that look like that. And private lenders have the ability to go in and dictate terms of what that's going to look like.
So if you think about it in that way, that real estate we think, let's be careful to make these huge moves and say I'm not going to be a real estate investor anymore because commercial is in pretty tough shape right now. There's a lot of ways to still allocate capital through the sector both publicly and privately and didn't even mention that if we go that there is no we there. If you take a look at price corrections around the world, for example, you can go to Nordic countries and look into the UK and see there's been a lot of price corrections there. If you look at Germany, they haven't had the price corrections there. If you look at the United States real estate stock, you can see they are about three quarters of the way through their correction. I think if you look in Canada, you would find that a lot of that space is owned by pension funds and they probably haven't been as quick to change their places on a lot of that.
So I would think you'd want to be, show some caution there. But it does show you that again, this we defame that we have is also working in the real estate sector.
>> Homework to be doing on that space indeed. We will get back to your questions for Brad Simpson on market strategy and just a moment time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Let's talk about financial conditions.
They have been tightening over the past two years. Of course, there have been aggressive rate hikes from central banks including the Fed. Financial condition indices may not be adequately reflecting borrowing costs that are actually facing real businesses and households. Anthony Okolie joins us now with the new TD Economics report.
>> Fed officials often talk about monetary policy working through financial condition. They look to financial conditions indices as a useful measure to capture financial and stability or stress but these indices which encompass a number of financial and economic variables into a single metric don't necessarily capture borrowing costs of businesses and households so in fact borrowing costs have continued to rise even as some financial condition indices have eased. Now TD Economics suggests that using changes in borrowing costs adjusted for inflation may be a good alternative. Here's the reason why. They looked at some interest sensitive areas such as a real corporate yield, and real corporate yields have surged significantly since the end of 2021 amid the series of aggressive hikes by the Fed. Also corporate bond issuances have dropped sharply from the pandemic era surges when firms locked in low borrowing costs. Additionally, business capital spinning intentions fell sharply starting in the second half of 2021. From a helpful perspective, Harley borrowing costs have had a profound impact on US housing demand and higher real mortgage rates are actually at levels seen since 2007 with mortgage borrowing levels dropping to its lowest level since 95. Some of these indices have eased in recent months. The rise of real borrowing costs indicates that the Fed's aggressive tightening is working in higher borrowing costs.
Resilience in the overall economic activity may suggest the financial conditions have to tighten even further in order to bring inflation to target.
>> Fascinating stuff. Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This is the heat malfunction.
A nice neutral representation of what's happening out there. So let's check the market movers. We will start by spinning for the TSX and C by price and volume.
As in the last couple sessions, First Quantum is taking up a lot of realist rate, down another 10% today. This is on the news that the government of Panama plans to put their big Coppermine project to a binding public referendum. There's been a lot of opposition to the Cobre Panama project.
The stock is bidden under a great deal of pressure under that news and under the 10% today. Let's check in on the SP 100.
Screen through there and see what's happening ahead of the Fed we will know what they had to tell us at 2 PM Eastern time today.
Before we get that we have some companies moving off of her earnings.
We will start with AMD, the chipmaker, up 7 1/2%. At first blush reaction in the after hours yesterday was a bit of downward pressure on the name because that gives the forecast for the current quarter a little bit more softly.
There was commentary from the company about the opportunity and AI next year for its GPU chips and that seems to have changed the markets mind, up 7 1/2%.
And then a few other names on the screen right now old, sort of in a rallying mode in the tax base. We will see if all of that holds after we get the Fed at 2 PM Eastern time. You get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now with Brad Simpson, TD Wealth, chief strategist answering your questions on the market. If you want to know where your outlook is for rates and one might we get some cuts?
Seems like a moving target.
>> I was just thinking about Anthony's comments that I really have to look at my life and I go, my goodness, that sounds like an interesting report.
>> Some light reading.
>> What that really ties into is the overwhelming number of the population we have, how many are really innumerate. You sit down and say to yourself, I was paying 022%, now I'm paying like a high-yield bond is 9%. If you are company out there and you are borrowing money, it is going to cost you!
And not only is it going to cost you and your borrowing money we used to have bond folks would say Covey light, meaning there is covenants when you borrow in these covenants, when times are loose, you're like, well, I don't want you to have a lot of restrictions, just give me the money.
Times like this cylinder sits down with you and takes the pen out and says this is going to be tough. If anything goes wrong, here's all the things I'm going to want from you.
So to the question is I think the starting point to one what are we going to see interest rates go lower? I think you're gonna have to go across nations for that.
So the starting point I think you would see and then how do you drop interest rate? Yes it isn't necessarily just dropping interest rates. So we saw last week in China with things going slower, something they have never done, halfway through their fiscal year going out and actually loosening up borrowing restrictions at the provincial level there which is something we very rarely do.
That's like dropping interest rates. It says you have to go out and get things moving. So in the Chinese example, you're talking about the second world economy, they are still pulling levers to reduce interest rates, maybe not using an interest rate as a lover but doing things that are similar.
So then you go into Europe and I think I've said it a couple of times here, you will hear folks like me always say that monetary policy is a blunt instrument.
You are running through the forest and your chopping trees down in your thinking, will think about what the impact of this is later. We're just going to do this.
That's what raising interest rates is a little bit like. So you get 10 interest rate hikes at the ECB, that it's low there are, they still, let's call it, let's call it inflation there now is finally making its way below the 3% number. You can start thinking about that interest rate hikes if they were in the major nations higher for longer, the window you're going to have, we think we are going to hang in more, you would think if this inflationary trend continues on, if the war in Ukraine with Russia continues to go on, that strain that's causing on Germany is that I would think you can see it, you kind of get your third and fourth quarter into the ECB comments and have to start thinking about dropping interest rates there. We saw the Bank of Canada come out yesterday and talk about that while there interest rate increases are probably done or if not done pretty darn close to it, and that they are starting to think about what does that next move look like and that you could still have them battling the inflation component and dropping interest rate so I think you could look again at the third and fourth quarter where you can start seeing them thinking about doing that and we look in and over to the United States, I think the bets are off there.
You are likely looking at into that fourth-quarter next year but certainly nothing in the next couple of quarters here unless we see a dramatic shift in what's happening in the economy there.
And what would that dramatic shift look like? What would be the input?
That would be… The consumer there continues to astound and I'm always careful when I say that because Canadians have this idea that those Americans, their crazy borrowing, we are the crazy Americans now.
We are the ones who have debt problems.
America's fiscal balance sheet is actually a lot better than ours. The American consumer continues to cruise along. Yes, we are starting to see increasing concerns for the car loans and the spike in that and not paying those back, that is sleepily concerning. Having to start paying the student loans off, that definitely is a headwind that there. The increase in mortgage cost, that certainly is a headwind there.
So there is a strain on the consumer in the US. However, they do continue to spend. They actually still have a pretty good credit profile and keep that going for a while longer so you have to see that consumer fall apart on the employment side, we are seeing the settlement in the car companies right now which are significant but they are less of the, less of an impact on the greater economy for the proportion of folks that are unionized, autoworkers, as much as if we were doing this back in the 50s here.
So the other one is the two things when you look at the original founding of the Federal Reserve Board and two things that it was really mandated to do, one set an overnight raid to think about keeping the economy going and money moving through the system to keep the economy healthy. That's job number one.
Job number two is make sure that you are managing inflation and taking care of that and job number three is employment.
And right now, when you and I were in university, we were talking about, we would go to class and they'd say, look, you can of 7% unemployment, you're living the dream.
Go back to Rome and say that's what unemployment looks like. We are sitting at 3.3 to 3.8%. That's a pretty strong employment number. If we started to see real strong wage growth and more wage settlements that were… That would be the other area that could have the impact and change the trajectory of the US economy.
>> Always fascinating to get your thoughts. Appreciate you being here and look forward to the next time.
>> Thank you, it's been great.
>> Our thanks to Brad Simpson, chief strategist at TD Wealth.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show, Chris Whelan, Senior Canada rate strategist and head of portfolio and ESG strategy with TD Securities will be our guest to get his reaction to the US federal rate decision which we are going to get in about an hour and 15 minutes time and also taking your questions about the economy and rates.
Get those questions in ahead of time.
Email moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
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