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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 wealth strategist Brad Simpson to discuss how investors should be navigating the mixed signals we are getting about the health of the global economy.
Moneytalk's Anthony Okolie's going to have a look at a new report on real estate investment trusts. And in today's WebBroker education segment, Nugwa Haruna is going to walk us through how you can make in-kind transfers using the plat form.
So here's how you can get in touch with us. Just email moneytalklive@td.com or you can fill out that viewer response box under the video player on WebBroker.
Before we get to our guest of the day, let's get you an update on the markets.
We've got some green on the screen right now, little modest on the side of the border. The TSX Composite Index up we will call that 59 points, a little shy of 1/3 of a percent. Noticing some of the mining stocks getting a bit today, let's check in on Kinross at this hour and see how it's bearing. At seven bucks and six cents per share, it's up about 1.7%. Some weakness now in Nutrien.
A in the crop business. At 9754, it is it's up! I picked one that was on the downside but is clearly off the lows right now, up $0.46, about half a percent.
South of the border, let's check in on the S&P 500, another indication that we are starting to see prices ease south of the border and continue to ease.
US producer prices, a bit of a surprise to the downside for the month of March, another indication on the back that later than expected inflation report earlier this week. But the S&P 500 right now up to the tune of about 29 points, three quarters of a percent. The tech heavy NASDAQ seems to be faring a little bit better, a little risk appetite returning for some those big tech names.
Got the NASDAQ of 107 points, almost 1/2%. It is the mega-cap tech stocks leading the way, got Amazon right now putting points on the table. 100 bucks and change per share, it's up a little bit more than 3%. And that's market update.
We have plenty of mixed signals in the markets these days, some signs of course that inflation is easing but also his persistent threats and worry of a possible recession. So how should investors be navigating this uncertain environment?
Joining us now to discuss, Brad Simpson, chief wealth strategist with TD Wealth., Brad, was great to have you on the program.
>> Thank you.
It's a pleasure to be here. I was thinking on the way here, almost every time you invite me, it's only have a really super high volatility, so it's good to come over today when we don't have superhigh volatility.
[laughing] I feel like I'm always the fireman on the show.
>> The pressure is off, we can have a little bit more of a calm conversation.
We are not dealing with the current crisis.
>> Yeah.
Crisis, phone him!
>> But we are dealing with times where people are trying to make sense of what we have been through. Yes, central banks hiked aggressively to try to bring inflation down. Yes we are seeing signs in this country and south of the border that inflation continues to roll off, but at what cost to the economy?
I feel like this is the big questions rolling in our minds right now.
>> Right.
When I was a kid, I worke in Victoria, on the docks with the ferry company, and one day we had a storm and there was a runaway sailboat. It was just all over the place, the ways were going, the wind was going all over the place. That's kind of what the economic data is like.
It is sitting in the sailboat and getting thrown all over the place and there is calm water and then the wind picks up in big waves again.
And I think thatwhen you look at the world in that way or when you think about that, one of the things we spend a lot of time doing is that I often think that if you looked at an investment market a little bit like racing along the highway.
And there's all these signs all over the place, but you don't know which ones to read. And you kind of got a choose, and that's what we do. We say, "Okay.
When we are doing this, we are looking at this kind of at the ballast of the things you want to look at that will help us determine that,", and then it starts to take the noise away a little bit.
I'm partially what I like to do when I come on the show is to go, if we can share some of that, and go, "Here's how we want to start thinking about this." Starting out, the environment that we are in, when we really look at it, we charted out and we sit back and go, you can look at the economy, you can look at industrial production, with my own manufacturing,you can look at consumer spending and the job market.
When we look at this, you look on the one side, you can see, well, you see a lot of lines going down really the one that you see pretty good is the consumer and job market.
So what this is telling us is well, what we do with everyone of these lines is we take every one of those line points and say, "Okay, let's look at conference Board leading indicators, we call it 100.
100 is perfect." It's at nine right now. 100 is perfect.
So it 79.
See you kind of go, "Well, that leading indicators look great." Then you look at, what your PMI's look at? You're looking at that, you are into the a and nines. You go, "Well, for manufacturing, that's deteriorating." Look at the services, it's strong but it's deteriorating as well.
So in the economy, when you're walking around in it, there's a lot of deteriorating going on. So that's the first one.
And so you go, "Okay, let's look at that.
What about industrial production?" You kind of look at that and go, "Well, let's look at new orders and inventories." You look at new orders and inventories, it's not very good.
If we look at industrial production, it's not very good.
If we look at sales to inventory ratios, not so good.
So kind of the manufacturing is slowing.
This is very North America oriented. If we do that same thing, go through euro, you'll see the same thing.
You go through China, it's positive.
And it would be pretty darn good in each one of those.
So the good news is you have a diversified economy, which we haven't had for a lot of years. That's interesting globally, right?
On the production side, it kind of lays out the same way.
So then it goes the consumer.
And the consumer is pretty darn good still.
So when we look at that and we look at consumer confidence, it's actually been improving.
>> Is the consumer just… I don't want to say the word ignorant because of the connotations, but blissfully unaware of some of those other things were talking about?
>> Yeah, because those things have a lag effect.
it takes a while before you kind of see it.
a couple of nights ago, conversation before bedtime, I was talking to one of my adult childrenand instead of talking about whether or sports, we had a 45 minute macroeconomics discussion.
He said one of the big things is has this kind of recession fears subsided? I said the fear of it has but there are lots of inputs that continue to point that way.
The consumer is in good shapeon their confidence side, but if you kind of look at their spending, it's still pretty good, but if you look at the balance sheet, it's not so positive.
And so if you look at it through that lens, you start to say, "Well, it's probably going to make it so as well." When it comes to jobs, jobs are very positive.
It's the greatest employment market in 30 years.
It's hard to add all those other things up, extrapolate that nine months.
That will probably slow.
And so I think if you look at it, people go, "It's bullish, it's bearish." It's and neither of those. It's actually the reality of going, "Okay, now that I am looking at the sides of the road," I think when people get caught up in the short term of things, the problem is you are just making stuff up.
You're going with how you feel about something or a headline that you read..
Yesterday, two or three days ago, the headline is: IMF, hard landing. You've got to read the whole thing. Yeah, it's one of the outcomes it could be you, but they just kind of lost that one.
And then yesterday, Yellin is positive.
So I think for starting point, if you can kind of consistently say, "I'm going to look at the economy in this way, the manufacturing this way the consumer this way at the job market this way if I keep going back when I'm racing down that macroeconomic Road looking at that way, I can have a really honest view of myself in these situations." > So you have that on his view of how to make decisions and it takes you back to your portfolio and how people are approaching their investments.
With all of that in mind, which they be thinking about in terms of their portfolio?
>> I think the starting point is thatyou probably should look at this in terms of saying, "Okay, all of those things going to slow down.
" Always room of the recession is something like… Bell doesn't go off for somebody send you a note saying, by the way… so what you know in that environment is not one of the things in our principles, risk priority management, we always say you kind of think like a business owner.
if you kind of think like a business owner, one of the things in your intro you said is the NASDAQ has been and continues to be very positive.
Well, why is that?
That is because in some of the first things I walked through, I think in many ways there are a lot of people in the market today that don't, actually never experienced a recession, never experienced a slowdown, but what they have seen is a low growth environment.
And in a low growth environment, big Teck was the only game in town.
And so I think there's a camp that's kind of writing algorithms right now saying, "Okay, great, we are back to those days again." And when you look at the performance of the NASDAQ or you go through the S&P 500, you can see that the majority of names are just absolutely out of nowhere and you have these names, which I would just call coin trading going on, I think what you do is you go, "Okay, well, I'm not going to get caught up in bullish or bearish arguments. I'm going to actually sit back and go, okay, what if I took and extrapolated that out and I said that I'm not going to be investing for the next 24 hours or two weeks but said, this is when you actually can make money because we know that there's going to be a slowdown, we know that we are going to end on the other side of it and you know when you come on the other side of it, there are an awful lot of names you can go out and look at in various areas of the market and invest in." When I look at the equity market, first and foremost, you say, okay, I'm not going to go all in.
So whatever usual amount I'd invest in, I pay a little less. So you look at that and go okay, diversify that.
As I said, China is in a different economic cycle. So why don't I add a little bit more to that.
You go yeah, but I read in the press every day how difficult it is there. It is difficult there right now.
There is geopolitical strife going on.
So the way I look at it as a starting point is that I would say that in the equity market, let's think about being underweight in. You don't only have to get investments on the market going up. You can also run investments that are market neutral, that are short.
You can be long and short, shorting the market to offset the risk that you're taking, you can hedge your bets. I think that's a wise thing to do.
I would be positioning myself as such there.
As we are starting off by talking about equity market.
>> Is a great start to the show. We will get your questions for Brad Simpson about market strategy.
A reminder that you can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Teck resources is formally rejecting the latest takeover bid from Glencore PLC. The mining company says its board has reviewed the revised offer and decided it's original plan to split Teck into two separate companies offers greater value. Glencore made an unsolicited $23 billion US bit earlier this month and recently revised it to include a cash component. Also on the file today, advisory firm ISS recommended tech shareholders vote against the plan to split the company into. More to come on the story for sure. We will stay on top of it for you.
Take a look at Delta Airlines.
They are optimistic that the summer travel season will be a profitable one for the company.
The air carrier says it expects revenue to increase 5 to 17% in the current quarter, compared to the same period last year.
Delta is pointing to what he calls a record advance bookings for the summer months. All this comes on the heels of hosting a water than expected loss for the first three months of the year. The stock is down 1%.
A continued slum in advertising revenue is weighing on the bottom line of Corus Entertainment.
The parent company of Global Television posted a loss of eight cents per diluted share for its most recent quarter as sales slid 5% as compared to the same period last year. Cora says the results reflected global ad market conditions. Right now, the stock animals were present.
A quick check in on the main benchmark indices, we will start your own Bay Street with the TSX Composite Index.
At this hour, actually, we are going to jump right over to the S&P 500. We are of 31 points or three quarters of a percent. Another indication that inflation continues to ease south of the border.
We are back now with Brad Simpson, taking your questions about market strategies so let's get to them.
This one is always on top of mind for investors. It was your view on where interest rates are headed? We just got Bank of Canada this week continuing to be on hold.
People want to know what happens next.
>> Oh boy, that's a big question, isn't it? I guess you kind of God's hi those two, you gotta start out with seeing, okay, well, why have interest rates gone up as much as they have?
Of course, that's inflation.
That's the cause of it.
And so you have to circle on the side about what you think is going to happen there.
And so I think in an environment like this where you say, well, ultimately, the economy in North America and in Europe is slowing, so you kind of circled out and say, well, the consumer is starting to be more challenged. Their balance sheet, they have taken a lot of debt, use credit cards to kind of be able to keep funding their lifestyle and so you see debt levels going up, and so he would look at that and say your cost of your mortgage has been going up, the cost of credit has been going up. That's going to start having an impact on slowing your spending down.
And then you know if you think that what central banks… If you look at the Federal Reserve Board, would say you want to cause the slowdown, pushed the unemployment rate to somewhere around five or 5 1/2%, and if you look at all of that, it's really hard to walk through each one of thoseand not start coming to an agreed-upon place that would say that inflation is slowing you and in an environment like that, it's hard to draw an economy like that that says the likelihood that you would have a real slowdown in inflation continue to go up and high is pretty darn low. All this talk about recession, you probably have a one in four chance on a recession right now.
And then on the inflation front, you'll probably run out of 4% by the time you look through the environment we are in now. And then you go, okay, that's how you frame out what's going to happen with interest rates.
what the market is saying is that you will see, nothing more of a race from the Bank of Canada which we saw this week. 25 basis points for the Fed.
The big debate is… And what the fixed income market is saying now is that we have another 25 point increase and then you get three or four decreases as you move further out. Then of course I would be showing inflation going down. And while I think you've got a step back a little bit from what the fixed income markets are telling you right now because I think we could probably both agree in our careers that fixed income in the last three months has been nothing short of incredible, extraordinary.
The movements in it are unbelievable.
So I think if you look at that as the scenario, we would think that your highs for interest rates are pretty close to where you are right now; in anything that's duration oriented, we would be quite long and comfortable with that.
We would be in the camp that you will start to see interest rates just start to work their way down.
Not in a perfect way. I would say that we are going to continue to see interest rate volatility and maybe not as much as we saw in March which was once in a lifetime type of volatility in fixed income markets, but we will continue to see fixed interest rate volatility. But if we are talking about how do I think about a mortgage going down the road, how do I think about my bond portfolio down the road, and your thinking beyond what can happen in the next couple of days here, I would be very comfortable with thinking that made and longer term trends rates will start coming down.
>> Let's talk about the fixed income side of it because last year was a year, for well-established reasons, bond and equity portfolios got hit. It just didn't work last year.
In the environment we are at or near, we start to see cuts, to the bond start working again?
>>let's even stop and look. If you looked at that in terms of… My job is I live in a world where we are building modelling or running portfolios to think about how do you run diversification strategies?
That's how I want to spend most of my time doing and thinking and how we allocate capital in that way. So I mean, if you looked at the first quarter, so at the end of March, and if you had a traditional kind of 6040 portfolio or if you had… What we are more inclined to be doing is more of a endowment style allocating of portfolio using broader toolsets and whatnot, if you go from a conservative portfolio to an aggressive portfolio, you kind of got the spread of return of a three to kind of 5% in the quarter..
That's really not a rough quarter.
Across the board, you can take that all day.
And a lot of that is in February and March was that it's been… It was very positive, incredibly positive for fixed income and there have been some great returns on the outside of the market. We know that if the equity markets, I'm often surprised with I hear how volatile it is.
Let's go back over the last three months.
>> You're sort of starting here and starting here with nothing in between.
>> There was almost no volatility in equity markets.
Like really.
We had three big-ish, two big as US banks disappear and one of the great over the last hundred years known financial organizations, Credit Suisse, disappear.
And so in that, looking at all of that, it's been… For the first quarter of this year, that was the sweet spot for a 6040 traditional portfolio. It's worked really well.
Going forward is… And remember, history doesn't always repeat itself.
Typically, what happens when the Fed, the central banks stop raising rates to combat inflation, they really raise them up.
If you looked at this, if you looked at past cycles, they don't slowly drop interest rates.
Like been kind of go because usually one of the things about fiddling with monetary policy as you know it's not exactly accurate.
You break some stuff along the way.
And so you tend to end up with an economy that's usually slowing more than you want to. So what do you do?
you get pretty aggressive and drop rates pretty quickly.
it's not easy to say that an 18 or 24 months you see 300 basis points move in interest rates, but you don't see it being 25, 25, 25.
it's like, boom. It happens quick.
for 6040 portfolio, the fixed income portion of it looks pretty good.
The equity, the equity part of it, if you are running indexing, so just running a pure beta portfolio, you know, there's times that works really well.
I wouldn't be inclined to be doing that right now. I would be way more inclined to say, "Let's take these indices apart and let's allocated to areas that are late stage and more defensive in nature." That doesn't mean a swing back. You still have some growth. Make sure you get some low volatility type of names in there.
Having options strategies for protection that are more than daily, which is some of the madness we are seeing right now.
And so I think the 64 day, the question really comes down to what you think about the bond component? I think it's pretty good.
I think for the equity component of that, I think what you want to do is you want to own the 60. You want to be equity oriented.
But if you are oriented to having 60 equity, you might run it at 50. And then 50 of that 50, well, I'd be kind of long short with it. Some hedging in there.
And if you do it like that, I think you have the sweet spot for 6040 there, probably now the next couple, two or three quarters, there will be the sweet spot for more directional strategies to kind of make sure, if you're painting the picture that I am here, it's the prudent thing to do.
And you may make some money doing it as well.
So I think that makes some sense to.
> Fascinating stuff from Brad Simpson. We are going to get back to your questions for him.
As always, make sure you do your own research before making any investment decisions.
so a reminder that you can get in touch with us anytime at those questions.
Just email moneytalklive@td.com.
Now look at our educational segment of the day.
Alright. In today's education segment, we are going to be taking a look at how you can move assets from one investing account to another without having to liquidate your position. Joining us now is more, Nugwa Haruna, Senior client education instructor with TD Direct Investing. Nugwa, great to have you back with us. Show us how it's done.
>> Yes.
So the reason why this is a timely conversation is because if investors have been following the news, you would realize that the government of Canada just announced a new account, which is the first home savings account and it allows investors to contribute into that account and get a tax deduction.
So some investors who already have assets in a registered savings plan or in a nonregistered account may be looking to do transfers, so we want to show investors how you are able to use WebBroker to do some of these transfers without actually going through the process of liquidating your positions and transferring the cash. So let's up into WebBroker to take a look.
So once in WebBroker as an investor, you will click on accounts. Under transfers, you will click on transfer securities within TD Direct Investing.
So once here under the securities transfers option, you have the option of selecting what account you want the securities to go out of, what account you want them to go into.
Right now, I am using a demo account so I am limited on what I can show, but that's where utilizing some of the features in WebBroker such as the help feature comes in handy. Some point click on the little?
At the top right here.
And what this does is it gives us an example of what exactly we are trying to do. I'm gonna scroll down so an investor will see what the steps are, the account you want these assets to go from a and the account you want them to go to you and then the next step will be to select the specific security you are looking to transfer, you will enter the quantity. Finally, you will get the opportunity to actually confirm what that transfer position is and then you get a chance to review and then confirm.
So once again, investors are able to do these transfers. You don't need to necessarily call or fill out any forms, you can just do this with in WebBroker.
>> Alright, Nugwa.
Great breakdown for how you do it. What does someone need to consider when doing these kinds of transfers or contributions like this?
>> Right, so there are implications of making transfers. So for instance, an investor who decides they want to transfer securities out of let's say a registered account like an RSP to a nonregistered account may want to think about what those tax applications are and for that reason, that kind of transfer is actually not available online because you would be able to call our trading desk to find out exactly what some of those applications may be. Also transfers between registered accounts are not available as well because there are tax implications and an investor does want to talk to a tax professional in doing them.
The other things an investor can do is, for instance, transfer between accounts.
So let's say for instance I have a US dollar tax-free savings account and a Canadian tax-free savings account. I could transfer securities between those accounts.
Now once we are in WebBroker, let's go back and with one last thing I want to show investors.
It's still using this help button here. You are able to see some of these, what some of these implications are.
So for instance, there are specific securities that may be eligible to be held in a nonregistered account but are not eligible to be held in a registered account. So information like that is very important. If you want to know what the securities are, once you are on this help page here, you can just scroll down.
Can I take a second to get there.
But you will see specific questions like one to do the transfers and when those will show up in the new account and there some questions investors can go through.
When a security is eligible or ineligible for transfers, just to get a better understanding of how that's going to work when an investor does go ahead to do this transfers.
>> Great stuff as always, Nugwa.
Thanks for that.
> Always a pleasure being here.
>> Nugwa Haruna, Senior client education instructor with 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, Jean well strategist with TD Wealth, taking your questions about market strategy. Love coming in for you, Brad, let's get to another one. For the short term, well interest rates are fairly high, is fixed income still a better bet than bonds to investing?
We could talk about some of those other fixed income investment instruments, maybe GICs, mutual funds.
>> I'm going to take the question as… Here's one of the really interesting things of that. If you looked at the data over, going all the way back to 2007.
I'm choosing 2007 on purpose because… >> Something happened.
[laughing] >> Right?
I admit it. Between 2007 and 2009, I think I aged about a thousand years.because it is so many things occurred there. We didn't have the apparatuses to work with the try to help the economy and the banking sector and the credit sector that we have today.
if you go all the way back to them and you looked at money and where it has slowed to you and how much moneyhas flowed to cash that if you, other than if you looked at 2020, when we shut the global economy down, first time ever, the flow into cash and money market is, I mean, if you look at these lines, they look like this and you just see this thing that goes absolutely to the North Pole.
And so when I look at that and I hear a question like that, I look at it and say, if… If I was a fixed income manager or a fixed income manager is somebody who allocates capital to bonds and the bonds that are government bonds, or you go to corporate bonds and investment grade bonds and investment grade bonds are from corporations that have really good balance sheets and really good credit so it's not as expensive for them.
So they've gotta pay, call it 50, hundred basis points more than the government to borrow money, a high-yield bond, they are a growing company, their credit is and so good. Let's call it somewhere between 3 to 400 basis points more than what the governments gotta pay and that's what fixed income is.
If you talk to any fixed income manager in the world today, they will go, this is like the dream world right now. Right? This is the environment that I've been waiting for for the last decade to allocate capital, that I can go out and I can make money on duration, so interest rates. I can make money in the investment grade space, I can make money in the high-yield space, I can make money go out and allocating them based only on the premise that I think interest rates will go back down and make money on that. I can go out and go through the investment grade universe and the high-yield universe and I can look at companies that you can say… Maybe they don't deserve to have people lending to them because all the freezing money, they are not the greatest company on the whole planet.
I can actually short that company and I can make money doing that.
I'm in allocate to really good bonds and good investment grade, great balance sheet, lots of cash.
If we have a recession, they will work their way through that and they will keep going.
One of the things you will hear a lot of is sort of almost like a certain disdain of private markets right now.
I mean, this is a dream for private fixed income investing right now. You have banks that are really tightening up, so credit is really tightening up. If I am a senior loan officer anywhere in the banking system globally, I have a letter or email coming to me saying, let's slow down on the lending on this, so where are you going to look for? You have to go into the private space and they are gonna build to actually ask for a higher yield, they are going to add to build a lot more stringent ways those saying if you don't meet your obligations, here's the things to do.
So based on all that, and I know it's a long answer, but really that there's two ways to look at this. Cash.
Cash, the the way I look at how people should manage their cash is asset liability management. What do I need to build a fund in the very near term?
The next 6 to 12 months, if I have a large expenditure, something I'm going to fund, kids going back to school and buying them staff or I have to get a new car or written to be moving, that's what I'm using cash for.
Then, once I've set my investment horizon, I have investments for three years, five years, I have long-term ones. I'm looking at those ones, I'm looking at myself and saying, okay,for the fixed income component for what I'm doing and that, I'm actually going to be overweight when what I would usually do in those because in each one of those areas, in the duration, there is a really good opportunity, investment grade. There is good opportunity in high yield.
You want to be underweight, absolutely owned or waited are absolutely making sure you are hedging some of the risk there.
So I hope that answers it. But really, that's the planning part and in the allocation part because if not, if you say, I'll make my whole fixed income investment in like a cash or money market and interest rates come down, okay, what do I do?
I go, okay… [laughing] I sit there and go, how did I get myself here?
Right? And so that's how I would look at it.
And I'm putting so much in those terms is that this is an environment where you should be investing your money in terms of having a wealth plan and allocating up against that and then when you're allocating, making it really clear what is the difference between what cash and fixed income is.
> Good stuff. We're going to get back to your questions for Brad Simpson nonmarket strategy in a moment's 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.
The commercial real estate sector has come under scrutiny recently made the fall of the US bank in crisis last month. TD Securities believes this negative sentiment has her evaluations of Canadian REITs, despite what in their view is a more stable lending and credit environment.
Anthony Okolie joins us now with more.
>> TD Securities points is in key differences between Canada and the US when it comes to commercial real estate lending space. For one, the commercial real estate… And in the US in contrast, the market there is more reliant on second-tier regional banks as well as commercial mortgage-backed securities market. Number two, the use of recourse debt allows lenders to recoup losses through loan collateral which poses less risk to the lenders versus using nonrecourse debt.
Of course, borrowers are likely, are less likely were able to walk away from their assets when it comes to recourse debt.
Finally, Canada is much smaller commercial real estate lending community means there are more long-term stable relationships as well as reputation and that's more important versus the US. Now, TD Securities doesn't believe that there will be many issues with REITs being able to refinance maturing debt, but they believe they are better positioned than others in likely tighter lending environment that we are potentially going to be seeing very soon.
I've got a chart here that focuses on five key sectors that I'm going to walk through. The first one is the office sector.
Again, TD Securities highlights ownership of office properties is highly concentrated in large, well-capitalized entities and most with long-term horizons and TD Securities use that this brings a lot more discipline into recent discussions and helps to mitigate potential for freefalling market rents.
So while there are troubling headlines and increased distress in the US were defaults are already occurring, it's far less likely, and TD Securities you, that is going to be an issue in Canada.
And now that being said, they believe that Canada is immune to thefts of remote working on office space but they believe that concerns are already priced into current trading valuations.
turning to residential or Canadian apartments,, they believe the sector will benefit from the availability of CMH see insurgents as well is the highest ability of this asset class.
And this allows the sector to use a high loan-to-value debt versus other properties and this should allow the sector to be more resilient in this current credit cycle. When it comes to the retail space, did TD security things this space is experiencing exceptional fundamentals, growth and are benefiting from strong leverage metrics. With regards to retail, this sector is currently showing the strongest leasing fundamentals that TD Securities has seen in the last decade and they are looking forward, expecting a quick and strong take upof the bed, Bath and beyond and Nordstrom rack spaces.
However, they expected the full-size Nordstrom space to take much longer to fill.
Finally, the seniors REIT market, they are seeing fundamentals recover their and like the Canadian apartments, retirement homes in Canada are benefitingfrom the availability of CMH C insurance.
Greg it?
>> Before let you go, I'll ask you quickly, obviously, there are some risks when it comes to real estate in this environment. What does TD Security see there?
>> I think the key risk is a refinancing. While we believe that there is ample availability of commercial real estate lending, they believe that a key risk is refinancing in today's elevated interest rate environment which does come at a cost. Although they say that the five and 10 year bond yields have come down from recent eyes, their current elevated levels continue to represent restrictions on operations and growth.
That being said, TD Securities expects the headwind to moderate somewhat going forward if and when these yields continue to come down.
>> Very interesting face to keep an eye on. Thanks that, Anthony.
>> My pleasure.
>> MoneyTalk Anthony Okolie.
Let's do a quick check in on the markets, starting with the TSX Composite Index. Up a modest 85 points, a little shy of half a percent.
South of the border, the S&P 500, we got another further integration today, producer prices pull back more than expected. Inflation continues east across the border. The S&P 500 up a little shy of a full percent.
We are back now with Brad Simpson, chief wealth strategist with TD Wealth. He's gonna answer another one of your questions. We are right on the doorstep of another earnings season. In this environment, given everything is going on, which we expect?
>> I mean, tomorrow the big banks, the J.P. Morgan that the world report and that's going to be… It'll be interesting because I think everybody's going to be really, I do this for a living, be glued watching that and right out of the gate, if you look at the big US banks and you look in at the performance of year to date, they are the closest I think it's the worst performing sector of for sure the last quarter and I think it goes back to the last year as well.
And at times in a little bit with what Anthony was saying. TD Security a single real estate side, one thing we always have to be mindful of is that the big banks are going to come out, the US big banks are gonna come out with probably some pretty tough earnings and that's what everybody's expecting, right? So anything they do on the upside will be a real positive. So I think that often what happens is that wide those first, when they report, everybody watches them because that often is a little bit of a bellwether, right?
Thinking about which way in which the rest of the S&P gonna look like.
So what are you saying in that, our view on this isthat while we have seen companies coming out and they have been revising their earnings lower, I confess that the revisions lower have been a higher or lower than what we think they've been doing, so we would be more in the negative camp in thinking of what those would look like.
so looking forward, we think that from the projected earnings from the SNP, it's probably closer to her 190 to 195 than it is your 202 to 10.
You will see some as high as 220. That seems very aggressive.
And so but I think that again when you're kind of pricing mission, there's more… Certainly from the body side of the market, most would be in that 190-ish camp anyways for expectations and so it's probably not going to be the greatest earnings season of all time. But it's also one that isn't expected to be and you can kind of go through index and index and the great example is, again, because that… We've gone through a banking crisis.
Your worst-performing has been your financials.
What's your second worst performer being? Well, real estate.
And so a lot of that stuff is already priced in.
The difference between the two markets in real estate and where the funding comes from, one of the things is that distress lending into real estate.
That's an investment opportunity, right?
One of the things to kind of continue to be able to remember that one of the things to be a successful and investing is, have the philosophy, the discipline to do it, but most of the time if you are making decisions into areas that are making you feel uncomfortable, those are usually the areas that you want to be allocating into, right? There is not a light that shines and says, this is a good time now. And I think that a opposite of whatever nature is and that's why it's so important to really consistently frame it that way.
So that'll be the story for the quarter for the S&P.
>> Always great to have you here, Brad. Always love hearing the insights and look forward to the next time.
Things are being with us.
>> Thank for having you.
>> Our thanks to Brad Simpson, chief wealth strategist with TD Wealth. Stay tuned.
We will be back tomorrow with highly terms of our best interviews of the week and then on Monday, Rishi Sondhi, economist of TD Bank will be our guest take your questions about the housing market.
And a reminder that you get a head start with those questions, just email moneytalklive@td.com.
That's all for show today.
Take care and 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 wealth strategist Brad Simpson to discuss how investors should be navigating the mixed signals we are getting about the health of the global economy.
Moneytalk's Anthony Okolie's going to have a look at a new report on real estate investment trusts. And in today's WebBroker education segment, Nugwa Haruna is going to walk us through how you can make in-kind transfers using the plat form.
So here's how you can get in touch with us. Just email moneytalklive@td.com or you can fill out that viewer response box under the video player on WebBroker.
Before we get to our guest of the day, let's get you an update on the markets.
We've got some green on the screen right now, little modest on the side of the border. The TSX Composite Index up we will call that 59 points, a little shy of 1/3 of a percent. Noticing some of the mining stocks getting a bit today, let's check in on Kinross at this hour and see how it's bearing. At seven bucks and six cents per share, it's up about 1.7%. Some weakness now in Nutrien.
A in the crop business. At 9754, it is it's up! I picked one that was on the downside but is clearly off the lows right now, up $0.46, about half a percent.
South of the border, let's check in on the S&P 500, another indication that we are starting to see prices ease south of the border and continue to ease.
US producer prices, a bit of a surprise to the downside for the month of March, another indication on the back that later than expected inflation report earlier this week. But the S&P 500 right now up to the tune of about 29 points, three quarters of a percent. The tech heavy NASDAQ seems to be faring a little bit better, a little risk appetite returning for some those big tech names.
Got the NASDAQ of 107 points, almost 1/2%. It is the mega-cap tech stocks leading the way, got Amazon right now putting points on the table. 100 bucks and change per share, it's up a little bit more than 3%. And that's market update.
We have plenty of mixed signals in the markets these days, some signs of course that inflation is easing but also his persistent threats and worry of a possible recession. So how should investors be navigating this uncertain environment?
Joining us now to discuss, Brad Simpson, chief wealth strategist with TD Wealth., Brad, was great to have you on the program.
>> Thank you.
It's a pleasure to be here. I was thinking on the way here, almost every time you invite me, it's only have a really super high volatility, so it's good to come over today when we don't have superhigh volatility.
[laughing] I feel like I'm always the fireman on the show.
>> The pressure is off, we can have a little bit more of a calm conversation.
We are not dealing with the current crisis.
>> Yeah.
Crisis, phone him!
>> But we are dealing with times where people are trying to make sense of what we have been through. Yes, central banks hiked aggressively to try to bring inflation down. Yes we are seeing signs in this country and south of the border that inflation continues to roll off, but at what cost to the economy?
I feel like this is the big questions rolling in our minds right now.
>> Right.
When I was a kid, I worke in Victoria, on the docks with the ferry company, and one day we had a storm and there was a runaway sailboat. It was just all over the place, the ways were going, the wind was going all over the place. That's kind of what the economic data is like.
It is sitting in the sailboat and getting thrown all over the place and there is calm water and then the wind picks up in big waves again.
And I think thatwhen you look at the world in that way or when you think about that, one of the things we spend a lot of time doing is that I often think that if you looked at an investment market a little bit like racing along the highway.
And there's all these signs all over the place, but you don't know which ones to read. And you kind of got a choose, and that's what we do. We say, "Okay.
When we are doing this, we are looking at this kind of at the ballast of the things you want to look at that will help us determine that,", and then it starts to take the noise away a little bit.
I'm partially what I like to do when I come on the show is to go, if we can share some of that, and go, "Here's how we want to start thinking about this." Starting out, the environment that we are in, when we really look at it, we charted out and we sit back and go, you can look at the economy, you can look at industrial production, with my own manufacturing,you can look at consumer spending and the job market.
When we look at this, you look on the one side, you can see, well, you see a lot of lines going down really the one that you see pretty good is the consumer and job market.
So what this is telling us is well, what we do with everyone of these lines is we take every one of those line points and say, "Okay, let's look at conference Board leading indicators, we call it 100.
100 is perfect." It's at nine right now. 100 is perfect.
So it 79.
See you kind of go, "Well, that leading indicators look great." Then you look at, what your PMI's look at? You're looking at that, you are into the a and nines. You go, "Well, for manufacturing, that's deteriorating." Look at the services, it's strong but it's deteriorating as well.
So in the economy, when you're walking around in it, there's a lot of deteriorating going on. So that's the first one.
And so you go, "Okay, let's look at that.
What about industrial production?" You kind of look at that and go, "Well, let's look at new orders and inventories." You look at new orders and inventories, it's not very good.
If we look at industrial production, it's not very good.
If we look at sales to inventory ratios, not so good.
So kind of the manufacturing is slowing.
This is very North America oriented. If we do that same thing, go through euro, you'll see the same thing.
You go through China, it's positive.
And it would be pretty darn good in each one of those.
So the good news is you have a diversified economy, which we haven't had for a lot of years. That's interesting globally, right?
On the production side, it kind of lays out the same way.
So then it goes the consumer.
And the consumer is pretty darn good still.
So when we look at that and we look at consumer confidence, it's actually been improving.
>> Is the consumer just… I don't want to say the word ignorant because of the connotations, but blissfully unaware of some of those other things were talking about?
>> Yeah, because those things have a lag effect.
it takes a while before you kind of see it.
a couple of nights ago, conversation before bedtime, I was talking to one of my adult childrenand instead of talking about whether or sports, we had a 45 minute macroeconomics discussion.
He said one of the big things is has this kind of recession fears subsided? I said the fear of it has but there are lots of inputs that continue to point that way.
The consumer is in good shapeon their confidence side, but if you kind of look at their spending, it's still pretty good, but if you look at the balance sheet, it's not so positive.
And so if you look at it through that lens, you start to say, "Well, it's probably going to make it so as well." When it comes to jobs, jobs are very positive.
It's the greatest employment market in 30 years.
It's hard to add all those other things up, extrapolate that nine months.
That will probably slow.
And so I think if you look at it, people go, "It's bullish, it's bearish." It's and neither of those. It's actually the reality of going, "Okay, now that I am looking at the sides of the road," I think when people get caught up in the short term of things, the problem is you are just making stuff up.
You're going with how you feel about something or a headline that you read..
Yesterday, two or three days ago, the headline is: IMF, hard landing. You've got to read the whole thing. Yeah, it's one of the outcomes it could be you, but they just kind of lost that one.
And then yesterday, Yellin is positive.
So I think for starting point, if you can kind of consistently say, "I'm going to look at the economy in this way, the manufacturing this way the consumer this way at the job market this way if I keep going back when I'm racing down that macroeconomic Road looking at that way, I can have a really honest view of myself in these situations." > So you have that on his view of how to make decisions and it takes you back to your portfolio and how people are approaching their investments.
With all of that in mind, which they be thinking about in terms of their portfolio?
>> I think the starting point is thatyou probably should look at this in terms of saying, "Okay, all of those things going to slow down.
" Always room of the recession is something like… Bell doesn't go off for somebody send you a note saying, by the way… so what you know in that environment is not one of the things in our principles, risk priority management, we always say you kind of think like a business owner.
if you kind of think like a business owner, one of the things in your intro you said is the NASDAQ has been and continues to be very positive.
Well, why is that?
That is because in some of the first things I walked through, I think in many ways there are a lot of people in the market today that don't, actually never experienced a recession, never experienced a slowdown, but what they have seen is a low growth environment.
And in a low growth environment, big Teck was the only game in town.
And so I think there's a camp that's kind of writing algorithms right now saying, "Okay, great, we are back to those days again." And when you look at the performance of the NASDAQ or you go through the S&P 500, you can see that the majority of names are just absolutely out of nowhere and you have these names, which I would just call coin trading going on, I think what you do is you go, "Okay, well, I'm not going to get caught up in bullish or bearish arguments. I'm going to actually sit back and go, okay, what if I took and extrapolated that out and I said that I'm not going to be investing for the next 24 hours or two weeks but said, this is when you actually can make money because we know that there's going to be a slowdown, we know that we are going to end on the other side of it and you know when you come on the other side of it, there are an awful lot of names you can go out and look at in various areas of the market and invest in." When I look at the equity market, first and foremost, you say, okay, I'm not going to go all in.
So whatever usual amount I'd invest in, I pay a little less. So you look at that and go okay, diversify that.
As I said, China is in a different economic cycle. So why don't I add a little bit more to that.
You go yeah, but I read in the press every day how difficult it is there. It is difficult there right now.
There is geopolitical strife going on.
So the way I look at it as a starting point is that I would say that in the equity market, let's think about being underweight in. You don't only have to get investments on the market going up. You can also run investments that are market neutral, that are short.
You can be long and short, shorting the market to offset the risk that you're taking, you can hedge your bets. I think that's a wise thing to do.
I would be positioning myself as such there.
As we are starting off by talking about equity market.
>> Is a great start to the show. We will get your questions for Brad Simpson about market strategy.
A reminder that you can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Teck resources is formally rejecting the latest takeover bid from Glencore PLC. The mining company says its board has reviewed the revised offer and decided it's original plan to split Teck into two separate companies offers greater value. Glencore made an unsolicited $23 billion US bit earlier this month and recently revised it to include a cash component. Also on the file today, advisory firm ISS recommended tech shareholders vote against the plan to split the company into. More to come on the story for sure. We will stay on top of it for you.
Take a look at Delta Airlines.
They are optimistic that the summer travel season will be a profitable one for the company.
The air carrier says it expects revenue to increase 5 to 17% in the current quarter, compared to the same period last year.
Delta is pointing to what he calls a record advance bookings for the summer months. All this comes on the heels of hosting a water than expected loss for the first three months of the year. The stock is down 1%.
A continued slum in advertising revenue is weighing on the bottom line of Corus Entertainment.
The parent company of Global Television posted a loss of eight cents per diluted share for its most recent quarter as sales slid 5% as compared to the same period last year. Cora says the results reflected global ad market conditions. Right now, the stock animals were present.
A quick check in on the main benchmark indices, we will start your own Bay Street with the TSX Composite Index.
At this hour, actually, we are going to jump right over to the S&P 500. We are of 31 points or three quarters of a percent. Another indication that inflation continues to ease south of the border.
We are back now with Brad Simpson, taking your questions about market strategies so let's get to them.
This one is always on top of mind for investors. It was your view on where interest rates are headed? We just got Bank of Canada this week continuing to be on hold.
People want to know what happens next.
>> Oh boy, that's a big question, isn't it? I guess you kind of God's hi those two, you gotta start out with seeing, okay, well, why have interest rates gone up as much as they have?
Of course, that's inflation.
That's the cause of it.
And so you have to circle on the side about what you think is going to happen there.
And so I think in an environment like this where you say, well, ultimately, the economy in North America and in Europe is slowing, so you kind of circled out and say, well, the consumer is starting to be more challenged. Their balance sheet, they have taken a lot of debt, use credit cards to kind of be able to keep funding their lifestyle and so you see debt levels going up, and so he would look at that and say your cost of your mortgage has been going up, the cost of credit has been going up. That's going to start having an impact on slowing your spending down.
And then you know if you think that what central banks… If you look at the Federal Reserve Board, would say you want to cause the slowdown, pushed the unemployment rate to somewhere around five or 5 1/2%, and if you look at all of that, it's really hard to walk through each one of thoseand not start coming to an agreed-upon place that would say that inflation is slowing you and in an environment like that, it's hard to draw an economy like that that says the likelihood that you would have a real slowdown in inflation continue to go up and high is pretty darn low. All this talk about recession, you probably have a one in four chance on a recession right now.
And then on the inflation front, you'll probably run out of 4% by the time you look through the environment we are in now. And then you go, okay, that's how you frame out what's going to happen with interest rates.
what the market is saying is that you will see, nothing more of a race from the Bank of Canada which we saw this week. 25 basis points for the Fed.
The big debate is… And what the fixed income market is saying now is that we have another 25 point increase and then you get three or four decreases as you move further out. Then of course I would be showing inflation going down. And while I think you've got a step back a little bit from what the fixed income markets are telling you right now because I think we could probably both agree in our careers that fixed income in the last three months has been nothing short of incredible, extraordinary.
The movements in it are unbelievable.
So I think if you look at that as the scenario, we would think that your highs for interest rates are pretty close to where you are right now; in anything that's duration oriented, we would be quite long and comfortable with that.
We would be in the camp that you will start to see interest rates just start to work their way down.
Not in a perfect way. I would say that we are going to continue to see interest rate volatility and maybe not as much as we saw in March which was once in a lifetime type of volatility in fixed income markets, but we will continue to see fixed interest rate volatility. But if we are talking about how do I think about a mortgage going down the road, how do I think about my bond portfolio down the road, and your thinking beyond what can happen in the next couple of days here, I would be very comfortable with thinking that made and longer term trends rates will start coming down.
>> Let's talk about the fixed income side of it because last year was a year, for well-established reasons, bond and equity portfolios got hit. It just didn't work last year.
In the environment we are at or near, we start to see cuts, to the bond start working again?
>>let's even stop and look. If you looked at that in terms of… My job is I live in a world where we are building modelling or running portfolios to think about how do you run diversification strategies?
That's how I want to spend most of my time doing and thinking and how we allocate capital in that way. So I mean, if you looked at the first quarter, so at the end of March, and if you had a traditional kind of 6040 portfolio or if you had… What we are more inclined to be doing is more of a endowment style allocating of portfolio using broader toolsets and whatnot, if you go from a conservative portfolio to an aggressive portfolio, you kind of got the spread of return of a three to kind of 5% in the quarter..
That's really not a rough quarter.
Across the board, you can take that all day.
And a lot of that is in February and March was that it's been… It was very positive, incredibly positive for fixed income and there have been some great returns on the outside of the market. We know that if the equity markets, I'm often surprised with I hear how volatile it is.
Let's go back over the last three months.
>> You're sort of starting here and starting here with nothing in between.
>> There was almost no volatility in equity markets.
Like really.
We had three big-ish, two big as US banks disappear and one of the great over the last hundred years known financial organizations, Credit Suisse, disappear.
And so in that, looking at all of that, it's been… For the first quarter of this year, that was the sweet spot for a 6040 traditional portfolio. It's worked really well.
Going forward is… And remember, history doesn't always repeat itself.
Typically, what happens when the Fed, the central banks stop raising rates to combat inflation, they really raise them up.
If you looked at this, if you looked at past cycles, they don't slowly drop interest rates.
Like been kind of go because usually one of the things about fiddling with monetary policy as you know it's not exactly accurate.
You break some stuff along the way.
And so you tend to end up with an economy that's usually slowing more than you want to. So what do you do?
you get pretty aggressive and drop rates pretty quickly.
it's not easy to say that an 18 or 24 months you see 300 basis points move in interest rates, but you don't see it being 25, 25, 25.
it's like, boom. It happens quick.
for 6040 portfolio, the fixed income portion of it looks pretty good.
The equity, the equity part of it, if you are running indexing, so just running a pure beta portfolio, you know, there's times that works really well.
I wouldn't be inclined to be doing that right now. I would be way more inclined to say, "Let's take these indices apart and let's allocated to areas that are late stage and more defensive in nature." That doesn't mean a swing back. You still have some growth. Make sure you get some low volatility type of names in there.
Having options strategies for protection that are more than daily, which is some of the madness we are seeing right now.
And so I think the 64 day, the question really comes down to what you think about the bond component? I think it's pretty good.
I think for the equity component of that, I think what you want to do is you want to own the 60. You want to be equity oriented.
But if you are oriented to having 60 equity, you might run it at 50. And then 50 of that 50, well, I'd be kind of long short with it. Some hedging in there.
And if you do it like that, I think you have the sweet spot for 6040 there, probably now the next couple, two or three quarters, there will be the sweet spot for more directional strategies to kind of make sure, if you're painting the picture that I am here, it's the prudent thing to do.
And you may make some money doing it as well.
So I think that makes some sense to.
> Fascinating stuff from Brad Simpson. We are going to get back to your questions for him.
As always, make sure you do your own research before making any investment decisions.
so a reminder that you can get in touch with us anytime at those questions.
Just email moneytalklive@td.com.
Now look at our educational segment of the day.
Alright. In today's education segment, we are going to be taking a look at how you can move assets from one investing account to another without having to liquidate your position. Joining us now is more, Nugwa Haruna, Senior client education instructor with TD Direct Investing. Nugwa, great to have you back with us. Show us how it's done.
>> Yes.
So the reason why this is a timely conversation is because if investors have been following the news, you would realize that the government of Canada just announced a new account, which is the first home savings account and it allows investors to contribute into that account and get a tax deduction.
So some investors who already have assets in a registered savings plan or in a nonregistered account may be looking to do transfers, so we want to show investors how you are able to use WebBroker to do some of these transfers without actually going through the process of liquidating your positions and transferring the cash. So let's up into WebBroker to take a look.
So once in WebBroker as an investor, you will click on accounts. Under transfers, you will click on transfer securities within TD Direct Investing.
So once here under the securities transfers option, you have the option of selecting what account you want the securities to go out of, what account you want them to go into.
Right now, I am using a demo account so I am limited on what I can show, but that's where utilizing some of the features in WebBroker such as the help feature comes in handy. Some point click on the little?
At the top right here.
And what this does is it gives us an example of what exactly we are trying to do. I'm gonna scroll down so an investor will see what the steps are, the account you want these assets to go from a and the account you want them to go to you and then the next step will be to select the specific security you are looking to transfer, you will enter the quantity. Finally, you will get the opportunity to actually confirm what that transfer position is and then you get a chance to review and then confirm.
So once again, investors are able to do these transfers. You don't need to necessarily call or fill out any forms, you can just do this with in WebBroker.
>> Alright, Nugwa.
Great breakdown for how you do it. What does someone need to consider when doing these kinds of transfers or contributions like this?
>> Right, so there are implications of making transfers. So for instance, an investor who decides they want to transfer securities out of let's say a registered account like an RSP to a nonregistered account may want to think about what those tax applications are and for that reason, that kind of transfer is actually not available online because you would be able to call our trading desk to find out exactly what some of those applications may be. Also transfers between registered accounts are not available as well because there are tax implications and an investor does want to talk to a tax professional in doing them.
The other things an investor can do is, for instance, transfer between accounts.
So let's say for instance I have a US dollar tax-free savings account and a Canadian tax-free savings account. I could transfer securities between those accounts.
Now once we are in WebBroker, let's go back and with one last thing I want to show investors.
It's still using this help button here. You are able to see some of these, what some of these implications are.
So for instance, there are specific securities that may be eligible to be held in a nonregistered account but are not eligible to be held in a registered account. So information like that is very important. If you want to know what the securities are, once you are on this help page here, you can just scroll down.
Can I take a second to get there.
But you will see specific questions like one to do the transfers and when those will show up in the new account and there some questions investors can go through.
When a security is eligible or ineligible for transfers, just to get a better understanding of how that's going to work when an investor does go ahead to do this transfers.
>> Great stuff as always, Nugwa.
Thanks for that.
> Always a pleasure being here.
>> Nugwa Haruna, Senior client education instructor with 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, Jean well strategist with TD Wealth, taking your questions about market strategy. Love coming in for you, Brad, let's get to another one. For the short term, well interest rates are fairly high, is fixed income still a better bet than bonds to investing?
We could talk about some of those other fixed income investment instruments, maybe GICs, mutual funds.
>> I'm going to take the question as… Here's one of the really interesting things of that. If you looked at the data over, going all the way back to 2007.
I'm choosing 2007 on purpose because… >> Something happened.
[laughing] >> Right?
I admit it. Between 2007 and 2009, I think I aged about a thousand years.because it is so many things occurred there. We didn't have the apparatuses to work with the try to help the economy and the banking sector and the credit sector that we have today.
if you go all the way back to them and you looked at money and where it has slowed to you and how much moneyhas flowed to cash that if you, other than if you looked at 2020, when we shut the global economy down, first time ever, the flow into cash and money market is, I mean, if you look at these lines, they look like this and you just see this thing that goes absolutely to the North Pole.
And so when I look at that and I hear a question like that, I look at it and say, if… If I was a fixed income manager or a fixed income manager is somebody who allocates capital to bonds and the bonds that are government bonds, or you go to corporate bonds and investment grade bonds and investment grade bonds are from corporations that have really good balance sheets and really good credit so it's not as expensive for them.
So they've gotta pay, call it 50, hundred basis points more than the government to borrow money, a high-yield bond, they are a growing company, their credit is and so good. Let's call it somewhere between 3 to 400 basis points more than what the governments gotta pay and that's what fixed income is.
If you talk to any fixed income manager in the world today, they will go, this is like the dream world right now. Right? This is the environment that I've been waiting for for the last decade to allocate capital, that I can go out and I can make money on duration, so interest rates. I can make money in the investment grade space, I can make money in the high-yield space, I can make money go out and allocating them based only on the premise that I think interest rates will go back down and make money on that. I can go out and go through the investment grade universe and the high-yield universe and I can look at companies that you can say… Maybe they don't deserve to have people lending to them because all the freezing money, they are not the greatest company on the whole planet.
I can actually short that company and I can make money doing that.
I'm in allocate to really good bonds and good investment grade, great balance sheet, lots of cash.
If we have a recession, they will work their way through that and they will keep going.
One of the things you will hear a lot of is sort of almost like a certain disdain of private markets right now.
I mean, this is a dream for private fixed income investing right now. You have banks that are really tightening up, so credit is really tightening up. If I am a senior loan officer anywhere in the banking system globally, I have a letter or email coming to me saying, let's slow down on the lending on this, so where are you going to look for? You have to go into the private space and they are gonna build to actually ask for a higher yield, they are going to add to build a lot more stringent ways those saying if you don't meet your obligations, here's the things to do.
So based on all that, and I know it's a long answer, but really that there's two ways to look at this. Cash.
Cash, the the way I look at how people should manage their cash is asset liability management. What do I need to build a fund in the very near term?
The next 6 to 12 months, if I have a large expenditure, something I'm going to fund, kids going back to school and buying them staff or I have to get a new car or written to be moving, that's what I'm using cash for.
Then, once I've set my investment horizon, I have investments for three years, five years, I have long-term ones. I'm looking at those ones, I'm looking at myself and saying, okay,for the fixed income component for what I'm doing and that, I'm actually going to be overweight when what I would usually do in those because in each one of those areas, in the duration, there is a really good opportunity, investment grade. There is good opportunity in high yield.
You want to be underweight, absolutely owned or waited are absolutely making sure you are hedging some of the risk there.
So I hope that answers it. But really, that's the planning part and in the allocation part because if not, if you say, I'll make my whole fixed income investment in like a cash or money market and interest rates come down, okay, what do I do?
I go, okay… [laughing] I sit there and go, how did I get myself here?
Right? And so that's how I would look at it.
And I'm putting so much in those terms is that this is an environment where you should be investing your money in terms of having a wealth plan and allocating up against that and then when you're allocating, making it really clear what is the difference between what cash and fixed income is.
> Good stuff. We're going to get back to your questions for Brad Simpson nonmarket strategy in a moment's time.
As always, make sure you do your own research before making any investment decisions.
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The commercial real estate sector has come under scrutiny recently made the fall of the US bank in crisis last month. TD Securities believes this negative sentiment has her evaluations of Canadian REITs, despite what in their view is a more stable lending and credit environment.
Anthony Okolie joins us now with more.
>> TD Securities points is in key differences between Canada and the US when it comes to commercial real estate lending space. For one, the commercial real estate… And in the US in contrast, the market there is more reliant on second-tier regional banks as well as commercial mortgage-backed securities market. Number two, the use of recourse debt allows lenders to recoup losses through loan collateral which poses less risk to the lenders versus using nonrecourse debt.
Of course, borrowers are likely, are less likely were able to walk away from their assets when it comes to recourse debt.
Finally, Canada is much smaller commercial real estate lending community means there are more long-term stable relationships as well as reputation and that's more important versus the US. Now, TD Securities doesn't believe that there will be many issues with REITs being able to refinance maturing debt, but they believe they are better positioned than others in likely tighter lending environment that we are potentially going to be seeing very soon.
I've got a chart here that focuses on five key sectors that I'm going to walk through. The first one is the office sector.
Again, TD Securities highlights ownership of office properties is highly concentrated in large, well-capitalized entities and most with long-term horizons and TD Securities use that this brings a lot more discipline into recent discussions and helps to mitigate potential for freefalling market rents.
So while there are troubling headlines and increased distress in the US were defaults are already occurring, it's far less likely, and TD Securities you, that is going to be an issue in Canada.
And now that being said, they believe that Canada is immune to thefts of remote working on office space but they believe that concerns are already priced into current trading valuations.
turning to residential or Canadian apartments,, they believe the sector will benefit from the availability of CMH see insurgents as well is the highest ability of this asset class.
And this allows the sector to use a high loan-to-value debt versus other properties and this should allow the sector to be more resilient in this current credit cycle. When it comes to the retail space, did TD security things this space is experiencing exceptional fundamentals, growth and are benefiting from strong leverage metrics. With regards to retail, this sector is currently showing the strongest leasing fundamentals that TD Securities has seen in the last decade and they are looking forward, expecting a quick and strong take upof the bed, Bath and beyond and Nordstrom rack spaces.
However, they expected the full-size Nordstrom space to take much longer to fill.
Finally, the seniors REIT market, they are seeing fundamentals recover their and like the Canadian apartments, retirement homes in Canada are benefitingfrom the availability of CMH C insurance.
Greg it?
>> Before let you go, I'll ask you quickly, obviously, there are some risks when it comes to real estate in this environment. What does TD Security see there?
>> I think the key risk is a refinancing. While we believe that there is ample availability of commercial real estate lending, they believe that a key risk is refinancing in today's elevated interest rate environment which does come at a cost. Although they say that the five and 10 year bond yields have come down from recent eyes, their current elevated levels continue to represent restrictions on operations and growth.
That being said, TD Securities expects the headwind to moderate somewhat going forward if and when these yields continue to come down.
>> Very interesting face to keep an eye on. Thanks that, Anthony.
>> My pleasure.
>> MoneyTalk Anthony Okolie.
Let's do a quick check in on the markets, starting with the TSX Composite Index. Up a modest 85 points, a little shy of half a percent.
South of the border, the S&P 500, we got another further integration today, producer prices pull back more than expected. Inflation continues east across the border. The S&P 500 up a little shy of a full percent.
We are back now with Brad Simpson, chief wealth strategist with TD Wealth. He's gonna answer another one of your questions. We are right on the doorstep of another earnings season. In this environment, given everything is going on, which we expect?
>> I mean, tomorrow the big banks, the J.P. Morgan that the world report and that's going to be… It'll be interesting because I think everybody's going to be really, I do this for a living, be glued watching that and right out of the gate, if you look at the big US banks and you look in at the performance of year to date, they are the closest I think it's the worst performing sector of for sure the last quarter and I think it goes back to the last year as well.
And at times in a little bit with what Anthony was saying. TD Security a single real estate side, one thing we always have to be mindful of is that the big banks are going to come out, the US big banks are gonna come out with probably some pretty tough earnings and that's what everybody's expecting, right? So anything they do on the upside will be a real positive. So I think that often what happens is that wide those first, when they report, everybody watches them because that often is a little bit of a bellwether, right?
Thinking about which way in which the rest of the S&P gonna look like.
So what are you saying in that, our view on this isthat while we have seen companies coming out and they have been revising their earnings lower, I confess that the revisions lower have been a higher or lower than what we think they've been doing, so we would be more in the negative camp in thinking of what those would look like.
so looking forward, we think that from the projected earnings from the SNP, it's probably closer to her 190 to 195 than it is your 202 to 10.
You will see some as high as 220. That seems very aggressive.
And so but I think that again when you're kind of pricing mission, there's more… Certainly from the body side of the market, most would be in that 190-ish camp anyways for expectations and so it's probably not going to be the greatest earnings season of all time. But it's also one that isn't expected to be and you can kind of go through index and index and the great example is, again, because that… We've gone through a banking crisis.
Your worst-performing has been your financials.
What's your second worst performer being? Well, real estate.
And so a lot of that stuff is already priced in.
The difference between the two markets in real estate and where the funding comes from, one of the things is that distress lending into real estate.
That's an investment opportunity, right?
One of the things to kind of continue to be able to remember that one of the things to be a successful and investing is, have the philosophy, the discipline to do it, but most of the time if you are making decisions into areas that are making you feel uncomfortable, those are usually the areas that you want to be allocating into, right? There is not a light that shines and says, this is a good time now. And I think that a opposite of whatever nature is and that's why it's so important to really consistently frame it that way.
So that'll be the story for the quarter for the S&P.
>> Always great to have you here, Brad. Always love hearing the insights and look forward to the next time.
Things are being with us.
>> Thank for having you.
>> Our thanks to Brad Simpson, chief wealth strategist with TD Wealth. Stay tuned.
We will be back tomorrow with highly terms of our best interviews of the week and then on Monday, Rishi Sondhi, economist of TD Bank will be our guest take your questions about the housing market.
And a reminder that you get a head start with those questions, just email moneytalklive@td.com.
That's all for show today.
Take care and see you tomorrow.
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