Show Transcript
Print Transcript
[theme 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 Picton Mahoney Asset Management David Picton. We will discuss portfolio instruction and why investors may want to look beyond the traditional 60-40 strategy. MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on whether AI can help Canada's flagging productivity. And in today's web broker education segment, Meagan Henriques will show us how you can make in-kind transfers here on the web broker platform.
So here's how you can 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 to all that and our guest of the day, let's get you an update on the markets.
We will start here at home with the TSX Composite Index. Not a lot of green on the screen on both sides of the border here.
We are down 300 points at this hour on the TSX Composite Index, 1.3%. Among most actively traded names today including Bank of Montréal, at with their latest quarterly report. The street is not please. At $121.98, it's down to the tune of almost 7%. Air Canada shares under pressure today, more of an American air carriers story which we will get into later in the show but the entire sector today under pressure.
Air Canada down more than 2%. South of the border, concerns again about inflation, we've got rising bond yields, what's the Fed going to do and when's it going to do it all in the mix. We are down 32 points are a little more than half a percent on the S&P 500.
Nvidia has been keeping the NASDAQ afloat in recent sessions. It is not doing the heavy lifting today. It's down 74 points, little shy of half a percent. American Airlines group, here's the reason why the broader airline industry stocks under pressure today. We will give you more details later in the show. The forecast is not pleasing the street.
The stock is now and $11.49 per share, down 14%. And that's your market update.
As central banks hiked rates aggressively in an attempt to tame inflation, some investors began questioning whether the 60-40 portfolio is still a valid strategy.
Well, our future yesterday says investors may want to look beyond that traditional asset mix in today's environment. Joining us now to discuss is David Picton, Pres.
and CEO of Picton Mahoney Asset Management. Great to have you on the show.
>> Got to be here.
>> Since it's your first time, we will introduce you.
Tell us about your firm and your investment philosophy.
>> Coming up on our 20th anniversary, we manage $11 billion or so of money. We have a focus on alternative investments, trying to provide differentiated returns for investors.
>> As I was saying in the introduction, people for a long time had taken a look at the 60-40 portfolio, or 7030, but they saw that is sort of a framework. That was put to the test coming out of the pandemic with rising interest rates. What we need to be thinking about?
>> We like to view these different asset classes as return streams. Stocks go up over time, approximately seven or 8%, bonds go up approximately five or 6%, and sometimes the returns act differently from each other. And so when you combine those two assets together, especially over the last 40 years, you had a wonderful experience investing in markets.
Interest rates came down and every time there was a hiccup in the stock market, the bond market rallied and you had an overall pretty good return out of the whole strategy. Until we hit a new inflationary regime, and we saw in 2022, the that was the first time in years were both of those asset classes not only underperformed but underperform significantly and at the same time.
And it was the first time that many investors felt some sticker shock when they open up their statements because not one of the assets helped offset the other.
What we try and do is take that idea of assets offsetting each other and bring it into the alternative space.
So if stocks and bonds are somewhat correlated, if we can have another asset class that is completely unrelated to what's happening in the stock and bond market, we think if you add that in and it has positive returns over time, you get a diversification benefit and you get it be wetter adjusted return.
>> Does that take advantage of market neutral?
>> Market neutral or also generating strategies are very important part of this. For instance, when you buy into the stock market, you are buying beta. The stock market goes up, your mutual fund goes up about the same.
The bond market goes up, your mutual fund and the bond market goes up about the same.
We want to build something that is not focused on either of those two betas but instead focuses on company specific drivers to generate a return regardless was happening in the stock or bond market.
Market neutral fit right into that.
>> Let's dive in a little deeper. What does that mean? How do you build that kind of portfolio?
>> You're looking to isolate the performance of companies. To do that, you have to find companies you like. At our firms, we focus on positive change, we value fundamental quality, and then you try and offset that company, its market exposure, by adding insurance.
We like positive change, good value and high quality. We disliked companies with negative change, poor value and poor quality. We can buy a basket of these negative change companies that we than short, i.e. cell without owning, we can then head out all of the market risk of the things we like and we end up basically was just stock specific alpha left in the portfolio.
>> Now, is a strategy like that something that starts to work in concert with the 60-40, the traditional mix of equities and bonds? Or is that old strategy complete the being pushed out?
>> We never push those out because if you look at the very, very long run, you would like to have stock or beta in your portfolio.
You'd like to have interest-rate sensitivity, yield in your portfolio. And in the very long run, all studies will show those are important building blocks.
But having only two options in your portfolio is kind of like going to play golf and you got a driver. What about my wages in my putter and my wedge and also that into the mix? So we want to add a new tools.
We have to add in a new income stream that acts differently than bonds and stocks.
>> Let's talk about risk management.
Part of the overall strategy is thinking about that risk and particularly in a new inflationary regime where both asset classes get hit very hard.
>> A huge focus is risk control.
We spend as much time almost on risk control as we do on the stock selection part of the portfolio and we do that in a number of different ways.
We have portfolios that are meant to be related to the market, half related to the market or zero related to the market, market neutral. So you always have to have your risk processes making sure that when you say you're going to be not related to the market, you are not related to the market.
We have done a good job of that in the long run. Secondly, maybe you want certain market exposures, for instance in an environment like today where things might be a little heady evaluations and options are lower, you might add in extra option protection. And then finally within market neutral, you generally don't take massive… Sure, we might like copper or gold, but you don't build a copper and gold portfolio and then hedge it all up with your technology and bank portfolio. You want to make sure that you are constrained in the amount of risk you take in the sectors as well. That's what do you think about the current market environment? It's interesting times. We had bond yields push up through the fall, eased back off. We entered this year, thinking it was the Fed rate cuts, we are finally going to get readjusted from all of the pandemic dislocation and it hasn't played out that way.
>> We are happy to say that JP Dimon from J.P. Morgan stole one of our taglines, which is that we are cautiously pessimistic. In other words, we had a nice move up in risk assets, especially in the equity market, and sure, technology, there's been a lot of good movement across all sectors over the last six weeks. At the same time, we've had interest rates backing up and we pushed out expectations for rate cuts, so the master is factoring in a lot of growth, interest rate cuts coming, inflation easing off, and is paying a multiple for that well above what we have seen in the past.
So while we kind of can see how it might work out, there are some probabilities that it does not work out and so we are cautiously pessimistic on this.
>> Interesting stuff and a great start to the program. We are going to get your questions about portfolio construction and the markets for David Picton in just a moment's time. And a reminder you can get in touch with us in 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.
We have a multibillion-dollar deal today in the energy sector. Conoco Phillips has agreed to by Marathon Oil in an all stock transaction valued at some $17 billion US.
The deal, which is pending approvals, would see Conoco Phillips expanded shale operations in the United States. This tale is the latest in a string of M&A activity seen in the US energy sector. Marathon is about 8% on the news.
Dig a little deeper now into shares of American Airlines.
They are under pressure today, down 14% at this hour.
The US air carriers cutting its sales and profit forecasts despite industry forecasts that it's going to be a strong summer when it comes to demand. American has been focusing on smaller markets and is citing weakness in pricing power. That raises the question, those issues specific to American Airlines?
Perhaps they are, but other air carriers today are also pulling back on this news.
The sector is feeling a bit of pressure.
It's a different story for shares of Abercrombie and Fitch. Sales for the retailer's latest quarter came in above $1 million, a 22% gain compared to the same period last year.
Abercrombie is also forecasting double-digit growth for the current quarter, while most of its competitors are providing some pretty tepid forecasts. It seems investors like the sound of it.
You've got Abercrombie and Fitch up to the tune of about 20% in the session.
Quick check on the markets, starting with the TSX Composite Index. We are looking at a 300 point pull back, down a little bit more than 1.3%. South of the border, the S&P 500, let's check in right now, down 33 points, a little more than half a percent.
We are back with David Picton from Picton Mahoney Asset Management, taking your questions about portfolio construction and the markets. Let's get to the first one for you here, David. What is your outlook for the commodity sector?
>> We like the commodity sector long-term, for sure. We kind of look at the inflationary regime that we are in and there was certainly some transitory, as the Fed called it, inflation because there was so much demand during the pandemic, as the economy restarted, there were bottlenecks all over the place. Underneath that, there were three major scarcities in place that had been developing for a while: housing, for instance, in the US, there is a significant shortage of housing, about 2 million homes and some estimates are as high as 4 million homes.
So that hasn't been dealt with and has to be dealt with. There is somewhat of a labour shortage, especially skilled labour, and certainly labour is behind the curve in terms of real income, so there's catch up there. But the commodities one is also a major scarcity. If you look at, say, copper, back in 2010 or 2011, it was the peak of the copper boom in China.
Chinese growth began to slow for copper consumption and, at the same time, every steel in the metal and material space spent on massive spending projects and it took years for this project to come on board, dump all of the material into the market and then eventually get absorbed.
It takes about 10 years from those supply demand mismatches to work their way out.
When we got into about 2021, after that peak back in 2011, he began to see the inventory pictures on a lot of commodity start to change.
Copper was supposed to be an abundance for a number of years and now we are here in this kind of tepid economic backdrop around the world and we thought copper inventories close to historic lows. And if you look out on the electric vehicle revolution, AI revolution, clean energy revolution, all of these revolutions, there's a lot of copper demand that needs to be satisfied to make those things go through. There is a lot of supply anywhere to be found.
In jurisdictions where there is supply, it's getting kind of tenuous geopolitically in some cases.
So there's an incredible backdrop that could probably last for five, maybe 10 years were prices have to go high for copper to incentivize people to go into more dangerous areas supply more copper to fill these needs that we have. So we are constructive on a number of different commodities.
>> That's copper. Gold, obviously, had a big run, silver is in the middle of a big run. What should we make of it?
>> Silver, I think, and gold, our little bit different. Even though they trade together as precious metals. The silver cases somewhat like the copper case.
Again, if we go into the solar power environment, there is a pretty strong picture you can build forcible demand going forward. Again, not a lot of supply coming on. Gold, probably a little bit different, probably in this kind of geopolitically fractured world that we are in right now, in the old days, I think money would just recycle into the US dollar and everyone would be happy doing that. I think there jurisdictions around the world that are less happy supporting the US dollar. And I think some of that money in central banks is finding its way into the gold sector. Maybe there is room to run on that front.
Maybe especially in the next cycle when we get some inflation rebuilding.
So I'd probably lean on the silversides of the fundamentals, although gold is reasonable in here as well.
>> One of the risks for the commodity sector?
We are talking about not a great global economy and we are seeing some of these metals move up quite dramatically.
>> That's kind of the interesting part about it is that we still haven't finished the bad part of the current cycle we are in.
You've got a government in the US that presses on the gas with physical spending will the central government is trying to put on the brakes. So the US, a much less interest rate sensitive economy, has done fine. The rest of the economies, including Canada, we are much more interest rate sensitive. There are countless examples of people whose mortgages are rolling over at much higher rates and their interest payments are in some cases more than doubling, so we are feeling that and a lot of the rest of the world is as well.
So it's kind of interesting that we should be going through a slowdown phase. It has been delayed by US physical spending. We need to complete that phase and take more inflationary pressure out of the market.
That should mean slower growth, it should mean a step back and it should not mean that commodities are doing well, so there's almost divergent things that are occurring and I think it's because when we finally go through the slowdown phase, and the next up phase for the whole global economy, the commodity stuff is going to be in the leadership groups and that certainly our perspective.
>> Interesting take on that. Another question related to commodities and copper. This one about First Quantum. With the uncertainty they are seeing in Panama with the mind, what is the current situation and what does it mean for First Quantum in the short term?
>> Very delicate and interesting situation for sure because this was a government force that put the mine and its constitution a decade ago when they were tricking First Quantum into spending $10 billion.
You seen this happen around the world.
Governments are accommodating when you're spending the money and when they finish want to harvest, that's when they become less accommodating.
First Quantum has been caught in those traps as well. There is a new government in place.
Panama believes they can do without this mine which is 5% of their GDP or so.
The Panama Canal is running at half capacity. That's another three or 4% of their GDP. All of their social network has run out of money. So it seems implausible that this mine would continue to be shut down against an economic backdrop like the one Panama is facing.
But we have seen other unlikely things happen in the world as well, especially in South American countries.
Our hope is that everything is resolved amicably but we will see how it goes as we move forward.
>> Taking that back to the comments he made about copper and the supply crunch, this was going to be a major contributor to copper supply.
If it doesn't come back online, if we have a situation where he doesn't come back online even though you're hopeful that it does, what position is that competition for the next decade?
>> It contributes to the growing divergence between demand and supply.
The only way to cure those imbalances is for prices to go up a lot to kind of incentivize people to go out there and explore, go into more difficult jurisdictions to build lines, to put all that money to work. That's not going to take two or three quarters of two or three years, is going to take 5 to 10 years, and that's why think there's a great tailwind.
Short-term, who knows with the economy?
But in the next cycle, I think there's a big tailwind.
>> Interesting stuff.
Let's shift gears. We have a question here from a viewer about the financials. What is your view on the financials and are there any areas that look interesting?
>> It's an interesting day because we've seen a couple of financials report today and again, if you are going into normal, typical, cyclical behaviour in the past, when banks are growing, when they are forced to put more loan-loss provisions to the side, it's not a good time to invest.
Finally, governments sometimes come to the rescue or monetary authorities lower rates and everyone feels better after that. We are not there yet. We are still going through the building of the loan-loss provision base. The banks had a good rally off their lows. We are not exactly thinking that this is the healthiest bond to be in at this point in time. There will be a time, it's not like these banks are going away. In some cases you could argue they are even reasonably priced but the tailwinds are not likely to occur for 6 to 12 months in our view.
>> What about the life codes? They are in that bucket as well.
They have been performing much differently from the banks up till now.
>> They are very different. We like them because unlike the banks, who really require short-term interest rates to come down, especially in Canada, even the amount of indebtedness and real estate exposure that is in our economy, the lifeco's actually love the tailwind of higher interest rates.
They got these huge general accounts where we have given them our money and they are investing it on our behalf to pay it out in case something happens down the road when interest rates were so low, it was difficult to invest that money. Now that interest rates are higher and they get to reset all of their portfolios at these much higher rates, they are loving life for the most part.
There are still idiosyncratic things that happen with each of them along the way, each quarter, but for the most part, they have enjoyed a nice tailwind. And they are reasonably priced.
>> Is there a way for the banks and life codes to perform altogether?
>> In the short run, given where we are in the cycle and interest rate fluctuations, they are an offset. They do perform altogether at times. When there is a general tailwind to the whole market and is going to list all the boats for the most part, and sometimes the banks will be better coming out of the cycle and then later in the cycle the lifeco's will be better but they can perform better but generally we tend to favour one of the other and we prefer lifecos.
>> Interesting stuff. As always, make sure you do your own research before making any investment decisions.
we will get back to questions for David Picton from Picton Mahoney Asset Management and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, look at our educational segment of the day.
In today's education segment, we are going to take a look at how you can make in kind transfer's on the web broker platform.
Here to walk us through it is Meagan Henriques, Senior client education instructor with TD Direct Investing.
Great to see you again. We know, for the most part, we can transfer cash to these registered accounts, but what about security?
>> Yeah, so for a lot of investors, they might have securities in their accounts, like in a nonregistered account, that they like a lot, but they want to be able to benefit from having them in a registered account like a tax-free savings account or an RRSP which would be tax-deferred, so I'm going to show you in web broker where you can go to do this transfer.
So using our main menu, if you click on accounts, it's going to be under the transfers and withdrawals. Here is where, like you mentioned, you can transfer cash within TD or outside of TD in the last one, the middle one here, is where you transfer securities within TD Direct Investing accounts. So here, you select the account you want to transfer from into the other account and that's how you would do the transfer in kind in web broker.
>> All right, so we understand the transfer now and how to do it, what about the tax implications of any move stocks in kind into a registered account?
>> Yeah, so that's going to be an important consideration because this will have an impact on, it will have a tax implication where it's called a deemed disposition, meaning that if there was any gains, you will need to pay that gain because now you are pretty much, in the eyes of tax, it's as if you sold the security from the nonregistered account into the registered account, so again, tax-free savings account, RRSPs, those of the popular ones.
So there will be taxable occasions there.
If there were no gains, then there would not be any tax to pay on those.
So let me just quickly show you on web broker how you can prepare yourself to know whether there would be a tax application or not.
When you are in your account, you would go under holdings. I'm using a demo account so there's nothing here so I will show you a quick image here. So here, in your account, you would be able to see whether there was that gain or loss so that you can decide if this is a security that you might want to move into the registered account.
Keep in mind, from the moment it's in that registered account, there would be benefits, so tax-free or tax-deferred, so you can decide for yourself what's going to be best for you long term.
So yeah, that is how you do the transfers in kind in web broker.
>> Great stuff as always. Thanks for that.
>> Thank you.
>> Senior client education instructor with TD Direct Investing. For more educational resources, you can check out the learning centre on my broker or you can use this QR code. It will navigate to TD Direct Investing's YouTube page and once you are there, you will find more informative videos.
Now before you get back your questions about portfolio construction in the markets for David Picton, a reminder of how you can get in touch with us.
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.
Okay, we are back with David Picton, we are taking your questions about portfolio construction and the markets. The next one for you here just came in.
What's your view on the impact of the completion of the Trans Mountain Pipeline expansion project to the Canadian energy sector?
>> I think energy policy around the world has been generally misguided. There has been a well intended move to the new economy and to transition away from carbon, etc.
And we'll support that there are different ways that we can continue to support that, but the reality is is that we need pipeline capacity around the world, we need it in North America, we need it in Canada and so that is a very genuine boost to the prospects for a lot of companies with in Canada because we have not had access to some of those markets. By opening up the access, we get better pricing.
We can argue philosophically about whether pipelines are good or not in some people think they are not good for some reason but as we take that transmountain example and move it into the US, there is a huge demand for AI that's going to take place, huge demand around EV and electric charging stations going to take place, and a lot of the natural gas is going to power that is trapped in areas where it can't get to market to help support all this and we are nowhere near to having the renewables built to handle all of that.
Renewables are generally intermittent and cannot give you constant power.
In my opinion, we need more pipelines and the transmountain expansion is a good boost.
>> Is perhaps transmountain the last big pipeline we will see in this country given the climate for these kind of projects?
>> It may be and that would be a shame because that would be based on what I think is misguided policy. The transition to renewables requires a huge amount of power to drive it, ironically.
If you don't have that power, you don't make the transition. I think it's kind of ironic that a company, in a country like Canada that we are importing natural gas from the US because there pipeline capacity comes north-south instead of East-West.
So things like that that have distorted variations of the market that lead to scarcity and price surges that are unnecessary.
>> A viewer wants to get your take on the AI trend in the markets overall.
>> It's big.
At this point in time, it's hard to find the applications that create the productivity that AI promises. Right now, it's about building out the general AI models and so it's much more of a technology, hardware driven cycle at this point in time. Just like when you are building the Internet and have to build all the pipes, settle those electrodes around, once we said those around and we can get into e-commerce and all the other things that developed out of the Internet.
To the same thing is happening in AI right now.
Right now, it's Nvidia and a bunch of other players providing the nuts and bolts to build out the framework. Now, we want to see this somehow migrated to the software landscaper we can accompany us take on some software that immediately makes them more productive, and that jumped seems like it's still some way to go and we have to find really good place.
It's more the hardware companies participating in the AI bubble at the moment.
>> Nvidia has come out is a clear winner when it comes to the hardware build out part of this but the idea now I think investors are trying to figure out, who is going to have a killer app, that piece of software? It feels like an open question.
>> Is very open at this point in time.
There so many different expert opinions on this. Our own research shows it's still being driven by the picks and shovels of the infrastructure as opposed to the killer apps. There are some amazing apps, I can write an email using ChatGPT quicker than I ever could before, but that's a small productivity boost and I would like to see it improve our operations at our company in a dramatic way but we have not really come across something major on that front yet. Lots of experimenting.
>> We will get there eventually. Our member the early days of the Internet.
You were chatting to people about stuff and then e-commerce followed.
>> I was speaking to a health professional the other day that suggested that maybe it 7 to 10 years where AI might diagnosis better than a doctor or practitioner when and I believe that's more like 3 to 5 years, maybe it's 2 to 3 when these things start to accelerate so it will be transformative, and just going to take some time.
>> Another question from the audience, this wind is coming in in the past couple of moments. A viewer says, I am a 60 something retiree, a buy-and-hold investor with a long term time horizon.
I have 14 investing accounts, UST, CAD, RIF, RSP, TFSA and margin accounts for myself and my wife. How would you our Guest approach sector allocation for my accounts?
This gives us a chance to talk about portfolio construction and sector allocation.
>> I think this is happening to more people over time.
We open different accounts to take advantage of different tax benefits or savings for your kids education or whatever the case may be.
I believe you should treat them as one account. You should take all the different positions and all those different ideas and put them into one consolidated portfolio.
And then, you should understand what your asset mix is within the portfolio relative to what your time horizon is.
This person has a long time horizon which is great.
They are probably going to lean towards having more risk in their portfolio versus de-risking given their age and their long-term horizon, so they should take that into account when they add up all of their accounts.
And then they should start making shifts at the margin. In our case, if the portfolio added up to something that looked like 60% stocks and 40% bonds, we might suggest something that looks more like 40% equities and 30% bonds and maybe 30% of diversifying and return enhancing alternatives. When you start to do that, you probably want to minimize the tax consequences when moving in that direction. Maybe you are making changes in order to avoid triggering taxation.
Consolidate your account, understand your asset makes and minimize tax risk.
>> That was sent in by our loyal viewer, Jeff. Thanks for watching and thanks the question. We are going to get back to your questions for David Picton from Picton Mahoney Asset Management in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder of how you can get in touch with us. 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.
Well, we know from the discussions we have had on the show and the headline you are reading every day, Canada's labour productivity has been steadily declining relative to our peers.
I knew TD economics report says AI technologies may offer a remedy to reverse that slump. Anthony Coley has been digging into the report and joins us for more.
>> As you mentioned, Canada's economy has not been able to boost productivity of its workers. Part of that reason is we can investments. TD Economics believes that the big driver of that is the fact that we are seeing a slowing rate of technology adoption. I brought along a chart that highlights Canada's long-standing productivity challenges or problems and this chart shows the business sector labour productivity. You can see total factor productivity which captures the change in economic output not to beatable to the increased output has been slowing since the 1960s and total factor productivity has, on average, detracted from labour productivity for the past two decades. TD Economics believes that generative AI stands out from previous automation waves which could help boost Canada's productivity over the long run.
They also point to empirical evidence showing that AI is more complementary as opposed to displacing labour activity. It also shows that Canada's high concentration of highly educated workers are better prepared to adapt and to shift from at risk jobs to more complementary jobs as well.
This is all good news because it means more productivity which will have broader implications on the performance level and recent studies show that generative AI had the potential to bruise productivity of tasks by between 10 to 56% according to the studies and TD Economics announced that AI adoption could boost Canada's real GDP 5 to 8% higher in the next 10 years versus the current baseline.
Now, there is some good news. Here in Canada, of course, we ranked second amongst G-7 nations for AI investments.
We have started companies here, we have a lot of working talent, world ranking talent.
We have some challenges that pose some barriers towards improving productivity.
One of them is lowest per capita computing power performance among the G-7 nations.
In addition to that, regulation, regulation and AI and data act, part of Bill C 27, that could also hinder innovation, according to TD economics. In addition to that, we have the second lowest AI adoption rate among the G-7 nations.
That has a lot to do with the fabric of our economy with a lot of small business is slow to adopt AI as well and to scale up. Petey concludes that while Canada boasts a globally competitive AI ecosystem, our ability to change productivity you trajectory actually hinges on our adoption of AI going forward.
>> All right, so some optimism there that AI is going to provide that productivity boost and some challenges as well are there.
Do we have any idea of who the early adopters in Canada are?
>> According to Stats Can research, there some sectors that are early adopters, including information and cultural industries, we are seeing it professional, scientific as well as technical services as well as financial and insurance companies. They have the highest adoption rates according to research by Statistics Canada. These early movers are embracing generative AI. That is starting to impact different aspects of our lives.
>> Interesting stuff. Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, let's have a look at the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Got the TSX 60, National Bank is getting a bid, up 2.5%.
Different reaction to be MO's latest report, that stock is down about 7%.
You're not seeing much movement among the other financials.
Move into the downside is weighing on the top line number. South of the border, Nvidia definitely lifted its own boat in the last couple of sessions but it's having a hard time lifting all the other boats.
It used to be a stock that you could count on. Right now, you got a bit of a bid into Apple and Nvidia today, a little bit into Amazon but a lot of pull back into others including the heavyweight financials. In the chip space, competitor AMD is down a little more than 3%.
We are back now with David Picton from Picton Mahoney Asset Management, let's take another audience question. This one about our central banks.
How much divergence might we see between the Bank of Canada and the Fed?
>> I believe the Bank of Canada needs to start cutting rates.
In the US, people have the good fortune of being able to lock in 30 year mortgages and if rates go down, they get to refinance those mortgages and take advantage of the lower rates, again locking in for 30 years. A lot of US companies were able to lock in lower rates on their funding as well. So the US turns out to be one of the lower or least interest rate sensitive countries in the developed world.
Canada, on the other hand, does not share that, unfortunately. We have shorter term mortgages. They rule over either daily or up to five year terms.
There are numerous examples of interest rate payments that have more than doubled.
We are also in a really real estate centric economy so you're kind of doubling that exposure and then, as you're looking to the bank earnings, you are now providing for higher loan losses.
We do not share the same good fortune with the US where they are pushing on the gas pedal with their government and having interest rate protection from the central bank actions, we do not share this attribute so we have to start cutting interest rates. It will probably come in a bit of a cost our currency.
It probably makes us a little bit more economically interesting to companies may be looking to expand, hopefully.
But I think that it's time in the Canadian lands get to do that. You will see divergence between the US and a number of countries around the world, some of which have already begun cutting interest rates.
>> The Bank of Canada does not target the currency but at some point, if the BOC starts cutting in the Fed still hasn't cut, they start getting mindful of the effects on the currency?
>> As long as currency moves are controlled, I think they don't really pay too much heed to them. When they start to get accelerated and look like they are providing instability with that economy.
That's where they have to pay some attention. It will be an interesting test of when I think they have to go and when they do go to see what happens and how much of that is already baked into the marketplace, given our weaker set up relative to our neighbour south of the border.
>> Let's squeeze in one last question, sort of related.
What's your outlook for housing in the homebuilders?
>> Love them longer term. Even in Canada, I think our housing prices are overvalued on a number of different metrics.
But the reality is is that there is a new demographic boom of household and family formation taking place in this people can only live with their parents for so long.
On top of that, we had a tremendous boost of immigration which I think our country benefits from in the long run. Again, squeezing out the need, creating more need for real estate. In the US, between two and 4 million homes short of what's required to satisfy this need.
So in the short run, the cycle looks a little bit copy, you've got interest rate pressures building so maybe you get it back, backing off some of these homebuilding stocks would have performed really well, especially in the US. But in the next cycle, when they start to cut rates and mortgage rates are to come down, I think you will see an immediate move right back to those housing related names.
>> Before you let you go, your first show, I've enjoyed it. I hope you had a good time as well.
Give us a general thought about the markets and how to approach this.
>> Take your 60-40 concept, understand that in a higher inflationary backdrop, 60-40 has not proven to be as effective as it has been in a low inflationary backdrop.
In the next cycle, if inflationary pressures return sooner than people expect, which is our belief, that 60-40 is going to be needing some augmentation, some sort of protection from either inflation or some uncorrelated revenue streams. Maybe take 60-40 in your mind and start thinking 40, 30, 30. Instead of 60 stocks, let's make it 40. Instead of 40 bonds, let's make it 30. Let's take some of those proceeds and move it into inflation protection and alternatives that have some kind of different return streams than those core 6040 models that have served us so well over the past couple of decades.
>> Fascinating stuff. Thanks for joining us.
>> My pleasure.
>> Our thanks to David Picton, Pres. and CEO, Picton Mahoney Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show, Daniel Ghali, senior commodity strategist at TD Securities will be our guest. He will discuss that big rally we are seeing in silver and weathered so that legs to keep running. Will take your questions about quantities in general.
You can always get them in ahead of time, just email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
[theme 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 Picton Mahoney Asset Management David Picton. We will discuss portfolio instruction and why investors may want to look beyond the traditional 60-40 strategy. MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on whether AI can help Canada's flagging productivity. And in today's web broker education segment, Meagan Henriques will show us how you can make in-kind transfers here on the web broker platform.
So here's how you can 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 to all that and our guest of the day, let's get you an update on the markets.
We will start here at home with the TSX Composite Index. Not a lot of green on the screen on both sides of the border here.
We are down 300 points at this hour on the TSX Composite Index, 1.3%. Among most actively traded names today including Bank of Montréal, at with their latest quarterly report. The street is not please. At $121.98, it's down to the tune of almost 7%. Air Canada shares under pressure today, more of an American air carriers story which we will get into later in the show but the entire sector today under pressure.
Air Canada down more than 2%. South of the border, concerns again about inflation, we've got rising bond yields, what's the Fed going to do and when's it going to do it all in the mix. We are down 32 points are a little more than half a percent on the S&P 500.
Nvidia has been keeping the NASDAQ afloat in recent sessions. It is not doing the heavy lifting today. It's down 74 points, little shy of half a percent. American Airlines group, here's the reason why the broader airline industry stocks under pressure today. We will give you more details later in the show. The forecast is not pleasing the street.
The stock is now and $11.49 per share, down 14%. And that's your market update.
As central banks hiked rates aggressively in an attempt to tame inflation, some investors began questioning whether the 60-40 portfolio is still a valid strategy.
Well, our future yesterday says investors may want to look beyond that traditional asset mix in today's environment. Joining us now to discuss is David Picton, Pres.
and CEO of Picton Mahoney Asset Management. Great to have you on the show.
>> Got to be here.
>> Since it's your first time, we will introduce you.
Tell us about your firm and your investment philosophy.
>> Coming up on our 20th anniversary, we manage $11 billion or so of money. We have a focus on alternative investments, trying to provide differentiated returns for investors.
>> As I was saying in the introduction, people for a long time had taken a look at the 60-40 portfolio, or 7030, but they saw that is sort of a framework. That was put to the test coming out of the pandemic with rising interest rates. What we need to be thinking about?
>> We like to view these different asset classes as return streams. Stocks go up over time, approximately seven or 8%, bonds go up approximately five or 6%, and sometimes the returns act differently from each other. And so when you combine those two assets together, especially over the last 40 years, you had a wonderful experience investing in markets.
Interest rates came down and every time there was a hiccup in the stock market, the bond market rallied and you had an overall pretty good return out of the whole strategy. Until we hit a new inflationary regime, and we saw in 2022, the that was the first time in years were both of those asset classes not only underperformed but underperform significantly and at the same time.
And it was the first time that many investors felt some sticker shock when they open up their statements because not one of the assets helped offset the other.
What we try and do is take that idea of assets offsetting each other and bring it into the alternative space.
So if stocks and bonds are somewhat correlated, if we can have another asset class that is completely unrelated to what's happening in the stock and bond market, we think if you add that in and it has positive returns over time, you get a diversification benefit and you get it be wetter adjusted return.
>> Does that take advantage of market neutral?
>> Market neutral or also generating strategies are very important part of this. For instance, when you buy into the stock market, you are buying beta. The stock market goes up, your mutual fund goes up about the same.
The bond market goes up, your mutual fund and the bond market goes up about the same.
We want to build something that is not focused on either of those two betas but instead focuses on company specific drivers to generate a return regardless was happening in the stock or bond market.
Market neutral fit right into that.
>> Let's dive in a little deeper. What does that mean? How do you build that kind of portfolio?
>> You're looking to isolate the performance of companies. To do that, you have to find companies you like. At our firms, we focus on positive change, we value fundamental quality, and then you try and offset that company, its market exposure, by adding insurance.
We like positive change, good value and high quality. We disliked companies with negative change, poor value and poor quality. We can buy a basket of these negative change companies that we than short, i.e. cell without owning, we can then head out all of the market risk of the things we like and we end up basically was just stock specific alpha left in the portfolio.
>> Now, is a strategy like that something that starts to work in concert with the 60-40, the traditional mix of equities and bonds? Or is that old strategy complete the being pushed out?
>> We never push those out because if you look at the very, very long run, you would like to have stock or beta in your portfolio.
You'd like to have interest-rate sensitivity, yield in your portfolio. And in the very long run, all studies will show those are important building blocks.
But having only two options in your portfolio is kind of like going to play golf and you got a driver. What about my wages in my putter and my wedge and also that into the mix? So we want to add a new tools.
We have to add in a new income stream that acts differently than bonds and stocks.
>> Let's talk about risk management.
Part of the overall strategy is thinking about that risk and particularly in a new inflationary regime where both asset classes get hit very hard.
>> A huge focus is risk control.
We spend as much time almost on risk control as we do on the stock selection part of the portfolio and we do that in a number of different ways.
We have portfolios that are meant to be related to the market, half related to the market or zero related to the market, market neutral. So you always have to have your risk processes making sure that when you say you're going to be not related to the market, you are not related to the market.
We have done a good job of that in the long run. Secondly, maybe you want certain market exposures, for instance in an environment like today where things might be a little heady evaluations and options are lower, you might add in extra option protection. And then finally within market neutral, you generally don't take massive… Sure, we might like copper or gold, but you don't build a copper and gold portfolio and then hedge it all up with your technology and bank portfolio. You want to make sure that you are constrained in the amount of risk you take in the sectors as well. That's what do you think about the current market environment? It's interesting times. We had bond yields push up through the fall, eased back off. We entered this year, thinking it was the Fed rate cuts, we are finally going to get readjusted from all of the pandemic dislocation and it hasn't played out that way.
>> We are happy to say that JP Dimon from J.P. Morgan stole one of our taglines, which is that we are cautiously pessimistic. In other words, we had a nice move up in risk assets, especially in the equity market, and sure, technology, there's been a lot of good movement across all sectors over the last six weeks. At the same time, we've had interest rates backing up and we pushed out expectations for rate cuts, so the master is factoring in a lot of growth, interest rate cuts coming, inflation easing off, and is paying a multiple for that well above what we have seen in the past.
So while we kind of can see how it might work out, there are some probabilities that it does not work out and so we are cautiously pessimistic on this.
>> Interesting stuff and a great start to the program. We are going to get your questions about portfolio construction and the markets for David Picton in just a moment's time. And a reminder you can get in touch with us in 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.
We have a multibillion-dollar deal today in the energy sector. Conoco Phillips has agreed to by Marathon Oil in an all stock transaction valued at some $17 billion US.
The deal, which is pending approvals, would see Conoco Phillips expanded shale operations in the United States. This tale is the latest in a string of M&A activity seen in the US energy sector. Marathon is about 8% on the news.
Dig a little deeper now into shares of American Airlines.
They are under pressure today, down 14% at this hour.
The US air carriers cutting its sales and profit forecasts despite industry forecasts that it's going to be a strong summer when it comes to demand. American has been focusing on smaller markets and is citing weakness in pricing power. That raises the question, those issues specific to American Airlines?
Perhaps they are, but other air carriers today are also pulling back on this news.
The sector is feeling a bit of pressure.
It's a different story for shares of Abercrombie and Fitch. Sales for the retailer's latest quarter came in above $1 million, a 22% gain compared to the same period last year.
Abercrombie is also forecasting double-digit growth for the current quarter, while most of its competitors are providing some pretty tepid forecasts. It seems investors like the sound of it.
You've got Abercrombie and Fitch up to the tune of about 20% in the session.
Quick check on the markets, starting with the TSX Composite Index. We are looking at a 300 point pull back, down a little bit more than 1.3%. South of the border, the S&P 500, let's check in right now, down 33 points, a little more than half a percent.
We are back with David Picton from Picton Mahoney Asset Management, taking your questions about portfolio construction and the markets. Let's get to the first one for you here, David. What is your outlook for the commodity sector?
>> We like the commodity sector long-term, for sure. We kind of look at the inflationary regime that we are in and there was certainly some transitory, as the Fed called it, inflation because there was so much demand during the pandemic, as the economy restarted, there were bottlenecks all over the place. Underneath that, there were three major scarcities in place that had been developing for a while: housing, for instance, in the US, there is a significant shortage of housing, about 2 million homes and some estimates are as high as 4 million homes.
So that hasn't been dealt with and has to be dealt with. There is somewhat of a labour shortage, especially skilled labour, and certainly labour is behind the curve in terms of real income, so there's catch up there. But the commodities one is also a major scarcity. If you look at, say, copper, back in 2010 or 2011, it was the peak of the copper boom in China.
Chinese growth began to slow for copper consumption and, at the same time, every steel in the metal and material space spent on massive spending projects and it took years for this project to come on board, dump all of the material into the market and then eventually get absorbed.
It takes about 10 years from those supply demand mismatches to work their way out.
When we got into about 2021, after that peak back in 2011, he began to see the inventory pictures on a lot of commodity start to change.
Copper was supposed to be an abundance for a number of years and now we are here in this kind of tepid economic backdrop around the world and we thought copper inventories close to historic lows. And if you look out on the electric vehicle revolution, AI revolution, clean energy revolution, all of these revolutions, there's a lot of copper demand that needs to be satisfied to make those things go through. There is a lot of supply anywhere to be found.
In jurisdictions where there is supply, it's getting kind of tenuous geopolitically in some cases.
So there's an incredible backdrop that could probably last for five, maybe 10 years were prices have to go high for copper to incentivize people to go into more dangerous areas supply more copper to fill these needs that we have. So we are constructive on a number of different commodities.
>> That's copper. Gold, obviously, had a big run, silver is in the middle of a big run. What should we make of it?
>> Silver, I think, and gold, our little bit different. Even though they trade together as precious metals. The silver cases somewhat like the copper case.
Again, if we go into the solar power environment, there is a pretty strong picture you can build forcible demand going forward. Again, not a lot of supply coming on. Gold, probably a little bit different, probably in this kind of geopolitically fractured world that we are in right now, in the old days, I think money would just recycle into the US dollar and everyone would be happy doing that. I think there jurisdictions around the world that are less happy supporting the US dollar. And I think some of that money in central banks is finding its way into the gold sector. Maybe there is room to run on that front.
Maybe especially in the next cycle when we get some inflation rebuilding.
So I'd probably lean on the silversides of the fundamentals, although gold is reasonable in here as well.
>> One of the risks for the commodity sector?
We are talking about not a great global economy and we are seeing some of these metals move up quite dramatically.
>> That's kind of the interesting part about it is that we still haven't finished the bad part of the current cycle we are in.
You've got a government in the US that presses on the gas with physical spending will the central government is trying to put on the brakes. So the US, a much less interest rate sensitive economy, has done fine. The rest of the economies, including Canada, we are much more interest rate sensitive. There are countless examples of people whose mortgages are rolling over at much higher rates and their interest payments are in some cases more than doubling, so we are feeling that and a lot of the rest of the world is as well.
So it's kind of interesting that we should be going through a slowdown phase. It has been delayed by US physical spending. We need to complete that phase and take more inflationary pressure out of the market.
That should mean slower growth, it should mean a step back and it should not mean that commodities are doing well, so there's almost divergent things that are occurring and I think it's because when we finally go through the slowdown phase, and the next up phase for the whole global economy, the commodity stuff is going to be in the leadership groups and that certainly our perspective.
>> Interesting take on that. Another question related to commodities and copper. This one about First Quantum. With the uncertainty they are seeing in Panama with the mind, what is the current situation and what does it mean for First Quantum in the short term?
>> Very delicate and interesting situation for sure because this was a government force that put the mine and its constitution a decade ago when they were tricking First Quantum into spending $10 billion.
You seen this happen around the world.
Governments are accommodating when you're spending the money and when they finish want to harvest, that's when they become less accommodating.
First Quantum has been caught in those traps as well. There is a new government in place.
Panama believes they can do without this mine which is 5% of their GDP or so.
The Panama Canal is running at half capacity. That's another three or 4% of their GDP. All of their social network has run out of money. So it seems implausible that this mine would continue to be shut down against an economic backdrop like the one Panama is facing.
But we have seen other unlikely things happen in the world as well, especially in South American countries.
Our hope is that everything is resolved amicably but we will see how it goes as we move forward.
>> Taking that back to the comments he made about copper and the supply crunch, this was going to be a major contributor to copper supply.
If it doesn't come back online, if we have a situation where he doesn't come back online even though you're hopeful that it does, what position is that competition for the next decade?
>> It contributes to the growing divergence between demand and supply.
The only way to cure those imbalances is for prices to go up a lot to kind of incentivize people to go out there and explore, go into more difficult jurisdictions to build lines, to put all that money to work. That's not going to take two or three quarters of two or three years, is going to take 5 to 10 years, and that's why think there's a great tailwind.
Short-term, who knows with the economy?
But in the next cycle, I think there's a big tailwind.
>> Interesting stuff.
Let's shift gears. We have a question here from a viewer about the financials. What is your view on the financials and are there any areas that look interesting?
>> It's an interesting day because we've seen a couple of financials report today and again, if you are going into normal, typical, cyclical behaviour in the past, when banks are growing, when they are forced to put more loan-loss provisions to the side, it's not a good time to invest.
Finally, governments sometimes come to the rescue or monetary authorities lower rates and everyone feels better after that. We are not there yet. We are still going through the building of the loan-loss provision base. The banks had a good rally off their lows. We are not exactly thinking that this is the healthiest bond to be in at this point in time. There will be a time, it's not like these banks are going away. In some cases you could argue they are even reasonably priced but the tailwinds are not likely to occur for 6 to 12 months in our view.
>> What about the life codes? They are in that bucket as well.
They have been performing much differently from the banks up till now.
>> They are very different. We like them because unlike the banks, who really require short-term interest rates to come down, especially in Canada, even the amount of indebtedness and real estate exposure that is in our economy, the lifeco's actually love the tailwind of higher interest rates.
They got these huge general accounts where we have given them our money and they are investing it on our behalf to pay it out in case something happens down the road when interest rates were so low, it was difficult to invest that money. Now that interest rates are higher and they get to reset all of their portfolios at these much higher rates, they are loving life for the most part.
There are still idiosyncratic things that happen with each of them along the way, each quarter, but for the most part, they have enjoyed a nice tailwind. And they are reasonably priced.
>> Is there a way for the banks and life codes to perform altogether?
>> In the short run, given where we are in the cycle and interest rate fluctuations, they are an offset. They do perform altogether at times. When there is a general tailwind to the whole market and is going to list all the boats for the most part, and sometimes the banks will be better coming out of the cycle and then later in the cycle the lifeco's will be better but they can perform better but generally we tend to favour one of the other and we prefer lifecos.
>> Interesting stuff. As always, make sure you do your own research before making any investment decisions.
we will get back to questions for David Picton from Picton Mahoney Asset Management and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, look at our educational segment of the day.
In today's education segment, we are going to take a look at how you can make in kind transfer's on the web broker platform.
Here to walk us through it is Meagan Henriques, Senior client education instructor with TD Direct Investing.
Great to see you again. We know, for the most part, we can transfer cash to these registered accounts, but what about security?
>> Yeah, so for a lot of investors, they might have securities in their accounts, like in a nonregistered account, that they like a lot, but they want to be able to benefit from having them in a registered account like a tax-free savings account or an RRSP which would be tax-deferred, so I'm going to show you in web broker where you can go to do this transfer.
So using our main menu, if you click on accounts, it's going to be under the transfers and withdrawals. Here is where, like you mentioned, you can transfer cash within TD or outside of TD in the last one, the middle one here, is where you transfer securities within TD Direct Investing accounts. So here, you select the account you want to transfer from into the other account and that's how you would do the transfer in kind in web broker.
>> All right, so we understand the transfer now and how to do it, what about the tax implications of any move stocks in kind into a registered account?
>> Yeah, so that's going to be an important consideration because this will have an impact on, it will have a tax implication where it's called a deemed disposition, meaning that if there was any gains, you will need to pay that gain because now you are pretty much, in the eyes of tax, it's as if you sold the security from the nonregistered account into the registered account, so again, tax-free savings account, RRSPs, those of the popular ones.
So there will be taxable occasions there.
If there were no gains, then there would not be any tax to pay on those.
So let me just quickly show you on web broker how you can prepare yourself to know whether there would be a tax application or not.
When you are in your account, you would go under holdings. I'm using a demo account so there's nothing here so I will show you a quick image here. So here, in your account, you would be able to see whether there was that gain or loss so that you can decide if this is a security that you might want to move into the registered account.
Keep in mind, from the moment it's in that registered account, there would be benefits, so tax-free or tax-deferred, so you can decide for yourself what's going to be best for you long term.
So yeah, that is how you do the transfers in kind in web broker.
>> Great stuff as always. Thanks for that.
>> Thank you.
>> Senior client education instructor with TD Direct Investing. For more educational resources, you can check out the learning centre on my broker or you can use this QR code. It will navigate to TD Direct Investing's YouTube page and once you are there, you will find more informative videos.
Now before you get back your questions about portfolio construction in the markets for David Picton, a reminder of how you can get in touch with us.
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.
Okay, we are back with David Picton, we are taking your questions about portfolio construction and the markets. The next one for you here just came in.
What's your view on the impact of the completion of the Trans Mountain Pipeline expansion project to the Canadian energy sector?
>> I think energy policy around the world has been generally misguided. There has been a well intended move to the new economy and to transition away from carbon, etc.
And we'll support that there are different ways that we can continue to support that, but the reality is is that we need pipeline capacity around the world, we need it in North America, we need it in Canada and so that is a very genuine boost to the prospects for a lot of companies with in Canada because we have not had access to some of those markets. By opening up the access, we get better pricing.
We can argue philosophically about whether pipelines are good or not in some people think they are not good for some reason but as we take that transmountain example and move it into the US, there is a huge demand for AI that's going to take place, huge demand around EV and electric charging stations going to take place, and a lot of the natural gas is going to power that is trapped in areas where it can't get to market to help support all this and we are nowhere near to having the renewables built to handle all of that.
Renewables are generally intermittent and cannot give you constant power.
In my opinion, we need more pipelines and the transmountain expansion is a good boost.
>> Is perhaps transmountain the last big pipeline we will see in this country given the climate for these kind of projects?
>> It may be and that would be a shame because that would be based on what I think is misguided policy. The transition to renewables requires a huge amount of power to drive it, ironically.
If you don't have that power, you don't make the transition. I think it's kind of ironic that a company, in a country like Canada that we are importing natural gas from the US because there pipeline capacity comes north-south instead of East-West.
So things like that that have distorted variations of the market that lead to scarcity and price surges that are unnecessary.
>> A viewer wants to get your take on the AI trend in the markets overall.
>> It's big.
At this point in time, it's hard to find the applications that create the productivity that AI promises. Right now, it's about building out the general AI models and so it's much more of a technology, hardware driven cycle at this point in time. Just like when you are building the Internet and have to build all the pipes, settle those electrodes around, once we said those around and we can get into e-commerce and all the other things that developed out of the Internet.
To the same thing is happening in AI right now.
Right now, it's Nvidia and a bunch of other players providing the nuts and bolts to build out the framework. Now, we want to see this somehow migrated to the software landscaper we can accompany us take on some software that immediately makes them more productive, and that jumped seems like it's still some way to go and we have to find really good place.
It's more the hardware companies participating in the AI bubble at the moment.
>> Nvidia has come out is a clear winner when it comes to the hardware build out part of this but the idea now I think investors are trying to figure out, who is going to have a killer app, that piece of software? It feels like an open question.
>> Is very open at this point in time.
There so many different expert opinions on this. Our own research shows it's still being driven by the picks and shovels of the infrastructure as opposed to the killer apps. There are some amazing apps, I can write an email using ChatGPT quicker than I ever could before, but that's a small productivity boost and I would like to see it improve our operations at our company in a dramatic way but we have not really come across something major on that front yet. Lots of experimenting.
>> We will get there eventually. Our member the early days of the Internet.
You were chatting to people about stuff and then e-commerce followed.
>> I was speaking to a health professional the other day that suggested that maybe it 7 to 10 years where AI might diagnosis better than a doctor or practitioner when and I believe that's more like 3 to 5 years, maybe it's 2 to 3 when these things start to accelerate so it will be transformative, and just going to take some time.
>> Another question from the audience, this wind is coming in in the past couple of moments. A viewer says, I am a 60 something retiree, a buy-and-hold investor with a long term time horizon.
I have 14 investing accounts, UST, CAD, RIF, RSP, TFSA and margin accounts for myself and my wife. How would you our Guest approach sector allocation for my accounts?
This gives us a chance to talk about portfolio construction and sector allocation.
>> I think this is happening to more people over time.
We open different accounts to take advantage of different tax benefits or savings for your kids education or whatever the case may be.
I believe you should treat them as one account. You should take all the different positions and all those different ideas and put them into one consolidated portfolio.
And then, you should understand what your asset mix is within the portfolio relative to what your time horizon is.
This person has a long time horizon which is great.
They are probably going to lean towards having more risk in their portfolio versus de-risking given their age and their long-term horizon, so they should take that into account when they add up all of their accounts.
And then they should start making shifts at the margin. In our case, if the portfolio added up to something that looked like 60% stocks and 40% bonds, we might suggest something that looks more like 40% equities and 30% bonds and maybe 30% of diversifying and return enhancing alternatives. When you start to do that, you probably want to minimize the tax consequences when moving in that direction. Maybe you are making changes in order to avoid triggering taxation.
Consolidate your account, understand your asset makes and minimize tax risk.
>> That was sent in by our loyal viewer, Jeff. Thanks for watching and thanks the question. We are going to get back to your questions for David Picton from Picton Mahoney Asset Management in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder of how you can get in touch with us. 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.
Well, we know from the discussions we have had on the show and the headline you are reading every day, Canada's labour productivity has been steadily declining relative to our peers.
I knew TD economics report says AI technologies may offer a remedy to reverse that slump. Anthony Coley has been digging into the report and joins us for more.
>> As you mentioned, Canada's economy has not been able to boost productivity of its workers. Part of that reason is we can investments. TD Economics believes that the big driver of that is the fact that we are seeing a slowing rate of technology adoption. I brought along a chart that highlights Canada's long-standing productivity challenges or problems and this chart shows the business sector labour productivity. You can see total factor productivity which captures the change in economic output not to beatable to the increased output has been slowing since the 1960s and total factor productivity has, on average, detracted from labour productivity for the past two decades. TD Economics believes that generative AI stands out from previous automation waves which could help boost Canada's productivity over the long run.
They also point to empirical evidence showing that AI is more complementary as opposed to displacing labour activity. It also shows that Canada's high concentration of highly educated workers are better prepared to adapt and to shift from at risk jobs to more complementary jobs as well.
This is all good news because it means more productivity which will have broader implications on the performance level and recent studies show that generative AI had the potential to bruise productivity of tasks by between 10 to 56% according to the studies and TD Economics announced that AI adoption could boost Canada's real GDP 5 to 8% higher in the next 10 years versus the current baseline.
Now, there is some good news. Here in Canada, of course, we ranked second amongst G-7 nations for AI investments.
We have started companies here, we have a lot of working talent, world ranking talent.
We have some challenges that pose some barriers towards improving productivity.
One of them is lowest per capita computing power performance among the G-7 nations.
In addition to that, regulation, regulation and AI and data act, part of Bill C 27, that could also hinder innovation, according to TD economics. In addition to that, we have the second lowest AI adoption rate among the G-7 nations.
That has a lot to do with the fabric of our economy with a lot of small business is slow to adopt AI as well and to scale up. Petey concludes that while Canada boasts a globally competitive AI ecosystem, our ability to change productivity you trajectory actually hinges on our adoption of AI going forward.
>> All right, so some optimism there that AI is going to provide that productivity boost and some challenges as well are there.
Do we have any idea of who the early adopters in Canada are?
>> According to Stats Can research, there some sectors that are early adopters, including information and cultural industries, we are seeing it professional, scientific as well as technical services as well as financial and insurance companies. They have the highest adoption rates according to research by Statistics Canada. These early movers are embracing generative AI. That is starting to impact different aspects of our lives.
>> Interesting stuff. Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, let's have a look at the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Got the TSX 60, National Bank is getting a bid, up 2.5%.
Different reaction to be MO's latest report, that stock is down about 7%.
You're not seeing much movement among the other financials.
Move into the downside is weighing on the top line number. South of the border, Nvidia definitely lifted its own boat in the last couple of sessions but it's having a hard time lifting all the other boats.
It used to be a stock that you could count on. Right now, you got a bit of a bid into Apple and Nvidia today, a little bit into Amazon but a lot of pull back into others including the heavyweight financials. In the chip space, competitor AMD is down a little more than 3%.
We are back now with David Picton from Picton Mahoney Asset Management, let's take another audience question. This one about our central banks.
How much divergence might we see between the Bank of Canada and the Fed?
>> I believe the Bank of Canada needs to start cutting rates.
In the US, people have the good fortune of being able to lock in 30 year mortgages and if rates go down, they get to refinance those mortgages and take advantage of the lower rates, again locking in for 30 years. A lot of US companies were able to lock in lower rates on their funding as well. So the US turns out to be one of the lower or least interest rate sensitive countries in the developed world.
Canada, on the other hand, does not share that, unfortunately. We have shorter term mortgages. They rule over either daily or up to five year terms.
There are numerous examples of interest rate payments that have more than doubled.
We are also in a really real estate centric economy so you're kind of doubling that exposure and then, as you're looking to the bank earnings, you are now providing for higher loan losses.
We do not share the same good fortune with the US where they are pushing on the gas pedal with their government and having interest rate protection from the central bank actions, we do not share this attribute so we have to start cutting interest rates. It will probably come in a bit of a cost our currency.
It probably makes us a little bit more economically interesting to companies may be looking to expand, hopefully.
But I think that it's time in the Canadian lands get to do that. You will see divergence between the US and a number of countries around the world, some of which have already begun cutting interest rates.
>> The Bank of Canada does not target the currency but at some point, if the BOC starts cutting in the Fed still hasn't cut, they start getting mindful of the effects on the currency?
>> As long as currency moves are controlled, I think they don't really pay too much heed to them. When they start to get accelerated and look like they are providing instability with that economy.
That's where they have to pay some attention. It will be an interesting test of when I think they have to go and when they do go to see what happens and how much of that is already baked into the marketplace, given our weaker set up relative to our neighbour south of the border.
>> Let's squeeze in one last question, sort of related.
What's your outlook for housing in the homebuilders?
>> Love them longer term. Even in Canada, I think our housing prices are overvalued on a number of different metrics.
But the reality is is that there is a new demographic boom of household and family formation taking place in this people can only live with their parents for so long.
On top of that, we had a tremendous boost of immigration which I think our country benefits from in the long run. Again, squeezing out the need, creating more need for real estate. In the US, between two and 4 million homes short of what's required to satisfy this need.
So in the short run, the cycle looks a little bit copy, you've got interest rate pressures building so maybe you get it back, backing off some of these homebuilding stocks would have performed really well, especially in the US. But in the next cycle, when they start to cut rates and mortgage rates are to come down, I think you will see an immediate move right back to those housing related names.
>> Before you let you go, your first show, I've enjoyed it. I hope you had a good time as well.
Give us a general thought about the markets and how to approach this.
>> Take your 60-40 concept, understand that in a higher inflationary backdrop, 60-40 has not proven to be as effective as it has been in a low inflationary backdrop.
In the next cycle, if inflationary pressures return sooner than people expect, which is our belief, that 60-40 is going to be needing some augmentation, some sort of protection from either inflation or some uncorrelated revenue streams. Maybe take 60-40 in your mind and start thinking 40, 30, 30. Instead of 60 stocks, let's make it 40. Instead of 40 bonds, let's make it 30. Let's take some of those proceeds and move it into inflation protection and alternatives that have some kind of different return streams than those core 6040 models that have served us so well over the past couple of decades.
>> Fascinating stuff. Thanks for joining us.
>> My pleasure.
>> Our thanks to David Picton, Pres. and CEO, Picton Mahoney Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show, Daniel Ghali, senior commodity strategist at TD Securities will be our guest. He will discuss that big rally we are seeing in silver and weathered so that legs to keep running. Will take your questions about quantities in general.
You can always get them in ahead of time, just email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
[theme music]
