Hussein Allidina – 06/17/2022

(Energizing music) HELLO I'M GREG BONNELL AND WELCOME TO MONEYTALK LIVE WHICH IS BROUGHT TO YOU BY TD DIRECT INVESTING. IT'S A NEW PROGRAM BROADCAST DAILY ON WEBBROKER. EVERY DAY I'LL BE JOINED BY GUESTS FROM ACROSS TD, MANY OF WHOM YOU'LL ONLY SEE HERE. WE'LL TAKE YOU THROUGH WHAT'S MOVING THE MARKETS AND ANSWER YOUR QUESTIONS ABOUT INVESTING. COMING UP ON TODAY'S SHOW: I'LL BE SPEAKING WITH HUSSEIN ALLIDINA, HEAD OF COMMODITIES AT TD ASSET MANAGEMENT. HE SAYS THAT OIL DEMAND IS ALREADY OUTSTRIPPING SUPPLY AND WE HAVEN'T EVEN HIT SUMMER DRIVING SEASON YET. AND IN TODAY'S WEB-BROKER EDUCATION SEGMENT NUGWA HARUNA WILL SHOW US HOW YOU CAN FIND COMMODITIES INFORMATION USING THE PLATFORM. AND HERE'S HOW YOU CAN GET IN TOUCH WITH US, JUST EMAIL MONEY-TALK-LIVE AT TD DOT COM OR.. FILL OUT THE VIEWER RESPONSE BOX UNDER THE VIDEO PLAYER ON WEBBROKER AND BEFORE WE GET TO OUR GUEST TODAY LET'S GET YOU AN UPDATE ON THE MARKETS It's a bit of a choppy trade out there, the TSX hasn't been able to find its way out of negative territory. About $111 a barrel right now. A setback of 5%. It is waving on the energy in Toronto. … Deficit of 115 points or more than half a percentage. Among the most actively traded names or the big energy companies. Let's show you what's happening with Crescent point among other names. They will mostly show you the same thing pretty much as 6% percentage down right now. Check out that broader read of the S&P 500, flipping in and out of positive and negative territory after yesterday's selloff. We had a lot of central-bank action this week. The Bank of Japan, though, didn't give us anything to worry about after Swiss Bank caught us offguard yesterday on the heels of the Fed. Right now the S&P down modestly of 2 1/2 points. Check out the NASDAQ. Actually in positive territory right now. This is been a very tough space to be in recently. A big jump in the shares. A lot of speculation bouncing around as to the future of Revlon as they try to reorganize and get the company back on track. Of course this is considerable pressure recently. Well off of its recent highs. And let's check out the US dollar and see what's happening there. Quite a pullback in the DX Y which measures the strength… Quite a terror recently. Right now a setback against that basket of currency to the tune of 1 1/2%. We know the high price of oil is been a major driver of inflation. , AND WHILE WE'VE SEEN IT LOSE SOME STEAM DUE TO LOCKDOWNS IN CHINA AND GROWTH CONCERNS, OUR FEATURE GUEST SAYS DEMAND IS ALREADY OUTSTRIPPING SUPPLY AND WE'RE NOT EVEN INTO THE SUMMER DRIVING SEASON YET. FOR MORE WE'RE JOINED BY HUSSEIN ALLIDINA, HEAD OF COMMODITIES AT TD ASSET MANAGEMENT. >> Great to see you Hussein. A lot of pundits are saying you don't wrestle inflation down until you can see a break in energy prices. The tray can be choppy from day to day. What mechanics of the market? Can people expect a relief? >> Sure Greg, thanks for having me. I think if we look at where we've come from the lows of the crisis in 2020, imageries have been drawing pretty consistently over the course of the last 16 months and for the better part of this year. Industries have also drawn, notwithstanding, the fact that the US government has been releasing from their reserves. When I look at where we are headed over the course of the Summer with the balances, as you mentioned typically the gas demand does increase seasonally and globally demand is increasing between two and 4 million barrels a day from May until the end of the Summer. I look at the supply side again, I am already in deficit as referenced by drawing imageries. The supply size is not going to increase. Maybe we get a million barrels a day of growth. I have a deficit today and one that grows over the course of the Summer and my starting point for inventories is tight and I think we get even tighter over the course of the Summer. Your question about relief, I think, you need to see material contraction in demand. A material contraction in growth before I am able to get my demand lying below my supply line. That is the only point where I get relief. I don't see that happening in the midterm. That only comes in a scenario that none of us want to see either. Our recession. >> That's right. If we look at oil demand historically, there is only a couple of episodes in the last 20 or 30 years where demand has actually contracted around the pandemic, when the world stopped, we had oil demand go negative. During the financial crisis of 2008, we had oil demand go negative. Between 1990 and 2022 we've had people, periods of weak growth. … If you want the economy to grow, you need to use oil. So the said posturing to reduce growth, if we want to actually see oil demand reduced meeting Lee, we need to see a meaningful contraction of GDP notwithstanding the fact that the World Bank have been reducing the GDP forecast. There are still numbers that point the positive oil demand growth which means still tighter balances. >> There might be a school of thought out there that says "okay if we see a sustained demand, you simply just wait for the next meeting and watch them increase the met amount of barrels they want to pump. " There are sceptics out there at well us to that line of thinking. Walk me through that. >> Let me just back up before we talk about OPEC. We have to remember that we have come through a period of 10 to 12 years into 2022 of weak commodity prices. That barrel market and commodity is following the peak around the financial crisis. To discourage any investment. OPEC or not. We are coming out of a period, a ten-year period of underinvestment. Tight supply. We can see the tight supplies that are expected in oil, copper and aluminum. Over the course of three, five, seven years. There is a dearth of supply coming online. Am I going to get relief from not OPEC? There's not a type of incremental production expected. And to your point, there is a lot of discussion and debate around the capacity. We can stay away from that discussion for a second and just look at what the producers have been doing relative to their quotas. On average, OPEC has been producing under what they are allowed or prescribed to produce. So that should talk a little about the amount of spare capacity that is there. Most estimates that I have seen post going to spare capacity of maybe 2 million barrels a day or so a day. … Even if we are able to produce those levels, the market, Greg is 100 million barrels a day. We are talking a capacity of maybe one or 2,000,000 1/2 barrels a day. It's not a margin of safety that leaves me comfortable for sure. >> Another argument saying we would not be in this situation of prices had it not been for the Russia/Ukraine conflict. Is that too simplistic a take on the market? >> Russia, obviously a very large producer of oil and natural gas to Europe and parts of Asia. I think the importance when we look at the numbers is that the actual disruption in Russian volumes has been relatively muted. I think those volumes will decrease as the year progresses. A lot of larger commodity trade has a subset "local, we have existing contracts with Russia that where that on a three year end. We are not going to be incremental." I think you will see Russian volumes fall even further. The actual drop in Russian volumes to date has been relatively muted. Russia, not sending as many cargoes to Europe. Ultimately those cargoes are making their way to China and India. It takes a lot longer. It takes 30 days to get to Europe to China versus three days to get from Russia to parts of Europe. So there is a bit of supply that is been impacted because of that. But we haven't seen, I think, the magnitude of declines that are likely, as time progresses in this conflict continuing. >> You have been talking about for the market… What can we expect in terms of the price for a barrel of West Texas… Going forward what is the range? A reasonable range? >> It's really hard. When I look at the summary that landscape where demand is increasing and supply is not increasing as much and given how tight imageries are, I think there is a real risk that prices could see new highs this Summer. Let the prior highs we saw was 147 and change. I think we can go through that. Ultimately though, the concern is with the Fed tightening to 24, 36 banks having tightened or posturing towards tightening, growth is going to come under pressure. How much that growth sort of, declines or comes under pressure will ultimately dictate how sustainable the oil price is. But if I had to sort of layout, sort of the next three or four months, I think were higher. I think as we get into the winter you could see some relief but not 70 or $60 relief unless you expect growth to move into material recession. Material contraction. I don't think that's the base case right now. >> That sounds like the biggest risk right now. A base case of how the mechanics of the market work and where we are in terms of supply and demand. Our recession ultimately. Would not be great for a number of assets. >> In 2007, 2008, the fundamental balance was tight. Not as tight as it is today. But it is tight. What took the oil price materially lower, from triple digits to, you know, the 50 or 60 range was material contraction in GDP. If we see a material contraction in GDP, oil will trade down to 60 or $70 a barrel. As demand weakens or falls, in March 2020, when demand stopped, those supply constraints disappeared. The supply constraint only exist if you have demand. My base case is that demand right now is firm and even with the weaker GDP that is expected, I'm not expecting demand to fall meaningfully enough to address that supply constraint. >> Great start to the program. we will get tomorrow but a reminder that you can get in touch with us by emailing money talk. com or Phil at the viewer response box. Right now I want to give you an update on the top stories in world business and how the markets are trading. "BAUSCH HEALTH" IS SUSPENDING PLANS FOR AN INITIAL PUBLIC OFFERING OF ITS SKIN CARE BUSINESS. THE QUEBEC-BASED COMPANY SAYS THERE WAS SIGNIFICANT INVESTOR INTEREST DURING THE IPO PROCESS FOR "SOLTA MEDICAL." THAT SAID, BAUSCH IS PUTTING THE BRAKES ON THE IPO – CITING "CHALLENGING MARKET CONDITIONS." THE COMPANY SAYS "SOLTA" WILL REMAIN A PART OF "BAUSCH HEALTH" FOR NOW – WHERE IT CAN CONTRIBUTE TO REVENUE AND PROFIT AS BAUSCH WORKS ON PAYING DOWN ITS DEBT. "BAUSCH HEALTH" SPUN OFF ITS EYE-CARE BUSINESS EARLIER THIS YEAR – AND THAT IPO WAS ULTIMATELY PRICED BELOW ITS TARGET RANGE. DESIGN SOFTWARE COMPANY "ADOBE" IS LOWERING ITS EARNINGS FORECAST FOR THE YEAR. IT APPEARS ADOBE IS FACING SIMILAR CHALLENGES TO OTHER BIG SOFTWARE FIRMS – NAMELY THE EFFECT OF A STRONG U.S. DOLLAR ON REVENUE. "ADOBE" SAYS IT TOOK A $175-MILLION HIT IN THE QUARTER DUE TO FOREIGN EXCHANGE. A STRONG GREENBACK IS A CHALLENGE FOR AMERICAN COMPANIES AS THEY LOOK TO REPATRIATE OVERSEAS REVENUE INTO U.S. DOLLARS. "MICROSOFT" AND "SALESFORCE" ALSO FELT THE STING OF THE STRONG U.S. DOLLAR IN THEIR MOST RECENT QUARTERS. IT APPEARS "U-S STEEL" IS REAPING THE BENEFITS OF INCREASING DEMAND AND HIGHER STEEL PRICES. THE COMPANY NOW SEES ADJUSTED NET EARNINGS OF UP TO $3.88 PER SHARE IN THE CURRENT QUARTER. THAT'S FAR ABOVE ANALYST ESTIMATES. WHILE THE CONFLICT IN UKRAINE IS SENDING THE COST OF RAW MATERIALS HIGHER, U-S STEEL EXPECTS THOSE PRESSURE TO BE OFFSET BY HIGHER SELLING PRICES FOR STEEL. THE COMPANY IS ALSO POINTING TO WHAT IT CALLS ITS STRONG DEMAND FROM ITS "DIVERSE CUSTOMER BASE" – WHICH INCLUDES THE ENERGY MARKET. AND HERE'S HOW THE MAIN BENCHMARK INDEX IN CANADA IS TRADING… … That big pullback in energy prices today really weighing on some of the biggest energy names in Canada at this hour. South of the border, energy is weighing as well. We are flipping back and forth from positive to negative territories after today's selloff. We do have the S&P 500. Modestly in negative territory. Lots of questions already starting to come in. Let's get to the first one. Food security. What is your view on the agricultural commodities? >> … Russia Ukraine both very large producers. Breadbasket of Europe. So balances are at risk. If you look at the USDA's forecast for the coming marketing year, the coming season, they are projecting tighter than the 5 to 10 year average balances. They are assuming record yields in their forecast. Weather always presents a risk to those yields. If you look in the US, not all the corn crop is been planted. Conditions are quite warm right now so that increases the risk to the yield around pollination. There is been a reduction in the application and availability of fertilizer. I think that presents a risk as well. Commodities have been in the fair market for the better part of the last 12 years. Farmers have not been adding acreage which is different than the sort of 2002 tailed 2010. Where AG prices were increasing. There is a risk. Whether fertilizer etc., that those balances tighten even more meaningfully from here. >> Why don't we start picking up the slack in other jurisdiction? Why do Canadian markers not pick up the slack? Is it that easy? > It's not. If you're a farmer, you are maximizing the acreage. The harvestable, plantable acreage that you have. If I decide now that I want to add additional acreage, assuming I have it available, presumably I have not preset acreage historically because economics didn't make sense. Now maybe at eight dollar corner $15 means, the MathWorks. I don't just bring that acreage online overnight. You have to prepare the land. It's a shorter window than bringing a Coppermine or an oil field but it still takes a year or a year and 1/2 before you can bring acreage into play. >> When it comes in that scenario, agricultural commodities with upside and downside, it sounds like it's going to put a lot of pressure, you know, on prices. Are there any commodities that don't fare well in the agricultural space in an environment like this? >> Because energy is a material input into the production of these commodities, the inflation that you are seeing in energy prices needs to follow through to the AG prices. If a farmer is going to be incentivized plant. Ultimately, you could argue that may be caught in demand picks up because the price of man-made fibers which is all energy increase meaningfully. That might support cotton on the margin. But I don't think that any of these AG balances are safe from higher energy prices because the farmer uses diesel in her tractor when she's planting. She puts diesel into her things when she's harvesting. There is a tremendous amount of energy we don't appreciate this. We think energy is just gasoline we put in the vehicle. There is a lot of energy that goes into the production of a lot of the things that we still use. > You mention briefly the price of fertilizer. Obviously, important to agricultural commodities. We have a view over the question specifically about the conflict with Ukraine and Russia. There are understanding that Russia is a fairly significant producer of potash. How do those nutrients and crops play from there? >> You've seen fertilizer prices find support from the conflict. Canada has a wonderful opportunity. Saskatchewan is a good producer fertilizer. You will see producers of fertilizer in Saskatchewan benefit rate but those higher prices, ultimately get passed on to the farmer. Which means that that ultimately gets passed on to the livestock producer, ultimately gets passed on to you and I. > Is there a risk in the fertilizer market that things could turn around? What would change the situation where suddenly we have perhaps too much potash on the market? >> You would need to see, I think, a reintegration of Russia into the global market. Is that a risk? Sure. Is that a high probability question market doesn't feel like it today. > We have another question coming in about commodities in general. A viewer question "every time commodities shoot up, the producers ramp up supply. Every time" the viewer says. Why? Great question. Great question and very true. We provide the incentive to the producers of those commodities to make the investment to bring incremental supply online. The reason the commodity cycle exists is because the supply side is… Your example about corn wheat, higher corn/wheat prices, the easiest commodity to respond to a price because it doesn't take an extended amount of time. Attended still takes a year capital to bring production online. You are not going to get copper production for seven or 10 years. In the oil patch, you know, conventional production, again 5 to 7 years. So yes, supply should respond to the increase in price but they have lags. The idea that we are not going to use oil and 5 to 7 years, which I don't think is valid, is discouraging. So if you look at the relationship between the oil price and cap x, as the oil price goes up, the energy companies of the world respond. The oil prices going up but because of the SG and this idea that we are not going to be using oil at some point in the near future, the willingness to invest is not there and I think that points to higher prices, increased volatility and I don't think it is the right way to go about things. >> Political risk is always a big factor when we talk about investing. I guess, policy risk in terms of different administrations right? You see a different Pres. in the White House and they feel very firmly about it. You see a different government in Canada. They feel differently about energy. Can things shift quickly? Or is that not a big enough consideration what the politicians are saying? > I think in extremes, and I think we are in an extreme, policy can shift. So there is a lot of chatter in the United States about potentially waving the Jones acts. The Jones acts prevents US flagged tankers from delivering domestically. So you have problems where, for instance, you might have, you know, adequate supply of gasoline in the Gulf Coast but we are importing on the East Coast from Europe because the tankers, the US flagged tankers have to move. Policy risk is always there. I do think that in a higher commodity price environment, policy risk is elevated and I think that there is actually a possibility that the policy risk could bring more supply but the challenge, again, if you are a CEO or a board, you are making multibillion-dollar alert investments. You cannot rely on the Pres. today because that decision is not going to be lasting, necessarily. That risk is more pronounced than it has been historically because of this sort of ESG focus. Which is an important focus. My point on ESG is simply that we cannot stop investing on supplies on commodities that we still consume. We do not have substitutes. I drive to work in a gasoline vehicle. There are not enough eat the vehicles around to meet that demand. You want to buy an easy vehicle today, you are on a waiting list for 12 to 16 months. >> We will get more to the EV space and a little bit of time. As always, make sure to do your own research when making investment decisions. We want to get back to those questions. A reminder that you can get in touch with us any time if you email moneytalklive@td.com. Now let's get to her educational segment. THE COMMODITY MARKETS CAN MOVE VERY QUICKLY… BUT WEBBROKER CAN HELP YOU STAY ON TOP OF THE LATEST DEVELOPMENTS. HERE WITH MORE ON THAT IS NUGWA HARUNA, SENIOR CLIENT EDUCATION INSTRUCTOR AT TD DIRECT INVESTING. SO NUGWA, HOW CAN I USE WEBBROKER TO TRACK THE PERFORMANCE OF COMMODITIES? >> Hi Greg and thank so much for having me. As an investor, I'm looking to diversify my portfolio or as an investor who is looking to hedge against inflation, I could explore, you know, some of these commodities that we have been talking about in web broker. So once I'm in wet broker, I would click on research. Once I click on research, I would be taking a look at the markets overview. Now, we have talked about these commodities today. It's very difficult for a retail investor to store these commodities, Greg, as you know. Almost impossible for us to store natural gas in our backyards. So one of the ways we can track the prices of these commodities would be to actually look at the near future's crisis. You were able to see that information on web broker. So you just want to scroll down. Once here, I'm able to see the features for things like energy, metals and agriculture. Now, to tell you a little bit about these prices, these are based off of contracts that are expiring on the dates that are on-screen. These contract prices are based off of things like spot price of these commodities plus the storage fees until delivery. Now, one more thing to mention is that as an investor, who may not have the opportunity to actually trade these contracts, I could take a look at essentially, at the sectors within the commodity sector. So for instance, I could take a look and see how the energy sector is performing. I can also take a look and see how many companies have advanced today and how they have seen declines in their stock prices. > All right. Interesting stuff indeed. That's where you go to get that quick price overview. Now what if I'm interested in finding out who was driving the price? Are there some potential companies to keep an eye on? >> As an investor, what I could potentially do is still take a look at some of these sectors. Once in web broker, I would click on the sector itself so I'm going to click on energy here. Once I do that, it's going to take me to a screen dedicated to just the energy sector. Starting off on the right side of my screen, I will be able to review and energy report. What this report actually tells me, it gives me an idea of what the market incentive is of this commodity. So for instance, this would be based on information of the buying and selling by the officers in these companies as well as directors. So what we would consider insider trading. That gives me an idea of the direction they feel their companies are going. If I'm also looking for specific companies, I could scroll a little further down I would be able to see the top-performing companies today. I can dig a little deeper and explore more of these. I'm going to mention one more thing that we can do with in web broker. I can click on the reports tab. If I'm looking for some more report on specific industries, then focusing on the right side of my screen, I can just scroll down and take a look at the MorningStar sector reports. Once again, I can focus on the commodities sector itself and then pull up these reports and take a look at what the analysts are projecting about the price being in these sectors. >> Interesting stuff is always Nugwa thanks for joining us. Thanks for having me. >> Nugwa Haruna, senior client education instructor at td direct investing. And now a reminder of how you can get in touch with us. 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 this screen here on web broker. Just write in your question and hit send. We will see if one of our guests can get you the answer right here at MoneyTalk Live. The issue of security is starting to affect how people view investing. What you think about that? > I think it's been very convenient to divest in energy over the course of the last 10 or 12 years. Because energy has been underperforming. As a result, a number of these ESG funds that are, frankly, focus on removing energy from their portfolios have outperformed. That has clearly changed given energy's performance in the last couple of months frankly. When I look at the energy balance, and I talked about this a little earlier, when we think about GDP and how it is produced, we still use a tremendous amount of conventional energy. I'll be the first to argue that carbon emissions are an issue and we need to do something to address them. But we cannot move away in a matter of a year or two years or five years from energy the way we know it. The way that, sort of, the global economy has been built over the course of the last 150 years. Even prior to Russia Ukraine, natural gas prices in Europe spiked to levels that are unbelievable frankly. The same is true for coal and for other commodities. So ultimately, I think there is a bit of a rethink. We should clearly continue… There is a material social impact associated with energy prices moving the way they have. And we feel the pain here in the developed world, in the Western world. The pain is even more pronounced in emerging markets where consumers pay a disproportionate amount of their disposable income on food and energy. So I think there is a bit of everything happening. Again, carbon emissions are an issue. We need to move in that direction but I think we can be a little bit more methodical about it and I think that rethink is what's happening right now. >> We had a discussion earlier, Hussein, about electric vehicles. I have someone sending us a question saying these metals used for EV's… Were all the talk. What you think. >> I think, the energy transition requires a tremendous amount of metals. So if I think about a renewable vehicle compared to a combustible vehicle, the amount of copper and aluminum etc. that goes into the battery alone is multiple times greater than what you see in a conventional vehicle. Not dissimilar from energy supply, metal supply has been challenged. I sound like a broken record because we have come to a period where there is been little incentive to invest provided by Price. Now if you look at the share of vehicles that are being sold today, the share of vehicles that are EV is relatively small. At 10, 12, 13%. As time progresses, that percentage of sales will grow and the amount of copper, lithium, cobalt, manganese required to make that infrastructure work is going to increase meaningfully. Today, China is still a very material consumer of these commodities. I think when we sit down and have this conversation in 2030 or 2035, the easy demand will be materially larger on the balance sheet. So ultimately, yes, EV's require not only in the battery but you need to think about power generation, the power grid which is very copper and aluminum intensive. Again, if we are moving away from conventional vehicles to renewable vehicles, we have to have the discussion around where that power is going to come from. Do we have the transmission lines and capacity for it? >> I guess there is some doubt about whether we are up to the task to provide that much power. >> If we do not address how we are generating that power, we have a problem. We saw it in Europe this year where, you know, the when reliability fell off and EV owners were asked not to charge their vehicles because there was not enough power in the grid. It's easy for us to say that we are not going to consume oil and gas because it is dirty. We have to think about the alternative and make sure that the ingredients are in place to be able to move to that alternative. We haven't done that I don't think in a wholesome way. >> Let's take a check in on the markets quickly on this last day of the trading week. It is been an eventful trading week. So let's see how things are shaking out. I want to start right here at home. The TSX comps index. 79 points. Feeling the weight of this pullback that we are seeing in crude prices today. Some of the energy names getting hit the hardest, we showed you crescent point on the top of the show. Let's check on Suncor and see how it's faring. Among the most heavily names trading on the TSX. Down to the tune of almost 6%. The S&P 500 has been jumping in and out of negative and positive territory throughout the session. We have a chance to check in. Right now we are back in positive territory with about 1/5 of a percent. It is obviously been a tough week for anyone who is been on the market. It doesn't make up for the losses. We are going to see some green on the screen. Checking in on the NASDAQ, the stocks are holding a little bit better today than the broader market. You have the NASDAQ 100 about 70 points up right now. A painful year for tech but it's always good to see a bit of a breather and see a bit of green on that screen. South of the border, we have the energy names. We're going to check on Exxon about four… That basket of international currencies measured by the DX why. Quite a run in recent weeks and months. We are going to get back your questions with TD asset management's Hussein Allidina. But first remember you can get in touch with us at moneytalklive@td.com or use the question box right below this screen here on web broker. Just write in your question and hit send. We'll see if one of our guests can get you an answer here on MoneyTalk Live. EARLIER THIS WEEK WE GOT A JUMBO 75 BASIS POINT RATE HIKE FROM THE U-S FEDERAL RESERVE. THE LARGEST MOVE SINCE 1994. AND TD SECURITIES HAS UPDATED THEIR VIEW ON WHAT WE MIGHT HEAR FROM THE BANK OF CANADA WHEN THEY MAKE THEIR RATE DECISION IN JULY. MONEYTALK'S Anthony Okolie joins us now with more. Anthony. >> TD is nothing the Bank of Canada will raise their rates 75 basis points when they meet in July. Of course this follows the Federal Reserve that just raised their bank Target rate 75 points earlier this week. Another 50 Basis Points in September and October. With the Federal Reserve's rate right now, expected to be around 4% of the rate at the end of this hiking cycle, they have adjusted their forecast as well. They expect the Bank of Canada's rates to increase 25 business points to 3. 2% by the end of the cycle. TD security also warns that this is really a sensitive time for central banks around the world. Their credibility is on the line. As well as their ability to fight inflation. So, looking ahead, they expect that inflation will still be stubbornly high as we move into the December meeting. They are expecting inflation to come in around 6% year-over-year. Now, they do expect to see some signs of a slowdown. A particular slowdown with the November jobs report as well as the November GDP flash estimate report. However, they are forecasting that the Bank of Canada will actually stop hiking after the October meeting. They actually expect to see the Bank of Canada cutting rates by the end of 2023. >> I imagine that forecast just caught the audiences attention. Not only from an investor point of view but somebody might have investor floating loans… >> A couple of assumptions. Canadian households are some of the most indebted in the advanced Western countries. So they may not be able to withstand further rate hikes above Canada's, Bank of Canada's rate of 3.25%. Bank of Canada may view a sharp slowdown in the economy as disinflationary. … >> Interesting stuff as always. Thank you Anthony. >> My pleasure. >> Money talks Anthony Okolie. … The S&P 500, every time I turn around its doing something different. Right now it's barely hanging in in positive territory. Just up one of the half points. Of course a pretty tough week. Including starting the weekend, the selloff of yesterday. Let's get back to our featured guest now, Hussein Allidina head of commodities it TD asset management. Hussein. This is a question I have had throughout my career. I used to think that I understood what goal did and why you did it in different circumstances. Why does gold perform so poorly even with the market selling off? >> That's a very good question. I would rephrase that a little bit. I think gold has actually performed remarkably well given at the strength that we have seen in the US dollar. Typically dollar strength translates into weakness in gold. Also, given the material that we have had in real rates. The increase in real rates makes the opportunity cost of holding gold more elevated. So I think gold is done well. I think, if we think about the role gold plays in a portfolio, it's a different benefit relative to commodities. Right? Commodities hedge inflation. The type of inflation we are seeing today is very commodity driven. It's activity that is pushing up the price of goods and services. So commodities are probably a better hedge for this type of inflation. If we run into an environment where there is concerns over the value of the currency or we start talking about potentially hyperinflation, gold would perform better in those environments. I do believe as well, that in 2020 and 2021, the performance of bitcoin and other sort of crypto currencies did it take some marketshare away from gold. But ultimately, I think the last 12 months and the performance of gold relative to bitcoin… I think this puts to bed the idea that they are the same asset or one as a substitute for another. Gordis a stored value. I think it has a place in the portfolio and I think it is doing remarkably well, again given the real rates and given the dollar. Maybe one last point, if we look at emerging markets in central banks, those emerging markets in central banks have increased their allocation to gold. They have seen lower volatility in their currencies. So as an investor, I think that provide some comfort that gold does have a role in the portfolio. You don't want gold from a portfolio construction point of view moving to $5000 announcer $6000 an ounce. Because that is going to have material implications and ramifications for the rest of your portfolio. Goal, I think, plays a role as a stored value. As a safe haven. And I think it's doing well given the landscape. That's a good point to help me better understand. Sometimes we watch the day-to-day market movements. Another question about sort of a fall onto our ESG discussion. A lot of debate around nuclear. Is it a green source of energy? What does it ultimately mean for uranium? What kind of conversation revolves around? > I think wind, solar, probably cleaner and definitely more renewable than nuclear. But I think we have to again position ourselves in reality. The reality is that our energy consumption, our GDP today is driven by primarily coal, natural gas and oil. Nuclear does play a role. Nuclear has gotten a very bad reputation over the course of the last several years. Fukushima etc. Ultimately, if we are going to reduce emissions, the emissions associated with nuclear are trivial compared to the emissions associated with most other forms of power generation. I believe that nuclear should form a material component of our baseload demand. Wind, solar, these are great. But only work if it's windy or sunny. You need to have baseload demand. Today that baseload generation comes from coal and to a lesser extent gas. I think we will see an increase in nuclear. I think the sentiment is changing about nuclear in Europe partially with what is happening with the conflict in Russia and Ukraine. Ultimately your question, what does that mean for uranium? Broken record… Again uranium prices have not incentivized for the last 10 or 12 years at least, the exploration and production in uranium. I think that baseload demand will grow and we will see increased uranium prices and that's something I think continues to move higher. We have another viewer asking about natural gas and perhaps, sort of discussion and hearing the impact about natural gas because of the conflict in Russia and Ukraine. Often that focuses on European natural gas prices. Is there a way we should be thinking about natural gas investors? >> The markets are linked but not as linked as oil. That has largely to do with the inability for example, to send cargoes from the US to Europe or vice versa. That is changing. The amount of LNG that the US is exporting today is at record levels. Notwithstanding the issue with Freeport energy that we are seeing. US LNG exports are north of 12, 13 BCF a day. That will continue to grow. This makes the markets more connected and will result in, I think, a more global price. The strength we are seeing in US prices today is a function of that strength in Europe and Asia and the demand for LNG that is present there given the reduction in flows from Russia. >> So we are seeing demand from natural gas and crude oil. I think in the country that we live in. We do have these products to sell to the world. Is this a positive for the Canadian energy sector? >> I think it very much is and I think we need to have a wholesale rethink of the policy that we had around energy in this country because we do have, you know, natural gas… It frustrates me when folks talk about coal, oil and gas in the same breath. Coal is materially different than gas from in emissions and carbon point of view. I think we have a phenomenal resource in Canada. I think we have governance in Canada. I think it's important for us to see our product market and I do think it's positive for… Even without incremental investment. The investment we have today will be worth more given what's happening to prices. And I do think that the US will look to Canada and the Western world will look to Canada as a supplier because we see the risks associated with relying on some of the other suppliers. > It's been a great chat. We're almost out of time. We do want to get your final thoughts for the audience about the commodity space going forward. >> I think we are in an investment phase. When I think of the commodity cycle, it's long. 25 to 30 years. Half that. We are exploring the investment we made in the prior market, the other half of the. We are looking to invest again. We are in that environment. We have come through again, 10, 12 year market. We now need to incentivize producers to roll out and invest and to deploy X. I think if you believe the global economy will grow. I know there is concerns over the course of the near term. But if you believe in GDP growth ultimately, the supply side is not responding. The GDP that we see globally is still very very dependent on those commodities. The demands that continue to grow. I need to see a supply response. Until I do, price has to limit demand. I think that's the environment we are in. >> Hussain, pleasure to have you here looking forward to the next time. >> Pleasure is all mine. >> Hussein Allidina head of TD commodities and asset management. … We often focus on the resale market but given the rising rate it will be interesting to see new places holding up as well. On Tuesday, June 21 Canadian retail sales report and then on Wednesday, June 22, this will be the big one. The Canadian inflation report. We are all living at. Stats Canada will put a number board. Here is a reminder of some of the guests we have. . That's all we have for the show today. Thanks for watching and we will see you here soon on MoneyTalk Live. (energizing music)