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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing. coming up on today's show, we are going to have a look at what the Fed's preferred inflation engages telling us about the state of consumer prices.
MoneyTalk's Anthony Okolie will dig into that. We will also hear from TD Asset Management's Colin Lynch to get his take on the health of the office real estate market.
Later on the show, the rush to regulate AI. Kevin Hebner of TD Epoch looks at grow weighing calls for guardrails to be placed on AI. In today's WebBroker education segment, Caitlin Cormier is going to show us how to get more out of the watchlist function on Advanced Dashboard.
Before we get to all that and our guest of the day, let's get you an update on the markets.
Last trading day of the week, starting on Bay Street, 12 points to the upside for the TSX Composite Index.
That is just six ticks.
. Among the the most actively traded names are Chartwell retirement residences, up about a percent. A bit off the highs of the session. 11 bucks $0.65 per share. Also some downward pressure earlier today on Next Gen. Not a lot of trading volume today so these are the two names that played out in the top 10. At nine bucks $0.65 per share for Next Gen, down about 2%.
South of the border, let's check in on the S&P 500. He continues to make new all-time highs.
Today putting another nine points on the table, benefits of a percent.
The tech heavy NASDAQ, a face of a percent the upside, seeing some downward pressure here.
It's not just the tech names that are powering the S&P 500 rally to new highs. Down 15 points or 1/10 of a percent.
Intel, this could be part of the story.
How it after the close yesterday with its report and forecast and the street is not pleased. Down almost 11%.
That's your market update.
Yet another read today on inflation south of the border.
We had a read on the US economy at this week and it all comes ahead of the next rate decision from the US Federal Reserve. It's a big one. MoneyTalk's Anthony Okolie digging into that.
Let's start with the inflation front.
>> We got the Fed's preferred personal price index which came in a +0.2% in December, in line with expectations. The year-over-year number, 2.9%, fell below 3% for the first time in two years. We are seeing some positive trends in the inflation number. The core number came in below 3% for the first time at 2.9%, versus 3.2% in November.
We are also seeing some progress in GDP growth as well.
We saw that earlier on Thursday. It rules out an annual rate of 3.2% in the fourth quarter.
Gross was pretty robust. Driven by consumer spending in the fourth quarter. That was a great report but it didn't move markets much because it's backward looking.
When he put these two components together, it adds up to a Goldilocks scenario where you are seeing strong growth but inflation while it is still elevated is slowly trending downward.
>> Thinking of Jerome Powell and the rest of the Federal open market committee members going into that today meeting, they are going to have these reports and this is what they have been looking for. Can we bring inflation under control, back to a target of 2%, without doing too much added to the economy? The data so far seems to be the Goldilocks scenario heading into that meeting.
>> It's a step in the right direction for the potential soft landing for now. When you look at the futures markets, they reflect the likelihood that the Fed will enact its first rate cut in May. It's unlikely that they are going to pull the trigger on rate cuts next week. Most analysts are expecting that they will hold.
TD Economics doesn't expect any rate cuts until at least summer so it's going to be interesting to see how they view the latest data and when we could potentially see rate cuts this year.
>> Is going to be a big one. It will land on Wednesday afternoon, after we do the show at the noon hour. But I think you will be all over it in the afternoon for our people who watch our video feeds.
>> Yes, we will have coverage on that. We will be interviewing Hafiz Noordin of TD Asset Management with a reaction by the markets as soon as we get that report.
>> Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
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.
Let's get back to the shares of Intel. Definitely under pressure today. The chipmaker's profit forecast is falling short of Wall Street expectations.
The industry on why it has seen a boom in demand for AI chips but Intel is seen as playing catch up in that space has some of their other lines of business including shows for personal computers have been hit by softer demand.
You put it all together 44 bucks and $0.20 per share, down almost 11%. Two major credit card companies in the spotlight today.
Let's start with American Express. That was a full year profit forecast ahead of the streets expectations. This is despite a fourth-quarter K. Meantime Visa beating estimates for its latest quarter, there is AMEX of about 7.4%.
Let's tell the visa story. They beat estimates for the latest quarter but they are warning of higher operating expenses and slowing payments volumes to start the year.
That stock down modestly about 1 1/3%.
Let's talk denim. The maker of Levi's jeans cutting up to 15% of its workforce in the face of slowing sales.
This news from Levi Strauss comes on the heels of a weaker than effective showing for the fourth quarter.
Let's look at the TSX Composite Index.
Modest green on the screen. Very modest, even more modest than a restart of the show. 2 1/2 points, one take to the upside. We will see how that plays out through the session. South of the border, the S&P 500 has been breaking records in terms of all-time highs this week.
It's got nine points on the table, benefits of a percent. We'll see how that plays out in the next couple of hours before the trading week closes out.
Always a lot happens in the week when you look back. It was only two days ago. The Bank of Canada holding its key rate steady at 5%. This amid concerns that underlying inflation measures are not showing sustained declines back to their target. Andrew Kelvin, head of Canadian and global rate strategy with TD Securities join us earlier in the week to discuss.
>> I don't know if that's a concern, but I do think it was the appropriate stands and the appropriate emphasis.
Governor Macklem really tried to communicate the message that the Bank of Canada believes that they have tightened sufficiently to bring inflation back to the 2% target. But just because they've hit the level that they think they need to get to to tame inflation, it doesn't mean they can just quickly go and touch 5% and turn right around. They are now going to be entering a phase where they start debating, how long do rates need to be at 5%?
They've of course held out the caveat that if inflation becomes stronger again, they could raise rates again.
And that's always the case with the central bank. But ultimately now, it's a question of, how quickly do they see that progress on underlying inflation? The most recent CPI prints we've had have shown very limited progress. The economy has slowed enough that they do believe that we will see more slack enter the economy, price pressures start to wane.
The timing for rate cuts will ultimately just depend on how quickly inflation normalizes.
And again, I would share the governor's sort of focus on underlying inflation because given the data we've seen, it doesn't appear to us that we will be looking at a reasonable discussion on rate cuts in the next meeting or two.
>> Well, let's talk about that then because the market has certain expectations. And probably, maybe around June, it might be a bit of a coin toss about when the governor has asked, he basically just said over it is premature at this point to talk about rate cuts, the conversations about how long we stay here now. Is the market getting ahead of things, or is the market sort of seeing something in the economy that gives it some sort of comfort that by the summer or the late spring, maybe we're talking about rate cuts?
>> I think the market-- because the market's weighting probabilities. And given that the Bank of Canada has really moved away from sort of credibly threatening rate hikes, the market's right to be pricing in incrementally higher probabilities of rate cuts with each successive meeting. March, there's not a lot of time between this January meeting and the early March meeting. So I think a March rate cut would need to-- would be a really significant about face for the Bank of Canada. Things we need to go very poorly very quickly to start talking about that.
And it's a fairly narrow path for April. Though by April, if you have a few downside surprises on CPI, we can be talking about that with a lot more urgency, I think. There is still a lot of the game left to play between now and the April meeting. In terms of what the market's looking for, the market will ultimately, ahead of the meeting, which Bank of Canada cuts, the market will probably have arrived at that probability. But if you want to get a more holistic view, there's about 100 basis points of easing priced in for 2024. I think that's pretty reasonable. It's just a question of when they start.
>> Let's talk about housing. The Bank of Canada itself acknowledged in today's decision that shelter costs, in their words, remain the biggest contributor to above target inflation. So a question was put to the governor, after they gave their statement, basically saying if this is what remains, and to get us back to 2% inflation, why don't you just start cutting rates and give Canadians a break? His answer was it's a little more complicated than this. I know you've been delving into this issue too.
>> So there's a few ways of thinking about this. So now, the bank said, in the monetary policy report, that they expect that shelter inflation will remain a headwind to achieving their target of 2% inflation for several years. So they're not expecting a quick normalization in shelter price inflation. They also said in the press conference opening statement that they are resolute in trying to achieve their 2% inflation target.
So if you're saying that shelter price inflation is probably going to be above 2% for more than one monetary policy cycle, for more than one or two years, and you're saying that you're going to get to 2%, you're saying that you need to see other parts of the economy see lower than 2% inflation to compensate for this sort of very stubborn, sticky shelter inflation.
Now, it isn't just shelter. The share of the CPI basket that is above 4% is above historical norms.
Normally, you'd look for that to be sort of 25% to 30% of the basket being above 4%.
That figure now is in the sort of mid-40s. So it's not just a shelter thing. The shelter component, some of the more inflationary shelter components, are filtered out of their core inflation measures, which are running about 3 and 1/2%. So shelter is the biggest contributor. This isn't just a shelter story. And moreover, their mandate is 2% inflation. Their mandate is not 2% inflation excluding shelter.
And if you just think about the arithmetic of this, if they were to target 2% at shelter inflation while acknowledging that shelter inflation is going to be above 2%, at that point, you're no longer targeting 2% inflation. And that, honestly, is not their call to make unilaterally. They have an agreement with the federal government. That is where the sort of democratic legitimacy of the Bank of Canada exerting such powerful control over the economy comes from. They have an agreement with the government. And their agreement is 2% inflation.
>> Now, of course, they made pretty clear, as you said off the top of our conversation, that the conversation around the table for them now is about, how long do we stay at these levels? We're not talking really about a hiking environment anymore. It's premature to talk about cuts. But they did say that you can't take-- they can't paint themselves in a corner and say, well, we won't hike if the world doesn't change. What could happen that would make that world change for us this year, and they would end up having to hike again?
>> You would need to see I think a lot more resilience from Canadian households than we've seen thus far. 2023 is a really poor growth year. The middle part of the year, we saw probably zero growth. Well, we saw zero growth through the middle part of the year.
We probably saw something pretty close to zero in the fourth quarter as well. So it's already 3/4 of essentially flat economic activity. And we are not looking for a big rebound in the first part of 2024.
We've seen that employment rise by one percentage point. All those things sort of point to a softening price environment in the future. If the economy were to rebound dramatically, if we were to go into the spring housing market, and that ignites the animal spirits, which just reignite a broad consumption frenzy, hypothetically-- I don't expect this will happen, but as an example, something that could happen that would cause the Bank of Canada to change tact, we need to be talking about a much more robust Canadian growth outlook.
I think a combination of stubborn inflation and slow growth is probably something that's more consistent with the Bank of Canada just staying at 5% for a prolonged period of time.
So really, for the bank to turn and have to hike, things need to be a whole lot better on Main Street.
>> Let's talk about something that often gets overlooked. I know it doesn't get overlooked by you and your team in your work. But I mean, the first paragraph of the statement is today, we held our target for the overnight rate at 5%. This is news everybody is looking for. And you feel like sometimes they jump over the fact. They say, oh, and we're continuing our policy of quantitative tightening. Are we not paying enough attention to that part of the equation?
>> So the quantitative tightening question, I think, will start to become a lot more to-- it's started to become more topical already. So the Bank of Canada, when the pandemic happened, started buying huge amounts of government bonds to lower interest rates to support the economy. They stopped buying those bonds about a year and a half ago.
They just were not buying bonds anymore. The thing is in normal times, the Bank of Canada actually is constantly buying small portions of government of Canada bond issues. They need to hold assets on their balance sheet against their liabilities.
The primary one used to be currency, bills and circulation. So they would hold government of Canada bonds and T-bills against those. And they did it in the most unobtrusive way possible. That was their goal.
They didn't want to be influencing the market. They just needed to hold these things. And then as they matured, or as the number of bills in circulation rose, they'd buy a little bit more.
The issue now is we're trying to find the new normal for the size of the balance sheet. So they've been sort of on autopilot, letting bonds mature. They fall off their balance sheet. The size of their balance sheet shrinks. They will, at some point, reach the sort of normal level of their balance sheet, which, based on the most recent speeches they've given on the topic, which were quite some time ago, they were last spring, I believe, they think that point comes in the fourth quarter of 2024 or the first half of 2025. That's their last estimate, which is an estimate.
Why this matters is because we've seen the government of Canada start to increase their bond issuance to fund deficits and a bunch of other things, investments they want to make and the like. We're probably going to see a pretty aggressive government of Canada borrowing program in fiscal '24-'25, just given bond maturities, the nature of finance, deficits that are on tap, and other things that they would like to do that aren't necessarily captured in deficits.
When the Bank of Canada starts buying bonds to stabilize their balance sheet, that will take a little bit of the pressure off the Canadian bond market. And it's sort of an awkward one for the Bank of Canada because they won't restart because they're trying to influence yields. But their balance sheet-- >> The timing's just sort of lining up.
>> And their balance sheet. And they really, really don't want to be seen as someone who is, quote unquote, "bailing out the government." They hate that framing.
But at some point, they're going to end quantitative tightening because their balance sheet will be the right level. And when their balance sheet is the right level, they will start buying government of Canada bonds again, which is something that will-- the margin impact yields.
>> That was Andrew Kelvin, head of Canadian and global rate strategy with TD Securities.
Now let's get our educational segment of the day. In today's education segment, we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. We are going to take you through how to use the watchlist feature. Joining us to help, Caitlin Cormier, client education instructor at TD Direct Investing. Take it away, I hope. You are leading the charge.
>> Absolutely. I'm going to show some features of watchlist within Advanced Dashboard. Those users of what broker will be familiar with the fact that you can add 10 securities to a watchlist with an web broker.
Advanced dashboard allows for more. Let's hop in and see what it offers.
I am on our trade tab here and I've got my watchlist set up on the left-hand side.
So what I'm going to do to start here is I'm going to go ahead and make this a little bit bigger. There's a little maximize button. Just to take up the full screen to see this particular tool. But we are going to do is create a new watchlist today.
We are going to go ahead, be original was our name, create a new watchlist.
Now to add securities to the watchlist, we are going to go ahead and type in here. Let's add a few here.
Just gonna type in, you can either type in a symbol or the name of the company, whatever you are comfortable with the or whatever you know quicker.
You can go ahead and just, as I say, put in a few symbols there. Once you have added them, you can hit the + towards the bottom to add additional or continue to type in at the top right side of the symbol.
Quite a bit that can be done just to add the securities. There's quite a bit of information across the top here that you can see about the securities once they are added to the watchlist.
You are able to get more information about them.
Another thing that's pretty neat is on the left-hand side, there are these three little circular buttons.
If I click on those, I have a drop-down menu that allows me to do a couple of things.
I could go ahead and add a symbol or open it in a chart or news. I could move it to a group.
I could go ahead and create a group.
Let's maybe put US stocks and save. And then I have a US stocks group and you can see Tesla is over to the right a little bit there.
I will add it to that particular group. Now I can go ahead and choose all of my US stocks and add them to that group and you will see it's just a little bit more organized. I can grab Suncor, it's Canadian, and put it was my Canadian stocks.
Lots of customization. You can buy and sell from here.
There's a lot that can be done simply by clicking on those three dots to the left-hand side and moving things around to get things organized.
>> That's what I like, when I'm on the platform, I like to customize things. How deep can I go?
>> Absolutely. Customization is a key feature of this platform.
Let's talk even more about the customization that can happen.
We can notice here along the top of these watchlist, we have all of these different metrics.
We've got Canadian, price, price change, a lot of different information. For some traders, maybe it's too much.
As you can see, we can scroll and there's quite a bit available. There is a drop-down menu that says templates.
There are a few different options you can choose.
You could go with a more basic option. But if you are like Greg and you want to get customized, you can go to this top left-hand menu, the hamburger menu, and I can go ahead and click manage templates.
Here I can actually go ahead and either create my own template, click new, super original with our names, create my own custom, and it's just going to start with nothing so I can simply go ahead. If there something in particular looking for, I can search for it.
Otherwise, I can choose what I would like to add. Let's say I want my bid and ask, the dividend date, market capitalization.
You can choose a few different things here. Maybe the volume.
Let's add one more there. So I have all of these and maybe I want my quote trend up a little higher, I can highlight it and move it up in my information here.
Maybe dividend date is less important. Once I am done and ready and everything looks okay, I can go ahead and exit out of my template and now in order to get the template in, I just have to simply click my templates again and choose the January 1.
And I can see that here. So it is a lot of customization that can be done. Even if I make a decision after the fact that maybe I do want the dividend payment up higher, I can move things around in here.
Lots of things can be customized.
As I mentioned previously, that is a bigger sized view.
Maybe this is a little better once I get my screen back to its normal size, I can fit everything without having to scroll left and right and maybe that's the perfect customization for me.
>> Great stuff as always, Caitlin. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Let's talk real estate. The office vacancy rate in Toronto has been pushing higher recently. According to Colin Lynch, head of global real estate investments add TD Direct Investing, if you look beyond Canada's largest city, there are some signs of strength. He joined me earlier to discuss.
>> So we can start in the center of the universe, as described. Toronto is an interesting market because Toronto has many portions to that market. We've got the downtown financial core. We've got Bloor Street, which is to the north, further to the North. You've got St.
Clair, Eglinton, North York Centre, right? Just five or six nodes just along one street, before you go further east or west along King Street East or King West, before you get to places like Scarborough Center, Mississauga Centre, Vaughan-- so, lots going on.
But you're right. The vacancy is up but not uniformly.
And different places are experiencing different things.
One of the stronger places that we have seen has been around the Yonge and St. Clair node, as an example-- traditionally, not the first place you would look at office. But what you do see is great strength around that node. So you have really affluent communities, a lot of new things moving into that area. Think restaurants and a lot of vitality.
You know, Bloor Street's being a little bit more challenged-- and particularly, the concourse that runs from Bloor and Yonge over to Bay and Yonge. But it really has been a building-by-building story on that street. Come further south, into the financial core-- >> Where we're sitting right now.
>> Precisely. And I'd still say-- so, there's two pieces to that story. One piece has to be about quality. And like every period of economic dislocation-- and I put what we are living through still into that bucket, even though we had COVID, which, obviously, was a big impact-- nevertheless, there is a flight to quality.
So if you are a tenant and you were in a class B space-- so, a little bit older, a little bit less shiny and newer, a little bit less well transit-connected, not as great from an environmental, social, governance perspective in terms of-- call it energy efficiency-- but you're paying this rent, and now you've got an opportunity to move into a brand-new building with great amenities that's right connected to a subway station, or a Union station here in Toronto, guess what. You'll do that. And so we are seeing that, which is called the flight to quality.
But that being said, there are still buildings, even in the downtown financial core, that don't fit that new-generation, shiny, new building that's really well transit-connected.
And those buildings are struggling. And we are seeing vacancy rise significantly more in those buildings. So there is a flight-to-quality dynamic. And we see that in every economic period.
We are, however, shifting from vacancy to actual physical occupancy, seeing tick-ups in physical occupancy. It's slow, but we have been seeing this since late 2021. And it's a steady and gradual sort of tick-up, not so much on Tuesdays, Wednesdays, Thursdays in the core because there, we are not completely at normal, but we are sort of in the approximate range of normal. It's more on the Mondays that we're actually seeing a little bit of tick-up there.
So all to say, we are solidly in the hybrid-work environment. I don't think we're moving from that. But the nature of that work, in terms of the number of days in the office on average, is still slowly adjusting.
And that's the center of the universe.
>> By the center of the universe-- my field of research, which simply means taking the train in every day-- I did notice, on a Monday morning, I'm always like, I'm not worrying about getting a seat. I'm going to get a seat. Today, I was like, there's a few people on the platform. I'm still going to get a seat, but there's a few more people here. So that's Toronto.
You've talked about the hybrid-work arrangement sort of taking hold. What about moving out of the big cities?
We start going across the country. Is there still that reticence to return to the office? Or are we seeing a bigger pick up?
>> Yeah, it's a really interesting question because a lot of times, we tend to focus on Toronto, or on Montreal, or even on Ottawa. And of course, they're in our national consciousness. We think very heavily on those cities because they're large and big.
We forget to realize that there are other cities.
And cities like Winnipeg, and Saskatoon, and Regina.
There are cities like Calgary and Edmonton. There are cities like Halifax and St. John's. And there, we are actually seeing a lot more pronounced return to the office. So in places like Regina and Saskatoon, most people are in the office between four and five days a week. In places like Winnipeg, it's close to four to five days a week. In places like Calgary and Edmonton, it's somewhere between three to four days a week on average.
And so we measure these things on the basis of hours in the office per week. And the max is about 37.5 because-- allowing for half an hour every day for lunch out of the 40-hour work week.
>> What do we think is going on there? They like the coffee in the office? Why do they want to be in the office?
>> You know, I'm tempted to think about the coffee.
And I'm sure the coffee's amazing.
>> And the amenities.
>> Yeah, the key thing is, actually, commute times.
So the commute, in a place like Saskatoon and Regina, might be a 10-minute drive, whereas in Toronto, a 10-minute commute, for many people, would get you, maybe, 5% of the way there, to your office.
>> That would be a dream. 10 minutes would be a dream.
>> Yes. So that's a very big driver. The smaller centers have better commutes in general. And so, therefore, the barriers to getting into the office are much lower in some of those smaller centers. What does that mean? More people in the office. And what we see, from a vacancy perspective, a leasing perspective, and the general sentiment on the office, is much more optimistic in some of those smaller centers than it is in the big, large centers, like a Toronto, or a Ottawa, or a Montreal.
In Vancouver, we still have a bit of hybrid, for sure.
But even there, for a different reason, we have a lot more people living amidst office towers. So a lot more people don't have materially large commutes in Vancouver. So we actually do see a bit more return to the office in Vancouver there, as well.
>> Fascinating dynamics. This is also-- if this year plays out as the pundits have said, as the markets are betting-- will be the year of rate cuts, finally, that-- people have been waiting for that from the central banks. When they do-- if they do come, what kind of effect could that have on office?
>> Well, that's another great question. Certainly, we expect that the rate cuts will generally be positive for office valuations. The question is, why are the rate cuts coming, right? So if the rate cuts are coming because we have severe economic dislocation, that's generally, historically, not great for the office because, again, office, like the other property types, serves economy. So if there's less jobs and less people working at different companies, that's certainly not good.
There is a school of thought that says, however, if there's severe economic dislocation, folks will be more incentivized to come physically into the office.
>> Show the face. Show the face.
>> So we've never seen that dynamic in the past. So it's hard to really quantify and measure that. But there is a very large school of thought that believes that that would be the case. But let's say hard landing is off the table, and we have rate cuts because we are having, generally, a softer landing, which means-- whether it's tepid job growth or flat job growth.
So if that is the scenario, then from a capital-valuation perspective, certainly, it's a positive for the office sector, like it is for the other sectors in real estate and largely because, if we step back from that, investors into real estate have many things to choose to invest in, not just real estate. They can choose public stocks. And they look at things like dividend yields and earning yields, and they look at bonds, and they look at yields off bonds.
So if rates are coming down, that almost makes the bar for competition for real estate lower, which means that, for well-performing offices that are producing income and, therefore, cash flow, that becomes more attractive for investors looking for yield. So certain offices will perform much better.
There will still be challenge to office. Regardless of whether rates come down by 100 basis points or 200 basis points, at the end of the day, if income is really low, then valuations will still be quite low because income is low. So you still need to look at, what is the fundamentals of that office? And, what is the leasing in that office? What is the rental rates in those offices?
And not to go into too much detail, but there's-- call it gross or top-line rents. And then there's the actual rent that tenants are paying-- because they tend to get incentives.
And when you have economic dislocation, those incentives become larger and larger, which means that even though the top-line rent is constant, the actual rent the landlord's receiving is going down. So you have to look at that dynamic as well. And for buildings that are challenged, that dynamic is a lot more present than for buildings that are less challenged.
So even in a declining-rate environment, it helps the office sector, generally. But you really do have to look at, what is the quality of the offices that you're investing in? It still matters.
>> That was Colin Lynch, head of global real estate investment trust TD Asset Management.
Now, for an update on the markets.
All right. Let's get back into TD's Advanced Dashboard.
This time, we are going to take a look at the heat map function, it gives you a view of the market movers. We are screening to the TSX 60 by Price and volume.
It's a real mixed bag today.
Shopify is standing out in the upper corner, up about 1.6%. Not a lot going on in the heavyweight categories, including the financials and energy on a bit of weakness in tech today, down about 2%. All in all, not all that much to write home about.
South of the border, let's check in on the S&P 100. The S&P 500 has been making record highs this week.
Let's see if it makes more games today. You have some to the downside. Intel disappointing the street with its latest quarterly results and its forecast going forward. Intel is down more than 11% rate no. But you do have AXP, American Express up in the right hand corner and that's up about 6.8%. The street light footed heard in terms of what they think this year could bring in terms of credit card activity.
You can get more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
One of the dominant themes to emerge from this year this world economic forum in Davos was artificial intelligence and how to regulate it. It was a testament of AI's rise and its potential impact on literally everything. That led to calls to increase regulation in the space.
Earlier, MoneyTalk's Kim Parlee spoke with Kevin Hebner, global investment strategist at TD Epoch.
>> We already know that AI tends to hallucinate sometimes, that there's bias with it, that there's some privacy concerns, for example, with facial recognition.
There's copyright issues. There's a big lawsuit between OpenAI and New York Times right now. And there's also some more insidious things that could happen. It could be that you use AI to create different types of bioweapons. It could be used to have an AI-created cyber attack, for example.
So there's a host of reasons. And this is true with any new technology. There's some benefits, and also, there's some potential harms. And the idea is to put a regulatory framework in place so that you can get the benefits but without too many of the harms coming through.
>> Which we'll talk about whether that's possible and in terms of how that's put together. Maybe we could start with what's been done so far. What are, I'll say, the nascent regulations that have been put in place?
>> Yeah, so there's been a US Executive Order that came through on October 30. It was 100 pages. It affects 50 agencies. There's 150 rules. It's pretty enormous.
There's a question as to whether President Biden has the constitutional authority to do what he did. And I do think that is questionable.
But it's so amorphous and the technology is so early days, it's not really clear those regulatory actions will have a big effect. Probably the most important feature of that is that if an AI model is sufficiently big, so GPT-4 or larger, that the company promoting that has to do red testing, red team testing. So that was-- you'd have a-- >> What is red team testing?
>> So you have an independent team within your company.
And you come in, and you try to see if the model will do bad things if prompted aggressively enough. So will it have bias? Will it violate privacy? Will it create a cyber weapon or a bio weapon, things like this? And then you report those results to the federal government. So that is a requirement that all the major platforms have been signed on to. And that's probably the most important impact of the Executive Order.
>> So I think, when you describe the potential-- I mean, this is the thing. When something has exponential potential in pretty much every industry and every direction, I think that to use the phrase, and I think this phrase was tried to be used by Bill Gates when he was at Davos talking about Wayne Gretzky, "skate to where the puck is going," well, the puck's going everywhere in all directions. So how on earth do you even get your head around how to do-- how to manage this?
>> Yeah, so I think it's a good metaphor. So you skate to where the puck is going. You want to regulate to where the technology is going. We have no idea where the technology is going. And if you think even 15 months ago, when we were thinking about AI, we thought, first of all, it would affect sort of blue-collar different types of physical activities and then maybe white-collar knowledge workers and then, finally, creative.
But just in 15 months, that's been turned upside down.
It's going after creative people-- writers, coders, artists, composers, some knowledge workers, people in the banking sector, and so forth. And then it looks like blue-collar physical workers will be-- >> Protected.
>> Yeah. So even in 15 months, our understanding of how AI is going to play out has been totally changed. And Sam Altman, head of OpenAI, and just about everyone else agrees that, as with every new technology we've had over the last 500 years, you really have no clarity for a long time how it's going to play out. And so to regulate for where the puck is going, it strikes me as quite premature.
>> So you mentioned that regulation has been around to help grow industries, I'll say, responsibly for a long time. And you cited, even in your report, talking about railroads and those types of things. So let's just pretend that the same frameworks could apply here. What are some of the challenges, I would say, for doing this? And what are there-- I think there's three common mistakes you talk about that can be made.
>> Yeah. And so if you look at the history of industry regulation in the US, initially with railways around 1870, then automobiles, airplanes, nuclear power, and so forth, typically, there's a lag of about 10 to 20 years from when you get a commercially viable product until you get a regulatory framework. And so we've had the first commercially viable product a couple months ago. So I think things are quite early.
So one type of error would just be to move too early before it's clear what the product's going to be. A second error is that you create a regulatory framework which benefits the incumbents and really entrenches incumbents. So right now, there's very little AI expertise in the federal government in Canada or the United States or anywhere. So the people coming up with the details on the rules will be the industry. And those will be to favor themselves and keep out up and coming companies that could threaten their position.
And then a third is that you do put in place a set of regulatory rules. And it becomes hard and fast. And it both prevents you from receiving the benefits of the new technology, but also doesn't do anything to reduce the harms. And so you get sort of the worst of both worlds. And looking at the history of technology over the last 150 years, there's lots of examples of each of those three errors being made.
>> I want to ask you about a couple of charts that you have in the report. The first one is showing the total private investment in AI. This is in billions of dollars we're showing.
When you bring this up, why is that important? What is notable about this?
>> Yeah. So I think in terms of US exceptionalism, US has dominated the computer age, the internet age, the iPhone age, the cloud. And now it looks like the US will continue to dominate in the AI age. And it's not because Americans are inherently smarter. I think we all know that's not true. And in fact, many of the people leading the developments and leading the companies are not Americans. But America has a number of advantages.
One is the VC ecosystem. So there's lots of funding.
There's lots of private investment, as this chart shows. A second advantage is a very light regulatory touch. So in terms of the trade-off between innovation and safety, America will tend to favor innovation, where places like Europe will tend to favor safety. So it does look like this will continue to be a US-centric, which often means a California-centric, technology.
>> And at the same time, we've got a chart here where you're showing the AI's exponential growth. This chart is amazing and scary all at the same time.
>> Yes. And I think it gets scary when you think of the number of parameters in these models.
And that is just unstructured data. You go to unstructured data. You go to images. You go to videos.
The amount of data is going to be growing 100 fold, 100 fold, and 100 fold. And so models get bigger and bigger. We go from 7 billion parameters to 100 billion parameters beyond.
And the amount of compute and the expense to run these things, it means that it's going to be a very small number of companies dominating. And that will probably be, in terms of platforms, three to four, similar to what we've had with the internet, the cloud, iPhone, and so forth.
>> That was Kevin Hebner, global investment strategist Ed TD Epoch speaking with our Kim Parlee.
As always, make sure you do your own research before making any investment decisions.
stay tuned for Monday show.
Hiren Amin, Senior client education instructor with TD Direct Investing will be our guest, answering your questions about the web a platform.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all the time have to show today, on behalf of me, Anthony and everybody behind the scenes, thanks for watching.
We will see you Monday.
[music]
MoneyTalk's Anthony Okolie will dig into that. We will also hear from TD Asset Management's Colin Lynch to get his take on the health of the office real estate market.
Later on the show, the rush to regulate AI. Kevin Hebner of TD Epoch looks at grow weighing calls for guardrails to be placed on AI. In today's WebBroker education segment, Caitlin Cormier is going to show us how to get more out of the watchlist function on Advanced Dashboard.
Before we get to all that and our guest of the day, let's get you an update on the markets.
Last trading day of the week, starting on Bay Street, 12 points to the upside for the TSX Composite Index.
That is just six ticks.
. Among the the most actively traded names are Chartwell retirement residences, up about a percent. A bit off the highs of the session. 11 bucks $0.65 per share. Also some downward pressure earlier today on Next Gen. Not a lot of trading volume today so these are the two names that played out in the top 10. At nine bucks $0.65 per share for Next Gen, down about 2%.
South of the border, let's check in on the S&P 500. He continues to make new all-time highs.
Today putting another nine points on the table, benefits of a percent.
The tech heavy NASDAQ, a face of a percent the upside, seeing some downward pressure here.
It's not just the tech names that are powering the S&P 500 rally to new highs. Down 15 points or 1/10 of a percent.
Intel, this could be part of the story.
How it after the close yesterday with its report and forecast and the street is not pleased. Down almost 11%.
That's your market update.
Yet another read today on inflation south of the border.
We had a read on the US economy at this week and it all comes ahead of the next rate decision from the US Federal Reserve. It's a big one. MoneyTalk's Anthony Okolie digging into that.
Let's start with the inflation front.
>> We got the Fed's preferred personal price index which came in a +0.2% in December, in line with expectations. The year-over-year number, 2.9%, fell below 3% for the first time in two years. We are seeing some positive trends in the inflation number. The core number came in below 3% for the first time at 2.9%, versus 3.2% in November.
We are also seeing some progress in GDP growth as well.
We saw that earlier on Thursday. It rules out an annual rate of 3.2% in the fourth quarter.
Gross was pretty robust. Driven by consumer spending in the fourth quarter. That was a great report but it didn't move markets much because it's backward looking.
When he put these two components together, it adds up to a Goldilocks scenario where you are seeing strong growth but inflation while it is still elevated is slowly trending downward.
>> Thinking of Jerome Powell and the rest of the Federal open market committee members going into that today meeting, they are going to have these reports and this is what they have been looking for. Can we bring inflation under control, back to a target of 2%, without doing too much added to the economy? The data so far seems to be the Goldilocks scenario heading into that meeting.
>> It's a step in the right direction for the potential soft landing for now. When you look at the futures markets, they reflect the likelihood that the Fed will enact its first rate cut in May. It's unlikely that they are going to pull the trigger on rate cuts next week. Most analysts are expecting that they will hold.
TD Economics doesn't expect any rate cuts until at least summer so it's going to be interesting to see how they view the latest data and when we could potentially see rate cuts this year.
>> Is going to be a big one. It will land on Wednesday afternoon, after we do the show at the noon hour. But I think you will be all over it in the afternoon for our people who watch our video feeds.
>> Yes, we will have coverage on that. We will be interviewing Hafiz Noordin of TD Asset Management with a reaction by the markets as soon as we get that report.
>> Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
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.
Let's get back to the shares of Intel. Definitely under pressure today. The chipmaker's profit forecast is falling short of Wall Street expectations.
The industry on why it has seen a boom in demand for AI chips but Intel is seen as playing catch up in that space has some of their other lines of business including shows for personal computers have been hit by softer demand.
You put it all together 44 bucks and $0.20 per share, down almost 11%. Two major credit card companies in the spotlight today.
Let's start with American Express. That was a full year profit forecast ahead of the streets expectations. This is despite a fourth-quarter K. Meantime Visa beating estimates for its latest quarter, there is AMEX of about 7.4%.
Let's tell the visa story. They beat estimates for the latest quarter but they are warning of higher operating expenses and slowing payments volumes to start the year.
That stock down modestly about 1 1/3%.
Let's talk denim. The maker of Levi's jeans cutting up to 15% of its workforce in the face of slowing sales.
This news from Levi Strauss comes on the heels of a weaker than effective showing for the fourth quarter.
Let's look at the TSX Composite Index.
Modest green on the screen. Very modest, even more modest than a restart of the show. 2 1/2 points, one take to the upside. We will see how that plays out through the session. South of the border, the S&P 500 has been breaking records in terms of all-time highs this week.
It's got nine points on the table, benefits of a percent. We'll see how that plays out in the next couple of hours before the trading week closes out.
Always a lot happens in the week when you look back. It was only two days ago. The Bank of Canada holding its key rate steady at 5%. This amid concerns that underlying inflation measures are not showing sustained declines back to their target. Andrew Kelvin, head of Canadian and global rate strategy with TD Securities join us earlier in the week to discuss.
>> I don't know if that's a concern, but I do think it was the appropriate stands and the appropriate emphasis.
Governor Macklem really tried to communicate the message that the Bank of Canada believes that they have tightened sufficiently to bring inflation back to the 2% target. But just because they've hit the level that they think they need to get to to tame inflation, it doesn't mean they can just quickly go and touch 5% and turn right around. They are now going to be entering a phase where they start debating, how long do rates need to be at 5%?
They've of course held out the caveat that if inflation becomes stronger again, they could raise rates again.
And that's always the case with the central bank. But ultimately now, it's a question of, how quickly do they see that progress on underlying inflation? The most recent CPI prints we've had have shown very limited progress. The economy has slowed enough that they do believe that we will see more slack enter the economy, price pressures start to wane.
The timing for rate cuts will ultimately just depend on how quickly inflation normalizes.
And again, I would share the governor's sort of focus on underlying inflation because given the data we've seen, it doesn't appear to us that we will be looking at a reasonable discussion on rate cuts in the next meeting or two.
>> Well, let's talk about that then because the market has certain expectations. And probably, maybe around June, it might be a bit of a coin toss about when the governor has asked, he basically just said over it is premature at this point to talk about rate cuts, the conversations about how long we stay here now. Is the market getting ahead of things, or is the market sort of seeing something in the economy that gives it some sort of comfort that by the summer or the late spring, maybe we're talking about rate cuts?
>> I think the market-- because the market's weighting probabilities. And given that the Bank of Canada has really moved away from sort of credibly threatening rate hikes, the market's right to be pricing in incrementally higher probabilities of rate cuts with each successive meeting. March, there's not a lot of time between this January meeting and the early March meeting. So I think a March rate cut would need to-- would be a really significant about face for the Bank of Canada. Things we need to go very poorly very quickly to start talking about that.
And it's a fairly narrow path for April. Though by April, if you have a few downside surprises on CPI, we can be talking about that with a lot more urgency, I think. There is still a lot of the game left to play between now and the April meeting. In terms of what the market's looking for, the market will ultimately, ahead of the meeting, which Bank of Canada cuts, the market will probably have arrived at that probability. But if you want to get a more holistic view, there's about 100 basis points of easing priced in for 2024. I think that's pretty reasonable. It's just a question of when they start.
>> Let's talk about housing. The Bank of Canada itself acknowledged in today's decision that shelter costs, in their words, remain the biggest contributor to above target inflation. So a question was put to the governor, after they gave their statement, basically saying if this is what remains, and to get us back to 2% inflation, why don't you just start cutting rates and give Canadians a break? His answer was it's a little more complicated than this. I know you've been delving into this issue too.
>> So there's a few ways of thinking about this. So now, the bank said, in the monetary policy report, that they expect that shelter inflation will remain a headwind to achieving their target of 2% inflation for several years. So they're not expecting a quick normalization in shelter price inflation. They also said in the press conference opening statement that they are resolute in trying to achieve their 2% inflation target.
So if you're saying that shelter price inflation is probably going to be above 2% for more than one monetary policy cycle, for more than one or two years, and you're saying that you're going to get to 2%, you're saying that you need to see other parts of the economy see lower than 2% inflation to compensate for this sort of very stubborn, sticky shelter inflation.
Now, it isn't just shelter. The share of the CPI basket that is above 4% is above historical norms.
Normally, you'd look for that to be sort of 25% to 30% of the basket being above 4%.
That figure now is in the sort of mid-40s. So it's not just a shelter thing. The shelter component, some of the more inflationary shelter components, are filtered out of their core inflation measures, which are running about 3 and 1/2%. So shelter is the biggest contributor. This isn't just a shelter story. And moreover, their mandate is 2% inflation. Their mandate is not 2% inflation excluding shelter.
And if you just think about the arithmetic of this, if they were to target 2% at shelter inflation while acknowledging that shelter inflation is going to be above 2%, at that point, you're no longer targeting 2% inflation. And that, honestly, is not their call to make unilaterally. They have an agreement with the federal government. That is where the sort of democratic legitimacy of the Bank of Canada exerting such powerful control over the economy comes from. They have an agreement with the government. And their agreement is 2% inflation.
>> Now, of course, they made pretty clear, as you said off the top of our conversation, that the conversation around the table for them now is about, how long do we stay at these levels? We're not talking really about a hiking environment anymore. It's premature to talk about cuts. But they did say that you can't take-- they can't paint themselves in a corner and say, well, we won't hike if the world doesn't change. What could happen that would make that world change for us this year, and they would end up having to hike again?
>> You would need to see I think a lot more resilience from Canadian households than we've seen thus far. 2023 is a really poor growth year. The middle part of the year, we saw probably zero growth. Well, we saw zero growth through the middle part of the year.
We probably saw something pretty close to zero in the fourth quarter as well. So it's already 3/4 of essentially flat economic activity. And we are not looking for a big rebound in the first part of 2024.
We've seen that employment rise by one percentage point. All those things sort of point to a softening price environment in the future. If the economy were to rebound dramatically, if we were to go into the spring housing market, and that ignites the animal spirits, which just reignite a broad consumption frenzy, hypothetically-- I don't expect this will happen, but as an example, something that could happen that would cause the Bank of Canada to change tact, we need to be talking about a much more robust Canadian growth outlook.
I think a combination of stubborn inflation and slow growth is probably something that's more consistent with the Bank of Canada just staying at 5% for a prolonged period of time.
So really, for the bank to turn and have to hike, things need to be a whole lot better on Main Street.
>> Let's talk about something that often gets overlooked. I know it doesn't get overlooked by you and your team in your work. But I mean, the first paragraph of the statement is today, we held our target for the overnight rate at 5%. This is news everybody is looking for. And you feel like sometimes they jump over the fact. They say, oh, and we're continuing our policy of quantitative tightening. Are we not paying enough attention to that part of the equation?
>> So the quantitative tightening question, I think, will start to become a lot more to-- it's started to become more topical already. So the Bank of Canada, when the pandemic happened, started buying huge amounts of government bonds to lower interest rates to support the economy. They stopped buying those bonds about a year and a half ago.
They just were not buying bonds anymore. The thing is in normal times, the Bank of Canada actually is constantly buying small portions of government of Canada bond issues. They need to hold assets on their balance sheet against their liabilities.
The primary one used to be currency, bills and circulation. So they would hold government of Canada bonds and T-bills against those. And they did it in the most unobtrusive way possible. That was their goal.
They didn't want to be influencing the market. They just needed to hold these things. And then as they matured, or as the number of bills in circulation rose, they'd buy a little bit more.
The issue now is we're trying to find the new normal for the size of the balance sheet. So they've been sort of on autopilot, letting bonds mature. They fall off their balance sheet. The size of their balance sheet shrinks. They will, at some point, reach the sort of normal level of their balance sheet, which, based on the most recent speeches they've given on the topic, which were quite some time ago, they were last spring, I believe, they think that point comes in the fourth quarter of 2024 or the first half of 2025. That's their last estimate, which is an estimate.
Why this matters is because we've seen the government of Canada start to increase their bond issuance to fund deficits and a bunch of other things, investments they want to make and the like. We're probably going to see a pretty aggressive government of Canada borrowing program in fiscal '24-'25, just given bond maturities, the nature of finance, deficits that are on tap, and other things that they would like to do that aren't necessarily captured in deficits.
When the Bank of Canada starts buying bonds to stabilize their balance sheet, that will take a little bit of the pressure off the Canadian bond market. And it's sort of an awkward one for the Bank of Canada because they won't restart because they're trying to influence yields. But their balance sheet-- >> The timing's just sort of lining up.
>> And their balance sheet. And they really, really don't want to be seen as someone who is, quote unquote, "bailing out the government." They hate that framing.
But at some point, they're going to end quantitative tightening because their balance sheet will be the right level. And when their balance sheet is the right level, they will start buying government of Canada bonds again, which is something that will-- the margin impact yields.
>> That was Andrew Kelvin, head of Canadian and global rate strategy with TD Securities.
Now let's get our educational segment of the day. In today's education segment, we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. We are going to take you through how to use the watchlist feature. Joining us to help, Caitlin Cormier, client education instructor at TD Direct Investing. Take it away, I hope. You are leading the charge.
>> Absolutely. I'm going to show some features of watchlist within Advanced Dashboard. Those users of what broker will be familiar with the fact that you can add 10 securities to a watchlist with an web broker.
Advanced dashboard allows for more. Let's hop in and see what it offers.
I am on our trade tab here and I've got my watchlist set up on the left-hand side.
So what I'm going to do to start here is I'm going to go ahead and make this a little bit bigger. There's a little maximize button. Just to take up the full screen to see this particular tool. But we are going to do is create a new watchlist today.
We are going to go ahead, be original was our name, create a new watchlist.
Now to add securities to the watchlist, we are going to go ahead and type in here. Let's add a few here.
Just gonna type in, you can either type in a symbol or the name of the company, whatever you are comfortable with the or whatever you know quicker.
You can go ahead and just, as I say, put in a few symbols there. Once you have added them, you can hit the + towards the bottom to add additional or continue to type in at the top right side of the symbol.
Quite a bit that can be done just to add the securities. There's quite a bit of information across the top here that you can see about the securities once they are added to the watchlist.
You are able to get more information about them.
Another thing that's pretty neat is on the left-hand side, there are these three little circular buttons.
If I click on those, I have a drop-down menu that allows me to do a couple of things.
I could go ahead and add a symbol or open it in a chart or news. I could move it to a group.
I could go ahead and create a group.
Let's maybe put US stocks and save. And then I have a US stocks group and you can see Tesla is over to the right a little bit there.
I will add it to that particular group. Now I can go ahead and choose all of my US stocks and add them to that group and you will see it's just a little bit more organized. I can grab Suncor, it's Canadian, and put it was my Canadian stocks.
Lots of customization. You can buy and sell from here.
There's a lot that can be done simply by clicking on those three dots to the left-hand side and moving things around to get things organized.
>> That's what I like, when I'm on the platform, I like to customize things. How deep can I go?
>> Absolutely. Customization is a key feature of this platform.
Let's talk even more about the customization that can happen.
We can notice here along the top of these watchlist, we have all of these different metrics.
We've got Canadian, price, price change, a lot of different information. For some traders, maybe it's too much.
As you can see, we can scroll and there's quite a bit available. There is a drop-down menu that says templates.
There are a few different options you can choose.
You could go with a more basic option. But if you are like Greg and you want to get customized, you can go to this top left-hand menu, the hamburger menu, and I can go ahead and click manage templates.
Here I can actually go ahead and either create my own template, click new, super original with our names, create my own custom, and it's just going to start with nothing so I can simply go ahead. If there something in particular looking for, I can search for it.
Otherwise, I can choose what I would like to add. Let's say I want my bid and ask, the dividend date, market capitalization.
You can choose a few different things here. Maybe the volume.
Let's add one more there. So I have all of these and maybe I want my quote trend up a little higher, I can highlight it and move it up in my information here.
Maybe dividend date is less important. Once I am done and ready and everything looks okay, I can go ahead and exit out of my template and now in order to get the template in, I just have to simply click my templates again and choose the January 1.
And I can see that here. So it is a lot of customization that can be done. Even if I make a decision after the fact that maybe I do want the dividend payment up higher, I can move things around in here.
Lots of things can be customized.
As I mentioned previously, that is a bigger sized view.
Maybe this is a little better once I get my screen back to its normal size, I can fit everything without having to scroll left and right and maybe that's the perfect customization for me.
>> Great stuff as always, Caitlin. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Let's talk real estate. The office vacancy rate in Toronto has been pushing higher recently. According to Colin Lynch, head of global real estate investments add TD Direct Investing, if you look beyond Canada's largest city, there are some signs of strength. He joined me earlier to discuss.
>> So we can start in the center of the universe, as described. Toronto is an interesting market because Toronto has many portions to that market. We've got the downtown financial core. We've got Bloor Street, which is to the north, further to the North. You've got St.
Clair, Eglinton, North York Centre, right? Just five or six nodes just along one street, before you go further east or west along King Street East or King West, before you get to places like Scarborough Center, Mississauga Centre, Vaughan-- so, lots going on.
But you're right. The vacancy is up but not uniformly.
And different places are experiencing different things.
One of the stronger places that we have seen has been around the Yonge and St. Clair node, as an example-- traditionally, not the first place you would look at office. But what you do see is great strength around that node. So you have really affluent communities, a lot of new things moving into that area. Think restaurants and a lot of vitality.
You know, Bloor Street's being a little bit more challenged-- and particularly, the concourse that runs from Bloor and Yonge over to Bay and Yonge. But it really has been a building-by-building story on that street. Come further south, into the financial core-- >> Where we're sitting right now.
>> Precisely. And I'd still say-- so, there's two pieces to that story. One piece has to be about quality. And like every period of economic dislocation-- and I put what we are living through still into that bucket, even though we had COVID, which, obviously, was a big impact-- nevertheless, there is a flight to quality.
So if you are a tenant and you were in a class B space-- so, a little bit older, a little bit less shiny and newer, a little bit less well transit-connected, not as great from an environmental, social, governance perspective in terms of-- call it energy efficiency-- but you're paying this rent, and now you've got an opportunity to move into a brand-new building with great amenities that's right connected to a subway station, or a Union station here in Toronto, guess what. You'll do that. And so we are seeing that, which is called the flight to quality.
But that being said, there are still buildings, even in the downtown financial core, that don't fit that new-generation, shiny, new building that's really well transit-connected.
And those buildings are struggling. And we are seeing vacancy rise significantly more in those buildings. So there is a flight-to-quality dynamic. And we see that in every economic period.
We are, however, shifting from vacancy to actual physical occupancy, seeing tick-ups in physical occupancy. It's slow, but we have been seeing this since late 2021. And it's a steady and gradual sort of tick-up, not so much on Tuesdays, Wednesdays, Thursdays in the core because there, we are not completely at normal, but we are sort of in the approximate range of normal. It's more on the Mondays that we're actually seeing a little bit of tick-up there.
So all to say, we are solidly in the hybrid-work environment. I don't think we're moving from that. But the nature of that work, in terms of the number of days in the office on average, is still slowly adjusting.
And that's the center of the universe.
>> By the center of the universe-- my field of research, which simply means taking the train in every day-- I did notice, on a Monday morning, I'm always like, I'm not worrying about getting a seat. I'm going to get a seat. Today, I was like, there's a few people on the platform. I'm still going to get a seat, but there's a few more people here. So that's Toronto.
You've talked about the hybrid-work arrangement sort of taking hold. What about moving out of the big cities?
We start going across the country. Is there still that reticence to return to the office? Or are we seeing a bigger pick up?
>> Yeah, it's a really interesting question because a lot of times, we tend to focus on Toronto, or on Montreal, or even on Ottawa. And of course, they're in our national consciousness. We think very heavily on those cities because they're large and big.
We forget to realize that there are other cities.
And cities like Winnipeg, and Saskatoon, and Regina.
There are cities like Calgary and Edmonton. There are cities like Halifax and St. John's. And there, we are actually seeing a lot more pronounced return to the office. So in places like Regina and Saskatoon, most people are in the office between four and five days a week. In places like Winnipeg, it's close to four to five days a week. In places like Calgary and Edmonton, it's somewhere between three to four days a week on average.
And so we measure these things on the basis of hours in the office per week. And the max is about 37.5 because-- allowing for half an hour every day for lunch out of the 40-hour work week.
>> What do we think is going on there? They like the coffee in the office? Why do they want to be in the office?
>> You know, I'm tempted to think about the coffee.
And I'm sure the coffee's amazing.
>> And the amenities.
>> Yeah, the key thing is, actually, commute times.
So the commute, in a place like Saskatoon and Regina, might be a 10-minute drive, whereas in Toronto, a 10-minute commute, for many people, would get you, maybe, 5% of the way there, to your office.
>> That would be a dream. 10 minutes would be a dream.
>> Yes. So that's a very big driver. The smaller centers have better commutes in general. And so, therefore, the barriers to getting into the office are much lower in some of those smaller centers. What does that mean? More people in the office. And what we see, from a vacancy perspective, a leasing perspective, and the general sentiment on the office, is much more optimistic in some of those smaller centers than it is in the big, large centers, like a Toronto, or a Ottawa, or a Montreal.
In Vancouver, we still have a bit of hybrid, for sure.
But even there, for a different reason, we have a lot more people living amidst office towers. So a lot more people don't have materially large commutes in Vancouver. So we actually do see a bit more return to the office in Vancouver there, as well.
>> Fascinating dynamics. This is also-- if this year plays out as the pundits have said, as the markets are betting-- will be the year of rate cuts, finally, that-- people have been waiting for that from the central banks. When they do-- if they do come, what kind of effect could that have on office?
>> Well, that's another great question. Certainly, we expect that the rate cuts will generally be positive for office valuations. The question is, why are the rate cuts coming, right? So if the rate cuts are coming because we have severe economic dislocation, that's generally, historically, not great for the office because, again, office, like the other property types, serves economy. So if there's less jobs and less people working at different companies, that's certainly not good.
There is a school of thought that says, however, if there's severe economic dislocation, folks will be more incentivized to come physically into the office.
>> Show the face. Show the face.
>> So we've never seen that dynamic in the past. So it's hard to really quantify and measure that. But there is a very large school of thought that believes that that would be the case. But let's say hard landing is off the table, and we have rate cuts because we are having, generally, a softer landing, which means-- whether it's tepid job growth or flat job growth.
So if that is the scenario, then from a capital-valuation perspective, certainly, it's a positive for the office sector, like it is for the other sectors in real estate and largely because, if we step back from that, investors into real estate have many things to choose to invest in, not just real estate. They can choose public stocks. And they look at things like dividend yields and earning yields, and they look at bonds, and they look at yields off bonds.
So if rates are coming down, that almost makes the bar for competition for real estate lower, which means that, for well-performing offices that are producing income and, therefore, cash flow, that becomes more attractive for investors looking for yield. So certain offices will perform much better.
There will still be challenge to office. Regardless of whether rates come down by 100 basis points or 200 basis points, at the end of the day, if income is really low, then valuations will still be quite low because income is low. So you still need to look at, what is the fundamentals of that office? And, what is the leasing in that office? What is the rental rates in those offices?
And not to go into too much detail, but there's-- call it gross or top-line rents. And then there's the actual rent that tenants are paying-- because they tend to get incentives.
And when you have economic dislocation, those incentives become larger and larger, which means that even though the top-line rent is constant, the actual rent the landlord's receiving is going down. So you have to look at that dynamic as well. And for buildings that are challenged, that dynamic is a lot more present than for buildings that are less challenged.
So even in a declining-rate environment, it helps the office sector, generally. But you really do have to look at, what is the quality of the offices that you're investing in? It still matters.
>> That was Colin Lynch, head of global real estate investment trust TD Asset Management.
Now, for an update on the markets.
All right. Let's get back into TD's Advanced Dashboard.
This time, we are going to take a look at the heat map function, it gives you a view of the market movers. We are screening to the TSX 60 by Price and volume.
It's a real mixed bag today.
Shopify is standing out in the upper corner, up about 1.6%. Not a lot going on in the heavyweight categories, including the financials and energy on a bit of weakness in tech today, down about 2%. All in all, not all that much to write home about.
South of the border, let's check in on the S&P 100. The S&P 500 has been making record highs this week.
Let's see if it makes more games today. You have some to the downside. Intel disappointing the street with its latest quarterly results and its forecast going forward. Intel is down more than 11% rate no. But you do have AXP, American Express up in the right hand corner and that's up about 6.8%. The street light footed heard in terms of what they think this year could bring in terms of credit card activity.
You can get more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
One of the dominant themes to emerge from this year this world economic forum in Davos was artificial intelligence and how to regulate it. It was a testament of AI's rise and its potential impact on literally everything. That led to calls to increase regulation in the space.
Earlier, MoneyTalk's Kim Parlee spoke with Kevin Hebner, global investment strategist at TD Epoch.
>> We already know that AI tends to hallucinate sometimes, that there's bias with it, that there's some privacy concerns, for example, with facial recognition.
There's copyright issues. There's a big lawsuit between OpenAI and New York Times right now. And there's also some more insidious things that could happen. It could be that you use AI to create different types of bioweapons. It could be used to have an AI-created cyber attack, for example.
So there's a host of reasons. And this is true with any new technology. There's some benefits, and also, there's some potential harms. And the idea is to put a regulatory framework in place so that you can get the benefits but without too many of the harms coming through.
>> Which we'll talk about whether that's possible and in terms of how that's put together. Maybe we could start with what's been done so far. What are, I'll say, the nascent regulations that have been put in place?
>> Yeah, so there's been a US Executive Order that came through on October 30. It was 100 pages. It affects 50 agencies. There's 150 rules. It's pretty enormous.
There's a question as to whether President Biden has the constitutional authority to do what he did. And I do think that is questionable.
But it's so amorphous and the technology is so early days, it's not really clear those regulatory actions will have a big effect. Probably the most important feature of that is that if an AI model is sufficiently big, so GPT-4 or larger, that the company promoting that has to do red testing, red team testing. So that was-- you'd have a-- >> What is red team testing?
>> So you have an independent team within your company.
And you come in, and you try to see if the model will do bad things if prompted aggressively enough. So will it have bias? Will it violate privacy? Will it create a cyber weapon or a bio weapon, things like this? And then you report those results to the federal government. So that is a requirement that all the major platforms have been signed on to. And that's probably the most important impact of the Executive Order.
>> So I think, when you describe the potential-- I mean, this is the thing. When something has exponential potential in pretty much every industry and every direction, I think that to use the phrase, and I think this phrase was tried to be used by Bill Gates when he was at Davos talking about Wayne Gretzky, "skate to where the puck is going," well, the puck's going everywhere in all directions. So how on earth do you even get your head around how to do-- how to manage this?
>> Yeah, so I think it's a good metaphor. So you skate to where the puck is going. You want to regulate to where the technology is going. We have no idea where the technology is going. And if you think even 15 months ago, when we were thinking about AI, we thought, first of all, it would affect sort of blue-collar different types of physical activities and then maybe white-collar knowledge workers and then, finally, creative.
But just in 15 months, that's been turned upside down.
It's going after creative people-- writers, coders, artists, composers, some knowledge workers, people in the banking sector, and so forth. And then it looks like blue-collar physical workers will be-- >> Protected.
>> Yeah. So even in 15 months, our understanding of how AI is going to play out has been totally changed. And Sam Altman, head of OpenAI, and just about everyone else agrees that, as with every new technology we've had over the last 500 years, you really have no clarity for a long time how it's going to play out. And so to regulate for where the puck is going, it strikes me as quite premature.
>> So you mentioned that regulation has been around to help grow industries, I'll say, responsibly for a long time. And you cited, even in your report, talking about railroads and those types of things. So let's just pretend that the same frameworks could apply here. What are some of the challenges, I would say, for doing this? And what are there-- I think there's three common mistakes you talk about that can be made.
>> Yeah. And so if you look at the history of industry regulation in the US, initially with railways around 1870, then automobiles, airplanes, nuclear power, and so forth, typically, there's a lag of about 10 to 20 years from when you get a commercially viable product until you get a regulatory framework. And so we've had the first commercially viable product a couple months ago. So I think things are quite early.
So one type of error would just be to move too early before it's clear what the product's going to be. A second error is that you create a regulatory framework which benefits the incumbents and really entrenches incumbents. So right now, there's very little AI expertise in the federal government in Canada or the United States or anywhere. So the people coming up with the details on the rules will be the industry. And those will be to favor themselves and keep out up and coming companies that could threaten their position.
And then a third is that you do put in place a set of regulatory rules. And it becomes hard and fast. And it both prevents you from receiving the benefits of the new technology, but also doesn't do anything to reduce the harms. And so you get sort of the worst of both worlds. And looking at the history of technology over the last 150 years, there's lots of examples of each of those three errors being made.
>> I want to ask you about a couple of charts that you have in the report. The first one is showing the total private investment in AI. This is in billions of dollars we're showing.
When you bring this up, why is that important? What is notable about this?
>> Yeah. So I think in terms of US exceptionalism, US has dominated the computer age, the internet age, the iPhone age, the cloud. And now it looks like the US will continue to dominate in the AI age. And it's not because Americans are inherently smarter. I think we all know that's not true. And in fact, many of the people leading the developments and leading the companies are not Americans. But America has a number of advantages.
One is the VC ecosystem. So there's lots of funding.
There's lots of private investment, as this chart shows. A second advantage is a very light regulatory touch. So in terms of the trade-off between innovation and safety, America will tend to favor innovation, where places like Europe will tend to favor safety. So it does look like this will continue to be a US-centric, which often means a California-centric, technology.
>> And at the same time, we've got a chart here where you're showing the AI's exponential growth. This chart is amazing and scary all at the same time.
>> Yes. And I think it gets scary when you think of the number of parameters in these models.
And that is just unstructured data. You go to unstructured data. You go to images. You go to videos.
The amount of data is going to be growing 100 fold, 100 fold, and 100 fold. And so models get bigger and bigger. We go from 7 billion parameters to 100 billion parameters beyond.
And the amount of compute and the expense to run these things, it means that it's going to be a very small number of companies dominating. And that will probably be, in terms of platforms, three to four, similar to what we've had with the internet, the cloud, iPhone, and so forth.
>> That was Kevin Hebner, global investment strategist Ed TD Epoch speaking with our Kim Parlee.
As always, make sure you do your own research before making any investment decisions.
stay tuned for Monday show.
Hiren Amin, Senior client education instructor with TD Direct Investing will be our guest, answering your questions about the web a platform.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all the time have to show today, on behalf of me, Anthony and everybody behind the scenes, thanks for watching.
We will see you Monday.
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