Market Strategy

[music] Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing. every damn joined by guests from TD many of whom you'll only see here. We bring you the latest in the markets. Friday we have some of the best commentary of the week. Coming up on today show, the big topic on everyone's mind remains inflation and interest rates. Red-hot in this country, Andrew Kelvin, chief Canada strategist at TD Securities Telesis why he thinks the Bank of Canada can go even higher with its rate hikes and previously forecast. Of course the US Federal Reserve meets next Wednesday. Another supersized interest rate hike widely expected. Alex Gorewicz, Portfolio Manager at TD Asset Management tells us why she thinks a soft landing for the US economy is learning less likely. Plus in today's WebBroker education segment, moving averages for stocks, Client Education Instructor Jason and the attic at TD Direct Investing will show us how to use that function on WebBroker. With Jason Hnatyk. Of course you can get in touch with us by emailing moneytalklive@td.com or Phil at the viewer response box under the video player here on WebBroker. The first an update on the markets. A bit of a down session, we have some concern heading into next week's US Federal Reserve decision. Of course, all these aggressive interest rate hikes are going to tip us into a recession. 19,341, triple digit loss. On the TSX. More than a full percent to the downside. Tech stocks getting hit on both sides of the border. Shopify at 42 a share, down a little more than 5%. You see a bit of support for the price of gold under pressure in recent sessions. Getting a bit of a bump there. Let's look at some of the mining names. Pretty modest right now. You do have some green on the screen with Barrick. South of the border, let's check in the S&P 500, FedEx, downright gloomy news. About the state of its company but also the state of the global economy and the, sort of, what it means for their business. Definitely sending some shock waves in the market now. Let's shut on the tech heavy NASDAQ. Even further to the downside right now. Down 200 points. Or 1.7%. But, as we said, there are some bright spots in the market today, in the mining space, south of the border it is Newmont at 43, 55 up to .7%. And that's your market update. FedEx sending shockwaves in the market, not only is the share price itself tumbling after the company earnings forecast, after the global economic outlook, felt through the broader markets. MoneyTalk Live's Anthony Okolie what you think with this just days ahead of the Fed? >> This is really big news. Traders are reacting very negatively to this. FedEx… If you want to know whether the US economy is heading, you look at how industrial stocks are performing. . Transport stocks are, you know, looked at as a leading economic indicator. So them coming out and saying "look, there are signs of softening in the global shipping volumes, there are cost-cutting". I think this is a sign that we could potentially see more weakness in the global economic activity. So certainly FedEx is going to continue to enact in the broader way in the markets today. >> Of course central bankers don't comment on specific individual companies or equities. God knows I've tried in the past with our central bank. I've tried to get to them to answer some questions. But FedEx, as you said, the whole point of raising interest rates of course is to get inflation under control. How do you achieve that in the end? You just have to sort of tamp down economic growth. At some point, I imagine it starts to play in the back of their heads. What facts so far have these jumbo sized rate hikes had going forward? It also plays into the bigger picture. >> Yeah. We have a lot of economic data this week on where the US economy is going. We have some data on jobless claims, dropping for the fifth straight week. We have some data on import prices. They saw a smaller decline versus a forecast. US retail sales atop expectations. With auto, sales were actually… This morning we have University of Michigan's consumer sentiment Index just slightly below expectations. Just below August final readings. These imports are not in the ease inflation. So I think the upshot of this is that inflation still has upward momentum and I think that, you know, with the Fed meeting next week, we could look potentially to another supersized rate hike. >> Yeah. 75 basis points seems to be the base. Maybe even 100 given that how are the next expectations? At the same time many participants, you said that kind of chatter out there among the pendants. The fact that how stern will the language be around the hike? People are saying 75 is sort of the base case. But how tough does the medicine need to be to continue? That Jackson Hole symposium was where the tough message came out. They pulled no punches. Saying we will be here for a while. >> Risen because the Fed has pivoted to this more harsh tone in order to tamp down inflation. When you look at some of the yields, the benchmark Treasury yields, 1.5% at the end of 2021. The tenure hit its highest level in 11 years. The most sensitive part of the curve, it hit its highest levels since 2007. I think Bond yields are, you know, indicating the pivot by the Fed to a more hawkish position is happening. Certainly, we could see 75 basis points and that seems to be what is the price right now. Some traders looking potentially at 100 basis points. We will have to wait and see what happens next week. >> A lot of change happening in a short period of time. Thanks Anthony. >> My pleasure. >> MoneyTalk Live's Anthony Okolie. Now let's take a look some of the top stories. FedEx again. The package delivery giant provided a pretty tough outlook for both its own business and the global economy. Seen by many investors as a bellwether for the state of the economy, FedEx slashing costs in the face of weak global shipping volumes. And the company is withdrawing its full-year guidance in lieu of those challenges. FedEx says the business is feeling the pressure of macro economic conditions as they we can. A number of breaking ground pulling back in August. New numbers from Canada mortgage show at 3% drop in seasonally adjusted housing. The decline was led by multiyear construction of the big cities. The condos, the apartments. That weakness was offset, a small increase in single-family homes. Countries housing market of course, supersized rate hikes from the Bank of Canada and a resale activity of existing homes has been a pretty dramatic decline. Air Canada says they will buy 30 electric planes from Sweden. The battery powered planes are aimed at regional travelling and can carry up to 30 people. Air Canada did not disclose a price tag in the plains are expected to enter service in 2028. A quick check in on the markets. The TSX Composite Index, definitely a risk given the tone of FedEx, heading into next week federal reserve decision. Let's check in on the S&P 500. See how things are on Wall Street right now. Pretty much the same picture down there. Down a little more than 1 1/4% to the downside for that broader read of the American market. Spike concerns about slowing growth including here in Canada, the battle against inflation remains the central bank's top priority. Earlier we spoke with Andrew Kelvin, Chief Canada Strategist at TD Securities who says with inflation showing no signs of easing right now, rates could go higher than previously forecast. >> The Bank of Canada, after the last meeting at the timber seven, there forward guidance was very very open-ended. A distinctively hawkish tone to it. It suggests to me at least, that the Bank of Canada doesn't necessarily have a firm idea of where the end is of the cycle. Or if they do, they're not willing to share it because they want to keep all the rocks out there. Necessarily if they're telling you they're not sure if you're close to being finished or not, it implies a risk of a much higher endpoint for rate hikes cycle. So we had previously been looking for the bank to finish at 3 1/2%. It now looks to us that 4% is more of a likely level. I think realistically you can think about anything from me and 1/2 all the way to 4 1/2 or 4.75%. As a plausible endpoint for the Bank of Canada. Though 4%, anything above would be quite aggressive given the disposition of the Canadian economy. >> Let's talk but that is rescission of the Canadian economy. Obviously with the last rate hike… Perhaps an impact on the economy what is it tell us about inflation? What does it tell us about the state of the economy? >> The bank account is one job is to bring inflation lower. They have been addressed for several years now. They underestimated the strength of the economy coming out of the pandemic. I think if you go back to the early part of this year, the bank was concerned that some of the lingering COVID waves would see a slower quarter. That never materialized. We also supply chains which are problematic longer than expected. The Bank of Canada had anticipated the supply chains would resolve themselves. These were very difficult call to make the moment. That means inflation has been high for quite some time. It's starting to seep into longer-term inflation expectations. That's the fear of police. I'm sure most people, there's a perception that inflation was very high and if people with inflation will remain high over a long period of time, it makes the Bank of Canada have a much more difficult job. So what they've done is they are moving not just in restrictive territory quite quickly which they did. 175 basis points and tightening over to meetings which is extraordinarily rare thing for central bank to do, they are unlikely to go a little bit further in this cycle just to really ensure that the job is done. To really ensure that they will be bringing inflation back down to target. Despite the fact that, you know, we've had three months of job losses now. The economy is slowing. The Bank of Canada, normally would see the signs of slowing, take a moment of pause and, in a more normal cycle, I might look at the growth figures and say "okay this is the top." Because the Bank of Canada is behind the ball early this year and late last year, they now may need to go a little further in bringing inflation under control. >> When it comes to rates, how much further do they need to go? Let's throw up a picture on the screen. What is this telling us? >> So, what I've done here, the darker bar here is the market expectation for where the Bank of Canada is. You see the market firmly expects fully pricing in a 50 Basis Point Move in September. Where I differ a little bit, this is as much of a rhetorical tool is anything, I think now that we are at the pretty high level of interest rates, relative to where we have been in the past 50 years, given the economy doesn't look like it did in 2004, 2005, it has quite a bit more leverage. It's good to be sensitive to interest rate hikes. I think it would be prudent for the make of Canada to move just a little more cautiously that 4% target so that their rate hikes have unanticipated consequences. They have been over tightened. The other point odours on a chart… >> I think I'm seeing forecast for a cut. >> That's exactly it. The fact that the bank is tight to this extent to bring inflation under control, if we go to, let's call the third quarter of next year that we have penciled in. They might be looking at the economy and seeing the unemployment rate rise by a percentage point. Perhaps more. Economy or inflations come lower. We see the peak in inflation. Inflation expectations are becoming low anchored again. They can ask themselves, "do we really need to be at 4% still which is a firmly restrictive policy rate?" So I think in the second half of next year the Bank of Canada could start removing some of the tightening they put in. It will be a more gradual process. It's not going to be symmetrical. They are not going to be cutting by 100 or 75 basis points immediately. But we could start to see some gradual easing in the second half next year which would get us to a little bit more normal hopefully by the end of 2024. >> The Bank of Canada is not acting in a vacuum here. There's a whole course of global central banks. With the exception of China. (. . . . . ) >> We think the Federal Reserve could get all the way to 4 1/2 where is we think the Bank of Canada top set of 4%. Having said all that, the Bank of Canada can't diverge too far from the Fed. The last cycle, the Bank of Canada finished with 75 basis points. Over time, those two central banks do tend to move together. The Bank of Canada were to fall too far behind the Fed, this cycle, that would have implications for the currency. The currency would weaken. That would have short-term inflationary effects. The Bank of Canada would not especially like it. It's not their main priority or their second priority. But it does have an effect on the market. Given that Canada and the US are sort of, these are demand shocks. If the Fed gets super far ahead of the Bank of Canada, it will raise questions and it goes back to the spend ability question. The Bank of Canada is not in a position to be disappointing markets. They are not in a position to be inviting questions about their commitment. >> Central bankers have said, including ours, they will continue tightening until something breaks. Can they avoid that now? That seems to be the point, as you mentioned. We can't fix supply chains or some of these other issues but we sure can tamp down demand. > The point is a slow growth. It's a tricky thing for central banks to say. It's extraordinarily difficult for central bank to say "we would like to do is lift the employment rate." That is politically not a feasible thing for any sort of policymaking bank. But that is how monetary policy tightening works on some level. What they would like to do is engineer what is called a soft landing. There is no technical definition of a soft landing. It's not especially helpful in a debate. But that is sort of the middle path that they would like to sort of go down here. The problem is because they have fallen behind the curve as it were in the early part of the year, they are now trying to make out by honking by leaps and bounds, 75, 100 basis points, it just makes the risk that much greater. Because monetary policy. : there is a lag. Rates don't go up one day and inflation falls. It takes a year, a year and 1/2 for the effects to be fully felt. So given that they are focused on bringing inflation under control, given they are probably willing to air on the side of over tightening a bit, a soft landing is still possible. It just becomes a much more difficult thing to achieve when you need to be lifting rates in such a rush fashion. Which is why when I go back to this idea that I think it's the most prudent thing to do would be to slow down a bit more and a measured face tight. >> That was Andrew Kelvin, Chief Canada Strategist at TD Securities. Now let's get to our educational segment of the day. When it comes to investing, useful tool you can use to see the stocks moving average well how do you actually do that on WebBroker? Client Education Instructor Jason Hnatyk joins us. How do you actually use a moving average customer >> Thanks for having me Greg. Always a pleasure here. Many investors may have heard the phrase the trend is your friend. Implying that security is going up will continue to go up. Likewise that security is going down will continue going down. Meaning that don't try to think about swimming with the current, if you will. A moving average can be a useful tool to help identify the stock moving up. Is it moving down? Or moving sideways? Let's go to the chart so we can help to implement a moving average on your chart so investors can take full advantage of this. We are going to be selecting the upper indicators drop-down menu. Multiple different moving averages choose from. We will be focusing on the simple moving average here for today's discussion. We go ahead and select that. We will see the average is now added onto our chart. So that line is really going to help us by identifying which way the stock is moving. It can also help us identify some additional trading signals. Does the stock cross over or below the moving average? Does it bounce off of the moving average? It can be a helpful tool to help identify buying and selling signals as well as support and resistance points for the particular stock. Now, in a nutshell, what the moving average is doing, that line you see on your chart is, this is a 15. Moving average. Meaning that it is taking the closing prices of the most recent 15 candles and averaging them together and putting them on your chart to help you, once again, see the trend that is happening with the stock at this given time. Because it is a moving average, as we move forward, one day in time, one data point drops off the end and then the newest Datapoint gets added into the average and we plot the chart and move along with the stock. Now, a useful tool within the charts here to help us maintain our averages is we can access and make changes by clicking on the name of the study in the top left portion of the chart. Now this is true for any study that you add for your chart. It gives you a synopsis of what that indicators trying to show you. So here's the moving average on the screen. It also allows us to change the period of the moving average that you have in your chart. So, what we will do here, I'll go ahead and adjust the period as well as adding multiple averages is to get a sense of how the short-term, medium-term, long-term trends are doing against each other. Will put 20 here for the short term, 50, as well as 200 on the chart. If I go ahead and update that, you will see that we now have three average lines on our chart. The colour of each average corresponds to the key in the top left hand corner. So now we get extra information to help us identify how the stock is trending over different periods of time and against each other. So quite a useful tool that, once you learn how to manipulate it, it can be a useful part of your trading strategy. >> When you start to think of the world of technical analysis, this is a great place at the start of the course. Once you have the lines on the screen, you could try to figure out what signals they might be sending. Where can we go on WebBroker to learn more about that? >> That's true. We need to understand. You are not just looking at lines here. We need to understand what the message that they are trying to send us. So WebBroker has lots of useful education in this site to help put the data and make sure that it aligns and puts it into your trading plan. So let me show you to very useful tools that we will take advantage of right now. The first thing I'll show is near the top of the screen, we have a technical tab. The "technicals tab" is a brings us to a place of the website that is pretty unique. You can see if the events might be useful to your own trades. From an educational perspective, the point I like to show here is this graduation In the top right-hand corner. If we click into here, this is subset into different patterns of events. The moving average section is going to be under "indicators" and we can see that it is giving us different indicators in different events that are happening from a moving average perspective for you to dive in and dig in and learn about them in a much greater depth. If we click on the price process, moving average for example, you get a description of the event. You get a graphic. As well you get some useful considerations to you in your own trading. So I really recommend jumping into this portion of the website. The last place I want to show everybody is our learning centre. If we go ahead and click on "learn" at the top of the page, that brings you into the learning centre. Under the "video lessons" area, let's browse the lessons available. I already filtered it for technical analysis. So we have lots of great information here that all of the investors in WebBroker can take advantage of. The courses that I wanted to highlight is this five-part series. The foundations of technical analysis. Lots of information available on demand. You can read it or watch it and view it when you have the time to really dive in and absorb the content. So part of the website, I would not sleep on it. I recommend and when checking out. >> Great stuff as always. Jason thanks for joining us. >> My pleasure. >> Jason Hnatyk, Client Education Instructor at TD Direct Investing. Make sure to check out WebBroker for upcoming webinars. >> It's really going to be a guide of what the Fed does next. If we are just talking with the US market, but really any central bank is going to be paying close attention to the jobs market. We know that, you know, for the central banks in particular, to stop raising interest rates, they are looking at inflation, they want to see inflation fall a number of months in a row. We don't know what that number is. Let's say 3 to 4 months. And the level of probably also matter. But as long as we start seeing that decelerating trend in inflation, I think we can get some kind of a pause at some point. Maybe later this year. Maybe early next year. But in terms of what the bond market is currently expecting, given the tightness in the labour market, by that I mean there is not very much slack for the unemployment rate, very low. Wage growth is really starting to gain momentum, higher. If we look at the last you know, three or four months average, north of 5% wage growth so you're starting to see these kinds of dynamics in labour that are making bond markets nervous about how much more there could be in terms of positive news there. So when we think about why the bond market has 2 to 3 rate cuts priced in, starting in the second half of next year, for the Bank of Canada and for the Fed, it has to do with jobs that they expect the best news are behind us and that going forward, there will likely be an increase in unemployment and softening overall. > That's interesting because that's the intersection of weather they are trying to achieve by bringing inflation down by tamping down our demand. A little bit worried about wages. But what you said, they keep saying it's good to be painful and we have to endure some pain. But at some point that pain will lead to cut. Not that they will flinch but they will realize that not only is the job done but we are sort of hurting out there. >> Yeah. I don't actually know at that level will be. If we look for some guidance from what the Fed had said. Back at their June meeting when they gave us their projections, their next meeting is in two weeks from now, but back in June they said "we think unemployment will rise to about 4.1% and it's now about mid threes. And so we think a marginal increase in unemployment will help us bring inflation down. Actually we've had a number of prominent economists and policymakers like the former chief economist… And former US Sec. of Treasury…" Saying there seems to be some signs of structural changes in the labour market that would suggest that in order to bring inflation down you have to increase unemployment by a lot more than what you are currently communicating. So, the prospects of this soft landing, in other words, economic slowdown without a material or rise in unemployment, probably pretty low. In fact, since Jackson Hole, since Jerome Powell's speech, every consecutive Fed speech has not really mentioned soft landing. So I think they are trying to signal that a recession is likely. > So if we cannot get a soft landing, given the policy that they have, what is a hard landing look like? What does it mean for fixed income investors? >> This is a big question. So, we don't yet have insights into what kind of a recession there will be. So there are two ways of looking at this. Call it the pro in the con for this soft, rather than normal recession case. On the one hand, inflation, based on where it is today, let's say 8 to 9%, would suggest that if you really want to fight inflation you would raise the interest rates up to the level. Central banks and the Fed, Bank of Canada are not signalling that they will do that in fact they have told us they think their neutral ranges somewhere between 2 to 3%. So if they raise interest rates this are between 3 to 4%, they think that is restrictive enough. For the economy. But the reality is, from a realized deal perspective, yields would still be negative for the economy. Which means that it is not actually that painful. It should be relatively straightforward for the economy to manage. A slowdown there will be for sure but not that material. On the other hand, if those prominent people that are saying unemployment has to rise substantially are correct, and the Fed actually has to raise rates more than 4%, it is very possible that you know, economic slowdown will be much more material and it will be a lot more prolonged than a normal recession. >> It makes you think of the dynamics of power and inflation right now. There have been some concerns, TD economics sharing recently that it's one thing to have food prices which means it can vary depending on geopolitical conditions, energy prices which can vary greatly in geopolitical conditions. But that sort of leads over to the services side and wages. Once you get the raise, it's pretty hard, I guess to say inflation is not a problem anymore. We will take that money back. Thank you very much. >> Yeah. That's right. That's probably why it is so tricky here with central banks having been behind the curve up until this point. Sure they have a better grasp on, I guess the policy rates today. Mostly because bond markets have driven to that direction for the greater part of the last 6 to 9 months. But the going forward bit is like where the tug-of-war happens because central banks are saying "we want to raise interest rates to this level." And then maintain them there… And bond markets are saying "well, no because looking at how costs have billed and filled up for companies whether it's the wages or through the higher commodities which are costs for corporations, aggregate demand, economic demand will fall a lot more. " There is now a bit of that tug-of-war between the policy makers versus markets. So in terms of what implications, you asked earlier for fixed income investments, unfortunately it just means more volatility. But it also means that, although there has been an increase in interest rates, there has been a widening of corporate bonds spreads, here to date, and that it doesn't necessarily mean that it's done. In fact, if you have a recession for corporate bonds in particular, we know that the start of a recession or perhaps even before the recession begins, companies, especially with good management teams, are able to manage those increased costs. Whether wages or otherwise. But, if the recession proves to be you know, deeper, longer than expected, there is only so much with cost management that you could do and eventually corporate spreads widen as corporate fundamentals deteriorate. That exacerbates the economic slowdown. So there are so many unknowns at this time in terms of what the impact will be in a big part of that will hinge on how labour dynamics will impact the type of recession we are going to get. > You mention tug-of-war between what policymakers are trying to achieve and what the bond market is telling us. Tug-of-war, a little bit of given push. A tantrum, we have seen times where the market decides we don't like what you're doing. So far we have seen them well behaved. They don't sit seem to be in tantrum territory. >> I guess to some extent, it's easy to see that because we look at, what we call nominal yields. They can be decomposed into real yields and then the inflation expectations that market has. If we look at those collectively, we still see nominal rates move up quite substantially this year. But actually the bigger story, the more important one, is the change in the real yields. I mentioned to you for example if we take with the policy rate is and subtract inflation, we are actually still negative. But if that inflation and the market expects that inflation to rollover relatively quickly over the next 12 months, if that inflation comes down and the policy rate stays higher, you actually end up with positive real yields and that could be really painful for the economy. Because you are actually, you know, adjusting for your cost of living. You have to pay pretty substantially to borrow money and our economy operates on credit. >> That was Alex Gorewicz, Portfolio Manager of active fixed income at TD Asset Management. Let's check in on the markets. We are about halfway through the lunch hour training session. They in Wall Street, not going on a good note. The TSX Composite Index down 262 points right now. 1 1/3%. Basically FedEx really putting a chill through the market. Because FedEx, much more than just talking what his own business of course, we had so many warnings of these aggressive rate hikes are going to tip the global economy into a recession. FedEx was sounding some pretty dire notes on that front. So we are seeing a lot of pressure across the board. Interesting, FedEx itself is down more than 20%. Some other names in the space, feeling the downward push right now on Bay Street. 125 bucks and jet for Cargojet. Gold, right now we have Kinross actually flat. In positive territory but you can see the drift right there just to the breakeven line at this hour. South of the border, checking on the S&P 500, that brought a read of the American market. Accelerating to the downside to the tune of 1.6% right now. Let's check in on the tech heavy NASDAQ. Holding the line with the broader market down 1.7%. And FedEx itself, let's check on the pain here. 159 bucks and change. The stock is off more than 45 bucks. 22% to the downside. Talking about the/cost as they look out on the global macroeconomic horizon. Their own business in terms of shipping volumes. Rising interest rates have been the main tool central banks have used to tackle red-hot inflation, one of the consequences of course of that is the impact on the housing market. With rates set to rise even further, there could be some more pain to come. Of course earlier this week I spoke about the Canadian housing market and the US housing market in terms of the necessary medicine they may need to get back to fundamentals. I was Colin Lynch who gave us that inside, he's a Head of Global Real Estate Investments with TD Asset Management. Have a listen. >> If you step back and look at the rate hikes and look at the reason why we are having rate hikes, we ultimately have the reason being high inflation. A lot of that inflation has two elements to it. One is supply. We have had constraints apply across a variety of sectors. Including those that impact real estate, whether it's labour or materials. There are being constraints. We've had significant demand. Some of that demand has, indeed been brought to you in some respect, by low interest rates and that has spurred a greater consumption, greater household expenditures and that filters through the economy and contributes to some of that high inflation. So that is been the dynamic. And I would say that dynamic, the world would call it zero or close to 0% interest rates over the long term. Is it really a healthy dynamic? So hence the necessary medicine. It's important that we return to a more normalized environment. Where central banks have tools like interest rates that they can use to respond to inflationary environments. So what does this mean? For housing? For participants in the residential sector whether it's apartments or condominiums or other, over the last few years we've seen a significant appreciation in housing prices. Some of that appreciation has been based on the view that we will be in a very long term 0% interest rate. As interest rates adjust, back to normal, some of that pricing has to adjusted to reflect whether it's higher borrowing costs or higher construction costs. Some of that pricing has to adjusted to reflect the more normalized environments. So as a result, we are seeing this across classes whether it's public equities are fixed income. Similarly, in aspects of the real estate world, there has to be a bit of an adjustment to reflect that we are going back to a normalized, more normalized environment over the long term. Will we see higher interest rates. Whether it's TD Securities or TD economics, obviously, we have seen the pullback in real estate. We've seen prices come down. If were talking about tough medicine, to get us back to fundamentals, what is that look like going forward? I guess there are other driving forces. I think immigration and demographics. How could those play out? >> Yeah. Absolutely. So let's call it two sides of the coin. We have, in Canada, and if you compare Canada to other countries, we have robust immigration. That provides for the housing market. Ultimately housing serves society and if society is growing, that requires housing. That creates a lot of demand. So that provides a bit of, call it a floor to the housing market. If you look at Canada, as a country, we have a much bigger real estate sector. Proportionate GDP relative to other countries i.e. the USA. That would be the other side of the coin. If you look at overall economy perspective, one has to be cognizant of that. And so what does that mean? I would say the potential for interest rates in Canada to have a greater impact than the USA is there because we have real estate as a broad sector including construction. A bigger component of our economy here in Canada. The other side says "well, over the very long term, we will continue to see robust growth in our population. Particularly in senators like Toronto and Vancouver. Which are magnets for global immigration. And if you factor in all the universities, students that, and are able to stay at, you see the potential for significant growth in these ditties and ultimately, that will get reflected in, whether it's apartments, condominiums or other housing. That serves these new immigrants and populations in these cities. So yes, two sides of the coin here. In the short term, some volatility, some adjustment required. I think it's necessary. If the adjustment doesn't happen today, it will happen at some point in the future. If at some point in the future, it's more likely that the adjustment will be harder than it is today. So better to take the medicine today and have the adjustment, recognizing that we still a very strong long-term fundamentals for this country as it relates to the immigration, the demand for housing. >> What is that due to the real estate investors mindset? We can expect the money trying to fall off at a low cost and just go off and make our investments. Any investor serious about real estate would take that long term focus. The money is not free anymore but I have to look forward five, 10, 15 and 20 years. >> Absolutely. Perspective on investment is always important. One can take a short-term perspective or one can take a long term perspective. We've always chosen to look at the long-term perspective and look at those fundamental drivers. Long-term economic growth, long-term demographic growth. The other thing that's critically important in real estate is leverage. Participants in this space use some of them, quite a lot of leverage. And it's important to look at what type of leverage. So who is the lender? Is it fixed or variable rate? And for what term? All of those decisions become incredibly important in an environment like today. And so, those questions are really critical to look at. Right? If you had fixed leverage in a conservative LTV, and you got that leverage two years ago, that's really quite a creative relative to going out today. Trying to get very high loads of value and perhaps trying to do a fixed-rate today. That's going to be an incredibly different picture. So that leverage question is very very important. When one is looking at participants of the space, and their opportunity to create value, that leverage, what is the philosophy leverage? How much leverage? Who are the lenders, what is the quality? What is the quality of that company doing to that credit? It becomes incredibly important. >> In the short term do we worry about that leverage component for the people to perhaps did not decide to log into a certain borrowing cost over a fixed amount of time and just let it float? Because only six or seven months ago, that was pretty seductive. >> That's where the math becomes very important. When one invests with long term, it is really critical to do that. To build the mathematical quantitative analysis and do the scenario testing for different types of interest-rate environments. And so, yes, if you have not done that, or if you've made an assumption, that rates were going to look like they were seven months ago in perpetuity, you might have some troubles. Further participants in the industry who have done the work, have done the scenario analysis, have looked at their leverage, have been a bit more conservative, that might present an opportunity. There might be an opportunity to acquire incredibly well allocated, fantastic assets that otherwise wouldn't be available-for-sale. And that, one knows will make sense in the very long term. There might be an incredible opportunity to acquire these assets today, because you might have some participants that are called out for a lack of a better term. As a result of the changing interest rate market. >> That was Colum Lynch, Head of Global Real Estate Investments with TD Asset Management. That's all the show we have for you today on this Friday, September 16. Stay tuned on Monday we will be speaking with Andriy Yastreb, Energy Analyst at TD Asset Management on all things energy. Get a head start emailing your questions at moneytalklive@td.com. That's all the time we have for today. Thanks for joining and we will see you next week. [music]