Podcast - August 15, 2023
Does the industry do a bad job of communicating important things? Colin & Josh have opinions, as they usually do.
Speaker 1:
You are about to get lucky with the Bearnaked Money Podcast, the show that gives you the naked truth about personal finance, with your hosts, Josh Sheluk, portfolio manager with WLWP Wealth Planners, iA Private Wealth, and Colin White, portfolio manager with Verecan Capital Management, Inc.
Josh:
Colin and Josh here, next episode of Barenaked Money Coming at you. How’s your summer going, Col?
Colin:
Spectacular. I’m out here in the south Kunes and enjoying relatively smoke-free weather and looking at mountains and having a great time. How about you?
Josh:
Yeah, can’t argue with that. Yeah, going to friend’s cottage this weekend, so definitely looking forward to that, enjoying the outdoors, enjoying the sunshine.
Colin:
Oh, you know what we’re enjoying more, Josh?
Josh:
Podcasting.
Colin:
No, what we’re going to podcast about.
Josh:
All right. Yeah.
Colin:
Wasn’t there spectacularly good news? Like unbelievably good news? What happened?
Josh:
Yeah. Well, depends who you ask, I guess. But yeah, so I got this idea for a podcast. As you know, Colin, I spent some time in New Zealand last year, and I saw Guns N’ Roses play when I was in New Zealand. Bear with me for a second, I’m going to land this plane, but one of my favorite Guns N’ Roses song is Civil War. At the start of Civil War, the guy says, there’s a little bit of a monologue at first that says, “What we’ve got here is a failure to communicate.” It’s actually a quote from Cool Hand Luke. But recently I was thinking, looking at a headline and thinking, “Damn, we just do such a bad job of communicating some of these ideas to people.” I think what you’re referring to is case in point, slapping us in the face yesterday with this maybe problematic way that we tend to communicate ideas that are pretty damn important to people.
Colin:
Yes, the nuance does get lost for sure, and there’s the whole idea about what is truth? What is everybody’s truth? Who’s got a dog in the fight? What’s their bias? What’s their angle and how that shapes how messages are put together and how they’re transmitted and how they’re received. Those are all vital steps in communication because there’s only one version of the truth, Josh. Is that what you’re trying to tell me? There’s just one story, one version that we should be communicating?
Josh:
You’re getting philosophical on me earlier in this podcast than I expected. I think there are facts which are pretty black and white, but you can use those facts to tell different truths. It’s not that they’re falsehoods, but they might be a misrepresentation of the reality.
Colin:
There’s a great expression, and I’ve lost it in the sands of time, but it begins with numbers are not things, they are symbols for things. They may or may not accurately reflect the thing, but they’re not things, the answer to a mathematical equation is not the answer to a problem. I think that’s what you’re alluding to. The fact that the consumer price index dropped 2.8% year-over-year within the stated range of the Bank of Canada, that’s a fact. Now, how you interpret that factor or what you take… if you take its face value and that’s all you look at, you go, “Ooh, that’s good.” Well, you’ve drawn one conclusion from that, but might not be the whole story.
Josh:
Well, yeah. Okay. So there’s often and probably usually, and maybe even always more to the story than you can present in a headline. But I think the way that we’ve been seeing this number presented is, “Oh good, we’re within range, but it’s still a catastrophe,” like the house is still on fire. This is what’s being presented. But I think if you asked, let’s go back to a year ago and you said, “Okay, we get back to with under the 3% level for CPI for inflation. Are we good?” A year ago, we would’ve said, “Yeah, that’s awesome. We’re there. We’re there. We’re within range. That’s where we should be.” But today as it’s being presented, it’s not like that at all. It’s like the house is still on fire. The fire truck might be here, but the house is still on fire.
Colin:
Well, yeah, Tiff Macklem should be on an aircraft carrier somewhere in the middle of the Gulf declaring operation complete. That’s really the vision that we should want to see right now, but that’s not what’s gone on. As we talked a little bit about this, the problem, or sorry, the situation is is that everybody’s paying attention to this number. So everybody’s looking for this number. Everybody clicked on the news story that talked about this number. Okay, now that they have your attention, they need to keep it. So what is still scandalous about this number? What are still the problems inherent in this number? Why is this still a story to keep watching?
So that becomes, and I’ve said this before, what’s the business model? The business model is to keep your attention. It’s not to say, “Here’s the information, you’re welcome.” It’s “Oh, you’re looking, you should keep looking because other stuff’s going to happen.” Yeah, yeah, gasoline’s fine, energy’s fine, but look at this one small aspect or this big aspect of things that still isn’t right.” That’s how they’re going to keep your attention and it’s trying to keep you at a… well, it’s almost trying to keep people at a sustainable level of fear.
Like, “I don’t want to burn you out. I don’t want to make you so anxious that you just ceased to function. I need to keep you anxious enough that you need a 15-minute update from me on this topic every day in order to survive. That’s where I need to keep you.” I love the way we’re coming at this, what is the truth? Because again, on its surface, that’s what everybody wants. Well, what is the truth? Well, to a certain extent, the truth can be what you want it to be. I don’t know if you’ve checked the news today, but Chrystia Freeland is very happy that the government has brought inflation down to where it is. Now, I’m not sure that that’s how other people would frame this accomplishment that we’re all talking about today. But again, what is the truth? What is the definition of truth?
Josh:
So if you’re writing the true headline or the true opening paragraph for this, this information that we’ve received over the last 24 hours, how would he put it?
Colin:
Well, I think the only, for me, 2.8% is within the Bank of Canada target. This will lead to less pressure on the Bank of Canada to hike interest rates anymore. That’s pretty much all that you can draw from this. That’s all, if you’re just looking at that one number, there’s less pressure. That doesn’t mean Bank of Canada is not going to raise, but there is now less pressure on the Bank of Canada to raise rates. Now, the bigger issue is, it’s more nuanced than that because they’re tracking internally the momentum on various aspects of inflation because it’s based on where we’re measuring from, we’re measuring from a year ago. So there’s been trends over that year that have contributed to where it’s right now. Now, if those trends have exhausted themselves, I was just looking back at interest rates again for another conversation I’m having. The Bank of Canada interest rate early ’90s was like 14%, and it went from 14% to about basically 0% to 2008 or 2009.
That’s a trend, and that trend had impacts on other aspects like housing prices and things of that nature. But if you’re sitting in 2009 when things hit that level, it’s like, “Okay, that trend’s pretty much done ’cause it can’t go negative, so that’s not all that helpful going forward as to what’s coming next.” So a lot of these conversations are very, very nuanced, and knowing a truth is very, very difficult and really depends on where you put the box as to what you’re looking at. I think that the headline is 2.8%. The conclusion is, yeah, it’s less likely rates are going to go up. If you want to dig into it more, then there’s a whole bunch more in there. Well, we still have food inflation is still a big issue, which is impactful and it’s important. The labor market is still really good, and that’s perplexing people, and we don’t understand it.
Unfortunately, the headlight or the flashlight we’re following around is looking for the disaster, looking for the lurking monster because that’s what everybody’s going to want to read about. Now, I’ve been making the comment within our group over the last few weeks, it’s like, “Well, maybe this is what a soft landing feels like. This might be what I don’t know. I’m not saying that’s what’s going on, but the news doesn’t seem to be as bad as maybe we thought it was going to be. It doesn’t seem to be getting any worser. Everybody’s uncomfortable looking for it and trying to find the next thing. But maybe this is just the uncomfortableness that comes with things naturally reaching a conclusion. I’m not sure. But is that a truth?” I love the concept. Every time I say something, I’m going to think, “Well, what is the truth?” We should be chasing truths, I think, but I don’t know the world lends itself conveniently or comfortably to determining a truism.
Josh:
Okay, sure. Again, coming back to this, the way that this has been communicated, I think your explanation of it, I think, is really effective. The headline, the conclusion, great, that’s awesome. Can we just dial down the emergency ness of the communication a little bit? Everybody, the communications, I shouldn’t say everybody, but the communications that I’ve seen have been very much still alarmist, almost. It’s like, “Great, we got to where we said we needed to be,” it’s almost like we’re moving the goalposts. “Great, we got there. We’re right between the goalpost, but I’m going to shift the goalposts a little bit further and say that we’re still in an emergency.” I think it’s problematic because it can potentially lead to the wrong behavior or maybe an overly pessimistic view or negativity amongst the world, amongst people who are really trying to make financial decisions.
Colin:
Well, absolutely, but the weakness in what I said was that it doesn’t lead to anything actionable. Everybody’s looking, it’s like, “What do I do?” It depends. If the more alarm is like, “This is what’s happening, you need to…” it’s call to action what’s going to get people’s attention. Jim Cramer, when he is doing his show and all the sound effects and he’s banging buttons and bulls are shooting under the screen and stuff, the gamification of news is huge. That’s what draws people’s attention, and that’s a very real thing. So the way I described it, it’s completely unsellable. That’s as boring as toast. I’m never going to get an appearance on CNN talking like that. So that’s not what the apparatus is looking for. You need to be more definitive. It’s like, “This is the real problem and here is what you need to do to.” It’s a whole snakes and ladders thing, right?
You dig a hole, throw in some snakes and give a ladder. If you keep that equation in your head as you’re listening to something, you’d be amazed at how often that fits because it’s compelling, and at a time when… and I’m on the TikTok train because I’ve been told this is how we’re going to communicate going forward. So you can scroll through TikTok and get 15-second dopamine dumps on funny cats, people doing stupid stuff, and it is addictive, and it’s gamified. It’s all those things, and that’s where people’s attention goes. So if your business model is getting people’s attention, you have to play that game to a level. If you want to be excellent at your game, you got to play that game really well. Saying it, it’s like, “Well, the Bank of Canada might not have to cut rates anymore.” That’s not exciting. That’s not declarative. That’s not something people are going to want to hear, “The three things you need to do just in case maybe this doesn’t happen,” it’s not as compelling.
Josh:
Yeah. Interestingly, bond interest rates basically flat today, are up very, very minorly. So not maybe exactly what you’d expect when you see the inflation numbers come in the way that they did, but as an offshoot to the way that this specific communication has been done on inflation, I was thinking more broadly and more generally, it doesn’t seem like we communicate well to people. When I say we, I’m just talking about the general we, the general media, the general investment industry, if you want to call it that, what inflation actually is, when it’s bad, what it should be. If 5% is bad, if 1% is good, people don’t really seem to fundamentally understand inflation.
Colin:
No, because it’s different for everybody. Again, we’ve done podcasts and presentations on this before. For a period in the ’90s into the 2000s, tuition was going up at 13% a year in Canada. If you’re going to a university, that’s a big deal. Oh, no, wait, there’s more nuance to that. The number of scholarships being handed out by universities went up proportionally. So more kids were getting free rides at university. So again, what’s in your world is way more important. The other thing is we’ll talk about inflation in past tense. This is last month in June. So you already did all your groceries in June. You already spent all your money in June.
You’ve already lived through that inflation in June, and we’re talking about it in July. It’s like now you’re, “Oh, my God, things are going up.” No, no. Things went up. It’s already affected your life. You have already been at the grocery store and said, “I’m not buying chicken, I’m going to buy pork right now,” or, “Look, fish is cheaper. I’m going to buy fish right now.” You’ve already adjusted to this number that’s come out, and it is a historical number. This month may be different. My favorite podcast, or one of my favorite podcasts if you want to go back to this, Josh, when you were buying your house, you bought your house almost exactly when somebody rang the bell and the market changed-
Josh:
Yep.
Colin:
… ’cause we were looking at numbers from the month before. It’s like, “Oh, my God, this is still crazy, crazy,” and you’re in the middle of it going, “Doesn’t seem that crazy.” Okay. But I guess it is. So there was an echo effect because you’re living your life in real time, the economic numbers are going to come out the following month or a quarter later to tell you what was going on there. People try to use that for information to decide what to do in the here and now. That can be fraught, especially when things are changing as rapidly as they have changed over the last 18 months there.
Josh:
Yeah, if you ask, just ask anybody, you pull somebody off the street, you say, “Your prices are going to increase on everything that you buy for 2% for the rest of your life,” do you think they’ll be happy about that or sad about that or ambivalent?
Colin:
I think they’d be sad.
Josh:
Because prices are going up, right?
Colin:
Exactly. ‘Cause again, they score it as, “My lifestyle is getting more expensive.”
Josh:
Yeah. Okay, now you take that same person and say, “Your income is all going to be adjusted for inflation for the rest of your life as well. So if inflation’s 2% per year for the rest of your life, your income’s going to go up at 2% for the rest of your life,” you think they’re going to be happy, sad, or ambivalent?
Colin:
If they’re later in life and they’ve got the risk profile of somebody who is in retirement, then I think they’re going to be happy with that, ’cause many people, if they get to a sustainable point, their fear is that they would lose that standard of living that they have. So yeah, I think that I, and I’m going to be bold and say, yeah, they’d be happy.
Josh:
Okay, so let me ask this. You go to that same person, you say, “Prices of all your goods are going to go down by 2% every year for the rest of your life,” do you think they’re more happy or less happy than the situation when prices go up by 2% every year?
Colin:
I would like to think that they would think that’s too good to be true, so I’m not going to count on it. That’s what I’d like to think, ’cause you’re proposing something that hasn’t happened.
Josh:
Yes.
Colin:
You start talking deflation, then we’re going to have to have a whole new podcast to talk about what deflation looks like in the effects on economy.
Josh:
Well, no doubt, no doubt. I think we understand as having had the conversation or the education from an economic sense, what that can mean. But I think it’s a bit of an abstract concept, isn’t it? That “Hey, I’m just going to be okay with prices going up of everything for the rest of my life.” Why can’t they go down by a little bit every year? Why should they go up every year and why does the Bank of Canada actually target 1 to 3%? What is that? Why don’t they target 0?
Colin:
No, no, it’s a solid question. The human condition, this gets back to human physiology, it’s growth. Things are always getting better. Whether they are or they’re not, there’s been periods in history when they get way better and periods in history when they haven’t. But you’d like to think that things are going to get a little bit better every year, and so it’s the idea of growth is very, very important and very, very valued. So to think that your income is going to grow, yeah, expenses are going to go up a little bit, but if my income grows a little bit better, then that’s a comfortable state. If you can have that hope, then that’s a comfortable state. Because you’re right, it’s abstract. You start measuring, we can get into the lunacy of tracking the consumer price index because again, we’re comparing it back to periods of time where there were no computers. Cars didn’t have airbags, TVs were floor model TVs, radios were expensive.
The change in what we buy and how we spend our money is very, very large. To have an economist sit and make a judgment call as to what goes into this basket or doesn’t go into this basket, we start talking about, “Well, everybody’s got a cell phone now, so cell phone plans, we’ve got to go into the CPIs.” It’s like, “Really? Cell phone plans need to be… Really? Okay.” So all of a sudden that becomes a thing. So individuals have the capacity to change their consumption based on economic conditions. So the fact that consumer price will score the exact same amount of beef is going to be bought regardless of the price when it comes to groceries, it’s not real world because people will just pivot. So when it specifically comes to groceries, if you have a static basket, that’s not how I do groceries. I don’t think that’s how anybody does groceries. If you go into something’s that priced at an obscene level, you need to buy something else. There’s very, very few things in the grocery cart that you are going to buy regardless of the price.
So the effect on an individual is very specific. Now the effect of the news, the guy’s going, “My groceries went up 9%. I don’t know, did they? That was last month.” “Did you notice you spent 9% more in your groceries last month?” “Well, no, I spend 250 bucks every time I go,” then you didn’t have any inflation last month. You’re eating different. There might be different stuff in your… “Hey, you bought some seasonal vegetables because in Canada now there’s all kinds of seasonal vegetables showing up. So your diet changed a little bit, maybe not even for the worst. So it’s abstract, and that’s a very good word, and it’s a very good point. The concept of inflation. But it’s so fun to talk about. It’s so engaging. It’s a symbol of something that’s a big deal. How effectively it represents that, I’m not entirely sure. It does influence policy, it influences indexation of pensions and things of that nature. So it’s not irrelevant by any stretch of the imagination, but I don’t think it means everything that everybody thinks it means.
Josh:
Yeah. Maybe there’s just no way to communicate in abstract concept in simple and understandable and actionable terms. Maybe I’m asking for something that’s never going to exist. But having a bit more of a fundamental understanding, and again, maybe I’m asking people to do more work than they care to do or asking more questions that they care to ask, but I think we could probably as a whole, as a universe, push people a little bit more in this direction to ask a little bit more, again, get a bit better of a fundamental understanding of some of this stuff.
Colin:
Well, and that’s our underpinning. In doing these podcasts and our practice and everything we do, this is what we’re trying to do. We’re trying to give a useful take on information so that people can use it for decision-making, not over rely on it, not count on things they shouldn’t count on. Take what they can out of things and use it for better decision making. That’s our angle. That’s the way we’re trying to use information. We haven’t monetized this podcast. It’s not like we’ve got 50,000 subscribers and we’re making money off our podcast. So the world that is out there monetizing their points of view are going to take a different tact. So information can be used to support different truths, and perhaps there is more than one truth attributable to any particular fact.
There are things that are way outside the realm of anything that’s reasonable, but there are more than one ways to take a look at the CPI number. There’s more than one way to look at that number and say, “Well, what does it mean really?” Different players can make it mean different things based on what their objectives are. The Canadian government’s going to say, “Look how good we are.” How much credit can they take for it? I’d argue maybe not as much as they want. In fact, I’d argue that this has happened in spite of them in many regards. But they’re going to take credit for it ’cause it happened on their watch, and in their defense, they would’ve taken the blame if it had gone sideways.
Josh:
Sorry, when you say they would’ve taken the blame if it went sideways, do you mean they would’ve stood up there and said, “Yes, this is my fault,” or that we would’ve blamed them?
Colin:
No, they would’ve been blamed. That we would’ve been blamed them.
Josh:
Okay. There you go. There you go.
Colin:
Important distinction. Thank you.
Josh:
So as we move on from inflation, are there other ideas or concepts that you think are often miscommunicated?
Colin:
That’s a really tough question. I think that we try to consume things in bite-sized chunks when there’s way more nuance to it. We try to draw conclusions way quicker than it’s maybe warranted, and we’ve got way more confidence in those conclusions. You can go up and down the financial spectrum as all these things. You get into a conversation about what is the right interest rate for a mortgage? So what’s the truth there? I don’t think that’s a situation where there is a truth other than if you take a variable mortgage, you may or may not be in a better position as rates change. The truth is not that there’s one better than the other, the truth is that it’s a risk and you’re trying to manage it.
Josh:
Right. I just thinking back to the inflation again, getting held up on that, I’ve been looking for this quote because I guess as the president, I’m going to misquote it here, the president of the Central Bank of New Zealand, and he basically told everybody, talking about poor communication. He basically told everybody, “Just reset your inflation expectations and inflation will go down.” It’s like, “Oh, that’s all we need to do? Okay, I’ll do that. No problem.” He said-
Colin:
“Thanks for that.”
Josh:
He said, “Spend less, that Christmas demand less of a raise and inflation will go down.” It’s like, “Okay, I wish it was that easy. You’re trying to influence millions of people to do something like that.” But I can’t find the exact quote. It was hilarious.
Colin:
Well, no, I threw that thing up on LinkedIn a little while ago because again, we’re at the situation now where the regulators are going to get back involved in setting more stringent requirements for lending because people have pushed the envelope so far. I was lamenting, I was like, “Just once, I’d like the human condition to be such that we all just voluntarily pulled back from the edge so that we didn’t have to have regulatory bodies come in and fix these things.” If you just behaved a little more rationally as the human condition, it was a bit more rational, we wouldn’t need to have these interventions because again, people push themselves to the limit and there’s all kinds of reasons internally. The system will want you to push yourself to the limit, that we overextend ourselves over and over again. Then we need to have regulatory relief from that.
It’s painful when we get to that stage. We could see this coming. We could see that there was going to be a correction. If everybody had just taken a breath, it’s patience. Patience is the thing. People are asking now about buying a house and it’s like, “Well, be patient.” Don’t feel it’s any kind of urgency that you have to do it right away, otherwise, you’re missing out on something. Wait until you can do it comfortably. Being patient right now could mean that prices will drop a little bit or at least stay where they are for a while while your wage goes up. But you could put yourself in a much better spot over the next little bit by being patient where everybody gets in trouble, both individually and on a macroeconomic level is being impatient “I need this now. I could afford this. They pre-approved me for a $2 million mortgage, so that must be what I can afford.” No, it isn’t what you can afford. Stop it. So if there could be more patience, then I think that we could have better outcomes with less bad outcomes.
Josh:
Yeah. Well, that’s for sure. That’s for sure., if you can just influence the entire population to be more patient and be more rational, we’ll be just fine.
Colin:
Well, see on my planet, which I’m convinced that I’m going to go back to one day, that’s how it works because I have trouble fitting in on this planet.
Josh:
Yeah. Well, that’ll be an interesting planet. I’ll look forward to reading a book about it one day. One of the books I’ve read recently, there is a, Foreign Planet is a sci-fi book. The foreign alien population, they could not communicate anything that wasn’t a truth. So really interesting concept, actually. But what we’re talking about here, this alien population, they didn’t have any verbal communication that was different from their internal communication, so their internal communication was basically broadcast to everybody that was around them. So it was, people were very transparent if you want to call it that.
Colin:
So hey, if we could make that happen for all of our politicians and central bankers and stuff, that’d be great, wouldn’t it?
Josh:
I don’t know. I’m not sure. I’m not sure we want to hear everybody’s thoughts at all times.
Colin:
I’d watch it. That would be watchable for me.
Josh:
Yeah. Yeah, no doubt. No doubt. Well, speaking of central bankers, so this is another thing where I think maybe it’s not miscommunicated, but what is communicated is often misconstrued because we are so intent now on focusing on what the central bank is doing and what the central bank is saying that it seems like investors are more and more taking this to heart at the projections that the central bankers make. You had a great example of this at a recent presentation where you went to this presentation, they showed you at the presentation, the presenter said, “This is what the central bank was projecting a month ago for the interest rate path over the remainder of the year.”
Then he said, “Well, this is what they’re projecting today,” and they were two quite different projections. So the natural question for you, maybe thinking a little bit deeper than most was, “Well, why should I trust the numbers today?” If we go back historically and look at the data, look at the numbers, it’s like, why should you ever trust the numbers? Because the projections a year ago are way different from where we ended up, and the projections going forward are way different today than they were a month ago or a year ago or anything like that. We have seen historically that central banks, they are not that great at projecting where their interest rates are going to end up. So why do we listen to it?
Colin:
Well, the same reason we look up in the skies and try to figure out whether it’s going to rain or not. The entire history of humankind has been about predicting the future. The market for predictions is way, way bigger than the supply of reliable predictions, but it doesn’t stop people from hoping. The thing about central bankers is they’re trying to influence the economy in a certain direction that meets with what their goals are. So I truly believe this, that Tiff will stand up and give a speech. He runs to the back room and then takes a look to see what the immediate response is and see if things are moving in the direction he wanted to move them. He’ll be happy if he doesn’t have to carry through and actually do anything. If he can move things by talking, then his job is done, but they are going to continue to adjust, and they should continue to adjust their course as new information becomes available. That’s what we should expect of them.
What we should stop relying on so much is when they say what they’re going to do for the next year. The market seems to want that, and the market seems to guess that, and there are those who make their living trading on that, what expectations are. There’s a whole mechanism around that that’s got nothing to do with an individual making decisions with regards to their personal financial situation. So if you’re going to consume this as entertainment, knock yourself out. It can be a little interesting. But if you think you’re learning anything that’s going to help you decide whether you should go fix your variable in your mortgage, no, no, no, no, no, it’s not going to help you. I don’t care how many Sunday editions of The Global Mail you sit and read, you’re going to be no further ahead because things are going to change and they’re going to change materially.
We’re walking through this right now. Right now, we’re going through a period of time where things are not turning out the way anybody was projecting them, and we’re catching up, we’re reacting. We’re reacting to things as they happen, and you should. Nobody’s financial plan that I’ve worked with over the last 30 years included a period of, “Oh, all of a sudden we’re going to get 8% inflation for a while and then it’s going to go back to two or three.” But this is a material blip. This is changing the direction, so you should react to it. When you react to it, don’t project it forward that this is going to continue in a straight line because it isn’t. Learn something. Just say, “Okay, what are the risks right now, and how do I personally want to handle these risks?”
If you’re going to do a mortgage right now, and again, we said this our last podcast, it’s if the fixed rate is a comfortable payment for you and you don’t want to be thinking every day, every week, every month about where interest rates are, sure, go ahead and do that. If you’re going to do a variable, you need to make sure you have the capacity to deal with bad news. Don’t do a variable at your absolute limit because now you’re setting yourself up for failure. That’s a risk you shouldn’t take. That’s the way to deal with the uncertainty. It’s not to think you know something. Again, it’s not what you don’t know is going to hurt you, it’s what you think you know for sure that just ain’t so. If you’re sure because you read that article on the weekend that interest rates are going to go blah, blah, now you’re in trouble because nobody should be sure. The people setting rates aren’t sure.
Josh:
You think we’d be better off as consumers of news if every time we put out a prediction of the future, there is a disclaimer before it in the immediately preceding sentence it said, “For the record, these predictions are inherently unreliable and probably have a 0% success rate over time, or 10% or 5% or whatever it is?”
Colin:
Really, you think we’re one disclaimer away from fixing the world, Josh? You think that’s how simple it is?
Josh:
I am just asking. I’m asking if you think we’d be better. Will that make us better off by people understanding that, or will people just look right past it and say, “Well, I’m still looking at the projection here, and I’m basing it basing my life off of that anyway?”
Colin:
In the entire history of disclaimers, I’m not sure that they’ve ever had the effect expected because again, in the financial industry is a great example of what commissions are being paid. So there’s some pretty egregious commission schedules out there over the years. If you go back into the ’90s, there’s really egregious commission schedules out there. So it’s like, “Well, if we disclose this to the clients and they make a choice, then it’s an open market, therefore, the market will correct for this.” Well, guess what? It didn’t, because people get disclosed so much. Have you read the AppleCare Agreement? Nobody’s read the AppleCare Agreement, but there’s a lot of disclosures in there.
I had to update my Call of Duty profile here recently, and I had to read through all of the disclaimers for Call of Duty. I just want it to start. So you flip to the end, you say, “Yes,” and you’re in. So I’m not sure, in fact, no, I am sure, there are very few times I’m sure that putting a disclaimer on the news is going to help anything. People are still going to flock to it. The study that you referenced, you were talking about on the podcast, if it was podcasting or TikTok, I forget where it was that you… again, the more outside of the normal and opinion is the more likely it is to be viewed. That inverse relationship between the truth and attention, the studies are now coming up and showing us what we know to be true. That’s a thing. At a time where content creation is relatively easy, people are going to create content that’s going to get eyeballs because that’s a business model, and it’s not going to be for the public good. That’s not the motivation.
Josh:
So another one that, I don’t know, grinds my gears might be a little strong, but we see it communicated so much about job layoffs from different companies. Company X laid off 10,000 people or company Y laid off 5% of its workforce, whatever. Just to be clear, this is very meaningful for those people that got laid off and never a fun experience, I’m sure. But to take this and turn it into something that is actionable or useful for people I think is just totally misguided. Businesses are for-profit entities and they operate to maximize, for the most part the profits that they’re making, and there’s going to be layoffs. There’s been layoffs as long as time, and there will continue to be layoffs. Every organization does it to some extent that is for a for-profit organization, but it doesn’t really tell you anything, especially from an investment perspective. I think some people misconstrue that.
Colin:
Well, no, because again, it’s just the thing, and again, my experience. So I worked in the fishing industry back in the late ’80s, early ’90s. When the plant would announce they’re laying off 1,500 people, I was in the office when we had 2000 applicants for the 1,500 layoffs because everybody wanted that layoff. “Dad, put me on EI for the summer.” So the news was like, “Oh, my God, this is terrible. These people are out of work.” We’re at the plant going, “Well, no, we need some of these people to stay working and they don’t want to work,” so the headline wasn’t the actual story.
Josh:
Yeah-
Colin:
Everybody thought it was terrible.
Josh:
It’s not always a bad thing. It’s not always bad thing, right?
Colin:
Sometimes it’s horrible, other times it isn’t. Most of the time it’s just a thing because again, with the current labor market, there’s a lot of opportunities out there. So on a macroeconomic level, I think that’s more valuable. If we go back to where, are we on the right path or where are interest rates going? All that kind of stuff, if we’re seeing bad numbers in employment, which we haven’t, but if we see bad macroeconomic numbers, okay, that’s the thing. That’s information. That can tell you whether the pressure on the Bank of Canada is in one direction or the other.
Notice I didn’t say what the Bank of Canada’s going to do because there’s never one variable that drives them. It’s always an aggregate, so that may change that. But again, the local news is going to say that they just laid off 3,000 people at the call center of the plant or whatever. Locally, yeah, that’s big news. That’s important news that’s going to affect that community, that’s going to affect businesses in that community, but it doesn’t inform anybody from an investor standpoint for sure. That one use generation is not going to be helpful.
Josh:
I guess that’s where some of my gripes come from on this stuff is we always are looking through it through an investment lens. So the great example, the tangible example of this layoff thing is when we were buying Shopify shares last year, there were a bunch of layoffs going on at the same time. Again, people look at these headlines and say, “Well, why would you buy shares in a company that’s laying people off?” You can look at it from a bunch of different angles, but the actual fact that they’re laying people off does not factor into any decision that we’re doing from an investment perspective, really.
Colin:
Anything measured in one dimension is going to have huge issues at some point, and this goes for a stock, a company. This goes for anything you’re looking at. If you look at it in one dimension, if you have a bonus program at work that, “Hey, you’re going to get a bonus based on gross sales,” that’s terrible because people are going to screw the system to get that one number. There’s a whole bunch of other things like profitability and customer service. There’s all kinds of things that can go by the wayside. Anything you look at, do or reward in one dimension, you’re opening yourself up to very, very material risk. To say, “Well, Shopify is laying people off, therefore it’s a bad investment.” No, by the same token, “They just hired 10,000 people. They must be a great place to invest.” That’s not true either. It’s part of a really complicated look at a company. It’s just one data point.
Josh:
Yeah. What else have you got?
Colin:
Well, I think I’ve talked through everything that I have on truth and lack of truth. I guess in closing, remember, if you haven’t paid to be there, you are the product and they’re trying to keep your eyeballs. So it’s for entertainment purposes only. They’re not trying to educate you. That’s not their goal. That’s not the business model you’re looking at. If you have a question, you develop a thought, you draw a conclusion, give us a call and we’ll discuss it a little bit and see if you’re in a good direction or a dangerous direction, because you never know until you get some perspective.
Josh:
I think you just called our entire audience the product.
Colin:
Yes. Well, I actually, no. Yes? No? Wow. I don’t know how to answer that. All right, tune into the next podcast ’cause I’m going to sit back and think about that to figure out whether you’re the product.
Josh:
That’s the truth. Talk to you next cast.
Colin:
Thanks, Josh.
Speaker 4:
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Speaker 1:
Verecan Capital Management, Inc. is a registered portfolio manager in all… Verecan Capital Management, Inc. Is a registered portfolio manager in all of Canada except Manitoba. So sorry, Manitoba. Nothing in this podcast should be considered as a solicitation or recommendation to buy or sell a particular security. Statements made by the portfolio managers are intended to illustrate their approach and are meant for information and entertainment purposes only. Opinions expressed in this podcast are those of the portfolio manager only and do not necessarily reflect those of iA Private Wealth, Inc. iA Private Wealth, Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth, Inc. operates. This should not be construed as legal, tax or accounting advice. This podcast has been prepared for information purposes only.
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