Podcast - December 12, 2023
In the latest episode of “Barenaked Money Podcast,” join us as we welcome the insightful Matt Kempton for a deep dive into the whirlwind of events that have shaped the last four years. This episode is a rollercoaster ride through time, revisiting landmark moments like the tumultuous COVID-19 pandemic, the gripping global recession, and the groundbreaking development of vaccines. Colin & Matt navigate the choppy waters of supply chain disruptions and the soaring waves of inflation with sharp wit and profound insights.
Witness a thought-provoking conversation that challenges the norm, as they explore the delicate art of distinguishing genuine investment opportunities from mere noise in the chaos of world events. Get an insider’s look into the daunting challenges faced by central bankers as they steer the ship of the economy through uncharted waters of uncertainty.
It’s not just a podcast episode; it’s a journey through space & time and a treasure trove of insights. Tune in and come along for the ride.
The transcript is automatically generated
Announcer (00:00):
You are about to get lucky with the Barenaked Money Podcast, the show that gives you the naked truth about personal finance. With your hosts, Josh Sheluk and Colin White Portfolio Managers with Verecan Capital Management Inc. This week you’re about to embark on part one of a two-part series featuring special guest Matt Kempton from our portfolio management team. In the series, Matt takes Colin on a journey through space and time. We hope you’ll travel along with us.
Colin White (00:29):
Welcome to the next episode of Barenaked Money and we’ve got a special new co-host today, Mr. Matthew Kempton of Halifax, Nova Scotia is going to actually run this entire podcast and I’m just going to sit here and react. Are you already to run a whole podcast with Barenaked Money, Matthew?
Matthew Kempton (00:52):
I am ready and excited, but just at a point of correction today, I’m in Dartmouth, Nova Scotia.
Colin White (00:58):
Oh, your cus I apologize. So what was it that you wanted to get me to live react to?
Matthew Kempton (01:06):
Well, this is the time of year Colin, when a lot of year in review content comes out, but I thought we’d take a different approach to that and look back. In fact, over the last four years to this time in 2019, a point in time, it actually had some similarities to where we sit today. I mean, we were, this time four years ago, we were in a market that was still rising, but economic growth was slowing the yield curve and inverted economists were calling for a recession to happen next year. There was a US election coming next year. So there were a lot of similarities to this time four years ago to where we sit today. And in fact, I thought just to point, to make a point of that, I pulled a few headlines, some from today, some from 2019, and I thought I’d just throw them at you to see if you could distinguish between one, was this a 2019 event or was this a 2023 event? So how do you feel about that game?
Colin White (02:03):
Oh, I didn’t know this was going to be skill testing. I thought I was just going to get to pontificate on all of my other experience, but all right, I’m in for, I’m not above looking silly for the amusement of the crowd, so absolutely. Come at me. Let’s see how much I really know and don’t know.
Matthew Kempton (02:21):
Okay, first headline, Oxford Dictionaries word of the year is climate emergency.
Colin White (02:28):
Ooh. Ooh. I did see that go by and I don’t remember it recently, so I’m going to say 2019.
Matthew Kempton (02:35):
Oh, dinging ding ding. Very good. Okay.
Colin White (02:41):
I’m sorry. Was that the word of the year or was that something that made the dictionary last year?
Matthew Kempton (02:46):
Well, they call it the word of the year, and it is two words, but Oxford dictionaries, they don’t keeper the words. So I think they make the rules here.
Colin White (02:56):
Well, they’re also probably struggling for a business model being more out there, more dangerous maybe is their thing.
Matthew Kempton (03:06):
That’s true. Autocorrect is, it’s probably really hurt the dictionary business. I haven’t bubbled up that before.
Colin White (03:12):
Well, another business that’s suffering is the encyclopedia business. So yes, some businesses have been impacted by that, but no, I mean, we’ve had the polar vortexes and we’ve had the tropical rivers and we’ve had all kinds of other dangerous sounding phrases come up to describe whether events catching lots of eyeballs. But yeah, no, this is something that could equally apply to now. I mean, we’ve had certainly all across Canada, we’ve had climate events over the last year that could be classified this way, but no, I remember that one. That’s long ago. There must be a better word this year. Hey, do you have this year’s word?
Matthew Kempton (03:51):
I don’t actually.
Colin White (03:52):
Oh, okay.
Matthew Kempton (03:55):
All right. So very good on number one. Let’s move on to number two here. You’ll never believe what Donald Trump just said about nine 11.
Colin White (04:06):
Well, this is a straight up guess. He said, you know what? He would not have waited until now to have said something. So I’m going to go with 2019 again because he doesn’t hold back a whole lot.
Matthew Kempton (04:21):
You are very good at this game. Two for two.
Colin White (04:26):
Well, it’s one of those ones that, yeah, and I guess to tie this back to a theme, we’re talking about events and or headlines that maybe you would think are new now that are maybe causing additional stress or problems now. And I think your point here is that these things are actually from four years ago and over the last four years, the world has not completely fallen apart from an economic perspective. So maybe they were not the harbinger of death and gloom that maybe people thought about back in the day.
Matthew Kempton (05:03):
You saw right through my thinking there. So you’re exactly right on those first two. But now let’s see if I can stop you on the last one here. Lumia begins a campaign to sterilize its invasive hippos. The escaped ex pets of drug cartel had Pablo Escobar,
Colin White (05:22):
But Pablo Escobar hasn’t been a thing for a long time. I want to stick with 2019. I don’t think there’s new headlines, but Pablo Escobar, now
Matthew Kempton (05:31):
You got that one wrong. So two for three, still a passing grade, but I finally stumped you.
Colin White (05:37):
Well, yes, sterilized hippos is something that hasn’t shown up on my feet. Maybe I’m clicking on the wrong kind of news.
Matthew Kempton (05:44):
I have you pretty obscure here to
Colin White (05:46):
Stump you. Well, there you go. I didn’t know you could sterilize hippos, but anyway, go nerds.
Matthew Kempton (05:54):
So you’re right. So the point here was to say there’s certainly some that existed between 2019 and today, but of course a lot has happened between now and then. We did experience a recession, but not for the reasons that they were predicting this time, November, 2019. It was of course because of Covid and the resulting shutdown of the economy. And since then, the economy has reopened. Vaccines have been developed, markets have recovered, people have gone back to gathering, eating, home, traveling, normal types of things. So now with the benefit of hindsight, we might say, well, that wasn’t also bad. It had a bit of fear of the unknown of the disease. That’s a bit of pain in the market, but it’s mostly all work so obvious. Now what I’d like to do in this episode is go back to some of the major events we experienced over the past four years and try to put ourselves in our shoes at that time and reflect on how we felt at the time of that event, what we thought might happen, and then what really did occur. So well just
Colin White (06:56):
Try to learn to go back and re-experience previous emotions so that when we feel those emotions this time that we have a bit more of an opportunity to make the right choice.
Matthew Kempton (07:06):
Right, absolutely. I mean, we have, there might be a bit of PTSD over some of these events here. Now we’ve gone through a long, over the past four years, of course, but let’s Very good. We’d started the beginning here, January, 2020. So this is to you, Colin, just curious about starting here with this headline, how you felt at this point when the first case of Covid reached the US traveling, we came back to Washington state from Wuhan, we’ve got one case that’s made it to this side of the world. How did you feel at that point, and then what did you think it all meant?
Colin White (07:41):
I was listening, but again, it’s difficult and with everybody competing for eyeballs to know when to start to pay attention. So I was not an early adopter of being afraid. I mean, I say this today, I’m not a doctor, so it’s not as if I want to look at information and then vary from what the recommendation of the authorities are because I don’t feel I’m smart enough to disagree most of the time. So I’m very much a rule follower. You tell me exactly what the rules are. I won’t live up to all of the rules, but I really don’t trust my ability to outthink the experts, certainly in an aggressive way. I may be more, I may allow my concerns, I may want a greater margin of safety and choose not to do something. But no, I wasn’t the first couple of cases that came out. I didn’t feel that there was anything major there. But I mean obviously that quickly changed, but I’m not sure where you’re going to go with the headline. I don’t want to steal your thunder. So no, I was not worried when the first case showed up in the US and it was starting to be reported.
Matthew Kempton (08:46):
Well, fair enough. But as you say, it did quickly change. So I want to take you now to March of 2020. World Health Organization finally declared we were in a global pandemic. What’s going through your head at that point and where did you see things going?
Colin White (08:59):
Well, it was I think a real sense of, wow, what are all of the consequences going to be out of this? What’s a reasonable expectation for how long this is going to take? And yeah, just a complete discomfort with what the course was going forward. Now, economically, I was not as concerned economically because this was going to change economic activity, but I didn’t, right at the outset, I’m going, Hey, there’s going to be some big winners here. Healthcare will be big winners, technology are going to be big winners. I mean, when you started taking a look at the globe, and it was funny, it was one of those events where the whole globe started working on one thing. So there was maybe a lot more cooperation. And so I don’t think I was as concerned from an economic perspective that things were going to be terrible.
(09:54):
I thought that there’d certainly be some dislocation, but one thing the market does is just redistribute capital. And I’m not sure when, I don’t think it would’ve been right in March. It may have started in March, but taking a look at watching the global governments react and how quick they were to move to stimulus, similar to 2008 when the financial collapse happened and all the central banks got together and decided to print money to get through a bad smash, this again was one of those ones that largely, there wasn’t really a villain. This was like us against nature kind of thing, which is even more freeing for the most part. This was seen as this is just a global challenge we all have to get through. So maybe more cooperation could be hoped for at that time. But it was a huge unknown. It was a huge unknown from the perspective of, oh my God, what’s going to happen next? So yeah, I was sitting around talking with people and gazing at my belly button going, wow, where does this go? For sure.
Matthew Kempton (10:59):
Well, I consider myself an optimist, but I have to say I wasn’t as optimistic as you through that period. I remained optimistic, but on the scale of my optimism, I found myself on the other side of it. Now, maybe in my defense, I mean, I just had some numbers here around market related pieces that were going on. The s and p 500 and the TSX fellow book, 34% in very short, fastest bear market, it’s ever occurred back. You might remember some of those days where we hit the circuit breaker a number of times and the market and investors were even pleading that we should just close the market for a period here until the dust settled. That was within that period, we were all sent home to work. And so it was a unique period. It was unique. Maybe I’ll just go with, but those certainly reason to believe in technology, believe in healthcare, and then March 23rd came quicker than we would’ve expected, and no one knew it at the time, but we found a bottom on the market.
Colin White (12:08):
Well, and it’s interesting you bring this up because again, I tell the story all the time, part of what I can sit here with is more experience than you have had. So having sat through the tech wreck of 99 into 2000, having had money in the market and been working in 2008, those are very seminal events in my career where things really, really blew up and it looked like it was going to be a really, really big mess, and it never manifested. 2008 was close to the collapse of the monetary system. So when you come through a couple of these events, you see the other side, this isn’t my first rodeo. Wow, this is really bad. And again, I don’t want to be glib. I always say this when we start talking about these topics, the human toll that happened is almost immeasurable, and it was an absolute tragedy.
(12:58):
And not to belittle for a minute any of the pain or suffering that everybody endured during that, the markets allocate capital, and as long as there’s a use for capital and a source of capital, it can level itself out. My confidence in that comes from watching really major events that look like it was going to bring the whole system down, just work their way through the system. I always like it back to coaching sports again. First time you’re coaching a kid playing basketball and they run up the floor and they run into somebody and they get the wind knocked out of them, they can’t breathe, they think they’re going to die. It’s the very first time they couldn’t breathe. And you go and you’re looking them in the eye and they’re looking at you in the eye and they think they’re dying. They don’t think they’re ever going to be able to breathe again.
(13:41):
And gradually the breath comes back after that moment, that kid now no longer fears having the wind knocked out of them. So when it comes to market tumult, and as much as people study and go to school until you’ve actually felt it, and you’ve sat there in the moment, because again, these things can be obvious in hindsight, but in the moment, nothing’s obvious. It’s scary, and there’s not really a replacement for experience when these things happen. Where did the confidence come from? Don’t entirely know, other than I’ve seen it be this messy before and again, that was for me, that was where my calm came from. We’re going to find a way out of this. I’m not sure how quickly whether it’s going to be six months from now or a year from now, or six weeks from now. But yeah, no, there’s some opportunity here for sure.
Matthew Kempton (14:32):
Well, and then after March, we enter a strange period maybe as a society. I mean, do you remember Zoom parties? Did you take part in those with family or friends?
Colin White (14:43):
We tried, and again, this was pushed a lot of technology, right? I mean, there’s all kinds of things that we were being to adopt that got pushed and should have been pushed. We were being slow to adopt for no reason, like buying a house remotely, being able to do legal agreements remotely, being able to do all kinds of stuff remotely, which honestly, the technology has been there for a couple of decades, but we just had to slow to adopt. So silver lining was pushed, all those things along, and I think a lot of those benefits have stayed, but we still are able to do things way more conveniently than we were pre pandemic.
Matthew Kempton (15:18):
Absolutely. That’s another really good point. It’s easier to be, and this is the way we’ve always done it, sort world and approach this event’s forced. How would you build it if you started today?
Colin White (15:30):
I can remember every time another company or another client became comfortable with doing thing digitally, I kind of celebrated. I said, there you go. The whole world just got a little bit better. Even the government, another government agency is willing to deal with this electronically, other client’s comfortable doing. Then again, it’s not a selfish thing, it’s just that the world’s more efficient that way, and if we can be more efficient, we can spend our time and energy doing other things to improve the world. So I’m a huge fan, and I do in the moment. I was celebrating. This is great. And again, I was still optimistic that when this is all over, some of these changes are going to stick
Matthew Kempton (16:07):
The next time I’m here. Maybe you weren’t so surprised when this finally happened in December of 2020. Vaccines were finally, if I may finally developed, and the markets reacted and it felt like things were different immediately, but you were already ready for that.
Colin White (16:24):
Well, I mean, again, I’m a big fan of science and I’m a big fan of nerds. I mean, nerds are great. Some of my best friends are nerds, and I’ve given enough time they can work shit out. So I figured it was relatively inevitable that this was going to happen out timeline, huge deal. And under the pressures of time and what was at stake, the quality and empathy of what was put forward, and again, the information was changing so quickly that you, I don’t think, and it’s funny, I’ve had clients say to me many times, we’ll wait until everything gets all sorted out and then we’ll make a decision. Everything’s never all sorted out there. There’s no moment in human history. We say, all right, everybody stands still. We all have it sorted out. If nobody does anything new, we’ve arrived. No, there’s always the next thing.
(17:07):
So yeah, the vaccine came out, but then there was all kinds of questions about supply and efficacy and changes in the virus and stuff. And then there was the mainstream news, and then there’s a governments trying to develop policy in real time. Governments don’t do things quickly. They develop a policy that can take two or three years. They were being asked to do it every two or three weeks. So again, there was a huge discomfort for sure, the headline, Hey, we have a vaccine. It was nice. And I think that was seen as a positive thing, and the market is where everybody votes. So I don’t even know. Did the market respond that strongly to that particular event? Is that something you have in your notes?
Matthew Kempton (17:47):
It is noticeable on a chart. The day of the announcement, I think they called it Pfizer Monday, even the day after that there was announced that the markets, they took the stance of, okay, we can see a path forward here now. And like you say, capital was allocated and people went along.
Colin White (18:03):
Yeah, no, absolutely. I mean, and that’s what the market does. I mean, if there’s an announcement and everybody’s going to have their opinion on timeline, it’s going to take two to three months to develop enough supply and do distribution, and then they’re going to start betting on what the timeline is going to be. So yeah, the market is the number one leading indicator of the market.
Matthew Kempton (18:27):
Now moving into 2021, I mean, as you remember, through all through 2020 and through all this period, we were all stuck at home and everyone collectively decided we’re just going to order things from Amazon and order goods online whether they need them or not, we have to continue to shop. And so shipping rates went through the roof, and then here in March, the container ship ever given ran a ground in a Suez Canal march, holding up billions in trade. The ship was freed six days later. Well, how did you feel? What was going through your mind this?
Colin White (18:59):
Well, it was interesting because I think that that story got a whole bunch of extra views because everybody was getting so used to having stuff delivered to them, and it was one of those ones that absent everybody sitting at home and waiting for Amazon back, even though there may not have been one Amazon delivery on that boat or any of those boats that are being held up, it drew a lot more attention to that because we began to look at all these transitory issues. I can’t buy a snowmobile. I can’t buy a bicycle. I can’t. There was all of these things, you couldn’t happen. So well, where’s everything stuck? And then you start looking at the boats. Now again, those are just one of those things that it was going to work itself out. That boat wasn’t going to stay stuck forever. That was going to get itself cleaned up.
(19:40):
Do I have to wait another two months or three months to get my bike? Yeah, maybe am I going to have to wait another year to get next model year in my car? Sure. But I don’t think there was any direct line between any of the slowdowns and shipping to starvation or any part of the world. It was just we had nothing else to pay attention to. This was the other problem. Everybody’s sitting at home, all of your activities are taken away. You’re not driving your kids to sports seven nights a week. You’re not socializing all the time. You’re not coming home dead tired. You had a lot more time to pay attention to things. So everything would be amplified online consumption of news actually was through the roof as well. Everybody wanted to read what was going on, and then tribes developed and everybody was getting their own newsfeed, and that didn’t help anything. But yeah, when that happened, it was like, yeah, it’s inconvenient, but I don’t think it’s a harger of anything major to come. But there were people who were going like, oh my God, this will never sort itself out. Shipping will never return to normal.
Matthew Kempton (20:42):
That’s right. I mean, certainly saw a path to it improving, but it was pretty fascinating just looking at, there was realtime shipping maps you could look at and just see the ships sitting off the coast of Long Beach sitting off the coast of Vancouver, and it was pretty significant sitting out there for 14 days, but that could be processed. It was just a strange period as we all said, we need a new TV or we need some more goods. And then there was worker shortages as well that amplified that.
Colin White (21:14):
Well, I think the real danger is that we look at all these things and we try to turn them into an investible idea. What’s the investible idea? Nothing. There’s a boat stuck in the Suez Canal. Why does it have to be an investible idea? Well, I know how it’s going to work out. So is that going to impact the price of consumer discretionaries? Does that mean the Spotify is going to do better this quarter because more people are sitting out listening to music? I mean, that was a part of what drove me nuts professionally, and because people had time in their hands, they tried to turn one of these events into an investible idea. That’s not how investing works. It’s not about noticing a ship getting stuck and deciding to reallocate part of your portfolio. Nothing. There’s no reliable thing to do there.
Matthew Kempton (22:00):
That’s true. But be careful. There’s a lot of investor newsletters that really rely on that mattering to keep selling. So
Colin White (22:07):
I apologize. I’m like the guy who just entered the fitness industry and said, listen, you want to lose weight, move more and eat less. What’s next? I mean, I just wiped it like a $3 trillion industry. The $3 trillion industry just cease to exist because I just said, eat less and move more. You’ll lose weight. Next case,
Matthew Kempton (22:25):
Capital will be allocated differently. All because of this.
Colin White (22:29):
I can always hope. Right?
Matthew Kempton (22:31):
Moving markets. So now we’re moving to July here. This is July, 2021, and Jerome Powell says something for the first time, the famous phrase, now he says, inflation is transitory, inflation is 4%. At the time in the us where did you see inflation going at the time and what concern did you have with it?
Colin White (22:51):
Well, I thought it was a bold statement because again, I think that there were drawing conclusions that were not in evidence. I think that there was a lot of pressure for them to either act or come up with a reason not to act. I think everybody was looking at Jerome and all the other central bankers and saying, you either need to fix this or you need to tell us it’s not. So I think they took the path and Tiff, Macklin and Canada took the same route of saying, yeah, this is transitory. And in hindsight, both of ’em said, yeah, no, it wasn’t. But I think the true thing was that as inflation began to kick in, they weren’t convinced they needed to act right away. It was not apparent then that they needed to act. The words they put around that were transitory, that was how they explained to the world why they weren’t acting.
(23:39):
And I think it was a bit of a misnomer. It certainly was a miscalculation because there was the confluence of things that came together between the backup, the supply chain interruption, and then you got into this in the accounting world, we used to call it just in time manufacturing where the steel showed up at the front of the plant and the car rolled at the back of the plant and everything showed up just as it was needed. They went from that because of the supply chain disruption to just in case manufacturing where you had to stockpile things, and you were companies that was now in their best interest to keep an inventory of things just in case because of all these disruptions. So that is less efficient. That’s going to drive up the cost of things. So to the extent that this was a material change in manufacturing, it was fairly apparent at the time that you know what?
(24:24):
This might stick. This is a less efficient way of doing things. Globalization had kind of taken a hit Mr. Trump had seen to that. So countries are more interested in doing their own thing. Canada did not have the capacity to produce any vaccines. Then of course, there’s lots of votes to be gotten for the government to stand up and say, Hey, we’re going to have a plant here that can produce vaccines because the country’s producing vaccines said, yeah, when all our people have vaccines, then we’ll send you something. And again, there’s a lot of political credibility or political votes to be picked up by saying, that’s not acceptable. We’re going to build that capacity here. The reason we don’t have vaccine capacity in Canada is it’s not efficient to have it here. So all of those things were inefficient compared to where things were. So yeah, there were reasons, and I was a little bit questioning whether it was transferring or not. I could see the case work, but I could also see where there’s probably some permanent increases here that are going to seep their way into the system.
Matthew Kempton (25:24):
Yeah, I’m sympathetic to the position he was in. It was a hard time to make any assessment like that. I mean, you had such supply chain disruption. How much of that might be permanent? The economies, all of this stimulus, how will it play a little more come? And so I think it was reasonable to say that at the time it just maybe wasn’t so reasonable to carry that narrative for another nine months before really taking action when inflation had spurred maybe a little bit out of controls.
Colin White (25:58):
Yeah, no, I appreciate it. And I have some sympathy as well because they’re working on delayed information. They don’t have current information. Their information is 30, 60, 90 days behind, and the most current stuff they have is very prone to being restated. If you think by November the fifth, we accurately know what the GDP number from October was, you’re a little optimistic. The data is not that clean or available or reliable, that quick. And they were trying to parse this all together, not only internally within the US or within Canada. They were also trying to parse together the globe, because again, the Canadian and US economies do not exist in a vacuum. So if they had to not only parse internal numbers on a delay, they had to take a look at what the global were. And quite honestly, it was a bit of a mess of spaghetti, but it was very difficult to find directions and things.
Matthew Kempton (26:53):
Well, absolutely. And we knew we were in a period where the purchasing of goods and services had been so skewed, where generally services are a bigger part of the economy than goods, and it completely had flipped. And so when will that normalize? Will it normalize? It still hasn’t fully, so very hard to make an assessment at that time.
Colin White (27:11):
And then savings rates are going through the roof. So a lot of people were paying down credit cards. That money was sitting in bank accounts and waiting for hot tub to be delivered. There was a whole year or two worth of weddings that got canceled, that there was this huge backlog of weddings that had to happen. My favorite was watching all the kids turn to legal age to drink when the bears weren’t open. And then they all went running down to the bears after the bears opened up again, and the number of bad decisions that had to get crammed into a very limited time and space was truly magnificent to watch. But everything’s caught up.
Announcer (27:44):
We’re going to leave you there on that optimistic note, please join us next week for part two.
Announcer (27:52):
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Announcer (28:18):
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. This should not be construed as legal, tax or accounting advice. This podcast has been prepared for information purposes only. The tax information provided in this podcast is general in nature, and each client should consult with their own tax advisor, accountant, and lawyer before pursuing any strategy described. As each client’s individual circumstances are unique, we’ve endeavored to ensure the accuracy of the information provided at the time that it was written. However, should the information in this podcast be incorrect or in incomplete, or should the law or its interpretation change after the date of this document, the advice provided may be incorrect or inappropriate. There should be no expectation that the information will be updated, supplemented, or revised, whether as a result of new information, changing circumstances, future events, or otherwise, we’re not responsible for errors contained in this podcast or to anyone who relies on the information contained in this podcast, please consult your own legal and tax advisor.
