Podcast - December 19, 2023

Episode 91: A Journey Through Time & Space | Part 2

Welcome to a new episode of the Barenaked Money Podcast, where we explore the significant events and trends of the past four years with a focus on their financial implications. In this episode, we discuss a range of topics, from the personal and economic impact of delayed weddings during the pandemic to the global economic shifts caused by Russia’s invasion of Ukraine. We also delve into the challenges posed by rising interest rates from central banks, the ongoing concerns about inflation, and the potential for a recession in 2023. Throughout the discussion, we emphasize the importance of cautious optimism in making predictions and the remarkable resilience of the global economy in times of uncertainty. Join us as we highlight the invaluable role of financial advisors in providing guidance and perspective during these unpredictable times.

Episode Transcript

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Announcer (00:00):

You are about to get lucky with the Bare Naked Money Podcast, the show that gives you the naked truth about personal finance. With your hosts, Josh Sheek and Colin White Portfolio Managers with Rakin Capital Management, Inc. Thanks for joining us for part two of the series Journeys Through Space and Time with Colin and Matt. When last we left the guys, they were discussing all of the events of four years ago, and they had just got up to the point where things had loosened up a bit and we were able to get out and mingle. Colin had commented that there was a backlog of weddings waiting to happen, and Matt is about to share an interesting tidbit. Please travel along with us.

Colin White (00:39):

Welcome to the next episode of Barenaked Money, and we’ve got a special co-host today, Mr. Matthew Kempton. Matthew,

Matthew Kempton (00:48):

It’s funny you mentioned marriages because the next headline that maybe didn’t make it into big publications was that I got married in July of 2021, and that was a delayed covid wedding. So this was not planned, by the way, truly are just coming to him for the first time. But so many of these weddings were delayed, and of course we were planned for July of 2020 and then had to wait and see what will the rules be? Will we be able to move forward, make a call, no, or going to delay just, but that was true in my very micro case, but this happened across the country, across the globe, and so I think we’re mostly caught up now, I think. But it was just very strange.

Colin White (01:28):

Well, it’s funny. I mean, we say we’re caught up. I mean, the ripples are going to be felt forever because a global pandemic has changed the direction of humanity. So we never get back to anything. We move forward towards a more current equilibrium and it may resemble what existed before more, but we never get to move back. There’s too many things that are changing going forward, and I really do believe that the technological advancements that were pushed by the pandemic continue to reverberate, and I think that they continue to have a good side and a bad side. Every change depends on how you use it, but it has changed the water on the beans.

Matthew Kempton (02:09):

Yeah, I would agree with that. So no, I’m moving into 2022, February of 2022, we get just very sad news that Russia has invaded Ukraine igniting a bloody conflict now. So when that event occurred, where did you think we were headed from there?

Colin White (02:25):

My gut was telling me that this is going to be a very major disruption and there were going to be some significant and immediate outfall or outcomes from that, that were going to be negative because again, that’s got the major disruptions like that can cause everybody just to hold off. It can stop economic activity. Why? I’m going to wait till the war’s over. So it can be uncertain. And I think early on it was uncertain as to how it was going to resolve itself for sure. And I felt, yeah, there’s going to be a disruption here from an investment perspective. I immediately turned to, Ooh, what’s getting cheap that shouldn’t, because these disruptions tend to historically create an opportunity if you’re looking for it for something that is seemingly oversold for no apparent reason. But again, I’ll never stop saying this, not to undersell or underestimate the human tragedy, that was, it did stand to disrupt things in a very major way.


But it was interesting because even myself, I had as close to emotional reaction as I think I’m going to have to say, yeah, this is really bad. Investing wise, it was, well, no, we’re not going to act on that. This is not really, honestly, this is not an investible event. I don’t think it may change the fortunes of some businesses, but again, I think if you went out that day and tried to run or try to buy an arms manufacturer of sub description, some people maybe would be making those kind of plays. But I didn’t look at it as an investible event other than it may cost something to sell off, and that was just going to be, if the market sold it off, I’ll take a look for it. But it’s not, Hey, a war happened, therefore I need to go buy oil stock.


It wasn’t that. It was, let’s see how it plays out. Let’s take a look at what sells off and how reasonable we think that sell off is. So from an investment perspective, that’s kind of what it generated. But part of it is trying to figure out, hey, is this to start to World War iii? I mean Russia walking into Europe. I’m not a history expert, but that’s meant bad things in the past, so it could get worser from here. But then I fall back to, well, we’ve had two world wars and the economy found a way forward and we’re watching that play out. I mean, Russia, for all of being as mean as they are, they started shipping gas again. Why will they need to ship gas? I mean, there’s a self-interest here. It’s mutually assured that we need to continue a certain level of economic activity, and it’s in everybody’s best interest and in alignment of needs. We both need the same thing can cause cooperation between two countries that are shooting at each other.

Matthew Kempton (05:15):

Yeah, agreed. And you take the first stance of you or you see analysts take the approach of, well, what percentage of sales might be happening in Russia for any of these businesses? And that’s they should, if they go down by that much, well then that’s an efficient market. But as you say, will the conflict escalate and is that even a reasonable approach anyway, and how is it investible? Well, great question. And then so just following that, then we get into March and Central Banks finally begin raising rates. So they begin what has become the most aggressive, one of the most aggressive hiking campaigns we’d ever witnessed, but it began at that time. What paths do you think we were on for just generally and then for bonds? What did you think it, Benny?

Colin White (05:59):

Well, I knew it was going to change the balance for sure, but quite frankly, my initial reaction was about frigging time. I mean, we’ve had stupid low interest rates leading into 2008 where I got to believe everybody’s just sitting back and waiting for inflation to show up with interest rates at almost zero, and inflation wasn’t showing up. And I think there was a potential fear or an expectation that raised rates may lead to deflation and deflation is pretty ugly. So they left the rates where they were. So when this happened is finally we’re raising interest rates. Now again, they’ve been late to act and they all admit they’ve been late to act, but I mean, I’m not sure that that’s honest. I don’t know that the information was truly compelling enough to raise rates earlier. But yeah, it was bound to happen. And to me, I looked at it, this, yeah, this is just going to get back to something that I consider more normal.


Having a mortgage at six or 7%, I consider that more normal because I’ve seen mortgages in my personal life as high as 22%, so a six or 7% mortgage. Yeah, that’s more reasonable. And the knock on effect of what that’s doing to housing prices and bringing them more in line. And again, we spoke about that on a recent webinar that we’re in, a recent presentation we made to clients. It’s bringing things back in line. I mean, things drift out of whack and they drift back to me. This was just things are going to get back to more normal range. And furthermore, the central banks will now have the ability to cut rates again, which can be hugely simulative at the right moment in time. It’s one of those announcements they can make that immediately flushes right to the market, makes everybody more optimistic. They haven’t had, that hasn’t been a meaningful tool that they’ve had for a long time.


So they’re putting bullets back in the gut, which to me, I think says a lot going forward. So yeah, I was looking at same numbers. Everybody else is looking at thinking, yeah, this is going to change the balance. And I think we were probably more active from a portfolio management perspective then because it’s not an investible idea, it’s an investible event. When the rate of return on fixed income changes, then you have to do a calculation between that versus an equity investing. So again, not an investible idea, but it’s an event that’s going to go on that should change how you balance the portfolio.

Matthew Kempton (08:16):

Well, I think that was a good recognition of what was going on because I just pulled the numbers on what’s happened in the bond market since out. I just used the TLT, which is it’s a group of US treasury 20 year bonds, so government treasury bonds in the US of a longer duration 20 years, it’s down 33% since that point in March. So to begin to start the underweight bonds at that point, but then recognizing there’s a path here to be adding to would’ve been, it sounds like that’s the analysis you did.

Colin White (08:51):

Well, yeah, you begin looking at it again, you don’t know. You don’t want to catch a falling knife, they say, but when you see the coupon rates or the effective yields on various investments start to pick up, it’s like, all right, that’s interesting. Again, we’ve been underweight fixed income for a long, long time. In fact, for many people, they’ve been underweight fixed income for their entire career. I mean, interest rates are low enough, long enough that there was many, many experienced people who never saw fixed income investing as a thing because it never had been a thing to them. They’d never been out in the real world and had five or 6% or 7% or 8% on any kind of an investment that just wasn’t part of their lexicon. So it was a reprogramming for sure, and that you and I have joked about it. I gave you the expression, there’s people in this industry who got six months experience, but 30 years in the business. That’s the danger. If you’re the kind of person that came in and became really good in a certain environment, but stopped paying attention to the environment and relied on what was successful up until that point, you can crash into a wall pretty hard if you ignore something fundamental like an interest rate change.

Matthew Kempton (09:52):

So we move a bit forward here and maybe related to that, we had inflation numbers come out in the us. We had inflation hit 9.1% year over year, and we had Canadian inflation. It will exceed 8%. So at that point, did you think we had peaked, and this in fact was the peak at that point, we had reached peak, but the trend was still higher. It was still an accelerating trend here or increasing at least. Where did you see it going from there and could a soft landing occur? Well,

Colin White (10:26):

Again, I can’t go back and claim any sentient at that moment. I know that those were not as high as the inflation rates I’ve seen in my lifetime. I’ve lived through higher inflation periods, and so I wasn’t miffed at how high they had gotten, or they could go higher from there for sure. But Josh off our team has actually got a really good way of explaining the way central banks are behaving. It’s like you got a pot of boiling water and you’re dumping ice in it to try to bring it back to room temperature. Well, how much ice is going to melt just at the right pace in order to bring that pot of water to exactly room temperature versus making it colder than that by putting too much ice into it. I knew we were in for a fight because again, the tools that the central bankers have to use are a little bit blunt.


They’re not surgical. They’re just basically making money more expensive. That’s as blunt as you get. And how quickly that is going to show up in inflation numbers. How long does that take? I mean, how many mortgages have to renew before enough people are affected and it affects their consumption in a way that reduces demand and allows inflation to cool. That’s completely unknown. And you’ve got these competing data sources that all have different legs to them and have different accuracies to them and are being dissected down to four decimal points trying to figure out what the right number is. And fortunately, I think largely we’ve avoided the political pressures. I mean, candidate’s got a little bit different. I mean, there’s political pressures starting to show up, and that’s the worst possible thing. You need monetary policy to be apolitical for sure. Challenge is is that right now politicians can stand up and blame Tiff Macklin.


You’re the reason that Canadians can’t afford houses. If you had left inflation run, everybody would beat a lot more pain. Leaving inflation in 9% would’ve caused a lot more pain. But again, that’s not as politically positive to say because right now all the politicians need to blame central bankers because people can’t afford houses, and there’s a lot of votes to be gotten there. And unfortunately, it’s just not genuine. What central bankers are doing, again, they’re not out there to cause pain. They’re trying to give us a sustainable economy, and if we have to go through a little bit of pain to get there, then that’s what adults do. You go through a little bit of pain to sort something out,

Matthew Kempton (12:42):

Right? I mean, that’s what they’ve committed to do as well, is there may be pain here, but where this is what we’re, this is the objective. And so through 2022, we faced high inflation. We faced increasing interest rates, and we reached October, and a Bloomberg consensus offers a 100% chance of a recession in 2023. How did you feel when you started hearing those predictions?

Colin White (13:03):

No, I, I’ll go back to January of 2020. How many predictions in January of 2020 worked out to sit here and say there’s a hundred percent certainty. A nuclear bomb goes off somewhere next year, or Vladimir Putin’s body shows up in a ditch or any one of a number of single events can cause a ripple. That’s going to dramatically shift the trajectory of everything next year. And we’ve also gotten funky about how we define recessions. We’ve actually seen a technical recession in the us, which I didn’t know a technical recession was the thing, and I’m not sure if the Canadian numbers have confirmed it, but it looks like Canada flirted with one a couple quarters at zero, maybe slightly negative, but one of the big anomalies right now is the jobs market hasn’t gotten weak. We still have a really strong jobs market, which it’s difficult to say we had a recession that’s supposed to feel bad, but if everybody’s still working to making money, how bad should we feel?


So I think personally that this is what a soft landing field, you brought this up earlier, a soft landing just feels uncomfortable. It’s like you’re kind of waiting for the other shoe to drop. And again, I use the analogy of my teenage son trying to sneak into the house late at night. I’m waiting for him to come home. So he came through the door and shut the door and I could hear him come into the house. I know this is over. He is trying to sneak into the house. What was that click? What was that noise? And all of a sudden you sit up in bed and you’re listening more carefully. We’re actually looking harder to find a recession now because we think we should have one in order to get out of where we are. So we’re now paying a lot of attention trying to find the recession. Honestly, we may not really see any kind of a major recession and drift out the other side of this. That’s almost the null hypothesis, right?

Matthew Kempton (14:49):

Well, exactly. And so since that expectation, a hundred percent chance of recession mean here in 2023 of you’ve had an economy do better than expected though, cool. Somewhat. Stocks, stock markets, bond markets are up, inflation and rates have likely peaked and are trending lower. Unemployment remains quite low. It’s picked up a little bit. So have we found this? Have we entered into a Goldilocks period? Potentially We have.

Colin White (15:16):

Well, yeah. I think that it’s difficult to paint a really dire picture from here that something is going to be absolutely terrible. I think that we’re drifting towards something that’s going to be pretty boring. And so we’re always going to be looking for what’s going to disturb that. One of the things I think is gradually working itself, outat is the housing issue in Canada. I mean, I’m seeing way more houses being built at the end of the day, that’s what’s going to fix this. All of the rest of the hoo-ha that we’re going on about, and government programs and tax advantages, providing tax incentive to buy houses when there’s just not enough houses to buy, just drives up the prices with houses that are there. But I’ve more recently seen more policy changes, both federally, provincially and municipally that are going to help this things along.


And it takes a while for us to build a few million new homes, and that takes allocation of capital and that takes available job force, and that takes approvals being given by municipalities to build things. So I think that’s also cleaning itself up, but it’s not going to be, oh my God, we have enough houses now. There’s not going to be no proclamation. I mean, nobody’s standing on the deck of an aircraft carrier mission accomplished. That’s not how these things unwind. It’s just gradually over time it gets better because it’s gotten out of whack and we’ve taken some action that’ll sort itself out. But while by the time it sorted itself out, we’ll be onto to the next thing. We’ll be concerned about green energy or we’ll be concerned about climate, or we’ll be concerned about another geopolitical. China is going to go into Taiwan next week, or we’ll be concerned about something else when this falls off the radar.

Matthew Kempton (16:49):

Well, it’s never boring. And that’s what’s so great about this is that knowing something or mud or something to a pine on, which I think you appreciate,

Colin White (16:58):

It’s kind of like playing whack-a-mole. These little things stick their head out of the water and you crack it over the head and it goes down and you look for the next mold to come up. Right.

Matthew Kempton (17:05):

In that walkthrough there, were there any key events you wanted to speak about or you thought I’d bring up that I didn’t?

Colin White (17:11):

No, I think we walked through pretty well. I mean, what I’m hoping to highlight for people is try to think back to how certain you were when everything’s shut down, oh, the global economy’s going to suck, the stock market’s going to crash. Remember how sure you were that that was going to happen? And then take a look at how it turned out. Remember how sure you’ve been all these times because what you really should be developing over time is a little bit more humility. And because being very, very sure of things is how you blow money up. We always balance risk. It’s always a matter of this is likely to happen, but we’re going to hedge our bet because we might be wrong, and we need to include that in possible outcomes. And again, making money is not about hitting the one right thing. It’s about not blowing it up.


So if you can steer around and not blow up your money, then you get to keep it and you get to keep moving forward. So it’s not like we’re going to go to cash right now because just stop it. There’s just no way to act. Really predict those moments in time and stop being so confident and have an advisor you can talk to who talks sense to you if you want to talk about things. For sure. Having anxiety is real. Listening to the news and getting upset is real. And you should have somewhere you can turn to have somebody give you the other side or explain things to you or guide you because it’s way too easy to get emotional. So try to remember all the times you were sure about things and we’re wrong, and stop being so sure about things.

Matthew Kempton (18:36):

Well, I thought this would be useful for that just to hold, to test ourselves and how to reach you out these times because your memory, hindsight is an interesting thing. And where you thought you saw things going and now where you can claim to is fascinating. So it is good to journal, to hold yourself true. And for me, my takeaway is from this so that well, we’re poor forecasters of a complex world, but people are resilient and collectively, we truly are. And that people maybe are more similar than we all realize and our desires and our behaviors and our emotions. So these past four years have been a very interesting time. I think there’ll be many movies, books, studies done more to come on just what we’ve been through maybe much more, but more we will be facing here and how we maybe can learn going forward. Though we tend to have short memories when it comes to,

Colin White (19:32):

Well, it’s called recency bias, and there’s a whole list of biases that people I’ll pray to for sure. But listen, I think one thing that’s been true in my entire career, and I’m going to expect it to be true for the rest of my career, the global economy can find its way forward. It’s endured world wars, it’s endured all kinds of political strife and oil shortages, energy shortages, and we’re going to run out of oil and it’s endured lots of things. The global economy is the grandson total of the globe’s ability to move forward, and that has never failed. And if it does fail, the fact that your account might not be doing well when that happens is probably small news. We’re back in caves hitting each other with sticks. So there’s the happy, good time news.

Matthew Kempton (20:14):

Well, I think that’s a great place to sign out from, and Colin I really enjoyed this discussion. It was a great one, especially because we didn’t work together through this period. So I truly didn’t know your answers here or how you felt through these events. And so obviously has been a great exercise and a great chat.

Colin White (20:33):

Well, Matt, thanks for bringing your perspective to the table. It’s always great to have a fresh, smart perspective on things and to have somebody to bounce things off on. So hopefully there was some stuff here for our listeners to learn from and maybe reflect on their own reaction to these over time, and maybe we’ve made the world a better place, right? I think we have. Thanks everybody. Maybe that’s the optimistic again. Thanks, Matt. Alright, next call.

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Announcer (21:25):

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