Thursday, October 13, 2016

Money Show 2016 - Benjamin Tal

The Benjamin Tal's talk was entitled "Is There Logic Behind the Madness". Benjamin Tal is a Managing Director and the Deputy Chief economist with CIBC Capital Markets.

What do you do when you do not know what to do? Times are not normal. Interest rates are negative or zero and they are printing money. This is not normal for 8 years into a recovery.

Japan cannot get out of their economic problems and we are afraid we are becoming Japan. The North American bond yields are following those of Japan. This maybe a new normal, but it is not normal. In Norway people are paid to take a mortgage because of negative interest rates. The Global economy is slowing down. We do not know what is happening in Canada.

The cycle looks like this:
Market Nervous
Policy Makers hint that stimulus worked Confidence worsens
Confidence Outlook Improves Central Bank & Gov. Active
Market Improves

The market leads the Fed, not the other way around. The only reason not to raise interest rates is fear.

In the EU there is uncertainty. They are overestimating the short term, but underestimating the long term. They have underestimated the results from Brexit. The Euro was a mistake. Italy and Germany together and they expected something good? Unemployment is at 50% of the youth. The Euro is the risk factor. Angela Merkel and the EU said no to Greece because of Spain. The Euro is currently stable, but it will be tested over the next year. There is political instability. He is shorting the Euro.

China is expanding at 2 to 3%, not 6.5%. China is important. They think that they have the monetary, fiscal and political might to fix any problem. Market went down and the government tried to fix it. There is a crisis of credibility. If unemployment rises, China will be tested. There are some signs that they are panicking. China may do what they do best and that is export. To do this they must devalue their currency. The number one reason money is leaving China is the fear of devaluation.

For oil over the long or short term, prices will go down. The current decline is just the beginning. Saudi Arabia decided not to be the swing producer. They no longer care where oil prices go. The reason for this is alternative energy. The lower the price for oil, the lower prices to pay for green energy.

The US can produce oil at $60 a barrel. (Canada's Oil Sands cannot.) He would buy long in US oil, but not Canadian oil. He is bullish on the US economy. The US has corporate bankruptcies back to normal levels. Credit will start to oil the US economy via consumers. Wages should start to rise. Real Estate is going up. The US housing needs to rise as echo boomers age. There is lots of pend up demand in the US.

Canada is different. The Canadian Banks want a weak Canadian Dollars. They are cutting rates. He is not long Canadian Banks as credit is difficult at the moment. If you cut interest rates you do not stimulate credit spending. This cannot be done. The Canadian Dollar is down because of the price of oil. So we cut 50 basis points for nothing.

When the monetary policy is done, we need fiscal policy. Everyone is trying to lower their currency. It is a currency war. The only winner is gold. Gold is security, so go long on gold. When monetary policy is not working and we have an infrastructure deficit, fiscal policy must expand.

In the US, regardless of presidential winner, there will be spending. The EU has an infrastructure deficit and they will start spending. Go long on infrastructure. In Canada our manufacturing should be expanding because we have a lack of capacity. However, the US is not buying what we are selling. The US is buying services and we are selling goods.

There will be a significant rise in US manufacturing of consumer goods. There will be a renaissance of US manufacturing. China's young want quality tech and they will want to get us stuff. The future of US manufacturing will be consumer goods.

He is shorting Canadian Real Estate. In the GTA there are higher prices because of lack of supply. There is inflation in detached houses, but no great inflation in the Condo market. The Condo market is the only affordable market.

When monetary policy is through, we need fiscal policy. We need to spend on infrastructure. Interest rates are no going to rise anytime soon. To understand how markets function and having your own investment plan is a winning strategy.

On my other blog I wrote yesterday about Enbridge Income Fund Holdings Inc. (TSX-ENF, OTC-EBGUF)... learn more. Tomorrow, I will write about HNZ Group Inc. (TSX-HNZ, OTC- CDHPF)... learn more on Friday, October 14, 2016 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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