Motley Fool Hidden Gems Investing - How to Greet the Next Bear Market

Starting point is 00:00:00 You gotta try breakfast at A&W. You gotta try breakfast at A&W. And what better way than with a delicious Pret Organic Coffee? Starting at just $1 all day, every day, now until December 31st. You gotta try breakfast at A&W. At participating A&W locations in Ontario. I'm Mary Long, joined today by Jim Gillies. Jim, thank you for being here.

Starting point is 00:01:00 Thank you for the invite, Mary. Always. We've got a double whammy of economic news today in the States, and I understand that there is perhaps an irony in talking to a Canadian about American macro moves and monetary policy, but we're going to give it our best shot and see where we wind up. I'll throw you something and let us start on your home turf. The Bank of Canada reduced interest rates by a quarter of a percent last week. That made it the first central bank in the G7 to begin an easing cycle. How are the vibes where you are? What's consumer sentiment look like and feel like up north? Pretty bad, actually. People are definitely feeling the pinch of what inflation

Starting point is 00:01:39 hath wrought, particularly at the gas pump, as well as in your grocery aisles and your favorite restaurants. In Canada, the housing market, I realize that the housing market in the U.S. has been not great for the past little while. People are feeling priced out. People are feeling stressed about mortgage rates today. It is significantly worse in Canada and has been actually up here. There are various reasons for that, not the least of which is that a lot of people in the past five years pickled themselves in debt when buying a house because FOMO is a thing. GDP per capita in Canada has meaningfully diverged away from GDP per capita in the U.S. and not in a good way. And there's some political and tax stuff as well that I think probably would

Starting point is 00:02:27 disbore most Americans, so I won't go down that road. The way I've heard it explained to me recently has been a lot of Americans think their economy is doing poorly when in actuality it's not. But a lot of Canadians think their economy is doing not particularly great, and they're right. So, the quarter-point cut last week, widely expected, unsurprising, I'm not sure it's going to do. What's been interesting is, of course, these things take time to work their way into the system and then through the system. But the one thing that I can tell you at least anecdotally, I've seen it with my own eyes and my significant other and I, we pay attention to this stuff. The number of home listings, there was a lot of talk about,

Starting point is 00:03:18 well, people are just waiting for the first rate cut, then they're going to pile into, woohoo, it's time to send housing on its next leg up. It was really interesting when the Bank of Canada cut last week, I think on Wednesday, what actually happened was the number of listings did explode. It's almost like sellers were waiting. It's like, okay, here we go. It might actually have an interesting effect that people are just really gearing up to put the supply of houses is suddenly spiked, which all else equals should arguably knock aggregate house prices down, not something that's happening, I think, on your side of the world's longest undefended border, at least yet anyway so that's long and rambling macro it's about as good as i can usually do on

Starting point is 00:04:06 macro i'm generally pretty bad as is everyone else about understanding what macro will do in the short term but uh you know inflation down is good or at least slowing i should say is is a good thing in general but you know like i said earlier i think the american economy is doing actually really well, whereas other countries are not. The headline takeaway from this morning's Consumer Price Index report is that inflation here in the U.S. is cooling ever so slightly. So core prices, they're up 3.3% in May compared to a year earlier. That's a tenth of a percentage point lower than April's CPI. So that's the right direction. Slow movement, but the right direction. It is also off the Fed's 2% target. So what's your read on this? Should we be hanging a

Starting point is 00:04:56 mission accomplished banner down here or not? I'm going to go with the not, because it is above the 2% target. It's above the, I think you guys have a range. They have a target range. They also talk about 1% to 3%, which is where they want to be. Still above that. the American consumer is still feeling pretty good and still spending. I know that house prices are up, transportation, cars are down, used cars are down. I don't think you should be hanging a banner just yet. And again, like I said, there are some real concerns on this side of the border, which I think is reasonably, like I said, it was an expected rate cut. It's probably not the only one that you're going to see this year. I don't really know what a quarter percentage point cut

Starting point is 00:05:50 is going to do in the short term for most people, aside from, oh, if you've levered up your life and your HELOC is maxed out, you'll get a little bit of relief. But housing prices departed from reality about five years ago in this country. So a quarter point is not really going to do much to improve the affordability there. I've been a proponent of, look, you don't cut rates when things are going great. Rate cuts are a tool to stimulate an economy. You guys don't need that. I don't think you're going to see a rate cut today. I'd be shocked if you saw a rate cut today. I know there's talk now the first rate cut on the U.S. side from the Fed will probably come in September. I'm too sure you need that, frankly. The so-called dot plot that I've

Starting point is 00:06:43 seen from a few places. How many are you going to get this year? It's gone from three earlier this year to, well, maybe two, now maybe one or zero. I'm kind of in the camp that you guys probably don't need any, at least for a while. But get a few more reports. And the reason in Canada they were able to start cutting was, again, things aren't great economically up here right now. And it made more sense to cut here. It might make more sense to make a few other moves over the next couple of years, not just rate moves. But right now, I think you guys don't need it. So no, I wouldn't hang a mission accomplished banner just yet. So we'll see what happens when the Fed meets later this afternoon. But right now, with this inflation data out, stocks are loving that

Starting point is 00:07:31 news. The S&P and the Nasdaq are at fresh all-time highs. Apple's riding the wave after its conference

Motley Fool Hidden Gems Investing - How to Greet the Next Bear Market

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.