Shaun Newman Podcast - #890 - Paul Musson

Episode Date: August 6, 2025

Paul Musson is a Canadian investment professional with over 30 years of experience, based in Toronto, Ontario. He spent 23 years at Mackenzie Investments, where he led the Ivy Team from 2009 until his retirement in March 2023, managing up to $15 billion in assets, focusing on high-quality global and domestic equities. Known for a disciplined, value-based, buy-and-hold approach, Musson emphasized risk management and long-term growth, earning the Morningstar Foreign Equity Fund Manager of the Year award in 2011. He holds a CFA designation and a business commerce degree from Concordia University. After retiring, he founded Paddington Capital Management and authored Capital Offence: Why Some Benefit at Your Expense, critiquing wealth concentration. To watch the Full Cornerstone Forum: https://open.substack.com/pub/shaunnewmanpodcastGet your voice heard: Text Shaun 587-217-8500Silver Gold Bull Links:Website: https://silvergoldbull.ca/Email: [e-mail] Grahame: [phone]Bow Valley Credit UnionWebsite: www.BowValleycu.comEmail: [e-mail] Use the code “SNP” on all ordersProphet River Links:Website: store.prophetriver.com/Email: [e-mail]

This is Viva Fry. I'm Dr. Peter McCulloch. This is Tom Lomago. This is Chuck Pradnik. This is Alex Krenner. Hey, this is Brad Wall. This is J.P. Sears. Hi, this is Frank Peretti.

This is Tammy Peterson. This is Danielle Smith. This is James Lindsay. Hey, this is Brett Kessel, and you're listening to the Sean Newman podcast. Welcome to the podcast, folks. Happy Wednesday. How's everybody's week going? Happy August.

Yes, good to be back. Yes, I've said that for the last. Well, this will be the third day in a row. But I'm, you know, just starting to get back in the story. swing of things. I don't know, you know, I'd done the replay of Brian Burke, and he was talking about early days of the NHL where the St. Louis Blues used to take the month of July off, and I don't know what working for an NHL team is like these days, but I assume it's like most other things. You're sitting in the oil patch, you know, and the phone never goes off while you're on your

days on. And for my past career, it didn't go off on the weekends either, even though they were, I'm putting it in parentheses off. And so, you know, having some family time in July was great. And I tell you what, it only took a week and I was itching to be back in this chair. And I'm excited to be back and rolling along. And happy Wednesday, wherever you're at, hopefully you're getting some family time and enjoying some time off from work. Enjoying the summer months while they're here. I certainly enjoy the warm weather, even if it is a bit cooler than what Minnesota was.

Minnesota was, 94% humidity the one day at 7 a.m. You can imagine how the rest of that day was. end. Okay, that's beside the point. The number of ounces of silver needed to buy an ounce of gold now at near 30 year highs. Silver is now a bargain price when it compared to gold. And today's guest, after he sits and talks, you know, for some time, I'm like, oh, this just reminds me of so many conversations I've had with one of the other sponsors that I'm about to get to. And I think no matter what your thoughts on silver and gold is, when you start talking, you know, fiat money and what our government's doing, it is.

is the perfect time to protect a portion of your savings with silver or gold. Silver Gold Bull has a wide variety of the best value silver for every budget. Simply text or email Graham for details, whether you're a season investor or new to precious metals. Graham will work with you to answer all your questions and recommend the best products to meet your investing goals. If you're on silvergoldbull.cair.com, just make sure to reference you heard about them from the Sean Newman podcast. I think by the time you're done today's conversation, you're going to be like, yep I don't see us

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Let me tell you, it is something. And so if you're looking to do some cool work, you know, on a project, maybe it's in your house. Maybe it's, you know, one of your favorite spots in a garage or maybe you've got some other spot that I'm not even thinking of. when you're thinking concrete, they don't come more solid than Caleb Taves and his crew over at Renegade Acres. So make sure to think of them. And if you need some contact info, you just shoot me a text and I'll put you in contact with Caleb. He, uh, I don't, you know, I'm surrounded by great men. And Caleb Taves is just another one in a long list of men who have helped support what I do on this side.

We do have the new studio coming here soon and, uh, excited to unveil some pictures. some video and hopefully sooner than later the first podcast ever to be out of it which i think is going to be a ton of fun and um yeah i'm just excited for when that comes if you're uh not on sub stack it's free to subscribe to it's all down the show notes um i don't blow up your inbox as i've been you know probably i do the the opposite of that i should probably be sending more emails but i really you know i want it to be meaningful i want things to come out when you click on it you're like oh, this was worthwhile going to. And so become one of the, well, I think it's 10,000 now, I think, something like that.

It's a pretty cool number, if I'm being honest. You know, I didn't start out with that in mind. I just wanted to find a different way to share a few things from behind the scenes and some thoughts from the podcast. And we've got some interesting conversations happening around Substack right now. So excited to hopefully try some of them out in the near future. now that I'm back in studio, there's going to be some focus put on that along with tracking down some of the greatest guests

we can find here in Canada and abroad and looking forward to hearing all of your thoughts. The text line, folks, is open, and I want to hear all about your summer and your thoughts on the guests today and the guests to come. If you're listening or watching on Spotify, Apple, YouTube, RumbleX, make sure to subscribe.

Make sure to leave a review. I've been talking about Apple and Spotify, specifically, you know, there's a review you know, here I'm looking at it right now. At the top, it shows, you know, that I got a 4.7 rating, and only 361 people have done that on Spotify, specifically. So if you're a Spotify listener, one of the thousands, I would love it if you'd give me a rating on there.

I'd love to get that rating, you know, going higher. That does help to have more people rate it. Same thing with Apple. And, yeah, would appreciate that very much. Okay, that's enough. Let's get on to that tale of the, today's guest is a Canadian investment professional with over 30 years of experience. He spent 23 years at McKenzie Investments, managing upwards of $15 billion in assets.

He founded Paddington Capital Management and authored the book Capital Offense, Why Some Benefit at Your Expense. I'm talking about Paul Musson. So buckle up. Here we go. Welcome to the Sean Newman podcast. Today I'm joined by Paul Munson. Thank you, sir, for coming on. Well, thanks for having me, Sean. It's a pleasure. I was saying you before we started, you know, I'm sure the audience hates me reiterating this every time I have a new guest. But one of the things I like to do is, you know, hear a bit about yourself and allow the audience to hear the same thing, you know, where you got started and, you know, the journey to where you're at today. Yeah, sure. Yeah, thanks, Sean.

And also just a quick shout out to our mutual friend John Mitchell who got us together. Yeah, so I was born in North Wales, grew up in Montreal, like many Anglophone. bones for whatever reason, my own fault, I never was fluently bilingual. And so I made that trip down to 401 to Toronto and just started looking, you know, and I've told the story many times to a lot of young people, too, that, you know, when I got my start in Toronto, I was literally sleeping on hardwood for a bachelor apartment in midtown. And I was working in a video store at nights. and I had three months of rent money.

That was it. And I had to find a job. And I was 29 years old. You know, that's how I got my start. And so I try to tell younger people, you know, there's all these expectations about how much money you should be making by this age and you should own a home by that age. And we could talk about the housing affordability crisis later. But, you know, everybody's on our own path and you don't know how quickly you're going to get there.

Just keep doing good things and try and add value. Try not to be a burden on other. people either you know physically or emotionally and and you know generally good things will happen and so I have I had a very unconventional route and sort of a long zigzagging path through different jobs eventually getting into the finance world and so I was a portfolio manager managing mutual funds for most of my career and that was with McKenzie investments in Toronto with the IB funds. And my investment style, our investment style was to look for very high quality companies and don't overpay for them. And it was such an amazing job.

And because you really felt like you were adding value. So what we do, our clients, like John Mitchell, we take their clients capital and we look around the world for what we think are the best utilizers of capital, who are going to put it to the most productive use and create more capital with it. So looking for those great businesses. So you meet some world-class business leaders, and that's so many over the years. And so if those companies are successful in putting our clients capital to productive use, then they create more capital. Those companies grow their profits. They hire more people. They pay them more. And that pushes the share price up, and that pushes stock market is higher. And that's the way it's supposed to work.

right you're not supposed to be making money in the stock market well I'm supposed to and you're not supposed to be making money in the economy and society unless you are providing a value proposition for somebody else in one form or another so you're not supposed to be benefiting at somebody else's expense it's a mutual benefit system that's the way it's supposed to work but over the years as I was investing I increasingly saw the world moving away from that sort of mutual benefit system to one where people do benefit at somebody else's expense. And it's become rampant. And it's more like a big game of poker now. So at a poker game, there's no net creation of capital. Capital's not created at a poker game.

It's redistributed at the table. What you have is one winner and a bunch of losers. So for a lot of your listeners, that's probably starting to sound familiar. Anyways, So seeing this and I started writing about it and talking about it with my clients for years, and I sort of built up this reputation with financial advisors across Canada for going on a rant against central banks. And a lot of them told me that, you know, well, you should really write a book about this. Because you're the only one who really talks about it with such passion. And then, yeah, even a couple of my bosses suggested I do it. And so I started writing a book on all of this six years ago.

And a book is called Capital Offense, Why Some Benefit at Your Expense. And I'll talk about why it's called Capital Offense later. It's a very provocative title. But key to writing this book and all my communication in the past was ensuring that I was talking to people in a manner in which they could understand what I was saying. So, you know, for years when I was presenting to my clients, my goal was not to impress them, but to educate them, to empower them, to make better decisions. So they, if I tell them exactly what we do, how we manage money, what to expect in different

market environments, then they're in a position to make an informed, educated, good decision with respect to their clients, hard-earned capital. And it might mean that they're not going to invest with us. that's a good outcome because we're not right for them. Like in the old days, I used to just try to get the money at all costs, right? That's a bad way to do things. And so very, very clear communication. I would think about that a lot.

I use lots of analogies in my presentations. And so then I put that into my book because I think the average person is very, very smart, particularly when it comes to making decisions about their own hard-earned capital, their own skin in the game, right? They know what they want to buy and how much they feel they should pay for it. They don't need some policymaker to tell them they're not spending enough or, yeah, you should buy that house. It's not too expensive.

No, get lost. Let people make their own decisions. They're smart. Right. But policymakers don't want people making their decisions. They want them spending their money at all costs. So the book is about empowering people with truth about how an economy really works, how the monetary system has been working against most people step by step, very easy to understand terms.

And my wife has read it. My three daughters have read it. They all understand what's going on. A lot of my friends obviously read it. And I've had sort of great feedback. And so I started writing the book, but I ended up leaving McKenzie Investments, which was where I worked for 23 years. Not because I didn't let my job. I love my job. I love the company. But my big passion now is communication, helping people understand, empowering people. And I just wasn't getting enough time to finish my book. And so I started a blog as well, which is a weekly blog called Political Economy. And yeah, just write about what's going on in the world, have a bit of fun with it. But just try to sort of decode things for people and lift that shroud off of some of the mystery of what's really

going on. And so that's sort of my path. The book was published. in April in the UK. It's a UK publisher. And it's now available online primarily in North America. And so, yeah, so that's my path, my journey so far. I hate to go back off of something that isn't economics. But you mentioned sleeping on a floor at 29 and working at a video store. A movie lover in me goes, what movie store were you working at?

Yeah. So it was a major video. It was a sort of a decent-sized chain at the time. And I was at Young and Eggleton, which is sort of a midtown Toronto, I guess. And it was right across the street, so it was so handy. And yeah, and I worked from, I think it was 6 till 12, 30 at night, five nights a week. And then I got a job, a temporary job in an insurance company. And that was full-time during the day.

So I had two jobs, full-time jobs. I remember my break at the video store was at from 10 till 1030 at night. And so I would go, there was a little Harvey's next door. I'd go and they had like this loony special. It was like a small burger and a fry. I think they call it loony special because the burger is the size of a loony. But it was good, you know. But I remember sitting there, I got to go back for work for another couple of hours.

I got to get a burling go to work at the insurance company. There could not have been a happier person in terms. honor than I was at that time. I just, yes, I can make this work. I can pay my own bills. I can be responsible. Like I'm adding value. And, you know, that video store, I used to

look for all the most rented movies, the top 10 in the store. And I would watch them so I could recommend them to other people. You know, like, be a positive force, help people. You know, life is tough enough as it is for some people. You never know what people are going

through their day-to-day stuff. Why make it worse. So, yeah, so I had so much fun with that. And eventually it was bought by Blockbuster. Yeah. Well, I just relisten to, I've been, well, I've been away here in July, I've been doing throwback Thursdays to some of my earlier interviews. And one of them was with Brian Burke. And he had a line that I'd written down, have as many good options as you can. If you've got good options, you'll always make good choices. And you talking about positive, you know, be positive in the world, that just stuck out to me because if you do have good options, you are a positive force.

Good things will happen. Absolutely. And, you know, when you help create a positive environment, you know, that can really bring out the best in people. And vice versa. if you create a toxic environment or an unfair environment, it will bring out the worst in good people. Like we all have that in us, right?

We all have our not final moments. And yeah, so do your best to let good people shine. Sticking on movies for a second, you know, movie stores as a kid were like loved going to it, loved spending an hour in there trying to find that one right movie. and then they became obsolete. You know, you can't find they're, I'm sure there's a few still left out there,

but they're pretty much non-existent. Do you think movie theaters are closing in on that? Because, you know, you think about it, I mean, Happy Gilmart 2 just came out. I didn't even go in the movie theaters, just directly to Netflix. And you can see more and more of it starting to slide that way. Could you see a world where the movie theater disappears

and that breaks my heart because I, you know, There's something, I don't know, cool. There's another word I'm looking for that I can't spit out of getting together with a group of people to see a brand new movie and take it in with a group of people. Oh, yeah. And there's nostalgia around it as well, right? The memories of going to the theater and the smell of the popcorn and just love it. Now, having said all that, I hardly ever go anymore. But I do love it when I do go.

Like, I probably go a couple times a year. And I just wrote about this actually on my blog, the most recent one last week. And it just looks at box office receipts in the U.S. And how they peaked in 2019, I think it was, fell off a cliff, obviously, during COVID. Then they started growing again. And then I think they peaked in 2023 and 2024 was lower. And we're at a run rate so far through July in 2025 where receipts will be lower again. And that includes significant price increases and movie prices.

So in terms of the number of people going, I think attendance is down something like 42% by my calculations based on price inflation and stuff like that. And so it is sad, but I don't think they will go the way of the dodo. You know, they've made, they have to adapt. They have to evolve, right? They have to offer things that you cannot get while you're at home streaming on your TV. And so a lot of them are now, food service, you can get a beer. I mean, I never thought I'd see the day where you could drink beer in a movie theater. I mean, it's fantastic, you know, I like beer.

And so, yeah, and what else? That's how, it's competition, right? Competition, you have to constantly invest in your business, whatever it is. you have to innovate because if you just stand still, you're going to be bypassed, and then you will go extinct. And this is what a free market system is all about. Now, if movie theaters do go extinct, well, it just means that hardly anybody wants to go anymore because there are better options.

I mean, it would be very sad, but sort of that's the reality. And when you have this competition, as consumers, we all benefit from that. I mean, how amazing is it now that you can stream stuff at home? You know, you don't have to, this massive big pile of DVDs stored all over the place and get up, put it in. And your library now is huge. And if you want to go to a theater, you can still do that too. And they're improving and stuff. So the customer is always supposed to benefit from the system.

Right. And we still are, but not nearly as much as we should be, which we can get into. Well, I guess going towards the economy, and specifically Canadians, I'd be curious, you know, as a guy who tries to teach people about it, what are the things you're talking about today that you're like, Canadians need to wrap their head around X? Sure. So my book, well, let me start more at the beginning, I guess. one of the reasons that we're in trouble, I think, and we're on a bad path. Don't remember, there's still lots of amazing things happening, a lot of great people doing amazing things, but it's not nearly where it should be. And one of the reasons that a lot of people are struggling is because most policymakers,

I would argue, don't know the difference between capital and money. It's not money that makes the world go around. It's capital. And capital is anything that you produce a good or a service. So you produce this podcast. This is the capital that you're producing, and other people benefit from that. They consume the capital that you produce. And so the example I use in the book is, let's say you make bikes, you make a bike. So you've created capital. I make a suit. I've created capital. And now we exchange that. capital with each other. Now you've got a suit, I've got a bike. There was no biker suit in the economy before we decided to create it and then exchange that capital. And importantly,

it didn't come into anybody else's expense. That's net increase of capital in society. But of course, we don't have a barter system. We don't do direct exchange. We do indirect exchange through money. Money is what's called the medium of exchange. All that means is we use, we money to exchange all the capital that we're producing in the world. So it's the creation of capital, of stuff that makes the world go round. The money is just used to exchange it. It's very important. But if nobody's creating capital, then that money is absolutely useless.

So let's say use, or let's say you make 10 bikes and they're nice bikes. You sell them a thousand bucks each. you've got 10,000 bucks in your bank account and you're feeling pretty good and you're thinking, well, I'm not going to spend it today. I'm going to wait until next year and go on a nice vacation or something. But before you get a chance to spend your $10,000, let's say the central bank doubles the money supply. No, they wouldn't do that, but just to make it clear. Let's say the central bank doubles the money supply. When a central bank creates money out of things, air. That's what it does. It creates that out of thin air. It doesn't create any capital to obtain

that money. So that money does not have any capital stored up. And your $10,000 in the bank account effectively has 10 bikes stored up in that money. That's why it has value. Right. So when the central bank doubles a money supply, this new money which had no capital, only obtains capital once it enters circulation and it obtains capital. And it obtains capital. by extracting capital from the rest of the money already in circulation. So it takes five of the bikes from your $10,000 and puts it into that newly printed money that had no capital in it. So now you still have $10,000 in your bank account. But guess what? Instead of 10 bikes, it only stores five bikes.

And so now your $10,000 will only buy half as much as it would have done before the central bank double the money supply. And that's why my book is called capital offense. Why some benefit at your expense? Because when central banks print money, they take your capital from you without your permission. And it's not really without your knowledge. You know something's happening because all of a sudden, you know, prices have gone up. Your $10,000 doesn't buy as much.

So you know that there's inflation, that life is getting more difficult. you just don't realize how it's happening. And so a lot of people are, I mean, policymakers, they're not bad people. There's no bad intentions here. These are good intentions by policymakers. They figure, well, if we do this, wealth effect, which we could talk about, that, you know, if we drive asset prices higher, the benefits will trickle down to everybody else. Well, they didn't and they won't, right?

Theory and practice will tell you that they don't. And so when they take your capital from you, I just think it's an immoral thing. If they take your capital from you via taxation or they borrow it from you, that's sort of all above board. And we can all have these discussions about, you know, how much we should be taxed and how much the government should spend and whatnot. And we can all have our own ideology. but I think it's important that we all have an ideology based on the facts, that there is no free lunch, there is something for nothing myth that governments want to believe in because then that in their mind justifies them spending like crazy,

taking on so much debt and having huge deficits because they believe it doesn't matter. It all matters a lot and somebody always has to pay. And there's a great line by Thomas Soles, as an economist, he said in economics. There are no solutions. There are only tradeoffs. So somebody is always paying. We just have to figure out who that's going to be and do it with eyes that are wide open. And I think with people with this information and really not just through me but through others as well,

will then be able to make better decisions and policy. makers will make better decisions, but they're only going to make the right decisions if we demand it from them. We've been demanding something else from them for many years. And they've created this fake wealth effect of driving stock markets higher, not because more capital was being produced, but because they took interest rates down to zero. Or they did QE quantitative easing, printing trillions of dollars to buy assets to drive stock markets higher. No capital is created in an economy when central banks do that. It's a redistribution of wealth. And it harms the productive capacity of the economy. So there's much less wealth being created than it would have been otherwise. And I can

go into the mechanics of any of this if you're interested. And well, I guess I guess I would just as far as the central bank doubling the money supply, every year they're printing more money than what the capital is there. I don't know if I'm saying that right, but am I right? And like every year they're creating money out of nothing. The money supply increases faster than the amount of stuff being produced. And otherwise we wouldn't have any inflation. Right. So if more money is being, if money is being produced or printed at a faster rate than the amount of stuff is being produced in the economy, then the prices of those things necessarily have to rise. because there's more money chasing not as much more goods.

So back in the U.S., in the last 30 years, the 1800s, so the 1867 to 1897, I think it was, the money supply growth was much slower than it is now. It was something like 4%, the money stock. But it was an explosion of productivity in the United States. So the amount of, it was the opposite of what we have today. The amount of stuff that was being produced was growing much faster than the money supply. And so the prices of stuff was falling. And it's called good deflation.

That is the way things are supposed to work when the economy is unhampered by policymakers. So even if your wages don't increase, if they stay flat, every year you get richer in real terms. because your flat wages buy more and more stuff because the prices keep coming down. So the benefits of all investment and innovation and R&D and then competition. So if you invest and you improve your profitability, then other companies can see that and they enter your industry to compete for that high profitability. And then the profitability ends up coming down because companies have to lower their prices to compete.

And who benefits? We do. Why shouldn't we all benefit from all of this innovation and we benefit from better quality products, but we should benefit by being able to buy more of it? Now, central banks have convinced politicians that inflation is required for an economy to grow. Nothing could be further from the truth. And some of them use what's called a paradox. of thrift argument. They argue that, you know, if policymakers can't convince you to spend your money, then other people's income will go down because when you spend your money, somebody else has an income. So if you buy my suit for a thousand bucks, now I have income of a thousand. But if you decide not to spend your money, then I don't get income of a thousand bucks. And so they encourage people to borrow and spend, but if people are spending just because you're taking them more debt,

then that's finite. Eventually, that ends. If you're spending because you're producing more and more bikes, then that's sustainable. But anyways, one of the ways they try to get you to spend is through inflation and the fear of higher prices. And so a central bank will say that you need 2% inflation. Now, it's really higher than that because they use certain things to make it look lower than it really is, hedonic adjustments and stuff like that. And so they think that if there's 0% inflation, that that would be terrible for the economy because people won't spend their money. And so in the book, I use an example of forget zero.

Let's say minus 2%. Let's say prices are falling 2%. So that would be a central banker's worst nightmare because all of a sudden no one would spend any money because they're expecting lower prices in the future. So the example I use is, you know, like a luxury item. So you've already got a TV and you decide you'd like another TV in the basement, you know, so your teenage kids can watch down there and not be noisy upstairs. So it costs 300 bucks, but there's 2% deflation. And so your choices are spend $300 to buy the TV today or wait 12 months and save yourself $6.

and spend $294 the following year. Are you going to wait a whole year to save $6 bucks? Not by that TV? Of course not. And in fact, that is the reality of what's happened, right? TV prices, well, not so far as phone so much, but TV prices, flash screen TVs, 25 years ago, $3,000 now you can get it for $300, and they're much better quality than they were back then.

And they'd be less than $300 if, central banks hadn't increased the money supply so much over the last 25 years. Yeah, well, I'm glad you brought up TVs because I'm like, well, TVs come directly to mind. Once upon a time, people getting a flat screen, you'd look and oh man, they paid a lot of money for that. And now everybody has one. Actually, more than that, everybody has one almost in every bloody room. Yeah, no, exactly. Exactly.

If you, if I'm watching things, I see more money being printed, the cost of living going up, cost of housing going up, the cost of everything going up. I feel like Canada is the way they look at it is, we got to get the minimum wage to be 50 bucks an hour or whatever that number is that people can afford to live. That's, that's the messaging I see across Canada. Do you see something different? And then what are your thoughts on that mindset and where it leads us? Well, yeah. So, no, you see that.

And they're right that, you know, people on minimum wage, you know, can't really afford. I mean, forget buying a home. But even like in places like Toronto or Vancouver trying to rent a place, you know, forget it. But you used to. You used to be able to afford to. You can't anymore. It's the issue. is not the minimum wage. The issue is the fact that policymakers printed money and drove those

asset prices out of sight. That's why people can't afford it. So let's talk about housing, because this is a big one, and which probably impacts more people than anything. You know, because when it comes to stock markets, you can choose to invest in stock markets or not. You can choose to start your own business or not. But you have no choice in requiring a place to live. You have to live somewhere. And so what happened was during the 1990s, you had the dot-com boom and huge productivity, growth. And, you know, stock markets got carried away. But there was real capital increases going on. And it was creating a wealth effect.

So people would see their stock portfolios go higher. They would borrow on their stocks or you can sell their stocks and spend it. Now it's good for the economy. So that's a real wealth effect. But then the dot-com boom turned into a bust. And there was a negative wealth effect. People were spending less. So in 2001, 2002,

The U.S. Federal Reserve decided with the urging of certain market commentators, they decided to create a wealth effect, but this time through the housing market. So they took interest rates down to 1% and kept them there for a few years, despite the fact that the economy was growing. It was so irresponsible and reckless, but it achieved their goals. House prices started soaring. You remember the housing boom in the mid-2000. in the states and all the nonsense that was going on. But people were extracting hundreds of billions of dollars of equity from their homes each year in spending it.

And Alan Greenspan, who was ahead of the Fed at the time, you know, he would know, oh, here's how much GDP came from our wealth effect from housing equity extraction. You know, of course, the whole thing. And the Bank of Canada followed suit, by the way. And if you go back and you look at the average. home pricing Canada to the average after tax income, you know, for a few decades, it would be between six and eight times. And then right when you get to 01,02, when the bank of Canada followed the Federal Reserve with ultra low interest rates in a growing economy, house prices started to soar. And then you had the crisis in 0809, but it wasn't much of a crisis here, nothing like it was in the state.

house prices came down a little bit. They got up to 10 times. From an average of, let's say, seven times, they got up to like 10 times. Then they dipped down to around nine times. And then Mark Carney, who was headed to the bank of Canada at the time, kept interest rates at ultra low levels, again, following the Fed, despite the fact that the Canadian economy was growing very strongly in 2010 and 2011, like 3% real, which is very strong. And you got housing prices back up to 10 times.

after tax earnings. And I think now they're like 12 times. Right. So this is, has affected the lives of, this is the problem. Again, it's not minimum wage. This is the problem. And I have two chapters in my book on housing. And why house prices should not be going up in real terms. Now, if there's inflation, yeah, keep in pace with it. inflation. But a house, we should not be making money on our homes. As I said earlier, about capital, you created a bike, I created a suit, and then we exchanged that. We both benefited because we both did something. We both contributed to society. Our house here in Mississauga, a suburb of Toronto,

we bought in 2001. And if we sold it today, we would get four times, but we paid for it. So what What was our contribution to society to warrant making four times on our home? It was nothing. We didn't create anything. So why do we get four times on our home? Because it comes at somebody else's expense. Somebody else pays for something that we did not earn. And it's very easy for us.

And don't make it wrong, I'm 63 because I'm a boomer. And none of people my age, we haven't done anything wrong. We haven't broken any rules. And for the most part, you know, we don't even know that someone else is getting screwed and we're benefiting from it. It just feels good, right? Or you think you're smart. You know what you're doing.

You bought it at the right time. No. I was just lucky. My wife and I were lucky we bought it in 01 right when these central bank housing fake wealth effect policies took off. So when you look down on society, it's a redistribution of wealth. No wealth creation with our house going up. A redistribution of capital from a younger person's bank account or a newcomer to our country,

their bank account, and into ours. A redistribution of wealth, just like at the poker table, it's a redistribution of wealth, not a creation of wealth. And so it's a very unfair system. This was not the goal of policymakers of Dodge. I guess he was first at Bank of Canada in 01, 102 or Carney or Polos or any of them. I don't believe that this was their intent. But it's a result of short-term thinking, first-order effect thinking.

If I lower interest rates, people, they think, well, we'll make housing more affordable. No, lower interest rates does not make housing more affordable. It makes mortgage payments more affordable in the short term. Long term, it makes housing way more expensive. But they just look at the immediate impact of their actions. They don't think a second or third order consequences. That's harder to do as well because you might not even be around when those good consequences of your actions finally come to fruition.

And yeah, so anyway, but that's what my book tries to explain to people. And so I don't think it's a case of wages need to go. It's always good if wages go up if you're producing more value for your company. Absolutely. And I think companies should pay people more. But it should be up to the companies to decide. The issue is to stop driving asset prices and the prices of consumer goods higher through the printing press. To me, that's more of an issue.

And, you know, I used to own a brew pub. And it wasn't a success, but it was a great experience providing a great customer value proposition, but also in providing employees with a livelihood. I wasn't really prepared for how good that would feel because I was always an investor. I was on the other side. It's really important that companies treat their employees well and pay them well. and to the extent, you know, possible, have all your employees benefit in the success of the business. Like, why wouldn't you do that? And because I've saw that a number of times in the companies that we would analyze, like, from all over the world.

You know, some of them would have a percentage of pre-tax profit would automatically go to all of the employees. You know, why wouldn't you do that? And the one example I gave in my book is a company called Fastenol in Minnesota. Very basic business, distribute fasteners and screws and stuff. But we did a plant tour and the plant manager was so excited. He loved the business. All the employees are like gung-ho. What the hell is going on here?

And so I asked him, why do you all love the business so much? And he said, well, because the senior management, they treat us with respect. they really love us, and they always ask for our opinion. And they implement a lot of our ideas. And we all share in the success of the business. I thought, well, that's fantastic. And then a little later, the plant manager said, oh, yeah, I almost forgot.

I should have told you. You know, the CEO was the founder. Owned a third of the company. His wife had a stake in a company as well, but a few years prior she'd passed away. And so the CEO took all of her shares, and he distributed them to all the employees in the company. That's the way things should be.

And then those employees don't need to worry about what the minimum wage is. You know what I mean? And there are a lot more companies out there that do that sort of thing. You just usually don't hear about it. You know, all you'll hear about, and rightly so is the companies that screw their employees. You don't want that. And anyways, that's a long way, winded way of saying. that, you know, minimum wage is a tricky issue, right?

And for the restaurant, especially independent restaurants, like ours was, again, financially we were not successful. Most restaurants, especially independents, don't make money. You know, is a way of life choice. and most of them just get by. And wages are probably your biggest cost. That might be changing with a lot of online orders and stuff like that. And so, yeah, sure, you'd want all your employees to be making $30, $40 an hour,

but then you're going to have to be charging, you know, $40 for a cheeseburger just to keep the lights on. You know, the math and the economics of that sort of industry, it just doesn't work that way. And then your employees get tips and stuff like that. And so I see both sides of the argument, but there are no easy answers. Let me put it that way. Well, you got a banker and Mark Carney as their prime minister right now.

You know, when you look at the things he's doing, talking about, when you look into the next, you know, year or maybe the rest of his first term, are there things that you're like, Canadians need to pay attention to this and go to Orbat? Yeah, so, you know, I try my best, not all the successfully, but I try my best to keep politics out of the conversation. And I'll answer you a question,

and a reason is because the issues transcend politics. and both sides have been guilty. And maybe guilty of not understanding. Guilty of believing in the something for nothing, free lunch, everybody gets a pony fairy tale. It doesn't exist. And I think that the main issue or issues are the things that I'm talking about. and a lot of people feel that the system is unfair,

that they're not getting a fair shake, but they don't know why. And so then it becomes very easy for, in the states, Republicans to blame Democrats, and Democrats to blame Republicans and here in Canada's liberals versus conservatives. And then, you know, because there's good people on both sides.

And so with respect to, Carney, you know, I didn't like what he did as a head of the Bank of Canada. Again, I think his intentions were good, but I think he contributed to this housing affordability crisis. And again, I don't follow politics that closely. I follow it sort of through the headlines and read the Austin. So far, I would say, that I'm pleasantly surprised with what Carney has been doing. very very early days my big fear is that he explodes the government spending higher and they're doing some sort of accounting trickery nonsense to make it not look quite as bad as it is

but government government is very important a lot of things that government do are necessary and there's a lot of good people in government but government

just like my industry I was in the finance industry and I talk about this in my book as well government and the finance industry don't really create capital they're they're facilitators of capital creation in the real economy.

So you need the rule of law, you need contract law, you need protection, physical protection from violence, you need an army to protect you from other nations. You need nurses and teachers and stuff like that, all super important customs agents, whatever. A lot of good people doing a lot of good things. but you only need so much. And so the more the government takes from the private sector,

the more capital it takes in the form of taxation or borrowing or printing money, extracting capital bikes from your $10,000, then the less money there is, the less capital there is in a private sector to produce more stuff. The vast majority of government spending is consumption related, not investment. And so just by definition, the more spending the government does, the less investment that is taking place in the private sector. And ultimately, there is less to tax in the future. And then the government is less able to help those who really need capital, either they're down and out or they're sick or whatever.

And you're hearing all these things, deficits don't matter and debt doesn't matter. They matter a lot. And the trouble with economics is that it's not a hard science like chemistry or physics. It's not a natural science. It's a social science. More like psychiatry or psychology, let's say. And so there are different schools of thought. with respect to what makes an economy tick.

And so a lot of them will look at GDP. All GDP is a measure of all final spending in an economy. And about two-thirds of it is consumption, consumers spending. And so then they think that, well, that means that consumption is the fount of all economic prosperity that as long as people are spending, then the economy will be strong. No, it's saving an investment that makes that spending possible. Saving an investment comes before spending, not the other way around. But then governments want to hear those who say it's consumption to drive from the economy because then that justifies all the government's spending. More

consumption. And it's, so, you know, you have these economic laws that people find inconvenient. They don't like these laws, so they make up their own. And some economists likeness to, you know, how hopeless and stupid it is, to get angry at the law of gravity and blaming gravity for plane crashes. Stupid gravity, you know, it's nonsensical. These are the laws, let's deal with them and then decide what kind of ideology we want rather than sticking your head in the sand

and pretending that these laws don't exist. And this is one of the main reasons I think we've gotten into this problem. And, you know, we've dug a very deep hole for ourselves. And, you know, there's that hole of laws when you find yourself in a hole, the first thing to do is stop digging. Well, my concern about what the Canadian government might do, not just Canada, but others, is just turn on a fiscal fire hose and spend like crazy, dig even faster,

assuming that this is going to get us out of the hole. It's just going to get us even deeper and deeper into the hole and that much more different. difficult to get out of it. Well, using the whole analogy, the deeper we dig, the more they have to create a money supply in order to keep digging, almost. Right? Like that's exactly what they'll do. And they will also, a lot of people are predicting this, they will revert to something

called financial repression. and it won't solve anything. Well, it'll get rid of the debt at the cost of somebody else. So what financial repression is, we have so much debt, and there's no way that we can pay it all back. You don't have to pay it all back. You just need to really stop growing it. But they don't want to stop growing it. And so what they will do is devalue that debt.

So let's say you buy $10,000. government of Canada bond and it matures in 20 years time. Well, they can't afford to pay you the full value of that $10,000. So over the next 20 years, they're going to continuously increase the money supply, which reduces the value of the currency, right, extracts more and more capital out of the money already in existence and do it with ultra-low interest rates that they will force on society through yield curve control and things like this. So in 20 years, you'll get your $10,000 back. But if it stored 10 bikes when you lent it to the government,

by the time you get it back, it'll only have one bike or half a bike in it. But won't the logical conclusion of that be? Nobody will buy the bonds. Exactly. So then the bond vigilantes will say, we know what you're going to do. And so we're going to demand a much higher interest rate. And so that's one of the risks in that you lose control of interest rates. And you've seen a little bit of that in the States earlier this year.

You've seen that in the UK. But then the central bank will just start, they'll exercise yield curve control like Bank of Japan. They'll just print the money necessary to buy those bonds themselves. and it's called monetizing the debt. But of course, then you get much higher inflation. So there is no easy way out of this. You know, when I was just thinking, when I hear capital fleeing Canada,

I always assumed, I don't know why I equated, well, probably an easy thing, because you'd said it's not money capital that makes the world go around. And my brain always kind of put the two together. And when you say capital is fleeing Canada, that's people building things. Yeah. And, I mean, an extension, then the money that would come from said capital is gone as well.

Yeah. And if you're creating a scenario in Canada where capital doesn't want to come, then you're going to have less capital. And the only thing you're going to be able to do is print more money. Exactly. It's almost self-perpetuating at this point. Exactly. All you can do is print it.

and take it, right? So taxes will go up. Right? So your capital will, more and more capital will go from the private sector to the public sector because they feel this is the only alternative. But as they tax more, as they print more, people won't spend more. They'll have less to spend and less to spend it on, which will actually perpetuate this even faster. Exactly.

So where does this, Paul, where does this eventually run into that? Because when I, listen, you're not the first economist I've had on. It's not the first time I've talked about these things, although I do appreciate the the examples you're giving because I'm like, yeah, that makes sense. I just, to me, it's eventually you run into a brick wall. And when the brick wall hits, I actually don't know, maybe you can describe what a brick wall in my brain is. because I just feel at some point you're printing so much money you hit probably hyperinflation

where you know they talk of all these different countries and different examples in history where a dollar or $10,000 or whatever money nominal money supply you want doesn't buy remotely what it used to yeah and this is why people talk about gold silver bitcoin I'm sure there's other investments that you point towards to try and hedge against what's happening. Yeah. Yeah, no, no, you're exactly right. This is why I've written a book.

Just because of this, we are not on a sustainable path. And one thing I should say, I'm not an economist. I'm an investor. And I guess maybe a self-trained economist for what that's worth. My apologies. No, no, I should have made that clear at the start. I think you did. And my brain just lumps you in with people talking about the economy.

Yeah, yeah. Sorry. No problem. And, but yeah, but I have all I've done over the last 17 years is study economics, but I've done it all on my own different schools and everything like that, different schools of economic thought, not different universities. So, you know, as I say in the book, you know, we've got two choices. We can carry on our current path, the whole digging path, until eventually the hole collapses in on us and it's a catastrophic explosion and then we end up with a much different system than we have now and it would be as bad as this system is and unfair it'll be much much worse it'll be socialism or fascism or whatever and lack of freedom and all this kind of stuff. I mean, it's impossible to know exactly what it would look like.

I'm just highly confident it would be really bad. And it's impossible to know when. It could be next year. It might not be for 10 years. You just don't know. The other choice, apart from the digging faster is to stop digging and try and change our thinking and change what we're doing. But for a good part of society, it will be painful.

There's no avoiding it. politician wants to make a decision, understandably, that would require a part of the population or most of the population incurring pain. And yet pain is coming one way or another. It's coming one way or the other. So you can do nothing and have a lot of pain or you can do something and have some pain. And for some people, it would be very painful. And if there was an easier way out, I'd be all for it.

There isn't. And but I believe that, you know, I gave you the example about our house and going up and price and how we didn't deserve to make that much money on our home. You know, I've been telling us to friends of mine and acquaintances and colleagues and whatever for the last 15 years. And the vast majority of people, as soon as I tell them, they say, you know what? I never thought about it that way. You're absolutely right. They get it. And they want to do the right thing. But every now and end, I do run across somebody who just can't stand hearing this. And they don't want to hear it. They don't want to understand it.

They want to believe that, A, they've earned it, and B, that we should not go on a path, which means that the price of their house probably needs to come down. And there's Upton Sinclair. He was like a socialist back in the 1930s in the States, and I use a quarter of his in my book. It says when somebody, if somebody's income depends on them not. understanding something, then don't expect them to understand it. It's not that they can't. They won't. They've decided they don't want to hear it because they love their lifestyle. They're accustomed to their lifestyle. That's too hard to give up than to understand what's really going on.

But most people will. And most people are good people. Most people want the system to be fair. I do believe that. And most people will want to do the right thing. The housing thing is a really difficult one for multiple reasons. If everybody bought their house for $100,000, let's just say. Everybody. And now they're all worth $700,000. You're going to lower it. Okay.

But what happens to the person who bought the house for $1.2 million? And now you're going to lower the price of housing. Do they want that? No. How about the other person who has no outside investments in anything but their house? their houses, they're nest egg for when they retire. That's now four times of value. And they look at that and they go, that's going to be the money I live on.

For those people, it'd be extremely painful. And in my book, I talk about, you know, for a first time home buyers, let's say. So let's say somebody recently bought a home for $1.2 million. And the thing goes down to $600,000. You know, but they started 30 years ago. They bought their first home for $200,000. And that went up in price. and use the equity to buy.

They could still be in a net positive position. But for first-time homebuyers in particular, who do no fault of their home, bought near the top, and then when they sell, they incur a capital loss. And I do think that governments with taxpayer dollars,

remember, governments don't create anything. They get all their capital from taxpayers. The taxpayers should be in a position to help people like that. So, excuse me, I don't believe in, like for the average home that your capital gain on your home should be taxable. But for homes, if people are making a couple of million bucks on their home or more, then maybe 10% of that is taxable, 15% or maybe it's higher. I don't know, and I don't even know how much money that would bring in.

But for people who've been screwed, there'd be a one-time policy put in place to help those people who then sell their house. As taxpayers, we should be willing to do that help people who got screwed due to no fault of their own. But whatever the answer is, there are answers. But we just need to be talking about them. We need to be not demonizing people. I mean, I demonize policy, I guess, bad policy, but they're not bad people. But that's what makes this so difficult. You know, and you've heard people in our government say, yeah, prices need to come down,

or prices shouldn't come down, but we need to increase housing supply. well, they're not able to increase housing supply at a rate anywhere near what they said, not detached homes anyways. And if you are successful in significantly increasing the supply of houses, then prices will come down. You know, but nobody wants to say it. Nobody wants to say it for obvious reasons. And, Sean, it's even worse than you think. because, you know, like Tith Maclin during COVID, telling people that interest rates are going to stay low for a long time, encouraging people, you know, to participate in this housing frenzy and borrow and spend.

Central bank shouldn't be doing anything like that. They should not be trying to coerce people into doing anything. They should be just worried about inflation. and in my mind, they should just worry about hard money and not increasing the money supply. But anyways, you know, where was I going with that? No, I can't remember I got off track. Sorry. No, that's all right.

Well, I appreciate it. I appreciate you coming on. And for people interested in your book, Paul, where can they find it? How can they get a copy? So right now, you can only get it online. So it's on Amazon out here. It's like in indigo or chapters. In the States, Barnes & Noble, Amazon, Thrift Books.

Every now and end you can find it in a bookstore. I found it in a bookstore in Boca Raton a couple of weeks ago, but it's pretty much only available online. So it's capital offense, why some benefit at your expense. And then on my website, I have my weekly blog, which you can sign up to get free weekly updates. And all my past blogs are there. And I do a podcast version. And I put podcast interviews like this up there.

And I've got a book summary. And I've got links there to buy the book. My website is called Paddington Capital MGMT, which is short for management. So Capital, Paddington, Capital, MGM. And you can find all my stuff there. I appreciate you coming on and doing this today. And well, best of luck here in the days to come. And we'll see what, you know, the early days of Carney and this liberal government do, you know, and we'll all be watching.

So appreciate you coming and lending some thoughts today. Well, thanks so much for having me, Sean.