Canadian Banks: “The Anchor That Drags Your Whole Portfolio Down”

Published on
January 21st, 2020
37 minutes

Canadian Banks: “The Anchor That Drags Your Whole Portfolio Down”

Investment Ideas ·
Featuring Kevin Muir

Published on: January 21st, 2020 • Duration: 37 minutes

Kevin Muir, editor of the Macro Tourist newsletter, sits down with Real Vision's Ed Harrison to discuss why he believes interest rates and inflation, long tempered by dovish monetary policy, will rise once again. He sees Treasury Inflation-Protected Securities (TIPS) as a good way to hedge against the U.S. dollar's inflationary risk and recommends shorting both the Canadian dollar and Canadian banks. He also explains his bullish thesis on energy stocks, which he argues is a bargain at current prices. Filmed on January 13, 2020, in Toronto.



  • GH
    Galen H.
    28 February 2020 @ 20:46
    Nice interview, but I had to laugh,..." GDP/capita is barely going up - Canada." - he says.... I live in South Africa....we talk about "will a politician ever be convicted"... 3rd world countries will forever remain so.
  • SR
    Steve R.
    29 January 2020 @ 07:42
    Personally think he's wrong on so many levels here, and his track record isn't very good. So I'll give it a miss thanks.
  • TH
    Truman H.
    28 January 2020 @ 02:54
    Sobering interview for folks who are long the Canada dollar. I like Muir's presentation of the alternatives: "Everyone knows for sure that inflation's never coming back." vs. "The market is misjudging the risk to the bond market." Place your bets. So far mine is on door number two...
  • RS
    Reuven S.
    26 January 2020 @ 20:02
    I’d exercise a lot of caution on Kevin’s bond view (mildly put); it has been a glorious failure so far. There is no process here backing his bond theme. Be careful!
  • MP
    Mate P.
    26 January 2020 @ 15:50
    Great Interview and Kevin's thesis makes sense, but I feel a rhyme to many of the short JGB pains I endured. Feels right, but I promised myself never shorting bonds again.
  • GG
    Gary G.
    25 January 2020 @ 19:50
    Agree with half and disagree with half of Kevin’s ideas!! Bonds need a big push up before they top. Will align with pop in gold and silver, big dump in oil and a correction in big daddy spx before yields bottom out!!!
  • BB
    Bart B.
    22 January 2020 @ 06:54
    Great interview! But I do not agree with his stance on the Euro. The people of Europe are dead tired of this currency. The single currency is an ill fit for the multitude of countries and I am 100% convinced that if member states were to hold referenda about the Euro it would be abolished in a heartbeat.
    • JP
      Jonathan P.
      24 January 2020 @ 23:53
      ppl seem to like it
  • JP
    Jonathan P.
    24 January 2020 @ 23:50
    inflation aint coming back
  • AT
    Andrea T.
    21 January 2020 @ 14:37
    I don't get why higher inflation *must* lead to higher rates. Of course, in normal times investors would demand higher yields to protect against inflation, but we're not living normal times because of central banks interventions. If yields rise, the US government (or any other government) will not be able to service its debt. And this is why I think the Fed will never, ever let yields rise more than so much. While at the same time, the Fed has every incentive to print more and more money to let assets inflate and to paper out as much government debt as it can. And of course the government has the incentive to spend as much as it can, which will bring some price inflation. My suspect is that central banks and governments will try to get *both* low yields and high asset-price inflation.
    • JL
      J L.
      21 January 2020 @ 15:18
      cause people will only take so much negative real yields
    • WB
      Wes B.
      21 January 2020 @ 16:27
      They could pin the short end down where they have more control but rates could float higher in the back of the curve where the Fed has less control
    • JC
      John C.
      24 January 2020 @ 16:58
      Agree 100% and think Kevin is wrong here re inflation & rates in the short term. The CB's simply cannot get away from low rates and are now trapped. They will do everything they can to keep rates low - maybe they can't totally control the long end but then again look at Japan over the past few decades. US has 3 more cuts they can do and then they can turn it over to MMT along with everyone else. We're in for some very volatile times ahead. ESG will further complicate things I think and ultimately cause huge inflation later on down the line (which core CPI will exclude! :)
  • GC
    George C.
    24 January 2020 @ 12:54
    Second half was better than the first. Some interesting perspectives, especially on Canada and FX.
  • PG
    Philippe G.
    22 January 2020 @ 16:08
    Canadian resident/citizen here and fan of Macro Tourist, appreciate his candidness! Yet, Canadian banks are doing okay at the minimum every quarter. Immigration is propping up housing, entire families (multi-generational) are chipping in to buy a home. Then, Boomers are supporting their kids with a down payment...(yes, anecdotes)... There's implied protectionism for the banks (and telecommunications), even with the recent job cuts, they're huge employers and the Federal Liberal party isn't as strong following October 2019 election...They'll likely do everything possible to mitigate a "Black Swan" event, or even a lesser catastrophe, to preserve jobs....
    • KM
      Kyler M.
      24 January 2020 @ 04:17
      are you looking at Alberta? when there was real need the goverment did nothing .. only push the carbon tax.
  • ME
    Michael E.
    23 January 2020 @ 22:51
    Until debt situation resolved, no healthy, organic growth. People think MMT would resolve the problems. Will not.
  • LP
    Lauri P.
    23 January 2020 @ 21:26
    Excellent and thought provoking interview! Some pushback on the inflation narrative though: The inflation in services and healthcare has been here for already some time! PCE is crafted to print whatever number FED want's' it to show, so I would be be surprised if it went above the FED target. Hard to get inflation in consumable goods when all the excess money is used to keep up unprofitable factories and pump out cheap goods...
  • NB
    Nicholas B.
    22 January 2020 @ 23:39
    Looks like Nikola has already beat time to it, but; you could replace 'Canada' with 'Australia' quite easily I think, no one would pick the difference
  • WA
    Wissam A.
    22 January 2020 @ 09:09
    What I am posting here is from a twitter feed by Antonio Gramsci (@GramsciA): "When there is an oversupply of money it is easy to see how that would be inflationary. If there is $1000 in circulation one would expect prices to be higher than if there is $100 in circulation. Just more dollars chasing the same stuff. But here’s where that simple model does not actually work in reality. In reality, that excess money actually pushes prices down if certain conditions prevail. It depends on the scarcity of the thing in question as well as who in the supply / demand chain has access to the excess liquidity. During the last 10 years since the GFC the excess liquidity has not been distributed evenly. In determining whether you will see an inflationary or deflationary result, you need to look at (1) scarcity of the thing in question (specifically whether the excess money can increase supply) and (2) where the excess money resides (exactly where in the supply or demand chain). Excess borrowed money at artificially low rates will be deflationary if the excess money is used to increase the supply of a thing more than the excess money is used to purchase the thing. Oil seems to be a pretty good example of this phenomenon. The history of shale is one of excess liquidity on the supply side and a product, oil, that is not particularly scarce. During the period that easy money was being made available to drillers, the same easy money was not made available to consumers. Drillers (supply) were borrowing at very low interest rates while SUV drivers (demand) were borrowing on credit cards. So there was and is a deflationary effect in oil prices. Excess liquidity largely caused increased supply of a non-scarce item and the excess liquidity was not largely on the demand side. You know when oil gets really scarce? When there is not enough capital to get it out of the ground. Elite college education provides the counterexample. Unlike oil, excess liquidity does not increase the supply of elite colleges. Moreover, the marginal demand for elite colleges does not come from credit card borrowers. The system provides ample liquidity to satisfy the demand side of the equation. Rich people from other countries want their kids to go to elite colleges. So the excess liquidity in the system is inflationary because the excess liquidity does not increase supply but it does give the demand side more chips to bid up the price of that non-scarce thing." Also reading Ray Dalio's book highly indebted in their local currency economies always end in a deflationary bust and the central bank need to print the money to counteract the deflationary force.
  • CL
    Claudio L.
    22 January 2020 @ 05:25
    Inflation isn't dead, it will sneak into the economy as it seats in the shadows...
  • NL
    Nikola L.
    22 January 2020 @ 04:48
    Australia is in even more dire place. We have second highest private debt in the world and less diversified economy than Canada. We almost have no manufacturing left. We lost our competitive edge on energy and now Japanese pay 20% lower prices for Oz gas than Australians do. I kid you not (this can be verified as you will not believe what I am to say) our politicians and some businesses are planing to import Australian Gas from Japan. Yes you are reading this right. We pump our gas, we liquefy it, ship to to Japan, de-liquefy, liquefy again, ship it back to Australia, de-liquefy and pump into Eastern Coast - Sydney and Melbourne. 30% of our exports are to one country - China. And bulk of it is Iron Ore and Coal.
  • RM
    Robert M.
    21 January 2020 @ 21:29
    Not sure that I agree that everyone is positioned for disinflation. In all the newsletters, blogs, and podcasts I follow, everyone is talking about the coming inflation or the "underground" and/or asset inflation that the Fed's numbers are not accounting. So don't see this as a contrarian trade necessarily. If you are interested in the opposing view, go read the Hoisington 4th quarter report, which just came out.
    • MK
      Michael K.
      22 January 2020 @ 00:20
      Awesome thank you for sharing that the new hoisington is out. Value add comment.
  • DS
    David S.
    21 January 2020 @ 22:53
    The future is completely unknown, but I think the internet of things is still going to force any item that can be price shopped to lower and lower prices. Falling prices and rising wages will pressure earnings and reduce the ability of new corporations to enter the market. Slow to no growth in GDP, higher wages and higher P/Es makes a tough market. Good Luck! DLS
  • AR
    Abishek R.
    21 January 2020 @ 06:46
    Feels odd listening to a sober Muir. Great discussion. Maybe a face off with Raoul who has the opposite view of most of Kevin’s concepts will make a great show. More of the Macro Tourist please!
    • TM
      The-First-James M.
      21 January 2020 @ 10:38
      I take it you're a regular listener to the Market Huddle podcast. 😉
    • TM
      Timothy M.
      21 January 2020 @ 22:27
      LOL. I concur with many of Kevin's views, especially on inflation. I also listen to the Huddle every week.
  • JE
    James E.
    21 January 2020 @ 20:58
    The oil prediction of under investment is almost a given. Political elites are forcing countries to phase out fossil fuels on the basis of global warming. When the earth cools, as it always does, oil along with inflation goes through the roof. The risk is already set in motion.
    • RV
      Ryan V.
      21 January 2020 @ 21:26
      Not just oil. Look at coal. How are these millions of electric cars going to be made without coal? They can’t role their debt and they are massively profitable.
  • DG
    Dave G.
    21 January 2020 @ 14:11
    So what will happen to housing in Canada and United States with interest rates increasing but also inflation increasing at the same time? Will housing tank while everything else gets more expensive? If we get MMT we will get inflation but that will require a bust first.
    • RV
      Ryan V.
      21 January 2020 @ 19:02
      As per MNP credit survey, 53% of Ontario residents are $200 from insolvency. 32% are insolvent today. Who knows how much longer that can go on for but it won’t end pretty for Ontario.
  • JM
    John M.
    21 January 2020 @ 18:03
    Agree with Kevin's comments on Canada and would add the following: Canada is accepting >350k immigrants/yr which represents almost 1% of its total population. That is high (compare to USA for example). As a result Canada the has fastest population growth of any G7 country. I think GDP/capita is a POOR way to illustrate underlying economic problems because Canada has serious wealth disparity challenges. A better way to address this question is to look at this article from Bloomberg noting that 50% of Canadians on the edge on insolvency!! IMO most companies (countries?) get into trouble starting with weak leadership. The Liberal party of Canada got only 33% of the popular vote but is still governing? Justin Trudeau has said very little about the Canadian economy. His top focus has been climate change. He imposed carbon taxes & halted many energy infrastructure projects. His policies are beginning to provoke a national unity crisis in western Canada, the energy producing region. There is an obvious problem with Canada's leadership....fasten your seatbelt, expect turbulence ahead.
  • OC
    Otto C.
    21 January 2020 @ 17:13
    Great perspective! It's always a good idea to consider all angles. Another reason why I enjoy Real Vision.
  • DM
    Dom M.
    21 January 2020 @ 16:07
    Repocrisis=European banks (stay away) capital flows into the US dollar and equities
  • NR
    Nathan R.
    21 January 2020 @ 13:52
    Minimum wage up, underemployment goes up. 1970s inflation caused by oil shock not deficit spending. 1971 gold standard abandonment then OPEC shock was necessary to drive prices then wages higher. Ignores massive debt service costs (regardless of low rate) and demographics weighing on new household formation. 11 years, 25T and negative rates should have made him right by now. Any recession will drive unemployment higher, crushing prices and credit. He may be right in the next cycle but deflation first.
  • MJ
    Matthew J.
    21 January 2020 @ 12:27
    Kevin say the bond market is the anchor, 26 min 35 secs to go, not Canadian banks. Misquote on the headline albeit he believes Canadian banks are a short.
  • wj
    wiktor j.
    21 January 2020 @ 11:09
    But how does this play out with the broken eurodollar market? Will the swap with every central bank? Will this be allowed? What about the building dollar debt outside the US?
  • DR
    De R.
    21 January 2020 @ 11:06
    USD have been a safe heaven fx along with JPY, and BOJ would just flood the market with liquidity too when risk off comes, so I dont see why jpy should be favoured more against the dollar.
  • TM
    The-First-James M.
    21 January 2020 @ 10:40
    When Kevin describes Canada, I hear "Australia".
  • PJ
    Peter J.
    21 January 2020 @ 10:13
    Good interview, Kevin is an interesting down to earth guy, who presents his views well. Not sure I agree with all of his views, but the reflation and bond short thesis was convincing. It would be great to get him on with Raoul to discuss this as they have opposite positions in some key areas.
  • RC
    Robert C.
    21 January 2020 @ 08:14
    Replace Canada with Australia and New Zealand and the same description and analysis could also ring true.
  • BD
    Ben D.
    21 January 2020 @ 08:04
    awesome that canada is being talked about (coming from canada) and even better that kevin is on RV. keep up the great work RV for the interview and kevin for the knowledge.