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Holt Expects Booming Job Market and Cooling Housing Market in Canada · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Lisa,
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  Speaker 1: you ever think of moving to Toronto, perhaps maybe living
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  Speaker 1: the same kind of cosmopolitan, sophisticated life but at a
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  Speaker 1: lower price point with people. Yes, indeed, and we have
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  Speaker 1: one in our studio right now. Derek Holt is the
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  Speaker 1: vice president and head of Capital market Economics for Scotia Bank.
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  Speaker 1: He's based in Toronto, but he joins us here because
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  Speaker 1: he was participating in a panel that took place earlier
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  Speaker 1: this morning, a Canada's housing outlook from Bubble to Buffett.
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  Speaker 1: Thank you very much for being here. Thank you. Well. Okay,
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  Speaker 1: so my setup was at one point, Toronto and Canada
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  Speaker 1: indeed was thought of as a less expensive alternative to
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  Speaker 1: perhaps other high priced real estate in other North American cities.
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  Speaker 1: Not so anymore correct. It depends on what currency you
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  Speaker 1: have to invest and if you have US dollars in
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  Speaker 1: this kind of a marketplace. Internationally speaking, Toronto Vancouver there's
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  Speaker 1: still well down the list in terms of the world's
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  Speaker 1: most expensive cities, so I think it still provides some value.
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  Speaker 1: What about people in Canada, people that actually use the
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  Speaker 1: looney on a regular basis, that's a bit of a
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  Speaker 1: different picture. That is a story of strained affordability and
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  Speaker 1: markets like Toronto and Vancouver where we are probably probably
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  Speaker 1: seen the best of housing markets over the course of
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  Speaker 1: the cycle of the past ten of fifteen years or so.
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  Speaker 1: But it's we're still encouraged by the outlook. We don't
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  Speaker 1: think we're going through a big pullback as opposed to
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  Speaker 1: a temporary hiccup. Well yeah, and just over the summer,
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  Speaker 1: prices in Toronto did decline pretty significantly, although they're still
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  Speaker 1: ahead of where they were a year ago, and part
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  Speaker 1: of the issue is that people aren't leaving their homes.
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  Speaker 1: That also, you said that this market could offer value
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  Speaker 1: to outside infestors who are coming in and squeezing out
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  Speaker 1: local residents. How much lower do you think Toronto home
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  Speaker 1: prices could fall. The real test will be next spring,
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  Speaker 1: given how seasonal the housing market is. But I suspect
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  Speaker 1: that over the course of between now and then, we'll
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  Speaker 1: see a bottoming a series of evidence unfold, and over
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  Speaker 1: the longer term, I'd expect price gains per year in
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  Speaker 1: and around the five percent range. So how are you
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  Speaker 1: so sanguine when you also expect the Bank of Canada
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  Speaker 1: to raise interest rates three more times from now through
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  Speaker 1: the end of next year. Well, let me clarify, though,
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  Speaker 1: I do expect a cooling housing market environment nationwide, in
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  Speaker 1: part because the cost of borrowing is going up, and
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  Speaker 1: in part because the price gains and the affordability is
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  Speaker 1: relatively strained. It's just that the interest rate reset risk
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  Speaker 1: on the mortgage book applied to the whole housing market
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  Speaker 1: is relatively modest in Canada because the five year mortgages
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  Speaker 1: dominates about of outstanding mortgages, and so the rate reset
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  Speaker 1: occurs on gradually over time. In the context of income growth,
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  Speaker 1: and what are you seeing in terms of income growth,
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  Speaker 1: that's been a big topic here in the United States.
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  Speaker 1: What about in Canada. It's also been very mixed. In
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  Speaker 1: terms of the disposable income. We've been growing by three
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  Speaker 1: to four percent nationwide year over year average hourly wages,
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  Speaker 1: just as soft as in the United States, in fact
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  Speaker 1: software at the start of the year, but they're starting
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  Speaker 1: to accelerate and in fact into next year. I wouldn't
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  Speaker 1: be surprised to see two and after three percent wage growth,
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  Speaker 1: So that would be good for the housing market. It
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  Speaker 1: would also along the same lines and of population dynamics
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  Speaker 1: and a market like Toronto, for example, the country raised
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  Speaker 1: its immigration targets. You're seeing people return home to the
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  Speaker 1: province of Ontario and the city of Toronto from the
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  Speaker 1: resource based parts of the country. Those overall population dynamics
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  Speaker 1: are favorable, and they're not returning home to misfortune. They're
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  Speaker 1: getting jobs in a booming job market in Canada. So
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  Speaker 1: I'm wondering how concerned you are about NAFTA negotiations and
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  Speaker 1: these sort of uh increasing tensions with United States with
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  Speaker 1: respect to trade. Do you think that this could have
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  Speaker 1: a bad outcome and could potentially hurt the economy of
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  Speaker 1: Canada could have potentially Yes, I'm less inclined to treat
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  Speaker 1: it as a macro event now than I was perhaps
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  Speaker 1: at the end of last year or earlier this year,
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  Speaker 1: when there was much more loose talk about a border tax,
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  Speaker 1: which seems to be dead in the United States right now,
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  Speaker 1: or tearing up the NAFTA and walking away. I don't
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  Speaker 1: find that threat to be credible in the current context,
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  Speaker 1: as opposed to something that's more sector specific and where
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  Speaker 1: we we renegotiate the individual industry prospects going forward. In
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  Speaker 1: the context of the the dividing line, the strongest thing
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  Speaker 1: that matters to Canada and Mexico is to retain those
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  Speaker 1: trade tribunals, the independent trade experts, and not to be
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  Speaker 1: subject to the vagaries of the U. S. Court system.
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  Speaker 1: To me, that's at the end of the day, what
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  Speaker 1: is going to keep Canada at the bargaining table. Can
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  Speaker 1: you explain how that would work what you're talking about
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  Speaker 1: with respect to who would oversee the actual trade deals
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  Speaker 1: versus the U S. Court system. Well, right now, it's
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  Speaker 1: an independent panel of experts drawn from all three countries
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  Speaker 1: that judge the trade disputes on a sector sector's case
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  Speaker 1: by case basis. And you want to keep it that way,
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  Speaker 1: in my opinion, outside of the political cycle in either
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  Speaker 1: of those three countries and outside of the court systems,
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  Speaker 1: in order to make sure that these are as well
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  Speaker 1: informed impartial judges as possible. If you don't have that,
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  Speaker 1: and the whole idea of a rules based trading system
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  Speaker 1: that everybody has confidence in goes right out the window.
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  Speaker 1: And so I think that's the final straw for each
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  Speaker 1: of the countries. Maybe just to give people just a
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  Speaker 1: quick idea of the relationship, particularly when it comes to
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  Speaker 1: let's say the automotive industry. The relationship between the economy
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  Speaker 1: and the United States and the economy and Canada linked
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  Speaker 1: in no matter what you do at a trade table,
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  Speaker 1: You're very right. I mean, one third of GDP in
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  Speaker 1: Canada is export driven, and on almost three quarters of
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  Speaker 1: that goes to the United States. So there's still a
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  Speaker 1: very very strong connection between the U S economy. In fact,
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  Speaker 1: if you were to correlate GDP growth between the two
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  Speaker 1: countries over time, there's a very very strong correlations so
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  Speaker 1: that the two are hitched at the hip to a
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  Speaker 1: significant degree. Still, so going forward, do you think that
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  Speaker 1: things are still on track though? And you don't. You're
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  Speaker 1: not concerned that it'll just sort of be dissolved the
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  Speaker 1: whole agreement. No, I don't find that to be credible.
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  Speaker 1: I think it would be political anathema, even domestically within
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  Speaker 1: the United States to go down that path because there
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  Speaker 1: are so many people whose Republican senators and congressman in general,
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  Speaker 1: whose fortunes rest upon the NAFTA prospects across the Northern States,
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  Speaker 1: and so to walk away from that and impose a
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  Speaker 1: border text I think would be politically ruin us, even domestically.
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  Speaker 1: Derek Holt, thank you so much for joining us. Derek Coult,
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  Speaker 1: vice president and head of capital market Economics for Scotia Bank,
• 6:35
  Speaker 1: which is based in Toronto, but he is here today
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  Speaker 1: in the Bloomberg eleven Thrio studio. Earlier today, the chief
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  Speaker 1: executive of Equifax decided he had had enough and to
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  Speaker 1: help us understand what's going on. But the company we
• 7:00
  Speaker 1: have a Jenny surname. She is a Bloomberg financial reporter
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  Speaker 1: and as in our studio here to tell us more.
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  Speaker 1: I was looking at the stock. A stock is not
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  Speaker 1: reacting happily to I mean, investors are still selling it
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  Speaker 1: mean from the time that the Equifax hack was released.
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  Speaker 1: I'm looking at the shares there down about thirty percent.
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  Speaker 1: What can you tell us about who's leaving and what
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  Speaker 1: does this leave Equifax? So does so I think obviously
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  Speaker 1: investors are not happy about the breach. At all. I mean,
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  Speaker 1: when you're a data company, to have your data stole
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  Speaker 1: in UM, that's no good. UM. I think you know,
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  Speaker 1: today though, the weakness is actually kind of interesting. Um,
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  Speaker 1: the CEO announces he's resigning. They've got this guy who's
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  Speaker 1: been there for seven years stepping in in the interim. UM.
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  Speaker 1: But I think investors really did actually like Rick Smith,
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  Speaker 1: you know, under him, he took over in two thousand five.
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  Speaker 1: The stock has just been on a tear if you
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  Speaker 1: exclude these last three weeks obviously, UM, and he actually
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  Speaker 1: has edited with building Equifax into the company that it
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  Speaker 1: is today. And so I think for a lot of
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  Speaker 1: investors there's some worry like will this next guy or woman, UM,
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  Speaker 1: will this next person be able to continue his legacy? UM?
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  Speaker 1: Minus the breach? Obviously? Well, Jenny, it was sort of interesting.
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  Speaker 1: Sun Trust analysts came out today and said that the
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  Speaker 1: equity that that the Equifax departure of Richard Smith the CEO,
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  Speaker 1: is incrementally negative. And they said this is because the
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  Speaker 1: board is going to have to sort a CEO transition
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  Speaker 1: during this incredibly delicate time. You know, does this sort
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  Speaker 1: of limit their options for a CEO and create uncertainty
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  Speaker 1: at a time where the company is trying to regain
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  Speaker 1: its reputation. Yeah, I think it's a it's a good question.
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  Speaker 1: I mean, so it's ah, they've said that they're going
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  Speaker 1: to look internally and externally. Um, there's very few topics
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  Speaker 1: acts that weren't actually implicated in this breach, and so
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  Speaker 1: the internal hires might be a little difficult, But you know, externally,
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  Speaker 1: I think there's, um, there's a lot And first of all,
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  Speaker 1: if you're turnaround CEO, you're very interested. But beyond that,
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  Speaker 1: you know, Equifax has just this massive amount of data
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  Speaker 1: and and they're always looking for new sources of data
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  Speaker 1: in new ways to package it. Um And and obviously
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  Speaker 1: internationally there there's a lot of room to grow. So um,
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  Speaker 1: this is definitely an overhang on the stock. This this
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  Speaker 1: breach was a you know, a terrible thing for US consumers.
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  Speaker 1: But um, you know, in terms of finding Richard Smith's replacement,
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  Speaker 1: I'm not sure that it will be all two typicult.
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  Speaker 1: Jenny Suraine, thank you so much for joining us. Jenny
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  Speaker 1: Serene is a Bloomberg News reporter. We've been talking about
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  Speaker 1: the Aquifax CEO deciding to retire. Obviously, this company has
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  Speaker 1: been under tremendous dress after a massive hack that revealed
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  Speaker 1: a lot of information about frankly, almost half of all
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  Speaker 1: American residents. I'm Lisa Robo, what's along with my co
• 9:49
  Speaker 1: host pim Fox. This is Bloomberg. The Chinese Ministry of
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  Speaker 1: Finance said last week that it was a wrong decision
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  Speaker 1: for SMP to downgrade China's sovereign credit rating. Indeed, the
• 10:16
  Speaker 1: Ministry of Finance said it was a pity for SMB
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  Speaker 1: to focus on China's fast credit growth because it was
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  Speaker 1: also ignoring the country's distinctive financing structure. And here to
• 10:26
  Speaker 1: tell us more is Brendan Hearn. He's the chief investment
• 10:29
  Speaker 1: officer of Crane Shares. Brendan, thank you for being with us.
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  Speaker 1: I wonder if you could speak to this issue that
• 10:35
  Speaker 1: the Ministry of Finance raised about these distinctive financing structures
• 10:40
  Speaker 1: and whether the SMP downgrade of Chinese sovereign debt was
• 10:43
  Speaker 1: really warranted. Well, I think an element of the sp
• 10:46
  Speaker 1: downrade was falling in the footsteps of Moody's down grade
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  Speaker 1: earlier this year. I think, if anything, you've seen a
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  Speaker 1: high emphasis on trying to constrain potentially contracts the credit
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  Speaker 1: growth in China, so I think the reaction by the
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  Speaker 1: market has been very muted as well as many China
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  Speaker 1: watchers would say maybe S ANDPS a step or two
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  Speaker 1: behind the trend that we're seeing taking place. But Brendan,
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  Speaker 1: we did see a pretty significant response in property stocks
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  Speaker 1: after as property stocks in Hong Kong, I should say,
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  Speaker 1: after a number of Chinese municipalities tightened the conditions on
• 11:23
  Speaker 1: mortgages for and frankly I'm buying in general on the
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  Speaker 1: property markets there in their regions. What do you think
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  Speaker 1: of this? Is this going to be just the beginning
• 11:32
  Speaker 1: taste of more substantial tightening to come? Well, I think
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  Speaker 1: in general, I think this is part of a trend
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  Speaker 1: around the upcoming nineteenth Party Congress taking place October eighteenth
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  Speaker 1: in Beijing. Fairly significant turnover within political leadership, so there's
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  Speaker 1: a high degree of emphasis on getting in front of
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  Speaker 1: potential problem areas. Housing is one area where you're seeing
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  Speaker 1: prices continue to rise, and I think the policymakers are
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  Speaker 1: trying to tap the brakes on trying to control some
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  Speaker 1: of those uh, skyrocketing prices. Well, okay, so if those
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  Speaker 1: prices are in a sense controlled either by credit or
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  Speaker 1: by any kind of change in the way that the
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  Speaker 1: individuals are allowed to borrow money. What do you say
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  Speaker 1: is to the people that look at these results in
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  Speaker 1: these companies and say, you know what, we don't believe
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  Speaker 1: the accounts, and we have to figure out a way
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  Speaker 1: to consolidate the lending industry in China so that we
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  Speaker 1: can get our hands around it. Yeah, I mean, I
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  Speaker 1: do think housing has been um as much a form
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  Speaker 1: of investment for a lot of local citizens, and so
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  Speaker 1: you have a multitude of housing purchases, uh that that's
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  Speaker 1: raised prices due to the contraction and supply and continued
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  Speaker 1: urbanization creates more and more demand on an annual basis.
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  Speaker 1: So I do think there's a um emphasis on trying
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  Speaker 1: to address this inequality of a lot of people aren't
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  Speaker 1: going to be able to afford to buy houses in China. Um.
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  Speaker 1: So I think I think at least it is it
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  Speaker 1: is trying to get in front of this issue of
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  Speaker 1: prices rising, trying to dampen some of that enthusiasm. You know, Brendan,
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  Speaker 1: I've been kind of surprised this year, I've got to
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  Speaker 1: be honest, because Chinese bonds have done very well even
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  Speaker 1: dollars denominated debt, which they're trying to raise more of. Now.
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  Speaker 1: There's been plenty of appetite, and there seems to be
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  Speaker 1: this complacency that China will be able to navigate a
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  Speaker 1: soft landing and won't disrupt markets throughout Asia. Frankly, do
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  Speaker 1: you think that there is too much optimism currently baked
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  Speaker 1: into markets? Well, I think one of the real surprises
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  Speaker 1: for the year has been the appreciation of the remvy
• 13:43
  Speaker 1: versus the dollar. I mean, that's that's reversed a little
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  Speaker 1: bit of late, but I think it just shows that
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  Speaker 1: there's a lot of potential misperceptions around China, and in
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  Speaker 1: terms of credit, I think that the policymers do want
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  Speaker 1: to get in front of these issues in advance, and
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  Speaker 1: there's going to be bankruptcy. I don't think it's gonna
• 14:01
  Speaker 1: be wide scale reformist state owned enterprises. You're seeing the
• 14:05
  Speaker 1: large become larger, the mega caps are getting even bigger
• 14:08
  Speaker 1: through mergers and acquisitions. But the tail end of some
• 14:11
  Speaker 1: of these companies is that they're they well go away.
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  Speaker 1: So we shouldn't be shocked by potential a few more
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  Speaker 1: bankruptcies within China's bond market. The big issue is China's
• 14:19
  Speaker 1: bond debt is all c and why it's all renembi denominated,
• 14:23
  Speaker 1: And it's really when when countries or companies issue foreign
• 14:27
  Speaker 1: denominated that that they tend to get into an issue
• 14:29
  Speaker 1: that's not where we're seeing in China. The other thing
• 14:31
  Speaker 1: is is that there's been uh an incredible lack of
• 14:35
  Speaker 1: concern expressed by markets about the potential effect on China's
• 14:39
  Speaker 1: economy from the escalating tensions between North Korea and the US.
• 14:43
  Speaker 1: And you know, even if this doesn't get violent, which
• 14:47
  Speaker 1: which a lot of people fear that it could, this
• 14:50
  Speaker 1: could have some substantial effects on Chinese economy. Now, well,
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  Speaker 1: I I think that you have the potential for a
• 14:57
  Speaker 1: risk off environment due to escalating tensions. And that's a
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  Speaker 1: worry for any investor in any capital market globally. Um
• 15:06
  Speaker 1: you know, you know, having recently been in the region,
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  Speaker 1: I think, Um, I'm not a politician, so um, you know,
• 15:14
  Speaker 1: this is kind of my own person that the take was,
• 15:15
  Speaker 1: this was a lot of posturing as you potentially enter
• 15:18
  Speaker 1: into a negotiating a negotiation that ultimately the consequence of
• 15:23
  Speaker 1: any sort of military action is uh just so runious
• 15:27
  Speaker 1: for for all sides that it's it's by a lot
• 15:31
  Speaker 1: of people locally, was considered unlikely. Um, so you know,
• 15:35
  Speaker 1: we're certainly optimistic that this is hopefully just that that
• 15:38
  Speaker 1: posturing as you potentially see negotiations and maybe the weeks
• 15:42
  Speaker 1: or months to come. Well, you know, the Commerce Secretary
• 15:45
  Speaker 1: Will Burross, he was speaking earlier today in Hong Kong
• 15:49
  Speaker 1: after visiting with the top economic officials in China, and
• 15:54
  Speaker 1: he said that he believes that the relationship is going
• 15:58
  Speaker 1: to be positive for the trip planned by President Donald
• 16:01
  Speaker 1: Trump later this year. Do you believe that to be so?
• 16:04
  Speaker 1: I believe Mr Ross's trip was to pave the way
• 16:09
  Speaker 1: for President Trump's um um proposed meeting in November, setting
• 16:14
  Speaker 1: the agenda, getting things in place for us for both
• 16:18
  Speaker 1: parties to be able to come away on a successful,
• 16:20
  Speaker 1: successful trip for both presidents. So yeah, I would agree
• 16:23
  Speaker 1: with that, Phim okay so and and and just quickly
• 16:27
  Speaker 1: this idea that all right, if they are able to
• 16:29
  Speaker 1: reach some kind of negotiated agreement between the Chinese and
• 16:34
  Speaker 1: US negotiators, what effect, if any, would that have on
• 16:38
  Speaker 1: the high savings rate of the Chinese because they in
• 16:42
  Speaker 1: a sense, oh, the debt to themselves, not necessarily there's
• 16:46
  Speaker 1: no outside uh creditors. Yeah. I think one of the
• 16:51
  Speaker 1: big policies within China's been trying to raise domestic consumption.
• 16:55
  Speaker 1: That that addresses one that's very very high savings rate.
• 16:58
  Speaker 1: Your savings going to deposits bank lender's deposits, that becomes debt.
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  Speaker 1: So if you can raise consumption, that actually alleviates some
• 17:06
  Speaker 1: of the credit issue um At the same time, raising
• 17:10
  Speaker 1: domestic consumption helps also helps alleviate export dependencies. So there's
• 17:14
  Speaker 1: a dual, dual gain for Chinese policy Martin policy makers
• 17:19
  Speaker 1: to incanitize davers to spend a little bit more. Brendon
• 17:23
  Speaker 1: to her and thank you so much for joining us
• 17:25
  Speaker 1: as always truly a pleasure. Brendan hern is chief investment
• 17:28
  Speaker 1: officer for Crane Shares in New York, and I just
• 17:31
  Speaker 1: want to mention that the Washington Post just published an
• 17:35
  Speaker 1: exclusive report saying that North Korean officials have been quietly
• 17:38
  Speaker 1: trying to arrange talks with Republican linked analysts in Washington
• 17:42
  Speaker 1: to try to understand President Trump and his confusing messages better.
• 17:58
  Speaker 1: Let's turn our attention now to Carlos Capistron. He is
• 18:01
  Speaker 1: the head of Canada and Mexico Economics at Bank of
• 18:04
  Speaker 1: America Merrill Lynch. He was a participant earlier today in
• 18:07
  Speaker 1: our Canadian Fixed Income conference and he spoke on the
• 18:11
  Speaker 1: panel Canada's economy is their life after oil? Well, Carlos
• 18:15
  Speaker 1: tell us, is their life after oil? Because another participant
• 18:19
  Speaker 1: that we spoke with earlier, Derek called He mentioned that
• 18:23
  Speaker 1: there were many people who were moving from the resource
• 18:26
  Speaker 1: rich areas of Canada, like oil, natural gas, mining and
• 18:29
  Speaker 1: so on, and they're moving back to Toronto and that's
• 18:33
  Speaker 1: been good for the Toronto real estate market. But then
• 18:36
  Speaker 1: that means there's something going on in the energy markets
• 18:38
  Speaker 1: that we need to pay attention to. What are you seeing? Yeah, well,
• 18:41
  Speaker 1: thank you very much for fermentation to be here. But
• 18:44
  Speaker 1: you know, there are a lot of things going on
• 18:46
  Speaker 1: for the Canadian economy right now. He's not only all
• 18:49
  Speaker 1: I mean energy, I mean he's of the economy right now.
• 18:53
  Speaker 1: So there are a lot of other things going on, services, manufacturing,
• 18:57
  Speaker 1: a lot of things. And I think also there is
• 19:00
  Speaker 1: life after all, especially now with en after negotiations, I
• 19:04
  Speaker 1: think there's a lot of room for an update too.
• 19:06
  Speaker 1: N After you know that it's beneficial for the three countries.
• 19:09
  Speaker 1: The three countries together, Canada, the US, and Mexico form
• 19:12
  Speaker 1: the largest economy in the world. I do have to wonder,
• 19:16
  Speaker 1: you know, how well the Canadian economy will be able
• 19:19
  Speaker 1: to withstand the interest rate hikes at the Bank of
• 19:22
  Speaker 1: Canada is expected to make. How many are you expecting
• 19:26
  Speaker 1: and how much was the slow asset prices? So we
• 19:31
  Speaker 1: are expecting three more hikes, but we're expecting those hikes
• 19:34
  Speaker 1: to take place next year, so not this year. So
• 19:37
  Speaker 1: this would be part of what we see as a
• 19:39
  Speaker 1: gravel hiking cycle. I think this is not going to
• 19:42
  Speaker 1: be a drug for the economy. I mean, there's a
• 19:44
  Speaker 1: lot of monetori stia moves right now. Real rates are
• 19:47
  Speaker 1: negative and even with these three hikes, they could only
• 19:50
  Speaker 1: bring the real rate to zero. So, especially if the
• 19:54
  Speaker 1: FED is also hiking at the same time, this is
• 19:57
  Speaker 1: not going to be a lot of titan So I
• 20:00
  Speaker 1: think the kind of economy can can withstand these these hikes.
• 20:04
  Speaker 1: The Bank of Canada has a tricky to do here
• 20:07
  Speaker 1: because if they don't hike, then you know, there's a
• 20:09
  Speaker 1: risk of some excessive mistaking behavior. If they hike too fast,
• 20:14
  Speaker 1: then they can hurt the part of the economy that
• 20:17
  Speaker 1: is highly leveled. So it's a tricky role that they
• 20:20
  Speaker 1: need to follow, but I'm sure they're gonna be doing
• 20:24
  Speaker 1: a good job of getting the writer mont if you
• 20:27
  Speaker 1: can speak to the issue of tax reform and its
• 20:29
  Speaker 1: relationship to companies that are currently doing business in Mexico
• 20:32
  Speaker 1: as well as in Canada, would a lower US corporate
• 20:35
  Speaker 1: tax rate make those companies more susceptible to produce and
• 20:40
  Speaker 1: and and create operations in the United States? Yes, for sure.
• 20:44
  Speaker 1: So this is an important risk for both for Canada
• 20:47
  Speaker 1: and for Mexico. I mean lower tag rates here in
• 20:50
  Speaker 1: the US. There, these two countries have different room to
• 20:55
  Speaker 1: deal with this. I see. I think that kinda has
• 20:57
  Speaker 1: more room to deal with these they they can they
• 21:00
  Speaker 1: have some space to lower rates there, whereas in Mexico
• 21:04
  Speaker 1: they don't have room to lower rate. So it's probably
• 21:07
  Speaker 1: something that could affect Mexico a little bit more, but
• 21:10
  Speaker 1: it's definitely a downslide risk for both economies. You know,
• 21:14
  Speaker 1: we're speaking earlier with they're called head of Capital Market
• 21:17
  Speaker 1: Economics Scotia Bank, and he was saying he doesn't expect
• 21:20
  Speaker 1: the ongoing NAFTA negotiations to end with something that could
• 21:25
  Speaker 1: potentially substantially harm the Canadian economy, which is intricately connected
• 21:29
  Speaker 1: to the U S is do you agree, yes? So
• 21:32
  Speaker 1: the hour but and Bank of American AMERYA. Lynch is
• 21:34
  Speaker 1: basically that there is room to have the NAFTA. And
• 21:36
  Speaker 1: when you see room in a negotiation for to get
• 21:39
  Speaker 1: benefit for all the parts involved, that usually where you
• 21:42
  Speaker 1: where you get to. Of course, there's still risks that
• 21:45
  Speaker 1: you know, we would take a turn, and there is
• 21:47
  Speaker 1: even the risk that the US or any other country
• 21:49
  Speaker 1: withdraws from NAFTA. So the risk is still there. We
• 21:51
  Speaker 1: believe it's a small risk, but is there. What I
• 21:54
  Speaker 1: don't think we're gonna get is is the timing, right.
• 21:58
  Speaker 1: I mean, I think these these negotiations are going to
• 22:00
  Speaker 1: take a little bit more time than what people is suspecting.
• 22:02
  Speaker 1: But I think that at the end of the road,
• 22:04
  Speaker 1: we're going to see an update that is going to
• 22:06
  Speaker 1: be good for the trick countries, and you think that
• 22:09
  Speaker 1: the economy will remain stable where it is and not
• 22:12
  Speaker 1: upset those plants, because if you get some kind of
• 22:14
  Speaker 1: big economic problem that could affect the government's response to
• 22:18
  Speaker 1: these kinds of negotiations exactly. But right, now, the prospect
• 22:22
  Speaker 1: for North America good. I mean, we have the US
• 22:24
  Speaker 1: growing slightly above two percent, we have Mexico decelerating a
• 22:27
  Speaker 1: little bit from two percent, and kind of of course
• 22:30
  Speaker 1: it is booming, is growing up close to four percent
• 22:32
  Speaker 1: right now. Respect that to deceler rate, but two rates
• 22:34
  Speaker 1: closer to So North America it's it's it's it's having
• 22:39
  Speaker 1: good growth right now. I want to talk a little
• 22:41
  Speaker 1: bit about Mexico, if that's okay, especially in light of
• 22:44
  Speaker 1: the devastating earthquake Mexico City. How will that natural disaster
• 22:50
  Speaker 1: affect the economy in Mexico? Is that gonna Is that
• 22:52
  Speaker 1: going to be on the radar at all? Well, of course,
• 22:56
  Speaker 1: it being very hard what's been going on in Mexico
• 22:58
  Speaker 1: right now. When you look at the impact on the
• 23:01
  Speaker 1: macro economy, you realize is that this is going to
• 23:05
  Speaker 1: have a negative impact in the third quarter. So probably
• 23:08
  Speaker 1: the third quarter is going to be going to be
• 23:10
  Speaker 1: growing slowly lower than the respected before. But then there
• 23:14
  Speaker 1: is a lot of help already going on for private
• 23:17
  Speaker 1: sources but also from the government, and the government is
• 23:20
  Speaker 1: in a good position to to help that they have
• 23:22
  Speaker 1: other funds that they can use precisely for this type
• 23:25
  Speaker 1: of disaster. So actually what we respect is that this
• 23:29
  Speaker 1: help from the government actually brings more more more growth
• 23:33
  Speaker 1: in the following quarters. Well, that also include any investment
• 23:36
  Speaker 1: in PAMAX into the National Oil Company, which seems to
• 23:39
  Speaker 1: pay what the majority of the taxes for from Mexico. Well, now,
• 23:44
  Speaker 1: right now the country is in the middle of a
• 23:46
  Speaker 1: fiscal consolidation, and that consolidation goes through lower in expenditure
• 23:52
  Speaker 1: at POMICS. This is part of the energy reform, So
• 23:55
  Speaker 1: Mexico is hoping to get more private investment into the
• 23:58
  Speaker 1: energy sector and is reduced the role that the MIX
• 24:01
  Speaker 1: is playing in that sector and also as a taxpayer.
• 24:06
  Speaker 1: But having said that, again, there are some savings that
• 24:08
  Speaker 1: the government of Mexico has been doing and that they
• 24:10
  Speaker 1: can deploy precisely for this kind of of disasters like
• 24:15
  Speaker 1: they like the earthquake. You know, Carlos, I'm sure that
• 24:17
  Speaker 1: you hear the rhetoric from President Trump about Mexico and
• 24:22
  Speaker 1: built that wall. Still is committed to building that wall,
• 24:26
  Speaker 1: he says, although there have been questions raised about that.
• 24:30
  Speaker 1: This is clearly sourge relations between the two countries. Do
• 24:34
  Speaker 1: you think that there will be economic consequences from that, Well,
• 24:37
  Speaker 1: there could be, Yeah, there could be. And for sure,
• 24:39
  Speaker 1: the most important part is not done then after the
• 24:42
  Speaker 1: negotiations and and a lot a lot of hangs on that.
• 24:46
  Speaker 1: But to be honest is when you look at the
• 24:48
  Speaker 1: three countries, they produce things together now and because they
• 24:52
  Speaker 1: do that, people realize all the benefits of working together.
• 24:56
  Speaker 1: I would love to get your final thoughts and what,
• 24:58
  Speaker 1: from your perspective holds the best value as an investment
• 25:02
  Speaker 1: within Canada right now. I think it's just growth. I
• 25:06
  Speaker 1: mean Joe's bettom growth. I mean again, the Canada economy
• 25:08
  Speaker 1: is Joe's growing four percent right now. We have it
• 25:11
  Speaker 1: growing above potential in the following quarters. So I think
• 25:15
  Speaker 1: betting on growth through equity or digent markets, I think
• 25:19
  Speaker 1: it's it's a good bit on the fact fixing market
• 25:23
  Speaker 1: on the country. We're expecting some depreciation of the Canadian
• 25:25
  Speaker 1: dollar and that's what we're thinking about now. There. Thank
• 25:30
  Speaker 1: you very much for being with us, Much appreciated. Carlos
• 25:33
  Speaker 1: Copistron is the head of Canada and Mexico Economics at
• 25:35
  Speaker 1: Bank of America Merrill Lynch. He was participating in the
• 25:39
  Speaker 1: Bloomberg Canada Fixed Income summit that took place earlier today
• 25:44
  Speaker 1: here at Bloomberg World Headquarters. Thanks for listening to the
• 25:49
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 25:52
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• 25:57
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• 26:01
  Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast.
• 26:04
  Speaker 1: You can always catch us worldwide on Bloomberg Radio