YouSaid · the spoken record

Martin Pelletier

lines on the record: 76
first: 2023-03-03
most recent: 2023-03-03
sittings or episodes: 1
sources: podcast

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“I think it's just a time delay, so you're not going to see it up. You're not going like you just described, you're not going to see it in an immediate impact, right? But the longer it stays open, the greater the situation plays out that did he plead some of those inventory bills from the refinery runs and it proves to be sustainable. You pair that with actually the biggest growth that we're seeing is that of India. And India is really getting my attention. I met with a fund manager who's looking at expanding an Indian fund here in Canada and the US. India is really, I was there back in 2003 or 4. I was really impressed what was happening then. And now it's just really taking off. So I think India could be potentially the new China. And what does that mean for demand?”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Translate. I mean, we get into summer vacation and driving season. You have China reopening with flights and people being cooped up in China and they start doing the YOLO. You only live once and they start doing what our baby boomers are doing in North America, then you're going to get a surge in demand and the supply just isn't there to meet that demand. And so you could see energy prices and what prices in particular spike. Now I'm saying oil because it's important to make the distinction between that and natural gas because natural gas is a much different scenario right now from a supply demand fundamental standpoint.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“And there's a disconnect between the paper traders and the physical market. And paper traders, which are a significant component of that market, are being a lot more bearish than the actual physical market that's transpiring. And so if there's an event like in Russia, for example, that would result in 500,000 or million barrels coming off, that would be a catalyst to super spike some of these prices. And if there isn't an economic, like we're not seeing the, if you look at what, I mean, you follow this more than I do, but looking at PCE data, look at consumer spending in January was insane traveling. People are still spending money and the economy is still strong. And that's going to”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“And I really hope and weighing against that is the recessionary worries, which is actually good because the last thing I would want is to see energy prices super spiked to $150, even though I'd make a ton of money off of it in the short term. In the longer term, it could create some damage to our battle against inflation and other aspects.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“And there's no capital coming in, there's no appetite from institutional pension plans, for example, who's divesting of assets. There's no capital availability. And you're having tremendous volatility in the underlying, I mean, you're a price taker. So there's tremendous variability in that pricing. You're not going to put a lot of capital back into the ground. And that's not just in US shale. That's also in other countries. OPEC producers like Saudi Arabia, for example, who have been over tapping into the reserves and global inventories to meet the surge back in demand. So those global inventories have been depleted. And even the SPR, we're back to March of 1985 levels. And that's when we're ramping up the SPR. And so you've got this potential situation setting up for a big supply and demand.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“So I call the energy trade the most hated trade out there. It's almost like big tobacco or it's becoming like that. And so that in itself creates opportunities for those who want to invest in the segment itself. And looking at it from a philosophical standpoint, we need those traditional energy development in oil and gas to bridge the gap towards renewables, which I'm totally supportive of. However, that said, in my entire career, I have never seen such a precarious situation on the supply demand imbalance. And people keep saying that we're at peak demand and demand keeps going up higher and higher. And at the same time, you're having this variability, as you just mentioned, Joseph, in pricing. And if you're an energy company,”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“So typically when we saw the last cycle, you saw, I mean, when I was for way of background, I was an energy analyst for 10 years on the sell side. And our biggest capital providers were China and US. And there was a vast amount of capital coming into the country. And so that was very supportive to the currency. And that's not happening today on that capital is not going into the expansion. It's just globally and domestically there isn't an appetite for expanding a traditional hydrocarbon expansion. So I think that that's why we're seeing a little bit of a disconnect.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“I personally believe if you look long term The bank account follows the Fed. It has to. It's just because our economies are so linked to each other with trade. And so you can have the luxury of not following the Fed when you have strong resources, for example. And so you can have a higher Canadian dollar when you have the higher energy prices, for example. And so I think that there's more recently been a disconnect between that relationship. And so what I mean by that is energy prices have been moving higher and the Canadian dollar has not maintained its historical relationship. So it should be higher given we're energy prices are at. And that's simply because there isn't a lot of projected capital going into the energy sector.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“For sure. Like, if you're a US based adventure, you never think about this, but for everyone else in the world and everyone else in the world is very active in US assets, there are two layers here. You can make money on the currency, even if you lose money on the underlying asset, like you mentioned, Martin. One of the interesting things that happened in Canada over the past few years is that Canada joined the QE bandwagon and is also joining the QT bandwagon. That was a bit different from the Fed, which has been doing this for some time. How is the Bank of Canada's QE and QT program being perceived in the financial community there?”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so we do hedge. We'll look at, so for example, our SAP exposure or U.S. equity exposure more recently, we've been doing CAD hedged because we think the Canadian dollar will hold up well compared to the US dollar. And so we want to play that, factor that into the equation. We're going to head into a deep, deep recession as some of the bears are saying, then you probably want to have more of that US dollar exposure than the Canadian dollar exposure. But we don't see that being the case. And it can be quite material in your returns. Like you look at Japan and the performance, if you're a Japanese investor, and despite the huge sell-off in the S&P, the currency. And so currencies, when you're having these central banks, big movements and rates, it's very important to understand.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“So, for example, if you, or a Canadian fund manager and last year you bought into the S&P 500, you would have not done well, but you would have actually made money on the appreciation of the dollar if you didn't hedge your currency. How big does these FX impacts, I guess, shape your decision to invest in the US or is it usually on a FX hedge basis?”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“And then 2014 was kind of a big death knell for energy with OPEC targeting a price war against US shale producers, which got Canada caught up on that as well. And so if you had a strong weighting to the TSX, which has a larger weighting towards energy, you underperform significantly. And then you had the US dollar appreciation against the Canadian dollar. So don't forget, I mean, we were at bar. Actually, we were above par for some time. And so you add that into the mix. It resulted in significant underperformance. And so there was a big hurting towards performance chasing and the S&P. And now we're wondering, you know, if that's going to continue to be the case where we go back to where it was post the bursting of the tech bubble when the TSA”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“So Canada as a whole is only 2% of global GDP. I think California is similar in size, maybe a little bit bigger to all of Canada. And so we tend to think we're bigger than we are. Well, we are big, but from a landmass perspective, but not from a population side. But looking at a GDP component, it isn't that big. But it is significantly larger in Canadian portfolios. But that has been changing over the last decade because the top asset managers, as you know, performance sells and the top performing asset managers were those heavily weighted towards the US and weighted towards US tech, for example, and very small weight into resources. We saw structural shift in the market in 2008 with quantitative easing coming in post that.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Add or above a list. People are feeling really confident that the Bank of Canada is going to pause, like they potentially indicated towards, depending on your interpretation. And then you've got energy as well. So we're a little bit of, I have to be careful because we're a little bit of it in a pocket safety pocket zone here in Alberta.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“looking at Canada as a whole, it's a really good place to be, I think, Alberta's very much an inflation protected area within North America or even globally. The reason being is because of our resource exposure. And resources are an excellent hedge. For every 1% gain in inflation, oil prices and oil energy related prices will move up 8% to 9%. And so you've got a built-in hedge there. And so that's working out really well. Now, from a Canadian perspective, a lot of because of the low rates, investors have gone into real estate, whereas in the US, it went into technology. They've been exiting that trade with the exception of Alberta, actually. We're seeing, I've been to a couple of open houses, for example, packed with people. Houses are selling.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“We've been told that, you know, just go passive and you're going to be okay. Well, if you're passive in the S&P 500, you've got five companies that are 18% or 19% of the index, which is as high as it was back in the tech bubble. And so you've got a high concentration to those kinds of companies that are, as Joseph explained, high growth, long-dated cash flow. And now they're trying to front end load that cashflow through layoffs. And I think it's very important to be cognizant of that and what you own.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Well, the best way is to look who's actually laying off staff and where the layoffs are coming from in this environment. And so, you know, you had a situation where you threw out discounted cash flow analysis out the window because, I mean, when you had 0% interest rates, I mean, the numbers were huge. And now they're being asked to deliver cash up front instead of at some promised date, whether it's 10 years or 15 years or some big growth. So the only way they can do that is by cutting staff. And so look at the layoffs. Just pull up the charts and you can see most of those are within the tech space. Even within the fang space. And so, but you have the S&P index that you have five companies that are 25% of the earnings of the entire index. And so, you know, there's some important takeaways. If you're a passive investor.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Now, usually, if you look throughout history, if you have that framework, that simple framework where the future looks like the past, for the most part, you'll be correct because the word really doesn't change that much. But at turning points, though, you get caught off guard pretty significantly. And we saw that after the GFC. And today, the market thinks that the post COVID world looks like the pre COVID world to go back to cutting rates and you got to buy tech, you got to buy bonds and so forth. And if we have a structural shift, it looks like the market and everyone who thinks that way is going to be wrong-footed again. So the market is really not good at predicting the future.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Way as fixed income long dead to fixed income does. And so last year, when you saw the US Treasury market suffer significant drawdowns, you also saw these tech stocks also take a big beating. And I don't actually know if that it makes sense to think of equities, long, say tech equities or money losing tech equities that way, but that's how the market has kind of agreed to think of them. I think going forward, I agree completely that there's still interest rate risk. One of the things that I've noticed is that the market always thinks that the future looks like the past. So as Martin was suggesting, many people are thinking that we're just go back to the low interest rate world that we had before COVID. So they're loading up on bonds, they're loading up on tech equities and so forth. But sometimes the future does not look like the past.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Basically, giving you equity like performance, even though supposedly it's a very safe asset, US shudder. So for bonds, even though there's no credit risk, you have a lot of duration risk. And when people look at equities, they sometimes think of equities that have cash flows that are firing into the future to be similar to bonds, long-duration bonds, because you don't get like a third-year bond, you don't get your money back in, let's say, a stock that doesn't make money until far into the future. So in a sense, the cash flow profile for, say, a tech company that makes no money today, but you imagine it to make a lot of money sometime 20, 30 years from now, the cash flow profile could be very similar to a long dated US treasury. And so if you think, if you use that framework to look at these equities, well, usually they're tech equities, then you can think of them as moving the same.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“So that's a good point. So, duration is basically interest rate risk. So let's say how much does your portfolio change with a 1% shift and 1% change in interest rates? So as a rough estimate, your duration risk is in proportion to the size of your coupon and the tenure of your assets. So if you have something that's maturing and say 30 years with a very small coupon, then that asset is very sensitive to changes in interest rates. And small changes in interest rates can make that asset decline a lot in value. In fact, if you think of, if you look at, say, the 30-year U.S. treasuries, it declined a lot during the past year.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“And they were being told and maybe they were telling themselves that as well, that inflation was transitory, just as the Fed was. And it wasn't. And they got hammered last year, both on the fixed income side for the balanced investors and on the equity side. And you can see that. You can pull up the TLT, for example, 20-year treasuries or pull up the IQ. Pull up both of those charts over the last year overlap them. You'll see that they mirror itself mirror themselves perfectly with little gaps where the equity duration speculators keep trying to call a Fed pivot where the bond investors are saying, ah, we're not there yet. And so we have these head fakes that we've seen. And so I think there's that mentality. And then now we're going back to the mentality that, as I've heard the Immaculate disagreement.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Well, the risk was duration risk. And so many people missed that. If you ask any portfolio manager, and I did ask some fellow fund managers and very well-known fund managers, what the duration exposure was on the equity side, you know, the look I got back was quite shocking. They didn't know. It wasn't being measured. And the reason why is we had a decade of managers being rewarded for extending the duration exposure, right? And rightly so. I mean, we are in a low interest rate environment. You had low unemployment. You had the perfect sweet spot of a scenario for these investors. And then you had asset inflation caused by these low rates. And so they were rewarded for taking on that equity duration. And whether they realized it or not.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“of that because everyone was so focused on the huge gains in 2021, especially in the long duration segments of the market, which gave back a lot of those, or if not all of those returns last year. And so it was a year that we worked really hard, but we protected almost all of the market downside even for the traditional 60-40 investor.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Well, there seems to be a little bit of a comparative bias. So what I mean by that is a lot of managers when their markets are correcting, you know, they'll relay on that, hey, it's just the market dynamics and we have to participate with it, unfortunately. And so just buy and hold and write it out seem to be the pervasive advice. Whereas more active risk managers, these are the years that we shine. And people really don't give credit as to the value of downside protection. There's something called risk parity. And so if you could prevent losses, it goes a long ways to achieving your objectives as an investor. And so like if you lose 50%, you got to double your money to get it back. And we seem to lose sight.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT
“Pleasure to be here, Jack. And it's great to see you again, Martin, for those of you who don't know, Martin has decades of experience, very, very good asset manager, very good track record, and he's also an influential voice in the Canadian financial community. He writes a column at Financial Post. And he's been doing that for decades. So we definitely want to hear what he has to say.”
2023-03-03 · Forward Guidance · Navigating A "Structural Shift" In Markets | Joseph Wang & Martin Pelletier · IDENTIFIED FROM THE TRANSCRIPT