2022 mid-year market outlook and what it means for your investment portfolio

James: [00:00:01] Hello everyone and thanks for joining us for today's webinar in partnership with Manulife Investment Management, in which we'll hear insights into the 2022 midyear market outlook and crucially, what it means for your investment portfolio. My name is James Burton, managing editor of Wealth Professional Canada, and I'm delighted to welcome Kevin Headland and Macan Nia, co-chief investment strategist at Manulife Investment Management. They'll both be assessing current market performance and delve into how market trends are likely to shape the rest of this year. Now, 2022 has not been for the faint of heart, featuring both unusual and unexpected market volatility. Advisors are therefore wanting to best prepare for what might be around the corner. So in this session, Kevin and Macan will provide insights into Manulife's outlook for equities and fixed income for the rest of the year. The causes of the recent market volatility and the risks of a US recession. And what it means for investors portfolios. Now there will be a time for audience Q&A after the presentation. So please, I encourage everybody. If you have a question, please type it into the Q&A box. I'll be on the lookout for the best ones and I will try and get to as many as possible as soon as we finish the presentation. So with that in mind, Kevin, Macan, over to you. 

Kevin: [00:01:22] Thanks so much, James, and thanks, everyone, for joining us today. As James mentioned, this year has been quite volatile with saying quite surprising on the back of a very low volatility, volatility year last year when we set out our expectations for 2022, we characterize this as a family road trip. We have a destination in mind. It's going to be a lot of fun, but there's going to be pit stops along the way. And we think these are some of the pit stops, both expected and unexpected that we had thought we would see during the 2022 road trip. Today's presentation is entitled How to Survive a Bear Attack. And when we go camping or hiking bears, the last thing we want to see and I think it's important for investors to realize that's the same thing. But both whether you're hiking or camping and you come across a bear or are an investments, a plan is important and you need a plan to survive that bear attack. And it's important for investors to realize that. Now this is a framework our team has been using for quite a few years now. There are four what we like to do a simple rules of how to survive a bear attack. Of course, do not use these rules in a real life bear attack. But still, it is a tongue in cheek presentation about how we are going to survive this current market volatility. So, Macan, what's the first thing we ever hear of when or if we see a bear we should.  

Macan: [00:02:49] Run? 

James: [00:02:50] No, no. Don't run. They'll chase you. That's the worst thing you can do. 

Macan: [00:02:57] You're supposed to stand still make yourself big and not run away. 

Kevin: [00:03:02] Right. Do not run. That's the last thing you want to do. The key is, if you do run investments, the easy decision is to get out. The hard decision is get back in. And we go back to March 23rd, 2020, the bottom of the COVID crisis, S&P 500 down 35% amongst us at the office, we were debating whether the market would go further. We had no idea, unfortunately. But hindsight being 2020, that was the bear market. That was the bottom of the market. For those investors who are leaving at that point, hoping or thinking they could save another 15 or 20% to the downside, waiting for a better opportunity to get in. It never happened. And it's important for investors to realize that in a volatile time, it's not what you want to do. You do not want to run for your investments. So the first rule vanquish fear and panic. There's always a reason to sell. The headlines are there. Whether you see or not. You will see headlines that are fearful about why you want to get out. Investors are always reading this in the media and it's important for them to understand this, that it just headlines. No matter what happens throughout any year, decades, we've always had a reason to sell. We have headline news we have going back 20 years. We've had contentious elections. We've had Ebola risks. We have a risk of nuclear war in North Korea. We've had trade wars between the US and China. These are always a reason to sell the markets, but ultimately, over time, markets move higher. 

Macan: [00:04:38] So Kevin, have alluded to corrections normal. And when we sit down with your clients and interesting enough, I think historically when Kevin and I do call, roughly 90% of them are advisor calls and 10% are client calls. Now, given the volatility recently, that's almost been switched. So when we do, the client calls, we found. And how many of you are invested in the equity because you love the data? And no one put up their hands. The reasons that we in the empty markets are simple. When your clients sit down with you, they tell you their hopes, dreams and wishes. And in ten or 15 years down the road and then you do a find a holistic financial plan, you look at what assets they have today, how much you can save within the next 10 to 15 years and sub in a return profile for them to be able to meet their hopes, dreams and wishes. And the reality is, over the medium term, equity markets have been able to provide that return profile for your end clients to meet their end objective. What we're looking at here is the S&P 500 annual returns, which. Highlighted by those green lines going back to 1990. And you see, excuse me, 1980 and you see 80% of the time markets are up. Two, depending on when you buy your average return, is anywhere between eight and 12%. So that return profile has allowed our client clients to meet their financial goals. Now, what are the blue dots? The blue dots are the big laugh in any one of those years. So when we look back, look out the far right hand. So let's back the 20 of us really want to relive 2020. But what that's telling you there is if you put a dollar in the S&P 500 on Jan first went into a cave and came out on December 31st, that $1 would be up close to 16% despite. And what does a blue dot say at 30? And I'm going to use round numbers, a 35% sell off that we saw in March. The way we look at it, corrections are normal, but the blue dots show us that the ride is never smooth. Now, the key for our clients is in these times of volatility is not those blue dots, because if they react to those blue dots, more often than not, they don't they're not there to actually earn those green vertical lines. 

Kevin: [00:07:27] Now, of course, we see periods of volatility at all times. One of the keys this year was the geopolitical risk happening with the war in Ukraine, and that was really the first kind of unexpected, I would say, pit stop along the way. But typically what we've seen in the past is that markets tend to put aside geopolitical risks. The downside risk usually happens leading into the actual risk, and soon after the market forgets it. Here is a table of or a handful of previous major geopolitical risks and wars and the market reactions to it. And you can see that during the conflict, markets tend to fall. But yet one month and especially one year later, markets are higher. There's one instance. After September 11th, terrorist attacks where one year forward, the S&P 500 was still negative. And that's really as a result of the fact that we were in a recession in the US within a year following the September 11th terrorist attacks. So markets, of course, were still down because it was recessionary. We're not saying that this issue is not the or this war is not still an issue. It's very much a humanitarian crisis. But it seems like the markets are no longer reacting to the day to day volatility of the geopolitical risk that we're seeing or headline risk that we're seeing going forward. My partner is having problems preventing slides here. One of the other risks that we saw, of course, was the Federal Reserve rate hike policy and the tone change. Now, early in January, we got there. We received the minutes from the Federal Reserve meeting in December, and we saw the impact that it had on the markets. It was kind of a realization that the Fed was going to start to raise rates and the market took that as a negative. And I would argue that that was not a surprise. We expected the Federal Reserve to start raising rates this year. Perhaps there was a bit more aggressive rate hike expectations than we initially thought, but we knew they were going to raise rates at some point, and perhaps we could argue that they are. Both on the last or the tail end of it where they should have invested. Earlier. But they're not anymore. Now we're seeing that the unfortunately, what we're seeing is. One second. It's in the audio is cutting out. Not sure if it's better now. Technology is a fantastic thing. So what we're seeing here is rate hike policies, rate hike, interest rates over a period since the 1970s. And what you notice here is that all the. The jumps or the rate hikes are actually different. It looks like a mountain range. And the Federal Reserve is starting to raise rates now after being very low for quite some time. This is them coming off the zero bound. This is them raising rates to get to a normal level. They're not raising rates from a normal posture to higher. They're raising rates from zero bound, trying to get back to normal. And typically what we see is historical history shows that the market actually over expects rate hikes. And if we should see a change in tone sometime this year, which we already are seeing a little bit of it that would be positive for markets above equity and fixing in the back half of next year. So rule number two become familiar with the environment. So here are our seven signs of recession. We have seven signs as we look at this, our table of recession risks. And what we've seen is these are not all of them, but some of them. And we've used this table for quite some time. This used to be a measure of the actual or sorry, this is only a few measures of the recession risk. But the key ones we look at this table used to be positive or negative, yes or no binary. Now we've changed it to a traffic signal. So green is good, yellow is neutral, and red is put on the brakes. Recession risk. Right now we have one red, only one indication of recession and two that have shifted to neutral. We're gonna cover those individually. The first one is inverted yield curve. What we're seeing now is that the yield curve inverted the ten year minus a two year curve inverted earlier this year, around February. And a lot of headlines were that recession was imminent. We're not seeing that right now because at the same time, the ten year, three month yield curve actually increase and widened. And that is not typically the case. We usually see the red line, the ten year, two year invert stay inverted for some time, roughly three months, and then the green line inverts as well. And that's a confirmation that recession is coming. But usually it's not coming until at least 10 to 12 months later, which are the gray bars. So again, this yield curve did invert has now been positive but is not indicative of a recession. So the next issue we look at is purchasing managers indices. And the manufacturing is a great source of information for us as it really gives an illustration of to whether the economy is in expansion or contraction. If manufacturers are doing well, you're typically not going to see an economic contraction or recession. The Purchasing Managers Index is a survey on a monthly basis of manufacturers in the US and essentially it's asking them, are you in expansion or contraction? And if you're an expansion, the survey index comes out above 50 and contraction of below 50. That red line is at 45. That is really where we see risk recession. That's when we typically are in the midst of a recession. Clearly, here on the right hand side, you see manufacturing has slowed. It's not as strong as it once was, but that's expected. This is the normalization phase. This is not the recovery phase, which we were in late last year or late in 2020, early 2021. So we fully expect this to this manufacturing index to continue to decline, but find a base around the 5354 range that would be indicative of a still strong economy and no fear of recession. We do not see manufacturing falling off a cliff here into sub 50 and even hit 45, which would indicate recession. Inflation, of course, is one of the biggest risks. This is the red on our our chart, our table of recession indicators. Inflation is very elevated. We know that CPI in the US is above 8%. The blue line here dotted line is our model of inflation. It incorporates things like owner equivalent rent, US dollar, oil prices and wages, as these are the main components of inflation. Now the blue line tracks the green line, which is actual CPI very closely. Over time. What you're seeing here is a dislocation. Recently in the Green Line, the Green Line CPI has moved way above the actual inflation model that we have. We could argue that that is actually due to supply chain disruptions. Inflation will remain elevated. We think it should come down at some point, but likely remain well above the 2% target into early next year. 

Macan: [00:15:03] Kevi, can you hear me now. 

Kevin: [00:15:04] Macan is back? Yes, we can. 

Macan: [00:15:06] So two things. Can you go back to that one slide of the interest rate tightening cycle? Because there's a point there I think it's important to address. And why have we got a bear market, as Kevin alluded to? There's many reasons for it. But one reason we think the primary reason is, is when we started the year it was, markets were expecting that the Fed was going to raise rates 2 to 3 times this year. And in very short order, that went from 2 to 3 times to really up to nine times this year. And the market is afraid that the Fed is going to make a policy mistake. What does that mean? They're going to raise rates too quickly, too soon, and they're going to cause a recession. That's why the recession narrative is all over the financial media. Now, the Fed historically does cause recessions, but those mistakes and as you can tell here, is those gray vertical lines or recessions. Look where they fall. Typically relative to the interest rate cycle. They typically happen afterwards. So do they happen at the beginning year one? Very rarely. It's usually in the later end of their tightening cycle. We don't think that this year is going to be any different. And as Kevin said, is that the Fed typically historically over promises but under delivers. And we don't think that and we think that's going to be the case this year. Will they go eight or nine times? No, they'll likely go less. Now, going back to that inflation model, Kev, we're getting lots of questions on how much of today's inflation print. So let's use the US as an example. At eight and a half percent, I'm using round numbers here can be attributed to supply chains and it's obviously a very complicated topic. But when Kevin and I sit here, we say, okay, our model, which is the blue dots, has been pretty good within a range of predicting inflation. Look at the far right we've seen. Our model predicted inflation will go up, but it did not capture the full extent to us. What hasn't happened over the last 30 years, supply chain issues. So we believe that our model is in fact during the supply chain issues in that gap. So if it's eight and one half percent or 8.6%, we think probably 2 to 3% of that can be attributed to supply chains. And we believe that supply chain issues will will resolve themselves in the second half of this year. 

Kevin: [00:17:31] Okay. So one of the things we've seen as well as financial conditions start to tighten again, this is not surprising. When the Federal Reserve starts to raise rates, it tends to signal that the liquidity is being sucked in the market. Now we're just at zero here, a little bit above zero. So again, not indicating a risk recession. When it goes above zero, it indicates that corporate debt or corporate corporations are finding it harder to find buyers of that debt or people willing to lend them money. When this tightens much further, this is more indicative of recession. But right now it's more normal. It's not as easy or strong as it once was. But this just indicates that yields are moving higher, excuse me, and that the corporations, when they issue new debt, will have to have to offer higher yields to entice those investors to lend those corporations money. And one of the things we see, of course, is housing. Housing starts are still very strong in the U.S. We expect this to slow down as interest rates have increased and buyers are less interested in buying homes at elevated interest level interest costs, the same in Canada and the US. So while housing starts may start to slow, they're not again rolling over materially that are indicative of recession as long as consumers are happy and willing to continue to buy homes and of course fill those new homes, because when you buy a new home, you have to buy furniture. This is a really good indication of consumption and never discount the US consumer, especially about their willingness to consume and spend money, which is positive for the overall economic backdrop. 

Macan: [00:19:16] Yeah, I think that's a big one too, in the sense that Kevin, I sit here and we may get a technical recession. And what I mean by that is in the first quarter of this year in the US, we had a negative GDP print that was led by higher gasoline prices, trade imbalance, where the Americans were importing much more. But other parts of the economy did not signify a recession, whether it was consumption, whether it was business investment. That dynamic may play out again in the second quarter, given where gasoline prices are a given and trade imbalances. The recessions that we care about are the ones that typical recessions that lead to a spike up in the unemployment rate. And when you look at all of these factors, the one area that is the furthest away from recessionary is employment. What we are looking at here, the green line is the US unemployment rate today. The blue line is the three year average. And again, in our recessions are those gray vertical lines. You see that the green line intersects the blue line. Look at the far right hand side. There is a huge there's a gap to close and that will take months, if not quarters. So, as Kevin said, never under. Why do we care about the consumer so much is because in developed markets, consumption accounts for almost two thirds to three quarters of our economic output. So the health of the consumer is important. JP Morgan, I thought last week during the earnings call brought up something very interesting. So the biggest US bank access to the most retail consumers and they said when we look at our clients, when we look at their margin accounts, they're checking savings, credit cards, mortgages is we do not see a sign of a recession. They are resilient, so much so that they didn't put aside any reserves, loan loans basically or reserves in the event that there's loan losses on their books in the future. And I think that's indicative of the health of the US consumer. Carnival Cruise Line. A cruise line, obviously a couple, I believe it was six weeks ago, came out and they said that the week before it was one of the biggest booking weeks that they have had in their history. And we think you're saying if you're going on a cruise, you have to feel somewhat comfortable about your financial position to go on a cruise. So there's all these various anecdotes as well as the hard data that suggests, yes, there are challenges for the US consumer, but they're in a resilient position. Now as we go to this leading economic indicators, it's a gauge that really aggregates ten leading economic indicators such as wage growth, employment, things that we expect to lead the economy. The reason we like this, they put it into one clean number. And as you can see here, again, look at those gray vertical lines of recessions. Look what this does going into them. It trends down, it goes negative. And typically six months after that, on average, you see that recession. Look where we are on the far right hand side. Now, the number this is as of the March eight, March April data has come out. And we're at five today. We're weakening. There is no doubt about that. But again, as I have said earlier, we need to differentiate weaker relative to last year to recession because weaker relative to the last year is not a negative thing that people are attaching this adaptation of recession. 

Kevin: [00:22:52] So rule number three, take advantage of opportunities. This is where you want to look at the opportunities that exist, especially in pullbacks in the markets. So first one right now is fixed income. Fixing them is a very difficult subject right now. A lot of fixing them in vehicles, funds. Asset classes are negative year to date, and that's rare to see. It's rare we see negative fixing and returns, especially when we see negative equity returns. This is a once in decades period where we see prolonged, deep negative returns for fixed income. The positives here, though, is that yields have moved higher since earlier in 2021, 2022. By the beginning of this year to now, yields are much higher across many asset classes. This means that new money, new investments are buying or investing in fixed income at higher yields. This gives you a much better carry, much better return going forward, as well as providing cushion for when we get the recession and yields start to fall. So this is actually starting to be a very attractive opportunity for fixed income. Our fixing of managers, while being frustrated probably early on with the movements in fixed income, are actually very excited about the opportunities that fixing them presents. Currently for investors in fixing and portfolios. 

Macan: [00:24:13] Let's stay on this slide for a sec, Kev. Have a look at these different fixed income indices. Your yield today is in many cases double and in some cases triple what you would have earned at the beginning of the year. In the US, specifically investment grade credits, they have the highest cash position that they have had in their history. Again, does that speak recessionary to us? No, that's actually shows a lot of strength in US corporations. 

Kevin: [00:24:41] Yeah, it's a good point, Macan. I'm just to say that the coverage ratio or the risk of defaults because is very low and that is typically a sign of very healthy economy and not recession risk. And until defaults pick up, you don't typically see a risk of recession. 

Macan: [00:24:59] Now when we look at I think right now what we're all trying to do is none of us I think it's human nature. We all want that. We all want to time the bottom. And the reality is that it's impossible. But there are measures or tools we can actually use to at least give us confidence in terms of allocating money. Today, we don't have a crystal ball. I wish we did. We don't. All we have are probabilities and investing is a probability based decision. Now, what we're looking at here, and this is just through one factor is to gain a little bit more confidence in terms of when I'm allocating money today, how confident can I be that that return is going to be in my favor in the future? What we're looking at here is the VIX. The VIX is in a nutshell, it's a fear gauge in the US and our work suggests is when this number is north of 30, it's peak fear. And as you're seeing, that is the red color there that we've highlighted. And look at those return profiles in the future based on history in our favor. It gives us confidence as that when there is peak fear by allocating money, am I going to bottom? Am I going to time the bottom of the market? Absolutely not. But it gives me a lot of confidence that that dollar I'm putting in is going to have the odds in its favor of driving a positive return that will meet our are really our clients goals. Now, there's a whole host of these things. Another one is a AAII Bull Bear survey. It's a survey of American advisors. And typically when the when the vast majority of American advisors are bearish, it's also a very good contrarian indicator. We see that today and you keep going. And I think what's important now we have to ask ourselves is the opportunity cost and what I mean by that, by trying to time the bottom and maybe saving if you're actually good at timing, maybe 5 to 10% of downside from here. But at what expense? The opportunity cost is not getting back in. And we've seen this time and time again where when you sell out and want to get back in, that's a difficult decision because you have to make two smart decisions. The first one is to sell at the peak, and the second one is to buy at the bottom. And we know when markets are down, look at Kevin's example of -35. What were clients saying back then? I'm going to wait until it's -40. And I promise you, if it was -40, they would say, I'm going to wait till it's -45. And that's a very dangerous, dangerous behavior because when markets pivot, they pivot quickly. And as I think one of Kevin's good slides is bear or basically bull markets don't allow you to get back in if you're on the sidelines. And look what's happened in the last week as an example. We've had a ripping 9% rally in the S&P 500 over six days. Think about that whole concept, timing, the market versus time in the market. And that last week was a perfect example, as if you're not in the market when markets do pivot. Often those clients are left behind. And then I think this is the end of it. I think maybe I'll lead to this is. Does it matter in terms of timing? And what I mean by that is if you have a medium to long term time horizon, does it matter? So I think in Kevin and his career, the worst time to invest in the past couple of decades would have been the peak of the financial crisis, basically. October 9th, 2007. And then what did we see? We saw 56% decline. We saw major US banks basically go bankrupt, other US major banks having to come in. We actually thought that the US financial system was in was in serious concern. And let's just say Kevin and I were the worst timers and we put in a dollar at that point. But we are truly medium term and medium to long term investors. That $1 and I did this as of the end of so I did this this morning. So as of May 30th, that $1 would have been up close to 250% over that period or compounded annually at 9% per year. How many of your clients with 9% per year can meet their hopes, dreams and wishes in the future? The answer is probably most of them, and that's despite the European financial crisis. Despite and need could go through an Ebola COVID war of words between Donald Trump and Kim Jong un. ISIS oil at 145. Oil at negative. It goes on and on and on. But if you actually just held the course, invest in quality solutions as in the S&P 500. For this example, you would have averaged 9% since the financial crisis. So as much as we're all trying to time the bottom here, does it really matter if your time horizon is greater than that 5 to 5 year basis? 

Kevin: [00:30:09] And Macan, I just said if we had a lot of crystal ball, I'd be that much easier. But I think none of us would be here if we did and predict perfectly the bottom and tops of the markets, which we know is actually impossible. So our last rule, rule number four, and this I have actually young kids at home, a nine and seven year old Macan. And I know you have young kids as well. You know, kids naturally have nightmares. And when my kids wake up with nightmares, I tend to see in this rule under fours. Don't be afraid of what goes bump in the night. If something is meant to hurt you, it will stalk you silently. And of course, they sleep very soundly after that. I would of course, argue they don't, and I would never say that to them. But the key here is rule number four is an important rule for investors. Do not pay attention to the headlines. What is telling you on the headlines is not necessarily what's going to happen overall to the markets or the economy. We like to think the markets and the economy are more of a puzzle. You have to take many pieces together before we see the full image and make sure that we're not looking at one individual piece and trying to guess what the puzzle looks like or what the image looks like. So don't pay attention too much to headlines. Look at the fundamentals and patient investors are often more rewarded over longer term. So James, we'll pass on to you and see if there's any questions. 

James: [00:31:28] Yeah. Thanks, guys. Appreciate your nimbleness around the tech issues and thanks, everyone, for their patience while we sorted that. But yes, some great questions that have come in. So we got about 10 minutes. So we'll get through as many as we can if we don't get to yours. I'm pretty sure Kevin Macan will be happy for us to email them and to get a response that way. So rest assured not to be left out. So the swiftly moving on the question here about the US midterm elections later this year and just asking you what work you've done on this and your thoughts on on what the impact that might have. 

Macan: [00:32:04] Maybe I'll take this in a nutshell. It doesn't matter. It matters to very it matters in the short term in terms of market performance. But markets very rarely pay attention to politics, geopolitics in the medium to long term. Think back to Donald Trump, what investors thought. And if you would have sold that out of your US equities, you would have missed out on this on the second half of the longest bull market in US history. Think of Brexit. So yes, there will be volatility around it. It will be short lived. If there is a sell off. We will always recommend to clients in the right economic backdrop to take advantage of that because markets very rarely focus on it afterwards. 

James: [00:32:44] Yeah, okay. Excellent. Next one is on interest rates. What is considered to be the normal level, interest rate and how long will it take to get there? 

Kevin: [00:32:54] Yeah. So right now the Federal Reserve and both Bank of Canada are trying to target roughly two and a half, maybe 3%, as their long term target rates for normal economy and inflation. They would love to see inflation back to 2%, but I think they know it takes time. And it's also important to understand, I think both central banks know this, is that inflation and calculations don't turn on a dime when rates start to raise their. It takes time for inflation to moderate. And we have to always remember that inflation is a change year over year and the rate of change and the rate of change should slow. It's not saying prices go down. Yeah. And again, that should be positive if we are near peak rate of change or peak inflation. 

James: [00:33:38] Yeah. Okay. On that interest rate theme, there's another one here. If oil and gas prices continue to climb and therefore May-June inflation also continues to climb, let's say more than 8.1% in the US into the nine, nine and a half percent range. Will interest rates continue to rise above and beyond six hikes equating to 250 bips for 2022? I mean, it's a long question, so bear with me. But if so, will that create a mass sell off in the market? And what would it really take to cause a recession? 

Macan: [00:34:11] Yeah. I think in a nutshell, if inflation remains stubbornly high and even goes higher and the Fed is actually forced to go more than eight or eight or more, eight or nine times this year, then yeah, we are going to get a more significant sell off. However, we don't think that's the case based on our model, based on preliminary data. For example, last week, the Fed's gauge of their favorite gauge of inflation, the PCE, it came in. And why? Why did markets rally so much last week? Is the rate of growth over a year over year was the slowest that we've seen in a year and a half. So there are some very preliminary data suggesting that inflation has peaked trending down. Yes, the shutdowns in China because of COVID over the last couple of months will delaye that. But China's opening up. We saw that over the weekend with Shanghai and Beijing. So that's just extending it maybe by a month or two months. But we still firmly believe that in the second half of the year, inflation is going to moderate lower and that's going to provide central banks with the flexibility of not going eight or nine times, providing tailwinds for not only equities, but also bonds. 

James: [00:35:23] Okay. Just a quick follow up to that question. Do all seven of your key factors need to go red light to for a recession to be the likely scenario? 

Kevin: [00:35:34] No, they don't. And it's something we've looked at over time and it's something more of a guide, right? We're not saying when three of these turn red, it's recessionary. When you start to see a lot of yellows, you start to feel risk recession. Now, I backed that to this data and our team didn't exist prior to the financial crisis. But I took us back to 2006 2007, and already in 2006 you were already seeing some yellow. And by 2007 majority of these signals were both either yellow or red. So it's more about the trend and the inflection points than actual hard, fast rules about which or how many turn yellow or red at any one time. 

Macan: [00:36:10] But inflation. Or inflation employments a big one, that typically every recession you see the unemployment rate spike up makes sense. 

James: [00:36:21] I'm not sure what time this one came in in terms of what slide it exactly speaks to. But it's does that suggest say that your outlook suggests that while we are currently in a non recessionary environment, we are due for one next year. And importantly, where can conservative investors currently in retirement take shelter? 

Macan: [00:36:43] So maybe I'll take that one quickly. We think that, no, over the next year the odds start increasing in the second half of next year. But that's ultimately also very dependent on the Fed and the process that they go through. Now, let's say let's always take the worst case scenario. Let's say there's a recession. How do you protect your clients in that type of environment? So very simply, obviously increasing your fixed income relative to equities, moving up the credit quality, so moving away from high yield, moving into investment grade credit, we have a slide that looks at performance 12 months before recession, during a recession and the 12 months after the recession. Reach out to your wholesaler for that, but also even within your equities is getting out of those higher duration equities and increasing those equities. We call them high quality dividend payers and growers because those type of names actually do well in the 12 months before the recession. During the recession, in the 12 months after. So from the fixed income side, increasing your bond weighting, increasing the quality of your fixed income, and the same can be said out of equities, increasing the quality of your equities primarily through the eyes of quality dividend payers and growers. 

Kevin: [00:37:58] And James, just to add on that quickly, I think people have to, our investors need to realize that fixing them is not dead. It's been injured. It had a rough ride recently, but it should we get a actual recession. Yields tend to fall and long duration tends to fall, and that's when fixing them does its job and generates pause returns. So don't discount fixed income and traditional fixed income within a portfolio. 

James: [00:38:21] Yeah. Okay, thanks. So we got time for maybe one or two more. There's one a good one here on geopolitical risk and obviously specifically Russia, Ukraine. Is it possible that there will be a global food crisis later this year or next year due to the Russia-Ukraine war? And if so, would that negatively negatively impact the global economy? 

Macan: [00:38:43] Ooh. That's a spicy one, James. I will say this. There is a possibility and there is a possibility that I feel I have to be careful how I phrase this. But we have seen this before, and we saw it through the Arab Spring when there was food inflation, gas inflation in emerging markets. And we know what happened. Markets reacted to that in the short term again. But very quickly, they shifted their focus to the medium, the medium to long term away from that. So that is a possibility. But history would suggest the impact on equity markets for those medium terms and long term investors is often muted. 

Kevin: [00:39:28] And just that on it as well. I think Macan talked about earlier the the investing, the probability based game. And I think we have to look at the more likely scenarios rather than at least like scenarios. Not dis account them completely, but focus on the hard and fast signals we see rather than speculate on what may occur later on until we have more insight and more data on what the actual risks exist. 

James: [00:39:51] Yeah. Okay. Last one. I guess it's more speculating, but last one. Could Bank of Canada push Canada into recession trying to control the housing market? 

Kevin: [00:40:04] I would say people have been trying to predict the downfall of the housing market for quite some time. I don't think the bank Canada wants to raise rates into a housing crisis. I think they obviously we're going to see a slowing increase in rate in slowing increase in housing costs as interest rates move higher. But I don't think the bank really wants to create a housing crisis or big drop in prices by putting them itself in a recession. It's not their mandate. It's not necessarily their control. They're looking for inflation and employment. And of course, if we get a recession, then employment spikes. That's not a good thing for the Canadian economy. 

James: [00:40:47] Okay. Fantastic. Well, thanks everyone for your questions. Like been inundated with different questions. I mean, I didn't get all of them, so rest assured I'll make sure that they're sent to Kevin and Macan so they can they can answer you directly. Thanks, everyone, for your time. Thanks, guys, for your insights. There's much appreciated. I know you have to step it, go catch a plane. So I appreciate that and thanks, everyone, and enjoy the rest of your day. All the best. 

Kevin: [00:41:16] Thanks so much. 

Macan: [00:41:16] Thank you, everyone.