Hello and welcome to our latest video #MacroMemo. As always, there's a lot to talk about.

• We will speak about the U.S. election which is still ahead of us as I'm recording this on October 30th. You may know more if you're watching this with any kind of lag.

• We'll talk about the economy and how it's looking.

• We’ll talk about savings rates, specifically household savings rates – which are pretty high in a lot of countries -- and what that means and why that's happening.

• We'll look at the United Nation’s (UN's) latest demographic forecast. This is long-term stuff through to 2100 and they’re pulling back their population estimates. We think they need to do it by more. But in any event, some changes there.

• We will speak to Canadian immigration. There have been a lot of rule changes in recent months and quarters and a real big one in the last week as I'm recording this. I'll just talk through what that means for the population outlook there.

00:00:51:10 - 00:01:16:08
• We'll finish just with some real quick hits, including the latest Chinese stimulus actions and the latest Bank of Canada decision.

That's the plan. Let's start with that U.S. election. I'll just remind you again, I'm recording this on October 30th. So this is before the election. This information will no doubt become rapidly stale. I'll just say that as we look at various betting markets out there, they suggest this is a fairly close race still.

00:01:16:13 - 00:01:35:17
But over the last month or so, the odds of a Trump win have gone up somewhat. The odds of a Harris win have gone down somewhat. We're now sitting in a position where the Trump likelihood is around 60%. The Harris likelihood is around 40%. So Trump is the favorite. Trump is therefore the default expectation. But, you know, 40% chances happen all the time.

00:01:35:17 - 00:01:57:08
That wouldn't be a huge upset. And so it could well still be Harris. We suspect either winner will likely be constrained by a divided Congress, meaning the Republicans may possess one chamber or the Democrats another chamber. That would just limit the enthusiasm and the ability of any president to achieve the entirety of their platform.

00:01:57:10 - 00:02:16:14
If Congress were to unite behind the president – and I have to say that's more conceivable on the Republican side than the Democrat side, though not a certainty – that would unleash more spending and thus more short-term economic support. So that angle matters as well. I won't go into all the weeds. We've done that a number of times over the last several months.

00:02:16:14 - 00:02:35:23
But I'll just say, from a purely market perspective, in any event, we can say that a Trump win would be, we think – and this is how markets have been viewing it, as the odds ebb and flow –
a Trump win would be stock market positive. It would be bond market negative, meaning higher bond yields, lower bond prices, and it would be U.S. dollar positive.

00:02:35:23 - 00:02:56:03
Of course, conversely then, a Harris win might be stock market negative, bond market positive. Dollar negative. Not convinced despite that that this will be the dominant market driver for the next year. There are plenty of other issues and themes from how the economy is doing to interest rates and central banks, which are still very central to bottom-up corporate developments.

00:02:56:03 - 00:03:14:15
And often those are the things that actually end up dominating markets. And so this election matters. Certainly we'll be paying very close attention. But I wouldn't say it's the only thing we need to think about as investors, particularly as long-term investors.

Let me pivot from there and just get into maybe safer economic terrain. We'll talk about the actual rate of economic activity, with a particular focus on the U.S.

00:03:14:15 - 00:03:36:17
For this little section, I'll say it's holding up. Economic surprises have gone from being quite negative, which was really the dominant theme for 2024, a lot of disappointments and some deceleration, to surprises that are now flat to positive. And indeed, we've seen jobless claims that had increased a little bit in recent weeks, but for hurricane-related reasons.

00:03:36:19 - 00:03:57:21
We've seen those come back down. So the labour market seems to be holding together, though I'm also recording this before the next payrolls report, which probably will be distorted by the hurricane. So we'll see how that looks.

We look at the Beige Book, which is a qualitative survey of business conditions. And I wouldn't say it's impressive, but it's flat to slightly higher at an okay level.

00:03:57:23 - 00:04:16:23
We just got U.S. Q3 GDP out. It was running close to 3%, which is pretty fast. So as per the view that the economy's certainly growing at a pretty decent rate and having stabilized. And then economic news sentiment is also quite positive, when you parse news reports and when they talk about the economy or things, good or bad, it's actually become quite positive.

00:04:16:23 - 00:04:33:19
So the economic trend looks pretty good. That's just a short-term comment, not a long-term story, but nevertheless, we'll take it. One thing to be aware of is that we have seen bond yields increase a fair amount. Of course, that's relevant to investors in and of itself. But I can also say that it's relevant from an economic standpoint.

00:04:33:19 - 00:04:48:18
When you have a U.S. 10-year yield that was in the mid threes and now it's around four and a quarter, that is a significant removal of support. And it's a bit of a funny one because it's happened despite rate cuts. You know, the Fed cut interest rates more or less during that period of time and is expected to do so again by 25 basis points quite shortly.

00:04:48:20 - 00:05:04:23
And so, you know, it's interesting to see that back up. The economic interpretation is simple here, which is just rates are not quite as supportive for the economy as they were. We're of the view that yields were too low.

00:05:05:01 - 00:05:24:15
They've now increased quite a bit. They are probably now a little bit too high. So we think that yields can come back down a little bit. But the bigger point is if this level of rates were to become problematic, there is a self-correcting mechanism here. A big part of the reason that yields are higher than they were a month ago is precisely because the economy is looking pretty good.

00:05:24:20 - 00:05:42:22
If the economy started looking a little bit less good, you'd see those yields come down. And so we don't think that higher yields are going to kill the recovery. We think they're actually very attuned maybe to what the economy means. And so that should be okay. And again just from an investing standpoint we think yields are maybe a bit too high or at the higher end of a reasonable range at a minimum.

00:05:43:00 - 00:06:01:23
Let's talk about savings rates. This is household savings rates of a G7 nature, of a developed world nature excluding the U.S. I'm going to get back to the U.S. in a moment. Excluding the U.S., household savings rates are actually quite high right now. They are notably higher across most countries than the norm that prevailed before the pandemic.

00:06:01:23 - 00:06:20:11
And there's a certain logic to that. You know, the level of uncertainty is high. It’s in part related to a U.S. election, but there are still unanswered questions that might motivate households to behave a bit more cautiously. That makes sense. Households in some cases are actively prioritizing paying down their debt. Those higher interest rates aren't much fun and so that’s resulted in a bit less consumption and a bit more paying down of debt.

00:06:20:11 - 00:06:38:22
That makes sense from a savings rate standpoint. And then we suspect as well there's a bit of trauma from recent high inflation and people just behaving more cautiously in general. So it makes sense. It is also, by the way, part of the insufficient demand story.

00:06:38:22 - 00:06:59:03
A number of economies are now in a position where they're running a little bit below their potential. And to the extent that central banks and other policymakers would like to get those economies back to their potential, at least over time, once they're fully confident that inflation is sorted out over time. It is an inadequate demand story as opposed to a supply side story.

00:06:59:03 - 00:07:32:12
So the central bank rate cuts are a classic recipe for restoring demand and getting consumer spending going again. I wouldn't expect miracles on that front. We're not expecting a super enthusiastic consumer in the near term, but I do want to say I think there's some upside potential for consumer spending in these countries with higher savings rates. The fact that those savings rates are high means that those households are accumulating wealth, which they could, in a more optimistic time, choose to deploy. But more importantly, there's room for those savings rates to decline by some margin over the next few years.

00:07:32:12 - 00:07:51:13
And that would really mean that you could see spending growth by consumers outpacing their income growth. That would be mathematically what you're talking about if savings rates were to come back to more normal levels. So there's some consumer upside, I guess, is the story there. The U.S., I mentioned, is the exception. A savings rate there is a bit lower than it was before the pandemic.

00:07:51:15 - 00:08:10:15
The U.S. just isn't as exposed to higher interest rates. Households have those mortgages that are locked in, they don't have that much debt. And so there just hasn't been the need to do the additional savings. I would say, just as a general statement, U.S. consumers are pretty reliably enthusiastic. Maybe there's less latent upside in terms of a savings rate coming down.

00:08:10:17 - 00:08:30:17
But we still think the combination of moderate job gains and of reasonable wage growth and, ultimately, economic growth is one that can be supportive, for U.S. consumers as well.

Let's talk about demographics now. So, the UN is, I guess you could say, the party of record when it comes to long-term population forecasts.

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They update every second year. They've done that not too long ago. I guess the punchline is that they have reduced their population forecasts. They have now forecast 140 million fewer people as the peak population in the year 2084. It's 10.29 billion now. So they've pulled down peak population. They've pulled it forward by a couple of years as well.

00:08:52:03 - 00:09:08:10
That’s still a heck of a lot more than the 8 billion or so that exist right now. But a lot of that is baked into the cake in terms if you've got a generation that's a fair bit bigger than the prior generation, even with conservative fertility rate assumptions, you do end up with a population that grows for some additional period of time.

00:09:08:12 - 00:09:27:16
Still, we think that the UN forecasts are too high. That was the theme two years ago when they last updated, and we still think they probably need to continue revising these numbers down. We think the population peaks earlier. We're not sure the global population ever quite gets to 10 billion people. We just see fertility rates that continue to fall.

00:09:27:21 - 00:09:51:05
And we think that the UN hasn't fully accommodated for that. In terms of the biggest adjustments the UN has made, in China, of course, by being a big country, it’s subject to the biggest swings, I suppose. But the UN has removed 52 million people from the China forecast just by 2050. So China's fertility rate has fallen particularly notably. It's kind of amazing to see the forecast for China over the long run.

00:09:51:05 - 00:10:12:11
So the current population is about 1.4 billion. The UN's medium scenario has that population down to 633 million by the end of the century. So less than half, materially less than half. We would take the under on that. In fact, the UN has a low fertility scenario that's just 406 million people, which would be less than a third of the current population.

00:10:12:14 - 00:10:29:06
That might be a little bit low. But we think it's maybe closer to the truth than the medium scenario.

It's amazing to think that the U.S. population forecast is 421 million people. That's the medium scenario there. It's a bit of an apples and oranges. Looking at the low variant for one country and the medium for another.

00:10:29:06 - 00:10:47:20
So I won't say the U.S. population will be bigger than China by the end of the century. But realistically that gap is going to shrink quite a bit. And China goes from being 4.2 times bigger today to maybe one and a quarter times bigger by the end of the century. And, you know, that changes the geopolitical balance in quite a number of other things as well.

00:10:47:22 - 00:11:11:20
Countries like India, Canada, Mexico, the U.S. and UK are expected to continue growing over the coming decades. You've got others like China, but also like Japan and Germany and Russia, that are really already into or will be imminently into outright population decline. So there is quite a variation there as well. I mention all this just because, you know, the basic building blocks of economic growth, there's more workers plus more productivity.

00:11:11:20 - 00:11:33:04
And so, you know, a lack of more workers does pinch economic growth in the country's most adversely affected,

On Canada, Canadian immigration plans are changing rapidly. So the country has gone through this truly unprecedented population growth over the last three years or so. It has been driven almost exclusively by immigration. A little bit of that is permanent residents.

00:11:33:04 - 00:11:53:01
Most of it has been temporary residents, the international students, temporary foreign workers as well. And the sheer number and the speed at which so many millions of people have come in has created some distortions. The result has included housing shortages and a higher youth unemployment rate and a hit to productivity as well. Public sentiment has turned.

00:11:53:01 - 00:12:14:23
It's no longer as favorable toward immigration. The federal government is therefore pivoting. And so there are now significant plans to slow that down.
• 20 to 25% fewer permanent residents are set to be admitted over the next few years. That's material though that wasn't the source of the biggest population growth.
• 45% fewer students are to be admitted. And so that is a significant shift.
• Temporary foreign worker rules have been more or less returned to their pre-pandemic parameters, which should slow that to some extent as well.

When the government tallies all that up, they are saying that Canada's population should outright shrink in each of the next two years, and there's really no modern precedent for that.

00:12:33:01 - 00:12:52:00
We're not convinced it's going to be quite that abrupt. We think that some programs may stick around for longer than expected, and we think some people may pivot to undocumented status or make refugee claims in a way that will likely keep the population growing just less sharply, less quickly. But maybe the point is the same, which is it's quite a pivot.

00:12:52:02 - 00:13:10:04
It alleviates some pressures in terms of housing, in terms of maybe youth unemployment. But it does take a leap of faith that Canadian productivity can pick up at more or less the same time and keep the economy moving forward. The only reason the economy grew in recent years was a rising population because productivity was falling.

00:13:10:04 - 00:13:27:07
So I would just flag it could be a choppy couple of quarters over the next year as that balance is found again. We do think growth will ultimately prevail, but it probably won't be very fast growth for a period of time. And then maybe thereafter we can see things proceed a bit more smoothly.

I'll just finish with a couple quick things.

00:13:27:07 - 00:13:46:02
One, China stimulus: China did a little bit more stimulus since we last recorded one of these. Prime rates were cut to go along with a fair number of earlier measures. I would just say, certainly China is on a diminished economic trajectory. There are problems and issues with housing and local governments and banks and household savings and the list goes on.

00:13:46:04 - 00:14:09:22
I would just say I continue to think that perhaps the pessimism about China is a bit overblown and we will likely see more stimulus. I would bet on China managing to stabilize its economy and managing to remain quite relevant and moving forward from this point.

I'll also just say the Bank of Canada delivered its latest rate decision and perhaps inspired by the U.S. Fed's big move, perhaps just based on Canadian fundamentals, we saw a 50 basis point rate cut.

00:14:10:00 - 00:14:30:18
So Canada has now cut rates by 125 basis points over the span of 3 or 4 months. The question looking forward is whether that December decision will be a 25 or 50 basis point move. Markets are really on a knife's edge. The data will ultimately determine it, realistically. I would say my sympathies go toward another 50 basis point cut.

00:14:30:18 - 00:14:47:23
Right now inflation is sub 2%. In fact inflation ex mortgage interest payments – which is probably what the bank should be keying off of since they get to influence mortgage interest payments – it's just 1%, so that's well below target. Unemployment is higher than anyone would like to see it. And so to me that's a recipe for some fairly substantial moves.

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So I wouldn't be surprised if there was another 50 basis point move in December.

All right. I'll stop there. Thanks so much as always for your time. Hope you found this useful and interesting. And please tune in again next time.