Podcast Summary
In this episode, hosts Jack Farley and Mike Ippolito are joined by guest Jack Farley to discuss the current economic climate, the impact of inflation, and the housing market in Canada. They also delve into the role of derivatives in the market and the influence of political decisions on the economy. The conversation also touches on the crypto market and its potential impact on tangible assets like housing.
Key Takeaways
Economic Indicators and Public Perception
- Slowdown, not Recession: Despite recent economic data indicating a slowdown, the hosts and guest agree that a recession is not necessarily imminent. The flatness of the 2s to 10s curve and the positive performance of regional banks suggest a growth scare rather than a recession.
- Impact of Inflation: The Consumer Price Index (CPI) shows a 20% cumulative inflation since Biden’s inauguration, which is worse than what economists suggest. This has contributed to a disconnect between economists and the average person’s perception of inflation.
Canadian Housing Market
- High Housing Costs: The hypothetical monthly payment on the median single-unit home in the US has increased by 163% since December 2019. In Canada, housing prices are seen as a form of retirement plan, with home equity lines of credit serving as people’s pension plans.
- Regulatory Red Tape: The cost of housing in Canada is driven by factors such as supply and government bureaucracy around building new homes. There is speculation that the regulatory red tape and constraints on supply are by design to protect housing prices.
Role of Derivatives and Crypto in the Market
- Derivative Income Funds: These funds generate yield by selling calls against portfolios. However, as bond yields have gone low, they have to go higher up in the capital structure to generate more yield. This has led to asset prices moving rather than reacting to asset prices.
- Crypto Investments: The bullish tailwind for crypto and the potential for wealth accumulation through crypto investments may lead to a reallocation of funds into tangible assets like housing. Some individuals are personally rebalancing their liquid net worth from crypto into equities as a way to solidify their gains.
Sentiment Analysis
- Bullish: The hosts and guest express a bullish sentiment towards the crypto market, citing the potential for wealth accumulation through crypto investments. They also discuss the possibility of reallocating funds from crypto into tangible assets like housing.
- Bearish: There is a bearish sentiment towards the current economic climate, with the hosts and guest agreeing that recent economic data indicates a slowdown. They also express concern over the high inflation rate and its impact on the average person’s perception of the economy.
- Neutral: The sentiment towards the Canadian housing market is neutral. While they acknowledge the high housing costs and regulatory red tape, they also note the political motivation to increase supply and address housing unaffordability.
