Jonathan Wellum shares his concerns about the true state of inflation and the economy, making a compelling case for investing in precious metals to hedge against the economic weakness he foresees and the staggering amount of government debt. In this insightful interview with James Connor, the CEO of ROCKLINC Investment Partners questions the reliability of official inflation data, warns of the dangers posed by upcoming Fed interest rate cuts, and highlights the risks in both the U.S. and Canadian economies, overvalued tech stocks, and a fragile banking sector.
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Jonathan Wellum 0:00
I would suggest that inflation is running quite a bit higher, and so I’m cynical of the government numbers. And so whether they should be cutting rates or not, I think is a good question. The debt is piling up at a rate by our governments that is just not sustainable and eventually will break us. You can’t expand government indefinitely without crushing the private sector.
James Connor 0:19
I Hi and welcome to wealthion. I’m James Connor. Well, here we are at the end of August, and the markets have recovered nicely since that big sell off we saw on the first of the month. The S&P has rallied 10% off its lows, and it’s at or near all time highs once again, Jerome Powell spoke last week at Jackson Hole, and it sounds like a rate cut is inevitable in the month of September. So all looks good in the world now, or is it to help answer this question? My guest today is Jonathan Wellum of rocklink investment partners. And rocklink is a wealthion endorsed financial advisor for Canadian investors.
Jonathan, thank you very much for joining us today. How are things in Toronto?
Jonathan Wellum 1:04
Yeah, not too bad. Just enjoyed a nice, sunny and reasonably warm weekend, which is great as we are quickly approaching the fall, and so we’re going to take all the all the nice warm weather we can so nice things are, things are pretty good up in Toronto right now.
James Connor 1:17
I cannot believe it’s the end of the summer and we are coming into the fall pretty quick.
Jonathan Wellum 1:23
And even when you drive around, believe it or not, for those who aren’t familiar with Toronto weather, even some of the maple trees, which are generally the first ones to sort of start turning killer. I mean, I hate to I hate to look up and I look at some of these beautiful maple trees, you’re already seeing a little red in the leaves, and it’s that can be a little depressing. The summer is very short, so we’ve got to get out and enjoy it as much as possible.
James Connor 1:44
So every week we’re waiting on something. And for the first few weeks in July and August, we were always waiting on q2 numbers and what company was going to say, what? And then last week, we were waiting on Jerome Powell and his comments from Jackson Hole. But what were your takeaways from the speech that he gave on Friday?
Jonathan Wellum 2:03
Well, I think that, I mean, they have been sort of telegraphing quite a bit of I think what we heard on Friday in Jackson Hole, and that is that the economy, from their perspective, speaking from Powell’s perspective, is weakening, that inflation, from their perspective also is coming down to a range which is more acceptable, and things are, as he says, trending in the right direction. And so that gives them, the, the you know, the wherewithal to start to consider the dropping of interest rates. So I mean, whether those things are all true or not. I mean, we’ve talked about this. Many of your guests have talked about, I think the economy is fairly weak it’s not as strong as I think some people think the under the undertone of it, and some of the if you look at the, you know, the numbers, like employment numbers, and you look at a lot of the retail sales, you look at credit expansion, you know, more and more debt being added to the economy. All of those things, I think, point to an economy that’s under stress. But from Powell’s perspective, I think he’s seeing that also, and that gives him enough latitude to start talking about cutting rates. I mean, I think the bigger concern from investors is, are they really taming inflation? Are we really getting inflation under control? And will that be a concern if rates come down and inflation stays higher than certainly the advertised rates?
James Connor 3:21
so you bring up a very good point there, because there’s this ongoing debate whether or not inflation has been subdued. What are your thoughts on that? Do you think the Fed is making a policy error by cutting in September.
Jonathan Wellum 3:33
when we look at the inflation numbers? I mean, you look at the government numbers, you can look at other individuals who are probably a little bit more accurate in terms of adjusting, not making the adjustments that the Fed does. You’ve got shadow statistics and so forth, and other individuals that I think point to inflation actually being quite a bit higher than the Fed numbers and the numbers that they look on. I mean, you’ve got guests that have talked about the head onyx and how they make these adjustments. There’s a lot of politics. There’s a lot of interesting adjustments that go into the inflation numbers. The reality is, if you go to the store and you’re buying food, it’s up a lot more than what they say. If you’re buying insurance, it’s up a lot more than what they say. My some of my insurance costs on a couple of my cars, which I have no claims, no No speeding tickets, but because of thefts of certain cars and trucks are up almost 100% if you’re looking at energy costs, certainly in Canada, but also in the United States, energy costs are a lot higher. We’re up higher because of taxes and carbon taxes that our governments put on and so all of the essentials and of course, interest rates have gone up. And so housing costs have gone up. Rental costs have gone up substantially also. So when you look at that, I would suggest that inflation is running quite a bit higher. And so I’m cynical of the government numbers. And so whether they should be cutting rates or not, I think is a good question. I think because of the debt out there and the inability to fund all of this and the pressure on the consumer, which we’re seeing in a lot. Of the, you know, the basic discretionary businesses and retail businesses and restaurants and so forth, they think, you know, probably cutting rates will be is a good idea from the Fed’s perspective. Otherwise we could see a lot more pain, and they’re not prepared to really clean up the mess. So I think, you know, from their perspective, they’re going to, they’re going to drop rates from our, from our perspective, I’d rather the rate stayed higher for a little longer and we actually made proper adjustments to our financial balance sheets and our spending habits, but I’m not sure that’s going to happen anytime soon.
James Connor 5:32
You raised an interesting point about auto thefts in the Greater Toronto Area. There was over 12,000 cars stolen in Toronto last year, that averages up to 32 a day.
Jonathan Wellum 5:44
yeah, it’s really unbelievable. And they, they’re, they’re doing virtually nothing about it. That’s the worst part about it, the, you know, the the authorities and and so again, yeah, I’m going to complain about that all day long. When your insurance costs go up and you haven’t had a claim basically, in 30 years, I’m not too happy.
James Connor 6:05
so the next Fed meeting is September the 18th, and there’s this ongoing debate right now whether or not it’s going to be 25 points or 50. What do you think?
Jonathan Wellum 6:14
Well, again, we’re not experts on guessing what the Fed’s going to do, but I would, I would think it’s probably 25 I don’t really think that the evidence out there to Job 50 is there, and so I think that they’re going to do it, as Powell suggested, carefully and slowly. So I don’t think he’ll do a 50. But I mean, it’s not out of the question, if they mean, you could argue, some people will argue that they might do the 50, and then they’ll back off until after the election. They don’t want to get involved in any more cuts before the election. I’m not as I don’t see the Fed as being as pure as that. I think that. I think they’ll, they’ll, they’ll do what they think is necessary, and they’ll cut it back. And whether that intervenes with politics or not, so I don’t think that that matters to them, really.
James Connor 6:57
And so the yield on the 10 year, it’s dropping like a rockets. It’s gone from 4.6% in June down to 3.8% now, how do we play this? How should investors allocate capital toward this falling interest rate environment?
Jonathan Wellum 7:13
Yeah, the way we’re looking at it. And again, the interest rate, I think, is falling simply because we are seeing a softer economy, and the expectations will be that rates are going to come down on the short end, and the whole curve will come down. We saw the adjustment to the employment numbers in the US, which was staggeringly high number. I mean, is it unbelievable? So, you know, there’s a lot more softness going on than has been advertised in a lot of the Government published numbers. And so I think the market is looking at that and saying, yeah, the longer term, you know, the longer term rates have to come down. Way we’re looking at that is not as much playing the bond market. We do have, you know, about 30% of our assets in bonds. We don’t tend to sort of play on the yield curve, and guess this, that and the other thing, we tend to lock in returns and make it very you know, keep it simple. For a lot of our clients, we make our money on the equity side. So what we’re looking at are companies that would have gotten hit hard by the rapid rise in rates. Now the rates are coming down. Funding costs are coming down, capital costs. Cost of capital is coming down. And so some of the infrastructure companies and some of the companies that have long term liabilities that they’ll be able to continue to reprice now at lower rates, and the cost of capital is coming down. That’s where we’re putting a little bit more money and adding to some of our positions. Where we find we’ve got great companies. We like the companies, they’re doing well, there’s growing, but they’ve been hit in the market because interest rates have come up a lot, and so we think that could reverse. So for example, we own a number of the Brookfield companies. And we think some of those companies are actually quite cheap, Brookfield renewable, Brookfield infrastructure, not to mention Brookfield Corp itself. But some of the ones that are paying the high dividends, they’ve come down a lot from their highs, and those could see some nice increases in stock price as they continue to grow. The underlying businesses organically anyway, and I think dividend yields will continue. Dividend yields and dividend pays will continue to rise.
James Connor 9:07
what about the Canadian banks, or US banks? How are you playing those?
Jonathan Wellum 9:12
Yeah, as we’ve said before, you know, we’re we’re just very neutral on the banks. We don’t have a lot of enthusiasm both, and we’re not going to just jump into the bank simply because the yield curve is coming down, or they can make a little bit more spread. The bigger concern for us, when we think of the banks is basically all the debt out there and the funding of the of the debt, so that, you know, their assets are Canadians and us as liabilities. And so we don’t like those liabilities. We think the debt, indebtedness of Canadians and Americans is quite high, especially in Canada here, the mortgage debt is incredibly high, and I think, very vulnerable to a market pullback. And we’ve already seen, again, quite a drop actually, in the real estate prices in Canada, depending on what’s you know, depending on your location and what you’re looking at. And so we just, we just think that. Going to be incredibly mediocre investments for a while. And so I we think it’s a little bit different this time when it comes to some of the banks. And just because the interest rates start coming down, that’s not going to give them a free, you know, free pass and all sorts of extra money to make. I think that where they’re going to have to burn through some of these loans and some of the provisions and some of the commercial real estate, you know, issues and all of that. So our view is, we don’t have to be there. We’re not going there. So we have virtually no exposure to any Canadian or US banks. We’re in other, you know, sort of non bank, financials and other financial entities, insurance companies, other, other kind of lenders that don’t have the leveraged balance sheet. So we’d like, we’d prefer that. The other thing is, then we think this is a lower probability, but there’s a lot of derivatives and a lot of messy stuff on their balance sheets that I’m not sure you know, anyone can really figure out. If there is a debt problem or debt crisis. I should say we are. We get, we definitely have a debt problem, but if there is a debt crisis, I don’t want to own any of these highly leveraged financials.
James Connor 10:59
There’s a number of Canadian banks reporting in this week, so it’s going to be interesting. Be interesting to see what sort of commentary they have to say about real estate, both residential and also commercial. But we’ve seen a number of companies in the US report. We q2 numbers, all of which have said that the US consumer is under pressure. And I’m thinking about Disney, Airbnb, a number of us, airlines have all said people just aren’t flying this summer. They’re not going on vacations. What’s your sense of the US consumer and what sort of pain, economic pain are they feeling?
Jonathan Wellum 11:32
and I think it’s bifurcated so that you’ve got sort of the upper, upper end of the market. Those who are, you know, have their assets, don’t have as much debt. You know, our homeowners own stocks and different securities and reasonably good jobs. They’re not feeling as much pressure, and they’re typically the ones that are spending but if you, you know, have a job that isn’t as high paying, and you have a large mortgage, or you’re trying to look to get into the housing market and and so forth. I think you’re under a lot of pressure. If you got kids at home and you’re trying to fund their schooling, and you’re trying to fund all of the things that go along with that, you’ve got, you know, car loans or car leases, those are the individuals who are really, really feeling the pressure. They were already close to the wire and didn’t have a lot of discretionary income and savings going into covid had a little bit of a kick up, because the government funded, you know, a lot of money, put a lot of money out there into the system. But as that’s dried up, we’re seeing that that whole segment is under huge pressure, and that’s the area that’s getting hit the hardest, and that’s how, you know, it’s also being translated into the businesses that you mentioned. So I think it’s again, bifurcated market. The ones on the you know, middle class lower are really, really feeling it, because again, the majority of their money goes to food and clothing and shelter, and those things have gone up an awful lot, along with energy cost transportation.
James Connor 12:55
So I know you and your team have done a lot of work on us tech stocks, and I have to ask you about Nvidia. The report later this week, it’s currently, its market cap is around $3 trillion it’s trading at 35 times sales. I think it’s trading at 70 times earnings. But any thoughts on Nvidia?
Jonathan Wellum 13:14
Yeah, I mean not. I don’t want to dodge questions, and I know people don’t like if you do that. But I mean, the tech companies that we’ve invested in, we’ve spent a fair bit of time on, and feel more comfortable they’re generally sort of software oriented companies, not as much hardware capital, capital cost businesses. So for example, we own Roper, that’s in a software business, Autodesk, some, some Adobe. We’ve owned Amazon. Still own a lot of Amazon. We like Amazon, like the position, and so forth. And we’ve owned Apple, we get into Nvidia, I know we did not. We have not owned the stock, and so we missed all of the upside. And so I’ll be upfront about that. It continued. Just run, run, run, run. So we’ve looked at it along the way, but we just can’t get our minds around the valuation and understanding exactly how everything’s going to pan out here in terms of AI and all of that whole chip market. So we have been on the sidelines at this point when we look at the valuations and also the hype around AI is for us, it’s never this is not the time to be jumping into the video. We’ll look for other other businesses that are trading at much lower multiples do not have to have the kind of rosy and cherry, you know, oriented future. And so from our perch, we’d just say, Be very cautious. If you’re already in there, you’ve done well, you can take some profits off the table and put those in other places that are trading at lower valuations with more predictable business models. But look, it’s an amazing company. They’ve done an incredible job. So this is not to take anything away from them, but they’re very, very expensive, and you pay a lot for a cheery consensus. And so we would be nervous about that. I think we are seeing that the capital spend in AI is going to have to come down at some point. There’s been a lot of money put in by a. Limited number of players. And, you know, are they just, are they getting the returns from it? I think we’re seeing that the returns maybe aren’t as as exciting as we thought. And I think this is going to take some time to play out, so be patient. And I think wait for a better entry point if you are going to jump into a company like the video, just, just be patient. Don’t, don’t have FOMO, you know, fear of missing out. This is not the way you should be investing.
James Connor 15:25
So the tech stocks you’re invested in are more subscription based.
Jonathan Wellum 15:29
absolutely we love fee based revenue, reoccurring revenue, businesses that have retention rates on their clients well into the 90s and mid 90% those are the kind of businesses that we like, we study, we feel much more comfortable with. They have pricing power, whether you like it or not. They can put their, you know, they put their fees up 345, percent a year, basically at the level of inflation or more, and you really can’t do much about it, because you’re hooked. You’re stuck. You know, they’re they’re in, they’re ingrained in your business. Those are the kind of tech companies that we like. We typically don’t get involved in sort of the chip oriented businesses. And that’s just look, we can’t study every area and know all the markets, so we pick the areas that we feel we can sort of conquer, if you will, and understand a lot better.
James Connor 16:18
Yeah, it’s amazing how Apple has done such a brilliant job of captivating households, right? So when I look at my household, for example, we probably have four or five Apple phones, and then we subscribe to Apple TV, Apple Music, additional hard space or a hard drive, you know, like
Jonathan Wellum 16:38
Well and the thing is, Now I have an Apple iPhone. I have an, I know, Mac, a Mac Pro that I’m on right now. You have your iPads. You have the beats, you know, wireless, you know, headphones and so forth. And the thing is, they all talk and they communicate you so I also have the watch, you know. And so how do you get rid of one of those things and substitute in a competitor? They’re all integrated, and they all speak to each other. And if you want to upgrade, you just, you know, it’s so easy to upgrade, they’ve made life very simple once you’re, you know, integrated into their network. And we love that kind of business from an investment perspective, you can find companies like that, and they continue to innovate. Now they have to continue to innovate. But even if Apple stopped innovating at the rate that they have, and there’s been some slowdown, a business like that never blows up overnight, it’ll start to erode. And I think as you start to see a business erode, or it stops to, you know, growing, and you’ve got to watch Apple, I mean, it’s not a guarantee, then I think then you get out of the stock and you start looking at alternatives. But that’s the benefit of a company. It’s really well entrenched. It’s got an amazing franchise. It starts to erode. It’ll give you a lot of visibility before you know, to get out long before you know, you know it give you all those signals, so you shouldn’t be sticking around for too long. But, I mean, Apple’s got it, you know. Again, it’s got to keep innovating and keep working hard. It’s not a guarantee their next iPhone. They’ve really got to make sure that they put more and more on that so they can get an upgrade cycle. So we’re certainly going to be watching that, and we’ll go from there.
James Connor 18:11
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another sector that’s doing extremely well in this falling interest rate environment is gold. Gold is trading at or near all time highs, and I believe it’s the best performing commodity this year. What are your thoughts on gold, and do you have any capital allocated toward the gold sector?
Jonathan Wellum 19:37
Yeah. I mean, we like the gold sector in my first get into the industry, not to get into too much history, 40, you know, 3035, years ago. I mean, to invest in gold was just not that interesting. The markets were expanding. Everybody was leveraging up. There was all sorts of economic growth, debt to equity. Rate ratios were, you know, quite healthy. The debt to G. P rates by governments were quite healthy, but over the last 30 years, it’s just gone crazy the other way. And so from our perspective coming in, when I started rockling back in 2010 we started to build a core position in gold and silver and some of the precious metals areas that would try to hedge us from the risk out there, the macro risk, the debt risk, the government spending, risk and so forth, and so that’s become a core part of our portfolios, and it’s just grown over time. So right now, we would have about, I’d say, 18 to 20% of our portfolios allocated to silver, gold, you know, precious metals oriented businesses that can also get you into, you know, platinum, palladium, which would be a second, very much a secondary exposure some copper and some of the, you know, strategic base metals, also because of some of the companies that we’re buying, we’ll have some exposure there, but the gold we like, and not just because rates are coming down now, but it’s really because of the debt crisis. It’s the this massive expansion of the state and the complete unsustainability of the finances of majority of governments around the world. And so I think that’s the big issue for us. And so what do we do with, you know, with clients, we’ve got to have some hedge in the portfolio, something that will go up and when other things come down and and hopefully up a lot. So we think gold has as a substantial amount of upside. The downside to that is, if gold does go up a lot, there’s going to be problems in the world. And, you know, so that, that will be an offset. So people should not get too excited about gold goes to, you know, five, $6,000 and now it’s, it’s telling us that there’s some really extreme things going on in other parts of the world.
James Connor 21:37
And I hope it does. But I think we mentioned this, but gold is up 20 to 25% on the year, but many gold equities are up 25, 50, 100% so they’re finally putting in a decent move.
Jonathan Wellum 21:53
Yes, and I mean, I watched a recent interview you had with Rick Rule, who is fantastic in this area. I mean, it’s just a wonderful individual. I love listening to him also. And you know, he, as he pointed out, when you know, gold does go up an awful lot. Sometimes, when you look at the miners, if they’re not well run, they don’t increase their profitability at all, even though the price can double, triple, quadruple. And as he pointed out, from 2000 to 2012 you know, went up like seven fold. And you know, the free cash flow on a per share basis for the whole sector itself actually didn’t move. Didn’t go up at all, which is really astounding. So you do have to be careful. I think you want to pick the well run companies who are incredible capital allocators. We typically buy a lot of the royalty companies which are safer in that in that regard. And we have owned a little bit of Sean Boyd’s company. Agnew Eagle would be their key gold mining company. And again, we only buy that because, you know of his assets are wonderful assets in great areas, and he’s demonstrated decades of great capital management. So you do have to be careful, because the worst thing that can happen, worst thing. But one of the bad things that can happen is you allocate the gold, and you’re right with the commodity, but then you buy some miners who blow it and do a terrible job in allocating, and you don’t go anywhere. And meanwhile, you know the gold was there to go up. In case of extreme circumstances, you don’t get that exposure. So we’re pretty careful. We want to get the exposure. And you can also own just the physical gold directly. So, you know, buy a button. Just make sure you’re buying, not derivatives. You’re actually getting the physical gold itself. Sprott’s got some products in that area, and that’s not a bad thing for a certain percentage of your portfolio. Also, then you don’t run the risk of of the miners getting into trouble or expropriation, even by national governments.
James Connor 23:40
Yes, yes. And acnico, 70% of their production comes from Canada. So that’s one of the reasons why it’s always traded at a higher valuation than many other companies. And to your point about expropriation, we just saw that with First Quantum Cobra, Panama mine down in Panama,
Jonathan Wellum 23:58
yeah. I mean, we own Franco Nevada. We’ve, I’ve owned it, you know, in a substantial way, since the 1990s have been a great admirer of Seymour Schulich, back in the day, Pierre Lassonde. I mean, these are two exceptional individuals. And so when you can stand on their shoulders, you’re going to invest all day long. And so we owned, back in my AIC days, we were the largest institutional shareholders of Franco in our funds Franco Nevada, and we loved it because of cash flow, cash flow, cash flow. And these guys were basically investment bankers and into the gold and gold sector, but we so we own the Franco. But it’s quite interesting that the copper investment they made in the corporate Panama mine was a phenomenal royalty. It was an excellent investment in terms of just all the things that they could control. But, and who would have thought, you know, that the Panamanian government would would step in like that, and that they would, you know, be pressured by environmentalists in the whole, that whole, that whole situation. And you got to remember, when we looked at that Colbert Panama, I’m sure, for. Go, did the same thing as it means, like, 5% of their GDP, it, you know, it basically has an impact on about 10% of the population. From economics, it’s 4050, 60% of their exports. It would have been and so it’s a, this is a massive asset that has a huge impact on the economy, and they still shut it down. And it was also very well run. There was no environmental issues with it. So, and then you need copper for EVs, you know, electric vehicles. You need copper for the Green Revolution. So you’ve got environmentalists basically stopping a commodity which is in short supply and needed in order to go green. So when you add all these things up, it’s just shows how crazy it is, and it doesn’t make any sense. And so you do have to be careful, and you need to diversify. And the good thing about one Franco, yeah, they did drop about 20 25% they’ve rebounded a good portion of that, and they just continue to allocate capital and continue to grow and do what they need to do. And if that mind does come back on, which I think at some point it’s going to have to, it’s just too economically important for Panama, then that right that they have, that royalty right, stays with them, and even if there’s another mining company that comes in and develops that resource, and it’s not first, quantum Franco’s royalty will have to be honored. And so that’s why we like those perpetual property rights that they have through those royalties. And that’s again, gives you a little added protection, but you do have to have patience, because, you know, we’ll have to wait and see how this works out.
James Connor 26:24
Yeah, I’m sure there’s a lot more to that Cobra Panama story than we’re aware of, but it’s going to be interesting to see who finally, or ultimately, ends up owning that mine
Jonathan Wellum 26:34
well, and you can see some of the other large miners all sort of jockeying for a position, right? So, I mean, does the government say, Okay, we’ll bring in another miner to save face. And you know, they’re going to do something different. I mean, there’s so much virtue signaling that can go on there. We’ll see what happens. But from our perspective, the important thing is, Franco still has its his tentacles well entrenched in that mine. So that’s good.
James Connor 26:56
Okay, so we talked about the US. We’ve talked about Panama. Now I want to ask you about Canada. We both reside in the city of Toronto, so I want to get your views on the Canadian economy, and I’m going to throw out a few quick facts for our viewers. Canada’s GDP per capita has been in decline for five years now, while at the same time, the US has been growing relatively strong, the Canadian labor productivity has been in decline for nine years, which also equals the same time the Trudeau Government has been in power. What are your views on the Canadian economy, and where do you see it going here in the coming year?
Jonathan Wellum 27:31
Yeah, these statistics are really, really distressing. They’re very concerning, and they’re, as we’ve talked about before, completely tied to policies, political policies, economic policies, being driven by governments. This is not because we have a bad private sector or an inefficient private sector, or we don’t have incredible individuals in a labor force that can get the job done and grow the economy in all sectors, but we have a government that’s really put a strangle hold on certain industries in particular, and in fact, I would argue, probably all industries, because we’ve got over taxation. We’ve got our energy costs skyrocketing because of carbon taxes. We’ve got regulation and oversight into all of the industries, which is way beyond what it should be. So it slows things down, and in particular our resource sector. I mean, everybody knows Canada is a incredibly rich and powerful company when it comes to resources, and that’s right across the board. I mean, we’re very much, you know, endowed with tremendous resources, and that’s the sector that our federal government really does not like, and it’s making it very difficult to operate in that sector, and that’s a sector that requires tremendous amount of capital and long term thinking, and so if you’ve got a government that’s really making it difficult, why are people going to commit money not knowing what’s going to happen the next couple of years when there’s that uncertainty? So so Canada get Canada gets inordinately hammered by bad policies, because so much of our economy is a resource sector which requires long term capital to get invested. So our oil sector, gold sector, our, you know, fertilizer areas, and, you know, potash, nitrogen, I mean Nickel, Copper. I mean this goes on and on and on in terms of resources, agriculture and so forth. And I came across an interesting number. There was just an article published in the Ottawa Citizen talking about the expansion of the federal government in Canada, and we’ve also seen this in the US. So even if there’s us, there’s obviously us listeners here on this, on this podcast, but the reality is, under Biden Harris, we’ve also seen a lot of the employment numbers down there being government employment, government additions. But in Canada, since Trudeau took over in 2015 the total employment in Canada is up by 15% but the total employment of the federal government alone is up by 80% so you know, you look at those numbers, and you can break it down by all the different industry sectors that. Federal Government is exposed to. And what you find basically, is that the federal bureaucracy is growing at four or five times the rate of the private sector. And so of course, you can’t grow your economy. Of course you’re not going to grow your GDP at the rate necessary. On top of that, the last factor I would mention is just massive, massive immigration into Canada the last couple of years. So you’ve added 3% plus to our base every year. So over a million, million and a quarter people on a base of 40 million people, that’s that is, you know, you just can’t absorb that. And so you’ve got people coming in and various levels of skills. Some are highly skilled. Some have virtually no skills. And so that’s a real tax on the infrastructure of the country, and so there’s no way you’re going to grow GDP per capita with that kind of expansion in immigration. So those are the issues facing. Canada is basically a socialism, if you will, a country becoming increasingly socialistic and less capitalistic. I certainly would warn the folks in the US Be very careful in the upcoming election how you vote, because you also are faced with two stark contrasts, and, and, and I would suggest one is going to take in one direction and one in the other direction. I think you can figure out without me telling you exactly what’s going to happen there. So be very careful. You can’t expand government indefinitely without crushing the private sector and the one that’s where the wealth is created.
James Connor 31:21
I just want to clarify one point you said. I just want to make sure I heard you correctly. But total employment Since 2015 is up 15% in Canada, yeah, whereas within the federal government, it’s up 80%
Jonathan Wellum 31:35
right, that’s correct. That’s according to Matthew Lau in the latest article in the Ottawa Citizen, and he was looking at the government numbers
James Connor 31:42
So I guess my question is, what the hell are all these people doing in the federal government?
Jonathan Wellum 31:48
That’s an excellent question. I have friends in Ottawa, and they’ve told me that again, they know people that work in the in the public sector, and they’ve told me directly that some of them have actually left the public sector, because they they really felt underemployed and weren’t doing anything and and just from a conscience perspective. And so I think it’s fair to say that, yeah, we’ve got way too many people in the in the public sector. I mean, just remember when maybe this isn’t the best correlation, but when our friend Elon Musk took over Twitter, was quite interesting that he eliminated 80% of the workforce and actually made it more efficient. I think that it’s pretty obvious to me that the government sector could be reduced by half, I mean, and I’m not exaggerating, at least by half, and run much more efficiently and effectively. And we would, we would produce incredible wealth that money be transferred back into the private sector, and would would revolutionize our economy. But do we have to have the will to do that? And we have to, you know, really understand how the how the economy works. And most Canadians, most Americans are, are not thinking that along those lines. But if we don’t the we’re eventually going to have to, because the debt is piling up at a rate by our governments that is just not sustainable, and eventually will break us
James Connor 33:02
if you were to cut the federal government workforce by half, you have a massive unemployment problem
Jonathan Wellum 33:08
you privatize many of the areas. You put them over into the private sector, and you swing them over, similar to what Margaret Thatcher did in the British in the UK, back in the in the late 70s and into the 80s. Throughout the 80s, I mean, you had a completely stagnating economy in the UK, and what she did was she private, she privatized large portions of it, and it brought the whole thing to life. And so, yeah, you do reduce but then the good thing about that is the capital market will pick up those jobs, and we need to pump them into our resource sector. We need to pump them into different areas where there’s where we should be developing our resources and and believe me, that transformation would take place pretty quickly. I don’t think people really appreciate the power of the market and the power of capital markets when they’re unleashed and when you take away the unnecessary restrictions.
James Connor 33:54
Jonathan, you mentioned the unemployment rate in Canada, it has been ticking higher. It’s ticking higher in the US too. It’s gone from 4.1 up to 4.3% last month. But in Canada, it’s at 6.4% and that’s up from 5.5% a year ago. What are your thoughts on this unemployment number, and does it keep climbing?
Jonathan Wellum 34:13
I think it’s indicative of two things. Number one, which is not which is not rocket science, that’s just a slowing economy, and so you’ve got people just trying to pare back on jobs in order to maintain profitability in the in the private sector. So that’s, that’s one of the things that I think will continue if we continue under, under this current situation with over taxation and and the government sort of, you know, strength putting a stranglehold on a lot of the industries. So that’s, that’s a risk that we run increasing unemployment. The other area, it would be just the massive amount of immigration we’ve had come into our country, and so just assimilating all these people and putting them to work is very difficult. That’s created, in some cases, Canadians who have been born here, and they’re having a tougher time getting some of the jobs. Also, that’s also put some of the. Employ, unemployment levels up. So if you talk to people, they’re trying to get jobs in the service sector and the hospitality sector. It’s very difficult. In many cases. A lot of the new immigrants to Canada are grabbing quite a few of those jobs also. So again, it’s about assimilation. Can you can you incorporate that many people into your economy and put them to work that quickly? And the answer in an economy like Canada, which is not growing very quickly and is really driven by a lot of growth in the public sector, no. And so I would suggest that that those numbers will continue to trend up, unless we unless we change course dramatically.
James Connor 35:34
Yeah. So we have a slowing economy, as I said earlier. It’s been in decline for the last five years. When you look at GDP as per cent of or on a per capita basis, we have an increasing unemployment rate. And I think the Bank of Canada recognizes that there’s a major problem on the horizon. This is why we’ve already had two interest rate cuts here in Canada, and I’m sure there’s another one coming.
Jonathan Wellum 35:57
I mean, they they were quite a bit ahead of the Fed, and that’s because in the Canadian situation is a lot weaker and and so there’s no question that they will try to continue lowering rates if, if possible, they just have to watch what it does to our dollar. Our dollar has been reasonably you know, with with with Powell now talking about rate cuts in the US, our dollar has actually come up a little bit. It’s around 74 cents. It was down about 72 and change. And so it’s going to be interesting to see how that bounces around. And also, we have an election coming up in a year from now, and it’s looking like that. You know, there could be a change in this country. And that would also, I think, be very positive for the Canadian dollar and for our economy, if we can get a change in government.
James Connor 36:37
That’s what I thought in the last election in 2021
Jonathan Wellum 36:41
Yeah. Well, I said, I didn’t say it definitely is going to happen. We’ll have to, we’ll have to see what happens, but if that’s but I do think that clearly the conservative government’s policies would be much more market friendly and much more friendly to economic growth and prosperity, but they will have to be tough policies, because we have to get things back in alignment, and so there’s going to have to be some tough decisions. So it’s not going to be easy at all for any new government stepping in there they’ve been, they’ll be inheriting a very messy, messy situation.
James Connor 37:13
Well, Jonathan, as a fellow Canadian, I always enjoy our discussions, and I want to thank you very much for spending time with us today, and if someone would like to learn more about you and your firm, rocklinc, where can they go?
Jonathan Wellum 37:24
Yes, our website’s a great place to start, and that’s just rocklinc with a C at the end of Link, rocklinc.com and they’ll come up with that and or they can, you know and contact us at info@rocklinc.com, and our numbers are also just on the website. They’re 905-631-5462, and any anyone in the organization, in the extension mines extension too, but you can get anyone else in the organization, we love to talk with you and and take a look at your finances. And we will, we’ll sit down with you and walk you through what, how we invest money and how, how we would make changes to your portfolio with no pressure, no you know, no obligation at all. And we’d love to do that. So give us a call and we can, we can help you out.
James Connor 38:14
Jonathan, once again, thank you.
Jonathan Wellum 38:16
Thank you very much. You have a great rest of the week.
James Connor 38:20
Well, I hope you enjoyed that discussion with Jonathan Wellum, and it provided you with some insights on what to expect in the coming months in both the Canadian and US economies, we all need help when it comes to planning and preparing for our financial future. And if you have a financial advisor and you’re happy with them, then great, stick with them. But if you don’t, or maybe you want a second opinion, consider having a discussion with a wealthion endorsed financial advisor@wealthion.com it’s a free service that wealthion offered stock anyone who has an interest, and you can find out more information@wealthion.com I want to thank you very much for spending time with us today, and I look forward to seeing you again soon.
