Central Bank policy

“It’s almost redundant and perhaps even boring to say that we’re still really focused on central bank policy because we’ve been doing it since the financial crisis,” Murray said. “But here we are in 2023 and we’re still talking about it.”

Inflation and central bank policy continue to weigh on investors. Many investors believe a recession is coming. The equity and bond markets are indicating that’s going to occur, along with the yield curve. Consensus says the Fed will cut rates in 2023 and that inflation is sticky at about 5% to 6%.

That consensus view “can be very powerful for a very long time.” Nobody thought the internet bubble would burst. Nobody expected the financial crisis. A week before Silicon Valley Bank went under, a rating agency still believed the bank was in positive shape. That consensus view matters.

However, Murray suggested it’s important to determine what the out-of-consensus view is. Here’s where connecting the dots comes in. The markets are complex and conflicting, making it difficult to figure out the next move. But if you can connect the dots and determine what the opposite of consensus is, you’ll be in a better position to understand what might be coming next.

The out-of-consensus view is that rate cuts won’t happen in the US till 2024. And the yield curve? It’s been inverted for 15 months. Murray cited a recent Wall Street Journal article wondering where the recession is that everybody’s been talking about for a year.

Also consider the lack of investment in oil over the last 10 years. Consensus was that oil is bad. However, the out-of-consensus call was to go long on oil. “And that has been such an amazing call, and I think likely will continue to be.”

Another out-of-consensus call: she doesn’t see the market declining 20%. So many stocks are already down 10% or 20%—there are still opportunities. “The consensus right now is that there’s a lot of risk in the market. Not so sure that is true.”

Trends to watch

In 1848, British statesman Lord Palmerston noted that countries have no permanent friends, only permanent interests. Those interests are prompting new spheres of influence to emerge. Leaders of Brazil, France, Spain, Singapore and Malaysia have all gone to China, following Xi Jinping’s visit to Moscow. Different alliances are forming, and we need to understand this shifting geopolitical landscape.

The US’s “America first” mentality persists. The Inflation Reduction Act is designed to compete with China’s EV business, the CHIPS and Science Act to help the country become more self-sufficient in onshore semiconductor production. The China-US competitive landscape is “heating up and not changing anytime soon,” Murray observed. “I think that the semiconductor industry, and the push back to North America, is really the new oil war.”

Other drivers at play include de-dollarization, with the US dollar under attack, and inevitable globalization, punctuated with a more regional focus and the “muscle reflex” to protect the supply chain. Lots in play globally. 

“The most important thing is to really protect your business and protect your supply chain and, and your future,” Murray advised. Have contingency plans, be self-sufficient, protect your interests. “That’s the atmosphere we’re in right now.”

Innovation and disruption

Over the years, Murray has been asked what’s exciting and disruptive. Sometimes there isn’t much to offer. Not so right now, she said, pointing to ChatGPT, AI, cryptocurrency, SpaceX and Starlink.

SpaceX’s Starlink, a satellite internet constellation, is particularly interesting. “The ability to bring internet to so many people around the world who do not have it will open up new markets.” It will also have political implications, she added, wondering what would have happened if protestors in Iran had had that kind of access.

As for AI, Murray knows it will increase efficiencies and create ongoing opportunities, but she isn’t worried about it. As she prepared for her presentation, she asked ChatGPT a simple question. It responded that it preferred not to continue the conversation because it was still learning. Murray suggests paying attention to the guardrails. The Microsofts and Googles of the world are controlling that, which increases the barriers to entry. “It’s going to be a bit of a wait-and-see approach.”

Remaining competitive

If Canada wants to be more competitive, Murray commented, “we need to be in a country that’s more competitive.”

It has a way to go.

Of the $46 billion that GST collects, $44 billion goes to interest payments on a $1.1 trillion loan. That’s all money lost, that’s not going to Research & Development (R&D). In terms of patent development, Canada is one of the worst in the G10. The Organisation for Economic Co-operation and Development predicts Canada will have the weakest per capita growth from 2020 to 2060.

Still, there are lots of opportunities. We have a highly educated labour force and a great opportunity to decrease regulations and barriers. For instance, Murray believes we should be able to have a national system that allows professionals from other countries to work here more easily and ease the labour shortage. “There’s a lot of low-hanging fruit. But it is the policies of a country that determine the competitiveness.”

The bottom line

“We’re in a fragile, volatile time,” Murray said. How do you manage a business through that?

For her, it’s about relationships and understanding the data points. “But I think you also really need flexibility, you need patience. You have to sift through the noise and have a lot of contingency plans.” And although there may be fewer of them—and you might have to look harder for them—she believes there are still underlying opportunities to be had.