COVID-19 : Les 100 premiers jours de Joe Biden : vers la reprise

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Intro:

Welcome to BMO COVID-19 Insights. Visit bmocm.com/COVID-19 for more up to the minute insights.

Disclosure:

The views expressed here are those of the participants and not those of BMO Capital Markets, its affiliates, or subsidiaries.

Dan Barclay:

Welcome, and thanks for joining us for a conversation that marks the first a hundred days of president Biden's administration and how we're tracking on the road to recovery from a health markets and macro economic perspective. As we get started, reminder, that appoint you to the BMO disclosures on the WebLink enclosed at the bottom. Given we're talking about medical information, also a reminder, that if you need medical advice, please directly consult your physician and/or a healthcare professional.

Dan Barclay:

In his first a hundred days, Biden had spearheaded some bold initiatives. Signed a $1.9 trillion pandemic recovery package, doubled the goal for COVID-19 vaccinations, jump-started a climate change agenda. It's been a busy start to a new chapter, and at BMO, we're tracking, closely with our own bold ambitions and broad visions as we help our clients navigate changing political health and economic environment. This is a pivotal time of recovery and opportunity. We're in some of the hottest markets I've ever seen in my career, whether it's M&A, sustainable financing, equity markets. We've seen accelerated focus on and collaboration towards a net zero world.

Dan Barclay:

We've seen a dramatic renewal of confidence and optimism for the future. To unpack this from a health and macroeconomic perspective, I'm joined today with our medical experts, Dr. John Whyte, Chief Medical Officer of WebMD, Dr. Allison McGeer, senior clinical scientist, Lunenfeld-Tanenbaum Research Institute for Sinai Health, and our own market strategists, Earl Davis, head a fixed income and money markets, BMO Global Asset Management, and Brian Belski, our chief investment strategist at BMO Capital Markets.

Dan Barclay:

Please keep in mind, today's discussion is not intended to be political or a debate. We're here to talk about health, economics, markets, and vaccines. Additionally, we have media interest in the session, so there will be reporters on the line. Dr. Whyte, let's start the conversation with you and your insights on the progress we've made over the last a hundred days and what's next.

Dr. John Whyte:

Well, thank you, Dan. It's great to be with everyone today. Let's talk about the data, because I think there are some very encouraging trends. Currently, in the United States, there's about 49,000 new cases a day. That's the seven day average, but keep this in perspective. In January, there were over 200,000 new cases a day. In terms of the number of deaths, the seven day average here in the United States is around 650, but in January of this year, it was over 3000. So, this is a success of the vaccination program.

Dr. John Whyte:

There's still too many new cases, still too many deaths. We really want to drive this to about 10,000 cases a day, but we're making tremendous progress from where we were in January. If you look at immunizations in terms of where we are in terms of one dose, 147 million Americans have received the first shot of the two shot regimen of Pfizer and Moderna, that's 45% of the population, and about a third of the population is fully immunized. That is tremendous progress from where we were just a few months ago.

Dr. John Whyte:

In case you're curious, I wrote this down, out of those hundreds of millions of doses, 130 million are Pfizer, 106 million are Moderna, and 8 million are J&J just in terms of perspective of where we are in that. The other good news is that, for persons over the age 65, 85% have received one dose, and nearly 75% have received both doses, fully immunized, and that's why we see such a decline in terms of the number of hospitalizations, the number of deaths, and that's really what Operation Warp Speed has been about, to try to get vaccinations to prevent serious infection, and they really have done just that.

Dr. John Whyte:

Let's talk about where we are in terms of vaccination. So, it's been reported that about 8% of people have not come back for the second shot and they've gotten the two shot regimen. Remember J&J is just one. I'll tell you, that's a little bit concerning, but in other multi-shot vaccinations, HPV, hepatitis B, shingles is a two shot regimen, is typically much higher than 8%. We need to really understand what's causing that. Is it inaccurate reporting if people have gone to a different location for the second shot? Is it hesitancy?

Dr. John Whyte:

We're gonna need to look more into that, but I wouldn't get overly alarmed about the 8%. In terms of the number of daily vaccinations. Remember, at the beginning, it really was much more demand than supply. Now we're seeing, in some ways, more supply than demand based on some hesitancy about the vaccine. At one point in April, we were typically three to 4 million vaccinations a day, shots in arm. Now, we're about 2.6, 2.7 million, which I'll tell you is still pretty good and puts us on a very good path to get a much higher percentage of people immunized.

Dr. John Whyte:

But realistically, we do have to do a better job in reaching those people that are hesitant in reaching a younger population. About 25% of people in general, said they're not going to get it or thinking about it still. I'll tell you, when people say, they're still thinking about it. That usually means they're not inclined to get it, so how do we reach them? How do we reach people 18 to 24 that could be driving some of these new cases and how do we encourage them to do it?

Dr. John Whyte:

Where I think we're going to see progress, Dan, is in the private sector, having some initiatives to encourage vaccination. There is a report in West Virginia that the government is giving a hundred dollars savings bonds to two both 18 ... 16 to 35, if they get vaccinated, we'll see how that does. But where we're really going to see progress is over a hundred colleges and universities have said, to return to campus in the fall, you're going to have to be vaccinated against COVID, with some exceptions, religious or medical reasons.

Dr. John Whyte:

Houston Methodist Hospital recently announced that all employees are going to need to be vaccinated to be able to work there. The EOC has already said that folks, employers can require it, so that's something to keep in mind in terms of mandatory vaccination. I think we're going to see that in terms of travel, not necessarily a vaccine passport, but perhaps if you want to get on a plane, want to go to a concert, you want to go to a sporting event. You may need to prove that you're vaccinated. That's where I think we're going to drive greater vaccination rates, particularly in younger population.

Dr. John Whyte:

Well, the other good news is you have to make it easier for people. I don't know about where, as some of you have seen, now there's vaccination sites in the mall, there's vaccination sites at gas stations. We're making it easier for people given that we have more supply, and that's going to also help drive vaccination as well. We often talk about that everyone's, in the United States, five miles from a pharmacy. Well, we also have to be realistic. If you don't have a car, if you don't transportation, five miles as far.

Dr. John Whyte:

In some areas, particularly in rural areas, we're starting to see public health officials bring the vaccine to individuals, and that's very encouraging news as well. I think we're going to continue to see uptake in vaccinations. I'm not overly concerned. Let's talk about the variant. We see a lot that's going on in India right now, which reminds us we're not safe until we're all safe. This is a pandemic. It is global in nature, which shows us the importance of getting everyone as best as we can vaccinated.

Dr. John Whyte:

But in terms of the variants, I want to point out that Pfizer and the Moderna have demonstrated significant efficacy, typically around 90% against the known variants. AstraZeneca, not as much. The other important point is a lot of people are talking about boosters. We don't know if we're going to need boosters. There's really been some misunderstanding about the efficacy and durability of the vaccine. The studies have shown, at six months, Pfizer and Moderna still 90% effective in general. The studies were only done for six months, partly that's what's required, full FDA licensure.

Dr. John Whyte:

Sometimes people are construing that to mean it's only six months. It's not only six months, it's at least six months. That's really an important point that I want to make so people understand that. Many experts think it's going to be much longer, perhaps a couple of years. We don't yet know about boosters. Then I tell people, control what you can control. You can control whether you get vaccinated. You can't control right now, whether we're going to need boosters. The way to avoid boosters is to really prevent those variants from being created and going further.

Dr. John Whyte:

The other thing I want to talk about is testing, which is also another success story. We really haven't talked about that. In general, right now, it's about 5% positivity. In January of this year, it was over 20% positivity rate. Again, tremendous progress. The good news is that we have much more options for testing, so we have more accurate rapid tests. Of course, we have PCR tests, they're being done more quickly, but we also have over the counter tests and direct to consumer tests, and that's important. Because as we think about the summer, we have to remember, and this is really an important point, the summer 2021 is not the same as summer 2020, and it's the same for the fall.

Dr. John Whyte:

What I mean by that is that anyone that says it's going to be the same, honestly, is inaccurate, because what do we have now? We have at least three safe and effective vaccines. We have a much more comprehensive testing ability and testing strategy. And we have multiple therapeutic options, which we did not have a year ago. We have monoclonal antibodies. We have Remdesivir. We know the use of steroids. We know about the position of patients on ventilators. So, this is all tremendous progress, which is very different than where we were same time last year.

Dr. John Whyte:

When you talk about our school is going to be able to open the fall, what if we have more variants? Well, the fall is still going to be very different because we have these therapeutic options. We have more testing options to even be able to do at home. Remember, what happens in the school is a reflection of the community. Most school districts have announced the rule return to five day in person learning. The other point about it here in the United States is many of those districts are not going to offer a hybrid, are not going to offer the opportunity for virtual learning, except in very rare cases, typically in a private program that would be funded.

Dr. John Whyte:

The point I want to make is we really are making very good progress. I think we're going to continue to see incremental loosening of restrictions. We saw that, with the CDC last week and the wearing of outdoor masks, I'm going to be honest, it's still a little confusing exactly how it's reported, but we're going to continue to see that loosening based on what's happening in terms of demographics. Lot of progress in terms of that detriment in the number of cases, number of hospitalizations, in the number of deaths, still doing very well right now in terms of immunizations. I think we're going to make progress, especially in terms of the incentives that are going to be employed to get people who are hesitant to be vaccinated.

Dr. John Whyte:

I think we have rebuilt and continuing to rebuild our public health infrastructure, so we'll be able to be on alert for resurgence. Then I think, it's a reminder and in terms of all of us that really want to look for the future is, that it's very different now than it was a year ago and we have to be mindful of that and act like that as well. That doesn't mean that we still have work to do. There's still progress to be made, but where we are in May of 2021 is a pretty good place right now. With that, Dan, I'll turn it back to you.

Dan Barclay:

That's great. Maybe just a couple of things, Dr. Whyte. When you think about, is there anything lessons learned from some of the other markets that are a little farther along vaccination? I was thinking Israel, the UK vaccine hesitancy might be different than the US in there, but I think we've seen some real innovation on their parts to try and make sure we get to full vaccinations.

Dr. John Whyte:

Sure. As you know, there are some areas of Europe that have more challenges in terms of vaccine hesitancy, particularly in France. I think it's really about the communication strategy, which we have not done well with generation Z'rs in terms of why they should be vaccinated. The challenge can be, as people start to see the decrease in cases, they think, oh, well, I don't need to now go get vaccinated because things are much better and I'll be okay. The point is we have to remind them about the long-term complications that can occur with COVID.

Dr. John Whyte:

It's not just about death or hospitalization, but then, I really think we're going to see more and more of those incentives. Look, people want to go back to the universities, they're going to get vaccinated. People want to go back to work, to some degree, they're going to get vaccinated. I think we are going to make progress, and as I pointed out, we're at 2.6, 2.7 million shots in arms a day. That's still pretty good.

Dr. John Whyte:

Israel has done very well on this, and I think there are some strategies that we can take from that, but it's being vigilant as well.

Dan Barclay:

That's great. Well, why don't we transition to Dr. McGeer, great to have you. Thanks for joining us today, and maybe the Canadian perspectives might not quite be the same as the US right now. I'll give you the floor.

Dr. Allison McGeer:

Thanks, Dan. Yeah, I think we'd all like to be where the US is now, which is an interesting reversal for the last month. In fact, in Canada, we've had COVID rates and deaths that are above those in the United States, and that's, as John has pointed out, is an enormous credit to the speed of the vaccine rollout in the United States. We're catching up a little bit in Canada. We had fewer vaccines defies and I think there's been a lot of griping in Canada about the fact that we didn't have the same vaccine supply that Israel, or the UK, or the United States had.

Dr. Allison McGeer:

At the same time, it'd be foolish not to recognize that Operational Warp Speed is what has brought us these miraculous vaccines so quickly and it really will only be a couple of months before we'll have a vaccine supply that's able to get vaccine to as many arms as the US. We're running six weeks or two months behind you on vaccine. We're at about 40% of eligible people, so that's adults over the age of 16 in Canada have had their first dose, and we're pursuing, as many of you know, the UK strategy, which is because we don't have enough vaccine to get anybody two doses, we're going for first dose into as many arms as possible.

Dr. Allison McGeer:

Along with some level of public health restrictions. The next month is real test because it's clear that across Canada, with the exception of Alberta, that our cases in wave three are starting to trend down. We just thought we're a little bit too far behind. We got the UK variant before many places in the United States did. As a consequence, despite not releasing public health restrictions, we've seen this very large surge in the number of cases, and that disease is of course more severe and affecting younger people.

Dr. Allison McGeer:

Because our healthcare system has, relative to the US, many fewer beds, in particular ICU beds, the surging cases, which would have been tolerable in the healthcare system in the United States is really stretching our health care system. We have field hospitals open and additional ICU beds open in many hospitals and we are, particularly Alberta and Ontario, very close to the edge of being able to manage patients in intensive care units in our hospital system. So, good news, other than Alberta, is that cases are starting to decline.

Dr. Allison McGeer:

The challenge is going to be the question of whether the very rapid decline in the United Kingdom was because of first dose vaccines or because primarily of the buried down they had for that long period of time in February and March. If enough of it is vaccines, then Canada should be really starting to make progress in cases coming down by the end of May. If most of it was a lockdown, then it's probably going to be the end of June before we get to a state that we have few enough cases and enough vaccine that we can start to talk about relaxing restrictions.

Dr. Allison McGeer:

Now, I don't want to complain about that too much. It's been really difficult for everybody holding onto public health recommendations for the last month, and two months ago is not pleasant, but as John pointed out, this is a remarkable achievement. It is amazing to see how quickly the vaccine rollout has worked, how safe vaccines are, how well we're doing with holding onto enough public health restrictions so that we can actually maintain the health system. In Canada, we still have another month of really significant challenge to our healthcare system, but as long as we can hold in for that month, then things are going to get much better, and I really agree, by the fall, we will definitely have in-person learning.

Dr. Allison McGeer:

Quebec already has in-person learning open all the time now and are managing it. We would have been okay in Ontario, I think, if we had managed the variants a little better, so come the fall, people will be back at school. It's not going to be perfect. It's not going to be life the way, we're going to get to eventually, but there's no question that it's going to be much, much better. Our vaccines, as you'll notice in Canada, have been a little bit less Pfizer and Moderna and little bit more AstraZeneca. AstraZeneca, like the Janssen vaccine is a viral vectored vaccine, and we've recently recognized that the viral vectored vaccines are associated with very rare, but severe adverse event that has a bunch of different names.

Dr. Allison McGeer:

I think we're settling on vaccine-induced thrombotic, thrombocytopenia. That is caused by an immune system reaction that results in antibodies being made to platelets, and your platelets drop, but because when your platelets are destroyed, they stimulate blood clotting, you end up with both very low platelet count and blood clotting in different veins all throughout the body. It's really uncommon, but it can be very severe. Most countries, as Canada has, have put an age limit on how young, whether or not young people can get this vaccine. That's a function of the fact that in the setting of a pandemic.

Dr. Allison McGeer:

For people over 60 in Canada now, the risk of COVID and an of ICU admission and deaths from COVID is very clearly, much, much higher than the risk of getting vaccine-induced thrombotic thrombocytopenia and developing serious illness. Makes a lot of sense to get an AstraZeneca vaccine and not wait for later for the Pfizer and Moderna vaccines that you might have to wait for. For somebody who's 20, on the other hand, the risk of serious illness and deaths from COVID is much, much lower, not nothing. The loss of taste and smell and the fatigue that's very common after COVID, even very young people, definitely something to be avoided.

Dr. Allison McGeer:

But the real risk of serious illness from the vaccine-induced thrombotic thrombocytopenia, even though it's incredibly small, is still significant not to be ignored. In Canada, we have a break point of 30, and over 30, you can't get the vaccine in some provinces. Under 30, it's only Pfizer and Moderna. I imagine, as we start to get Janssen, that we'll make the same decisions because the rate of adverse events in Janssen and AstraZeneca seem to be relatively similar. I'm really happy to be here today and to be bringing much better news about what the summer and fall is going to look like.

Dr. Allison McGeer:

As John has pointed out, it's really too early to tell. But as John says, this is a one step at a time process. We'll figure it out as we go, and where we are now is just so much amazingly better than where we were a year ago. Knowing we're going in the right direction is enormously reassuring. Thanks, Dan.

Dan Barclay:

That's great. Maybe just a quick conversation between the two of you on the mobility of variants. Obviously India in the news today, and to be honest, I'm not sure which variant they have, but it appears to be a strong and maybe similar to the British one, much more contagious and moving through their society. But what does the mobility of variants feel like? As we reopen, obviously that becomes a bit of a challenge, but would it be a [inaudible 00:25:07]? What would we be hoping the governments are thinking about as we think about that? Maybe first to you, Dr. Whyte.

Dr. John Whyte:

Yeah. Something that we haven't done well for a while, which we're doing better now, is actually doing the sequencing, the testing for the variants. What people may not recognize is that every task does not go to look for variants. It's a more sophisticated and complicated testing strategy, and Europe actually has done much better in terms of looking for those variance, and then testing whether vaccination will continue to be successful. To be honest, variants often don't evade vaccines, and that's encouraging news. A good friend of mine, Dr. Topol from Scripps will sometimes refer to [inaudible 00:25:59], that we need to be cognizant of them, we need to recognize them, we need to look for them and test against them, but we don't want to be overly alarmist about it.

Dr. John Whyte:

The key strategy with this is to remind people, the way that we protect from viruses mutating is not letting them survive. The way you do that is by trying to reach herd immunity by getting as many people vaccinated in the country that you can. Do you agree with that, Allison?

Dr. Allison McGeer:

Indeed. I think it's going to be an enormous challenge because we do know that if you stop travel, you can stop the ... Well, you can't stop the introduction of variants. You can slow them down, and that might have benefits. On the other hand, it's also got enormous external consequences, and it doesn't remove all of that. By the time a country has recognized the variant, it's already been exported. You saw, the moment the reporting came from India, every province in Canada went looking and found the variant.

Dr. Allison McGeer:

You might slow things down a bit, but you're definitely not going to stop them. Clearly, the best approach to variants is just to say, we need everybody vaccinated. That needs to be true around the world. The way to deal with this virus is to get vaccines, to look at ourselves as one planet and to get vaccine to everybody as quickly as we can.

Dan Barclay:

One of the interesting questions that I've seen posed a few places is the idea that you may still catch COVID. I think you use the stat 90%, because 10% risk you could still get it. I've read some really interesting information that actually how you were affected goes way down. So, severity of COVID, if you catch it after, chance of fatality going way down. That may be unfounded on my part. Any observations on that? Dr. Whyte, maybe I'll start with you.

Dr. John Whyte:

Sure. Remember, the vaccines really were meant to be designed very quickly to prevent serious infection and hospitalization, and that's what they do. So, they really weren't studied early on in terms of the end points about what you're kind of referring to this asymptomatic spread, that you could still get it, you don't develop symptoms, but then it's in your nasal cavity, your oral pharynx and you're spreading it around to others. The good news, Dan, is there some encouraging data that shows, particularly from the UK and from Israel that the vaccines may actually prevent the asymptomatic spread.

Dr. John Whyte:

That would be great news. That's why we still wear the masks quite a bit too, to prevent that asymptomatic transmission. We don't know yet, but as I pointed out, there are some encouraging data about it.

Dr. Allison McGeer:

Encouraging data that, as you just said, if you do happen to get COVID after you've been vaccinated, you're much less likely to get severe disease. We moved it from a significant risk of hospitalization and death to something that is closer to a common cold or influenza-like illness, just a fever and feeling miserable for a couple of days and getting better. That may be what we need to settle for, that we transition that from the very dangerous disease it is now, to something that is an ongoing problem. Not that it doesn't ever cause illness, but it's illness is much less severe. If we could make COVID-19 a common cold, that might not be perfect, but it will certainly do.

Dr. John Whyte:

And just in terms of those breakthrough cases you refer to, it's actually less than 6,000 here in the United States, you get COVID after vaccination. It is very, very unusual.

Dr. Allison McGeer:

Even in Canada, where we've only been getting one dose of vaccine to most people, the percentage of cases that are in vaccinated people is something on the order of 1%. So, you really do get a dramatic level of protection, even with a single dose to many people in population.

Dan Barclay:

I think this is one of the most powerful speeches as to those that are hesitant as to why you get it, right? Nevermind your community duty for your benefit. I've got the AstraZeneca vaccine a few weeks ago. I would have not enjoyed my first 24 hours, but once that was up, it was over and my drive was all community. What am I doing for my community and those that are around me as we move forward? What about the chance that we're going to see a good export of excess vaccine from the US to Canada? What kind of bets would you put on that?

Dr. Allison McGeer:

Well, it's interesting. We don't actually need that much vaccine anymore. We have vaccine coming, not that we haven't been grateful for the loan of the AstraZeneca vaccine, but we, in a couple of months, we'll actually have enough vaccine on our own. Hopefully, both the US and Canada will then be sharing it with other folk.

Dan Barclay:

That's great. With that, why don't we move on to the next part of our agenda and bring in our market experts. Thank you very much, and we'll come back with some questions that we've gotten through the chat as we wrap up. Next on our agenda is our team from BMO, and first off, we've got Earl Davis up, and Earl, I welcome you to the floor, and give us some insights as you see it over the first hundred days and what you're watching for as we move forward.

Earl Davis:

Thank you, Dan, and welcome, everyone. From our seat, Biden has had an excellent first a hundred days, based upon at least what the markets are telling us. We're seeing upgraded forecast to growth, upgraded forecast to inflation. It's boiling risk assets across the spectrum. But having said that, those same upgrade forecast for growth and inflation are leading to higher yields, which means lower bond prices, which means losses year to date in bond portfolios. As the head of fixed income and money markets, I get the question, Earl, is fixed income dead? Do we have a place for bonds still given the forecast for the next few years that looked pretty robust?

Earl Davis:

I'd say, "Hey, don't give up on bonds." There's definitely a place for bonds and a properly constructed portfolio that allows for solid risk adjusted returns in all environments. I'd even take this year, for example. You say bonds are down 1% to 5%, so call it 4%. You look at equities in North America, They're up 11%. In a 60-40 portfolio, you're still talking seven plus percent return year to date. That's outstanding. You know what? The importance of having bonds is that it's prudent to have duration, because although we're tactically prepared for higher rates, that path is not clear.

Earl Davis:

Surprises happen, you look at history, you look at present day, we're not that fundamentally different in regards to why you have to hold bonds. You look, equities are near all time highs, geopolitical risks that are as prevalent as ever. I've read articles where our relations, or US relations with Russia, haven't been as bad since the cold war. They're not that much better with China, at least economically. Then you add in the volatility in the Middle East, the possible variance, there's a lot of reasons to hold duration just to be prudent.

Earl Davis:

That's very important to know. Having said that, I do acknowledge the owning duration that these low rates, as people say, it's an asymmetric bet, right? You do get, at most, a hundred cents on the dollar par on your bonds when they mature and you get a fixed coupon, which highlights the importance of diversification within fixed income, from where are you on the duration curve? Where are you in credit? [inaudible 00:34:23], are you protected from inflation? Also, I would say, where are you versus passive versus active management? With passively managed funds, you get 100% of the gain, but you also get 100% of the losses, where an active manager can protect you from those losses limited to under 100%, but yet get you over 100% in gains.

Earl Davis:

The analogy I like to use in these environments is what I call sailing versus rolling. When the skies are blue, the winds, and you know what? Interest rates are just coming down like they have been for the past 30, 40 years, all you need to do is put up your sale and the winds will blow you to a nice retirement on that White Beach in the Caribbean blue seas. It's all good, but when it starts to cloud over up there and you start getting these winds and gusts and high waves, you know what? It's time to put down the sales and take out the oars. You need to row in this water. In case the wind start pushing you towards the cliffs or the edge of the rock edge, you need to row away from that. Same thing with reefs.

Earl Davis:

You know what? Rowing, which I see is active management will get you to those white sand beaches. It's important to know that, in regards to diversification and the importance of active versus passive management. The other thing too, is to note, in this environment, like I said, it's not fundamentally different from history. There's no guarantee that bonds will still provide you that insurance aspect in risk-off molds, but we feel confident that, you know what? Given where we are today in levels, being long bonds and having some duration prudently will ensure that we have the returns that investors are looking for.

Earl Davis:

Before passing it on to Brian, there's one thing I'd like say. I'm extremely optimistic of the future. Coming out of the dog days, or at least economic dog days of COVID, we're on a path to fiscal and financial stability, but more importantly, what has been brought to awareness is environmental stability, and sustainability is very important. When we get those white sand beaches, we don't want them flooded. I think that's been heightened, as well as the importance of social sustainability has been raised. We want to make sure we live in a cohesive environment, which is very, very important. I'll leave you with this a little bit of a fixing income trivia.

Earl Davis:

What do you think was the fastest growing area of fixed income in 2020? I would bet a lot of people would say government debt, and the answer is no. Although, the magnitude has been large in trillions, it's not the fastest growing area. Next guess is probably corporate debt, and I would say, no, again, it's social bonds. They grew seven-fold in 2020, and those are bonds where the proceeds are used for it to benefit society socially. The growth trajectory of that's expected to continue.

Earl Davis:

Even though it's coming from a low basis, it's expected to continue, and that makes me feel very optimistic and confident about the future for, not only my retirement, but for that of my child's and the generations to come. With that, I'll hand it over to Brian.

Dan Barclay:

I was going to ask you a couple of quick questions, Earl, if that's all right.

Earl Davis:

For sure.

Dan Barclay:

How are you feeling about inflation and the impact then on rates?

Earl Davis:

Yeah, there's a lot discounted inflation. Now, I do feel it will be higher. The question that Governor Powell has brought up is, is it going to be transitory and sustainable? There's a lot of arguments to say that it's going to be sustainable in regards to supply constraints. We're seeing the amount of money that's been printed and pent up demand once we come out of COVID, but equally, there's arguments that say, you know what? Maybe the technology advances that we're seeing in the past year will bolt to higher productivity, which lowers inflation.

Earl Davis:

There's also the arguments that, you know what? As people come back into the labor force, that could increase productivity. I would say the arguments are biased towards higher inflation, but there's things to say that inflation may be maintained. You look at people aren't going to be driving to work anymore. That place a huge impact on CPI in regards to the gas usage and oil. I'm balanced view. I'd say 60, 40 higher inflation, but it's not going to be a straight line, so we're prepared for it to level out after the end of this year and before it goes higher again.

Dan Barclay:

That's great. Thanks, Earl. Brian, why don't we get the equity perspective from you, and then I'll have some questions for you two after.

Brian Belski:

Well, thank you, Mr. Barclay. It's an honor to be here, again, for these calls. We always enjoy those, and then it's great to have Earl be an add to the call this time around. I just have two words for everyone. Those two words are reality wins. Reality wins. Brian, what does that mean? If you look at the last 100 days, let alone the last 400 days in this notion of perception versus reality, reality wins. Over the last 100 days, the perception was that a democratic sweep in Congress and in the White House was going to kill equity prices and kill the economy.

Brian Belski:

The reality is that stocks in the US are hitting new highs and Canada's not too far behind. The economy is recovering earnings for the first quarter topped estimates by 10 full percentage points with well over 80% of the companies beating their estimates, and more and more companies are once again, giving fiscal year guidance. That's the reality. The perception is that the market is tired, it needs to have a deep correction. The reality is that us equities as an asset remain the best asset in the world from a high quality standpoint, from a sustainability standpoint, a word that you've heard several times during this presentation.

Brian Belski:

But also, a clairvoyance and a clarity standpoint, again, Canada's not too far behind. If you go back over the last 400 days, reality also defeated perception. We did not go into the next great depression. The consumer did carry us through this. The economy did recover in the Fed in the US, and the Bank of Canada in Canada. In both governments, with respect to their fiscal stimulus plans, all of those plans worked. The market, and the economy for that matter, have really been driven by fear for the most part for the last 20 years in our lens.

Brian Belski:

It exacerbated during the great recession of 12 years ago. Crescendoed in March of 2020. Now we're getting back to the point where we're actually believing, I think, from a societal standpoint, Dan, and from an investor standpoint, that north America, from an asset perspective is the best place to be. Just using some of the great statistics and analysis that we received from our great chief economists, Doug Porter in Canada and Michael Gregory in the US, if you take a look at where the trajectory of GDP is going, in fact, Canada, according to their current numbers, could all perform the US in terms of just annual GDP in 2022.

Brian Belski:

We're talking about 4.5% GDP growth in Canada in 2022, and they just upped their numbers to 4.3% GDP in the United States. This is off of negative GDP in 2020, where we had almost 10% unemployment in Canada. We're going to get down to eight this year and six in 2022 percentage points according to our economics team, and in the US, we were at 8% unemployment in 2020. By 2022, we're going to be sub 4% again, which is very, very telling. I think that is the reality. What does that mean for investors? Earl did a wonderful job talking about inflation. I, for my part, this is my 31st year on Wall Street, and we've been waiting for inflation for 39 years.

Brian Belski:

Our phrase on that was continue to wait. Don't fight the Fed. Mr. Powell has been very clear with respect to the transitory risk as Earl talked about, but also, you have to keep in mind the importance of last August's pivot by the Fed, when they moved their mandate away from inflation and toward employment. This is all about employment. Remember last year in these calls, we talked about this is about 2020 growth and what the numbers are going to be? Well, guess what? We've seen that it's been reflected in equity prices, earnings are beating, and the economy are beating expectations, which we knew that was going to be, and that had been our forecast all along from a strategy perspective and from an economic perspective.

Brian Belski:

But now, this is about employment, and this is about employment levels getting back closer to where we were pre pandemic fourth quarter of 2019 and the first quarter of 2020. According to our economics team, we're going to get closer to that in 2022. I think this notion of when the Fed is going to change, don't fight the Fed when they are changing their path. It's pretty clear that they're not going to do anything through most of 2022. I know the market wants more detail and wants to start talking about tapering, Dan, but it's going to be a while.

Brian Belski:

Why is that? Well, you've heard on this call alone the volatility with respect to the variant and the virus in other areas outside of North America. It was really interesting, Dr. McGeer talked about how Canada's six to eight weeks behind the US in terms of the vaccine. Well, so too, with respect to what you're seeing in terms of equity performance, but also GDP. That's why I think GDP and equity performance actually could be even better in Canada in '22, 2022, I'm sorry. That being said, from an investment standpoint, we continue to favor North American stocks well over other areas of the world.

Brian Belski:

Our constant theme has been, as America goes, so goes Canada. It's not to a coincidence, that we're overweight economic sectors, the same way in both countries, namely financials, materials, industrials, and consumer discretionary. Consumer in the US, as we said in the beginning, has been the strength of this economy. We've always said this, it's going to continue as well, especially with 70% of the economy going that way. We've remained overweight from a three to five-year perspective. If anybody cares about three to five-year views, technology, communication services, and consumer discretionary, especially given where we're seeing the themes and the best stocks there.

Brian Belski:

I'll leave you with this, Dan. We believe that active portfolio management is going to win. We have entered a stock-picking fundamental theme from the bottoms up. We want to buy themes and companies, and we don't want to be too overly positioned in passive assets. We want to own portfolios and really relish the fact that in both Canada in the United States, we have some wonderful companies, wonderful themes, and remember, after all the stock market is a market of stocks, and we have entered the second half of our 20-year bull market call, where it's going to be driven by fundamentals, themes, and bottom up stock picking. With that, I'm going to hand it back to my boss, colleague, Mr. Dan Barclay.

Dan Barclay:

Well, I sense a bullishness to your feeling.

Brian Belski:

We are bullish.

Dan Barclay:

Maybe one of the topics that's floating around ... I know you are. Why don't we, just quickly, one of the things that's running through current headlines today is the housing market and the impact of the housing market. Maybe, Earl, you first, do you feel like there's a bubble there at Canada and the US? Do you feel like it's going to burst, or is it something that we should have confidence in for a while?

Earl Davis:

I think it's something we should have competence in for at least a couple of years, for one of the reasons that Brian touched upon, when US does well, we do well. 75% of our exports goes to US still. That's down from 85%, but it's still significant, right? That's a good reason to buoy the economy here heading into 2022. That's one of equation. I think it's also important to think about the other side of the equation, the ability to land for mortgages and to continue buying houses. You're seeing all the loan loss provisions across North America, all the big US and Canadian banks are lowering them, and that's a direct reflection of the expected growth that we're going to have.

Earl Davis:

We took a lot of contingencies last year for losses that we're putting back. We know we're not going to have to use those ideally, knock on wood. But that's money that could go into mortgages and capital for housing, so both from a supply and demand like supply of capital for houses and demand for it. There's a lot to say it's going to be good for at least a couple of years.

Dan Barclay:

Thanks, Earl. Brian? Those that impacts on markets

Brian Belski:

Well, we would echo those sentiments. We would echo what Earl had to say, but people have to kind of remember that in 2018 rates were going up in the United States and around the world, but especially United States and a lot of supply came off the market and we weren't seeing new home sales, let alone new home construction like we are now. Given this fact that we've seen changes with respect to demographics, people moving out of big cities. Last week, they announced some new changes in the House of representatives in terms of what that is doing in terms of those states picking up a seat, and those states losing a seat.

Brian Belski:

It's very clear that that people want a change in terms of where they're living, and that's going to cause some new supply and need to be on the market. With respect to Canada, the Canadian housing, since I've been at BMO nine years, we've been waiting for the housing bubble. Mr. Porter, who's the economist, has a great slide saying, where's the housing bubble. We continue to look for Canada as a consumer. Canadians as a consumer are much more conservative. So, when they get scared, they pull their house off the market, which we saw a lot of in 2019. So, we're starting to see a lot more demand, obviously with the lower money rates and things, and per Earl's comment, I think this is all about the next two years in terms of the path of interest rates, Dan, and as interest rates remain low, the housing market will remain very, very strong.

Dan Barclay:

I agree with both those comments. I thought we'd do a quick little discussion on kind of one of the big themes rolling through the market today is ESG. Earl, you did a good piece there on the social side. What I might go to you, Earl on, is there a green premium in the market, things that are more ESG friendly, does that work? Then Brian, I'll come to you on, how's it affecting the investor base and what are they doing differently? So, Earl, first you.

Earl Davis:

I'd say right now, there is a green premium, just because there's a lot of investors who want to invest in green and not as much supply, but the good thing about that is it will bring more supply. I think it allows for the companies in Alberta to issue transition bonds to have less reliance on oil. I think there definitely is a premium, but that's going to bring more supply. I think, within the next couple of years, we'll have a more balanced market, and the market with sustainable demand. It's tremendous demand. Then, [inaudible 00:49:51] one interesting fact about sustainable bonds and why there's so much demand as well too. A lot of the talent is going towards sustainability.

Earl Davis:

Millennials, they want to work where they know they're making a difference in the world. Because of that, you see all the big funds in the world are opening up sustainable funds, so they want to invest in sustainable bonds or else they're going to lose talent. This is what I call a virtuous cycle, and I love it, and it bodes well for the future.

Dan Barclay:

Brian, how's it impacting the way you think about the world?

Brian Belski:

Well, I'll tell you, Dan, a lot of investing the last 20 years has been defined, helped being defined by quantitative models. What we're really seeing is the sustainability side, whether or not you want to call it ESG or not, the screening mechanisms for looking at companies from retailers to restaurants, to banks, to oil companies, to miners, we're seeing increased reflection on sustainability. I think it's been helpful based on the legacy of being a quantitative investor. It's helped this whole ESG Fed, so I think that's marvelous and it's helping some clarity with respect to how to look at sustainability.

Brian Belski:

But I also want to remind people that some of the well, let's say that, or maybe not [inaudible 00:51:14] environmentally friendly companies like coal companies or oil companies, oil companies are actually one of the largest investors in sustainability and have been for a long time. This echoes back toward, if you go back 12 years during the Obama administration, some of the energy companies and utility companies were the largest investors in research and development in solar and sustainability. This is a trend that's been going on for a long time. I think now it's hitting the public marketplace, and I think people are becoming more comfortable than using these measures and really understanding what they're all about.

Dan Barclay:

Yeah. I agree with that, and I think we've seen a real increase in sophistication on what does it mean and how does it work? I thought I'd transitioned to our last topic to talk about global implications of vaccine, vaccine policy. Dr. Whyte, you've spoken a number of times United nations level, as we think about that, as you post out and think next three months, six months, 12 months, 18 months, help us think about the global environment around the vaccines and COVID, and what might change in your mind, good and bad, preferably good, but as I'm a natural optimist, I'll take both.

Dr. John Whyte:

Yeah. I've been talking a little bit about, we have this vaccine nationalism approach that we're very focused just on the United States or perhaps just in north America and we forget that, by definition, a pandemic is global in nature, and we're not safe until we're all safe. The other issue about India, other than just the issue of the variance and transmissibility, is the vaccine manufacturing process, for much of the world of the vaccines are very much manufactured in India. So, how is that going to impact supply in terms of the global world? What COVID has taught us, and we talked about this months ago, that we never really connected public health and the business world.

Dr. John Whyte:

COVID has taught us that they're very well connected. I do have a bit concerns about that we're not being as global in our perspective as we need to. I think there's been a few changes, we're rejoining the World Health Organization. We're talking about donations, particularly to the developing world, where even health providers often haven't been vaccinated yet. The next few months are going to be very pivotal in terms of what we see going on in India and around the world in terms of getting more and more people vaccinated. That's going to take a little while just to be honest. The key is going to be the United States and in North America and Canada get as many people vaccinated now to protect against potential variants.

Dan Barclay:

We've heard lots of hope and optimism on this call. Dr. McGeer, as you reflect on the last 12 months, I'm sure it's been trying, it's head upsides, but as you look back over the year, what would be some of your big takeaways this year?

Dr. Allison McGeer:

Well, one of the critically important ones I think is the value of science and innovation and the remarkable achievement of Operation Warp Speed that was a collaboration between government and industry to turn out these miraculous vaccines in an amount of time that anybody would have said was unbelievable only a year ago. To me, it really validates how important it is to have science and innovation backing up the development of everything, but for me, as a physician, vaccines medications, new developments in medicine, but it's also just an amazing accomplishment of what can be done with government and industry collaborating on important public health issues.

Dan Barclay:

Dr. Whyte, same question, takeaways from the year that you're inspired by.

Dr. John Whyte:

I'm also inspired by the innovation that we've seen in the health space. We haven't always given credit to that amazing innovation, that in some ways, we've miscommunicated and people have been cautious that these have been developed so quickly, but it's also, Dan, in the role of tech in general, in terms of health, how we really pivoted to providing more medical care in the home. That's going to be something that's sustained in a post COVID world, the use of digital apps and digital tech. It's really the power of innovation, the power of science. We have challenged science at times over the past year, but that's been an amazing success that we've witnessed.

Dan Barclay:

I think those were both great takeaways. Earl, US tenure Treasury year end this year, what's the number?

Earl Davis:

225 stalls out, and I think there'll be a lot of buyers there of US Treasury, so roughly 50 basis points higher. Remember, we've sold off [inaudible 00:56:44] this year.

Dan Barclay:

And Brian, so that's going to mess with your forecast a bit. Where are you going to be S&P 500 end of the year?

Brian Belski:

Well, we're officially at 4,200 right now in the markets there, so let's see where that goes, and then 19,500 for Canada, but we expect stocks to be higher at year end, and we expect stocks, I'm sorry, a year from now to be a lot higher.

Dan Barclay:

I'm conscious of the time, so let me wrap. First off, let me say thank you to the four of you for joining us today. This was our third installment of our road to recovery series. We hope you've all enjoyed those. We've got some more to come. What you heard today was a speech about hope and optimism. For those based in Toronto, this can be a challenging topic in that we're living in a world with some real challenges and lockdowns, but I know from our us colleagues, we're really starting to see the change in what it may be. We had a good conversation on the markets and why we think they're constructive in most asset classes as we move forward, and I share that same view.

Dan Barclay:

To all those that dialed in, we appreciate your time. We appreciate it. We hope you got a lot out of this call. Any questions, please reach out to your BMO reps, and that's all for today. Thanks very much, Biden's first a hundred days and the road to recovery. Thanks, everyone.

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