Manager Highlight Series: Part 2 - Brooke Thackray

Name:  Brooke Thackray

Title:  Research Analyst

Company:  Horizons ETFs Management (Canada) Inc.

Q1.) What do you think is the single greatest risk to our economy in the next 5 years?
A1.) The greatest risk to our economy in the next five years is a global recession. Central banks around the world have generally been stimulating their economies with loose monetary policy, including quantitative easing programs. Economic growth since 2009 has been slow, despite ­central banks continually trying to kickstart the economy into a higher gear. After a number of quantitative easing programs that started in late 2008, the Federal Reserve raised its federal funds rate nine times since late 2015. Today, the federal funds rate sits well below historical norms and is in a stimulative position for the economy as it lies well below the neutral rate (the federal funds rate that neither stimulates or contracts the economy). Both the European Central Bank and the Bank of Japan have stimulative monetary policies in place. The problem is that the global economy has been slowing despite the central bank’s best efforts.  Both the ECB and the Federal Reserve have recently indicated that they will probably introduce more stimulative policies to try and arrest the global slowdown. As some point, their policies will be like “pushing on a string.” There is only so much debt that consumers and businesses can handle, regardless of how low interest rates go. Central banks will fight tooth and nail, to stop the economy from sliding into a recession, but is probably going to happen anyhow. Nobody knows when this is going to happen, but it is probably going to happen in the next five years, and more specifically, probably in the next two years.

Q2.) If you could tell your 20-year-old self one thing about money and or life what would it be?
A2.) Start small, but start early. When you are young, financial demands are difficult and can be overwhelming. Although it is easy to justify why investment plans and contributions should be waylaid to pay for everyday expenses, every effort should be made to follow a long-term investment plan. The trick is to start small, even if it is ridiculously small. Even if it is only five dollars a week.  Do not burden yourself to the point where you resent contributing to an investment plan. It is better to contribute consistently over time rather than larger amounts periodically. Let the magic of compounding do its work.

Q3.) What do you think Canada’s economy needs from a Prime Minister in the next election?
A3.) Politics has become extremely partisan in many countries, including Canada. It is important to realize the many needs of different people across Canada and to create a balanced approach that works for everyone across Canada.

Q4.) Do you think we will see a recession in North America in the next two years?
A4.) A recession is coming, but it is hard to predict when it will occur. Predicting a recession is like driving in the fog, you cannot see a recession until it is immanent. In fact, it is difficult to predict a recession until you are actually in a recession. After the first quarter of contracting growth for an economy, the general belief is largely that it is a one-time event, and a recession will be avoided with positive growth in the following quarter. Even after a recession has occurred (two quarters of contracting GDP), some pundits will argue that a recession did not occur according to a different metric.

Now for the bad news. The stock market often corrects before a recession. In general, waiting for a recession to occur before adjusting a portfolio has not been the best investment strategy over the long-term.

Despite how difficult it is to predict a recession, given the current rate of economic slowdown around the world, I would estimate that a recession will probably occur within the next two years.

Q5.) If you had to bet on cryptocurrencies becoming the currency on the future, what are the odds you would give and why?
A5.) I think that it is inevitable that we are moving to some sort of digital currency. We have been moving in that direction for the last few decades. Very few transactions take place with cash. Banks and credit card companies have been the gate-keepers to digital transactions. Crypto currencies are a disruptive technology that challenge the incumbent’s domain of storing wealth and executing transactions with existing fiat currencies. The problem that I have with the current crypto currencies is that governments will lose control of the effectiveness of their monetary policies. Central banks create monetary policy on behest of their governments political purposes and their ability to track transactions for commerce and taxation purposes. Although we can argue extensively about whether this is a good idea or not, overall governments will have a problem supporting the idea of a crypto currency that is beyond their reach.

Crypto currencies in their current form are not environmentally friendly. Mining crypto currencies requires a huge amount of electricity, which often has a bi-product of carbon dioxide.  As individuals become more environmentally aware about the cost of our activities on the environment, they will probably favour a digital solution of money that is more environmentally friendly than many of the crypto currencies currently trading. 

The biggest problem with crypto currencies is that they are backed by nothing, except an algorithm. Some people would say that fiat currencies being backed by governments is really worth nothing in the end. They have a fair point. Crypto currencies have an algorithm that controls its supply over time. Just because something has a limited supply does not make it valuable. The value of a crypto currency, such as BitCoin rests on the belief that its acceptance will be widespread in the future. Period. The problem is that it is extremely vulnerable to other major crypto currencies managed by a technology company, or by governments. Crypto currencies are also vulnerable to legislation by governments. If a government were to introduce their own crypto currency, they will be much more inclined to legislate against current crypto currencies that are currently being traded.

Governments around the world have no idea how to launch a digital currency that appeases their populations. Recently, the Bank of Canada mulled over the idea of launching its own crypto currency. Even if Canada were to launch a crypto currency parallel to its fiat currency, how does this allow people in other countries an easy way to transfer their fiat currency into a Canada’s crypto currency? There are many questions that need to addressed. Ironically, governments may have to address the question of a crypto currency in short order. Recently, Facebook put forth a proposal to launch a crypto currency, that is pegged to a basket of world currencies. If a large company such as Facebook is allowed to shape the rules for a crypto currency, it may be very difficult to change the rules down the road. Crypto currencies are coming, but the landscape of how they work and who controls them will probably be very different than today.

Q6.) What is something you would like to change in our Canadian society?
A6.) Canada is a wonderful country. One of the best in the world. Regardless of which political party has been in power, our policies have moved forward for the better. Our constitution is the envy of the world and has helped direct Canada to balance the rights of the individual and society. There is always something to change in society, but rather than risk sounding political, I would rather celebrate that Canada is one best of the countries in the world.

Q7.) What are your words of advice about money that you think are relevant to everyone?
A7.) Money is a tool and it should not be worshipped. The quest for more money in order to have a “better life,” is part of how we are wired. The key to happiness is balance. Ultimately, the happiest people are the ones that value family, friends and helping others.