Erik: I wanna come back to the topic of monetary policy outlook in just a minute but first let's touch on the US dollar. Obviously this dollar rally has been the big story in market so it seems like we've cut kind of a dichotomy here between what Donald Trump says versus what he does and recently of course he's made several comments suggesting that the dollar's too high and it seems like everybody's panicking on that but on the other hand it seems to me that all of his policies are extremely dollar bullish and I supposed the other side of that coin is it's a pretty overcrowded trade on the long side right now so if this rhetoric may be spooked people out of the market, it could cause a big move. How do you see this evolving from here?
Dave: Well I think that market participants should be aware of the things that the president has control over and what he doesn't. So, there's a lot of things that he's doing through executive order right now in terms of deregulation, the wall, foreign policy, a lot of stuff. But in terms of the dollar, he can air out his views, but what can he really do about it? Is he gonna instruct the Treasury to start intervening in the foreign exchange market to suppress the US dollar? Hardly likely. Is he gonna start to meddle in the Fed, I mean the Fed that he was complaining about Janet Yellen months ago, that she was suppressing interest rates to get Barrack Obama re-elected and that she was keeping rates artificially low is he now gonna say to her no, don't raise rates? So, the bottom line here is just classic textbook economics. The US, this is just the fact not an opinion, has a tighter monetary policy relative to its trading partners that's gonna continue. It seems to me as though fiscal policy in the United States is gonna be much more accommodating than it is in other parts of the world at least for the next year or so. Tighter money, easier fiscal will always and everywhere lead to a stronger currency, this is one of those rare times where the overwhelming consensus is still probably the right trade as overcrowded as it is.
Erik: Okay. And before we move on to monetary policy, since you're with a Canadian firm and we have a lot of Canadian listeners, how about the Canadian dollar outlook relative to the US dollar and the rest of the world for that matter?
Dave: Well it's interesting because the Canadian dollar right now is around 131, call it roughly $0.75. When you take a look at where oil is remember 12 months ago, 24 months ago, oil was dominating everything including the Canadian dollar. It was almost a 100% correlation. To me that correlation has weakened somewhat if you're looking at WTI oil at 52, 53 dollars a barrel and you just ran some simple model on the Canadian dollar has then all events that should have Canadian dollar closer to 125 or $0.80. So, the Canadian dollar and quote should be a nickel stronger than it is based solely on the oil price. But this is not 12 or 24 months ago, the oil price has not dominated and the Canadian dollar as much as there was and what has taken over the dominating role is Bank of Canada policy. So as the Fed raises interest rates as it pledges to do more, Governor Poloz here in Canada has made it very clear that the Bank of Canada is not doing anything this year and probably not next year either. So, what's driving the Canadian dollar, are these negative interest rate differentials right across the yield curve but it is probably going to be accentuated by this divergent monetary policy over the next several months I think that will act more to depress the Canadian dollar than to add impetus to it. And when we get to ask the question you know where's the next 5 cents move to the Canadian dollar, will we see 70 cents or will we see 80 cents? As a classical economist, I say both. We'll probably see in the next year 70 and 80 cents but my senses will see the lower end of that before we see the upper end.