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The Fed is getting ready to tighten its monetary policy - YouTube
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hello everyone this is sebastian mcmahon
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from ia financial group and i'm back
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with another weekly academic review this
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time for the week ending september 24th
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2021 so let's start with a look at the
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markets at the close on thursday we're
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almost done with q3 heading into q4 uh
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this week negative returns for funds
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higher interest rates on the week mo
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concentrated mostly on thursday uh in
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reaction to the fed decision so more on
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that in a few minutes but year to date
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still in negative territory for bonds
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equities while the tsx was negative with
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emerging markets other markets were
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positive on the week but when you bring
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everything back in canadian dollar since
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we had a strong appreciation of the cad
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while it's the other way around the tsx
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outperform year to date still neck and
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neck with the tsx and nasdaq and iffy
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neck and neck two and then emerging
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markets going nowhere a year today
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other markets as i said oil higher cad
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higher euro higher and the price of gold
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still under pressure and volatile minus
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point seven percent on the week so kovid
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they'll be very quick uh charts are
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getting worse for hospitalizations in
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the country alberta is seeing
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it's a hospital system being under a lot
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of pressure elsewhere in the country we
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are also seeing
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this wave of hospitalization so
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vaccination is doing its job and not uh
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leading to uh two
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negative cases so to to uh dire cases
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of kovid but still the risk of kovid
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this remains alive and well so sadly we
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still need to talk about it as much as
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this
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so
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going to the global economy now the oecd
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came out with their
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updated forecasts for the global economy
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oecd imf world bank when they produce
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forecasts we bring them to you so when
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you see uh red the squares it's because
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red rectangles rather because there was
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a downgrade so the world economy was
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downgraded a little bit from five eight
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to five seven percent this year next
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year upgraded to 4.5 so still very very
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strong figure for global growth so
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nowhere is there uh closer to us canada
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downgraded to five four the u.s
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downgraded to six still very high
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numbers and next year canada should have
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an advantage over the u.s 401 versus 3.9
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and we do believe that the the strength
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of canada's labor market makes canada's
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recovery much more having more
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room to run than in the us so stronger
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stronger footing euraria revised
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positively from four three to five three
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that's a very strong upgrade and on top
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of that 2022 was upgraded so when you
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look at the tripod so you have china
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which
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is having some issues but still growing
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very strongly uh you have the uraria
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gaining some momentum and you have the
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us with still a lot of momentum well you
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have the global economy that's under
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very strong footing for
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the time being so that's a very positive
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development
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uh closer to us retail sales so here
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this is from scotia
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but this is the growth in retail sales
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by category uh since february of 2020 so
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just to see what compared to
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pre-pandemic levels so retail sales are
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above pandemic levels right now gdp
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isn't there yet but retail sales are so
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uh canadian households have a lot of
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money they're spending
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but there's also because we change our
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habits now we spend more on services
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than retail sales as a society but
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during the pen they make it flip because
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you can't really go to restaurant or to
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the hotel as much as before so more
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spending on goods so month over month
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the figure was negative for retail sales
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and expect some more pressure but you're
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at very high level here so retail sales
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will be going down slowly but services
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spending will be
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picking up so it's completely normal
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very healthy picture here
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federal reserve in the states while mr
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powell did uh say that the taper could
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she almost should but could be announced
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uh next meeting in november they could
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start uh
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tapering
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by the end of the year until mid 2022 so
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the the summer so remember that they are
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printing 120 billion dollars a month at
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the fed to buy bonds on the market to
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keep interest rates low so now they will
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stop doing that slowly and progressively
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all the way through the summer so this
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is this is almost done now uh rate hikes
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when will they be coming well here you
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have projections for the year 2021 2022
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2023 and the projections from last march
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from last june and the recent
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projections the purple sticks here so as
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you can see before it was nothing uh in
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2021 2022 now we're starting to see
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maybe a rate hike next year by the end
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of the year so that's much closer
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short that's much earlier than we
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expected and in 2023 now maybe four
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hikes three to four hikes in 2023 so
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rate hikes are coming maybe a bit faster
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than what mr powell seemed to hint at
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jackson hall so that explained why
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interest rates have picked up on a
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thursday so financial markets in last
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week i discussed this the s p 500
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bouncing on its 50-day moving average
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saying that well the macro financial
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tools that we look at when we do our
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investments on our end well uh
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many don't really make sense based on an
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institutional basis so now we look at
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technicals and we recognize that well it
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seems that every time there's some
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short-term weakness in the market some
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buyers come to buy the dip and buy the
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dip and buy the dip so
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this week we did see a piercing through
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the 50-day moving average but we bounced
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right back so it seems that the music
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continues and when you look underneath
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the surface this might be the most
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important
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page here so at the end this is uh the
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decline from the recent high on the
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table on the left on the top part of the
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table very shallow 2.3 percent for the s
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p 500 5.2 percent for small caps in the
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u.s so the russell 2000 but you know
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that the bigger the company the more
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weight it has in the index and the
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biggest companies in the indices are
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keeping the this is up right now so if
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you look at the average stock the
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decline from the recent high you are in
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correction territory of minus 11 for the
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s p 500 all the way to minus 27 for the
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nasdaq so strong pullback of the average
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stock that's what is shown in the chart
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on the right that the percentage of
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members trading above the 50-day moving
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average now is at 30 percent which is in
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line with previous buyable lows so maybe
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that tells you that while being too
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negative on the s p 500 on the stock
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market in the u.s is not warranted so
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that's why we didn't turn defensive we
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stayed neutral so it was a good idea we
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still think to take some profits uh
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through uh the the
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the late spring to the early summer
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now staying defensive we might have a
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good end to the year but if you look at
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the average stock here while it's a good
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environment for stock pickers to add
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value when the average stock underneath
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the surface is already on the winter
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corrections so moral of the story here
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uh it's uh you need to predict capital
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but being too defensive too quickly too
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negative can also um
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can also bite you so you need to look at
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what's going on underneath the surface
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so what to watch next week in canada
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we'll have the the manufacturing pmi and
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gdp growth for july should be negative
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month vermont for july minus point four
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percent so expect a negative print and
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in the us we'll have consumer confidence
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gdp growth and the ism manufacturing
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index all three should show a very uh
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still strong u.s economy so that's it
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for this week if you want to reach us
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ia.ca economy
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if you haven't done so you can subscribe
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to our newsletter and if you want a pdf
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copy of this presentation just right at
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economics ics at ia dot ca so thanks
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everyone and i'll see you again next
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friday
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