We just had such a bad year last year. Bonds going down and stocks going down was a once-in-a-century event. Statistically, it's highly unlikely that will happen again. We're having a bounce off of that. He's in the camp that's saying this is a relief rally. He wants to see earnings move through the economy. Last year, we had a really expensive market with low interest rates, and that stuffing has come out of valuations. Next move is all of this cost pressure and the economy slowing has to go through earnings, and that's going to take 12 months to see. Will take a couple of years to play through profit margins across North America. Almost like a slow motion correction. He's still invested, but very particular about what he owns. He's being cautious, patient.
There have been no big credit events yet. Corporations don't have to pay the higher interest payments right away. They have to wait for a bond to mature and see what rate it's going to roll over to, and that takes time. Interest rates have gotten into the mid-zone of 4-5%, and we have to see how that affects profit margins in all these different industries. Each market has its own dynamics. What's different this time is the incredibly low unemployment rate. We're just coming off Covid, our largest economic and social experiment in human history, as the last time this happened we had 1B people, but now we have 8B.
Pool of money that trades on the TSX and is lent out short-term to the real estate industry. They charge a premium on that. Like owning just the mortgage department of a bank. Payout of over 8% is fully taxable income, not a dividend. Avoid the tax by putting it in your RRSP. Risk/reward is good. One loan didn't go well, with the result that the company is left with a building to sell. Because of this, combined with market nerves about small things, trades at a discount to NAV of $8.40. He'll trade around the NAV. Stock doesn't grow, it just distributes income.
Do I wait for a low probability of that? It doesn't mean it doesn't happen, and it would be nice not to own things on that day. He's trying to structure the portfolio right now to solve that problem. Maybe we do have a real recession and they can't lower interest rates for all sorts of reasons and the stock market suffers again. If we have this slow motion correction over 2-3 years, can you own the stocks in your portfolio? You need to focus on how much income is a company producing? With a stable, income-producing business, you can capture that income and compound it through this market. Whereas with a biotech company, if the stock goes down, you just have less money. This year, he's building defensiveness into his strategy.