Gold ETF Inflows Increase and Canada Makes Major Mortgage Changes

[00:00:01] [SPEAKER_00]: This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets.

[00:00:10] [SPEAKER_00]: Hosted by Braden Dennis and see Mobile-Age.

[00:00:14] [SPEAKER_02]: Welcome back to the Canadian Investor podcast. I'm here with Dan Kent. We are back for a Thursday episode, some news and earnings.

[00:00:22] [SPEAKER_02]: Definitely slower in the earnings season, which is good because the federal government came to the rescue with CPI and some housing announcement for mortgage rules changing.

[00:00:33] [SPEAKER_02]: So at least we'll have some interesting news to talk about there.

[00:00:37] [SPEAKER_02]: Yeah, definitely not on display, I think. I'm pretty fired up as you saw before he started recording.

[00:00:44] [SPEAKER_01]: Yeah, it's some pretty crazy probably I would say, extremely short-sighted. You know, regulatory changes when it comes to mortgages.

[00:00:53] [SPEAKER_01]: I mean, Canadian banks often kind of closed down the earnings season. I would say in those were what last week. There's a few outliers but they definitely left us with there won't be you know a shortfall of very interesting things to talk about this week.

[00:01:08] [SPEAKER_02]: Yeah, definitely. So let's get started because we have a lot on this slate so you want to break down so Canadian CPI for August came out and fresh off the pres this morning. So you looked at that I did as well. So I can give my take on it as well after words.

[00:01:25] [SPEAKER_01]: Yeah, it's kind of the CPI releases are becoming like more and more uninteresting I guess which is a good thing. They're getting back down to normalize levels.

[00:01:36] [SPEAKER_01]: So inflation for August came in at 2%, which is down from the 2.5% gain in July and that 2.5% or the 2% inflation was actually the first time the bank of Canada has hit their 2% target in quite some time.

[00:01:52] [SPEAKER_01]: When we look on a provincial level every single province hit the bank of Canada's target in terms of inflation.

[00:01:59] [SPEAKER_01]: Except for British Columbia which came in at 2.4% and Ontario which marginally missed at 2.1%.

[00:02:07] [SPEAKER_01]: And we're continuing to see levels of deflation across deflation, across pretty much every single discretionary item.

[00:02:15] [SPEAKER_01]: Imagine what I mean household furnishings are falling 0.8% year over year, clothing and footwear fell 4.4% year over year which kind of like surprises me a bit because maybe it would be a little bit of it fueled by you know back to school type things but maybe I'm really overthinking that I'm not technically sure.

[00:02:33] [SPEAKER_01]: Have you noticed that on the Kirkland hoodies or not yeah no there's still fair.

[00:02:38] [SPEAKER_02]: No deflation yet okay.

[00:02:39] [SPEAKER_01]: It's a best price hoodie in Canada. I think they're only 30 bucks and they haven't gone up.

[00:02:44] [SPEAKER_01]: That's pretty good yeah and where was I at so yeah clothing and footwear like deflation and then we're seeing you know education and recreational which I'm not exactly sure what they would kind of bundle into recreation and education but that fell 0.2% year over year.

[00:03:04] [SPEAKER_01]: The one thing that I didn't actually get to look over was the you know the services inflation things like that. I primarily just looked at shelter and you know that's still increasing.

[00:03:13] [SPEAKER_01]: I believe it was 5.7% year over year.

[00:03:16] [SPEAKER_02]: So services I have it here so it's a negative month over month of 0.1% and so 4.3 year over year.

[00:03:26] [SPEAKER_02]: So still some pressure there yeah.

[00:03:27] [SPEAKER_01]: I'm not sure but I mean I think it's been somewhat coming down over the last while but those those definitely you know make up the bulk of what we're seeing in terms of overall inflation and I mean.

[00:03:38] [SPEAKER_01]: If you take all these numbers at face value which some people don't they believe that you know the numbers are kind of skewed they're not realistic but if shelter can somewhat normalize.

[00:03:47] [SPEAKER_01]: This would you know put inflation probably down I predicted into the mid 1% range but it's actually lower than that so the bank of Canada.

[00:03:54] [SPEAKER_01]: When you isolate rented mortgage cost from CPI it's stated it would be down to 1.2% in August now obviously it's not really all that fair to isolate these things out because they literally impact everybody.

[00:04:07] [SPEAKER_01]: It's more so just to highlight the fact that you know it's accounting for you know 40% of inflation at this point and a lot of.

[00:04:16] [SPEAKER_01]: The you know total fuel that's being added to the fire in terms of shelter and rent is mortgage cost which ultimately you know when you decrease rates that will probably provide some more pressure or some more relief in terms of the pressure in you know in terms of renewals so.

[00:04:33] [SPEAKER_01]: Another biggest contributor to the drop which you've stated numerous times you know it can get volatile month to month is gasoline prices they fell 2.6% on a month over month basis in August it's you know that's a big contributor whether or not.

[00:04:50] [SPEAKER_01]: It remains to be seen moving forward obviously you know there's lower demand just because of a slow big slow down and economic activity so you're seeing you know we've seen it with element tash on kushdard results.

[00:05:01] [SPEAKER_02]: Really struggling in terms of that you know that element of things so yeah and one thing to add there so for people on joint TCI do I'll see I'm sharing your graphic and I'll explain it basically it's the 12 month change in consumer in CPI and CPI excluding gasoline.

[00:05:17] [SPEAKER_02]: And typically CPI when you excluded gasoline like you know in the past five years I would say it tended to be a bit lower when you excluded gasoline than the headline number for CPI.

[00:05:30] [SPEAKER_02]: But now it's actually the opposite where CPI exclusion gasoline is actually slightly higher than the normal CPI which kind of goes and shows how much it's been putting downward pressure on CPI itself.

[00:05:43] [SPEAKER_01]: Yeah, yeah and I mean we've seen why don't even know gases down to like a low dollar 30 here and Alberta whereas like I remember last year maybe it wasn't directly last year but I remember paying like close to a box 70 a liter.

[00:05:57] [SPEAKER_02]: It was similar for us yeah I filled in not too long ago we have to put like premium in for us because we have a turbo but still I think the regular was maybe like a buck 40 I filled in on the Quebec side and typically it's a bit more expensive there so yeah definitely down that's.

[00:06:13] [SPEAKER_01]: definitely lower yeah so mortgage costs they do continue to slow like you're going to see numbers that are still outrageous I mean they grew 18.8% year over year but when you consider it was 31% the year prior I mean they they are continuing to slow which does make sense because interest rates.

[00:06:33] [SPEAKER_01]: are coming down I mean they're down what's 75 basis points now and they're probably going to start heading down even more I don't know why I'm you know are they down 50 basis points have we cut twice or 75 75 75 yeah so CPI median which looks at essentially the middle levels across all particular segments that they track it came in at 2.3% CPI trim which would cut out the most extreme price changes at both the top and bottom and I mean in this case it's likely that shelter and clothing that came in.

[00:07:05] [SPEAKER_01]: and you know the bank of Canada took a lot of heat for dropping rates when they did but by the looks of it it looks like they timed it almost perfectly on a contrary a lot believed you know it took a way too long to start raising rates but that's another story it seems like.

[00:07:19] [SPEAKER_01]: they've kind of hit the mark here and markets are now pricing in a 50% or greater chance that the bank of Canada cuts rates by 50 basis points at the next meeting which I believe is in late October.

[00:07:31] [SPEAKER_01]: I would I would say if we get another inflation print like this it would almost be a guarantee that they're going to come down by 50 basis points but it'll be interesting to see you know what September looks like if they can keep up two months of this.

[00:07:45] [SPEAKER_02]: Yes so I'm gonna confirm by our finance minister for those watching you'll be able to see that yes the bank of Canada was the first one to cut rates at three times in the g7 and I guess yeah shows I mean this I'll call the tweet this is welcome reliefs for so many can eat and and shows as our economic plan is working so I can't still make up whether this is a joke or not but it seems like it can plead.

[00:08:15] [SPEAKER_01]: I mean unemployment at what highest levels is in 2017 like if they're cutting rates.

[00:08:22] [SPEAKER_01]: The economy is not a good shape but their economic plan is working.

[00:08:27] [SPEAKER_02]: Yeah I mean to be fair though I get all of this just kind of playing politics but the real is like let's be honest like when you're cutting rates it's usually not a great time especially like cutting rates consecutively and most likely the world be continued to cut rates

[00:08:43] [SPEAKER_02]: I think there's even people speculating now that it could be a 50 basis point cut the next time the bank of Canada makes an announcement just because the data has been.

[00:08:56] [SPEAKER_01]: I mean it's all in terms of the comments made it is I believe just kind of lining yourselves up politically to kind of spin it in a positive way regardless what the numbers say because the numbers ultimately aren't good but I mean there's going to be more than likely a lot of you know rate relief coming for a lot of Canadians who probably need it.

[00:09:21] [SPEAKER_02]: Yeah exactly I think for those obviously if you still have a job and you have mortgage coming up for renewal potentially or if you have the variable mortgage clearly that's been a big plus for you and just couple more comments here I think one of the things to keep in mind is that.

[00:09:38] [SPEAKER_02]: Where it can be a bit tricky with the CPI like you mentioned is I think people will see that and say oh you know what like over the last year my.

[00:09:47] [SPEAKER_02]: My personal inflation rate may be when up like 570 10% and you have to keep in mind CPI is just aggregate prices it's not perfect but yes inflation it could be very well that for your personal consumption it's much higher than it stated so keep that in mind I know a lot of people will.

[00:10:05] [SPEAKER_02]: I know say the governments are fudging it willingly I mean at the end of the day I think whatever method they would use would be very difficult to reflect kind of the general population right depending on your income spectrum so I think it is one thing to keep in mind here the other thing too is.

[00:10:24] [SPEAKER_02]: Inflation CPI legit say CPI now like you know it looks good right now it looks like you said it's within the bank of Canada range it's within the target.

[00:10:33] [SPEAKER_02]: But the issue that I think we may start facing is I think the last figures I've seen is the deficit it's supposed to be on track to be about 50 billion for this year and that's dis following years of high deficits as well.

[00:10:50] [SPEAKER_02]: So the government was spending beyond its means and last couple years still is right now our national data significantly increase over that time span so there is a legitimate question to ask if we do go into a downturn and I think all the signs are pointing to yes whether we hit the traditional definition of recession or not I think is beside the point I think we are heading towards a downturn.

[00:11:14] [SPEAKER_02]: Well typically governments tend to increase spending during those periods so then you have to think about the ripple effects of such spending so if they increase spending again they will have to issue more government bonds so they're going to offer more governments to the market.

[00:11:31] [SPEAKER_02]: If demand doesn't really increase for these bonds there's a good chance that longer data longer duration bonds man up going up in yields so the value of the actual bond would go down but the yields would go up.

[00:11:44] [SPEAKER_02]: And then obviously would cost more to the government when they refinance existing bond and issue new ones which could then be inflationary especially if the bank of Canada steps in and starts quantitative easing.

[00:11:56] [SPEAKER_02]: Meaning simple terms that they essentially print money to buy bonds off of the market and increase the demand for these bonds and it puts it on their balance sheet but all of these things can in fact have an inflationary effect.

[00:12:11] [SPEAKER_02]: So I think we just have to wait and see this could take you know a year or two could take some time but we have to be really careful because there's a lot of different directions this could go going forward.

[00:12:24] [SPEAKER_01]: Yeah definitely I was that was well said I mean if we do end up yeah why I mean it's almost a guarantee now we're going to enter some sort of you know economic struggle and a lot of the times you know rates come down.

[00:12:36] [SPEAKER_01]: Government spending does come up because it does stimulate the economy which eventually you know gets things rolling again but as you mentioned that's gone through the roof.

[00:12:45] [SPEAKER_01]: The massive deficits over the years which just makes it extremely tough to do what they probably have to do and yeah well explain though.

[00:12:55] [SPEAKER_02]: Yeah exactly so I just wanted to mention that because there are obviously sometimes some longer term consequences that unfortunately elected official and I'm not targeting the fed specifically.

[00:13:06] [SPEAKER_02]: I think most politicians are very kind of near term focus they could just they just want to get reelected.

[00:13:13] [SPEAKER_01]: You kind of asked them I yeah that's just kind of the way it rules you have to be.

[00:13:17] [SPEAKER_02]: Yeah it's pretty rare to see a politician actually has like a long term like 10, 15, 20 year view because oftentimes they won't be there to reap the fruits and rewards from that and get the credits so they tend to focus on the shorter term.

[00:13:33] [SPEAKER_02]: Now moving on again to Canadian government they announced changes to mortgages all be very blunt I think these changes are pretty reckless.

[00:13:42] [SPEAKER_02]: Unfortunately I think it is an attempt for to get some votes in the next election which I think it's terrible I think you know having a young daughter in a second on the way.

[00:13:53] [SPEAKER_02]: I do feel like these changes will impact negatively you know the younger generation the kids right now that will be adults in the future taking care of you know then and I were when we're in our old age and now working anymore but so there's two main things here so first they're raising the CMH so the Canada mortgage housing corporation.

[00:14:16] [SPEAKER_02]: In short mortgage caps so the cap on insured mortgage was increased from 1 million to 1.5 million this move will allow home buyers especially in expensive markets like Toronto and Vancouver to access higher value properties with potentially lower down payment I see potentially because it still hasn't been announced what the minimum down payment requirement will be because right now for those not aware if you're buying a home.

[00:14:42] [SPEAKER_02]: Essentially you have to put minimum 5% for the first 500,000 10% for the second 500,000 and that said if you want it to be insured because the max is like 999 999 so it's under a million now if you buy a home currently for.

[00:15:01] [SPEAKER_02]: 999000 and 999 dollars you currently need 75,000 down payment but if you buy a home at 1 million you need to have 200,000 as down payment because the requirement for 1 million plus is 20% down.

[00:15:15] [SPEAKER_02]: So it is a pretty big change because what they might end up doing is the portion between 1 and 1.5 they may require 15% for that but it would lower the overall required down payment to 10% up to 1.5 million which is just completely insane.

[00:15:34] [SPEAKER_02]: That's just yeah it's completely ridiculous if you ask me but anyway that's not the only thing here they're extending 30 year amortization so the government will now allow 30 year amortization periods for all first time buyers.

[00:15:50] [SPEAKER_02]: Home buyers regardless of whether they are purchasing a new built-in or an existing home the change will also allow home buyers to increase their purchase price since they will have lower payments it will allow 30 year amortization for all new build homes regardless of it being for a new home buyer not so what this leads me to believe is.

[00:16:11] [SPEAKER_02]: They're probably getting a lot of pressure from developers because it does look like they're trying to incentivize either developers to build more homes or there's.

[00:16:23] [SPEAKER_02]: I don't know sitting in ventrium thinking condos in Toronto there's been a lot of people doing some good research on that that condos are set sitting or not selling it's flooded the market.

[00:16:33] [SPEAKER_02]: I feel like there's a lot of pressure potentially from the banks as well now the issue is the same as the previous one in my mind because it will encourage people to get into more debt and will likely put upwards pressure on prices unless the supply of home marginally increases that's because.

[00:16:50] [SPEAKER_02]: If you're looking at 25 years amortization versus 30 and amortization is just a duration of the toll mortgage so yes you have to refinance like typically people will take five years terms but within let's say you take a five year terms it's still going to be amortized over 25 or 30 or you could choose 20 if you wish.

[00:17:10] [SPEAKER_02]: The issue with that is that if you extend to 30 years is that the monthly payment or by weekly whichever one you choose is actually lower but at the end of the day end up paying more in interest payments so the home ends up costing more.

[00:17:26] [SPEAKER_02]: But it allows people to qualify for bigger amounts because the qualifications are based on the payments not the value of the home so you know what will likely happen is people will you know they were going let's say their max budget under 25 year amortization is 700 k now with the 30 their max budget is 750 k.

[00:17:50] [SPEAKER_02]: I've talked to a lot of people that bought homes and very few have the discipline to not go to their max budget.

[00:17:57] [SPEAKER_01]: That's yeah I mean it reminds me a ton of you know when they started with auto loans that you know typically you can only get like a three or four year auto loan then they would go to five years six years seven years and then all these you know dealerships they get you in there with the enticement of the monthly payment.

[00:18:15] [SPEAKER_01]: And it's like unfortunately a lot of Canadians do not even consider all they want is that monthly payment right some people buy a vehicle not even knowing that it's going to be that long term because they got in their mind the monthly payment when.

[00:18:29] [SPEAKER_01]: In reality you should just be asking yourself you know what's a total cost to own.

[00:18:33] [SPEAKER_02]: It's yeah and probably for cars outlifts the warranty to right all the kind of paying the payment and then the starts you know towards the end the car starts breaking down so you lose all the advantages of a new or vehicle when it comes to that.

[00:18:47] [SPEAKER_02]: But I think a lot of people unfortunately you know they have the financial literacy aspect is just not there and people will look at payment and let's take an example here and.

[00:18:58] [SPEAKER_02]: And see you start with a 600 thousand dollar mortgage and obviously this will vary where you're listening from in Canada if you're in Toronto, you probably you know will only be able to get a shoebox condo for that amount but.

[00:19:11] [SPEAKER_02]: If you're in different places, you may be able to get quite a nice family home for 600 more K more goods. So let's say 700 K home or so maybe a bit more and 600 thousand and throughout the life of your mortgage, you always have an interest rate of 4% I know that's not going to happen, but just for this example.

[00:19:30] [SPEAKER_02]: So for a 25 year mortgage end up paying 347,000 in interest on a 30 year is going to be 427,000 in interest that's because the front end you always pay a whole lot of interest and less and definitely less in terms of the principle.

[00:19:48] [SPEAKER_02]: And that's going to be upwards of 23% in increase interest that you'll pay over the lifetime of the mortgage.

[00:19:56] [SPEAKER_02]: Sure, the payments will be lower on a 30 year amortization so I used a calculator from the government of Canada website.

[00:20:03] [SPEAKER_02]: The 25 year will be 2853 versus 3156 for the same amount here. That's an approximate 8 to 10% decline in payments depending on the sizes of the mortgage, also the interest rates that you'll have for the life of the mortgage clearly so it will vary a little bit and that's really a big issue because.

[00:20:25] [SPEAKER_02]: You know, people are qualified based on the payment and if you and we've said it before so if you qualify for higher mortgage amount with all other things being equal, I mean you'll likely going to go for that and if the supply doesn't go up.

[00:20:41] [SPEAKER_02]: So if there's not more new homes in the market and the man increases because of these measures, I mean it does not take a genius to figure out that unless we get a severe economic downturn and people start losing their jobs and they kind of outweighs all of these measures.

[00:20:59] [SPEAKER_02]: I mean prices will likely see. We'll see prices going up, bad least maybe maybe not there might be some pockets in Canada where it won't but these are all measures that will probably not help a whole lot with the supply but will only encourage people to get into more debt and let me remind you that Canada has.

[00:21:22] [SPEAKER_02]: I know you know our government likes to talk about the G7 but I haven't looked at all the stats, but I can tell you that we're part of them probably one of the most if not the most in debted country in the G7 in terms of household debt.

[00:21:35] [SPEAKER_02]: The household debt to disposable income ratio is still above 175 in Canada. So that essentially compares a total debt to the amount of this income that household has in a year and it's still incredibly high so I just it just does not make I really like I know I'm bit fired up here but it's just not does not make any sense.

[00:22:00] [SPEAKER_02]: It's so it's so focused on the short term and maybe a bit the medium term and there is like complete disregard for the long term. I mean I was listening to a couple of experts that were talking on the subject including Dan and Nick of the Canadian real estate podcast and I will put a link to their episode they do a deep dive into this as well.

[00:22:22] [SPEAKER_02]: Listen to a couple of other ones with commentary on this and from one I gathered is that most people in the industry that wanted to increase the you know the CMA she cap were hoping to get a 1.25 million cap.

[00:22:40] [SPEAKER_01]: That 1.5 1.5.

[00:22:43] [SPEAKER_02]: Every single person that I've seen that is well connected is said they've were completely surprised to see that 1.5 number and then obviously you had the 30 year amortization which just encourages people to get into more debt.

[00:22:57] [SPEAKER_02]: I mean yeah I think I said it best with a tweet. I mean I feel like they just stole the slogan from Skolshabank your richer than you think and I think they're basically doing that.

[00:23:10] [SPEAKER_01]: Yeah just doesn't make any sense I give you have a housing affordability crisis you have houses are too expensive and you create policies that boost the demand side of things but don't touch the supply side of things like what do you think is going to happen prices are going to go up.

[00:23:29] [SPEAKER_01]: The main element for the housing crisis is they don't first off there's a large population growth which puts even more demand on there but you just don't build enough houses.

[00:23:44] [SPEAKER_01]: So if you don't change any of that and all you do is make it so that people can leverage themselves even more to spend more money on affordable houses like what do you think is going to happen I mean to me this seems to me just like a perceived band aid to just grab votes.

[00:24:03] [SPEAKER_01]: Over the short term I mean in this on this side of things they don't piss off any of the current older generations who you know own their homes with significant equity as they haven't really put in any steps to mitigate the pricing environment so I mean those people who own their homes are probably still going to see them sore and value over the last while.

[00:24:22] [SPEAKER_01]: And they grab votes from the younger generation who maybe just doesn't understand that this will ultimately just put them in a worse position over the longer on like if you if you assume that they make.

[00:24:34] [SPEAKER_01]: The next 500 k at 15% like that one mill to 1.5 like you said.

[00:24:42] [SPEAKER_01]: It would make it so you have to put $150,000 down on a $1.5 million home 90% loan to value which would result in 3.1% of that total you know.

[00:24:53] [SPEAKER_01]: So that's $42,000 you're paying just in mortgage insurance.

[00:25:00] [SPEAKER_01]: That's almost literally you have said you have 7% equity that's it well that yeah they take the third of your down payment and then like if you think about land transfer taxes realtor's lawyers like.

[00:25:15] [SPEAKER_01]: How much money are you just giving away just to desperately get into a home that's just crazy overpriced.

[00:25:25] [SPEAKER_01]: Like I mean you could get into a very nice home for $1.5 million but you're still.

[00:25:30] [SPEAKER_01]: Yeah throwing away you know so much money.

[00:25:34] [SPEAKER_02]: But yeah and I think I mean at the end of the day I think the reason is probably the simplest answer is probably the correct one is they probably do not want to lose the votes of baby boomers that have homes that don't want to see them go down in value.

[00:25:50] [SPEAKER_02]: And they want to gain the votes of those who can't afford a home right now and they're trying this is kind of their way to having their cake and eating and too.

[00:26:00] [SPEAKER_02]: And you know and whatever people starts are on the liberals and true to all that stuff doesn't matter I mean he did an interview with CBC I think it was like three months ago where he said it out loud.

[00:26:09] [SPEAKER_02]: He said yeah like for a lot of people their retirement fund is their home and they also want to make affordability you know homes more affordable for younger people.

[00:26:19] [SPEAKER_02]: So I think it was probably their solution to try and tackle these two things and I mean I'm just saying the things like you literally said it word for word and I think it was a CBC I think it may have been front burner or the one of those podcasts but.

[00:26:34] [SPEAKER_02]: Encourage people to kind of look back and go listen to it is just unfortunately I see it the way we're I'm thinking about my own you know daughter and my soon to be young daughters and I think it's going to.

[00:26:46] [SPEAKER_02]: Pass on the cost to them because idea of the day this increased to 1.5 million it's backed by Canadian mortgage bonds and ultimately if something goes a wire there's a massive correction we see the same kind of thing that happened in 2008 2009.

[00:27:02] [SPEAKER_02]: 2010 into US it's going to be the taxpayer that's on the hook for that like ultimately that's how it is so enough of a rant here anything else you want to add before we move on.

[00:27:13] [SPEAKER_01]: No, I mean I guess the last thing I'll say is one of the one of the best comments I've seen on it was from Ron Butler who is he's a Twitter or ex account I guess that you know he's a mortgage housing information he called it a safe injection site for mortgage debt.

[00:27:28] [SPEAKER_01]: That's what he thought and he said it's going to be an absolute road to hell.

[00:27:34] [SPEAKER_01]: Those were his comments on it which I mean is it you know it's a bit extreme but like he's.

[00:27:39] [SPEAKER_02]: It is it doesn't sacrifice people to just more debt more debt just to get in the end I'm pretty familiar with Ron and Ron has been on like I think panels where I think MPs you know housing panels and stuff like that like they've asked him to come as an expert so yeah even though he's pretty

[00:27:58] [SPEAKER_02]: colorful and you know is what he's talking about to so I'll give him you know for that.

[00:28:05] [SPEAKER_02]: Now let's move on I think we've talked enough and I do apologize because you know there was a little bit of politics we try to stay away from it but at the end of the day I mean you know these decisions are taking by politicians and you gotta say it how it is right so.

[00:28:20] [SPEAKER_02]: Let's move on to the next one here I guess I'll go with it dollarama earnings so one of the few companies currently reporting sells increased by 7.4% to 1.5 billion comparable store sales were 4.7%.

[00:28:36] [SPEAKER_02]: Now it's really interesting when you compare it to animata saong kushita which had 3.9 same store sales decline in Canada so.

[00:28:45] [SPEAKER_02]: What that tells me is that consumers are being more and more conscious of where they spend the money realizing that a you know a convenience store like animata saong kushita owns.

[00:28:56] [SPEAKER_02]: It's probably not the best value for them. You know when you're paying buying over price bags of chips or drinks or whatever it is whereas dollarama is probably the opposite of that and of course are both small format but dollarama definitely offers a better value proposition.

[00:29:14] [SPEAKER_02]: And I think you're probably I think that's the best explanation here you agree with that before I go on with the rest of the earnings yeah and I mean we're seeing it with.

[00:29:24] [SPEAKER_01]: I didn't end up doing any coverage on it but empire reported earnings like sobies and they reported even just same store sales growth I think it was just under 1% so I mean they're not growing at all and they're like their prices are crazy high to so like there's a huge shift here you had mentioned.

[00:29:45] [SPEAKER_01]: The 15.5% same store sales growth from the previous year that dollarama reported like 2023 to 222.

[00:29:54] [SPEAKER_01]: The fact they're still able to grow 4.7% on top of that crazy comparable is nuts I would have expected the company to slow down but they're not slowing down at all.

[00:30:04] [SPEAKER_02]: No I mean they're doing pretty well like I mean I'll hand it to them and look I mean they're not shy of mentioning on the earnings reports so that was I that was something I found pretty funny because I'm like okay if you if you don't know that and you own the stock you probably shouldn't be owning the stock but to that's point I'm just sharing here like they had impressive same store sales growth over the last since 2019 I mean the only time that it really wasn't great was.

[00:30:34] [SPEAKER_02]: The quarter ending in August of 2021 not quite sure there would happen but I'd have to go buy bus I from that I mean they were looking for.

[00:30:44] [SPEAKER_02]: They had like a better part of a year that was in double digit same store sales growth which is very impressive to say the least yeah but if you included.

[00:30:52] [SPEAKER_01]: You know the bank account of policy rates here like you see as rates go up there same store sales just continue to grow and like all they're saying and the quarterly report is that they're kind of like hey we grew same store sales by 50 and 0.5% last year and we're still able to grow them by 4.7% because like.

[00:31:12] [SPEAKER_01]: If you're like an outlier just looking at this chart you might be like oh man sales are slowing but like realistically the fact they're still able to grow off what they grew on last year I find it pretty impressive and I mean it's it's going to be interesting to see.

[00:31:28] [SPEAKER_01]: If rates start to come down a lot you know if people do venture back to say the empires or you know those more expensive stores I'm not sure it's going to be really interesting if this is permanent or not.

[00:31:39] [SPEAKER_01]: That's going to be hard with those longer mortgages but you can afford it.

[00:31:47] [SPEAKER_02]: That's right now I forgot about that as long as the house price is not too high I mean you're reducing your payments.

[00:31:53] [SPEAKER_02]: So now obviously they had a good quarter EBITDA so earnings before interest taxes and depreciation amortization increased by 14.7% to 4.524 million so very impressive operating margins increase 180 basis point to 27% again.

[00:32:11] [SPEAKER_02]: Very impressive considering the environment here net income was up 16% to 286 million they repurchase total of 263 million worth of shares during the quarter they open a total of 14 net new stores during the quarter and dollar city which is the.

[00:32:33] [SPEAKER_02]: I've seen that day on a majority stake in Latin America is also doing quite well they're net income double to 22.7 million they open 23 new net new stores they now have a total of 170 dollar city stores they are working towards opening stores in Mexico in 2026 as part of their growth plans.

[00:32:55] [SPEAKER_02]: Not sure if it will be part of the dollar city brand I would assume so but it might just be another brand that they'll start from Mexico and the overall guidance remain unchanged so pretty impressive that.

[00:33:07] [SPEAKER_02]: And the guidance is staying the same for for the full year no changes there and these results I mean I know sales growth is slowing on a same store basis but still like you we just talked about the fact that they're still posting this impressive growth despite having the massive growth that they had a year ago not too much shells to say aside from my wish I bought it like four or five years ago.

[00:33:33] [SPEAKER_01]: Yeah they well they were they went through a bit of struggles for a while to I think like pre pandemic they weren't doing very well but yeah like you look at I don't know what they do so well but when you look at a company like dollar tree.

[00:33:46] [SPEAKER_01]: They have like a third of the free cash flow on like six times a revenue generation I mean they're operating margins are nowhere even close to dollar Amazon same with like dollar what is that dollar general although I think dollar general is not like the same model as dollar M I think they sell a bit different product lines but.

[00:34:08] [SPEAKER_02]: Yeah I mean the company just it's killing it yeah could be the way they operate I remember I was listening or reading something that's in van Schaleb law which is he's a professor I think at Dalhu's a university that.

[00:34:20] [SPEAKER_02]: I think that's a specializing kind of grossers and stuff like that food I say he calls himself the food professor and I remember him yeah talking about.

[00:34:30] [SPEAKER_02]: How dollar am I tends to only have like one product for each thing so they'll have like one peanut butter don't want one you know one type of I think they have different kinds of chips but for the most categories they'll just have one which makes the.

[00:34:47] [SPEAKER_02]: model much easier to manage and much easier to manage inventory in general as well so it could be that that gives them an edge where it's kind of simplicity is king for them versus maybe potentially in the US where it's not the same kind of models I don't know I'm just speculating but I could be it.

[00:35:05] [SPEAKER_01]: I could see that because we do have a dollar tree and a dollar ram around here and the dollar tree is quite a more.

[00:35:13] [SPEAKER_01]: There's a ton more stuff in there so I could see that I mean I really shop at dollar M a too too much because like the quality is just.

[00:35:22] [SPEAKER_01]: I mean on non-like food items it is absolute yeah it's bad I mean you buy I bought like a it was like a brush for the dishes and the head snapped off of it like three days I was like okay.

[00:35:34] [SPEAKER_01]: There's only a dollar twenty five that was the thing so I mean a lot of people yeah it's there is some risk here in terms of you know tariffs and regulations because they do get a ton of stuff from China.

[00:35:45] [SPEAKER_01]: So I mean there's that element there but for now I mean they're killing it.

[00:35:51] [SPEAKER_02]: Yeah no I definitely so now let's let's move on here to the August 2024 National Bank ETF fund flows and then by all means feel free to to interject here there's I know you you love talking about ETFs in general so I'm gonna read some notes but you don't feel free to interject a little bit so.

[00:36:16] [SPEAKER_02]: August 2024 so the first thing here that caught my eye was definitely the headline which read August 2024 a record month for precious metal ETF so.

[00:36:26] [SPEAKER_02]: Do you think they're listening to a Canadian investor podcast these investors because I think since the beginning of the year close to it I've been pretty pretty vocal about you know owning some gold and I've been talking about it for yeah at least I would say pretty close to six months now.

[00:36:43] [SPEAKER_01]: Yeah they must be I mean gold is what is it like twenty six hundred dollars an ounce now it's like rip pretty close to the real time highs it's crazy and I mean most people.

[00:36:54] [SPEAKER_01]: Most people let's be honest like nobody would even think of owning gold like most investors would not consider it but you know now that it's ripping through all time highs it's you know people are looking.

[00:37:05] [SPEAKER_01]: As to how to buy it and an ETF is that the easiest way for sure I mean it's kind of a pain to do it any other way other than just you know buying an ETF so I'm not really all that's priced.

[00:37:18] [SPEAKER_01]: Would it is it's a powerful draw oh yeah exactly fly up by high sell low exactly.

[00:37:25] [SPEAKER_01]: I mean the one of the one thing is is it precious metals or is it just gold it's probably just gold.

[00:37:32] [SPEAKER_02]: They said precious metals but it's mainly gold because commodities ETFs on increase of 576 million inflows out of 4.2 billion in net inflows for all Canadian ETF so pretty big and for that 576 445 million came from a new BMO ETF called ZGLD.

[00:37:52] [SPEAKER_02]: And it was related for a lot of institutional demands so yeah definitely I think it's mostly gold just based on those numbers there.

[00:38:01] [SPEAKER_01]: Yeah it looks like that fund started in April of 2024 and it's already gotten nearly 600 million in assets so that is that's pretty impressive but what do you expect when you know gold is doing what it's doing now.

[00:38:14] [SPEAKER_02]: Yeah exactly an idea of the day I think I can probably do another episode on gold as a whole whether you know why you'd one old some gold the advantage of benefits from it.

[00:38:25] [SPEAKER_02]: And the end of the day I think a lot of it is what we you know what at least what I talked about earlier in the US to is ever expanding government deficits.

[00:38:35] [SPEAKER_02]: I think more and more people are trying to hedge that whether it's gold or Bitcoin and obviously you know there's all the baby between gold and Bitcoin when it comes to that Bitcoin is a lot more volatile but gold as a strong history of being good inflation hedge over long periods of time yes it can be volatile shorter term.

[00:38:53] [SPEAKER_02]: I think it could definitely there could be some of that now if we go past gold market cap weighted ETFs especially large caps were the ones that saw the most flows in terms of equities the most in flows.

[00:39:05] [SPEAKER_02]: Some examples would be XUS in terms of ticker VV which is an S&P 500 ZSP as well at believe ZSP is BM over.

[00:39:15] [SPEAKER_02]: Okay now one thing of note is that the influence US equities were at their highest in early August so if we remember at if we remember early August that's when the Yan carry trade was kind of blowing up.

[00:39:29] [SPEAKER_02]: So I think what that means is a lot of people started buying the dip during that time so I think that's good which you know as word pretty well I would say since then now another types of ETF that saw a strong months are these all equity ETFs that don't have any fixed income so XQT ZQT those sign flows of 465 millions for the month and continue to strong year one that really surprised me was crypto.

[00:39:59] [SPEAKER_02]: ETFs and led by Bitcoin in Ethereum so these are the Canadian listed one which are much higher in fees than the US one I looked at a few and I think they're all like in pretty.

[00:40:11] [SPEAKER_02]: All pretty much one percent or more although the CI galaxy Bitcoin ETF seems to have dropped its fees to 0.76% in terms of.

[00:40:41] [SPEAKER_01]: I'm pretty sure yeah it's back up but you know it wasn't very good in August started rising but.

[00:40:50] [SPEAKER_01]: I mean a lot of people are also worried about say if you're at a broker which like well simple trade you're going to pay the currency conversion fee which yeah I mean if you think of the difference in fees it does not take very long whatsoever to.

[00:41:03] [SPEAKER_01]: I mean I think that's a purpose yeah yeah as soon as I share this came out with there's I sold it converted everything to US and.

[00:41:27] [SPEAKER_02]: I think that's probably good assumption here in terms of Canadian equities that struggle during the months.

[00:41:41] [SPEAKER_02]: I'll close world by the broad market ETF such as Canadian broad market ETF such as XIC ZCN HXD Canadian ETFs in financials and energy also struggled.

[00:41:53] [SPEAKER_02]: I fixed income had inflows of 1.1 billion actually continue a very strong year for fixed income so far it fixed income had for 15 billion in flows year to date that's about a third of all inflows for the year so definitely a strong year but.

[00:42:09] [SPEAKER_02]: One that saw that I guess would fall into that fixed income category is the cash deposit ETF like HSav C Sav they were both in the alphos categories likely.

[00:42:20] [SPEAKER_02]: Reflecting the bank of Canada cutting its overnight rate for a third time I think at that point was only two times for a for August I can remember exactly when the announcement was I think it was just two time but still.

[00:42:33] [SPEAKER_02]: I said that a benefited from money market funds that have slightly higher yields so a lot of that money went over to money market fund and they saw strong inflows for the month and I'll share what.

[00:42:45] [SPEAKER_02]: The top performing ETFs and the ones that are that saw the most outflows for the month for people enjoying TCI's anything that kind of jumps to mind and when you're looking at that.

[00:42:59] [SPEAKER_02]: Which the like the outflows and inflows or the top of all yeah I'll close an inflow and can I get I can also give the top five here to I give people a bit more context I just on audio so top five in flows was the I share S and PTSX index ETF which 580 million.

[00:43:20] [SPEAKER_02]: ZGLD that BMO goal bully any TF saw 545 million the XUS I shares chorus and P500 ETF 493.

[00:43:28] [SPEAKER_02]: Zag which is the BMO aggregate bond in DEX ETF 479 at 475 and the Van Garas and S&P 500 in DEX ETF VIV like saw 424 and then in the outflows there is XIC number one TCLB at number two ZDB Hs and ZC and just because I didn't want to.

[00:43:53] [SPEAKER_02]: I think all of them the top two are pretty sick actually I would say the top four have pretty significant outflows here and the trend I would say is a lot of Canadian kind of Canadian equities bonds as well as cash in terms of outflows here.

[00:44:13] [SPEAKER_01]: Yeah the one thing I'll say about the outflows XIC is kind of interesting I mean that's the technology ETF so it's.

[00:44:23] [SPEAKER_02]: You own a lot no that's a cap oh that's I see that's XIC yeah yeah yeah which is funny because XIC is at the top of outflows but XIC is inflows.

[00:44:35] [SPEAKER_02]: In flows so I mean could be a fee they're very yeah could be a fee thing I mean could be just institutional investors I mean you're seeing so that's why you know when they were saying there was some outflows for Canadian equities ETFs you know these are at the top of both respective categories just that XIC saw.

[00:44:57] [SPEAKER_02]: 785 million in outflows where XIC saw 580 million so you have to think that's some of the outflows went to XIC.

[00:45:05] [SPEAKER_01]: Yeah and we when we did this last month I can't remember the exact situation but we had the the BMO fund that saw like a huge amount of flows and it was just like a.

[00:45:15] [SPEAKER_01]: The institutional investor that was like shifting funds so it's not like anything alarming or anything it's just you know sometimes this kind of stuff happens I mean.

[00:45:24] [SPEAKER_01]: Yeah I would wonder the one thing about HSV which is that it's global XICs you know that's at cash ETF that never paid a distribution yeah it just you know continue to accumulate value they suspended units on that.

[00:45:38] [SPEAKER_01]: Because of just a demand during the well not during the pandemic but kind of post pandemic and rates were much higher and as a result the.

[00:45:48] [SPEAKER_01]: The ETF was trading at a premium because obviously you know if you suspend units you don't have you know the authorized participants aren't really allowed to create new units so like you're pretty much buying it based off demand.

[00:45:59] [SPEAKER_01]: So it ended up trading at a premium and a situation like this where you know outflows are large this is kind of when you see that premium go away and it has for the most part so.

[00:46:09] [SPEAKER_01]: It's trading at what looks like a hundred and thirteen dollars whereas the net asset values about.

[00:46:14] [SPEAKER_01]: A hundred and twelve eighty five this fun typically you know sometimes you would see a one percent or a one point five percent.

[00:46:21] [SPEAKER_01]: You know premium it was trading at relative to its net asset value which you would think wouldn't be much but for an ETF that that pays you.

[00:46:28] [SPEAKER_01]: You know four and a half percent a year that's that's one third of your returns gone if it starts you know if that premium drops back down to net asset value.

[00:46:37] [SPEAKER_01]: That's a good point which is like it's what you know global X they had been warning about this for a long time they're like you know this fund.

[00:46:45] [SPEAKER_01]: There's no new units that will trade at a premium to nav like in a sell off situation it might fall back down to nav which.

[00:46:52] [SPEAKER_01]: You know if you think about it if it's paying four point five percent a year you hold it for four months you've earned a percent and a half you could see that all wiped out if it falls back to nav right you've earned nothing.

[00:47:04] [SPEAKER_01]: So I mean that's pretty much the situation we're in right now and it is it is falling back down because there's obviously going to be lower demand here.

[00:47:12] [SPEAKER_02]: Yeah yeah I think that's that's a great point I mean we saw that two different kind of fun was an ETF but with GBTC right the the great scale between trust before there was a Bitcoin listed for a long while I think it was probably pre must have been like pre 2020 to before the whole like FTX thing happened but for.

[00:47:35] [SPEAKER_02]: long time there was like a massive premium on that fund so compared to the actual value of the underlying Bitcoin and then there was a massive discount so you had people that would potentially bought premium at a.

[00:47:49] [SPEAKER_02]: You know the fun at a massive premium and then at some point they must have been down massively because it was trading at the discount obviously ended up leveling out and traded close to the nav which is the asset value close to the launch of the ETFs because they converted it to an ETF so that wasn't.

[00:48:09] [SPEAKER_02]: And then there's a lot of money that's been going on and it's just a good it's just important for people to understand that is that sometimes you know if there's.

[00:48:17] [SPEAKER_02]: Yeah there's no creation of new units you can get these fun key kind of situation where it's trading at discount or premium to the net asset value.

[00:48:28] [SPEAKER_01]: Yeah I mean each have never really would have traded at a discount because they're still you know unit redemption and things like that and the assets were completely liquid it was pretty much just cash in a savings account but yeah when they.

[00:48:41] [SPEAKER_01]: You know when they suspended units I mean you start trading on investor demand and that you know that investor demand can go away quite quickly and we've seen it we've seen it go away and.

[00:48:51] [SPEAKER_01]: People who bought this fund recently you know what they might be they might actually be down considering you know that that gap that closed on you know funds you would generally consider.

[00:49:01] [SPEAKER_01]: Not zero risk but like practically no risk so they might have to hold them for a while now just to get back to even.

[00:49:09] [SPEAKER_02]: No exactly so I think we'll keep so we wanted to do the also the natural bank ETF fund flows for the US but.

[00:49:17] [SPEAKER_02]: I think we're running a bit long here so since it's in between earnings season I think we'll keep that one for next week.

[00:49:25] [SPEAKER_02]: You can lead that one because you did some really great notes and it will be kind of interested we can just reference back the Canadian report as well just to see some of the differences in the US clearly the US is.

[00:49:38] [SPEAKER_02]: You know a dwarf Canadian ETFs in terms of size but Canadian ETFs I think are big enough in terms of size just to see if there are some kind of different trends that we're seeing both south of the border and here so it's always interested to see what that goes.

[00:49:55] [SPEAKER_01]: Yeah these these fund flow reports are they're really interesting to read and I mean I guess in the so we won't talk about the US ones and this would probably be big enough you know for its own podcast entirely but they did if you ever want to read it anybody listening if you look at the national bank.

[00:50:13] [SPEAKER_01]: US fund flow report they discussed a you know the impact of passive investing on the value of major corporations because of it so this.

[00:50:23] [SPEAKER_01]: You know it just goes over how you know like a lot of people believe that index funds create you know higher valued stocks just because of that passive element of it.

[00:50:31] [SPEAKER_01]: But they actually kind of debunked that and it's it's a it's a pretty interesting read in that fund flow report if you want to read it because I imagine it's it's a bit too much to talk about on the podcast.

[00:50:41] [SPEAKER_01]: Well maybe we'll touch it a little bit because I'm not that we have so now that we have a bigger portion to you know talk about it on instead of just a small segment I think we could discuss it because it's it's a pretty interesting study they did.

[00:50:55] [SPEAKER_02]: No I'll be interesting so make sure you tune in next Thursday to catch that I'm sure there's going to this probably going to be a few Canadian companies reporting in note in between there's always a few outliers in between earnings season.

[00:51:08] [SPEAKER_02]: If now we can go back to the win and back go I think that the last time in between students yeah how they're doing but yeah if or if there's a company that we missed you're listening to this and company that.

[00:51:22] [SPEAKER_02]: Ideally a Canadian company that we didn't talk about during your earnings season that you'd like us to review it in if they reported a few weeks ago a month ago we can certainly do that in between season I think unless.

[00:51:34] [SPEAKER_02]: There's a there's some breaking news that really takes precedent like 30 year mortgages or a 1.5 million CMHG insurance but site from that I mean it's always fun to kind of look back at earnings season so.

[00:51:48] [SPEAKER_02]: I appreciate everyone listening to the show really appreciate and courage is obviously makes it worth a while and it's always encouraging to hear that if you haven't done so already you can follow me at feet on their score eyesberg.

[00:52:02] [SPEAKER_02]: Then at stock trades underscore CA yeah yeah it's been a while I feel like yeah I know that although it's going to be like brain memory soon so yeah give us a follow on Twitter if you haven't done so already if you can give us a great review it's always appreciated on Spotify Apple podcast and talk to a friend or family member that's interested investing and want to be entertained at the same time.

[00:52:26] [SPEAKER_02]: You know we're always looking to get some new listeners and grow the show so thanks a lot for listening.

[00:52:32] [SPEAKER_02]: The Canadian investor podcast should not be construed as investment or financial advice the host and guest featured may own securities or assets discussed on this podcast.

[00:52:43] [SPEAKER_02]: Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.