Tesla Layoffs, Canadian CPI and Jamie Dimon’s Warning

[00:00:00] Welcome back to the Canadian Investor podcast. I'm here with Dan Kent. We're back for a regular

[00:00:21] earnings and use episode released on Thursdays. It's actually a special episode today because

[00:00:26] we are both not sick, which is pretty amazing. I can't remember the last time it must have been 2023

[00:00:33] that we recorded without one of us losing their voice, coughing, runny nose, do you name it? Yeah,

[00:00:41] probably a variation of a virus. It definitely hasn't been any time in 2024, that's for sure.

[00:00:47] Yeah exactly. So we won't chit chat too much because we do have a whole lot on the slate today.

[00:00:54] The most freshest news is Canadian CPI coming out this morning. We also have the budget coming out

[00:01:01] later today at 4pm, so the federal government budget. We're recording before that but I think

[00:01:07] it'll be interesting just to keep an eye on what's happening there, but probably next week we'll

[00:01:11] touch on it a little bit for the next Thursday episode. But do you want to get us started

[00:01:16] for the Canadian CPI? Yeah, so Canadian CPI was released this morning. It rose 2.9% on a year-over-year

[00:01:24] basis. It looks as though most estimates were predicting it was anywhere from 2.9 to 3.1,

[00:01:31] so for the most part it came in below targets. When we take out gasoline prices, which they

[00:01:36] typically like to do just because they're so volatile, CPI actually declined on a month-over-

[00:01:41] month basis coming in at 2.8%, whereas in February it was 2.9%. So sounds like a broken record, but

[00:01:48] shelter and rent costs are driving a huge chunk of the inflation here in Canada, so shelter prices

[00:01:55] increased by 6.5% year-over-year. And the mortgage interest cost index, which we had discussed this,

[00:02:01] I'm pretty certain this would be just total mortgage costs. Yeah, it's increased in mortgage

[00:02:09] costs for homeowners. Yeah, I couldn't find an actual definition on it, but 25.4%. So that is a huge,

[00:02:18] huge increase when you factor in the amount of pandemic mortgages that are coming up for renewal

[00:02:23] and are being re-signed. It really isn't a huge surprise though. Rates are way higher than they

[00:02:27] were three years ago. I think the only thing that would slow this down at this point is

[00:02:33] like a material decline in interest rates. I mean, even if they lower it by say 100 or 150 basis

[00:02:40] points, a lot of mortgages over the last, that have had to come to say three, four-year fixed

[00:02:44] term mortgages, they would still be quite a bit higher because I believe most of the variable

[00:02:49] rate costs would be well absorbed by now. I mean, there hasn't been a hike for quite some time.

[00:02:54] Yeah, yeah. And I mean, people also don't realize that even if the Bank of Canada reduces

[00:03:00] rates, there's no guarantee that the five-year bond or the shorter end bonds, even anywhere in

[00:03:07] between that and the five year, there's no guarantee that it'll actually be reduced because those are

[00:03:13] decided by the bond market. Obviously, I know the Bank of Canada could intervene and start

[00:03:18] quantitative easing again to try and level out the prices of those bonds. But at this point,

[00:03:25] there's no guarantee if they cut rates that it will result in the five-year bond to get lower.

[00:03:30] And if the five-year bond doesn't get lower, it means that five-year fixed rates will remain

[00:03:36] elevated despite the BOC cutting rates. Yeah, because it's ultimately what they lend that.

[00:03:41] In reality, like when you could get a guaranteed return like that on a bond. But rent prices

[00:03:46] continue to accelerate. So they're up 8.5% year over year. So this is a 0.3% increase from

[00:03:53] February. Alberta, where I'm at is witnessing some absolutely crazy increases in rent prices.

[00:04:00] So 20% plus increases in rental prices. So this is like more than double the average 2.5x

[00:04:08] what rent prices increased. And I was going to a story, I can't remember the exact figures,

[00:04:13] but I was listening to the news. I believe it was yesterday or this weekend and they had one

[00:04:17] lady in Calgary, she was up for renewal on a fixed term lease with her rent. And we don't

[00:04:22] have a rent cap here in Alberta. So you can do whatever you want. And her landlord gave her

[00:04:27] notice of a $900 increase in monthly rent. So I mean, this is probably why we're seeing the

[00:04:37] fastest rental increases in the country. I mean, does like, is there caps?

[00:04:42] Well, there's also a lot of interprovincial migration happening going towards Alberta.

[00:04:47] So I think that's probably a big of cause. So there, I would assume and Dan and Nick on the

[00:04:52] Canadian real estate investor podcast are better, are better versed than I am on that.

[00:04:58] But I know there's been migration towards Alberta. And obviously that's going to put price,

[00:05:03] you know, pressures with prices upwards. And then you add in the fact that some

[00:05:08] landlords are probably seeing their costs spikes. So they're using that as an opportunity

[00:05:14] probably oftentimes just break even, right? Yeah, pretty much. I mean, $1300 rent seems pretty low

[00:05:21] for anything these days. But yeah, the real estate market overall here is just bonkers. I had a

[00:05:27] friend who just purchased a house probably a week ago and within 24 hours there was,

[00:05:32] he had to offer over list. There was six offers, I think it was in like 24 hours,

[00:05:37] which is unheard of here. Like typically you would see that like, you know, in Ontario and

[00:05:42] stuff. But Alberta, yeah, it's pretty interesting our market here. But it's the new Ontario.

[00:05:48] Yeah, exactly. But interestingly enough, the Prairie provinces were actually the only ones to

[00:05:54] report month over month declines in inflation. So Manitoba went from 0.9% to 0.8%, which is

[00:06:02] crazy low. I haven't really paid much attention to Manitoba and how they're doing. But Saskatchewan

[00:06:08] was 1.7 to 1.5 and Alberta was 4.2 to 3.5. So it's still pretty high here in Alberta,

[00:06:15] I would imagine it's that impact of shelter and mortgage, things like that.

[00:06:21] Gasoline was up 4.5% in March, whereas it only rose around 0.8% in February. This kind of makes

[00:06:29] sense like crude oil has kind of been on a pretty big rip since the start of the year.

[00:06:33] It's up quite a bit. I mean, the global tensions right now, all that type,

[00:06:37] can't see crude going down anytime soon. But who knows? On the food side of things,

[00:06:42] prices went up 3% year over year with the cost of food purchase from grocery stores

[00:06:46] increasing by 1.9%. I'm not exactly sure what they mean by that. Like overall food up 3,

[00:06:51] but grocery stores 1.9 maybe just... Yeah, they're probably in the US. So they're probably

[00:06:56] doing something similar to the US where there's like food at home and food away from home.

[00:07:01] So basically food that you purchase at restaurants and then versus food they actually purchase

[00:07:05] at the grocery store. That would be my uneducated guess on it. It makes sense.

[00:07:12] Meat prices were up 3.4%. Bakery products 1.3% and vegetables up 2.5%. So it kind of seems like food

[00:07:20] is slowing down whereas kind of the narrative last year was... What was it? It was like at

[00:07:24] 8% or 9% I think. It was just crazy. Yeah, well it was definitely high single digits for sure.

[00:07:29] Which is pretty much the one area of inflation. I mean, shelter costs as well,

[00:07:33] but it impacts absolutely everybody pretty much. The markets are now pricing in a 70% chance of

[00:07:39] rate cuts coming from the Bank of Canada in June. This is up from 50% in March,

[00:07:43] but it has been fluctuating quite a bit. I pulled this from an article. I'm not exactly sure where

[00:07:48] the data is coming from, but I can imagine it's from just currency or interest rate swaps.

[00:07:54] Yeah, probably the Bloomberg terminal getting some data based on those right there.

[00:07:58] Yeah. But overall it seems like most things have settled down, but higher rates pretty much continue

[00:08:04] to pour gas on the fire just due to our mortgage structure, especially relative to the United States.

[00:08:10] Although the Bank of Canada could mitigate some of this with interest rate cuts,

[00:08:14] I think they need a lot of cuts pretty fast to put a ton of relief in terms of shelter and rent.

[00:08:22] But I mean that brings on a whole other element with how well the US is doing despite higher rates.

[00:08:27] So yeah, your thoughts? Yeah. I mean, I don't have too much to share aside from what you said,

[00:08:34] but a couple of things I noticed. The first one is CPI, so core CPIs. So you have CPI comments,

[00:08:41] CPI media and CPI trim. They're just essentially, they're the measures that the Bank of Canada

[00:08:46] uses the most. I believe median if I remember correctly, that one is essentially you look

[00:08:52] more at the middle increases. So you kind of remove the extremities. So the most volatile stuff

[00:08:58] on both ends of the spectrum. And then the trim, I'm not quite sure I'd have to go back,

[00:09:03] but essentially there are just variations of CPI data used by the Bank of Canada and they

[00:09:10] really focus on that. So in terms of those, they actually have declined. So from 3.1 to 2.9%

[00:09:18] on a year-over-year basis for the CPI common, the CPI median from 3 to 2.8 and then the CPI trim for

[00:09:26] from 3.2 to 3.1. And on a future episode, I can probably go over each of them. I'd have to do a

[00:09:33] refresher myself because I looked at those definitions probably years ago. It's just,

[00:09:38] it's not super complex, but I know they just remove certain things for each of them and

[00:09:43] we'll have different readings based on that. So those are trending lower. Definitely some good

[00:09:48] news there for the Bank of Canada for inflation as a whole. But then on the part that's not as

[00:09:55] good in terms of news is the services. So services remain really sticky at 4.5% you over

[00:10:01] year and 0.7% month-over-month. Month-over-month is especially concerning here because that would

[00:10:07] be without going into a lot of complicated math, 0.7 times 12. So you'd have around 8.4% in terms of

[00:10:16] the annualized rate and then services is really proven to be sticky not only here in the US as

[00:10:21] well. So that's something that I'm sure they're keeping a close eye on. It's going to be interesting

[00:10:27] what they decide to do at their next meeting. There's a lot of competing forces here involved.

[00:10:34] Whatever they decide to do, whether they decide to cut or stand still, I think at the end of the

[00:10:38] days you're trading off. So you're probably, if you stand still, you're probably going to

[00:10:46] put the brakes even more so on the economy. If you cut rates, you really risk having a bigger

[00:10:51] diversions between Canada and the US possibility. If you cut too much that you weaken the Canadian

[00:10:57] dollar and then you start importing inflation because costs of goods with major trading partners

[00:11:03] including the US starts rising over time. I was looking at some data too from the 1990s because

[00:11:09] there was a pretty big diversion back then between the BOC and the Fed rate. I think it was above

[00:11:15] 200 basis points and the Canadian dollar didn't suffer too much back then but the economy was

[00:11:23] very different. So the Canadian economy first of all, the federal budget was actually in a

[00:11:28] surplus position during that period of time which is not the case now. There was also Canadian businesses

[00:11:35] that were very competitive compared to their peers including the US. So that encouraged money

[00:11:40] flowing into Canada and therefore supported the Canadian dollar despite having a pretty wide

[00:11:47] gap. So I think there's a lot of elements that are not in place right now that were back

[00:11:52] then that would make it a lot trickier for the Bank of Canada if they decided to widen

[00:11:56] that interest rate gap with the US. The one thing that could be beneficial is obviously natural

[00:12:03] resources so commodities including oil if prices keep going up there's going to be more demand

[00:12:08] for the Canadian dollar so that could offset it a little bit but that has traditionally been

[00:12:13] something that has offset kind of created additional demand for the Canadian dollar.

[00:12:19] Yeah I think we especially saw that like after the financial crisis too because

[00:12:24] Canada rates were higher than the US plus oil just went on a huge run. That was back when like you

[00:12:29] could get par money. I remember when I turned 21 we went down to Vegas and it was uh could get

[00:12:36] pretty much I think we actually got more US which was crazy but it would take quite a bit to

[00:12:44] get back to that. The one thing about services inflation is I imagine wages would have a big

[00:12:50] impact on that. I mean overall because that yeah definitely which I mean there's a lot of like

[00:12:55] getting labor right now is pretty difficult especially at like good prices like people are just

[00:13:01] commanding more money just because of the cost of living so that creates I could see services

[00:13:06] remaining sticky for for quite a while. Yeah and we have a service heavy economy as well right

[00:13:13] so I think if I remember correctly it's around 50% of CPI that's actually services

[00:13:18] obviously there's different types of services like they always categorize right in different

[00:13:23] grouping so there are you know if you take energy and then you compare it to gasoline

[00:13:28] obviously energy includes gasoline. Gasoline is a subcategory of that so I think it's just

[00:13:33] important for people to remember when they look at the more granular data there are these big

[00:13:38] categories then there are subcategories if you want to isolate them a bit more.

[00:13:43] While we're on the CPI might as well talk about US CPI that came in last week so in the US CPI

[00:13:50] actually rose 3.5% year over year the increase was more than expected so we're starting to see

[00:13:56] the divergence here between like you just say Canada where it came in cooler than expected

[00:14:00] and the US hotter than expected rose 0.4% versus February so that brings us to about

[00:14:08] 4.8% on an annualized basis services rose 5.7% again aligns with what we're seeing in Canada

[00:14:15] services are being pretty sticky there as well food came in at 2.2% year over year energy was

[00:14:22] up 2.1% year over year so this is the one that I think could really put a wrench into the headline

[00:14:28] US CPI and Canada as well like you mentioned right if energy prices keep going up that

[00:14:34] it will put upwards pressure on inflation at least the headline number obviously not the core

[00:14:40] number which strips it out if the prices keep trending up it would really put that that pressure

[00:14:46] upwards and we'll have to see obviously with the developments happening in the Middle East

[00:14:50] you know I think everyone's hoping that there is you know some kind of positive development

[00:14:56] where you know things kind of settled down a bit more I think that's what I'm hoping I think

[00:15:00] that's what I'm hoping I think everyone is probably hoping that as well so we'll have to see

[00:15:05] obviously with the escalation we saw on the weekend who knows what will happen there and if

[00:15:10] there is more escalation then I think there's a good case to be made that it will put some pressure

[00:15:16] on oil prices core inflation in the US came in at 0.4% on a month over a month basis so again

[00:15:23] that would be 4.8% annualized so core is similar to the ones in Canada they essentially strip out

[00:15:31] food and energy because they consider that more volatile but it does give them a better picture

[00:15:38] I guess of where the inflation is actually trending with removing those volatile elements

[00:15:44] and no doubt that they'll be considering that and a bunch of other factors at their next

[00:15:50] rate to high decision following the print the CME FedWatch tool went from 60% chance of a rate cut

[00:15:58] in June to 20% that's something I mentioned quite a bit and again like you you referenced you know

[00:16:05] the odds of a rate cut in Canada following the print similar thing for the CME at FedWatch

[00:16:11] tool I don't know what goes into all of it to determine the percentages but they are

[00:16:16] essentially you know based on derivatives that the CME has in terms of what the market is trading

[00:16:23] and based on that they kind of put some expectations what I do find interesting is there's a 0% chance

[00:16:31] hike I don't want to scare people here but I don't think it's a 0% chance it's probably a small

[00:16:37] probability but in the US Jerome Powell I think it's well documented that he's you know he

[00:16:44] wants to almost be the Paul Volcker of nowadays Paul Volcker Paul Volcker was the head of the

[00:16:50] Federal Reserve back in I think in the late 1970s and 1980s and he's the one who really got inflation

[00:16:57] under control during that period of time but he definitely cranked up interest rate extremely

[00:17:04] high to get that so I think I think the market personally is a bit off here because I don't

[00:17:09] think it's accurate to put a 0% chance even if you pay a set at 1% in coming meetings

[00:17:14] but all that to say that you know the hotter than expected CPI print in the US really

[00:17:21] flipped the odds I mean now even in the July meeting which I think is probably the last

[00:17:27] meeting that they'd be able to cut rates before the election because the September meeting

[00:17:33] that one if they started cutting then it would not be a good look it would kind of

[00:17:38] raise questions about the independence of the Fed at least that's how Republicans I'm sure would spin

[00:17:43] it so for the July meeting there's a 53% chance of no change and 46% chance of some kind of cut

[00:17:52] so that has changed dramatically and if we remember basically going back to last year

[00:17:57] there was almost a certainty that they would like start cutting in June and now we're seeing that

[00:18:03] there's the odds are against that massively against that so it kind of shows how things have changed

[00:18:10] and it doesn't really like none of the data really supports a cut I guess in a way like

[00:18:15] it's I mean in Canada does like definitely more so but here the US is actually doing quite well

[00:18:21] all things considered I did look up as you were talking I looked up the that Fed watch tool so

[00:18:26] they use Fed fund futures contracts to pretty much calculate out these percent changes so probably

[00:18:34] just the pricing changes in those contracts things like that but yeah it's the US is looking pretty good

[00:18:40] I would imagine the same thing maybe in Canada that the services the 5.7% increase I mean it's

[00:18:46] probably due to wage growth and actually when we go over a Canadian company reporting earnings

[00:18:52] later that operates in the US like the California I think they've raised minimum wage it was pretty

[00:18:58] high I think it's like $20 an hour or something like that but that's actually okay impacting

[00:19:04] the company will speak of so yeah okay wage growth is definitely coming into play

[00:19:10] yeah exactly so I mean it's definitely something to keep an eye on you know there's was also the

[00:19:15] Bank of Canada rate announcement and to no surprise they stood path at 5% with the overnight

[00:19:21] rate they're still looking to see continued downward momentum in core inflation which we just saw with

[00:19:28] the CPI print so I guess that's a checkbox at least a semi-checkbox I guess we'll have to see what happens

[00:19:35] for this month when it's released in May they want to see inflation expectation moderate as well

[00:19:42] as wage growth and corporate pricing behavior Tiff got a question about cutting rates in June

[00:19:47] and said that it was within the realm of possibility although I think it's important to just note here

[00:19:53] a lot of people you know a lot of headlines were showing like you know all possible rate cuts in

[00:19:59] June and so on but the way was I watched the whole press conference and the way that he was

[00:20:05] talking and Carolyn Rogers the I think senior deputy chief of the Bank of Canada is they have

[00:20:12] a lot of outs if they don't want to cut like it's no certainty in my mind they are I think

[00:20:18] they're weighing everything obviously they're keeping an eye on the housing market clearly I think if prices

[00:20:24] start going up pretty significantly I think that was lessened the chance of rate cuts in June I

[00:20:31] think that's something they're keeping an eye on they don't want it to get out of hand

[00:20:35] especially if they cut rates and he was also asked about the US CPI data if that impacted

[00:20:41] their decision making said that he didn't have the chance to look at the data that was released a

[00:20:46] few hours earlier that morning because they are focused on domestic developments I think that's

[00:20:51] pure BS because they are absolutely weighing US CPI data they would be stupid and you know

[00:20:59] not doing their jobs if they weren't I think they just it was related to a few hours before

[00:21:05] maybe they had access a bit earlier with you know back channels I don't know maybe they just

[00:21:11] wanted to take a step back and really look at the US CPI data but there's no chance that they're

[00:21:17] you know they're not aware of it 100% they are aware of that if the BOC rate is much lower obviously

[00:21:22] than the the Fed like we mentioned like I talked about earlier it could weaken the Canadian

[00:21:28] dollar and I think that is something that they are keenly aware of and they are weighing in their

[00:21:35] interest rate decision for I think June is the next one if I remember correctly right

[00:21:40] yeah yeah it would be June the one thing just before we move on to Tesla but so yeah California

[00:21:48] April 1st went from 16 dollars an hour to 20 so that's a huge jump in minimum wage like

[00:21:56] in like a state that is pretty much bigger than the entire country of Canada so that's definitely

[00:22:02] gonna have it's gonna have an impact for sure people may think it's like automatically a good

[00:22:08] thing I'm not saying that it's bad or good but I think it's important to remember if you're

[00:22:15] business owner and your costs go up what like 25% roughly that would be it pretty much overnight

[00:22:23] yeah overnight 25% maybe you'll start investing in certain things that will help you limit the

[00:22:29] amount of employees that you have or maybe you'll start reducing the amount of hours and finding other

[00:22:34] efficiencies so I'm just mentioning this because you know businesses are there to make money

[00:22:40] and if you know there's a big shock like that or a big increase to their costs they

[00:22:46] will probably start looking at ways to reduce those costs so I think you we always have

[00:22:50] to be careful I think minimum wage obviously there's a reason they're there but I think

[00:22:56] I don't know 20 bucks is pretty steep yeah yeah like when you think of that on a Canadian that's

[00:23:03] almost 28 bucks an hour I think 27 28 bucks an hour so my calculation it's like 55 but yeah

[00:23:10] yeah like that's that's fast food places too like you imagine like a like a fast food

[00:23:15] joint here in Canada paying somebody 28 bucks an hour well your food away from home is gonna rise I

[00:23:21] can say yeah exactly yeah but yeah you want to move on to Tesla yeah let's do it so Tesla the

[00:23:28] important news mostly was layoffs so they ended up laying off over 10% of its global workforce

[00:23:35] yesterday morning so when I was reading estimates I think I had messaged you maybe the night before

[00:23:41] but they they figured that it could be as high as 18 to 25% and I think that would have been like

[00:23:46] alarmingly high I mean 10% is definitely way below what was expected and actually yeah like

[00:23:53] at least 10% that there might be more cuts to come or something like that yeah the estimates

[00:23:59] ranged anywhere from like mostly 18% on the low end to 25% on the high end and I think they

[00:24:05] have 140,000 employees so like 25% would just be a huge layoff and I can't remember where I heard

[00:24:13] this data from but there was I believe is a podcast I'm not gonna mention any names because I don't

[00:24:18] know who was from but they did they dug in a bit and suggested that the first wave of layoffs

[00:24:24] is typically never the last like there's typically always a second smaller wave of layoffs so maybe

[00:24:30] that would get Tesla to this you know 18% mark that is projected but I mean that's never a guarantee

[00:24:38] another interesting element is the fact they're going to be scaling back hours at their

[00:24:41] Cybertruck facilities and this seems pretty odd because I'm pretty sure Musk was talking about

[00:24:47] how the Cybertruck was more of like a production constraint rather than a demand so scaling back

[00:24:53] the hours kind of seems a bit puzzling yeah that was one of the shows that we one of the

[00:24:59] first shows we did together I think you were talking about that is and I remember listening to

[00:25:05] to Musk as well where it was really I think the logistic behind it was a big challenge yeah

[00:25:12] he said something about the Cybertruck being like the death of something I can't remember

[00:25:16] what it was but he wasn't yeah he wasn't very I think he also talked about that on the

[00:25:21] Joe Rogan's podcast because they were doing like shooting arrows I think to the Cybertruck to

[00:25:28] show how like borderline bulletproof it was and one of the things he said is like designing a truck

[00:25:35] is not the hard part the production is the hard part oh yeah I uh I was actually reading up on that

[00:25:41] Cybertruck they you it's something like a 400 mile radius or a 400 mile distance or whatever

[00:25:47] but you can buy like a battery extension but it takes up like a third of the box so I mean

[00:25:53] you take away like oh it's just it seems like I'm gonna get a 2002 Ford Ranger that's what I want

[00:26:00] yeah I want it a little bit of rust not too much rust yeah that's the kind of truck I want

[00:26:06] oh it's uh yeah Tesla's I mean it's in a pretty rough spot right now I mean sometimes you'll see

[00:26:13] the market react positive to layoffs like a lot of the time you know cost cutting thing like that

[00:26:18] but I think like Tesla is still very much priced as a high growth company so the layoffs are

[00:26:23] coming as certainly a sign of it slowing down the stock took quite a hit I think it was down 5%

[00:26:30] maybe yesterday and it's as we're filming this is down about another four and a half today so

[00:26:35] another you know near 10 dip back in 2022 Musk said that he had a bad feeling about the economy

[00:26:41] and the job and the job cuts were coming so fast forward a couple years later and here we are

[00:26:47] the stock is down 55% since the start of 2022 the S&P 500 on the other hand is up 7% the company's

[00:26:55] senior vice president Drew Baglino resigned as well so he's been with the company for nearly two

[00:27:01] decades I think it was 18 or 19 years and I mean see it really seems like it's going from bad to

[00:27:07] worse for Tesla they're facing some pretty intense competition in China it's continually cutting

[00:27:12] prices you know yet deliveries are still sinking it kind of seems like everybody had the money to spend

[00:27:19] you know on expensive EVs back in the pandemic but now that financing costs and overall cost of

[00:27:24] living are up about demand or vehicles are falling and I think Musk he actually spoke about this

[00:27:28] outright too he's like you know when you know in the pandemic when the actual financing portion

[00:27:35] of the vehicle makes up you know a hundred dollars out of a thousand dollar payment it's

[00:27:39] not too bad but when it starts to you know make up half the payment like or a big chunk of the

[00:27:43] payment like people just can't can't afford it and I think in general like I think you know

[00:27:50] investors are starting to lose a bit of confidence in Musk as well he's running you know six companies

[00:27:55] at what point do they maybe consider you know bringing in somebody who can dedicate their

[00:28:01] entire efforts to Tesla I don't I'm not sure yeah yeah I mean I think it also shows there's

[00:28:06] yeah the man like you said is just slowing down it's still you know growing on a year over year basis

[00:28:13] as a whole I know in Canada and I'm pretty sure in the US as well for EVs but I think it's slower

[00:28:18] than a lot of analysts was expecting a lot of people were projecting you know a few years ago

[00:28:24] so I think that's a big issue I mean I think it's well documented the infrastructure although

[00:28:31] it's improved a lot over the last few years is just not it's just not there like it's not I mean

[00:28:39] you don't have to look very far just look at how easy it is to fill your car with gasoline

[00:28:44] and you know how common gas stations are and you don't have to wait it's convenient

[00:28:51] and then think about an EV which is fine if you're just kind of doing city stuff where you can

[00:28:57] always you know charge it back home but as soon as you you know start traveling you know longer

[00:29:05] distances on a relatively frequent basis that's where it becomes an issue yeah I think there's

[00:29:10] an element of like the the infrastructure for charging too like I remember back in January here

[00:29:16] in Alberta when we had like that minus 60 something spell like they pretty much sent out a warning

[00:29:21] of potential rolling blackouts because like they couldn't they were telling you like unplug your

[00:29:26] cars things like that it's actually pretty like I'm in a in a newer neighborhood with not a lot of

[00:29:32] developed houses and literally almost everybody around me owns a Tesla oh we're like we're in

[00:29:37] Alberta like we got like I know we got like a 2013 escape and a Volkswagen Jetta on the driveway

[00:29:43] and everybody else is Tesla's like it's crazy how many are around I got a Jetta too and it's

[00:29:49] perfect it's 2017 I can guarantee you it's not on the list of the most stolen cars

[00:29:55] which is perfect because the insurance premium is lower that's how you solve it you just get cars

[00:30:00] that they don't want to steal or EVs right because I think a lot of those cars end up in Africa so

[00:30:06] I'm gonna go on a limb and say they don't have a lot of EV charging stations so that's another

[00:30:12] option there yeah yeah it's I don't know what's gonna happen with Tesla it's uh the one thing

[00:30:19] that will be I imagine we'll talk about it actually I would almost guarantee we'll talk about the

[00:30:22] earnings which I think are April 23rd I think somewhere around there which would be Tuesday but

[00:30:30] I believe it would be the Tuesday hopefully it's pre-market I'm not sure yeah it's okay we'll

[00:30:35] we'll talk about it the next week if it's to uh if it's after hours but we'll we'll keep going

[00:30:40] here I think you did a great overview of what's going on with Tesla and obviously some of the

[00:30:44] at least near-term troubles they're having and speaking of troubles we have NYC so New

[00:30:50] York Community Bank there's an article on CNBC last week that came up saying that my banking direct

[00:30:58] the online only banking subsidiary of New York Community Bank was offering 5.5% on their

[00:31:05] high yield savings account so the rate is available on normal savings account and only

[00:31:09] requires $500 deposit the money is not locked in for a period of time like a CD a CD is just

[00:31:16] equivalent of GIC in the US the article from CNBC which I will link in the show notes pointed out

[00:31:22] that it is the highest paying savings account in the US and keep in mind the US has thousands of

[00:31:28] banks most of them being regional banks not the massive you know GP Morgan city bank of America

[00:31:36] and I decided to pull up the holdings of the KRE Regional Bank ETF and I went on the website

[00:31:43] and I went on the website of seven regional banks that have similar allocation to the

[00:31:48] KRE ETF than NYCB it doesn't mean that they are necessarily that close to NYCB in terms of

[00:31:55] asset but they'll be closer to them obviously than GP Morgan and they were all regional banks so

[00:32:01] I looked at First Horizons, MNT Bank, Cadence Bank, Sinovus Valley National Pinnacle Axos so Axos

[00:32:09] was the only bank among the group that I could find posted a yield that was relatively close to that of

[00:32:15] NYCB's offering with their my banking direct online and that yield was 3.3% all of the other

[00:32:23] banks were below 1.5% or just didn't post a yield so you had to contact them so clearly

[00:32:29] to me what that means is pretty simple the question would be why would a bank offer so

[00:32:35] much more in terms of yield than its competitors without a substantial amount of minimum deposit

[00:32:40] required because this is a minimum $500 so you don't need to have 10 like I don't know 100 grand

[00:32:47] or more which sometimes will be the prerequisite for those higher yield offers that the banks will

[00:32:54] do I think I mean the answer is pretty straightforward and let me know if you agree or not with

[00:32:59] that but I think they're just looking to attract and retain deposits which is the live blood of

[00:33:04] a bank so because a bank is fractional reserves so they use a big portion of those deposits to loan

[00:33:12] out and they'll typically be levered at least on a 10 to 1 basis so meaning for each dollar

[00:33:18] of deposit they'll have 10 cents on hand or in liquid assets what are your thoughts on that

[00:33:24] do you think it's probably what what I'm guessing here yeah it seems to be the only way you

[00:33:30] would offer a rate like this would be to try to attract more deposits I mean I wonder this would

[00:33:36] I wonder if this is on new accounts or all accounts like I can't imagine they're given that to existing

[00:33:41] but maybe I'm not I mean I'm sure if people are saying well I'm gonna leave if you don't

[00:33:45] give it to me they'll give it to you yeah they have almost no leverage in that position

[00:33:50] I mean you see you see a lot of Canadian banks they offer these rates but they're

[00:33:54] promotional like they only you only get that rate for like I know there were some that

[00:33:59] were offering like 6% but he only got it for like three months or something this by the looks of it

[00:34:04] seems to just be there's no promotional rate here like this is a rate you get which I mean the promotional

[00:34:09] rates would kind of be an incentive for just client acquisition and then you cut them back

[00:34:14] and kind of hope that they don't go elsewhere but this is like this seems like this isn't

[00:34:19] a promotional no obviously there's always that foot like you know that small print

[00:34:24] saying that rates are subject to change anytime but it's not like you said sometimes banks will

[00:34:30] offer like 5% for like three months or something like that exactly that was in the case and then

[00:34:35] to bring things into more context here when we last talked about NYCB they had just received a

[00:34:41] cash infusion of one billion from private funds including a fund led by Steve Mnuchin which

[00:34:46] was the former at Treasury Secretary under President Trump and it had shown that they

[00:34:52] had lost 7% of their deposit in the month period from early February to March 1st and that one billion

[00:35:00] in infusion was to shore up the liquidity but was still a fraction obvious of the deposit which

[00:35:06] stood at 77 billion at the time when we talked about it we both were a bit perplexed as to

[00:35:12] the viability of NYCB despite the cash infusion and all I can say right now is there's

[00:35:18] definitely smoke around this bank when you start seeing stuff like that we just need to know if the

[00:35:24] fire can be put out or not I think that's the real question and the last thing I'll mention here the

[00:35:29] stock went up when the deal was announced so that cash infusion on early March I think it was March

[00:35:35] 5th or March 4th but it's now down 16% since so it's not fared well at all despite having

[00:35:42] that one billion dollar infusion in it yeah I mean all I'll say is like even if even with them offering

[00:35:48] 5.55% I would I would never deposit money there it just seems like a potential nightmare waiting to

[00:35:54] happen but yeah that's all I have to say about NYCB you want to go on to MTY yeah yeah go ahead

[00:36:04] so yeah MTY it's relatively unknown I guess but it's actually like a huge franchising company

[00:36:10] here in Canada so I think they own like something like 7200 plus franchises stores that is so

[00:36:18] it has like a borderline overwhelming amount of brands I went on their website they got like

[00:36:22] 57 brands just in Canada and then there's more in the US I mean off the top of my head it's like

[00:36:28] brands like Mr. Sub, Papa Murphy's a lot of their brands are especially on the just like food

[00:36:37] end and maybe not like the frozen treat end are in shopping malls so I believe this company has quite

[00:36:42] a bit of exposure to shopping centers food courts like retail commercial strip malls things like that

[00:36:49] so the company has struggled over the last while so since 2017 the stock has total returns

[00:36:57] with reinvested dividends of a loss of three and a half three and a half percent

[00:37:01] so it was a solid post pandemic option and I think this is likely due to

[00:37:06] how badly shopping malls and things like that were impacted during the pandemic and then when

[00:37:11] lockdowns eased and you know people started to come back they started to see sales recover

[00:37:15] it does have some franchises that are not mall slash retail focused though so one of their largest

[00:37:20] brands would be Papa Murphy's I mean I don't know if you have a ton there but they're

[00:37:24] they're like few and far between here I think yeah I have no idea what that is yeah

[00:37:28] that's probably just kind if I were to guess kind of maybe just a run-of-the-mill pizza joint but

[00:37:35] same store sales are dropping pretty much everywhere so year-over-year basis they dip by 2.7% in Canada

[00:37:41] 3.6% in the US and 7.4% internationally overall system sales decreased by 2% company wide

[00:37:49] revenue on a year-over-year basis has declined by 2.7% and earnings per share by 5.33%

[00:37:56] the company opened 75 stores but closed 79 down so this is not really something you'd ever want to

[00:38:04] see in a franchisee is the fact that the store counts are shrinking but the one interesting

[00:38:09] thing I found is the company has quite a bit of exposure to frozen treats in the United States

[00:38:14] so the results in January like over the winter months are going to be weaker and

[00:38:20] I'll talk about this more in a bit in regards to the frozen treats but it seems to be we're

[00:38:24] paying debt pretty aggressively over the last while it's utilizing a big chunk of its cash

[00:38:28] flow towards debt reduction so it paid back about 34.6 million on the quarter and over 100 million

[00:38:35] on the year so their debt is now at 736 million so they're using free cash flow to pay out that

[00:38:43] you listening bce yeah exactly yeah they're actually when they cat the other thing you'll

[00:38:50] like too is they cap their distributions they only pay out a particular amount of distributions and

[00:38:54] after that they'll pay down debt so that might be useful as well yeah mm-hmm I hope I hope bce

[00:38:59] management it's listening because yeah sorry I have I'll have a segment when I'm recording with

[00:39:05] braden so for everyone next Monday where uh I'm not that flattering on management for bc I'll

[00:39:11] just yeah I just like I said I just filmed a massive video on it to going over the same

[00:39:16] things it's the outlook is not pretty but in terms of mty and this is kind of going back to what I said

[00:39:23] about the about the california situation is there was a lot of chatter on the conference call

[00:39:29] about higher minimum wages in california and the impact on the company so obviously you know

[00:39:36] this company I would say for the most part pretty much primarily hires minimum wage workers I mean

[00:39:42] food services they're all food services yeah that but another interesting element on the

[00:39:47] conference call was a question of the canadian versus a us consumer it was talked about quite a bit

[00:39:52] so they responded at this point that they're seeing almost no difference in the two in regards to

[00:39:58] their spending at quick service restaurants and if I were to have guessed I would have said the

[00:40:03] Canadian consumer would be weaker so it was a pretty interesting comment but again like a lot

[00:40:07] of these brands are cheaper food they're still gonna say yeah maybe it's an alternative for people

[00:40:14] right like maybe they would prefer to go to more expensive plays but now that they're getting

[00:40:19] a squeeze they have less money to spend they still want to go out that's like an easy alternative

[00:40:24] to go out like still eat out without breaking the bank at uh taco time have a night out at

[00:40:31] taco time yet well is it papa murphy's papa murphy's mr sub I only know of one mr sub that

[00:40:39] still exists in Calgary and it's been there forever but pretty much all of the other ones are gone

[00:40:43] but the one thing I didn't realize and again it's a frozen treat situation so apparently they have a

[00:40:49] ton of exposure to like ice creams and all that kind of stuff so the big you're getting me excited

[00:40:55] for a summer yeah but they the one big thing was the extreme cold spell in the United States

[00:41:04] they said that actually had a significant impact on their first quarter earnings so they have such

[00:41:09] large exposure to like frozen treats in the U.S. that because it got too cold it had a big impact

[00:41:15] on their earnings so I mean they say it's going to be a one-off situation we'll see I mean the

[00:41:20] one thing that's surprising to me the company has gone pretty much nowhere for seven plus years like I

[00:41:26] said I think it's lost something like three and a half percent but it's grown free cash flow per share

[00:41:31] by 82 percent over that time period and revenue is increased by 300 percent over that time period

[00:41:37] so I'm not exactly sure like what's going on if if it's just like that future outlook that

[00:41:43] is so bleak uh in terms of valuation it's trading at seven times its free cash flows

[00:41:49] so this is a 40 percent discount to what it would typically trade at on a historical basis so

[00:41:54] I mean it seems like there must be a ton of bearish you know outlook into this company

[00:42:00] I don't follow it that much yeah maybe it's maybe it's just kind of flying under the radar right

[00:42:05] it's not a huge company and that's what I have for a joint TCI listeners is the free cash

[00:42:09] will per share over the last 10 years and it's literally like almost like up to the right

[00:42:15] I think it's yeah you don't that's pretty amazing you rarely see that

[00:42:19] yeah and if you like one percent total return since that time so yeah that would have been

[00:42:24] 17 percent yeah 16.95 compounded annually free cash flow per share so they're doing something

[00:42:34] right yeah and then like it just hasn't really been rewarded at all I mean I don't get me wrong

[00:42:40] I have not looked into them very much so I don't know if this is a huge discount or whatever I

[00:42:46] I don't know enough about the company but it like if you were to look at revenue and free cash flow you

[00:42:50] would you would be like how is this stock only increased by 1 percent over seven years but

[00:42:56] it uh I thought it was interesting from the just the element of the Canadian consumer and

[00:43:00] you know just a retail environment they're still struggling a bit when it comes to you

[00:43:04] know shopping malls things like that uh just reduction in consumer spending overall so

[00:43:10] to summarize that up Canadians love their ice cream anytime of year the Americans need warm

[00:43:15] weather yeah that's a conclusion of all this it's not ice cream weather for eight months out of the

[00:43:21] year here so but we eat a lot of ice cream I mean I like ice cream even if it's cold outside once

[00:43:27] in a while obviously in the summer it's better but you know you get oftentimes it's been sitting

[00:43:32] at the grocery store for three months and it discounted anyways so it's perfect yeah

[00:43:36] yeah exactly no that's always a good overview definitely a company that we don't talk that

[00:43:41] often about but I think it's definitely one I'll probably just keep an eye on like you

[00:43:46] I was aware of them I just don't know them enough the free cash flow per share is impressive

[00:43:51] but there could be issues with the company that we I just don't know about so it's just

[00:43:56] I think it's important for people to know that's just one metric now we'll talk about

[00:44:00] a slightly bigger company you may have heard of it it's called JP Morgan it's uh also the biggest

[00:44:06] bank in the world just in case people were wondering so it's the largest of the system

[00:44:13] systematically important banks in the world so the G-CIP globally systematically important

[00:44:18] something like that I always have trouble pronouncing that with my French accent now

[00:44:23] I won't do a deep dive in the results because obviously it's um you know it's a U.S. company

[00:44:29] but I think it's still worth noting just because how large they are how important they are in

[00:44:35] in the U.S. by the world as well so it was Q1 2020 24 and I'll compare the numbers on a

[00:44:42] quarter over quarter basis I typically like to do that for banks because I think it shows

[00:44:46] a better picture of where they're at versus a year before especially right now where things

[00:44:51] change so much I mean a year before in the quarter a year ago they I think we're on the

[00:44:57] verge of making the first republic acquisition in the aftermath of the regional bank crisis in the U.S.

[00:45:03] so you know things do change quite a bit and that's uh that's a pretty big difference and on top of

[00:45:10] that I think they the year over year it's just yeah I know there's some seasonality to it but

[00:45:16] I think it's just a better thing to look at quarter over quarter here if we're just doing

[00:45:21] a snapshot so revenues were up 9 to 41.9 billion net income was a 44 to 13.4 billion in terms of

[00:45:31] segments the net income for consumer banking was flat investment banking was up 88 percent

[00:45:39] not surprising because the markets have been you know doing pretty well to start the year

[00:45:44] commercial banking was up 13 percent and wealth management was up 6 percent so same thing with

[00:45:49] wealth management here with the markets being up not surprised to see that being up net interest

[00:45:56] income as a whole was down 4 percent they now have 4.1 trillion in assets and for comparison

[00:46:02] royal bank and TD which are the two largest Canadian banks have about 2 trillion in assets so

[00:46:08] it's double the size of our two largest banks or let's just say it's our two largest banks

[00:46:13] together is equal JP Morgan oh that's combined yeah okay yeah so TD and royal is basically

[00:46:21] JP Morgan together oh yeah yeah yeah yeah yeah just uh it's just to give it people an idea of

[00:46:29] how big they are deposits were up 1 to 2.4 trillion provisions for credit losses were 32

[00:46:37] percent lower for the quarter and came in at 1.88 billion this is obviously the additional

[00:46:42] amount that was set aside for credit losses it brings a total set aside for loan losses on the

[00:46:49] balance sheet because when you look at a quarter it will be taken off it's on the income statement

[00:46:54] but then if you look at the balance sheet you actually have the total that's been set aside

[00:46:59] essentially bringing the previous quarters uh the total amount of money set aside minus what

[00:47:05] they've basically used to write off the bad loans and that total amount is 22.3 billion

[00:47:12] which is flat from the last quarter so clearly you know the last quarter they put more aside

[00:47:18] but the total amount is kind of flat when you factor in everything now

[00:47:23] Jamie Diamond has an annual letter as well Jamie Diamond the co of JP Morgan so

[00:47:29] the annual letter was really interesting I encourage anyone to read the annual letter

[00:47:34] from Jamie Diamond especially the first three paragraphs where he talks about the current

[00:47:38] geopolitical climate but also the state of the US economy here's a few takeaways that I found

[00:47:44] really interesting the US consumer is still spending and the markets still expect a soft

[00:47:49] landing he did say and I quote it is important to know that the economy is being fueled by

[00:47:55] large amount of government deficit spending in past stimulus there is also a growing need to

[00:48:00] spend on restructuring the global supply chain to transition to a greener economy the military

[00:48:06] and the need to reduce healthcare costs all of that may lead to stickier inflation and higher

[00:48:11] rates than market actually expect and he also there is also the unknown of massive quantitative

[00:48:18] tightening that has been happening to the pace of 900 billion a year and what impacts it will have

[00:48:24] on the economy and quantitative tightening because I know we might have some listeners

[00:48:29] are not quite sure what it is so essentially it's when a central bank so it's the opposite of a

[00:48:34] quantitative easing so when a central bank in terms of quantitative easing what they'll do is

[00:48:39] they'll go in the market and they'll buy assets so they will create money to go and buy those

[00:48:44] assets typically it'll be treasury bonds so US treasury bonds in the US and they'll put

[00:48:50] those bonds on their balance sheet while quantitative easing a quantitative tightening is

[00:48:56] the opposite of quantitative easing whereas the bank when it has bonds on their balance sheet

[00:49:01] they won't sell them what they'll do is they'll just let them roll off so once they mature they

[00:49:06] just don't replace them and it reduces the size of the central banks balance sheet

[00:49:12] so what he's saying is it's not the first time that quantitative tightening so QT has been

[00:49:17] happening but it's the first time that it's been happening to this extent and we just don't know

[00:49:22] what kind of repercussions this could have down the line the Ukraine Russia war as well as the

[00:49:28] Middle East conflict had the potential to disrupt global markets on top of their dreadful human

[00:49:34] costs there was an interesting section on the regional bank crisis that happened last year

[00:49:39] he said that after they bought first republic bank they thought that the crisis was over

[00:49:45] however he said that if the long end rates go over 6% and there is a recession there could be

[00:49:52] significant stress in the banking system and leverage companies such as real estate so the

[00:49:58] long hand is just means that the short end of the curve is basically the shortest end is

[00:50:04] the feds fund rate or the bank of Canada rate so it's what they set the longer end so it's the

[00:50:09] 510 even the 30 year in the US so the longer end if those rates keep going up they impact a lot of

[00:50:17] things like financing and this could have some pretty massive repercussions on the economy he mentioned

[00:50:23] that an increase of the long-term rate from 4 to 6% so 200 basis point increase would reduce asset

[00:50:30] values by 20% I'll just finish on this I want to unpack this because people may wonder like why

[00:50:36] is an raising to an increase in 2% going to lead to a reduced asset value of 20% well first of all

[00:50:44] let's look at bonds so for example let's say you buy a 10-year bond that yields 4% and it has a par

[00:50:50] value of $1000 so you pay $1000 the coupon yields 4% when you buy it shortly after you buy those

[00:50:57] bonds the yield goes up to 6% so the markets demand 6% for these bonds the new issuance of it

[00:51:04] well this means that the bond that you hold would drop around the third in value to equal the yield

[00:51:10] that is now in effect and the yield that people can get by just buying new issuances of bonds

[00:51:15] so if you need to sell the bond before maturity in this scenario you're going to take a significant

[00:51:20] loss on it and for real estate it's a similar thing for a potential buyer higher interest rate

[00:51:27] will increase the cost of service that debt so in the interest costs the loan amount will likely

[00:51:32] be smaller because the banks will want to underwrite a smaller amount because of you know the ability of

[00:51:39] the person who takes on or the company takes on to debt to repay that and obviously it's going to

[00:51:45] have the ripple effect if they're just able to offer less for a new property or property

[00:51:52] they're looking to buy it also puts pressure on the existing owner of that real estate to

[00:51:57] sell the building since higher rates will make the building less profitable or not at all if they are on

[00:52:02] variable rates or when the loan is up for refinancing so that's how you know just a change of a couple

[00:52:09] percentage point in the interest rates for longer term bonds can have a pretty big negative

[00:52:16] impact on the market that's kind of the gist of it any comments on that before we wrap things up

[00:52:22] I guess the one thing I would say and I can't remember the name of the bank now what is the

[00:52:25] bank that bought all those treasuries and svb yeah so value bank that would be a prime case of that they

[00:52:30] bought a ton of treasuries at rock bottom rates and then as rates rise those treasuries you know

[00:52:37] they pay the same coupon but the price has to be adjusted down so the yield is relatively comparable

[00:52:42] and then if you have people who want their money out of the bank you have to sell those

[00:52:46] treasuries at a loss which pretty much is what toasted them cooked them so no that was that's

[00:52:52] probably one of the best examples of this as of late which how much pressure it can put in a situation

[00:52:59] like that yeah exactly so I mean I think he must have some kind of data showing that there's like

[00:53:05] kind of a stress point around the six percent mark for him to actually explicitly say the six

[00:53:12] percent in a shareholder letter that that's a kind of level that could really create trouble

[00:53:18] we're not there yet but we've been talking about that you and I when we're texting like us you know

[00:53:24] the 10 year us treasury which tends to be a lot of the benchmark when people look at the longer term

[00:53:30] there's all with also the 30 and I think there's a 20 as well none of the less you know that one

[00:53:36] has been going up yeah ever since the cpi came in hotter and it's pushing on I think high

[00:53:43] fours right now if I remember correctly for the 10 year something like that yeah and

[00:53:47] they're typically like these bond you know yields they don't move that much but they're crazy volatile

[00:53:52] especially around periods like this especially around like inflation prints when you know they're

[00:53:58] so dependent on where rates are going to go you're going to see huge fluctuations in those prices

[00:54:03] yeah yeah exactly so um no that's about it I thought it was interesting um I think that's

[00:54:09] wraps it up for today thanks everyone for listening like I always say if you have time

[00:54:14] you don't give us a review on apple podcast or spotify five star we do appreciate it you can both

[00:54:20] find us on twitter I'm at fiat underscore iceberg and then is that stock trades underscore c8 anything

[00:54:26] else to have before we sign off nope thanks for listening everybody the Canadian investor podcast

[00:54:33] should not be construed as investment or financial advice the host and guest featured may own

[00:54:39] securities or assets discussed on this podcast always do your own due diligence or consult with

[00:54:45] a financial professional before making any financial or investment decisions