What Canada's Fall Economic Statement Means for Investors

[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. Hosted by Braden Dennis and Simon Belanger

[00:00:14] [SPEAKER_01]: The Canadian Investor Podcast, welcome into the show. My name is Braden Dennis. As always, joined by the profound Mr. Simon Belanger.

[00:00:27] [SPEAKER_01]: Profound, some of the words I might describe what is happening in this country. Shit show might be an understatement.

[00:00:34] [SPEAKER_01]: If you've been living under a rock the last couple days and hours at this point, there is a growing excitement for turning the page, is what I'll say.

[00:00:50] [SPEAKER_01]: You know, collectively. A growing excitement of turning the page. Does it have to get, does the drama have to get so bad?

[00:00:59] [SPEAKER_01]: It's like the market finding, you know, it's like a recession, the market finding the bottom.

[00:01:05] [SPEAKER_01]: Yeah, I mean...

[00:01:06] [SPEAKER_01]: So it can turn the page.

[00:01:07] [SPEAKER_01]: I think...

[00:01:07] [SPEAKER_02]: I mean, I think it's probably like the best political TV like series would have a hard time coming up with a better script than that. Just the whole timing.

[00:01:17] [SPEAKER_02]: You know, if we're to believe everything that was written by, of course, I'm referring to Chrystia Freeland, being told that she wasn't gonna stay as Minister of Finance, but was asked to still deliver the fall economic statement.

[00:01:32] [SPEAKER_02]: And then I guess decided that instead of being thrown under the bus, she would throw someone else under the bus with the letter.

[00:01:40] [SPEAKER_02]: I think that's probably the best way to describe it. Obviously, we're not... We don't know the inner work things.

[00:01:46] [SPEAKER_02]: But the one thing it kind of made me... Just reminded me a TV show. I don't know if you ever saw House of Cards.

[00:01:52] [SPEAKER_01]: I didn't finish it, but I think I watched the first season and it was...

[00:01:57] [SPEAKER_02]: Yeah, it just kind of reminds me of this vibe of like, we're kind of seeing parts of it, but you kind of see a lot of people like kind of...

[00:02:05] [SPEAKER_02]: I think the best way to do it is just looking out for themselves at this point, right?

[00:02:09] [SPEAKER_02]: Yeah.

[00:02:09] [SPEAKER_02]: So I think it's... And that was a lot of the theme of the show is like, you know, they're your best ally until they no longer need you.

[00:02:17] [SPEAKER_02]: Anyways, for those interested in that show, it's a really good series. If you watch it through, you just have to stick with it early on.

[00:02:24] [SPEAKER_02]: It's probably what, like six, seven years old now, maybe a bit more, 10 years old. One of the more...

[00:02:30] [SPEAKER_01]: I remember that show as Netflix's big first success in original content.

[00:02:36] [SPEAKER_02]: Yeah. Yeah, that's it. I was going to add. It was one of their first... It wasn't the first... I think Marco Polo may have been one of the first ones, which was pretty good too.

[00:02:43] [SPEAKER_01]: Yeah. Because I mean, now we're talking about Netflix, but that was a key part of Netflix's strategy was to then be its own independent media powerhouse by owning the content. And House of Cards was a clear winner.

[00:03:01] [SPEAKER_02]: Yeah, no, it's worked out pretty well. But, you know, aside from the drama, I think we can move on from that.

[00:03:07] [SPEAKER_02]: And I think it's always important to look at the... These, like, well, this fall economic statement, I guess it's still fall for three more days.

[00:03:14] [SPEAKER_02]: So they just got it out in the nick of time. But I know they were being criticized with the timing, but it's actually important that I mention that because you'll see some of the forecasts they're doing is actually based on...

[00:03:27] [SPEAKER_02]: You cannot, like, economist prediction dating back to September.

[00:03:31] [SPEAKER_02]: So you can make a case that things will be, you know, should be a little bit different in the forecast right now, especially when you start thinking about, you know, the US, but also the federal government itself, right?

[00:03:46] [SPEAKER_02]: Announcing these big changes in immigration targets for next year and I think three years down the line.

[00:03:54] [SPEAKER_02]: So clearly that has a big impact on essentially like the economic growth because people come into this country, they may not buy all the same things, but one of the things they're going to be buying are essentials.

[00:04:06] [SPEAKER_02]: So they need to eat, they need a place to stay and these kind of things create demand.

[00:04:14] [SPEAKER_02]: So that's one thing I mentioned with Dan is you're probably going to see some downward pressure on inflation, but also potentially a softer economy just because of that, right?

[00:04:24] [SPEAKER_02]: So those are just kind of a quick side note here, but the first takeaway for me is, look, these statements and I don't think I'm, you know, it's any news to you, Braden, but I think some people may not be familiar with this.

[00:04:37] [SPEAKER_02]: Whatever the government is, whether it's liberals, conservative, NDP, pick your, you know, your government in place.

[00:04:44] [SPEAKER_02]: These are very kind of political documents, right?

[00:04:48] [SPEAKER_02]: They try to make things look good and they always want to show what they've done.

[00:04:53] [SPEAKER_02]: So I think it's always important to remember that because a lot of the stuff that's being presented there, you know, some of it is accurate.

[00:05:01] [SPEAKER_02]: Some of it is just misleading at best.

[00:05:04] [SPEAKER_01]: Yeah.

[00:05:04] [SPEAKER_01]: I mean, where do we go from here right now?

[00:05:12] [SPEAKER_01]: Like, where do we go from here?

[00:05:14] [SPEAKER_01]: I mean, there's a lot of turmoil.

[00:05:17] [SPEAKER_01]: You mentioned the drama.

[00:05:20] [SPEAKER_01]: They're delivering the news, masquerading it as best as they can.

[00:05:26] [SPEAKER_01]: I mean, that's what they do as politicians.

[00:05:29] [SPEAKER_01]: Where do we go from here?

[00:05:31] [SPEAKER_01]: I mean, this country has had a pretty poor performance in every metric that you can look at, really diverting from all G7 countries.

[00:05:45] [SPEAKER_01]: I would say 2018 onwards.

[00:05:48] [SPEAKER_01]: Crack started to show earlier than that.

[00:05:50] [SPEAKER_01]: And then what I've called like the post-COVID loser.

[00:05:53] [SPEAKER_01]: And I just, where do we go from here?

[00:05:56] [SPEAKER_01]: Like I mentioned at the top of the show, there does seem to finally be some optimism about turning the page collectively from everyone.

[00:06:06] [SPEAKER_01]: And I think that that's a really good sign.

[00:06:09] [SPEAKER_01]: Yeah.

[00:06:09] [SPEAKER_01]: As bad as it needs to get for this to happen.

[00:06:12] [SPEAKER_01]: I mean, what else is what he's supposed to do?

[00:06:15] [SPEAKER_01]: Yeah.

[00:06:16] [SPEAKER_02]: And I think it's great that you mentioned that because I think, and I'll give my key takeaways here.

[00:06:21] [SPEAKER_02]: But I guess the one thing I'll mention too is I think it's important for people to realize to not only like when they see data to not just focus on who was in power during that time period.

[00:06:32] [SPEAKER_02]: Because there's obviously going to be a lag effect with the previous administration.

[00:06:37] [SPEAKER_02]: And the same thing on the other end, right?

[00:06:39] [SPEAKER_02]: It will continue into the next administration.

[00:06:42] [SPEAKER_02]: So I think it's always important to remember.

[00:06:44] [SPEAKER_02]: I think oftentimes people will, I've seen so many charts where it's like, okay, like, you know, like I'll say Trudeau.

[00:06:50] [SPEAKER_02]: But Trudeau came in at this date and look at the data starting from that date.

[00:06:53] [SPEAKER_02]: Well, in reality is, you know, if data started going down immediately when he took office, like chances are was because of policies of the government before him, right?

[00:07:03] [SPEAKER_02]: Like he's, it takes time.

[00:07:05] [SPEAKER_02]: I mean, there's a little bit of time that's needed.

[00:07:07] [SPEAKER_02]: So I think it's always important to remember that because I've seen so in the US is the same, right?

[00:07:12] [SPEAKER_02]: They tend to focus on just the four years, but not realizing that policies from the previous administration, a lot of them will bleed into the new one.

[00:07:22] [SPEAKER_02]: So I think I always try to look at things from a nuanced perspective.

[00:07:26] [SPEAKER_01]: And even look at, I mean, look at the, let's use the US for example, on like stock market performance.

[00:07:31] [SPEAKER_01]: Is the post incoming President Trump, is he responsible for the gains since he became elected?

[00:07:42] [SPEAKER_01]: The answer is yes, but it's Biden's presidency right now.

[00:07:48] [SPEAKER_01]: Or technically on paper it is.

[00:07:51] [SPEAKER_01]: But you know what I mean?

[00:07:52] [SPEAKER_01]: To your point, there's flaws in drawing a line in the sand on a day.

[00:07:56] [SPEAKER_01]: But what we can all agree on is this song and dance, you know, the music's over.

[00:08:04] [SPEAKER_01]: Yeah.

[00:08:05] [SPEAKER_01]: The music's over.

[00:08:06] [SPEAKER_01]: You know, I've said almost nothing politically since we started this podcast in 2019.

[00:08:13] [SPEAKER_01]: And, you know, last episode, I basically said, you know what?

[00:08:16] [SPEAKER_01]: That's, I'm not going to do that anymore until we start to actually make some real progress.

[00:08:24] [SPEAKER_01]: Because we're getting smoked, man.

[00:08:26] [SPEAKER_01]: This country is getting smoked on the world stage.

[00:08:29] [SPEAKER_01]: And it's not good.

[00:08:31] [SPEAKER_01]: It's just not great.

[00:08:32] [SPEAKER_01]: Like, I don't want to see it.

[00:08:33] [SPEAKER_01]: You don't want to see it.

[00:08:34] [SPEAKER_01]: The listeners of this podcast don't want to see it.

[00:08:36] [SPEAKER_01]: We're patriotic people that are, you know, temporarily disappointed.

[00:08:40] [SPEAKER_01]: And seeing all this stuff in the news, like, it's embarrassing, man.

[00:08:46] [SPEAKER_01]: It is.

[00:08:47] [SPEAKER_01]: It's embarrassing is what it is.

[00:08:49] [SPEAKER_02]: I mean, yeah.

[00:08:51] [SPEAKER_02]: Can't add much to that.

[00:08:51] [SPEAKER_02]: But so the first thing is, you know, an example of, you know, things you have to take with a grain of salt.

[00:08:58] [SPEAKER_02]: So Canada is leading the global rate cut cycle.

[00:09:01] [SPEAKER_02]: So what they said is the Bank of Canada was the first G7 central bank to lower interest rates,

[00:09:06] [SPEAKER_02]: cutting its policy rate in June, the first of five consecutive cuts.

[00:09:10] [SPEAKER_02]: This year, the Bank of Canada, the bank has cumulatively cut 175 basis points to bring the policy rate from 5% to 3.25%.

[00:09:20] [SPEAKER_02]: So all of this is true.

[00:09:23] [SPEAKER_02]: But and then they go on to say, like, the private sector forecast.

[00:09:28] [SPEAKER_02]: And then they finish by saying this indicates Canada's achievement of low and stable inflation and a soft landing.

[00:09:34] [SPEAKER_02]: Now, I think this is really misleading.

[00:09:37] [SPEAKER_02]: Unfortunately, you know, misleading at best.

[00:09:40] [SPEAKER_02]: The reality is the Bank of Canada doesn't cut rates by 175 basis point in the span of six months, not even 12 months, six months.

[00:09:52] [SPEAKER_02]: If something's not wrong.

[00:09:54] [SPEAKER_02]: And what is wrong if you've listened to Bank of Canada press conference?

[00:09:57] [SPEAKER_02]: I've listened to every single one of them.

[00:09:59] [SPEAKER_02]: What is wrong is, yes, inflation, the inflation rate has come down.

[00:10:04] [SPEAKER_02]: But now it's the other problem that's starting to creep up is GDP is starting to slow.

[00:10:10] [SPEAKER_02]: GDP increased.

[00:10:11] [SPEAKER_02]: GDP per capita has been tanking for what?

[00:10:13] [SPEAKER_02]: I think six quarters in a row, if I remember correctly.

[00:10:16] [SPEAKER_02]: It's been declining.

[00:10:17] [SPEAKER_02]: So if we would use that as an recession metric, we would be in recession.

[00:10:22] [SPEAKER_02]: But because we've had a high population growth, it's kind of masked out on a real GDP basis.

[00:10:28] [SPEAKER_02]: But unemployment is rising.

[00:10:30] [SPEAKER_02]: And you have all these signs.

[00:10:32] [SPEAKER_01]: And really aggressively in major city centers, which are supposed to be the powerhouse of the economy.

[00:10:38] [SPEAKER_02]: Exactly.

[00:10:39] [SPEAKER_02]: So all this is why the Bank of Canada is cutting rates.

[00:10:43] [SPEAKER_02]: Banks, central banks are notorious for doing this.

[00:10:46] [SPEAKER_02]: When they start to cut aggressively, it's typically like they're typically already in a recession.

[00:10:51] [SPEAKER_02]: And we won't know that until like four or five years down the line,

[00:10:55] [SPEAKER_02]: until the data has been fully accounted for, revised multiple times and so on.

[00:10:59] [SPEAKER_02]: But I'd be willing to bet.

[00:11:02] [SPEAKER_01]: It's that pattern, right?

[00:11:03] [SPEAKER_01]: It's the raising, the raising, the raising into sprint to the other door, cut, cut, cut.

[00:11:11] [SPEAKER_01]: Once you, the writing's already on the wall at that point.

[00:11:14] [SPEAKER_02]: They're always late to react.

[00:11:15] [SPEAKER_02]: That's what it is.

[00:11:16] [SPEAKER_02]: Yeah.

[00:11:16] [SPEAKER_01]: Because when you look at data...

[00:11:18] [SPEAKER_01]: Any global economy, there's a very clear pattern every time that type of hiking and then really aggressive cutting.

[00:11:27] [SPEAKER_01]: It's the same story every time.

[00:11:29] [SPEAKER_02]: And look, I don't blame them for relying on data.

[00:11:32] [SPEAKER_02]: The reality, though, is the data they rely on is lagging data.

[00:11:36] [SPEAKER_02]: And that's what you're going to face.

[00:11:37] [SPEAKER_02]: If you're not looking at forward leading or leading indicators, which is trickier to do, granted.

[00:11:44] [SPEAKER_02]: But if you're using these lagging indicator, you're going to be behind the curveball pretty much every single time.

[00:11:51] [SPEAKER_02]: Another thing that was of note for investors is the removal of the 30% rule for investment in Canadian equities for Canadian pension funds.

[00:11:59] [SPEAKER_02]: So currently, pension plans cannot own more than 30% voting shares in a Canadian entity.

[00:12:05] [SPEAKER_02]: That will change.

[00:12:07] [SPEAKER_02]: They will be allowed to own more.

[00:12:08] [SPEAKER_02]: I think this was something they were reviewing for a while.

[00:12:12] [SPEAKER_02]: They were looking at ways to encourage pension funds to invest more in Canada.

[00:12:16] [SPEAKER_02]: I was quite critical of this, saying that they should not mandate anything because pension funds, first and foremost, their duty is to their plan members.

[00:12:27] [SPEAKER_02]: It's not to help Canada grow.

[00:12:30] [SPEAKER_02]: Some pension plans, like the Kaiser Depot de Plasmans Québec, which manages funds for QPP and a couple of other things for the province of Québec, they have a dual mandate.

[00:12:42] [SPEAKER_02]: So they do have a mandate to help support growth in Québec, but also to get the highest returns.

[00:12:47] [SPEAKER_02]: But not all pension plans are like that.

[00:12:49] [SPEAKER_02]: Most of them are not.

[00:12:50] [SPEAKER_02]: I think the Alberta pension plan is sort of looking like it will be a bit like the Kaiser Depot de Plasmans Québec.

[00:12:58] [SPEAKER_02]: But all that to say that I think it's really important that pension plans focus on their members.

[00:13:04] [SPEAKER_02]: And I think I'm pretty passionate about that because I know this pays pretty well.

[00:13:08] [SPEAKER_02]: At the end of the day, you know, make Canada more attractive to invest in.

[00:13:12] [SPEAKER_02]: And these pension funds will invest in Canada.

[00:13:15] [SPEAKER_02]: I think it's that simple as that.

[00:13:17] [SPEAKER_02]: And not only will they invest in Canada, you'll get dollars from foreigners from foreign countries investing in Canada as well.

[00:13:25] [SPEAKER_02]: So trying to just focus on pension plans, I think it's a mistake.

[00:13:29] [SPEAKER_02]: I think this will end up probably being not make too much of a difference because I think at the end of the day, these pension funds will just look at it and say, you know what?

[00:13:39] [SPEAKER_02]: We have better investment opportunities elsewhere until something changes.

[00:13:44] [SPEAKER_02]: Capital flows like water.

[00:13:46] [SPEAKER_02]: Yeah, exactly.

[00:13:48] [SPEAKER_02]: Now, the Canadian economic outlook.

[00:13:52] [SPEAKER_02]: This one was pretty like, yeah, I would say I would take this with a big grain of salt.

[00:14:00] [SPEAKER_02]: This one, they surveyed a group of 11 private sector economists.

[00:14:04] [SPEAKER_02]: Like I said before, the survey was done in September.

[00:14:06] [SPEAKER_02]: So since then, Trump got elected and they announced a massive reduction in immigration targets, which are two things that will massively impact growth.

[00:14:16] [SPEAKER_02]: Clearly, the, you know, especially with Donald Trump, that's kind of, you know, it's a risk.

[00:14:21] [SPEAKER_02]: It creates a lot of uncertainty.

[00:14:22] [SPEAKER_02]: We don't know where it will go, but it's definitely there.

[00:14:25] [SPEAKER_02]: You know, and you're looking at their growth.

[00:14:28] [SPEAKER_02]: So they're projecting that essentially Canada will have slow growth in early 2025 and it'll pick up back close to 2% in the back half of 2025.

[00:14:37] [SPEAKER_02]: And the downside scenario here, and I'll share it for our joint TCI viewers, is that, you know, the downside scenario is very optimistic.

[00:14:48] [SPEAKER_02]: I'll just say that.

[00:14:49] [SPEAKER_02]: So you have here this graph and I'll explain it for people.

[00:14:52] [SPEAKER_02]: So you have 24, 2024, 2025, 26, 27.

[00:14:57] [SPEAKER_02]: And then you have essentially a, the economist, economic survey from September, which I would probably just throw out the window because these two big variables came in that would not have been factored in.

[00:15:09] [SPEAKER_02]: And then you have the downside and upside scenario.

[00:15:12] [SPEAKER_02]: And essentially the downside scenario for next year is 1% growth.

[00:15:16] [SPEAKER_02]: And the upside scenario is like 2.3, 2.4% just kind of ballparking here.

[00:15:22] [SPEAKER_02]: From what I've read, I've listened to a lot of people that are economists that are well-versed.

[00:15:28] [SPEAKER_02]: I've read a lot of pieces on this with how it currently looks.

[00:15:33] [SPEAKER_02]: If the tariffs end up being on, you know, pretty significant, most economists seem to agree that there's a high likelihood of an actual recession in 2025.

[00:15:44] [SPEAKER_02]: And I would say that's probably your, you know, a fairly realistic downside scenario.

[00:15:51] [SPEAKER_02]: So just the fact that the downside scenario is 1% GDP growth is to me way too optimistic in terms of forecasts.

[00:16:00] [SPEAKER_01]: GDP per capita was higher in 2018 than it was just in the third quarter of this year.

[00:16:10] [SPEAKER_02]: Yeah.

[00:16:11] [SPEAKER_02]: And this is real GDP, right?

[00:16:12] [SPEAKER_02]: So it's not per capita.

[00:16:13] [SPEAKER_02]: But yeah, the GDP per capita has not been trending well.

[00:16:16] [SPEAKER_02]: Yeah.

[00:16:17] [SPEAKER_02]: Yeah.

[00:16:17] [SPEAKER_01]: So that's the real GDP overall per capita adjusting for, you know, the large number of immigration.

[00:16:27] [SPEAKER_01]: Real GDP per capita has had six years of no growth.

[00:16:33] [SPEAKER_02]: So, yeah, it's not good.

[00:16:35] [SPEAKER_02]: It's not good.

[00:16:36] [SPEAKER_02]: Yeah.

[00:16:37] [SPEAKER_02]: And I mean, I think we're both fortunate.

[00:16:39] [SPEAKER_02]: I think we're both bucking this trend.

[00:16:41] [SPEAKER_02]: You know, I'm very fortunate, you know, where we're at.

[00:16:45] [SPEAKER_02]: Obviously, we work hard too.

[00:16:47] [SPEAKER_02]: But the reality is for a lot of people, that's not been the case, right?

[00:16:51] [SPEAKER_02]: It's either, you know, maybe their income has risen, but it hasn't risen as quickly as inflation, for example.

[00:16:57] [SPEAKER_02]: And, you know, it leads to more struggling for more Canadians.

[00:17:01] [SPEAKER_02]: Yeah.

[00:17:02] [SPEAKER_01]: Yeah, no.

[00:17:03] [SPEAKER_01]: I mean, good point, right?

[00:17:05] [SPEAKER_01]: Like, it's affecting people in various different ways.

[00:17:09] [SPEAKER_01]: But I mean, we're just here to report stats, right?

[00:17:13] [SPEAKER_01]: And these are the stats.

[00:17:15] [SPEAKER_01]: Six years flat to negative GDP growth in the country.

[00:17:20] [SPEAKER_01]: Per capita.

[00:17:22] [SPEAKER_02]: Yeah, per capita.

[00:17:24] [SPEAKER_02]: No, exactly.

[00:17:24] [SPEAKER_02]: I mean, it's look, it is what it is.

[00:17:26] [SPEAKER_02]: It hasn't been great.

[00:17:28] [SPEAKER_02]: Like, there's no point in sugarcoating it.

[00:17:30] [SPEAKER_02]: It's just, you know, these are, this is what it is.

[00:17:34] [SPEAKER_02]: Unfortunately, this is reality.

[00:17:35] [SPEAKER_02]: And now the fourth takeaway is the fiscal outlook.

[00:17:39] [SPEAKER_02]: This rubs me the wrong way.

[00:17:41] [SPEAKER_02]: I think, you know, by now, like one of my biggest issues, you know, again, I don't care who, whichever party is in power.

[00:17:49] [SPEAKER_02]: I think we should aim to be, to balance the budget.

[00:17:52] [SPEAKER_02]: I think we're, by having these massive deficits, we're just mortgaging our future.

[00:17:58] [SPEAKER_02]: My daughter and, you know, kids will be paying that down the line.

[00:18:02] [SPEAKER_02]: And if people say, well, the government can always spend more and the Bank of Canada will just print more money.

[00:18:07] [SPEAKER_02]: That will bring more consequences that are not good.

[00:18:10] [SPEAKER_02]: For every action, there's a reaction.

[00:18:12] [SPEAKER_02]: It might not be immediate, but it will come over time.

[00:18:15] [SPEAKER_02]: And I think it's important to remember that.

[00:18:18] [SPEAKER_02]: And what I'm referring to is...

[00:18:20] [SPEAKER_02]: Jump in really quick.

[00:18:21] [SPEAKER_02]: Yeah.

[00:18:22] [SPEAKER_01]: You've always said something over the podcast that I'm just really now even appreciating when I see the numbers you're about to state, which is discussions around choosing taxation, choosing investment vehicles and non-registered, registered accounts, how to be tax efficient.

[00:18:46] [SPEAKER_01]: And around the concept of, okay, but I know what the tax rate is now.

[00:18:51] [SPEAKER_01]: And I don't know what it's going to be in 20 years.

[00:18:55] [SPEAKER_01]: And so that alone is like a tiebreaker in terms of decision-making I'm going to do right now.

[00:19:02] [SPEAKER_01]: Because I don't know what the tax rate is going to be like when I withdraw down my RRSP in the future.

[00:19:09] [SPEAKER_01]: Like, I don't know what income tax levels are going to be like.

[00:19:11] [SPEAKER_01]: When I see these numbers, I really appreciate what you're saying there, right?

[00:19:15] [SPEAKER_01]: It's like there's this kind of vision for, you know, oh, somehow taxation is going to get better in the future in this overall high tax country.

[00:19:28] [SPEAKER_01]: I see these numbers and I'm like, okay, I see what you're saying now.

[00:19:32] [SPEAKER_01]: Like, I'll take the trade on like what I know what they are now.

[00:19:37] [SPEAKER_01]: Who knows what they're going to be in the future, especially with this kind of spending.

[00:19:40] [SPEAKER_02]: Yeah, at the end of the day, right?

[00:19:41] [SPEAKER_02]: Like, it's really you either increase your revenues or you decrease your expenses.

[00:19:45] [SPEAKER_02]: Like, it's that simple.

[00:19:47] [SPEAKER_02]: And how do you increase revenues?

[00:19:49] [SPEAKER_01]: Or you crank inflation on – or you just jack up inflation, right?

[00:19:54] [SPEAKER_01]: That's the third option.

[00:19:55] [SPEAKER_02]: Yeah, exactly.

[00:19:56] [SPEAKER_02]: And I mean, at the end of the day, look, I mean, you know, you can cut.

[00:20:00] [SPEAKER_02]: You can increase revenues by increasing foreign like investment in Canada, creating jobs.

[00:20:06] [SPEAKER_02]: More people get paid.

[00:20:07] [SPEAKER_02]: More people pay taxes without having to raise the tax rate necessarily.

[00:20:11] [SPEAKER_02]: But you can always – you can also raise the tax rate, which will have some consequences.

[00:20:16] [SPEAKER_02]: Like, there's always – of course, there's different paths to reducing it.

[00:20:20] [SPEAKER_02]: But at the end of the day, it comes down to two things.

[00:20:22] [SPEAKER_02]: Like, really, to me, it's like you increase revenue, decrease spending.

[00:20:27] [SPEAKER_02]: Of course, I think with inflation, you end up inflating the debt away.

[00:20:30] [SPEAKER_02]: I think it's what I think you're referring to a little bit is you get inflation high enough that, you know, the debt you've issued is actually becoming cheaper and cheaper to repay down the line.

[00:20:40] [SPEAKER_01]: And just straight up money supply increase.

[00:20:43] [SPEAKER_02]: Yeah, exactly.

[00:20:44] [SPEAKER_02]: And a lot of people actually refer to that as a soft default.

[00:20:47] [SPEAKER_02]: So it's like, yes, you're not losing your principal, but your purchasing power is just going – just plummeting.

[00:20:55] [SPEAKER_02]: And so basically, yeah, the deficit for this year, after saying it would be $40.1 billion, has risen to $61.9 billion.

[00:21:05] [SPEAKER_02]: And I'm showing here a graphic I did for joint TCI viewers here.

[00:21:10] [SPEAKER_02]: And I'll just explain to it.

[00:21:11] [SPEAKER_02]: Essentially, it goes for fiscal years for the federal government.

[00:21:14] [SPEAKER_02]: So 2023, 2024.

[00:21:16] [SPEAKER_02]: So the one that they just released a $61.9 billion figure.

[00:21:22] [SPEAKER_02]: So that one.

[00:21:23] [SPEAKER_02]: And then it has all the way to 28, 20, 29.

[00:21:26] [SPEAKER_02]: And then I added all the projections since the 2022 budget.

[00:21:31] [SPEAKER_02]: And how these projections actually just simply increase the closer you get to the year.

[00:21:36] [SPEAKER_02]: That's the easiest way to do it.

[00:21:39] [SPEAKER_02]: So originally, essentially, in the 2022, 2023, and 2024 budget, they had the deficit at $40 billion for this year.

[00:21:49] [SPEAKER_02]: And now with the fall economic statement, well, that just increased more than 50% to 61.9%.

[00:21:55] [SPEAKER_02]: So that's why when I see projections down the line, I just assume that they'll be higher.

[00:22:01] [SPEAKER_02]: Because you can look at the graphic I did.

[00:22:03] [SPEAKER_02]: And I posted on Twitter for those who want to see it that aren't on joint TCI.

[00:22:08] [SPEAKER_02]: Essentially, the closer you get to a year, typically, the projections end up being higher and higher in terms of deficit.

[00:22:15] [SPEAKER_02]: That's the trend that we've seen with this government.

[00:22:18] [SPEAKER_02]: If there's a change in government, who knows how it looks like.

[00:22:21] [SPEAKER_02]: But this has been the trend here.

[00:22:23] [SPEAKER_02]: And, you know, at the end of the day, like the problem we're facing with Canada is a problem of productivity.

[00:22:29] [SPEAKER_02]: And like you mentioned, GDP per capita has been decreasing now for a while.

[00:22:34] [SPEAKER_02]: And on top of that, the government has been running these massive deficits.

[00:22:37] [SPEAKER_02]: And the issue I have here is that we were, you know, in a decent economy over the last like three, four years, right?

[00:22:47] [SPEAKER_02]: Like we were in economic growth.

[00:22:49] [SPEAKER_02]: And yet these deficits kept being very, very high.

[00:22:52] [SPEAKER_02]: And the problem with that is that once things start getting bad, that's when typically governments will start increasing deficits to stimulate the economy.

[00:23:01] [SPEAKER_02]: Ideally with like infrastructure projects, you create all these construction jobs and stuff like that.

[00:23:07] [SPEAKER_02]: Well, now you're coming from these high deficits and you're going to be spending more and more.

[00:23:14] [SPEAKER_02]: So I think that is something that to me is really important.

[00:23:17] [SPEAKER_02]: And governments need to be able to rein things back when things are good.

[00:23:22] [SPEAKER_02]: Like you don't need to be stimulating the economy as tempting as it may be to try and get reelected.

[00:23:28] [SPEAKER_02]: It's doing the country a disservice.

[00:23:31] [SPEAKER_02]: And that's not just Canada, right?

[00:23:33] [SPEAKER_02]: I think we can look pretty much across the world and you'll find that same kind of story.

[00:23:38] [SPEAKER_02]: It's not specific to Canada.

[00:23:40] [SPEAKER_01]: Nothing more to add than I'm not surprised that we've completely overshot.

[00:23:47] [SPEAKER_02]: Yeah, I mean, those were the rumors, right?

[00:23:50] [SPEAKER_02]: I think that's why a lot of people thought they were delaying the release of the fall economic statement.

[00:23:56] [SPEAKER_02]: I mean, some other takeaways, a lot of this stuff, right, is just programs and measures they've done.

[00:24:01] [SPEAKER_02]: So they tried to show that, you know, different initiatives, whether it's dental care, whether it's more affordable child care, they put that there.

[00:24:09] [SPEAKER_02]: For me, it's always more about like I want to see obviously kind of on the macro and the spending is those are kind of the two big things I look at.

[00:24:16] [SPEAKER_02]: But again, they restated about like housing affordability, the fact that they're increasing the insurance cap from 1 million to 1.5 million and lowering the minimum down payment from 20 percent to a bit less than 10 percent for homes over 1 million.

[00:24:33] [SPEAKER_02]: Previously, it was 20 percent.

[00:24:35] [SPEAKER_02]: And they also talked about the eligibility for 30 year mortgages for first time homebuyers.

[00:24:41] [SPEAKER_02]: They try to spin it in a good way.

[00:24:43] [SPEAKER_02]: I think you and I and most of our listeners will know that these measures, even though they may look like making buying a home more affordable, you know, because your payment will be your your monthly payment will be lower or you'll have access to a home.

[00:24:59] [SPEAKER_02]: That's 1.2 million that you didn't have before because you didn't have the 20 percent down.

[00:25:04] [SPEAKER_02]: Well, at the end of the day, you're just paying more interest.

[00:25:07] [SPEAKER_02]: So you're buying, you're overextending yourself.

[00:25:10] [SPEAKER_02]: You're adding more debt than you would otherwise done it.

[00:25:13] [SPEAKER_02]: And it also leaves people with a lot less wiggle room and a lot less equity in these homes.

[00:25:19] [SPEAKER_02]: And if anything happens to their employment and the housing market, they are literally screwed.

[00:25:26] [SPEAKER_02]: So there is like no margin for error.

[00:25:28] [SPEAKER_02]: So if you lose your job and you can't get a new job and you only have like five percent equity in your home and then you need to sell it.

[00:25:36] [SPEAKER_02]: And let's say the home is down 20 percent in value, then you're taking a massive hit.

[00:25:40] [SPEAKER_02]: So I think a lot of people tend to to just see these measures and think like, oh, my God, I can buy the home I wanted.

[00:25:48] [SPEAKER_02]: But again, they're just getting into more debt.

[00:25:50] [SPEAKER_02]: And I find this very scary because Canadians are some of the most indebted households in the world.

[00:25:56] [SPEAKER_01]: And you're putting these measures that debt to income ratio.

[00:25:59] [SPEAKER_02]: Yeah, exactly.

[00:26:00] [SPEAKER_02]: Which I think, you know, me by now, I'm very reluctant to take on a lot of debt.

[00:26:04] [SPEAKER_02]: So for me, it's always something I have a lot of trouble with when I see these kind of measures.

[00:26:11] [SPEAKER_01]: Right.

[00:26:11] [SPEAKER_01]: Like what's your tip on that?

[00:26:14] [SPEAKER_01]: You closed on a new place recently, didn't you?

[00:26:16] [SPEAKER_02]: Yeah, we it'll be closing in on end of January.

[00:26:20] [SPEAKER_01]: But yeah, we it's basically just you've gone through the home buying process for you and your family twice in the past.

[00:26:27] [SPEAKER_01]: What, five years now?

[00:26:29] [SPEAKER_01]: Yeah.

[00:26:29] [SPEAKER_01]: Yeah.

[00:26:30] [SPEAKER_01]: What's what's your what's your tip?

[00:26:32] [SPEAKER_01]: Hashtag asking for a friend on like not getting over your skis because it is easy, especially if you're in a major market.

[00:26:42] [SPEAKER_01]: Toronto, Vancouver, anything GTA.

[00:26:46] [SPEAKER_01]: Ottawa is not particularly cheap, but, you know, people's expectations run quickly when they are in some of these major markets.

[00:26:55] [SPEAKER_02]: My best tip is, you know, understand your budget, first of all.

[00:27:00] [SPEAKER_02]: So I think just do a budget, what your expenses are.

[00:27:04] [SPEAKER_02]: Try to also project what your expenses will be as a homeowner because you'll have additional home expenses like insurance is going to be more expensive.

[00:27:12] [SPEAKER_02]: You'll have property taxes.

[00:27:14] [SPEAKER_02]: You'll have some maintenance that you'll have to do typically one to two percent a year.

[00:27:18] [SPEAKER_02]: All these hidden costs.

[00:27:19] [SPEAKER_02]: Yeah.

[00:27:20] [SPEAKER_02]: Yeah.

[00:27:20] [SPEAKER_02]: All these hidden costs, you know, just factor those in.

[00:27:23] [SPEAKER_02]: Then, you know, understand what your income is, obviously.

[00:27:28] [SPEAKER_02]: And then you compare that and then try to find a sweet spot in terms of payments that you'd be comfortable with making.

[00:27:35] [SPEAKER_02]: But also give yourself some leeway.

[00:27:38] [SPEAKER_02]: So what if these payments increase 20 percent?

[00:27:41] [SPEAKER_02]: Would you still be fine with doing those payments?

[00:27:44] [SPEAKER_02]: And I think once you do that, then you can go to your mortgage broker and get your pre-approval.

[00:27:50] [SPEAKER_02]: Because if you do it this way, you'll already have the amount kind of said that you're good to go with.

[00:27:56] [SPEAKER_02]: And I guarantee you, if you're being conservative and you give yourself a margin of safety, that you will be approved for much, much more than you previously thought you could be approved based on the numbers you did.

[00:28:11] [SPEAKER_02]: And just stick to that budget, too.

[00:28:13] [SPEAKER_02]: Like I would say for us, like we were approved for 30 percent higher than our actual budget was.

[00:28:19] [SPEAKER_02]: Right.

[00:28:19] [SPEAKER_01]: So just to give people an idea.

[00:28:21] [SPEAKER_01]: Yeah.

[00:28:21] [SPEAKER_01]: And then the budget expands for people.

[00:28:23] [SPEAKER_01]: Right.

[00:28:24] [SPEAKER_01]: And that's where it gets dangerous.

[00:28:25] [SPEAKER_01]: Yeah.

[00:28:26] [SPEAKER_02]: I mean, I think you just have to stick to your budget.

[00:28:29] [SPEAKER_02]: Look, I mean, if you're expanding it by like a tiny bit, I mean, you've given yourself a margin.

[00:28:36] [SPEAKER_02]: That's fine.

[00:28:37] [SPEAKER_02]: But again, I think that's something to keep in mind.

[00:28:40] [SPEAKER_02]: And the bigger the area, the more you can actually, you know, make lowball offers, depending on how the market is.

[00:28:47] [SPEAKER_02]: If you're focusing just on a tiny area that doesn't have a lot of properties for sale,

[00:28:51] [SPEAKER_02]: then you may end up having to pay on the higher end just because even if it's a buyer's market,

[00:28:58] [SPEAKER_02]: if you're looking on a single family home in Toronto, in a specific Toronto area,

[00:29:03] [SPEAKER_02]: chances are is that you're going to also be competing with a lot of other people,

[00:29:08] [SPEAKER_02]: even if it's a buyer's market.

[00:29:10] [SPEAKER_02]: It may be a buyer's market overall, but it might not be for that specific type of home and area that you're looking for.

[00:29:17] [SPEAKER_01]: And there's a lot more of this discussion on the Canadian Real Estate Investor Podcast,

[00:29:22] [SPEAKER_01]: our sister show on the network.

[00:29:23] [SPEAKER_01]: But I don't know if you've been following, speaking of drama, the pre-con, of course,

[00:29:32] [SPEAKER_01]: we know pre-con condos.

[00:29:34] [SPEAKER_01]: Pre-con condos have been a shit show for a while now.

[00:29:38] [SPEAKER_02]: But Dan has been sending me some information on that for over a year now.

[00:29:43] [SPEAKER_01]: The pre-con subdivision developments have been particularly spicy in terms of the drama.

[00:29:54] [SPEAKER_01]: For those listening, it comes down to this simple fact, okay?

[00:30:00] [SPEAKER_01]: You get this subdivision that you've purchased pre-con for, say, a million five.

[00:30:07] [SPEAKER_01]: In some, it's finally built now.

[00:30:11] [SPEAKER_01]: It's still, as new subdivisions are, a muddy, dirty mess.

[00:30:18] [SPEAKER_01]: But it's nice.

[00:30:19] [SPEAKER_01]: These places are nice.

[00:30:21] [SPEAKER_01]: And you spent a million and a half or more.

[00:30:24] [SPEAKER_01]: Now, the banks approved them at, let's just say for easy number's sake, $750K, half of what you paid.

[00:30:33] [SPEAKER_02]: Half of what you agreed to pay, right?

[00:30:35] [SPEAKER_01]: Half of what you agreed to pay in the contract.

[00:30:38] [SPEAKER_01]: That's correct.

[00:30:39] [SPEAKER_01]: Half of what you agreed to pay in the contract, not what you paid.

[00:30:42] [SPEAKER_01]: And now you're two hours from the city center that you work because you thought COVID was going to last forever.

[00:30:50] [SPEAKER_01]: And you'd work from home forever.

[00:30:52] [SPEAKER_01]: Now the bank that you work at is calling you back and also told you that your house is worth half what you've agreed to pay for.

[00:31:00] [SPEAKER_01]: And lawsuits between the builders and developers and the people who are thinking about are set to move in and are in absolute crisis mode.

[00:31:13] [SPEAKER_01]: Now this is-

[00:31:14] [SPEAKER_02]: Yeah, a lot of people walking away from the deposits too.

[00:31:16] [SPEAKER_02]: Walking away.

[00:31:16] [SPEAKER_02]: Yeah.

[00:31:16] [SPEAKER_01]: It's a really tricky situation.

[00:31:20] [SPEAKER_01]: And this is what I've been telling people with real estate for a long time is, look, the way-

[00:31:29] [SPEAKER_01]: I guess I'll speak to the kind of younger millennial.

[00:31:31] [SPEAKER_01]: Look, the way your parents got rich, benefiting from having equity in real estate in some of these booming areas in Canada is not going to be the way that you get rich.

[00:31:45] [SPEAKER_01]: It's just not.

[00:31:47] [SPEAKER_01]: No, that-

[00:31:48] [SPEAKER_01]: It's just not.

[00:31:49] [SPEAKER_01]: The chances are so, so low.

[00:31:52] [SPEAKER_01]: And so you got to kind of be aware of that and buying these pre-cons for way more than they're worth two hours from the city.

[00:32:01] [SPEAKER_01]: It's like, what are we doing here?

[00:32:05] [SPEAKER_02]: Yeah.

[00:32:05] [SPEAKER_02]: And I mean, at the end of the day for our parents, I think the biggest tell when is a lot of them tend to forget, right?

[00:32:11] [SPEAKER_02]: Baby boomers think it will be the same going forward.

[00:32:15] [SPEAKER_02]: You can still get rich with real estate.

[00:32:16] [SPEAKER_02]: But the reality is the price to income ratio has gone way, way up.

[00:32:20] [SPEAKER_02]: So yes, prices were lower.

[00:32:22] [SPEAKER_02]: Yes, there's been inflation and all that.

[00:32:24] [SPEAKER_02]: But the reality is people are not-

[00:32:27] [SPEAKER_02]: Affordability.

[00:32:28] [SPEAKER_02]: Exactly.

[00:32:29] [SPEAKER_01]: Just straight up affordability is materially different.

[00:32:32] [SPEAKER_02]: Yeah, exactly.

[00:32:33] [SPEAKER_02]: And I have one other area of stress that, so that's not the one I thought you were going to talk about, is actually pre-construction condos.

[00:32:41] [SPEAKER_02]: Yeah.

[00:32:41] [SPEAKER_02]: In the GTA area where there's shoebox condos.

[00:32:44] [SPEAKER_01]: But I've been seeing those stories for the shoebox condos for a while now.

[00:32:48] [SPEAKER_01]: Yeah.

[00:32:48] [SPEAKER_01]: Like these developments of fairly big 3,000 square foot home subdivisions in the outskirts of city centers.

[00:32:58] [SPEAKER_01]: These protests happening on weekends in these little subdivisions.

[00:33:03] [SPEAKER_01]: I'm seeing these more and more.

[00:33:05] [SPEAKER_01]: Yeah.

[00:33:05] [SPEAKER_01]: The shoeboxes in the sky with the pre-con, that's been a problem for a bit now.

[00:33:10] [SPEAKER_02]: Yeah, mostly too because a lot of them are coming up, right?

[00:33:12] [SPEAKER_02]: Our completions are coming up in 25, 26.

[00:33:15] [SPEAKER_02]: So it's like there's a lot of inventory, but there's more coming up.

[00:33:19] [SPEAKER_02]: And the same kind of thing is people pay like 1,300, 1,400 a square foot.

[00:33:24] [SPEAKER_02]: And now the building across the street that's just a couple of years older, but the unit looks the exact same as selling for nine or a thousand on the resale markets.

[00:33:33] [SPEAKER_02]: So obviously people are seeing that and they can't, you know, you can't profitability.

[00:33:38] [SPEAKER_02]: Usually random, you're kind of screwed.

[00:33:41] [SPEAKER_02]: You either walk away and hope you don't get sued and forfeit your deposit or you just bleed money every single month if you can close.

[00:33:49] [SPEAKER_02]: Yeah.

[00:33:49] [SPEAKER_01]: Yeah.

[00:33:49] [SPEAKER_01]: With these big purchases, people, be careful and reminder for my young kings and queens out there, you're not going to get rich the same way your parents did on GTA real estate.

[00:34:03] [SPEAKER_01]: All right, let's move on.

[00:34:05] [SPEAKER_01]: You can tell my sentiment, you know, on the pod lately.

[00:34:10] [SPEAKER_01]: I've been bearish on the country for a long time.

[00:34:14] [SPEAKER_01]: How many times have I said year after year after year on this podcast, don't have all your eggs in this country.

[00:34:22] [SPEAKER_01]: Don't invest.

[00:34:23] [SPEAKER_02]: I mean, we, we both said it, right?

[00:34:25] [SPEAKER_01]: We both, don't, don't, don't invest in companies that only benefit from the prosperity of this country.

[00:34:31] [SPEAKER_01]: You need global exposure.

[00:34:33] [SPEAKER_01]: It's okay if they're situated here, but you need global exposure.

[00:34:36] [SPEAKER_01]: And I'm very bullish on turning the page.

[00:34:40] [SPEAKER_01]: Uh, so with all that negativity, I am excited, uh, as well too.

[00:34:47] [SPEAKER_01]: So I, I'm, I'm hoping that, you know, don't hear what I'm not saying.

[00:34:50] [SPEAKER_02]: And there's opportunity.

[00:34:51] [SPEAKER_02]: I think that's important because yes.

[00:34:54] [SPEAKER_02]: Um, and I know we'll look probably at how markets are a bit, uh, you know, highly valued right now with your next segment.

[00:35:00] [SPEAKER_02]: But remember that, you know, there's always opportunity.

[00:35:04] [SPEAKER_02]: It's just the opportunity will shift depending on where the market's at, where, you know, the Canadian economy and policies are at.

[00:35:13] [SPEAKER_02]: Like there's going to be opportunities, but they're not going to be the same that were there five, 10, 15 years ago.

[00:35:18] [SPEAKER_02]: And I think that's the way, at least maybe I tricked myself in staying positive, but that's the way I see it is.

[00:35:24] [SPEAKER_02]: I think there is opportunity.

[00:35:25] [SPEAKER_02]: It's just not in the same spots.

[00:35:28] [SPEAKER_02]: Exactly.

[00:35:29] [SPEAKER_01]: Totally.

[00:35:30] [SPEAKER_01]: Totally.

[00:35:30] [SPEAKER_01]: I mean, look, we, equity markets have been a freaking awesome place to be, um, which is a good transition to, uh, I promised on the pod.

[00:35:40] [SPEAKER_01]: I'd talk about the distribution of S and P returns.

[00:35:43] [SPEAKER_01]: And, um, we, we can get to this quick.

[00:35:46] [SPEAKER_01]: So I want to talk about Google after this.

[00:35:48] [SPEAKER_01]: So let's, let's just summarize this quick, but the buckets of distributions of S and P 500 returns for, you know, us, the U S market has been quite interesting.

[00:36:02] [SPEAKER_01]: How the common knowledge is that, you know, eight to 10% in the stock market, eight to 10% in the stock market.

[00:36:10] [SPEAKER_01]: That's what you can expect.

[00:36:11] [SPEAKER_01]: Right.

[00:36:12] [SPEAKER_01]: And you almost never get eight to 10%.

[00:36:16] [SPEAKER_01]: In fact, you have pretty, some pretty wild gyrations and some years of monster, monster returns.

[00:36:25] [SPEAKER_01]: We are very, very happy and long periods of flat and not so fun times in the market.

[00:36:31] [SPEAKER_01]: Mega drawdowns.

[00:36:32] [SPEAKER_01]: You know, you've had, uh, multiple years of worse than the 30% returns.

[00:36:38] [SPEAKER_01]: There's, you know, been 10 plus, uh, between the negative 10 and 20%.

[00:36:43] [SPEAKER_01]: There's lots that are in the zero to 10%, but the most two common, the two most common buckets in 10% increments is, is 10 to 20% being the highest.

[00:36:59] [SPEAKER_01]: And then the next highest at 20 to 30%, which right now, you know, if the year ends today, we would have back to back of, uh, of course, 2022, uh, you know, not being the most fun was in the negative 10 to negative 20% return bucket.

[00:37:17] [SPEAKER_01]: We've now had back to back years in the 20 to 30%.

[00:37:21] [SPEAKER_02]: I think it's, um, the, what is it like the third or fourth time since 1928, I think for back to back years.

[00:37:29] [SPEAKER_02]: Yeah.

[00:37:29] [SPEAKER_01]: Yeah.

[00:37:29] [SPEAKER_01]: And then, and then you said on the pod, like, Oh, that happens all the time.

[00:37:32] [SPEAKER_01]: And I think.

[00:37:33] [SPEAKER_02]: No, I said, I, that rarely happens.

[00:37:35] [SPEAKER_02]: It rarely happens.

[00:37:36] [SPEAKER_02]: Oh no, it happens all the time.

[00:37:37] [SPEAKER_01]: And I said, it happens all the time.

[00:37:39] [SPEAKER_01]: I was wrong.

[00:37:40] [SPEAKER_01]: You were right.

[00:37:41] [SPEAKER_01]: It, the, the, the back to back never happens.

[00:37:45] [SPEAKER_01]: I guess what I meant to say is I'm revisionist history here.

[00:37:50] [SPEAKER_01]: What I meant to say, look how much 20 to 30% does happen.

[00:37:54] [SPEAKER_01]: It's the second most common bucket you've had nearly 20 years in the last, uh, a hundred years, you know, 20% roughly where you've had these kinds of monster 20 to 30% returns.

[00:38:08] [SPEAKER_01]: And then right up there, right up there, kind of tied in third place between some of these kind of flat years is 30 to 40% returns.

[00:38:18] [SPEAKER_01]: 2019, 2013, most notably, you know, in the last decade or decade and a bit.

[00:38:23] [SPEAKER_01]: And then you've had lots of years of more than 40%, uh, one, two, three, four, five to be exact over the last hundred years.

[00:38:32] [SPEAKER_01]: And so this is just to kind of be a market historian of S and P 500 returns has been expect this.

[00:38:46] [SPEAKER_01]: This is the data.

[00:38:47] [SPEAKER_01]: Expect more of this.

[00:38:49] [SPEAKER_01]: You're not going to have eight to 10% steady returns and equities.

[00:38:55] [SPEAKER_01]: On average, you, you take all this math and that's where you get that number, but it doesn't feel like that.

[00:39:05] [SPEAKER_01]: Owning public equities does not feel like an eight to 10% a year journey.

[00:39:13] [SPEAKER_01]: It really doesn't.

[00:39:15] [SPEAKER_01]: And so it's really important to know that because if, if you're starting or, you know, you're, you're a few years into owning public market equities and expecting this kind of smooth, nice ride, eight to 10%, like the history book told me, you're going to be disappointed.

[00:39:37] [SPEAKER_01]: Now you might be pleasantly also surprised at how we've had, you know, back to back years of more than 20%.

[00:39:46] [SPEAKER_01]: So it's, it's more normal to have these wide gyrations of the last three years of two years up big and another year down big.

[00:39:56] [SPEAKER_01]: Like, yeah, it messes with our mind.

[00:39:59] [SPEAKER_01]: Like, Oh, those aren't normal three years.

[00:40:00] [SPEAKER_01]: Like it actually, it actually is not outside of the data here.

[00:40:05] [SPEAKER_01]: It's actually lining up perfectly.

[00:40:07] [SPEAKER_01]: And so expect, expect this if you're an investor.

[00:40:12] [SPEAKER_02]: Yeah.

[00:40:12] [SPEAKER_02]: And just looking at it, I think we can just making some fun assumptions, right?

[00:40:16] [SPEAKER_02]: So if you look at the two buckets from zero to 10%, 10 to 20%, I think there's 35 of them.

[00:40:22] [SPEAKER_02]: If I counted quickly, which would be, let's say about a third of the time.

[00:40:26] [SPEAKER_02]: Yeah.

[00:40:26] [SPEAKER_02]: It would fall into that.

[00:40:28] [SPEAKER_02]: So let's just say that, you know, if you look at the closer range and we don't have the columns to show that,

[00:40:34] [SPEAKER_02]: but let's say, you know, plus or minus a two, three percent.

[00:40:39] [SPEAKER_02]: You know, if you have 10% plus or minus two, three percent, I don't know.

[00:40:43] [SPEAKER_02]: You're probably looking at like 10 years, maybe in total during that whole timeframe.

[00:40:48] [SPEAKER_02]: That would be a guess, right?

[00:40:50] [SPEAKER_02]: Like roughly that kind of makes sense.

[00:40:52] [SPEAKER_02]: So it's not often that it ends up in a relatively close range to that traditional, like, oh, you'll get eight, nine, 10%, you know, annual returns if you just stick in it.

[00:41:04] [SPEAKER_02]: I think, you know, it's really important because yes, there's going to be some really good years.

[00:41:08] [SPEAKER_02]: There's going to be some bad ones.

[00:41:10] [SPEAKER_02]: But, you know.

[00:41:11] [SPEAKER_01]: If memory serves me correctly, Ben Carlson did the math.

[00:41:14] [SPEAKER_01]: And I think there was only two times in the last hundred years that it was in the range that they give you as the average.

[00:41:20] [SPEAKER_02]: Okay, there you go.

[00:41:21] [SPEAKER_02]: Yeah, as the average.

[00:41:22] [SPEAKER_01]: Don't call me on the number, but it was like one or two.

[00:41:25] [SPEAKER_01]: Like basically the takeaway was that it almost never happens.

[00:41:29] [SPEAKER_02]: Yeah, exactly.

[00:41:30] [SPEAKER_02]: And if you expand that range a little bit, I'm sure maybe we can get to 10.

[00:41:33] [SPEAKER_02]: But still, it doesn't happen very often.

[00:41:35] [SPEAKER_02]: And I think it's just a good reminder that, yes, if you stick in it for the long term, this is what you're going to get.

[00:41:44] [SPEAKER_02]: But shorter term, you may get way better or way worse too.

[00:41:47] [SPEAKER_02]: And I think it's really important for people to, you know, just remember that.

[00:41:51] [SPEAKER_01]: Yeah.

[00:41:52] [SPEAKER_01]: You know, I love the kind of formula for happiness, right?

[00:41:56] [SPEAKER_01]: It's expectations minus reality, right?

[00:41:59] [SPEAKER_01]: And so as an investor, if you are well situated to, you know, have your expectations and reality in check by understanding the data in terms of being a market historian, you're going to hold on for the ride and enjoying the benefits of compounding are going to be easier.

[00:42:20] [SPEAKER_01]: Because you're not going to be blindsided by what is actually normal behavior.

[00:42:27] [SPEAKER_01]: Like that's the worst kind of thing, right?

[00:42:29] [SPEAKER_01]: To be blindsided by completely normal market behavior.

[00:42:34] [SPEAKER_02]: No, no, exactly.

[00:42:35] [SPEAKER_02]: Yeah.

[00:42:36] [SPEAKER_01]: All right.

[00:42:36] [SPEAKER_01]: Let's talk about Google.

[00:42:37] [SPEAKER_01]: So I have for the pod today, three things, you know, no prepared notes, just three graphs.

[00:42:42] [SPEAKER_01]: But I also have just let's talk about Google.

[00:42:45] [SPEAKER_02]: Okay.

[00:42:46] [SPEAKER_02]: You didn't want to talk about the gains excessive risk?

[00:42:49] [SPEAKER_01]: Let's save that for next week.

[00:42:51] [SPEAKER_01]: It's a good evergreen content.

[00:42:52] [SPEAKER_01]: Again, on the same note of managing expectations and understanding what you're getting into.

[00:42:59] [SPEAKER_01]: But I think that's good content for another time.

[00:43:02] [SPEAKER_01]: Let's talk about Google.

[00:43:03] [SPEAKER_01]: I think Google's sitting the new all-time high here.

[00:43:06] [SPEAKER_01]: It's turned into a bit of a battleground stock.

[00:43:09] [SPEAKER_01]: It's a stock I own.

[00:43:11] [SPEAKER_01]: Mind you, I have trimmed from a huge or a major position to what I call a moderate position.

[00:43:17] [SPEAKER_01]: And I'm going to explain why.

[00:43:19] [SPEAKER_01]: This has been over the last year.

[00:43:21] [SPEAKER_01]: And now it is at all-time high.

[00:43:23] [SPEAKER_01]: So I'm glad to be still an equity shareholder and excited about kind of all the things that

[00:43:29] [SPEAKER_01]: they have going on between Waymo and cloud, this new AI, quantum computing in this new

[00:43:38] [SPEAKER_01]: AI model.

[00:43:39] [SPEAKER_01]: They released a beautiful vision model and video creation model today.

[00:43:44] [SPEAKER_01]: DeepMind seems to be kind of, we're so back, baby, type of vibe, right?

[00:43:49] [SPEAKER_01]: And this has turned into a battleground stock, Simone.

[00:43:52] [SPEAKER_01]: Of all the large caps, I would say, okay, so 2021, 2022, the battleground big tech was

[00:43:59] [SPEAKER_01]: meta.

[00:44:00] [SPEAKER_01]: That was, what do we do with this company?

[00:44:04] [SPEAKER_01]: Mark wants to spend $50 billion a year on Reality Labs.

[00:44:07] [SPEAKER_01]: It's going to bleed money.

[00:44:08] [SPEAKER_01]: To, oh wait, the core business is still cooking.

[00:44:11] [SPEAKER_01]: This thing's worth a couple of trillion bucks.

[00:44:13] [SPEAKER_01]: That's been a battleground.

[00:44:15] [SPEAKER_01]: It's a huge, huge drawdown in the stock onto a major recovery and all-time highs.

[00:44:21] [SPEAKER_01]: The vibe at Google has been a lot of battleground discussion.

[00:44:26] [SPEAKER_01]: And what I mean by battleground is like kind of everyone has a different opinion on the

[00:44:31] [SPEAKER_01]: business.

[00:44:31] [SPEAKER_01]: And because it touches on so many parts of people's daily lives, it kind of makes sense.

[00:44:38] [SPEAKER_01]: And so there's a lot of optimism about Google again, right?

[00:44:42] [SPEAKER_01]: It's, they're not falling behind in AI.

[00:44:46] [SPEAKER_01]: Look, they're actually leading the way in AI.

[00:44:48] [SPEAKER_01]: Look, all the R&D this company has provided for AI.

[00:44:52] [SPEAKER_01]: And all of those things can be true.

[00:44:56] [SPEAKER_01]: And I want to reiterate a really important point here, which is the business is under attack

[00:45:07] [SPEAKER_01]: on the search business.

[00:45:09] [SPEAKER_01]: And I know they still have a good amount of market share in Google.

[00:45:15] [SPEAKER_01]: I use Google search all the time.

[00:45:18] [SPEAKER_01]: But you and I were texting back and forth on this.

[00:45:22] [SPEAKER_01]: LLM plus search capability.

[00:45:24] [SPEAKER_01]: We have LLM plus search capability in FinChat now.

[00:45:27] [SPEAKER_01]: It's amazing.

[00:45:28] [SPEAKER_01]: LLM plus search with these competing products that OpenAI is coming out with, Claude, Atthropic,

[00:45:35] [SPEAKER_01]: these names are changing the way that people are searching for information.

[00:45:40] [SPEAKER_01]: And they've had to react with Gemini, that Gemini product.

[00:45:45] [SPEAKER_01]: And it's okay.

[00:45:46] [SPEAKER_01]: It's getting better.

[00:45:47] [SPEAKER_01]: I would say it's a lack, lacking their competitors.

[00:45:52] [SPEAKER_01]: But this throws up the blue link economy up in the air.

[00:45:57] [SPEAKER_01]: And that hasn't changed just because the stocks up a lot and people are excited about their

[00:46:02] [SPEAKER_01]: AI pursuit.

[00:46:03] [SPEAKER_01]: Again, the search business has a big question mark and monopolies hate question marks.

[00:46:11] [SPEAKER_01]: So it's just a reminder that, yes, they're still firing and the company can still be great and

[00:46:19] [SPEAKER_01]: they can still touch a billion users on five different products.

[00:46:23] [SPEAKER_01]: But if search doesn't win, what do you do?

[00:46:28] [SPEAKER_01]: I mean, what happens with the stock?

[00:46:30] [SPEAKER_01]: I mean, it's going to be hard for the math to work, even if Waymo crushes it and everything

[00:46:34] [SPEAKER_01]: crushes.

[00:46:35] [SPEAKER_01]: So I don't know.

[00:46:36] [SPEAKER_01]: I don't have any answer.

[00:46:37] [SPEAKER_01]: I just wanted to discuss Google.

[00:46:39] [SPEAKER_01]: Like, what do we think about this name right now?

[00:46:42] [SPEAKER_02]: Yeah.

[00:46:42] [SPEAKER_02]: I mean, the search business is definitely a big part of the business and I'm sharing it

[00:46:47] [SPEAKER_02]: with FinChat.io and you'll have to show me how to change the different colors for the

[00:46:52] [SPEAKER_02]: bars.

[00:46:53] [SPEAKER_02]: Yeah.

[00:46:53] [SPEAKER_01]: It's grabbing the Google blue and then your second color being blue.

[00:46:58] [SPEAKER_01]: Oh, okay.

[00:46:59] [SPEAKER_01]: That's right.

[00:47:00] [SPEAKER_02]: Okay.

[00:47:01] [SPEAKER_02]: No, that's good.

[00:47:01] [SPEAKER_01]: Simone, here's what you do.

[00:47:03] [SPEAKER_01]: Here's a hot tip on a new feature.

[00:47:05] [SPEAKER_01]: Untoggle total revenue.

[00:47:07] [SPEAKER_01]: So just exit that one out and now press the common size toggle.

[00:47:12] [SPEAKER_01]: Scroll down.

[00:47:13] [SPEAKER_01]: Scroll down.

[00:47:15] [SPEAKER_01]: So press that common size as the second toggle.

[00:47:17] [SPEAKER_01]: Yeah.

[00:47:18] [SPEAKER_01]: Now it's going to show you as a percent of revenue of the whole business.

[00:47:21] [SPEAKER_01]: Okay.

[00:47:22] [SPEAKER_02]: Okay.

[00:47:22] [SPEAKER_02]: There you go.

[00:47:23] [SPEAKER_02]: So that helps.

[00:47:24] [SPEAKER_02]: So it is, long story short, this is like, it's been dropping a little bit, but it's still

[00:47:31] [SPEAKER_02]: 57% if we round up of the business.

[00:47:34] [SPEAKER_02]: So clearly, and it kind of goes back to what I was talking with Dan for Lululemon, right?

[00:47:39] [SPEAKER_02]: Lululemon is the same kind of situation with their US business, where the US business is

[00:47:44] [SPEAKER_02]: kind of stalling and it's about, you know, same percentage, 60%.

[00:47:47] [SPEAKER_02]: So pretty close.

[00:47:48] [SPEAKER_02]: And when you have such a big part of your business that either stalling or declining as good as the rest may be, it can start being a major problem.

[00:47:58] [SPEAKER_02]: And I think Apple's also victim of that with, obviously, we're thinking about the iPhones there.

[00:48:04] [SPEAKER_02]: Yes, some other parts of the business are doing well.

[00:48:06] [SPEAKER_02]: But the problem is the iPhones is such a big part of the business still is that, you know,

[00:48:12] [SPEAKER_02]: that one slowing down is going to be a constant drag on the revenues and earnings.

[00:48:16] [SPEAKER_02]: And that's a big risk as like as exciting as you just mentioned it.

[00:48:20] [SPEAKER_02]: The reality is they're still overly reliant on revenues, sorry, on ad revenues.

[00:48:26] [SPEAKER_02]: And you have big players coming in trying to slowly nib at that.

[00:48:31] [SPEAKER_02]: So my I don't know.

[00:48:33] [SPEAKER_02]: My prediction is that we'll continue seeing that go slowly down.

[00:48:38] [SPEAKER_02]: I don't know if it'll be a sharp downturn because habits take a long time to break.

[00:48:43] [SPEAKER_02]: And a lot of people, I think, just out of habit, go to like Google search.

[00:48:47] [SPEAKER_02]: But I think over time, as personally, I've seen the Google search results are not as good as they were.

[00:48:54] [SPEAKER_02]: And I always find that oftentimes it's just too flooded with ads, to be honest.

[00:48:59] [SPEAKER_02]: Like it just add like, I don't know, like five ads in a row.

[00:49:02] [SPEAKER_02]: Like it just I find it a bit annoying.

[00:49:04] [SPEAKER_02]: My prediction is that we'll see that percentage keep going down.

[00:49:09] [SPEAKER_02]: It has been going down.

[00:49:10] [SPEAKER_01]: Yeah.

[00:49:10] [SPEAKER_01]: Well, I mean, that's percentage of the revenues.

[00:49:13] [SPEAKER_01]: It's a total business.

[00:49:15] [SPEAKER_01]: And it's probably good for Google if that number goes down.

[00:49:17] [SPEAKER_01]: But it's not good if the number nominally goes down.

[00:49:20] [SPEAKER_02]: Yeah, exactly.

[00:49:22] [SPEAKER_02]: I think it's going to be a combination of both.

[00:49:25] [SPEAKER_02]: It could be a combination.

[00:49:26] [SPEAKER_02]: I think revenues will probably keep increasing or slowly increasing or kind of be flat on an overall basis.

[00:49:33] [SPEAKER_02]: But they'll keep losing market share for the ad revenue business.

[00:49:36] [SPEAKER_01]: The Google search business, you know, we're now kind of two years through people being exposed to large language models and how they work and doing research with them.

[00:49:51] [SPEAKER_01]: I've always thought to myself, there's no real product market fit here unless search is involved.

[00:50:00] [SPEAKER_01]: So the real product market fit is, hey, instead of searching for this information, do the research for me.

[00:50:12] [SPEAKER_01]: Provide the links where I can go learn more.

[00:50:15] [SPEAKER_01]: So if I'm like really trying to understand some tax implications of the first home savings account, if I use ChadGBT plus the search toggle, this is the key.

[00:50:30] [SPEAKER_01]: Just LLM on its own is not enough.

[00:50:35] [SPEAKER_01]: I need to see links so I can do more source work on where the source came from and know that it's summarizing the official government documentation around this.

[00:50:47] [SPEAKER_01]: So I have my ass covered because this is too important to mess up.

[00:50:51] [SPEAKER_01]: You know, it's talking about my taxation.

[00:50:55] [SPEAKER_01]: LLM plus search.

[00:50:57] [SPEAKER_01]: So large language model plus search has phenomenal product market fit.

[00:51:03] [SPEAKER_01]: And this is only fairly new that people are getting used to using it in ChadGBT.

[00:51:10] [SPEAKER_01]: This morning, they announced that it's going to be included in the free in the this search toggle is going to be included in the free version of ChadGBT very shortly.

[00:51:20] [SPEAKER_01]: Okay.

[00:51:21] [SPEAKER_01]: Because right now you're doing it on your screen.

[00:51:23] [SPEAKER_01]: You're sharing.

[00:51:24] [SPEAKER_02]: Yeah.

[00:51:25] [SPEAKER_02]: Yeah.

[00:51:25] [SPEAKER_02]: We're you have a paid subscription.

[00:51:27] [SPEAKER_02]: Yeah.

[00:51:27] [SPEAKER_01]: This search toggle, I guess today or tomorrow, they're putting it into the free version as well.

[00:51:32] [SPEAKER_01]: And that's going to give people for the first time.

[00:51:37] [SPEAKER_01]: You know, the the ones who are not testing out the new models that are not paying for these services, kind of a look and a taste of what LLM plus search can do and have a feeling you're going to like it.

[00:51:50] [SPEAKER_02]: Yeah.

[00:51:51] [SPEAKER_02]: I mean, I like it.

[00:51:52] [SPEAKER_02]: I use it the same kind of thing.

[00:51:54] [SPEAKER_02]: I use it a whole lot, but I, I find, you know, it'll give me an overview of the question I asked it, but then I'll usually verify all with the links just to make sure.

[00:52:03] [SPEAKER_02]: That's the way I tend to use it.

[00:52:05] [SPEAKER_02]: I find it very useful.

[00:52:06] [SPEAKER_02]: I'll probably will end up trying a few competitors because I've read and heard some people saying that depending on what you're doing, you know, some of the alternatives are as good, if not better.

[00:52:17] [SPEAKER_02]: Yeah.

[00:52:18] [SPEAKER_02]: It really depends.

[00:52:18] [SPEAKER_02]: So I'm probably going to be testing a few of those out because it's been definitely been a great help for the podcast.

[00:52:24] [SPEAKER_02]: Like whether we're, you know, like depending even drafting emails, like, I mean, it's, it's definitely saved time.

[00:52:32] [SPEAKER_02]: Like, I think if you've been reluctant to use it, I think you have to get familiar and comfortable with these tools because more and more, I think, you know, employers, when they hire people, there's going to be an expectation that you're familiar with these tools.

[00:52:47] [SPEAKER_02]: Even if you might still need training for a more specific company-based version of it, the fact that you still, you already have some familiarity with it, I think will be a big plus.

[00:52:58] [SPEAKER_01]: So the product market fit is, is without a doubt there with search.

[00:53:04] [SPEAKER_01]: It's been mind blowing to me.

[00:53:06] [SPEAKER_01]: It's just like a God tier research tool when you have LM plus search.

[00:53:10] [SPEAKER_01]: And I think that this is going to create a lot of problems when this becomes into the mainstream for typical Google search volume for the research.

[00:53:21] [SPEAKER_01]: Now, because they own Chrome and, you know, typically people will just say like, okay, if I'm trying to find our podcast, I'm just going to Google that podcast.

[00:53:32] [SPEAKER_01]: I'm just trying to find a link.

[00:53:33] [SPEAKER_01]: Like it still can be a fantastic gateway to the internet, but for those high value clicks, a gateway to the internet is a low value click.

[00:53:46] [SPEAKER_01]: Let me just explain to you really quickly how Google's ad business works.

[00:53:51] [SPEAKER_01]: If I search, say you own Simone's finest Ottawa car repair shop, okay?

[00:54:01] [SPEAKER_01]: And you have a, you have a very specific name for it.

[00:54:04] [SPEAKER_01]: There's no point of your competitors bidding on that because that's a, that's a high intense search where you are clearly just trying to get to your website.

[00:54:14] [SPEAKER_01]: They're using Google as a gateway.

[00:54:17] [SPEAKER_01]: Now, if I search great auto repair shops in this area, now you and all your competitors want to bid on that because that's a customer acquisition cost that they're willing to, to, to bear.

[00:54:32] [SPEAKER_01]: So the gateway to the internet is low value clicks because you cannot charge a high cost per click on them.

[00:54:40] [SPEAKER_01]: You can, when you're evaluating alternatives or, you know, uh, if I'm click, I'm saying like what's best HR software to pay to, to, to, to choose because that's a huge enterprise software buying decision.

[00:54:54] [SPEAKER_01]: Those clicks cost like $80 on the internet.

[00:54:57] [SPEAKER_01]: They literally cost that much money because if the right person clicks on it and the right buying decision for what could be a million dollar Salesforce implementation, it's worth it.

[00:55:11] [SPEAKER_01]: If I'm now doing LLM plus search on Gemini, their own product or the competitors, the innovator dilemma is real.

[00:55:23] [SPEAKER_01]: It is real.

[00:55:24] [SPEAKER_01]: And I know this is not a new topic.

[00:55:25] [SPEAKER_01]: We're like two years out post chat GPT, but I'm bringing it up again now because if folks have not tried LLM plus search, it is materially better and more useful.

[00:55:36] [SPEAKER_01]: So I I'm saying all of this as a Google shareholder.

[00:55:42] [SPEAKER_01]: So, uh, don't hear what I'm not saying, but I'm saying this as a Google shareholder who was waiting my conviction appropriately, right?

[00:55:51] [SPEAKER_01]: Like I no longer think them being a monopoly on the gateway to the internet and all blue link clicks is a guarantee.

[00:56:00] [SPEAKER_01]: It's still, they still have a chance, but it's not a hundred percent market share slam dunk guarantee.

[00:56:07] [SPEAKER_01]: And that's just the reality.

[00:56:09] [SPEAKER_01]: Now they have a lot of other bets.

[00:56:10] [SPEAKER_01]: They have a lot of other opportunities and, and the company still has, you know, ridiculous market share and a few key categories, uh, that touches the lives of billions of people every single day.

[00:56:22] [SPEAKER_01]: So, so there's a lot still to like, but to your Lululemon example and to our Google search 57% of revenues example, it's hard.

[00:56:31] [SPEAKER_01]: Even if the stock is trading at some of its most attractive valuations here, it is hard to make the math work.

[00:56:40] [SPEAKER_01]: If a $50 billion a year business goes to 30.

[00:56:45] [SPEAKER_02]: Yeah.

[00:56:45] [SPEAKER_01]: That's a lot of revenue to make up.

[00:56:47] [SPEAKER_01]: That's a lot of freaking revenue to make up.

[00:56:50] [SPEAKER_01]: And so just, just gotta be aware of that.

[00:56:53] [SPEAKER_02]: I'll give this to Google, I guess, as a, you know, before we wrap this up, but I'm more optimistic about their future than Apple.

[00:57:03] [SPEAKER_02]: Um, I think Apple is really being complacent.

[00:57:06] [SPEAKER_02]: At least Google is like just throwing a lot of different bets out there.

[00:57:11] [SPEAKER_02]: And I think there's definitely a higher probability of them finding, you know, growth in one of those bets.

[00:57:18] [SPEAKER_02]: I don't know which one it will be, but there's a lot of them.

[00:57:21] [SPEAKER_02]: I feel like Apple, unfortunately just, they have a very good business.

[00:57:25] [SPEAKER_02]: I just don't know where the growth will come.

[00:57:28] [SPEAKER_02]: And I just, I haven't seen anything.

[00:57:31] [SPEAKER_02]: I mean, the latest one was probably the, uh, vision pro, which is looking like it's going to be a big flop at this point.

[00:57:37] [SPEAKER_02]: So, um, yeah, a lot, they're not selling them.

[00:57:41] [SPEAKER_02]: I think they're actually reducing production of them too.

[00:57:44] [SPEAKER_02]: I mean, look, Apple's not going away anytime soon.

[00:57:47] [SPEAKER_02]: Don't hear what I'm not saying, but I think at least Google has a lot of other bets that they're betting on.

[00:57:54] [SPEAKER_02]: Whereas I, maybe Apple has some too.

[00:57:57] [SPEAKER_02]: I just don't feel like the innovation is there as much with Apple.

[00:58:01] [SPEAKER_02]: Um, and I think we're starting to see that more and more as we're what, over a decade now away from Steve job passing away.

[00:58:09] [SPEAKER_02]: I can't remember when he passed away, but I think, I think it's a pretty clear mark on when he left and he passed away where you saw less innovation from Apple or almost none.

[00:58:20] [SPEAKER_02]: And just like kind of the same products, just, you know, making them slightly better and making them better.

[00:58:26] [SPEAKER_02]: Yeah.

[00:58:27] [SPEAKER_01]: The, the, the consistent improvement versus category changing.

[00:58:31] [SPEAKER_02]: Exactly.

[00:58:32] [SPEAKER_02]: Whereas, yeah, that's, that's just my view.

[00:58:34] [SPEAKER_02]: Obviously I don't own neither companies.

[00:58:37] [SPEAKER_02]: I guess I own them through index funds, but, um, I don't really have a major stake in them.

[00:58:42] [SPEAKER_01]: Yeah.

[00:58:42] [SPEAKER_01]: I mean, in my view, just, uh, I'll finish with Apple here, but like, uh, I guess what I'm saying, I'm saying all that here.

[00:58:50] [SPEAKER_01]: And then I would not be surprised if they close out the December quarter for the search business, which is always the biggest quarter because of shopping click.

[00:58:58] [SPEAKER_01]: Uh, you know, uh, CPCs are the highest in December and November.

[00:59:02] [SPEAKER_01]: They could have a monster black Friday, monster Christmas.

[00:59:05] [SPEAKER_01]: And that, that, that segment do 55 billion in sales this quarter, which would be a new record.

[00:59:10] [SPEAKER_01]: Uh, they did 49, uh, last quarter.

[00:59:13] [SPEAKER_01]: And so all of those things can be true, but on a long time, I don't invest for next quarter.

[00:59:21] [SPEAKER_01]: I don't invest for the quarter after that.

[00:59:22] [SPEAKER_01]: You know how we think about these things.

[00:59:24] [SPEAKER_01]: We're, we're thinking five, 10 years.

[00:59:27] [SPEAKER_01]: Right.

[00:59:27] [SPEAKER_01]: And that, and that's, that's the, that's the key takeaway on Apple.

[00:59:31] [SPEAKER_01]: I, I don't think there's any concerns with Apple, the business, honestly, I think there's a lot of concerns with Apple, the equity.

[00:59:39] [SPEAKER_01]: Yeah.

[00:59:40] [SPEAKER_02]: I mean, I think, uh, to me, it's, I guess it's a mix of both.

[00:59:43] [SPEAKER_02]: I do like, I'm not concerned with the business.

[00:59:46] [SPEAKER_02]: I'm more concerned with where they're going to find growth.

[00:59:49] [SPEAKER_02]: I think they're going to keep generating.

[00:59:51] [SPEAKER_01]: That's the problem with the equity.

[00:59:52] [SPEAKER_02]: Yeah.

[00:59:52] [SPEAKER_02]: Yeah.

[00:59:53] [SPEAKER_02]: Well, exactly.

[00:59:54] [SPEAKER_02]: Well, where they're going to find growth and clearly the equity is, you know, the stock is just, it's valued like a company that's growing and is highly profitable.

[01:00:03] [SPEAKER_02]: Like that's what it is.

[01:00:05] [SPEAKER_02]: It's highly profitable.

[01:00:06] [SPEAKER_02]: They're highly profitable.

[01:00:07] [SPEAKER_02]: It's not growing.

[01:00:08] [SPEAKER_02]: That's missing one of the two.

[01:00:09] [SPEAKER_01]: Yeah.

[01:00:11] [SPEAKER_01]: Dev Kentis area of Valley Forge Capital.

[01:00:14] [SPEAKER_01]: I, I, I got to run after this, but, uh, he defines the perfect quality stock as the intersection between growth.

[01:00:24] [SPEAKER_01]: Sorry, of, uh, predictable growth and you can have a lot of that profitability, but the predictability part of their growth is what makes owning certain equities really easy to do.

[01:00:40] [SPEAKER_01]: And it's like, where does that next lever come from with a company of their size?

[01:00:45] [SPEAKER_01]: And the phones are so freaking good, right?

[01:00:48] [SPEAKER_01]: Like you get people like the upgrade cycle, they kind of upgrade cycle used to be nice and predictable.

[01:00:54] [SPEAKER_01]: Now it's, it's a little bit tricky with the upgrade cycle.

[01:00:57] [SPEAKER_01]: It made such great phones.

[01:00:58] [SPEAKER_01]: Apple products are freaking awesome.

[01:01:01] [SPEAKER_02]: But the reviews of Apple intelligence have not been good.

[01:01:04] [SPEAKER_02]: The ones I've seen.

[01:01:05] [SPEAKER_01]: Because they're not doing it themselves.

[01:01:06] [SPEAKER_01]: That's why.

[01:01:08] [SPEAKER_02]: Yeah.

[01:01:08] [SPEAKER_02]: And what I've seen.

[01:01:09] [SPEAKER_02]: So it's really not enticing me at all to upgrade my phone any sooner.

[01:01:13] [SPEAKER_02]: I'll, I'll have it once, you know, the kinks are probably ironed out a bit and, um, you know, a few generation down the line.

[01:01:21] [SPEAKER_02]: But, uh, yeah.

[01:01:23] [SPEAKER_01]: Yeah.

[01:01:24] [SPEAKER_01]: Makes sense.

[01:01:25] [SPEAKER_01]: All right, buddy.

[01:01:26] [SPEAKER_01]: Good chat.

[01:01:27] [SPEAKER_01]: Yeah.

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