What Does TD's AML Settlement Mean for Investors?

[00:00:01] 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] Welcome back to The Canadian Investor Podcast. I'm back with Dan Kent. We are back for our Thursday news and earnings episode. Thankfully, earnings season is starting right then and there was some interesting news on the Canadian front as well, right?

[00:00:31] Yeah, a lot of non-earnings related news, some pretty notable situations from a couple of huge companies here in Canada. A couple of which that we've been talking about and kind of predicting these end results for quite some time now on TD Bank and Crestard. So it's definitely going to be an interesting podcast.

[00:00:54] Yeah, let's actually start with TD Bank. We had Canadian CPI that came out this morning. So we'll do that after just because I think it's a nice segue and you know, it's a lot of people are invested.

[00:01:06] Like I know it's a very common holding for Canadians in general. I was actually checking out the TD Direct Investing Index. So on their platform, right? They have this kind of bearish bullish index and you look at the most held stocks.

[00:01:20] Obviously, it's TD. So a lot of people own TD, but you know, a lot of their holders just own Canadian banks in general. And it's always one of the top holdings. And I assume it's a lot of people own it, even if they don't think they own it. Just if you have some kind of a fund that's Canadian based, there's a good chance you own it.

[00:01:38] Yeah, especially any market cap way to fund because what is it? TD's got to be the second or third largest company in the... Well, it's not as large as Shopify, I don't believe.

[00:01:47] Yeah, it's up there. It's top five for sure.

[00:01:50] But if they keep going, they'll probably go out of the top.

[00:01:55] Yeah, this is probably... It's definitely like this has to be one of the more notable things to happen to a Canadian bank in quite some time.

[00:02:05] Yeah, exactly. So obviously, we're referring if you've been living under the rock and you have no idea what we're talking about, we're referring to the TD AML investigation in the US.

[00:02:14] I will say AML a lot. So that's anti-money laundering laws or regulations. They're present in Canada and the US.

[00:02:22] But this specifically is for TD's operation in the US for the retail banking segment, retail and I guess business banking over there.

[00:02:31] So it happened. I'll just do a recap a little bit of what they were essentially pleaded guilty to and what the Department of Justice, so the DOJ found them guilty of.

[00:02:42] So between 2014 and 2023, TD failed to monitor over $18 trillion in transaction properly.

[00:02:49] That enabled criminal networks to move more than $670 million in illicit funds.

[00:02:55] Employees at the bank were aware of the suspicious activities.

[00:03:00] In one example, they did even mention that TD Bank facilitated over $400 million in transaction to launder funds on behalf of criminals selling fentanyl and other narcotics.

[00:03:12] Merrick Garland, who is the US Attorney General, said that employees would openly joke about the lack of compliance.

[00:03:21] So clearly it was something that was well known within the bank and they even mentioned that the bank issues were known at every level of the bank,

[00:03:29] which is not surprising that Bharat Masrani, the current CEO, has announced his retirement and will be replaced by Raymond Chun.

[00:03:37] Now, I was really critical of him.

[00:03:40] I think you remember that when we talked about it.

[00:03:43] I think it was maybe the last earning or the earnings before when they started getting more information about what was happening with the email investigation.

[00:03:51] And on the conference call, he was, you know, not really taking ownership of what happened.

[00:03:57] And that really bothered me because whether, you know, you open, you knew or not, that's I don't care.

[00:04:04] You're the CEO.

[00:04:05] You're accountable for this.

[00:04:06] And if you didn't know, then there's an issue with your leadership because you should have known.

[00:04:10] And if people don't feel comfortable to bring these kind of issues up the command chain, up of the line of command, then there is another issue, which is not good at all.

[00:04:22] Like there should be employees and, you know, executives should be should feel comfortable to bring these kind of issues to the CEO.

[00:04:31] And if that wasn't the case, it doesn't look good either way.

[00:04:34] I don't know if, you know, you kind of see things the same way.

[00:04:37] But for me, that's how I saw it.

[00:04:40] And what's worse is this was between 2014 and 2023.

[00:04:44] He started as he was in 2014.

[00:04:47] So you were there for the whole time this happened.

[00:04:51] He should have taken accountability for this way sooner, in my opinion.

[00:04:54] I think he was basically forced out the door because he didn't.

[00:04:58] It was I didn't read the whole settlement because it's super long.

[00:05:02] Right.

[00:05:02] But I would assume that I was probably part of their ass that he needed to leave.

[00:05:07] Yeah.

[00:05:07] And I'm surprised like they just kind of let him ride off into the sunset and retire.

[00:05:12] Like, how do they not just can him for something like this?

[00:05:15] You would think there'd be more like they're letting him operate till what middle of next year and then he's retired or something like that.

[00:05:22] Yeah.

[00:05:22] Like, I'm just surprised they didn't just outright get rid of him.

[00:05:25] I mean, that would probably, you know, give investors a little more confidence that they're they're taking it seriously.

[00:05:29] But they're letting him, you know, hang on for another.

[00:05:32] Well, what is that?

[00:05:33] Nine months.

[00:05:34] Yeah.

[00:05:35] I mean, they have to make sure there's good succession planning in place, you know, as to to let his successor show him what not to do.

[00:05:42] Yeah, exactly.

[00:05:44] Yeah.

[00:05:44] I mean, it's it's does.

[00:05:45] It's not a good look for TD at all.

[00:05:48] And I mean, I think the other institution, this is off the top of my head, but I think like a lot of the other banks have been fined like smaller amounts for like smaller situations like this.

[00:05:59] But this is definitely the the biggest one.

[00:06:03] Like, yeah, the U.S. doesn't mess around with that.

[00:06:07] And I think the biggest issue was that they failed to monitor that 18 trillion in transactions properly.

[00:06:14] I think this this is without being the shoes of the Department of Justice and you and U.S. regulators.

[00:06:22] I would assume this is really what pissed them off because it wasn't just some one offs here.

[00:06:28] It was clearly there was some deficiencies in terms of compliance and adhering to these best practice in terms of AML.

[00:06:36] So I would assume that's probably what was one of the biggest issue for them.

[00:06:41] And of course, in terms of the overview of what is being imposed on TD, the first one, which is probably not that bad, although it doesn't sound good.

[00:06:50] So a fine of three point zero nine billion U.S. dollars.

[00:06:53] However, TD had set aside almost that amount, just about four three point zero five billion.

[00:07:00] So just, you know, a little bit less.

[00:07:02] But, you know, at least they had said that amount already.

[00:07:04] So I'm sure they were expecting a pretty large fine requirements to remediate the bank's U.S. AML program.

[00:07:11] A requirement to prioritize the funding and staffing of the remediation.

[00:07:16] A formal oversight of the AML remediation through a monitorship.

[00:07:21] So that means that they will be independent third party monitoring TD's AML practices.

[00:07:26] And obviously the progress they're doing and personally haven't been part of audits, which just is probably one much more in depth of audits.

[00:07:35] And audits tend to be more specific in terms of what they are.

[00:07:40] This will for sure be very time consuming and costly in terms of the monetary costs and the resources that they will have to assign to properly, you know, provide the information and work with this third party.

[00:07:55] The total assets of TD's two U.S. banking subsidiaries cannot exceed U.S. $434 billion in total assets.

[00:08:05] So that's their asset in as of September 30th, 2024.

[00:08:10] And the limitation does not apply to TD Securities or any of the banks, Canadian or other global businesses.

[00:08:17] So this is just the U.S. retail and business banking.

[00:08:21] And the U.S. bank is subject to more stringent approval processes for new bank products, services, markets and stores to ensure AML risk of new initiatives is properly considered and mitigated.

[00:08:35] So definitely not good.

[00:08:37] I know you'll go into more detail on what this means for TD, but that's an overview of what, you know, is happening on the bright side.

[00:08:45] There is some form of closure, but I'm sure as you'll elaborate, there's still a whole lot of uncertainty going forward as well for TD.

[00:08:55] Yeah.

[00:08:56] And I would imagine they kind of knew like where the fines would come in.

[00:09:01] And that's why like the provisions are almost bang on what the fine is, because like we've seen, you know, they were kind of steadily increasing the provisions for it.

[00:09:09] And then I think it was last quarter, they booked like something like 2.6 billion Canadian dollars or whatever, which probably, you know, was an indicator that they probably told them how much the fines were going to be, which is why, you know, there was that large increase.

[00:09:22] And I'll say like, even when this started resurfacing, like many analysts said, you know, 500 million to a billion in fines and like, we're like 3x that.

[00:09:33] So it's, it's been pretty bad.

[00:09:36] I mean, it's definitely taken a big one-time hit to earnings, but I mean, moving forward.

[00:09:42] Yeah.

[00:09:43] TD, TD has pretty much used the U.S. arm of its business to just, you know, add growth over the last couple of decades, primarily through Accra.

[00:09:52] Acquisitions.

[00:09:53] I mean, it made a few notable acquisitions, you know, in the U.S. over the years.

[00:09:57] It acquired Bancorp in 2004, Commerce Bancorp in 2008.

[00:10:02] And then in 2013, it bought all of Target's credit card assets.

[00:10:08] So it added that to the fold.

[00:10:10] And I mean, it was pretty close to making one of its largest acquisitions.

[00:10:14] I think it actually would have been the largest in First Horizon.

[00:10:16] But the deal fell through in 2023.

[00:10:19] And there was initial rumblings that it was due to like the U.S. regional banking crisis.

[00:10:24] But it turns out that it was because of these AML issues.

[00:10:27] And I think it wouldn't have went through anyway because of that.

[00:10:30] And I mean, now that this asset cap is in place, that area of growth is effectively dead for the company until, you know, that asset cap is lifted.

[00:10:39] Because it's not going to be able to acquire any significant level of business.

[00:10:43] Because like you had mentioned, they're effectively capped at the U.S. retail assets they have now, no?

[00:10:49] You said it was like as of their September 30th assets.

[00:10:52] Like they're really not going to be able to grow that side of the business, which has, you know, fueled quite a bit of the growth over the last few years.

[00:11:02] And I mean, this is going to end up in TD Bank either growing at a much slower rate, relying pretty much solely on its Canadian retail end.

[00:11:11] Or it will need to, you know, find a way to make up that U.S. growth elsewhere.

[00:11:15] I've seen a few people mention, you know, the company could look to expand internationally or, you know, just to try and find a way to expand faster in Canada.

[00:11:23] I mean, but both of these situations are really not all that optimal.

[00:11:26] I mean, with the international expansion side of things, you're effectively taking something that a company has been really good at, which would have been its, you know, the U.S. retail side of the business and how fast it's grown it.

[00:11:38] And, you know, expanding into something that nobody really knows if they're good at.

[00:11:42] And I mean, we've seen, you know, companies like Scotiabank kind of take this avenue, expand out of North America, and it has not worked out very well at all.

[00:11:52] So, I mean, the people kind of saying that this will be, you know, an easy pivot for TD, I really don't think it will be.

[00:11:59] It could work out.

[00:12:00] They could take that avenue and grow well.

[00:12:03] But, I mean, obviously, you know, on the international expansion side of things, it doesn't really look good that they've done this either.

[00:12:10] Yeah, exactly.

[00:12:11] Like, I'm not sure countries will, you know, jump at the opportunity to approve, you know, a TD acquisition in their country after TD has been slapped, you know, these, yeah, these restrictions by the U.S.

[00:12:24] Yeah, for the cartel of drugs.

[00:12:26] It's, yeah, it's definitely not a good look.

[00:12:29] It's not like, you know, they can just, yeah, it's not going to be easy on that end.

[00:12:33] And, I mean, if you look at the growth of its U.S. retail assets in the U.S. over the last 13 years, it's grown them at, you know, a 5.2% pace annually.

[00:12:43] And its Canadian assets have only grown at 3.2%.

[00:12:48] So, it's got a lot of work to do to make up that, you know, that growth on the U.S.

[00:12:54] It's definitely a tough gap.

[00:12:56] And, you know, I really expect this to impact companies' earnings over the short term with the possibility, you know, of extending into the midterm if it can't, you know, find another way to make up that growth.

[00:13:08] I don't, like a lot of, I know we said it quite a few times on the podcast as well.

[00:13:12] We kind of compared to the Wells Fargo type situation.

[00:13:14] They made all those fake accounts and things like that.

[00:13:18] But, like, they had an asset cap.

[00:13:20] But the bulk of their business was in the United States.

[00:13:23] So, I mean, it's a lot more impactful, whereas TD is around 30%.

[00:13:27] But it's also, I mean, this is 30% of the business.

[00:13:31] It's not a small end of the business.

[00:13:33] And you have to keep in mind, too, TD is like, it's 30%, but their business is almost evenly divided.

[00:13:40] Not quite, but between the U.S. retail, Canadian retail, and then, like, I guess, wholesale, which includes both U.S. and Canadian.

[00:13:50] But the wholesale is not impacted.

[00:13:53] And for people wondering what wholesale is, it's just essentially banking services to institutions.

[00:13:59] To large institutions, that's what wholesale is.

[00:14:02] So, that's the difference between the two.

[00:14:03] So, those are clearly not impacted.

[00:14:06] And in terms of assets, wholesale is the number one, at least.

[00:14:11] But I'd have to check.

[00:14:12] I can't remember where they get most of their net income from.

[00:14:16] I would imagine it's still from the Canadian retail, but I'm not 100% sure on that.

[00:14:22] But, I mean, they have been one of the more aggressive growers in the United States over the years.

[00:14:27] And now that, you know, that's effectively been taken away from them.

[00:14:31] And it's not all that easy to just make up that growth in Canada, especially when you have, you know, the other institutions.

[00:14:39] They're all major institutions here.

[00:14:40] There's not very much, you know, there's not very much market share that TD could, you know, capture from these other banks.

[00:14:47] Because they're effectively, I mean, if you look at them versus the other major banks here, like, they're operating at a significant disadvantage.

[00:14:57] The one thing I'm really curious about is, so TD typically raises the dividend in the fourth quarter.

[00:15:02] So, I'm wondering how high that, you know, because they've typically been one of the faster dividend growers out of all the Canadian banks.

[00:15:11] But right now, their payout ratio is, I think it's at like 86% or 87%, which is like abnormally high for a bank.

[00:15:18] It's going to normalize because a lot of that was, you know, because of those AML fines that it's so high.

[00:15:25] But I just wonder, like, do we see a really tiny dividend raise in the fourth quarter?

[00:15:31] Or do we not see anything at all just because, you know, it's a little uncertain right now?

[00:15:36] I mean, I would imagine they still bump it just because, you know, the fines are over and done with.

[00:15:41] So, they should have a relatively, you know, good idea of, you know, projected earnings.

[00:15:46] But dividend growth from these banks is typically a pretty good indicator on, you know, how they view the environment moving forward.

[00:15:54] I mean, we saw Scotia, who hasn't raised their dividend, going on two years now just because they've struggled so much.

[00:16:01] So, I'm really curious on what they do next quarter.

[00:16:04] Yeah, I think that's a great point.

[00:16:06] And a lot of people say, well, now they can focus on Canada.

[00:16:10] And, you know, let's remember that the Canadian economy right now is not exactly firing on all cylinders.

[00:16:16] So, you have to keep that in mind too.

[00:16:19] Yes, it's performed decently well.

[00:16:21] But TD has been, like other Canadian banks, having more and more loan loss provisions for a lot of them actually are assigned to their Canadian banking business.

[00:16:31] So, you have to keep in mind that it's not like things are very rosy.

[00:16:35] There's a lot of competition in the Canadian space as well.

[00:16:38] I know some have floated.

[00:16:39] I joked to you about, like, you know, Laurentian buying Laurentian Bank.

[00:16:44] That was a joke because Laurentian Bank literally put itself up for a sale.

[00:16:48] I think it was, like, last summer, right?

[00:16:50] Yeah, nobody wanted.

[00:16:51] And there was no buyers.

[00:16:53] Yeah.

[00:16:53] So, are you going to come back?

[00:16:55] And clearly, it's not fantastic assets.

[00:16:57] It's none of the big banks were interesting in buying it.

[00:17:00] But, especially after you see National Bank, you know, making the offer to buy Canadian Western.

[00:17:06] I'm just, yeah, I'm just a bit skeptical when it comes to that.

[00:17:10] And I guess the last thing I'll mention here is so, Wells Fargo, they had that asset cap that you mentioned, $1.95 trillion.

[00:17:17] Clearly, their business was mostly in the U.S.

[00:17:20] So, you know, obviously you have to take that into account.

[00:17:23] But what I ended up doing is this asset cap started in February of 2018.

[00:17:27] And it's still in effect now.

[00:17:29] So, it just goes to show that it can go on for a very long time.

[00:17:33] And some people are speculating that it may be taken off in 2025.

[00:17:37] But, again, I think typically what regulators want to see is they want to be assured that going forward, whatever they're imposing those asset caps on, whatever the reason is, they want to make sure that your practices have changed for good.

[00:17:53] And that takes a lot of time.

[00:17:55] So, don't expect this to take a year or two.

[00:17:57] It's not.

[00:17:58] Like Wells Fargo, I think it's a good example.

[00:18:01] And I just decided to pull since that date the returns of Bank of America, JP Morgan, and Citigroup compared to Wells Fargo.

[00:18:09] So, you know, JP Morgan, which is not necessarily the same kind of bank as Wells Fargo.

[00:18:17] Wells Fargo is a more traditional kind of saving and loans bank.

[00:18:21] So, the closest one is probably Bank of America.

[00:18:24] But regardless, Bank of America returned total returns of 56.5 during that time period.

[00:18:31] JP Morgan, 137%.

[00:18:33] And then you have Wells Fargo at 27%.

[00:18:36] And Citigroup lagging behind.

[00:18:39] But Citigroup also has regulatory issues of its own for other reasons that are going on that are still ongoing.

[00:18:47] So, you get the two that are really facing regulator scrutiny that are underperforming pretty widely.

[00:18:55] The other two, JP Morgan, I think it's really outperforming in part because they have like this old wealth management business.

[00:19:01] Like a much larger bank in general and different kind of services caters to different kind of people.

[00:19:07] So, you have to keep that in mind.

[00:19:09] But I wanted to show that because the future is incredibly uncertain when it comes to TD specifically for, I think, for banks in general, but specifically TD.

[00:19:20] Yeah, I mean, it took them almost, what, a year to figure out what even the penalty would be.

[00:19:25] So, I can't imagine the cap is going to be lifted in a year.

[00:19:29] I mean, I would be very surprised.

[00:19:31] And in terms of Wells Fargo, like you said, like it's effectively returned since the asset cap, the dividends.

[00:19:37] A little bit more than the dividend you've been paid, which, yeah, it's been effectively, you know, from a appreciation.

[00:19:45] I believe I did it like without dividends.

[00:19:47] And if you look at the start of 2018 until now, it's lost around 4% in share price.

[00:19:52] So, I mean, you effectively had to get the dividends and reinvest them back in the company to earn, what is it, 3.7% annually.

[00:20:00] Whereas, the S&P, just guessing, is probably returned 12.

[00:20:04] So, I mean, it's not, it's been a pretty rough go.

[00:20:08] And it's, you know, it's hard to tell how it's going to work out for TD.

[00:20:12] But I really, they're at the mercy of U.S. regulators, which is probably not somebody you want to be at the mercy with.

[00:20:20] No, no, that's usually not.

[00:20:22] Yeah.

[00:20:23] That's usually not a good idea.

[00:20:24] Yeah.

[00:20:25] Yeah.

[00:20:25] Like, if they don't like, you know, your process, like how, you know, you've effectively, you know, they're probably going to have to spend quite a bit of money to, you know, change and, you know, put more, you know, stringent, you know, things in place.

[00:20:39] And I mean, if regulators don't like it, they'll just keep the cap.

[00:20:42] Yeah.

[00:20:42] You're effectively at their mercy.

[00:20:44] And I don't think they'd be in any rush to remove it until things are looking rock solid.

[00:20:52] Yeah.

[00:20:52] And I guess the last thing I'll mention, as I've seen people say, like, I think people, I've seen one person say it.

[00:20:57] And I think it was the dumbest comment I saw regarding this.

[00:21:01] And I can't remember who it was.

[00:21:03] I think it was on Twitter.

[00:21:04] But a person was like, well, I mean, you know, what TD did is not as bad as Wells Fargo, which were opening accounts, you know, fake accounts without people's like customer consent and even forging signatures.

[00:21:17] I'm like, I mean, if that's your perception versus, you know, allowing, you know, drug money to be laundered from fentanyl.

[00:21:26] Sure.

[00:21:26] I mean, I'm going to go on a limb and say that U.S. regulators, which are, you know, AML is usually a big, big focus for them.

[00:21:35] They might disagree a little bit on that.

[00:21:37] So I think they're both bad to say that, you know, this is not as bad.

[00:21:41] I think they're both terrible looks for different reasons.

[00:21:43] So, yeah, just I just wanted to mention that because I kind of couldn't believe when I saw that comment.

[00:21:48] Yeah.

[00:21:49] I mean, I guess that all depends on what you view as bad.

[00:21:51] I would view them as like near equal.

[00:21:53] I mean, they're both really, really poor.

[00:21:56] I mean, Wells Fargo's, I guess, was a little more shady from like a consumer perspective that they were doing things like that.

[00:22:02] Whereas like TD is more of a, you know, this is like an illegal drug activity, things like that.

[00:22:07] But they're both bad and, you know, regulators don't like either much at all.

[00:22:12] No, exactly.

[00:22:13] So I think we've touched enough for 20 minutes or so on this.

[00:22:17] So let's move on.

[00:22:18] Talk about CPI that just came on.

[00:22:20] So fresh off the press this morning.

[00:22:22] So for September 2024, headline CPI came in at 1.16% year over year.

[00:22:29] Clearly a deceleration here in the inflation rate, the headline rate.

[00:22:34] And obviously it's the inflation rates of prices are still increasing on the aggregate.

[00:22:39] They're just increasing at a slower rate.

[00:22:41] But that's still at a higher, you know, you know, it's still on top of all the inflation we've seen over the last four or five years.

[00:22:49] And food was up 2.8% year over year while shelter was up 5%.

[00:22:54] On a monthly basis, it was flat for food while shelter was up 0.1%.

[00:22:59] Rent prices are rising at a slower pace, but still increasing at a rate of 8.2% year over year.

[00:23:05] Food prices purchased from stores.

[00:23:09] So grocery was up 2.4% while restaurants was up 3.5%.

[00:23:14] Services inflation, one that I think is really important to look at.

[00:23:18] Decline 0.2% on a monthly basis, but it was still up 4% over the year.

[00:23:23] This one, I think it's important to keep an eye on because it's been very sticky over the last couple of years.

[00:23:29] So something to keep an eye on.

[00:23:31] Energy is definitely the component that pulled down the headline number.

[00:23:35] So it declined.

[00:23:36] This is crazy.

[00:23:37] So it declined 8.3% year over year, 4.8% month over month.

[00:23:42] I know I probably sound like a broken record right now, but this is a big risk going forward.

[00:23:47] And if you don't believe me, all item excluding energy were up 2.4% compared to the headline number of 1.6%.

[00:23:56] So think about that for a second.

[00:24:00] So if you remove energy, things were up 2.4%.

[00:24:04] If you include energy, they were up 1.6% over a year.

[00:24:07] So this is a big risk, I think, for future inflation.

[00:24:12] And I'm sure people will be, government officials from across the country will be celebrating with that headline number.

[00:24:20] Oh, yes. Absolutely.

[00:24:21] That's usually the case.

[00:24:22] But once you start going into it, that could really be a big, big wild card when it comes to the Bank of Canada's target of 2%.

[00:24:30] Or, you know, they have the range between 1% and 3%.

[00:24:34] And that's the average.

[00:24:35] Just to finish this off and feel free to, you know, give your take after, Dan.

[00:24:39] The core measures, which the BOC focuses on more, also is, you know, not really trending in the right direction anymore.

[00:24:48] It's just one month.

[00:24:49] So we'll have to see.

[00:24:50] So CPI common was up to 2.1% from 1.9% the month before.

[00:24:57] CPI median, which basically just looks at the kind of medium price increase, was flat at 2.3%.

[00:25:04] So the same as the previous one.

[00:25:06] And CPI trim, which removes the most volatile elements of CPI on both ends of the spectrum, was flat to 2.4%.

[00:25:15] Interestingly, it kind of aligns with the all items excluding energy.

[00:25:20] So, you know, that's, it's just something to keep an eye on.

[00:25:23] It is, you know, I think it's a good headline print, but I think we just have to be careful because it could get very volatile, especially if we see volatility in energy prices going forward.

[00:25:35] Yeah, when you see energy making up, what, one third of the overall inflation number, it's, yeah, I mean, it can swing the other way pretty quickly.

[00:25:44] But I would imagine this would give the Bank of Canada a bit of, you know, incentive to maybe, that's the main thing that I'm curious about is whether they go 50 basis points.

[00:25:55] When is it?

[00:25:55] I believe the meeting is in, like, October 22nd or 23rd or something like that, they decide.

[00:26:02] I was trying to look up, there's not as good of forecasts, you know, like the Fed watch, like you can, that stuff is just, you can look it up in a second, but there's not too many.

[00:26:11] It's amazing.

[00:26:12] For Canadian, they don't really have, I mean, the only thing I could really find is a TD story from October and they kind of predict policy rates to hit 2.5% by the end of next year.

[00:26:25] So that would be some pretty, pretty big declines.

[00:26:28] But I'm, if I were to bet, I would say we see 50 basis points down.

[00:26:32] What would it be next week?

[00:26:34] I would bet 25.

[00:26:36] Yeah.

[00:26:36] The reason why I think 25 is because of the core and the energy component.

[00:26:41] I think that's going to scare them.

[00:26:43] I think that will definitely scare them that they get too aggressive and then energy prices start spiking.

[00:26:50] Yeah.

[00:26:50] They are, you know, they've kind of, you know, screw, not shot them, not screw themselves, but they shot themselves in the foot a little bit because they went down too quickly and a bit less leeway in terms of what to do going forward.

[00:27:03] So I, I mean, obviously it's all about probabilities.

[00:27:06] I don't think 50 basis point is off the table, but because of the core and how energy pulled down the headline number by so much and core metrics are actually flattening.

[00:27:19] We'll have to see right in a few more data points.

[00:27:22] So maybe it's just a blip and it will keep going down.

[00:27:24] But I think those are the reasons why I think they'll be cautious and do 25.

[00:27:29] Yeah, it's possible.

[00:27:31] I mean, they've done a pretty good job thus far.

[00:27:34] And I mean, I guess if they think a 50 basis point might, you know, spur things and kind of eliminate, you know, all the, all the hard work they've done over the last while, kind of navigating what's going on right now.

[00:27:44] Maybe 25, but I'm, my mortgage is renewing in a year, a year and a bit.

[00:27:49] So I'm hoping we get a few 50s.

[00:27:52] Well, if you go variable, sure, but fixed, we'll have to see.

[00:27:55] You have to, you'll have to do a, you know, a dance and try to hope that the bond market cooperates with you.

[00:28:04] Yeah, it's going to be interesting.

[00:28:07] Okay, so I think we've done enough about CPI.

[00:28:09] We still have a few things to do.

[00:28:12] So why don't you go ahead with Aritzia, that reported earnings.

[00:28:15] I know it's a pretty, you know, it's a stock company that a lot of people at least follow.

[00:28:22] I think a lot of people listening to the podcast actually own or at least, you know, probably buy close off of Aritzia.

[00:28:29] Yeah, it's generally like even when we write about it or, you know, talk about it on our YouTube, it generally gets some pretty high viewership and interest.

[00:28:37] I think it's a pretty heavily owned growth stock here in Canada.

[00:28:40] But they posted a pretty strong quarter, but some guidance caused it to sell off post earnings.

[00:28:46] I mean, the one important thing to keep in mind is it is up over 80% on the year.

[00:28:53] So it really shouldn't be all that surprising to see a bit of a pullback, especially, you know, on a guidance revision, which I'll get to in a bit was like borderline non-existent.

[00:29:05] But it's pretty easy to start focusing on the negatives in terms of the daily fall.

[00:29:10] But the company has just performed so well this year overall.

[00:29:13] Revenue, $615 million.

[00:29:15] They predicted 584.

[00:29:17] So it came in ahead of that.

[00:29:19] And earnings per share of 21 cents came in well ahead of effectively 15 cents that were estimated.

[00:29:26] Same store sales grew by 6.5%.

[00:29:28] And the company's U.S. growth is returning in a big way.

[00:29:33] It's driving most of the results right now.

[00:29:36] And it's looking to be, you know, a pretty big tailwind.

[00:29:38] U.S. revenue grew by 23.9% year over year and now makes up 56% of the company's total revenue.

[00:29:45] And I believe like even a couple of years ago, this was at like, you know, the low 40s, mid 40s.

[00:29:50] So it's definitely like, you know, the U.S. is, you know, it's starting to become a big chunk of the business.

[00:29:56] And I wouldn't be surprised if you see this at, you know, north of 60% pretty shortly.

[00:30:01] Because the Canadian end is seeing much slower activity.

[00:30:05] I mean, this makes sense because Canadian consumers in general are in a bit of a worse position than U.S. consumers.

[00:30:12] And I mean, in addition to this, the brand is a bit, you know, fresher in the United States.

[00:30:17] And it just has much more room for expansion.

[00:30:19] I mean, they have 10 times the population.

[00:30:22] It's generally an untapped market, whereas the Canadian one, it's a bit more established.

[00:30:27] And I would imagine, I mean, maybe in the short term, you know, if rates come down to Canada, you could see, you know, Canadian growth pickup.

[00:30:34] But I would, if I were to guess, I would say U.S. growth probably outpaces Canadian growth indefinitely.

[00:30:40] Yeah.

[00:30:40] Gross margins.

[00:30:41] Go ahead.

[00:30:42] Just to add to that, right?

[00:30:43] Like people think like, oh, interest rates coming down, people will have more money to spend.

[00:30:48] Again, these things don't happen on a dime, right?

[00:30:50] Even if the Bank of Canada lowers rate, even if you're looking at, you know, credit products that are influenced by the overnight rate that the Bank of Canada publishes.

[00:31:01] I mean, at the end of the day, a lot of this stuff has a lag effect too, right?

[00:31:06] So yes, you know, it may spur consumption.

[00:31:09] It may spurts eventually, but it could take, you know, 12 months plus until we start seeing the impacts in the real economy of people spending more because of low rates.

[00:31:19] I just wanted to mention that.

[00:31:20] Yeah.

[00:31:20] Yeah.

[00:31:21] I think probably for the foreseeable future, you're right.

[00:31:24] And I'm like, I'm showing for a joint TCI here.

[00:31:26] I mean, since it was, I guess, early 2022, the U.S. or no, mid 2022, the U.S. kind of started outpacing the Canadian business.

[00:31:39] Yeah.

[00:31:40] Yeah.

[00:31:40] And it, like, it makes sense.

[00:31:42] Like I said, even if there's, you know, a recovery in Canadian spending, the U.S. market is just so much bigger and, you know, it's not as established of a brand down there.

[00:31:51] So I don't expect the Canadian side of the business to outpace the U.S. at any time soon.

[00:31:59] I mean, gross margins came in at 40.2%, which is a 500 basis point improvement year over year.

[00:32:04] Uh, we're starting to see margin recovery after a pretty rough period of time due to excess inventory, which pretty much caused them to cut huge markdowns on a bunch of their products to just try and move inventory.

[00:32:17] They were like struggling from even like a, like a warehouse perspective.

[00:32:22] I mean, they had so much product that really wasn't moving.

[00:32:25] And from a retail business with stuff like this, you just have to end up marking it down a ton, which kind of kills your margins.

[00:32:31] You're, you're making effectively no money on a bunch of product that you, you know, you had to make.

[00:32:36] Online sales now make up nearly a third of the company's business.

[00:32:41] And it's still continuing to grow that segment at a double digit pace, despite like it's coming up against some pretty tough comparables through the pandemic years.

[00:32:48] So, I mean, the fact that they can still grow it double digits is pretty impressive.

[00:32:53] And they issued both its Q3 and fiscal 2025 guidance.

[00:32:57] I don't really ever focus on quarterly guidance.

[00:33:00] It's, I mean, unless there's some huge changes quarter over quarter, but there really wasn't.

[00:33:04] But on a full year basis, the company expects revenue in the 2.54 to $2.6 billion range for the year.

[00:33:12] And I mean, quite a few headlines had the fact that Aritzia reduced its fiscal 2025 guidance, which is accurate.

[00:33:20] But it's kind of a prime example how like, I mean, like just the headlines are, you know, a bit clickbaity to an extent.

[00:33:27] I mean, the overall reduction in guidance was on the top end.

[00:33:29] They reduced it from 2.62 billion to 2.6 billion.

[00:33:34] So, I mean, as a long-term investor for me, for them to mark down the guidance by, I think this is like less than 3%, it's pretty much a non-factor.

[00:33:42] I'm kind of curious as to why they even marked it down like that tiny of an amount.

[00:33:45] I don't know.

[00:33:46] They must have, you know, some pretty laser targeted outlooks on what they think is going to happen.

[00:33:52] In terms of year-over-year growth, though, that's still double digit.

[00:33:55] And when we consider the state of the economy, at least from a discretionary spending side of things, it's pretty impressive that a mid-tier retailer is still growing at this pace.

[00:34:05] Margin recovery, they expect that to continue.

[00:34:07] Gross margins should, well, they expect them to increase by 450 basis points year-over-year.

[00:34:11] And, I mean, just overall, it was a pretty strong quarter from the company.

[00:34:15] And I own it with, you know, the main thesis that U.S. expansion is probably going to drive most of the growth.

[00:34:22] Retail stocks are crazy fickle, especially, you know, fashion companies.

[00:34:27] In 2023, pretty much anybody, all anybody could talk about was, you know, Aritzia's excess inventory buildup was a result of the company, you know, losing brand power, weakening sales, things like that.

[00:34:38] When in reality, all I think it did is kind of mess up, you know, they made a few miscalculations based off pandemic demand.

[00:34:47] They ordered a bunch of inventory.

[00:34:49] It ended up, you know, interest rates rose from, what, zero to 5% in a matter of, you know, nine months or whatever it was.

[00:34:56] And it just caused a huge slowdown.

[00:34:58] But they are up 117% off those 2023 lows.

[00:35:04] Yeah, I mean, it's pretty good, pretty good returns.

[00:35:07] That's for sure.

[00:35:08] Like, it's, I mean, it succeeded.

[00:35:11] They were definitely having some issues.

[00:35:12] I think, I think it started after like, what was it, like 2022, right?

[00:35:18] Where they had to like, right size everything.

[00:35:20] Yeah, 2022.

[00:35:21] I think their inventory like doubled.

[00:35:23] Because they couldn't keep up with the demand during the pandemic.

[00:35:28] And then they ordered a whole whack load of inventory.

[00:35:30] And then it just, they ended up having to mark a ton of it down.

[00:35:34] And then everybody started to get worried that the products were, you know, they weren't creating enough new products.

[00:35:40] And, you know, the brand wasn't all that powerful.

[00:35:43] And, I mean, with a retail stock, especially a fashion stock, like, it can draw down huge based off, you know, stuff like that.

[00:35:51] But it proved at least to this point to be, you know, a pretty good contrarian buy at the bottoms in 2023.

[00:35:58] Yeah, I mean, it's always tricky when it comes to fashion.

[00:36:01] Yeah.

[00:36:01] I own Lululemon.

[00:36:02] I would say I'm a bit down overall in my position.

[00:36:05] But I added when it was, you know, they were having some issues in the past six months to a year.

[00:36:12] Now it's rebounded a little bit.

[00:36:14] But yeah, fashion is just, it's definitely tricky.

[00:36:19] Yeah.

[00:36:19] We've seen it with Nike, you know, Lululemon struggling a bit too.

[00:36:23] It seems like it's very rare to find a company that will stand the test of time.

[00:36:28] I'm sure Aritzia, it looks like it will do pretty well.

[00:36:31] You know, probably midterm, potentially long term.

[00:36:34] But then you have to make sure they're able to change with how fashion is changing.

[00:36:39] And that's always the hardest part.

[00:36:41] Yeah, it's not exactly a business.

[00:36:43] You can just kind of streamline one specific, you always have to be changing.

[00:36:47] And I mean, this, like, Aritzia is not always the case.

[00:36:50] I mean, we saw with Canada Goose.

[00:36:51] They were cruising and then they definitely did.

[00:36:55] They fell out of favor heavy and just never recovered.

[00:36:58] So it's never a guarantee.

[00:37:00] I mean, Canada Goose was a little bit different.

[00:37:03] They were a ton of growth in China.

[00:37:06] And then there was the element that, you know, their coats are made from animals.

[00:37:10] And that's not exactly a good, from a PR perspective.

[00:37:14] So they had to get rid of that.

[00:37:16] And I mean, it's a different situation, but it's not, the rebound is never a guarantee.

[00:37:20] Yeah, and it's an aspirational luxury, right, for a lot of people.

[00:37:26] So they'll, you know, their coats are very expensive.

[00:37:29] And a lot of people may have saved up to be able to buy the coat.

[00:37:33] But it's probably not something that they're going to be buying now anytime soon,

[00:37:38] especially if you're, you know, you're someone that kind of bought it for the status

[00:37:42] without necessarily, you know, thinking about, like, could you really afford it?

[00:37:48] Right.

[00:37:48] Yeah, I think that's happened to a lot of people.

[00:37:50] And I've never had a Canada Goose coat.

[00:37:53] But from what I heard, they're very good quality.

[00:37:55] So they do last a long time, which then, you know, creates that upgrade cycle.

[00:38:00] You know, it kind of delays it because they're, you know, they're well made and they last for a while.

[00:38:04] So I think a different kind of category will, you know, we'll have to see how they do.

[00:38:09] But yeah, they've been pretty crushed too.

[00:38:12] Yeah, I mean, I would have to have a lot of discretionary income to spend $1,200 on a jacket.

[00:38:18] That's just me.

[00:38:19] Yeah.

[00:38:20] Yeah.

[00:38:21] I mean, for me, the I need a new winter jacket.

[00:38:24] And the one thing I think we I don't know if it was with your Brayden, but we did a segment and I was looking at.

[00:38:30] So they have like a reuse store now.

[00:38:33] Yeah.

[00:38:34] Yeah.

[00:38:34] It was with you.

[00:38:35] Yeah.

[00:38:36] Yeah.

[00:38:36] I would consider that.

[00:38:37] I would buy like because they were selling like probably under $500.

[00:38:43] And for them who are really in good condition, like I couldn't care less that it's used.

[00:38:49] Like as long as it's good quality, it'll last a while.

[00:38:51] Like and it's warm in the winter.

[00:38:53] Like because, you know, you're in Calgary and Ottawa is the same.

[00:38:56] Like it gets cold here.

[00:38:58] Like it's colder than Toronto for people.

[00:39:01] Oh, yeah.

[00:39:02] It's I mean, even at $500, I don't know.

[00:39:04] I think a lot of people have seen me on the on the podcast wearing the Kirkland hoodie.

[00:39:08] So they know I don't.

[00:39:09] Yeah, I know.

[00:39:10] I'm waiting for the Kirkland winter jacket.

[00:39:13] Yeah.

[00:39:14] I mean, for me, I don't mind paying a bit more.

[00:39:16] But again, I would never pay like $1,500.

[00:39:20] No, like forget that.

[00:39:21] But I don't mind paying a bit more if I know it will last a long time because the way I see it is, you know, at the end of the day, it probably costs me less because I don't have to change it.

[00:39:32] Yeah.

[00:39:32] Like three, four or five years.

[00:39:33] Right.

[00:39:34] So, yeah, that's how I approach things.

[00:39:36] But again, I do have a limit as well.

[00:39:38] Yeah.

[00:39:38] Yeah.

[00:39:38] My limit is very low.

[00:39:40] Yeah.

[00:39:41] So we'll move on here to BlackRock earnings.

[00:39:44] I always find it.

[00:39:45] I don't know about you, but I always find it fascinating to look at BlackRock.

[00:39:49] It's like almost looking at that Canadian ETF, you know, fun flows.

[00:39:54] Yeah.

[00:39:54] Yeah.

[00:39:55] Fun flows, but on a much larger basis.

[00:39:58] And obviously they do more than just ETFs.

[00:40:01] Well, aware of that.

[00:40:02] But BlackRock is obviously the largest asset manager in the world.

[00:40:06] So they, you know, they have some money under management.

[00:40:09] Yes.

[00:40:10] Which so far this year, it's been a pretty good year for BlackRock.

[00:40:13] You think about how the markets have been doing and clearly, you know, that's a big tailwind for them.

[00:40:18] So they have 360 billion in year to date inflows.

[00:40:22] As a refresher, when we did the Canadian ETFs flows, it was about to, you know, it's on track to smash the all time record for Canada.

[00:40:31] And it's 49 billion.

[00:40:33] Yeah.

[00:40:33] So it just gives you one asset manager is what about like a quick math here, about like seven times roughly more than that, a bit more than seven times.

[00:40:45] And it's in U.S. compared to Canadian too.

[00:40:47] So it's probably like nine times when you factor in the exchange here.

[00:40:52] Now for the quarter, they had 221 billion in inflows.

[00:40:56] So massive quarter for them.

[00:40:57] AUM was up 2.4 trillion year over year to 11.5 trillion.

[00:41:04] So that's a 26% increase.

[00:41:06] And AUM is asset under management.

[00:41:08] For those who are newer to the podcast, and I will be repeating AUM quite a bit here.

[00:41:14] 456 billion was due to inflows while the rest was because of market appreciation.

[00:41:19] Not surprising.

[00:41:20] Pretty much all major asset classes are up pretty significantly this year, including equities, bonds, Bitcoin, precious metals.

[00:41:27] So you really, if you're down this year, you know, you have to be working pretty hard at it.

[00:41:33] Yeah.

[00:41:33] You got to really reevaluate.

[00:41:35] Yeah.

[00:41:36] Your strategy.

[00:41:37] Because if you're down this year, like, yeah, you're doing something wrong.

[00:41:40] I'll just say it like that.

[00:41:41] I don't want to laugh if that's the case for people.

[00:41:44] But, you know, you need to be very honest with yourself.

[00:41:47] Like you need to look at the mirror because literally pretty much all the asset classes are up this year.

[00:41:53] Revenues increased 15%, mainly driven by higher average AUM, which makes sense because a lot of their revenues comes from fees based on asset under management.

[00:42:04] So the more you have AUM, the more you have fees, even if the percentage stays the same.

[00:42:11] They repurchased 375 million worth of shares during the quarter.

[00:42:15] Net income was up 1.7% while EPS was up 2% to $10.90.

[00:42:20] By client type is really what I find interesting here when you start drilling down their business a little more.

[00:42:27] Institutional is still their largest pool, followed by ETFs, followed by retail.

[00:42:32] Institutional and retail both lost some ground to ETFs.

[00:42:37] So ETFs went from 34% of total AUM to 37%.

[00:42:42] And institutional went down, you know, from 56% to 54% and retail from 10% to 9%.

[00:42:48] For context here, despite representing 54% of AUM, institutional only provides 30% of the fees they collect as a whole.

[00:42:57] So clearly the retail and ETF segment are more profitable.

[00:43:01] So retail was 27% of the fees come from retail while it's only representing 9% of AUM.

[00:43:09] And ETFs, it's 42% of the fees while representing 37%.

[00:43:15] Retail, I haven't checked, but my assumption, and you can let me know if that's correct, is that they're probably like retail mutual funds or kind of, you know, kind of funds not exchange traded, right?

[00:43:27] Yeah.

[00:43:28] Whereas the, like their ETFs are gaining some pretty big popularity recently.

[00:43:33] I mean, XEQT just broke, which is their all-in-one fund.

[00:43:37] They're all equity, all-in-one fund.

[00:43:39] It just broke 5 billion in assets under management, which is like, if you think of the U.S. market, like, I don't even know what something.

[00:43:47] It's absolute peanuts.

[00:43:48] Like I think SPY, like the S&P, yeah, they're at 592 billion.

[00:43:52] So, I mean, it's peanuts, but it's for a Canadian ETF.

[00:43:56] 5 billion in AUM is pretty notable, and they just broke that.

[00:44:01] They're catching up to Vanguard, like the VEQT, their all-equity ETF.

[00:44:08] And I mean, I wouldn't doubt it if XEQT eventually becomes one of the larger all-in-ones.

[00:44:14] Yeah, iShares is, their ETFs just kill it.

[00:44:17] Yeah, and yeah, exactly.

[00:44:18] And for those not familiar, institutional would be things like, for example, if you have a defined contribution pension plan and you have investment fund lineup to choose from that's sponsored by your employer, the pension plan.

[00:44:32] Well, if one of those fund is like from BlackRock, that would be an institutional offering because it caters to pension plans.

[00:44:39] So, that's just an example here.

[00:44:41] Now, there's been a bit of a shift in terms of product type.

[00:44:44] I found that, like, it's not a huge shift, but I think enough to take note.

[00:44:48] So, equity last year was 52% of AUM, while now it's up to 55%.

[00:44:55] Fixed income went from 28% to 26% this year.

[00:44:59] And the only other movement was in cash products where it went from 8% to 7%.

[00:45:04] And what I really find interesting here is that equity AUM as a percentage, like I just talked about,

[00:45:11] I went back to the start of 2021, and this is the highest it has been.

[00:45:16] So, 55% highest has been since that time.

[00:45:20] I thought it would have been higher with 2021, all the excesses that we saw.

[00:45:25] But during that period, essentially looking back at 2021 up to this most recent quarter,

[00:45:31] it's always been between, like, 50% and 52%, which I found a bit surprising,

[00:45:37] especially in the zero interest rate environment that we had or very close to it.

[00:45:42] There was a lot of excess.

[00:45:43] I would have expected equities to be higher back then, but I guess a lot of people were

[00:45:47] seeing the excesses maybe and probably took some money off the table would be my best assumption.

[00:45:53] Yeah.

[00:45:53] And then you see it's interesting.

[00:45:54] You see fixed income declining, which, I mean, you would think it would be increasing.

[00:46:00] I mean, at this point, especially this would be year over year.

[00:46:03] So, they've declined from 28 to 26.

[00:46:06] I mean, maybe it's a bit of a shift out on falling rates.

[00:46:09] Yeah.

[00:46:10] I'm not sure.

[00:46:10] Yeah.

[00:46:11] I could see that where now people are expecting, you know, a bit more, you know, rates to decline.

[00:46:17] And that's a perception.

[00:46:18] So, maybe people are moving out a little bit out of fixed income products to equity, for example.

[00:46:23] That could be some of the reasoning behind it.

[00:46:25] Yeah.

[00:46:27] I mean, I just did a video on those like money, what am I saying?

[00:46:32] Those Heisa ETFs and just the fund flows out of them.

[00:46:35] Seeing huge flows out of those.

[00:46:38] And a lot of them into, you know, US-based cash ETFs as well, just because they pay more.

[00:46:43] I mean, it's going to be an interesting element here with fixed income moving forward as rates

[00:46:49] continue to fall.

[00:46:50] But yeah, the decline there, it's pretty surprising.

[00:46:53] But it's like, it's probably, it's nothing notable.

[00:46:55] It's only a couple percent.

[00:46:56] Yeah.

[00:46:57] And even when you looked at, and I think we'll keep our last segment for another time so we

[00:47:02] can continue this conversation.

[00:47:04] But even looking at, you know, what expectations are for the Fed, I was looking and there's

[00:47:10] no more 50 basis points for the next meeting.

[00:47:13] I think it's early November right after the election.

[00:47:15] So, now the odds are between, they're still in favor of a 25 basis point cut.

[00:47:20] I think it's around like 89%.

[00:47:21] But then the remaining percentage is actually for the Fed to leave things as is.

[00:47:28] Oh, that's interesting.

[00:47:29] Yeah, things have changed a little bit.

[00:47:30] I think it's mostly because of the most recent job report that was better than expected.

[00:47:34] But then again, I don't know what the market is thinking.

[00:47:38] And sometimes like people just see these job reports yet, less than like a month before

[00:47:43] we or, you know, month, maybe a bit more.

[00:47:45] We saw these massive downside revision to all these reports because these job surveys are

[00:47:51] actually, when they come out, they are surveys and the response rate is not very high.

[00:47:57] So, there's a high degree of, you know, uncertainty that these are accurate.

[00:48:02] I mean, it's pretty much a guarantee that they're not accurate.

[00:48:05] And it's always whether it's going to be to the downside or the upside.

[00:48:09] But we've seen in the recent past that it's been to the downside.

[00:48:13] So, I find it pretty funny that the market, yeah, is looking at that and thinking like,

[00:48:18] oh, the jobs are way better than expected.

[00:48:20] I mean, if anything, and without going into the nitty gritty on the, you know,

[00:48:25] hours work per week, which is a good indicator to look at.

[00:48:28] If you see those hours work kind of shifting down, that can start being problematic.

[00:48:34] Without even thinking about that, it's just, I find it a head scratcher that the market

[00:48:38] is still like hanging on to these reports when we've seen they're not accurate.

[00:48:43] They are not accurate.

[00:48:44] They're released too soon.

[00:48:46] They don't take the time to compile the data properly.

[00:48:48] And then they have to do revisions months down the line.

[00:48:51] You can pretty much bank on them revising it downwards.

[00:48:54] Yeah.

[00:48:55] Yeah, the trend, I mean, yeah, the trend right now would be downwards.

[00:48:58] I mean, when the economy is doing well, what you tend to see is the other way around,

[00:49:02] where you start seeing trends revised upwards.

[00:49:05] So just something to keep in mind, all that to say that it's hard to say where interest

[00:49:10] rates will go from now.

[00:49:11] So I'm still happy, even though it's like four and a half percent, roughly around there

[00:49:16] for my US treasury bill as ETFs.

[00:49:18] Happy to leave it there and just see where it goes.

[00:49:20] Because I find it very tricky to try and go out on the duration side of longer duration.

[00:49:29] I just see a lot of risk with that, unfortunately.

[00:49:32] Yeah, that was one thing I was looking at was just the relation to how much the potential

[00:49:38] for US money market or US high interest savings ETFs could pay relative to the Canadian ones.

[00:49:46] Like if we get, like you said, you're earning, I thought it was a little bit higher than four.

[00:49:51] You own you, Bill, yeah?

[00:49:53] Yeah, I mean, I'm just going on top of my head.

[00:49:55] I don't know the most recent, but it's probably around four and a half.

[00:49:59] Yeah, I think it's like 4.6 or something like post fee.

[00:50:02] But I mean, you have even something as simple as like HSAV, which is that savings ETF.

[00:50:09] It's paying 4% right now, I think.

[00:50:11] So if they cut 50 basis points, I mean, there's going to be quite a bit of spread between Canadian

[00:50:17] money market funds and savings ETFs like this and US ones.

[00:50:22] I mean, there's a bit of an added element there that you got to exchange currencies, which

[00:50:26] often would not be worth chasing a 1% added yield.

[00:50:31] You know, exchanging currencies because there's a lot more risk there.

[00:50:34] But there's definitely, I've noticed, because we have the fund flows and you can see that

[00:50:40] there's a lot of money flowing out of the Canadian savings ETFs and into the US ones that

[00:50:45] trade, you know, in Canadian dollars.

[00:50:47] So it's going to be, it's going to be interesting moving forward.

[00:50:51] Yeah.

[00:50:51] US one that trade or US ones that trade on the Canadian market.

[00:50:55] Canadian exchange, sorry.

[00:50:56] Yeah.

[00:50:56] Canadian exchange, sorry.

[00:50:57] But they're still US dollars.

[00:50:59] Yeah.

[00:50:59] Yeah.

[00:50:59] Yeah.

[00:51:00] Because I'm like, how does that work?

[00:51:02] How do we do that?

[00:51:02] No, no.

[00:51:03] US, like, I can't think of any off the top of my head.

[00:51:06] Yeah.

[00:51:06] Like U-bill.

[00:51:06] U-bill would be one of them.

[00:51:07] But they also have, there is some US, like, pretty much high interest savings ETFs that

[00:51:13] are seeing some flows in.

[00:51:15] Whereas, you know, Canadian ones, like huge outflows, huge outflows over the last while.

[00:51:20] Even if your broker allows you to do Norbert's Gambit, I mean, essentially the exchange fees

[00:51:25] are close to zero, right?

[00:51:26] Yeah.

[00:51:27] I mean, it's just, obviously you can get-

[00:51:29] The currency risk.

[00:51:30] You know, depending on your timing, right?

[00:51:32] Like there's, you can still kind of lose out a little bit on the exchanges based on the

[00:51:36] timing, whether the Canadian dollar goes up or down versus the US dollar.

[00:51:40] But to me, I mean, I think it's a fine approach.

[00:51:43] I mean, you know my portfolio.

[00:51:45] I've said it on the podcast quite a bit.

[00:51:46] Like I try to save mostly in US dollars just because I have more confidence in it.

[00:51:51] And the reality is the yield has been better than Canadian alternatives.

[00:51:57] And a lot of my investment are in USD anyways.

[00:52:00] So, you know, if I do trim or sell an investment, oftentimes I already have the USD.

[00:52:06] So I don't need to exchange it once more.

[00:52:08] Yeah.

[00:52:08] And this is like another element there is just kind of shows how, you know, it can put

[00:52:13] pressure on the dollar as well.

[00:52:15] If you get, you know, those much higher rates in the US, I mean, you kind of get money flowing

[00:52:20] into the US for those higher yields and it can put a lot of pressure on the Canadian dollar

[00:52:24] as well.

[00:52:25] No, I think that's a good place to wrap it up.

[00:52:28] I think it was a great episode.

[00:52:29] We had fun talking about the unfortunate conclusion of the AML.

[00:52:35] Well, I guess it's not a conclusion because we'll probably, you know, have to talk about

[00:52:39] it probably in the years to come when we talked about TD's earnings.

[00:52:42] But, you know, some of the things we suspected, we talked about the potential asset cap and

[00:52:48] that's what's happening.

[00:52:49] So it was an interesting episode, a bit all over the place in terms of content.

[00:52:52] But I think we're getting back to the busy season when it comes to earnings.

[00:52:56] So it's always fun from our perspective because there's a lot of choose from.

[00:53:01] So I think, yeah, something you wanted to add before we let everyone go?

[00:53:05] No, I was just going to say, I mean, the Cushtar issue, I mean, there might be something else

[00:53:09] to add to this by next week knowing how that's going.

[00:53:11] So yeah, exactly.

[00:53:13] Yeah.

[00:53:13] Bring on the drama.

[00:53:14] We'll take it at the Canadian Investor podcast.

[00:53:17] Yeah.

[00:53:17] There's a lot to talk about there.

[00:53:19] Well, thank you everyone for listening.

[00:53:21] We, as always, we appreciate the support.

[00:53:24] You can find us on Twitter slash X.

[00:53:27] I'm at Fiat underscore iceberg.

[00:53:29] Dan is at Stocktrades underscore CA.

[00:53:32] And we're pretty responsive.

[00:53:35] So feel free to, you know, if you have questions or comments, we tend to respond there.

[00:53:40] But if not, we'll see you again next week.

[00:53:42] The Canadian Investor podcast should not be construed as investment or financial advice.

[00:53:48] The host and guest featured may own securities or assets discussed on this podcast.

[00:53:54] Always do your own due diligence or consult with a financial professional before making

[00:53:59] any financial or investment decisions.