Where to Park Your Cash and Why Canadian Savings Rates Are Surging

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

[00:00:09] Hosted by Braden Dennis and Simon Belanger

[00:00:14] The Canadian Investor podcast, welcome into the show.

[00:00:20] My name is Braden Dennis as always joined by the intrepid Simon Belanger.

[00:00:26] I hope everyone had a wonderful summer.

[00:00:31] I personally think September is top tier month.

[00:00:35] Summer rolls on, the show rolls on.

[00:00:39] Let's start off with a quick question from a listener on joinTCI.

[00:00:43] JoinTCI.com if you want to support the show on Patreon and then you can take it away brother.

[00:00:56] I'm a safe haven especially now with all the market speculation.

[00:00:59] Not sure if you already have one episode dedicated to that with some options, comments and places to search.

[00:01:07] Some people may be very familiar with it but I'm not. Thanks a lot.

[00:01:12] That's a good question. What do you think?

[00:01:13] Yeah, no, I think it's a good question. I mean I've been getting to be honest more and more questions about that.

[00:01:19] I think it's probably because I've said it quite a bit on the podcast.

[00:01:22] I do have not crazy big cash allocation but I'm keeping it between 10 and 15%

[00:01:29] and I'm more than happy with it because most of it is yielding 4.5 to 5.25%.

[00:01:36] So it's some pretty good returns without too much risk associated to it.

[00:01:41] But there's a couple of different things here and I think you have to first ask yourself a few questions first.

[00:01:47] What do you need the cash for? That's because if you need the cash in a moment's notice

[00:01:51] then you'll have to focus on options that are the most liquid

[00:01:55] and if you're a bit more flexible on the timeframe or you have say a set timeframe when you'll need the cash

[00:02:02] or you want to use it a bit more as a hedge against the equities that you own

[00:02:07] then you'll have a bit more options available to you because then

[00:02:10] you may have some locked in options or longer duration that will be acting similar to cash.

[00:02:17] I would say obviously they're not cash but they'll have similar to that.

[00:02:21] So if you need to have cash available quickly which would be highly liquid

[00:02:26] while a savings account is the most liquid of the option.

[00:02:30] So obviously EQ Bank we love our sponsor with EQ Bank

[00:02:34] and they typically have some of the highest available interest rates on their savings account

[00:02:39] which is basically a hybrid of a savings and checkings account.

[00:02:43] I think that's the best way to put it right, Brandon?

[00:02:45] Yeah, I think that's right. It's an easy savings account that's liquid

[00:02:50] like you would want from a normal savings account but it's not the big bank rates of basically nothing

[00:02:56] and you're actually getting something for having your cash there.

[00:02:59] Yeah exactly and with a big bank, often times if you have a checking account

[00:03:03] I mean you're also paying a fee on top of that to have that account

[00:03:07] so it's not the best use and you're not getting much from your cash

[00:03:11] but if you're a bit more flexible here, there is also some options

[00:03:16] there's the money market fund option which would be still right behind it

[00:03:20] in terms of liquidity not quite as liquid as a savings account

[00:03:24] where you can have the money as a moment's notice.

[00:03:27] It might take up to a week depending because you have to factor in a money market fund

[00:03:32] as an ETF for example, it's T plus one so the day you sell the transactions

[00:03:36] actually settle the next day which is where the T plus one comes in

[00:03:41] and then if you're wiring the money to your bank account

[00:03:44] then that can take three to five days from my experience

[00:03:47] it may vary depending on which broker that you have

[00:03:51] but keep that in mind if you really need the money like within a day

[00:03:55] it may not be the best option but if you have like say a week or two flexibility

[00:03:59] there's some attractive options there and don't worry I will go over some of the options available

[00:04:04] there's also the new option that EQ Bank again offers

[00:04:08] is the notice savings account again if you have

[00:04:12] you know you need something that's liquid but you have a bit of flexibility on the time

[00:04:16] so they have a 10 and 30 days notice savings account

[00:04:19] the 10 days I think currently is yielding around 4.5%

[00:04:23] but it may be different by the time you listen to this

[00:04:25] so take that with a grain of salt and then the 30 days gives you a slightly higher yield

[00:04:29] and the big prerequisite with that is when you want to withdraw

[00:04:33] you have to basically if you have the 10 days for example

[00:04:37] you put the withdrawal request in and you have to wait 10 days

[00:04:41] until you get the money and you're able to use it

[00:04:43] so yes there's the liquidity factor I think is a big consideration

[00:04:47] so that's why you need to understand why you have cash

[00:04:51] or why you know how you may need the money

[00:04:54] anything you want to add before I continue there?

[00:04:56] I guess my question to you is when you consider your cash position

[00:05:03] and we're talking about a cash position but you and I are both very invested

[00:05:07] we're not sitting on the sidelines we're not bearish at all

[00:05:11] we're just talking about ways that you can actually earn on this cash

[00:05:16] are you talking about that 5.15% for you personally

[00:05:20] is that like encompassing like the whole pie

[00:05:24] or is that like just your brokerage account

[00:05:25] because I find that there's a big distinction in what people talk about

[00:05:29] and how much cash they have

[00:05:31] they might have like 3% cash in their brokerage account

[00:05:34] but have hundreds of thousands of millions of dollars in their bank account

[00:05:39] and they're actually in way more cash than they think that they are

[00:05:42] so how do you frame that?

[00:05:44] For me it's more the money that I'd be readily available for investing

[00:05:49] so obviously I keep that separate

[00:05:52] Everything X emergency fund

[00:05:54] Exactly, that's it

[00:05:55] So that's the way I would see it

[00:05:57] so that's the way I see it some other people may see it differently

[00:06:00] but obviously you know if you have tons of cash in like a checking account

[00:06:05] that's not yielding you much

[00:06:06] and it's way in excess of what you need for an emergency fund

[00:06:10] you may want to consider looking at options that give you a bit more yield

[00:06:14] at least even more interest

[00:06:16] I mean even if you don't want to invest the money in stocks or bonds or whatever

[00:06:20] you may want to consider something that gives you at least 4%

[00:06:23] I think it's still pretty easy to achieve it at pretty low risk

[00:06:27] Now if you do have, you know, you have more time

[00:06:32] you have say a set period of time that you have

[00:06:35] you have 1, 2, 3 years, whatever it is

[00:06:38] then you have some different options

[00:06:40] so you could look at longer duration bonds or GICs

[00:06:44] with those obviously GICs

[00:06:46] the advantage with those is you can actually lock in the yield

[00:06:49] so right now we're seeing central banks, you know, the Bank of Canada

[00:06:54] and I think we can all agree that the Fed will cut rates

[00:06:57] in the next meeting

[00:06:58] I think the debate right now is 25 or 50 basis points

[00:07:02] but I think globally and the Bank of Canada kind of started the ball

[00:07:05] they are cutting rates

[00:07:07] So chances are that the yield you're getting will be going down

[00:07:11] How quickly will it go down? How low will it go down?

[00:07:15] That remains to be seen

[00:07:17] but there's also another question you need to ask yourself

[00:07:20] Do you want to lock in whatever yield you can get on the longer duration side

[00:07:24] so that can be achieved

[00:07:26] GIC is more of a short to medium term I would say

[00:07:29] but I mean if you can lock in a decent yield on the GIC for a year and a half, two years

[00:07:34] whatever it is then you know it may be a good deal to do right now

[00:07:38] to lock in that yield may or may not be we'll have to see

[00:07:41] but longer duration bonds, same kind of thing

[00:07:44] if you want to hold them to maturity

[00:07:46] you can lock in some yields

[00:07:48] you can go pretty far on the time frame as well

[00:07:52] you can go one, two, five, ten, fifteen, twenty years what it is

[00:07:57] that is definitely possible and that's an option

[00:07:59] but again you have to be able to do that

[00:08:02] because if you need the money in a moment's notice these will not be good options

[00:08:06] so to go back through the money market fund option

[00:08:09] I won't go into the fees because they're all low fees

[00:08:12] they're all basically 15 basis points or less

[00:08:15] so I don't think you have to worry too much on the fees for each of these ETFs

[00:08:19] obviously look at them

[00:08:21] but when I was starting to put down the fees for each

[00:08:24] I'm like okay, I'm just gonna say it's below 15 basis point

[00:08:27] because it's across the board

[00:08:29] the first one here, CMR.TO

[00:08:32] so it's the iShares Premium Money Market ETF

[00:08:34] so it consists of commercial paper and Government of Canada Treasury bills

[00:08:38] so commercial paper is just short-term loans

[00:08:41] that is provided to corporation to fund their short-term needs

[00:08:45] so it's unsecured and will be less than 270 days in duration

[00:08:49] so you can essentially see that like the money market fund

[00:08:53] making loans to corporations on a short-term basis

[00:08:57] these are what's considered non-banking loans

[00:09:00] so this one currently yields 4.75%

[00:09:04] the one thing you want to make sure is that the corporations are solid financially

[00:09:07] because typically these will be unsecured like I said

[00:09:10] so if they're not backed by anything

[00:09:12] but nonetheless they are typically pretty low risk

[00:09:15] the second one here is ZMMQ

[00:09:19] ZMMK.TO from BMO

[00:09:22] and this one appears to be the vast majority of holdings

[00:09:25] is commercial paper and it currently yields 4.84%

[00:09:30] the two that I own myself so C-BILL and U-BILL from GlobalX

[00:09:34] these are C-BILL is the Canadian Treasury Bill ETF

[00:09:37] and U-BILL is the US Treasury Bill ETF

[00:09:40] they are TFSA friendly as well which is nice

[00:09:43] because if you hold the US version

[00:09:46] from other ETF providers that are based in the US

[00:09:50] and listed in the US, you will have the withholding tax

[00:09:53] so keep that in mind

[00:09:54] so the Canadian one is currently yielding 4.54%

[00:09:58] and the USD one is currently yielding 5.29%

[00:10:02] and those are essentially backed by the Canadian and the US government

[00:10:06] so very short duration if there's interest rate changes

[00:10:10] the interest rate will change on that but you won't have any capital losses

[00:10:14] so that is the advantage of those

[00:10:16] but also the disadvantage is that you don't lock in the rates

[00:10:19] for long periods of time so if they do go down

[00:10:22] the yield that you'll be getting on those will go down as well

[00:10:25] and then for long duration bonds there's a bunch of different options

[00:10:29] I won't go into great detail for each of them

[00:10:32] but the first one is xgb.to

[00:10:35] so if you're looking for Canadian government debt

[00:10:37] mostly federal but also some provincial

[00:10:39] as well as some Crown corporations like Hiddle, Quebec

[00:10:42] duration is widely spread with this one

[00:10:45] so it includes everything like essentially one year

[00:10:48] and above in duration

[00:10:50] and there is even some 20 plus years

[00:10:52] there is SHY

[00:10:54] that's the iShares 1-3 years Treasury Bond ETF for the US

[00:10:58] TLT that's the iShares 20 plus year Treasury Bond ETF

[00:11:02] TLH which is the 10-20 year Treasury Bond ETF

[00:11:06] these are all iShares

[00:11:08] those are interesting but keep in mind that these are bond funds

[00:11:12] they're bond ETFs

[00:11:14] so if interest rates start going up

[00:11:17] you could see the capital that you have invested go down

[00:11:21] so that's the downside with these ETFs

[00:11:24] but the other way around is also true

[00:11:25] if you see interest rates go down

[00:11:28] and you're holding these before they start going down

[00:11:31] then you could see some capital appreciation

[00:11:32] and when I say interest rates

[00:11:34] I'm not talking about the Bank of Canada here

[00:11:38] or the US reserve, the Federal Reserve

[00:11:41] I'm talking about like the actual what the bond market is saying

[00:11:45] for you know the 5, 10, 20, 30 year whichever duration you're looking at

[00:11:50] so yes the central banks will have an impact on those rates

[00:11:54] but it won't be a one-for-one type of impact

[00:11:57] so keep that in mind

[00:11:58] the last thing you can do is you can buy bonds directly with your broker

[00:12:02] so the advantage of this is you can actually

[00:12:04] if you want to hold them till maturity

[00:12:06] you know you can buy individual bond from companies

[00:12:10] you can buy you know bonds for the government of Canada

[00:12:14] US Treasury bonds whichever you can think of

[00:12:17] for most brokers you won't be able to do it online

[00:12:20] so I know you can't with Questrade which is the one I use

[00:12:22] the one we both use

[00:12:23] you have to call in

[00:12:25] but the advantage of that is if you're planning to really just hold them

[00:12:29] for the duration

[00:12:30] even if the yields, the interest rates change

[00:12:33] at the end of the day it shouldn't impact you

[00:12:35] your principal won't change if you just collect the coupons until maturity

[00:12:39] and then you get your principal back

[00:12:41] so keep that in mind

[00:12:42] it may be more difficult to sell them

[00:12:44] if you have to sell them before they mature

[00:12:45] keep that in mind where the ETF is way more liquid than the individual bonds

[00:12:51] but that is an option for someone who would just like to hold them to maturity

[00:12:55] and not have to worry about the capital fluctuating

[00:12:57] yeah and I think that there's a clear case for doing that

[00:13:02] I've always had to you know do some kind of mental gymnastics

[00:13:06] to understand bond ETFs as a product

[00:13:09] even though it seems pretty simple

[00:13:12] I mean under the hood you have this extremely liquid equity asset trading these

[00:13:19] government bonds and corporate bills

[00:13:21] like it's it's it's a those two things don't matter yin and yang basically

[00:13:26] yeah and typically what you'll see is the longer the duration

[00:13:30] the more they will be impacted by interest rate

[00:13:33] you know fluctuation so that's why you have to keep in mind

[00:13:37] and you know it's just it can be difficult to watch because it's trading every day

[00:13:42] and ask anyone who was holding any of the ETFs I was talking about

[00:13:45] for the bond ETFs you know that was holding him starting let's say in 2020 2021 2022

[00:13:52] and then how they're feeling with the returns of those bond ETFs now

[00:13:56] they probably won't be very happy with them

[00:13:58] I was just looking at the very popular Canadian money market ETF cash by GlobalX

[00:14:04] yeah so back in May of 2022

[00:14:08] and I get it the fund was just starting out but

[00:14:11] interest rates were materially different

[00:14:14] the volume on cash the ETF was fluctuating at a couple hundred thousand a day

[00:14:21] well sorry a week a week

[00:14:23] the Monday July 29th the week of that on their website here I'm looking at the volume

[00:14:31] was 11.7 million

[00:14:34] so basically 20 acts the volume from 2022 to the summer of 24

[00:14:42] yeah cuz it's I mean it's more worthwhile right I mean for a lot of worthwhile

[00:14:47] exactly for this segment this podcast segment wasn't even worthwhile discussing

[00:14:52] that time no exactly I mean at the end of the day like for a lot of people getting 5%

[00:14:59] with let's say in cash or US or Canadian government Treasury bills

[00:15:05] and they know their principal won't move for a lot of people that's pretty attractive

[00:15:09] so long term you know I'm probably not the best way to be 100% in cash

[00:15:16] but there's been let's be honest there's been more straights than that like

[00:15:19] let's just be straight up like in the past two years

[00:15:22] you know you've done you know you've underperformed the market don't get me wrong

[00:15:26] but you've done okay you've done okay yeah and for people using that new FHS a

[00:15:33] account this is a very attractive instrument right it's like okay I plan on

[00:15:38] buying a home I'm putting the money in where you live I guess if house prices

[00:15:44] are not too high sure sure you know what I mean they're using that instrument

[00:15:50] and you know the common knowledge is like you know don't buy equities if you're

[00:15:55] going to withdraw on in the next couple years just kind of rule of thumb right

[00:15:59] it's like that's a pretty attractive place to park it yeah yeah definitely I mean

[00:16:05] and like there and there's so many options right like I think it's just

[00:16:07] important for people I gave some examples there you gave cash cash.to as well

[00:16:12] there's a lot of options but I think the two main questions people need to

[00:16:16] ask themselves right now is how quickly would you need the money if you need to

[00:16:20] access it and two do you want to lock in a yield right now as all indications are

[00:16:27] that interest rates are starting to go down and could potentially go further we

[00:16:32] don't know I that's why I'm saying could potentially and those are the two

[00:16:36] big questions if you're looking to put some of your portfolio into cash.

[00:16:40] You don't know the exact rate and amount that interest rates are going to move Simone?

[00:16:44] No exactly that's why I listen to this podcast what the yeah give me a dart

[00:16:48] board I'll throw a dart with different rates and I'll probably have a better

[00:16:51] shot than when he gets right now. 100%

[00:16:56] Alright next up on the show here

[00:17:00] Summer is over Simone and I wanted to go through you know what's been working

[00:17:06] year to date we have now gone through kind of a halfway point I did this kind of

[00:17:14] recap and now I wanted to do some digging into what's been happening in the market

[00:17:22] which sectors have been important how has the overall market been performing

[00:17:28] for investors and just get kind of a vibe check on how we're doing through

[00:17:32] eight months here and I ran a screen for Canadian in US stocks that have had

[00:17:41] year to date performance on the stock price so not total return of over 18.4%

[00:17:48] because that is the share appreciation of the S&P 500 according as of recording today

[00:17:55] on S&P's website so I think it's close to 19 ish total return but 18.4%

[00:18:03] on the equity values and I screened above 6.4 billion in market cap because that

[00:18:12] is the smallest constituent in the S&P which is Etsy at that market cap

[00:18:19] and I you know as every numbers math there does start crunching stuff and trying to

[00:18:26] find some parallels and 10% of the companies that meet this criteria are

[00:18:33] from Canada and 90% are from the US now that just makes sense right there's a lot

[00:18:39] more companies that can fit the bill here just based on listings in the

[00:18:43] US and so 10% pretty good performance out of Canada is actually pretty solid pretty

[00:18:48] good I was gonna say yeah yeah not too bad right the following 14 companies have

[00:18:56] all doubled or more this year this calendar year and again these are not

[00:19:02] small micro caps doubling these are companies that were all over 6.4

[00:19:10] billion in market cap summit therapeutics Viking therapeutics so two biotech

[00:19:16] names right out of the GATT right out of the gate Carvana which was left for dead

[00:19:23] FTAI Aviation Kava Group which is the quick service restaurant business

[00:19:29] InzMed honestly have no idea what that is in video have you heard of that one

[00:19:33] yeah heard of that one yeah I think it's down couple hundred billion dollars today

[00:19:37] today okay hundred billion wiped out Apple oven Talon Energy Vistra tenant

[00:19:45] healthcare Sprouts Farmers Market which has been a very interesting story in the

[00:19:50] US Carpenter Technology and Commvault which is a software company so those

[00:19:56] companies have all more than doubled year to date and again these are not

[00:20:00] some small cap names 392 companies meet this criteria right now so that's a

[00:20:07] pretty sizable amount again in the US and Canada 10% being in Canada so around

[00:20:12] 40 ish odd names now the sectors that had multiple the highest number of

[00:20:20] companies in the sector come up multiple times they had the highest counts

[00:20:24] of companies meet this criteria banks insurance capital markets so I like the

[00:20:31] kind of the three headed monster of insurance capital markets ban

[00:20:36] and shows yeah financials oil and gas now you had software and semiconductors

[00:20:43] of course to the surprise of no one metals and mining it's been a pretty good

[00:20:48] year for the actual underlying commodities there and biotech with some

[00:20:53] monster names coming out of biotech such a crapshoot as an investor but

[00:20:58] there are the there are the odd winner of course now I think the most

[00:21:04] staggering stat from my research this morning as I'm going through the data

[00:21:07] is there are 50 companies 5 0 that meet this criteria and they're also

[00:21:15] over 100 billion in market cap so mega caps for all intents purposes I

[00:21:21] think the definition of mega cap these days is over 200 billion I guess the

[00:21:26] goalpost needs to continue to move yeah yeah there's inflation and all these

[00:21:31] companies but 100 billion 200 billion what's the difference between 100

[00:21:35] billion dollars between friends right like it's just a hundred billion

[00:21:38] dollars so for 50 companies over 100 billion market cap these are

[00:21:44] mega size corporations and their share price performance has exceeded the

[00:21:49] S&P 500 year to date which means over 18.4% the average return of those 50

[00:21:57] companies again these are monster businesses the average return amongst

[00:22:04] that group is 36% this to me is the most wild stat and encompasses the

[00:22:13] year to me this is wild the takeaway here stay invested you know you know I was

[00:22:19] just talking about what to do with cash and because you can do something with

[00:22:24] cash these days yeah but that there was no part of that segment where you said

[00:22:30] I'm thinking about moving a bunch to cash or you know that I'm not invested

[00:22:34] the takeaway here is stay invested because no one knows what's going to

[00:22:39] happen I can't say who it is because I don't want to step in on any toes of our

[00:22:45] current advertisers this is call it a competitor of some of our advertisers

[00:22:49] and we appreciate people sponsoring this podcast very much I'm not going to bring

[00:22:53] up their competitors I was let's just say I was interviewed by a Canadian

[00:22:57] financial institution okay at the end of 2022 and 2022 as you recall was a

[00:23:05] tougher year in the market you know you had a lot of new investors come in

[00:23:08] 2020 sorry in 2020 and 2021 and things just go up into the right you know you had

[00:23:14] a flash crash for like two months but then up into the right 2022 is the year I

[00:23:18] call the COVID hangover year and you know this was now well over a year ago

[00:23:23] of course but they asked me what's going to happen in the stock market in 2023

[00:23:28] this financial institution 2022 you know it was a tough year experts are

[00:23:33] saying stay cautious staying cash you know that kind of thing right remain on

[00:23:39] the sidelines until things get better right that's that's what these these

[00:23:44] pundits were saying according to this expert that was interviewing me and I

[00:23:49] said I don't think they enjoyed my commentary too much because it didn't

[00:23:55] make it into their column I said one what if I told you no one knows

[00:23:59] what's going to happen so this is a completely pointless exercise they don't

[00:24:03] want it you know that doesn't that doesn't work financial me like predictions

[00:24:07] yeah they like predictions they're like confident sounding I said what if I told

[00:24:12] you this completely pointless exercise number two I said I think it's actually

[00:24:17] pretty nice entry point for a lot of investors who may be actually dealing

[00:24:20] with their first real drawdown believe it or not and three statistically if we

[00:24:24] go back through the data forward returns are actually pretty nice from here based

[00:24:29] on all the data going back hundred years in the market and the companies that

[00:24:35] make up the index today those constituents are last time I checked

[00:24:39] doing better than ever this year make more profitable than ever growing at

[00:24:44] very nice rates the economy actually looks like there is maybe a soft

[00:24:49] landing in the future things actually look pretty good and for stay in

[00:24:54] the market if invested because the only thing that I know for certain is that

[00:24:58] there's going to be volatility I'm not going to give you a prediction on

[00:25:01] anything other than that's what happens in equity markets this is what we

[00:25:06] signed up for my account my investment account in twenty twenty three went

[00:25:11] up thirty nine point seven one percent one of my best years ever and so far

[00:25:17] in twenty twenty four twenty six percent so thirty nine point seven and twenty

[00:25:22] five point seven so call it forty and twenty six percent returns the following

[00:25:28] two years and I was looking on joint TCI dot com very similar figures for you

[00:25:33] to I think you had the edge on twenty twenty three and I have the edge on

[00:25:37] twenty four but we're a little bit if you sounds about our points of each

[00:25:41] other yeah and they posted the content and they didn't include any quotes

[00:25:46] from my interview shocking but they included all the experts who wanted

[00:25:50] to sound really smart and doom and gloom through twenty twenty three and twenty

[00:25:54] twenty four I'm assuming if you listen to that article and listen to the

[00:25:58] experts you didn't do forty percent twenty six percent the next two years

[00:26:03] so fifty companies over a hundred billion market cap mega size corporation

[00:26:07] and their average price increase thirty six percent this year and we're just

[00:26:14] recording early September here after Labor Day good old Berkshire Hathaway

[00:26:20] trillion dollar company Mr. Buffett ninety four the stock is up thirty

[00:26:26] percent this year she won't thirty percent so all this data all of the

[00:26:31] market commentary over the years no one knows what's going to happen but

[00:26:38] compounding surprises investors if you told me this data in twenty twenty two

[00:26:44] I would frankly be surprised and so would most that the average return

[00:26:50] amongst a huge basket of companies over a hundred billion market cap in the

[00:26:54] U.S. would be thirty six percent year to date you probably say I was crazy

[00:27:00] so what do you do stay invested and you focus on the select few things

[00:27:05] that matter and that's it there's just too many things for me to think about

[00:27:11] so many things for a lot DIY investors to think about and you focus on just

[00:27:15] a few select things over a long long run and ignore all the crap

[00:27:23] and things work out pretty well that that's that's the takeaway from all

[00:27:27] this data yeah and I mean I think whenever you have someone to that

[00:27:31] saying like you know go all in on one thing or another that's always where

[00:27:36] I'm like you know they kind of lose me a little bit because I'm more the

[00:27:41] reality is like I like to think in probabilities and the best money

[00:27:45] managers if you listen to the best ones they think in probability as

[00:27:48] well so they'll never be invested fully in cash they may have some cash

[00:27:52] they may have some hedges in place because they know you know they

[00:27:57] can see what's happening but they also know that they can't predict

[00:27:59] the future so they position themselves to do well in most circumstances

[00:28:04] and the problem is if you just go and I heard on the podcast they were

[00:28:08] saying you know T bill and chill which is nice I mean you're getting 5%

[00:28:13] in US Treasury bills of your Canadian you're probably getting you know 7%

[00:28:17] so far today with you know that weakening Canadian dollar which is

[00:28:21] nothing to sneeze at but you know because you're so heavily just in

[00:28:25] one asset class and cash and that's it I mean you missed out a lot of

[00:28:30] upside and I think you know I we have slightly different approaches I mean

[00:28:35] for me I just you know it's a bit more balance in terms of asset classes

[00:28:39] but I'm not you know I'm not putting everything in cash like I still

[00:28:42] have about 50% of all my holdings and equities and then I have pretty

[00:28:46] big allocation to Bitcoin cash and some gold too so I think it's just

[00:28:50] I know it's not sensational to say like oh you're well positioned to do

[00:28:54] well to do pretty well in a various you know variety of scenarios you may

[00:29:00] not do the best if any single outcome but you'll do pretty well in most

[00:29:04] of them that's how I like to position myself but again yeah obviously

[00:29:09] if we go into great depression will probably both be getting crushed

[00:29:13] and hope that we'd be 100% in cash but the probability of that

[00:29:17] happening is probably quite low.

[00:29:20] And if it does happen which you know you and I would be we expect the

[00:29:26] unexpected we expect volatility moving forward if that does happen

[00:29:30] I'm gonna focus on the few select things that matter continue to stick

[00:29:34] to the plan continues to dollar cost average and come out of the other

[00:29:38] side I mean what is it three big bear markets most investors will face

[00:29:43] I don't know what just our but that would make sense yeah I remember

[00:29:47] I used to know a family friend was a portfolio manager he managed

[00:29:52] to high net with individual money actually he sold his first company

[00:29:55] in a Morningstar he built a really awesome family office after that

[00:30:00] and actually tragically passed away use great guy but the think

[00:30:05] the one of the first things he ever told me was my clients are

[00:30:09] gonna face three bear markets in their life and they make all

[00:30:13] their money in the second one.

[00:30:14] I was like that's a really interesting framing because they

[00:30:17] learn from the first experience and what not to do probably what

[00:30:21] not to do and and and by then they have actual like their first

[00:30:25] bear market they're early in their career yeah so they're

[00:30:28] not making enough money to throw a lot of gas on the fire.

[00:30:31] Their second one they usually are and I can I can get them

[00:30:36] to aggressively add to their portfolio in that second bear

[00:30:40] market where they're getting way better valuations.

[00:30:43] So he's basically saying that's where they make all their

[00:30:46] money because they're the most aggressive investors yeah that's

[00:30:48] right yeah but it's not easy yeah people you know it's not

[00:30:52] yeah like people can think you know they may be listening

[00:30:55] to podcast and until you've actually been through it and

[00:31:00] we can even debate that we haven't really been through a

[00:31:02] real bear market you and I like you know the flash crash

[00:31:05] of 2020 I mean I was back to you know the previous level

[00:31:10] within a quarter pretty much so I mean a real bear market could

[00:31:14] last you know several years and it could be that just things

[00:31:18] kind of trade sideways a bit down you know for period of time

[00:31:22] I think a lot of people may end up getting discouraged you

[00:31:25] know they end up selling at the wrong time so it's all

[00:31:27] about having the right mindset and you know looking more

[00:31:32] long term obviously assuming that you have a long long period

[00:31:37] of time in front of you and if you don't you probably

[00:31:39] shouldn't have been 100% invested in equity to begin with

[00:31:42] but that's another discussion we can go back to the previous

[00:31:45] the first segment of this podcast so for gonna face

[00:31:48] three bear markets you know you and I have been investing

[00:31:53] long enough that maybe we make a lot of money and the

[00:31:55] first one and the second one yeah third one third one

[00:31:58] probably capital participation road yeah but who knows

[00:32:02] no one knows right exactly no one knows so just stick

[00:32:07] to the plan. All right last segment of the day Simone

[00:32:11] take us home yes I was kind of thinking about what I was

[00:32:14] gonna do another segment on and I came across so stats can

[00:32:19] as some data and the title of this segment is Canadians

[00:32:22] are saving more dot dot dot to pay for death question mark

[00:32:26] and I came across the savings rate so the household

[00:32:31] saving rates from stats Canada and goes back like

[00:32:35] prior to 20 the year 2000 they've been keeping this data

[00:32:39] for very long time and going back so I decided to go back

[00:32:43] to Q1 of 2019 pre pandemic to have a look of get a sense

[00:32:48] how much people are saving a household savings rate is

[00:32:50] just the money you don't spend you save based on you

[00:32:54] know your your kind of after tax income so you

[00:32:57] disposable income so back then in Q1 of 2019 was

[00:33:01] just 1% meaning that households were saving 1% of their

[00:33:05] disposable income now that peaked for you know obvious

[00:33:09] reasons in the middle of 2020 with all the supply chain

[00:33:13] disruptions and the closures and the lockdowns obviously

[00:33:17] people you know we're also some people in the US

[00:33:20] but I'm talking about Canada here but a lot of people

[00:33:23] were you know getting paid to stay at home because

[00:33:25] of the different lockdowns affecting their jobs so savings

[00:33:30] rate when at 26.5% the middle 2020 and then went back as

[00:33:36] low to as low as 4.1% in Q2 of 2022 I think in large part

[00:33:42] this is when around the time would have started seeing

[00:33:45] an uptick in interest rate increases from the Bank

[00:33:49] of Canada and probably a mix with you know the what

[00:33:52] was it the revenge spending there was a call from

[00:33:55] the pandemic so I think it was probably a mix of you

[00:33:59] know people I've never heard that term revenge yeah

[00:34:01] yeah I've heard that I was using the real nerdy pent up

[00:34:05] demand and the man yeah all the pent up but that I like

[00:34:08] revenge way more so the revenge spending and I think

[00:34:12] that probably started kind of you know hitting a wall

[00:34:15] around that time and as of Q2 of 2024 so pretty current

[00:34:20] data the savings rate was 7.2% so since 2000 I could

[00:34:26] have gone earlier but would have taken me a bit

[00:34:28] more time but since 2000 aside from the pandemic which

[00:34:32] let's just put aside because that's a exogenous event

[00:34:35] that you know was kind of blacks one event that we

[00:34:39] probably won't see for a long time it's never been this

[00:34:42] high and there are kind of economic theories I've

[00:34:47] been reading a little bit about that where people

[00:34:49] when they think that the economy is getting worse

[00:34:52] they start saving up a bit more to make sure that

[00:34:55] they do have a kind of a cushion bit of a cash cushion

[00:34:58] in case of things happening but then again I came across

[00:35:02] the Equifax consumer debt report of Q2 2024 which it's

[00:35:09] a bit of a headscratcher when you look at these two

[00:35:11] figures so consumer debt rose 4.2% year over year to 2.5

[00:35:17] trillion in Canada so that is quite massive that's a

[00:35:20] pretty big increase not surprising that you know

[00:35:23] some people are struggling so they're taking on more

[00:35:25] debt to be able to pay for their expenses credit card

[00:35:28] debt was up 13.7% to 122 billion and on average the

[00:35:34] credit card balance was $4300 the highest since 2007

[00:35:39] and credit card balances jumped the most for mortgage

[00:35:42] holders again not surprising if you're really

[00:35:45] paying your mortgage you may be you know putting

[00:35:49] some extra money especially if you were looking at

[00:35:51] the variable rates to you know you might be spending

[00:35:54] a bit more with a credit card so you can still pay for

[00:35:57] your cost of living and things like that so is that is

[00:36:01] that like of people who carry a balance month to month

[00:36:04] and don't pay off their cards in full exactly would be

[00:36:07] that amount yeah it's not just like people who pay it

[00:36:10] off or not included no exactly that yeah this would

[00:36:12] just be those who have a balance because I was very

[00:36:16] concerned if yeah I mean it's still it's still a bit

[00:36:19] concerning but maybe not as much still concerning but

[00:36:22] I'm like oh we're all screwed and the non-mortgage

[00:36:25] delinquency rates were at 1.4% the highest since 2011

[00:36:30] the rate was 1.99% for those age between 26 and 35 so

[00:36:35] definitely one thing they're highlighting is the

[00:36:38] younger court is definitely struggling a bit more here

[00:36:41] and although delinquency rates are still low on an

[00:36:44] absolute basis for mortgages and specifically in Ontario

[00:36:49] there are now 3000 mortgages which are worth 1.3 billion

[00:36:53] that are that are in severe delinquency so they're not

[00:36:57] necessarily in power of sale just yet but you know people

[00:37:01] are I they didn't define it I'm assuming it's 90 days

[00:37:04] plus that they're probably entering so they haven't made

[00:37:07] payments on the Morgan quite some time not a crazy

[00:37:10] amount but some obviously not great either and one of

[00:37:14] the issues that reports said is that raising unemployment

[00:37:17] is offsetting some of the positives of lower interest

[00:37:20] rates so yes and I've been talking about that pretty

[00:37:23] frequently as people are cheering for lower rates but

[00:37:25] if you see the central banks lowering the rates pretty

[00:37:28] quickly it's usually because the economy is not doing

[00:37:31] well because if the economy is doing well they will

[00:37:34] probably just keep the rates the way they are so there's

[00:37:37] not you know there's not that much incentive and that's

[00:37:39] how historically it has been where central banks tend

[00:37:42] to be a bit more reactive and auto loans delinquencies

[00:37:46] are at historically historic highs for non-bank

[00:37:49] lending and the highest since 2019 for banks and obviously

[00:37:54] renewing mortgages are a challenge for Canadians or

[00:37:57] are locked in at historically a little rates if they were

[00:37:59] looking at a fixed rate now looking at payment increases

[00:38:03] in the double digits in terms of percentage increase and

[00:38:06] they said a lot of homeowners are opting to extend

[00:38:09] the amortization to make payment work now the reason

[00:38:13] why I wanted to go with these two so first the savings

[00:38:17] rate but then the Equifax report is I don't know what

[00:38:21] to make of this because you would think that people

[00:38:24] yes okay it's smart to save more if you think the

[00:38:27] economy is slowing down you're building a buffer

[00:38:29] a little bit but if your debt is increasing why you

[00:38:34] you know you may want to pay off that debt over

[00:38:36] saving right so I don't know I just figure it would

[00:38:39] be some food for thought I don't quite know what to

[00:38:42] make of this because it's a bit of a head scratcher

[00:38:45] where you see all these debt metrics getting wars but

[00:38:48] then the savings rate getting up it could also be very

[00:38:51] skewed right the savings rate is the average so it

[00:38:54] could be that the top earners are saving more while

[00:38:59] the kind of lower earners are focusing on paying

[00:39:01] debt and their savings rate is close to zero that is

[00:39:05] one way to see it the other way to see it is if

[00:39:07] the economy does pick back up there could be some

[00:39:10] people with a lot of excess savings that have money

[00:39:13] to spend because they were saving for the worse

[00:39:16] and essentially things ended up being you know more

[00:39:19] of a soft landing not as bad as they expected so

[00:39:22] there's different ways to view that I didn't want

[00:39:24] to be too bearish either because even if things

[00:39:27] made don't not look as great for certain sectors

[00:39:30] of the economy certain areas you have to keep in

[00:39:33] mind it can create some opportunities as well

[00:39:36] and that's I think really important because sometimes

[00:39:38] people will kind of focus on the bearishness and

[00:39:41] then like you mentioned you know they'll go all in

[00:39:43] cash well you know when there's some bad news or

[00:39:47] things that may be not doing so well I mean there

[00:39:51] could be certain sectors that are struggling but

[00:39:53] there could be some fantastic companies in that

[00:39:55] sector that are trading at a discount because the

[00:40:00] market is overly bearish on that sector as a

[00:40:02] whole because of the forecast like I said

[00:40:05] the macroeconomic forecast so keep that in mind

[00:40:08] one name that I talked and I'd be interested in

[00:40:10] hearing what your thoughts are on that is Lulemon

[00:40:14] so Lulemon I mean I cannot recall I was talking

[00:40:17] with Dan on the Thursday episode last week on

[00:40:21] that and essentially we went over the earnings

[00:40:23] and it wasn't a great quarter they had some

[00:40:26] saps with their products line especially when

[00:40:28] it came to the women's line for the bottom

[00:40:31] specifically that they mentioned and obviously

[00:40:33] there's some macroeconomic concerns but

[00:40:35] the company is growing fantastically well internationally

[00:40:39] they've said they you know they're looking to

[00:40:41] ride the ship I mean their chief product officer

[00:40:44] left in May now we kind of understand a bit more

[00:40:47] why although they said it was a resignation but

[00:40:49] there was definitely some more behind that story

[00:40:51] but that could be an example where you know

[00:40:54] macroeconomic outlook is not that great it's

[00:40:58] a consumer discretionary fashion not that great

[00:41:00] for a company like that they fumble I guess

[00:41:03] their product line for women's a little bit

[00:41:05] it's trading at essentially night like below 20

[00:41:08] P and below 20 price to free cash flow on a forward

[00:41:12] basis which I've never seen since I've been investing

[00:41:15] Lulemon I've never seen it this low so that's

[00:41:17] just an example here.

[00:41:19] Well it's a growth story facing growth challenges

[00:41:25] but still growing those but still growing

[00:41:27] but those multiples contract on a dime.

[00:41:30] Yeah.

[00:41:31] Like very fast and there's usually an overreaction

[00:41:35] so you got to figure out if you're in the overreaction

[00:41:38] phase and that's where the good that's what the good

[00:41:40] value is but I think that you're right I mean

[00:41:42] this is this a company I think in the North America

[00:41:46] segment for sure where it's not like it's not

[00:41:51] true luxury so you have a lot of consumer

[00:41:57] discretionary pressure from the economy and

[00:41:59] something like this I think yeah because it's a

[00:42:01] premium premium but not luxury that's an area that

[00:42:05] can get smashed on contraction in the economy.

[00:42:07] Yeah no and you're absolutely right but what's been

[00:42:10] the most interesting and all of that is their

[00:42:11] margins actually improved and they have zero debt

[00:42:16] and they generate still about 1.6 1.7 billion

[00:42:19] free cash flow every year so it's just I just

[00:42:23] you know maybe it keeps getting worse for Lulemon

[00:42:26] I mean I'm a shareholder but you know I think there's

[00:42:29] a solid argument to be made that this could be

[00:42:33] a very attractive entry point and there's a solid

[00:42:36] argument to be made that it could you know keep

[00:42:38] going down obviously but it's just an example

[00:42:42] when there's a lot of bad news sometimes it can

[00:42:44] create some opportunities whether it is or not

[00:42:46] or it's a value trap for Lulemon we'll have

[00:42:48] to see again I do own it I'm down the decent

[00:42:51] amount I guess I bought a bit too early on

[00:42:54] the downturn but something to keep in mind is

[00:42:57] even though the news may look bad or your macro

[00:43:00] economic and so on you can if you look hard

[00:43:02] enough you can find some silver linings.

[00:43:05] Anecdotally this was great by the way this is a

[00:43:08] lot of very useful stats for the first

[00:43:13] the Canadian household savings rate but then

[00:43:15] also the consumer debt report from Equifax

[00:43:18] that's like objective truth let's go super

[00:43:21] anecdotal truth here of just how you and I are

[00:43:25] thinking about this are you seeing amongst

[00:43:30] your peers a lot of economic pressure for me

[00:43:35] I've been noticing friends that are on the

[00:43:39] shelf for new jobs are staying on the

[00:43:42] shelf like it's a bit a lot harder to find

[00:43:44] and there is a very clear amount of data

[00:43:49] that Canadian job growth has been almost

[00:43:52] entirely public sector in the last eight nine

[00:43:55] years yet that's one of the most concerning

[00:43:59] charts I can find is the job set job growth

[00:44:04] by sector and you realize that self employed

[00:44:09] entrepreneurial folks and public and sorry

[00:44:12] and private sector jobs those two are basically

[00:44:17] stagnant to negative and you have public

[00:44:20] sector growth at double digits that's a very

[00:44:25] concerning graph because there's no real

[00:44:28] actual economic growth there it's just more

[00:44:32] government spend.

[00:44:33] Yeah I mean it is it's definitely something

[00:44:36] you don't want to see when governments get

[00:44:39] too big I mean the return you know I don't

[00:44:41] have like the graphic in front of me because

[00:44:43] we're more like talking and we didn't make

[00:44:45] notes for this specifically but you know in

[00:44:48] economic theory and it's been proven time and

[00:44:51] time over is when the debt load from governments

[00:44:55] the bigger the debt load for governments it

[00:44:57] is the more government spend the lower the

[00:44:59] return on the spend is for each dollar and

[00:45:02] I think it's just important for people to

[00:45:04] remember that when you know they see all

[00:45:06] these government programs is you know the

[00:45:10] more there is spending and we've been doing

[00:45:13] this for a very long time it just you get

[00:45:16] less and less a return on the government

[00:45:18] spend and which makes it even more worrying

[00:45:20] that you're seeing less job growth in the

[00:45:23] private sector versus the government sector.

[00:45:26] There's lots of data you can find on this

[00:45:28] from the Globe and Mail, National Post,

[00:45:33] Financial Post covering the data on this

[00:45:37] you can find it with a quick Google search

[00:45:39] on the different sector by job growth and

[00:45:43] that's that's probably the more one of the

[00:45:47] more concerning things in the country but

[00:45:50] just anecdotally I mean the job market I

[00:45:53] think has been tougher but people's

[00:45:57] willingness to spend again this is pure

[00:46:00] anecdotal my generation's willingness

[00:46:03] to spend on activities experiences

[00:46:10] trips fancy dinners is pretty there's a

[00:46:17] there's a high willingness to spend there

[00:46:19] in terms of allocation of budget.

[00:46:22] Yeah and I mean they in that same aquifax

[00:46:26] report I mean at the end of the day

[00:46:29] that cohort as the highest delinquency rate

[00:46:32] by far so you're looking at 18 to 35 so if

[00:46:39] you include 1825, 2635 and I'll share it for

[00:46:42] for joint TCI here and for those are not

[00:46:46] watching joint TCI I'll share the link in

[00:46:48] the show notes but by all means you can have

[00:46:50] a look but you have the middle

[00:46:51] column kind of here that I'm trying to

[00:46:54] highlight so this one the delinquency

[00:46:57] rate Q2 2024 the most recent one so yeah

[00:47:01] I mean it's pretty clear those are the two

[00:47:03] cohorts the highest the highest cohort

[00:47:06] in delinquency rate is 26 to 35 you buddy

[00:47:10] that's me so it's 1.99% and they what's

[00:47:14] alarming there too is their average debt Q2

[00:47:18] 2024 you know is pretty high the good news

[00:47:21] is it's increased the second less I guess

[00:47:26] but the fact that the delinquency rate is

[00:47:30] basically 2% and you have groups like my age

[00:47:33] group is 1.64% 46 to 55 1.21% but those are

[00:47:40] the two groups and it's kind of sad to say

[00:47:42] they're the younger population and I do hope

[00:47:45] it gets better because then you can get

[00:47:46] in a pretty dangerous debt spiral in terms

[00:47:49] of you know things going forward and

[00:47:52] they're usually people too that are not

[00:47:54] in their prime earnings year is generally

[00:47:57] right so yeah it's a bit concerning

[00:48:00] I think that generation is growing up in a

[00:48:06] scenario where their parents all got rich

[00:48:11] on real estate yeah this country for the

[00:48:14] most part a lot of net worth went from

[00:48:17] their investment into their home or rental

[00:48:21] properties you know in suburban urban areas

[00:48:27] of Canada like the kind of the big three

[00:48:31] bank or I'll call Vancouver Calgary

[00:48:35] Toronto in the great Toronto area Montreal

[00:48:38] I forgetting anything yeah I mean you can

[00:48:40] say I would say even like most cities that

[00:48:42] are like with the suburbs of a million

[00:48:44] plus I think there is six or seven in

[00:48:46] Canada like you've probably done pretty

[00:48:49] well if you're a boomer and you you got

[00:48:51] you know you got into rising tide has

[00:48:54] lifted all boats there yeah and then you

[00:48:56] have this I mean the data here on this

[00:48:59] group is just like I have no shot of a

[00:49:04] down payment it's like this I might as

[00:49:06] well spend yeah I'm yeah I might as well

[00:49:08] spent like I don't have any clear path

[00:49:12] to the way my parents got rich and I

[00:49:17] think that the a really key part of this

[00:49:19] podcast is highlighting an entirely

[00:49:23] different asset class that your parents

[00:49:26] may not have gotten rich on that you

[00:49:28] can that doesn't require 200 grand liquid

[00:49:31] of down payment that's why this jet

[00:49:34] that same generation is looking towards

[00:49:36] the equity markets or should be at least

[00:49:39] if they have no clear path to the way

[00:49:43] that their parents got rich yeah yeah

[00:49:46] I think that's that's my anecdotal up

[00:49:48] you know thoughts on why that might be

[00:49:51] happening yeah and that's one I'll keep

[00:49:53] an eye on just because I'm hoping it

[00:49:55] gets better but I am a bit worried that

[00:49:57] the younger generations are doing just

[00:50:00] that and they're just taking on debt to

[00:50:02] do these experiences and then you know

[00:50:05] these numbers will get worse I'm

[00:50:07] hoping for the best but I'm not quite

[00:50:09] sure what to expect going forward

[00:50:10] but I just saw it was interesting

[00:50:12] obviously it's Canadian focused and

[00:50:14] that for those wondering the New York Fed

[00:50:17] comes with similar data in the US and

[00:50:20] the US is not doing that much better so

[00:50:22] I keep that in mind I'm gonna do a buy

[00:50:24] now pay later on fancy trips BNPL yeah

[00:50:29] thanks for listening folks I think

[00:50:31] it's a pretty rounded discussion on you

[00:50:35] know okay here are the facts here are

[00:50:37] why people are talking about you know

[00:50:40] economic pressures but then also

[00:50:43] points of optimism on why you stay

[00:50:47] invested S&P's up 19 and a half percent

[00:50:51] total return year to date like those

[00:50:55] things can coexist and they do all the

[00:50:58] time and they are right now and so

[00:51:01] what do you do you focus on a few things

[00:51:03] that are in your control and you keep

[00:51:06] going and that's what we're here for

[00:51:08] on the podcast we'll see in a few

[00:51:10] days take care FinChat v4 just launched

[00:51:14] by the way Simone you gotta check that

[00:51:16] out I'm gonna send you a testing link

[00:51:18] because it's technically going out after

[00:51:21] this podcast yeah I was on it today

[00:51:25] but yes I have v3.13 so yeah 4.0 it's

[00:51:31] just it's just a cleaner interface you

[00:51:34] get to a point where you add so many

[00:51:35] features and so many toggles that

[00:51:37] you're like okay we need a new design

[00:51:39] system or else in three years it's gonna

[00:51:43] be unrecognizable I'm just gonna say you

[00:51:45] skipped a lot of decimals there so you

[00:51:47] went from 3.13 to 4 must be a big update

[00:51:52] we skipped a couple decimal points

[00:51:55] here it's a 4.0 we'll see in a few days

[00:51:58] take care guys the Canadian investor

[00:52:00] podcast should not be construed as

[00:52:02] investment or financial advice the

[00:52:05] hosts and guests featured may own

[00:52:07] securities or assets discussed on this

[00:52:10] podcast always do your own due diligence

[00:52:13] or consult with a financial professional

[00:52:15] before making any financial or

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