Will Regulators Approve National Bank’s CWB Acquisition?

[00:00:00] Welcome back to the Canadian Investor podcast. I'm back with Dan Kent for a Thursday episode. Dan, how's it going? And did you want to tell people that you put all of your life savings on the Oilers winning the Stanley Cup?

[00:00:28] Yeah, you know what it's funny because I did look at the odds but they weren't good enough. When they were down 3-0 you could get 15-1. That's just not good enough. Funny thing when

[00:00:44] they were 2-9 to start the year my buddy wanted us to put a bet on them to win the cup and at the time they were, I think it was 29-1 and I still didn't think that was good

[00:00:55] and that bet, you know, I never know it might pay off. Oh I mean you could probably, yeah, you could probably sell it and still make a little bit of money but it's funny you say that because I thought about it. I'm not a big sports gambler

[00:01:07] but I was like you know what I feel like the Oilers are way better than the 2-9 record but I guess they were right? They're at the finals and there's still a chance so that's you know as a true Oilers when you still gotta believe I guess.

[00:01:24] I will admit it's a lot less stressful watching now. Now that there's like nothing, I mean nothing to lose really. If it was like 2-2 I'd be so nervous for these games but now that

[00:01:37] it's 3-1 I'm just like whatever. Yeah like watch the game see what happens. Yeah exactly. Yeah exactly. That said well we'll get started because I'm sure people are well versed on what's happening with the Stanley Cup final especially when we have a Canadian team that's

[00:01:53] playing in the final. It doesn't happen every year. Now we'll start off with a little bit of macro and then we do have a lot of Canadian content, some companies reporting, Dalarama, we have also Allied Property Read that was downgraded by Moody's. You're going

[00:02:08] to talk by the I guess impending merger of National Bank or I guess the acquisition of National Bank acquiring a Canadian Western Bank. I kind of muffled that a little bit but you'll be talking about that a bit later. So we have a decent amount of Canadian content

[00:02:27] especially as things are slowing down. We're kind of in between the shoulder season if you'd like of earnings so it's definitely slowing down a little bit but again it's going to pick back up in the next couple weeks so it is you know it's cyclical so

[00:02:42] we're kind of used to that. Now the US Fed meeting as well as CPI so it was one of those weird days where in the US CPI data came in the morning and then in the afternoon it was

[00:02:54] the rate decision announcement by the Fed. It's funny because the market kind of whipsawed a little bit based on the CPI data and then what the Fed said afterwards. So it's always funny

[00:03:07] that the markets are hanging on to what the CPI data looks like and then what central banks are saying and obviously the mother of all central banks, the Federal Reserve in the US. Now may CPI

[00:03:19] headline inflation came in slightly lower than expected at 3.3% year over year. It was flat versus mason on a month over month basis. Most of the energy components interestingly enough were down compared to April and had a modest increase year over year. So for example gasoline was

[00:03:39] down 3.6% compared to April and up 2.2% year over year so the reason I'm mentioning that is those headline figures have been trending better although I will make the case that they are starting to

[00:03:52] stagnate at least in the US. I hit a bit of a plateau in terms of going back down to the 2% target but in my view I think energy remains one of the biggest concerns here because energy

[00:04:04] has been relatively low price which has been bringing down overall CPI and people have to remember to energy effects pretty much like maybe not everything, all the goods and services but

[00:04:17] the vast majority of them in the yeah almost all the goods and services in the economy in one form or another so when you have those prices that go down or go up it has an indirect impact on a lot

[00:04:29] of them and a direct impact obviously on a lot of baskets as well. Yeah I mean we're seeing oil has gone up I was just looking at it here from start of June it was 74 a barrel and now it's

[00:04:39] over 81 so oil's seeing quite a big surge so we'll see if that those energy prices which that's why they isolate that energy out of like the core numbers just because it's so volatile

[00:04:53] but I mean as we move forward if oil continues to rise I mean ultimately it's going to put more pressure probably higher gasoline prices which as you mentioned pretty much impact nearly everything I mean transportation costs all that type of stuff it's uh it hits hard.

[00:05:09] Yeah exactly and even food right people will look at the food component which was up 0.1% compared to April and 2.1% year over year but the problem here again is energy. Energy is a significant input in the price of food because of transportation costs but also the cost of production

[00:05:27] so there's still a significant risk in my opinion of this picking up and I do find it a bit funny that they strip out you know energy even though I do understand the logic behind it being

[00:05:38] volatile but energy as a whole whether you're talking about oil whether you're talking about natural gas renewable energy I mean it's the base of our economy so it's kind of funny that they're like

[00:05:52] we'll just strip out one of the most important components because it's too volatile for our liking I just I find that a little bit yeah a little funny the way that they kind of try to justify

[00:06:04] that but having said that core CPI rose 3.4% year over year because it does strip out energy and food which are more volatile and rose 0.2% versus me all in all a decent CPI print I would

[00:06:18] say especially became the headline number came in a bit below expectation but again still not at the feds 2% target and I will share something here with our joint TCI listeners that'll see

[00:06:32] and this is directly from one of the fed actually the Bureau of Labor statistics and it's over a 20 year period granted it's a long period of time but for those just listening just so you can visualize

[00:06:46] it you can really see kind of a little bit of a flat line with inflation after the peak that we saw in 2022 now going rapidly down but now it's been kind of stuck there at around that 3.3%

[00:07:00] range or so and you know obviously I think it's a bit too early to tell at this point but I think that's something to Fed is definitely looking at because it's not necessarily trending in the

[00:07:12] right direction it's kind of just going sideways at this point yeah it's definitely getting sticky and I mean like food is still even though it you know that it's slowed down quite a bit it's

[00:07:23] still very expensive I mean putting a ton of pressure on people in terms of cost of living I mean I just went out for my anniversary like yesterday and we went to like yeah thank you

[00:07:36] we went to like a reasonable restaurant like it was pretty good but it was a hundred that's why that's why you weren't responding to my text okay yes I was yeah you have a good reason

[00:07:46] I was busy all day yes but it was it was 170 bucks for a couple stakes pretty much and one alcoholic beverage so I mean like it's just crazy how expensive it is right now

[00:08:01] and I mean at some point do they kind of accept 3% as the new target and then start adjusting from there can they get it back down to 2% I mean they kept it relatively at the 2% mark from

[00:08:13] you know post financial crisis all the way up to 2022 so it'll be interesting to see if they can get it back down to there I don't think they will personally yeah the biggest driver obviously

[00:08:24] there's a lot of different factors and but one of the biggest factors and I'm not sure we talked about a lot on the podcast is you had globalization right that was in full force from I would say

[00:08:35] the mid late 1990s up until probably four three four years ago and now we're seeing more and more the deglobalization kind of trend from different countries so trying to bring back a lot of

[00:08:49] industries back home and that will in logically will probably put some more pressure on prices I think it's going to be difficult personally and one of the things that I haven't gotten to yet is that services remain pretty sticky so you're looking at services

[00:09:07] about in the 5% range from year to year increasing 0.2% versus April so that's really dependent on wages clearly so that is one that's staying pretty sticky and the last thing I'll talk about here for CPI is there's also trueflation I know we've talked about it before so they're independent

[00:09:28] they take thousands of data point to show where CPI is at and for them interestingly enough they have it at 2.15% versus the US reported rate of 3.3% they use a little bit of different calculation when inflation was extremely high back in 2021-22 they actually had it higher than what

[00:09:51] the CPI data was showing so I think I figure that was just interesting to show the other side of the coin here this just kind of isolates like how like specific things where consumers will be

[00:10:03] impacted more right like it would place more emphasis on things like food and stuff like that I think so I think the basket are a bit different I haven't looked because it's extremely detailed

[00:10:14] the way they look at the data I believe that they use a bit of different way to calculate rents as well because rents are notoriously lagging because clearly you know if you lock in a term with

[00:10:25] your rent you're good until you renew right especially if you're looking at states that are not rent control or some kind of rent control in place so that increase as a lag effect so I

[00:10:37] think that could be part of it as well but I'm just speculating having looked into like the nitty-gritty of how they use the data yeah I mean it seems pretty realistic I mean just in my own

[00:10:47] personal experience I've noticed costs slowing for sure like they're still high but they're not like you know when we were in 2022-2023 I mean it was just crazy how expensive things were how fast things were increasing so I've definitely noticed a slowdown it's definitely getting there

[00:11:05] yeah same for me I think things are relatively more stable I would say I'm definitely more cognizant I'm yeah I'm a sucker for you know meat that you have to eat within a day or two and it's

[00:11:17] like 30% off or whatever it is I'm more conscious about prices but I agree with you I think things have stabilized a little bit more in terms of food at least but I think it's important

[00:11:27] to remind people that that doesn't take away the 20-25% increase whatever it is that we've seen since 2020 it's not increasing still there exactly so it's the future the the rate of increases is slowing down but that's why people are probably still feeling the pinch quite a bit

[00:11:47] and then we go on to the other big macro like I mentioned in the afternoon you had the US Fed meeting now as everyone knows at this point US rates remain unchanged they are continuing to do quantitative

[00:11:59] tightening although at a slower pace and that simply means that they're reducing the size of their balance sheet and assets which are primary treasury holdings but there's other types of asset

[00:12:10] and it means that they are not replacing those bonds as they come to maturity and you can clearly see that it is starting to I mean it has gone down in terms of the size of their balance sheet I do not

[00:12:24] know you know in terms of how long they'll be able to do that I suspect that they'll probably start quantitative easing again at some point next year it looks like they're starting to slow down the quantitative tightening but it is definitely something that's continuing here

[00:12:40] and he mentioned that the economic activity is still expanding at a solid pace although it has moderated from 3.4 percent in Q4 of last year to 1.3 percent I don't know about you but

[00:12:53] that's not very solid in my book but I guess we have different definition yeah wasn't that pretty much the same as Canada as well or I think it's similar to yeah I think it's similar to Canada

[00:13:06] I know there's a tool I think it's the Atlanta Fed that comes out with that it's like GDP now and it does just like I think very frequently and you can see that the estimates are constantly kind of

[00:13:17] going lower lower in terms of the projections for GDP in the US so I mean it's not bad I guess if you compare to other countries I know some countries in Europe have seen some recessions already

[00:13:29] or are trending there it's just yeah it's not looking that great in my opinion especially when you start digging a bit more in the data you also said that growth in consumer spending has slowed but remains solid again that is funny because in the press conference he's clearly

[00:13:47] trying to send some messages but he talks about general numbers and just the general numbers that kind of justify the actions that the Fed are taking but he also doesn't talk about the New

[00:14:00] York Fed and the consumer credit usage in the US which is way way up and you're seeing credit card balances that are trending up by now pay later use trending up as well so yeah it's kind of

[00:14:13] extend and pretend and people are still spending but there it's going to come do a bit later down the line right they're spent they're not spending their money they're financing the spending

[00:14:24] which is I mean maybe he means growth as in growth is solid as in like considering the circumstances I mean I'm not sure but yeah it's I mean I don't know how you can say it's strong

[00:14:38] yeah I mean I think he's just going there and he's trying to convey right it's just about the message and people hang on to all of his words what he's saying and try to come up with

[00:14:47] you know what they're gonna do based on that I just find it have been interesting because using credit you're essentially just pulling spending forward right so you're pulling future spending forward so I'm not sure how great that is but whatever I mean he has access to that data

[00:15:03] but I do think they are very careful careful on which data point to use and at least I'm sure they look at all of them but I'm I also think they are very careful on what they say during

[00:15:16] those releases and press conferences and he also said labor markets have become in better balance but job growth remains strong despite unemployment picking up to 4%. He also had a bit of a slip in the press conference where he mentioned that job reports

[00:15:30] may have been slightly overstated which it's a little bit of a contradicting point and that's been definitely something that I've known for a while I've read quite a bit and it doesn't show in the headlines a headline it's always a job report that's coming up but these job

[00:15:47] reports will usually get revised down the line because a lot of it are based on estimates and they have all these formulas that you use to come up with these job reports and obviously they can

[00:15:58] be revised up or down but they've been revised down more and more you know months after the release so I found that part was pretty interesting because he also most said the

[00:16:10] quiet part out loud anything you want to add on that part no you explained it well I I haven't just with how busy I've been I haven't had a chance to look into the meeting this like

[00:16:21] this most recent meeting but yeah nothing to add well said yeah and I guess the last point here is the you know the future expectations for the feds fund rate or the interest rate that's what they

[00:16:34] call in the US the US dot plot which is simply a survey completed by all the FOMC members and they reveal that most members expect rate cut rates to be cut by 25 basis point or not at all this

[00:16:48] year and a lot of the rate cuts are being pushed forward and then people know that I like to look at the CME Fed watch tool and meeting probabilities again there's almost no chance of a rate cut

[00:17:01] now on the July 31st meeting coming up the next one 91% or 92% if I round up that there will not be any rate cuts the market is actually putting a two-third chance of a rate cut for September

[00:17:16] and I still think I'll be honest I think the market is wrong I just don't know how the Fed would be able to justify a rate cut in September if they don't do in July without essentially getting

[00:17:28] Trump to say that they're trying to impact the US election that's my that's the way I view things I just think it's a political time bomb if they actually do it in September and I actually

[00:17:41] think if they're gonna cut it's more likely that they do in July than September so I disagree with the market there just because of what the perception of that would be yeah I don't think it would look

[00:17:53] very good I mean we're looking at they still are pricing in what a two-third cut two-thirds chance in what would that be September so I mean it's not necessarily a guarantee the surprising thing to me is they're pretty much saying what would this be 98% 98% chance in what

[00:18:11] would that be June of next year that were 100 basis points lower so that's pretty interesting to me I mean that's like they're pretty much I mean betting huge that you know we're gonna see a

[00:18:23] 1% decline in policy rates over the next year or so which is if they don't cut if they predict no cut now but they predict you know 1% cuts by by next year like that would

[00:18:37] probably mean they're gonna get pretty aggressive at the start of 2025 slashing rates it's gonna be interesting my I'm interested to see how many basis points Canada is down since by then I mean

[00:18:49] we're probably looking to cut one more time or maybe they do kind of a cut hold cut hold until you know the US maybe catches up a bit but it's gonna be interesting this stuff is impossible to

[00:19:01] predict like you just never really know especially when it's so like data driven now like they're just you know if they keep getting solid prints it'll keep getting delayed so yeah it's uh

[00:19:13] it's all a guessing game right now for sure I mean it always is let's remember late last year they were predicting I think we'd be down like 50 basis yeah lower in March I think or at least

[00:19:24] the first one coming in March and clearly that hasn't happened and according to this there's almost not quite but 99 chance that rates will be lower by the November 7 meeting which I believe is like a

[00:19:38] day after the election or something like that the US elections so that I can see a bit more but it'll be interesting it just obviously don't bet your house on it our real life savings

[00:19:50] on that because clearly even the markets have been wrong yeah exactly it's way too hard to predict do you have any other thoughts on that or do you want to move on to uh Nvidia's like insane run

[00:20:01] would go for it yeah let's move on so this isn't really like specific to Nvidia like in terms of earnings or results or anything but I just read this uh it's probably yesterday they are

[00:20:13] accounting for more than one third of the total return of the S&P 500 this year so I think it to be exact it's like 34.5% so shares are up more than 170% year to date and it's certainly adding

[00:20:27] I mean a bit of concentration concentration risk in regards to investing in the S&P 500 if Nvidia stock remains you know relatively stable the S&P will probably be fine but you know there's if

[00:20:39] there's some sort of correction in terms of Nvidia's price I mean the index could be hit pretty hard if we look to the S&P 500 it's up around 16% year to date if we take the they have a pro

[00:20:51] shares S&P 500 ETF and they they have like you can do X-TEC, X financial you can do all like you can isolate any sector you don't want to own so if you look at that pro shares X-TEC ETF

[00:21:04] it's it's returns go down to just under 8% so like you're looking at tech making up you know 50% nearly 50% of the S&P 500's returns and of that like Nvidia is making up a huge chunk

[00:21:19] of those returns and I think you know there may be a bit of recency bias when it comes to the S&P 500 right now I mean the vast majority of my audience over at Stocktrades is Canadian investors

[00:21:31] and I can't remember a time ever if I've ever seen you know as many people you know inquiring sending emails messages about investors looking to get exposure to the S&P 500 like nobody was really asking about it two or three years ago but now it's just you know

[00:21:49] it's just skyrocketed in popularity and I mean it's it's not that surprising considering like how badly the TSX is just getting hammered over the last while so it's the worst performing major index in 2024 and it's just gotten it's gotten beat down over the last you know three five

[00:22:08] and ten year timelines so if we look over the last 10 years the TSX has a compound annual growth rate of 3.68% the S&P 500 sits at 10.9 while the NASDAQ is at 15% so in dollar terms if you were to

[00:22:24] bought the TSX composite 10 years ago you'd have around 141,000 today with the S&P 500 you'd have 282,000 us and with the NASDAQ 411,000 and the performance gap actually gets wider like the S&P and the NASDAQ have outperformed the TSX more over the last five years and this is

[00:22:44] primarily due to that big tech post pandemic surge and how well they've done the one thing I do find interesting though is post tech bubble in 2000 the Canadian markets were actually the best performing North American index for the next 15 years so I wouldn't necessarily call them you know

[00:23:05] a good performing index so the TSX over that 15 year period returned about 3.76% annualized but many of the US markets were effectively you know dead in terms of overall returns over that time period the S&P 500 returned 2.27% and the NASDAQ 1% I'm not saying this is going to happen

[00:23:24] again but as I mentioned you know I'm seeing a very high amount of Canadians inquiring as to how they can get by the S&P 500 which is probably coming at the expense of Canadian stocks I mean maybe

[00:23:36] they're getting fed up with the lack of returns so I mean I'm not super bullish on Canada but there's zero doubt our market is like deeply discounted you know relative to US markets

[00:23:47] where it will go from here is nobody's guess you know I know a lot like to compare this current technology surge to the 2000 tech bubble and how valuations are arguably higher than they

[00:23:59] were back then I don't really think that's necessarily the case in terms of you know the major tech companies but among the smaller players in the tech space like primarily AI related I mean valuations

[00:24:10] are crazy high but yeah I just found it really interesting I looked at that tech bubble and just noticed you know how well the Canadian markets perform coming out of that relative to

[00:24:20] the US and I'm just noticing right now absolutely nobody has interest in the Canadian markets and there's just a huge huge surge in interest for the US markets yeah well it's interesting you're

[00:24:34] saying that because I'm actually doing uh I'll do a segment next Monday with Brayden about like ETF flows in Canada and the US mostly Canada and that's one of the findings that I found

[00:24:45] is there seems to be a lot more interest in kind of US equities in terms of inflows especially since the start of the year um year to date so they have all that data so that was something that

[00:24:57] I found pretty interesting versus Canadian equity inflows that's quite low and I guess it's just FOMO right fear is a wonderful drug when it comes to you know putting some money in is

[00:25:11] there's the fear of missing out whether you look at you know you can look at fears both ways right it could be fear of losing money but fear of not getting any of those gains and what I have up here

[00:25:21] for joint TCI listeners is I have the last 10 years three funds that track a bit what you were saying so you have the SPY so S&P 500 index clearly the best performer here at over 233%

[00:25:38] you have the equal weighted ticker RSP that is at 155% and I'll specify these are total returns so it includes dividends so the discrepancy between the two the equal weighted and the regular S&P 500

[00:25:53] is just massive and actually really widen in the last I would say two years and especially this year like you the gap is a bit alarming I'll just be honest it is a bit alarming yeah I mean it's all

[00:26:09] you can pretty much trace it back to companies like Nvidia I mean Apple, Microsoft, Amazon, Tesla to a certain extent but I mean not so much now but yeah it's just like I think this is the heaviest

[00:26:23] concentration among like the top weightings in the S&P 500 that we've seen and like they could continue to do well moving forward for sure they they could continue to and you can buy the S&P 500

[00:26:36] and do just fine but I think like it's something people need to consider and like I said it's a lot of recency bias it's you know people possibly trying to chase returns I mean the stocks are

[00:26:48] expensive right now there's there's no doubt and I mean as you mentioned there's a lot of money flowing out of Canadian equities and into US which is I mean it might be justified the

[00:26:59] Canadian markets still definitely could struggle moving forward I mean our economy is not as strong we don't have any of this large tech exposure I mean we have there's two major tech players here I

[00:27:10] think it's Shopify and Constellation software maybe but outside of that I mean you're getting much more exposure. Don't forget Blackberry. Oh yeah Blackberry yes yeah the once darling yeah

[00:27:22] it's like yeah we just uh I mean our index is so cyclical there's a lot of gold there's a lot of oil and gas energy things like that I mean even financials to a certain degree so I mean it

[00:27:36] it just kind of alarms me like how many people are asking me like they're fed up with Canadian stocks they're looking to enter the US markets and I mean I just thought I would note it's not

[00:27:45] a guarantee that you know the TSX will rebound but the stocks are a lot cheaper on the TSX than they are the S&P 500 that's that's pretty much a given. Yeah and the last line here so so people can

[00:27:59] visualize I mentioned the equal weighted 155% 233 for the regular S&P 500 and then you have the XIC which tracks the TSX composite index and that one is at 96 so just gives you a little

[00:28:13] bit of an idea over the last 10 years and the last thing I'll mention that I wanted to mention here if you compare I think things are quite stretched like that's my personal opinion obviously

[00:28:25] it could continue like this like you said for months if not years but I think Apple is the perfect example of this. If you look at Apple revenues essentially like they've stagnated over

[00:28:37] the last three years or two years or actually they've gone down so and Apple is just like going up like there's no tomorrow and that's where I think they're starting to be a disconnect with the

[00:28:49] market is literally Apple's revenues are falling people got excited by share buybacks and then their new Worldwide Developer Conference where they announced that they were using open AI to put on their iPhones going I think in the fall it's not even them that build this it's

[00:29:09] on open AI built on that chat GPT basically and the stock popped why because they think people who are trying to make ends meet will jump at buying a new thousand fifteen hundred

[00:29:23] dollar phone just so they can use that I think it's just absolutely crazy I'm sure they'll get a small bump up but to justify how you know how expensive Apple is that's the kind of stuff

[00:29:36] like don't get me wrong Apple is very profitable and it's not necessarily the tech bubble of the 1990s but with what you're saying the inquiries you're getting even some people asking me that I know are

[00:29:47] not into investing at all there's just a lot of warning signs going on classic kind of bubble signs that we're starting to to see I'm not saying it's gonna happen but I think we are overdue for

[00:30:01] correction could come tomorrow could come in a year from now five years but just be aware of that I would say yeah I think it's it's safe to say that there's I mean the markets are are crazy high

[00:30:15] in terms of value on the US end whereas you know on the Canadian end they might be discounted for sure there's almost no question I mean you can look at you know very similar

[00:30:25] companies that trade in the US and Canada and the valuations are are nowhere near the same I don't I acknowledge that you know the markets are probably pretty rich right now but I still buy

[00:30:37] every week I don't try to to time it I mean I buy every single week and if they correct they correct I'll continue to buy every week when they're lower but the one thing that you know

[00:30:48] just the inquiries and the questions I'm getting it seems like a lot of people might be looking to you know like you said you know FOMO chasing returns type things which uh

[00:30:58] it typically you know it has a chance to not end well yeah no definitely and I mean I do the same with my work pension so but for my own investment I've definitely been investing but also adding

[00:31:10] more to my cash position so it's I'm kind of hedging a little bit over there but I think we've talked enough about that you want to go over adobe's most recent earnings yeah so adobe actually reported a pretty strong quarter it ended up going up like 15 percent

[00:31:31] or something post earnings so they reported record revenue of 5.31 billion adjusted earnings per share came in at 4.48 or $4.48 a share so these top the company's estimated figures it would have issued in the last quarter in terms of its next quarter guidance so they had expected revenue

[00:31:49] of 5.3 billion and earnings of around $4.40 the quarter was so strong that the company ended up boosting its annual guidance so both earnings and revenue grew by double digits on a year over year basis it was certainly a strong quarter considering you know how much adobe has struggled

[00:32:06] since the peaks of the pandemic so revenue is declining in their product and service segments but the vast majority of adobe's revenue is generated through subscriptions so their annual recurring revenue which would be a key performance indicator when it comes to companies that are

[00:32:23] subscriptive rate subscription based is growing in pretty much every segment creative ARR which I'm pretty certain just because I have their creative cloud platform it would be their premier pro their photoshop products like that it's up 12 percent year over year their document cloud

[00:32:40] is up 25 percent which I believe is like acrobat like their pdf reader things like that i'm sure it has you know more than just this but I know it's it's heavily based on acrobat and their digital

[00:32:52] media is up 14.9 percent so as I mentioned the company updated its fiscal 2024 guidance it now expects revenue of 21.4 to 21.5 billion and earnings of 18 dollars to 18 dollars 20 cents so this would represent revenue growth to 10.7 percent over fiscal 2023 and earnings growth of earnings growth of 13.2

[00:33:15] percent so creative cloud is generating pretty strong renewals and new customer additions I mean the company says the bulk of it is because of customers wanting to access its firefly generative AI

[00:33:28] imaging platform I mean to be honest I haven't really tried this out I have just used chat gpt I know chat gpt can be pretty frustrating at times when it comes to you know AI image generation I guess it

[00:33:41] wouldn't be GPT it would be Dolly which is there it's based on our image generator I mean I don't follow Adobe all too much I've always viewed it as pretty expensive so I actually just found out

[00:33:53] about this firefly thing looking into the earnings today so I'm definitely going to check it out I depending on the cost I mean the one thing about GPT is it's kind of the Dolly if you have their

[00:34:04] premium plan is kind of just bundled in so I haven't checked out the costs of firefly but they said it's gaining you know gaining huge ground but yeah it's like I said I've always

[00:34:15] found the company kind of expensive it trades at 37x it's it's free cash flow I would imagine this is just because of how sticky the business is I mean it's got crazy high margins nearly 90%

[00:34:26] gross margins 35% operating margins renewal rates are high I know I have Premiere Pro for our video editing I know there's like probably a dozen other platforms that are way easy to do but I just

[00:34:38] know how to run Premiere Pro so we just keep it Acrobat reader like reading PDFs all that type of stuff so I mean it's it generates a lot of free cash flow it has very high margins which

[00:34:50] is probably why it's so expensive because it's only growing you know 10 to 12% so to trade at 37x free cash flow pretty expensive they put a ton of that free cash flow back to buying shares they bought

[00:35:02] back 4.6 million on the quarter which represents just over 1% of the total shares outstanding but yeah it was uh it was a pretty big rebound quarter for Adobe yeah exactly and what I'm showing here

[00:35:15] for Joint TCI is simply what you were saying right revenue compared to subscription revenue I would say what quick math here it's about what 92% I would say 93% of revenues so let's just say the

[00:35:27] I think they're all the entirety yeah the products and the services like just off the top of my head were about 300 million or something and then like subscriptions were like 5 billion on the quarter

[00:35:38] or something that's completely yeah just off the top of my head I don't have access to the quarterly report again but it was something like that like it's subscriptions are just the moneymaker of the business and apparently Nvidia just got an alert on my phone while you were

[00:35:53] talking I think it passed Microsoft as the world's most valuable company so I guess the yeah the index must be doing well yeah it's up another 4% today holy must be that stock split

[00:36:09] it's cheaper now I mean I don't know what to say anymore about Nvidia it's just insane like yeah I'm happy to own it through some index funds that I have clearly I have a decent stake in it

[00:36:23] because it's such a heavy weight in those indices so I'm happy to watch it there but yeah it's unfortunately I think a lot of people will get hurt by this trying to chase returns yeah

[00:36:35] there's something to be said about you know like if you're if you're buying a portfolio of individual stocks I mean missing out on something like this is it hurts definitely because I mean

[00:36:44] a lot of people probably don't own Nvidia because of how expensive it is but you know in a in a broad-based index fund you would have at least some exposure and when it's making up I mean we

[00:36:54] got to be over 35% now of the of the indexes returns on the year it's pretty hard to have an individual stock portfolio that's going to outperform that I mean maybe if you're if you're

[00:37:07] really heavy on some particular companies but yeah that's it's on a crazy run who knows who knows how it'll end all right well we'll go at a company that's probably 100 and something time smaller

[00:37:21] than Nvidia but still a very good company so I'm talking about dollar ram earnings here so as Q1 fiscal year 2025 they have a weird reporting schedule so sales increased 8.6% to 1.4 billion comparable sales were up 5.6% now they did mention that same store sales were stabilizing

[00:37:43] growth is now primarily driven by essential item not surprising we've seen the we've heard the same thing from other retailers whether we're thinking Walmart Costco Canadian Tire obviously Walmart Costco being more of a beneficiary over here but we have also Loblaws that's in that

[00:38:01] essential category as well that's been doing well Canadian Tire a little less so mainly because you know they have a lot of non-discretionary items but it just kind of confirms what we've been seeing from retailers operating profit margins were up 90 basis point to 21.3%

[00:38:20] EPS was up 22% to a $77 a share they open 18 new stores 15 of those which were actually dollar city that's their Latin America brand I know a lot of people are not familiar with that but

[00:38:35] they actually have a lot of store in Latin America and their expansion is actually they're expending there even more so they currently have 547 stores and they're now thinking that they'll have about 1050 stores by 2031 their previous estimates they were saying 850 stores by

[00:38:56] 2029 so it is interesting that this seems to be a pretty big growth vector for them going forward they repurchase 146 million worth of stock during the quarter so overall I mean a pretty good

[00:39:12] quarter by dollar ammo obviously things are slowing down a bit I think that's normal there was a lot of I think you know a lot of demand for their goods but I think now things are stabilizing a bit more

[00:39:25] but people are still going there as they're trying to stretch every dollar but I think it really depends on the type of consumer because dollar ammo tends to have more like kind of smaller units whereas you have like a Costco right you'll have really good value but it's

[00:39:39] bigger units you also need to have a car typically to go to Costco if you don't you're going to have more of an issue going there you know if you use uber I mean it probably won't be good value in the

[00:39:51] end when you factor in the cost of uber whereas dollar ammo it may be a better fit for people that are more in the city or maybe people that are you know single or just two people living

[00:40:02] together so overall good quarter and as you can see with the graphic here the I mean the results are just fantastic for them since 2015 I mean revenues are just going up in a straight line

[00:40:14] into the right and same thing for free cash flow yeah and I think they bought they bought like a majority stake in dollar city it was probably five or six years ago now and it's it's turned out

[00:40:27] pretty well I believe even like maybe even a week ago it was they actually up their stake even further so I think they now own it might be like 65 it's over 60% of the company

[00:40:38] now but originally they bought a 50% I think 51 yeah I think they had like just the majority there's a majority stake I know for sure but I mean what was the I can't remember the dollar store

[00:40:49] that I went over in the States last week but anyway the dollar tree dollar tree I mean the results are just like crazy different I mean dollar tree is pretty much flat lining on everything well

[00:41:00] while dollar ammo is just continuing to rip up I mean I would I'm kind of wondering like why this is like is it because the Canadian consumers be you know pinching even further and you know going to

[00:41:16] something like dollar ammo whereas the US consumer maybe is a bit more resilient but I mean the operating margins are like like I said they're nearly five-fold like dollar Amazon operating margins are nearly five X dollar tree sales are growing like it's

[00:41:30] they're just absolutely killing it yeah and free cash hole per share has been just on the way of what's one of my favorite metrics obviously for companies that it's applicable for so no I mean

[00:41:43] it's hard not to like what they're doing at the end of the day so I don't think there's much more to add here no do you want to talk to us about the big news of what I fumbled earlier

[00:41:52] national bank buying Canadian Western yeah so this like it kind of came out of nowhere they just you know I just noticed the one day that both of them were halted and even then I didn't really think

[00:42:04] like anything like this would happen but yeah national made a bid to purchase Canadian Western Bank for around five billion this was 110 premium to Canadian Western's current stock price so the acquisition if it goes through will no doubt give national exposure in western Canada so BC and

[00:42:23] Alberta represent about 24% of national's assets right now Canadian Western's assets are around 62% in Alberta and BC overall it will nearly double national's total you know assets in Alberta and British Columbia so it's a pretty notable acquisition for them the companies like Canadian

[00:42:43] Western's current provision profile is very similar to nationals they both have PCL ratios total PCL ratios coming in you know around 25 basis points while national's 24 basis points and Canadian Western is 25 so prior to the acquisition Canadian Western Bank traded at 0.58x book value

[00:43:03] so national paid a little more than 1.2x book price to to buy it this is actually a higher book multiple than a company like scotia bank and CIBC so national is a much larger bank so I'd

[00:43:18] imagine this does open it up open up you know quite a bit of room for growth now that they have control of CWB's assets it should open up CWB customers to maybe a bit of a wider product

[00:43:29] base and I did see a tweet on this and I'm not exactly sure of what regulations would apply but they mentioned that because Canadian Western is a smaller bank it's under more stringent

[00:43:42] regulatory requirements and something like national so national should be able to yeah I think it was god I can't remember the guy's name he's a he's pretty popular on Twitter but he said Canadian Western's a little under more stringent regulations because they're a tinier bank

[00:43:59] whereas something like national isn't so the acquisition should unlock more value yeah I'd like him to elaborate on that because that's not what I read because typically because they're Canadian systemically important banks right so they have more stringent kind of CT1

[00:44:16] ratios for the larger banks in Canada because there's a systemic risk so I'm kind of confused by that tweet I'll be very honest yeah let me see here oh it was Barry Schwartz so he said

[00:44:29] the tweet was CWB is a small bank and as a result a substantial portion of its capital is stuck given regulatory requirements by merging with national a significant benefit will be the ability

[00:44:39] to release assets on CWB's balance sheet that can be put to work one plus one equals three okay and there was no like clarification as to as to what exactly he meant and I like I said like

[00:44:51] I didn't I don't understand it overall so I just kind of you know chalked it up to as just me not understanding the you know regulatory landscape but I'm not exactly sure how it would

[00:45:03] work maybe he might provide some clarification I'll ask him I'll put like a message on the tweet and we can talk about it next week if he does yeah no I'd just be curious um yeah just yeah

[00:45:14] maybe because there was a smaller bank right they just have less assets and they have they probably just have less capacity yeah provide loans overall like maybe that's what he was kind of referring because that's kind of what I got at with the first mention like

[00:45:29] just with how big national is they should be able to you know utilize the assets more and um there's a $10 a share arbitrage opportunity as of right now so this is about a 25% discount

[00:45:42] to the acquisition price so I would imagine this is you know due to the regulatory risk of it potentially being rejected possibly possibly just now to the gap of closing the deal as well

[00:45:54] so we're in mid 2024 and that deal is not expected to close until the end of next year so if you buy now the deal eventually goes through you know probably by the end of 2025 you'll if you

[00:46:07] just bought and hold you held you'd earn 25% obviously if everything or you can buy in video and double your money yeah exactly amount of time so yeah that's what these guys are thinking

[00:46:18] that's why the gap is there that's right okay at first I thought there would actually be some political posturing here I mean I know Alberta and Quebec the governments haven't exactly got along we had the

[00:46:31] energy pipeline I maybe thought you know the Alberta government would come out and kind of you know raise an issue about this like a Quebec based national buying you know a western bank like especially one I believe Canadian western is highly energy focused but Danielle Smith came out

[00:46:50] said the acquisition is a strong sign of confidence for western Canada but she did state she'd prefer the bank to continue to be headquartered here she also mentioned that she hopes the acquisition by national doesn't change the approach Canadian Western has always had which is you know they

[00:47:06] deal a lot with with energy companies things like that so this further consolidates the banking space in Canada I mean the big six just continue to get larger I mean outside of Laurentian

[00:47:18] and equitable like like what else is there I mean you got the big six Laurentian equitable there's a Q bank yeah and then obviously as credit unions like pretty much yeah pretty much I mean

[00:47:30] we love our big banks in Canada and I don't I mean I've been pretty critical of that is like there's a lack of competition the banking sector and I think it's just hurting customers in general

[00:47:41] that's why I think we love our sponsor EQ bank is because they're trying to innovate in this space yeah I will be having by the way one of EQ banks executives on and about a month from now

[00:47:54] to talk about their new notice savings account with I think are quite interesting in terms of product but yeah I mean I just I don't think I think they'll just approve it because they'll

[00:48:05] probably try to spin it as like well you know it's going to provide more competition because national bank is the smallest of the big six banks and now it'll give it more kind of exposure

[00:48:18] out west as well so I feel like that's how they're probably going to spin it national bank will have about 500 billion in asset under management the closest one to them

[00:48:27] I think is CIBC at 1 trillion so it's still a pretty big gap and when it came out I did a couple tweets on it and national bank with this acquisition would be around the 10th largest bank

[00:48:41] in the US in terms of total assets and that's what you talked earlier total asset is a pretty common way of just measuring the size of a bank so it just gives people an idea how large Canadian banks

[00:48:52] are because they would national bank would still be in the top 10 or right around it with this acquisition the US yeah and I think Canadian western was around 36 billion so like a bit more

[00:49:06] yeah I think I have it here so 41 yeah I think was the latest data yeah so I mean you're looking at like one of you know this seems like a big acquisition but I mean it's it's relatively small when

[00:49:19] you consider like how big national is and how tiny Canadian western is but it's I mean it technically maybe that's why there's a gap like you said I would imagine the deal goes through too but it does

[00:49:32] just remove another player from the Canadian banking space and just folds it into the six players that already just absolutely dominate like I wonder if somebody like like TD bank or

[00:49:45] Royal Bank were to make this if there would quite possibly be a bigger issue rather than the smallest one national doing it I'd be interested to see if that would raise some concerns probably not but

[00:49:59] because RBC just bought HSBC as well but yeah I'll be honest I've kind of lost fading regulators when it comes to that so I'm just like yeah I mean TD I think the only thing stopping them in

[00:50:12] the US is the anti-money laundering so I'm sure they would find a way to step in it if they didn't acquisition like that in Canada but I'm a bit you know take this with a grain of

[00:50:24] salt I'm definitely critical of the big Canadian banks anything else on that before I touch on the news regarding Allied? Nope no that's it okay so yeah like I mentioned earlier so Allied property read had some being used so Moody's ratings said that it was cutting the

[00:50:41] ratings for Allied's debt from BA3 to BA1 now what does that mean if you don't know what the debts stand for essentially the reason why it made headlines is because that's the demarcation between investment grade debt and non-investment grade or also known as junk debt so for those

[00:51:01] watching here on Joe's 20th TCI you'll see what Moody's actually all the different ratings that they have I think in total they have about 20 different ratings about 10 in each investment grade and non-investment grade and I'll kind of say the implications first on how it can impact so first

[00:51:22] they said that the outlook would remain negative so that means that Moody's things there is a higher likelihood that the company's debt will be further downgraded in the next one to two years

[00:51:32] and this comes on the heels of Allied writing down some of its assets last year to the tune of $500 million Moody's mentioned that they were cutting the debt rating because of weakening occupancy levels

[00:51:44] so there are two main impacts with this downgrades first it will make refinancing their debt more expensive and it will probably scare some investors that hadn't noticed the issues mentioned by

[00:51:56] Moody's in the downgrade so what am I doing so people know that I've held Allied in the past yes I said held because I sold Allied in early May I sold Allied joint TCI subscribers would know

[00:52:11] the main reason that I sold was following the most recent earnings called that came out I think it was April 30th if I remember correctly my thesis when I originally bought it was that

[00:52:22] number one I thought office real estate bearishness was overblown for Allied because it owns high quality asset more specifically type A which is the top type of real estate assets with amenities that

[00:52:36] employees want so my reasoning was well this should do well because it'll be more attractive for employers because they'll want to have a nice space to encourage employees to come back to

[00:52:48] work there's been my second point was that there's been a huge slowdown in new office building starts for obvious reasons because there's a surplus of supply which I thought longer term would help the company like Allied as the demand supply and balance became in better balance third here

[00:53:07] Allied had reasonable debt levels for it REIT the fourth reason was most of its debt wasn't maturing for at least a few years down the line and last but not least Allied was trading at

[00:53:19] extremely cheap valuations well things started to look not as good in terms of the the investment thesis I had so for me it started changing last year when I spoke on the podcast a few times

[00:53:31] following the earnings obviously the write-down of 500 million dollar was not great but the other thing that was noticeable and I noticed that quarter F quarter quarter is that occupancy kept slowing down each quarter and on the calls management kept pushing back when it expected

[00:53:48] occupancy to trend back up being more and more evasive on the timeline which was starting to be some clear red flags not that you know it was them misleading investors I think they

[00:54:01] simply really don't know when it's going to pick back up and despite them paying down a big chunk of debt following the sale of their urban data REITs in the summer or late summer of

[00:54:11] last year the debt metric have been slowly getting worse in the first two quarters of this year and on top of that they're adjusted fund from operation and funds from operation payout ratios which are key

[00:54:24] for REITs just like Allied I've been trending higher they've kind of stabilized a little bit but they're definitely on the higher end here and with all of its assets being in Canada and the uncertain economic landscape I think it's easy to make the case that potential customers or

[00:54:41] companies obviously will either cancel lease plans or pushing dag down the line once there is more certainty about the macroeconomic and their business going forward which is something they have mentioned on the call quite a few times now in terms of my investment I ended up

[00:54:58] losing about 25 percent if I factor in dividends obviously not great to take loss but it was a relatively small bet on my end at the peak when I started the position was a bit less of

[00:55:10] around two percent of my portfolio and then I sold it was closer to one percent the discrepancy simply because the rest of my portfolio has performed well so it became a smaller and smaller

[00:55:20] part of my overall portfolio look obviously with the news of the downgrade it looks like a good move that I sold at the time that I did it could definitely rebound down the line it could

[00:55:32] end up being a terrific investment for people that invest in it now it's hard to say but I just think there's just so much uncertainty much more uncertainty than when I started my position in late 2022 and

[00:55:47] kind of fully got my position going in early 2023 so it just goes to show I mean you can make different bets and different investment thesis they might not always pan out maybe I should

[00:55:58] have been a bit more patient maybe I sold that around there you know a bit too early we'll have to see but that's the reasoning I went about yeah we we talk about allied a lot and I actually still

[00:56:14] like them I mean the downgrade is definitely not good I think the the junk status is a little more like alarming you know word-wise and it probably actually is there's there's a lot

[00:56:25] more steps it can go down in terms of you know it can get much worse in that regard the one thing I would say would probably be well received and I know a lot of people think this

[00:56:37] is nearly impossible but they should just don't see it don't say it they should just cut the distribution and just yeah pay start paying down debt there's no reason why like it's paying

[00:56:50] out 12% there's just very little reason why you need to pay out a 12% yield just cut your distribution pay down the debt and I actually think speculation by me obviously but I actually think an announcement like that the market would would receive it well like I actually

[00:57:06] think the price would go up if they ended up doing that but who knows if they will because like you said their payout ratios are trending upwards but like in terms of a reed it's still

[00:57:16] got a distribution that is is relatively well covered but like why not just pay out less and but management seemed to yeah I remember when I listened to last call management was pretty steadfast

[00:57:29] on them not cutting the dividend again I mean it would not be the first management team to make an about face and say that and then you know a few months down the line or a quarter or two

[00:57:38] down the line cutting the dividend but I guess yeah the the other thing too that's a bit up in the air is because there's just a lack of transaction for the type of building that

[00:57:49] I like owns right now right so these are you know typically most of their buildings are quite large some depends on some but most of them are and the office real estate building has been

[00:58:00] office real estate space in terms of transaction has not been there has not been any so it's very hard to value the assets and there's definitely a risk that there could be some further

[00:58:12] write downs as well so that's not out of the realm of possibility so there's definitely a lot of risk but I agree with you there could be a lot of upside for Allied it's just it's just too many

[00:58:22] risks for me I just don't like I'm not feeling like hold in this for five years and then just realize that things haven't really gotten that much better in five years right yeah it's like you right now Allied is trading at just looking at it a 68 discount

[00:58:39] to net asset value so it's pretty safe to say that the market is expecting further write downs like which is probably gonna happen like you said they're they're not exactly buildings that move quickly like maybe something like a like a residential read would maybe be a bit more

[00:58:57] accurate but yeah I mean I'm still like relatively optimistic for them I mean they're fairly cheap they're not like I said they're probably not trading at a true near 70% discount to their net asset value but they're certainly cheap there's a lot of downside negative sentiment I would say

[00:59:19] in this space it's hard to imagine they don't turn around at least somewhat in the future but it's it's pretty up in the air right now yeah yeah I think well said I think we'll leave it at

[00:59:32] for today it's been a fun episode to do a bit longer one but I think it was still fun we do appreciate all the support again if you haven't done so if you can give us a review on whatever

[00:59:44] platform you're listening to us always help you can find me at fiat underscore iceberg and then that at then and then sorry I having trouble with that one so Dan why don't you tell us

[00:59:58] where we can find you stock trades underscore ca perfect so I think we'll end it on this before I fumble any more words so thanks for listening we'll catch you next week yep talk to you later everybody

[01:00:11] the Canadian investor podcast should not be construed as investment or financial advice the host and guest featured may own securities or assets discussed on this podcast always do your own due diligence or consult with a financial professional before making any financial or investment decisions