The Financial Media has painted a bleak economic picture, and stoked panic selling followed by panic buying similar to the COVID era. Geo-political risks definitely persist, government debt continues to grow and regional polarization in Canada is surging. However, numerous leading indicators are pointing to a sustainable market recovery. Crisis contains both danger and opportunity; we’ll explore both.
Watch our webinar “Debunking the Doom: The Case for Optimism For 2025 & Beyond.” We’ll cover the following:
- How the Trump tariff campaign is accelerating the shift to a new world order and what it means for investors
- How our portfolio managers protected and grew portfolios year to date
- Market indicators that signal growth ahead in 2025
- Opportunities ahead in equities and often overlooked fixed income markets
- A look at debt, deficits, interest rates and USD reserve currency status
- A primer on the Alberta separation movement, and the potential for constitutional reform
Webinar recorded June 10, 2025
Full Transcript:
00:00:01
Hello, everyone, and welcome to Debunking the Doom, the case for optimism in 2025 and beyond. As you can see here, it’s always a battle between the bulls and the bears, and Chicken Little loves to be in the middle and squawk all the time and talk about how the sky is falling.
00:00:18
We’re going to debunk some of that stuff tonight. Our agenda here. We’re going to look at the Trump tariffs and the shifting world order. Talk about our portfolio manager performance in 2025. We’ll look at some market indicators that signal some growth.
00:00:32
We’ll talk about some opportunities ahead, sectors specifically. We’ll also talk a little bit about debt, deficits, interest rates in the US dollar.
00:00:41
And we’ll do a little bit of a primer on a big topic, kind of the elephant in the room, if you will, or the Buffalo in the room is probably a more apt metaphor. Alberta separation and constitutional reform. So again, it’s not all doom, but it’s not all bloom.
00:00:57
And we’re going to talk a lot about flexibility and staying nimble because that’s how we’re going to keep portfolios on track and get our clients over the finish line, wherever that finish line happens to be. I’m Andrew Rueland, I’m your presenter tonight as always.
00:01:14
My colleague and head researcher, Sandor is the tall guy on the left. I’m the strong guy on the right. Reason why clients gotcha, the reason why clients choose IWM of course is because we’re all about the sovereignty of the individual.
00:01:29
We are very focused on the Western Canadian way of life, which is a a low governments and independent driven, independence driven mentality and we are reality driven. We’re a no spin kind of zone.
00:01:46
Of course, the way that we work with clients is we help to clarify your life goals and update them over time, find the right people, tools and strategies to help you achieve your life goals.
00:01:54
And then there’s the staying on track part, which we call vigilance so that you can actually achieve your life goals. We have a model for that. We’ve used this model in one form or another for 30 years now roughly. And we’ve of course evolved.
00:02:13
It’s evolved over time, but at the center has always been your life goals because your life goals are what drives you. They are your why, so to speak. So why optimism?
00:02:26
Well, our job as advisors along with our portfolio managers is to help our clients stay focused and rational through the difficult times so that they can benefit from the superior long term growth of equities and quality fixed income and alternatives, private alternatives. That’s our role.
00:02:45
But we know of course that the media fuels a lot of negative sentiment, but the data does actually tell a pretty different story, and we’ll share some of that with you tonight.
00:02:54
Some of the market indicators that give us a lot of optimism are breadth indicators, consumer sentiment, sales and earnings and fixed income yields that are more attractive.
00:03:05
And of course, volatility can be your friend, as the Chinese used to say, or maybe still do say crisis contains both danger and opportunity. And so we just want to keep our heads about ourselves while things are difficult so we can take advantage of the opportunities within the danger.
00:03:26
So here you see the VIX, and this is the volatility index. It’s basically the put call ratio on the Chicago Board options exchange. So it’s basically when fear is highest in periods like this and this and this, that’s when stress is highest, investor pessimism is at its worst.
00:03:57
But in reality, taking a step back, these are opportunities when things are on sale. These opportunities like here and here and here very recently, they’re temporary discounts on quality companies.
00:04:12
And while most of us love to buy things on sale, like maybe get a good deal on a car or a house or even on clothing, we seem to shy away from getting things on sale in the markets. Don’t know why actually I do. It’s because it’s human nature because we’re hard wired to mess this up.
00:04:31
So Dimble equity management is a is a very big part of what we do. We call it stocks you can tolerate and the methodology is, is really kind of five fold and involves sector and geographic rotation, stock rotation and position sizing.
00:04:48
Managing cash levels actively so that you have cash to buy those assets when they’re on sale.
00:04:53
Currency hedging to minimize the downside as well as protective option strategies, particularly put strategies, put options to protect and kind of immunize or insulate your portfolio against the major drops. As always, of course we have to look at performance your date.
00:05:14
Our balanced portfolios are up between 1 and 1 1/2 and 3% and the equity performance versus the Max drawdown of the the indexes on a year to date basis. Our pension and dividend style pools, the Max was down between 6 and 10%.
00:05:31
Our growth portfolios, growth pools were down 7-8 and one was down 14, but the S&P 500 was down 15.6 from peak to through that drawdown. And XIU, which is the TSX 60 was down 7.6%.
00:05:46
Surprisingly, the Canadian market held up a whole lot better than the S&P 500 and the NASDAQ, which I think came off about 22%.
00:05:55
And I think, well, actually, I know the reason behind that is actually the the great performance that we’ve seen in precious metal stocks and a little bit on the energy side as well. As always, it’s about balancing risk and reward. Geopolitical risks definitely persist.
00:06:13
And of course there’s debt, tariffs and regional tensions. These collectively make up the danger component.
00:06:20
So the geopolitical risks that persist, obviously we’ve got the Ukraine Russia situation, which is still not solved and it’s an absolute tragedy with all the needless death, destruction and displacement of dislocation of Ukrainian citizens and Russian citizens and everything that involves needless war.
00:06:43
Then there’s the Israel, Iran situation. And usually when we talk about regional tensions, we’re actually talking about kind of regions like, oh, say the Middle East or Eastern Europe or Africa or Asia.
00:06:57
In this case, though, right now we’ve also got the situation that’s emerged in the US over the last five days, which is these riots over the enforcement of immigration laws.
00:07:08
Where the Immigration and Customs Enforcement agency, the of the one that Tom Holman leads, is actually going in and actually arresting and eventually deporting illegals who have been convicted of substantial crimes in addition to being in the country illegally.
00:07:28
And of course, we have the deaths and tariff situation, which we’ll talk about a little bit more down the road. But of course, these dangers create opportunities. They create market dislocations and in stocks, but there’s also opportunities that are coming in fixed income.
00:07:43
And we’ll talk about the sectors. Overall, though, I have to say that there are leading indicators and there are lagging or lingering indicators. Markets themselves are discount mechanisms.
00:07:54
They discount the future in the present, but they’re lagging, or what I call lingering indicators, and that is mostly human emotion.
00:08:03
When humans are under stress, of course, it clouds our view of everything in a negative fashion, and it really, really strongly impedes our ability to make rational decisions. Right now, we’ve got a lot of different situations in the US. We’ve got, again, the war in Ukraine.
00:08:21
We’ve got the tensions between Israel and Iran. We obviously have the ongoing slaughter of the Palestinians in Gaza. And we’ve got also here in Canada, we have this rising separation movement in Western Canada and all of the the song and dance that goes around that.
00:08:43
And soon we have the G7 coming here to Kananaskis country. So we’ll have these useless motorcades running through, interfering with traffic as everybody goes out to to Canada and ask us.
00:08:56
But really what it comes down to is that there are a lot of things that are happening outside of the markets that are creating this existential angst. And it’s far worse than the reality on the ground in the economy and in markets here in Alberta especially.
00:09:12
Of course, the separation issue is, is something that’s really clouding everybody’s view of the world. So of course, we’ve got the disruptor in chief, orange man disruptor. And he of course likes to use tariffs as a negotiating tactic.
00:09:31
We know that he has the bully pulpit as the president and the executive, chief executive offer officer of the US. And while he seems to always be chaotic and you never know what’s coming, that’s actually predictable.
00:09:48
The Chinese and the Russians certainly have figured out quite well that he is predictably chaotic. One thing’s for sure, though. In modern times, that combination of personal impulsiveness and access to social media are a very toxic mix. And so Trump stirs it up and kicks up a lot of dust.
00:10:09
He seems to like it that way. It’s, it’s not great for certainty or keeping nerves calm, but it is what it is.
00:10:18
Longer term, we think that it’s likely that tariffs are going to settle somewhere in the the 10% neighborhood, likely higher for for China, but that depends on whether or not they choose to use some of their real leverage like their production of processed refined rare earths.
00:10:41
Right now in the US, auto manufacturers have between two and three weeks worth of refined rare earth elements which are essential for electronics and other magnetic components of of vehicles.
00:10:57
So if China were to decide that they would like to press that that pain point, then we might see a lowering of of terrorists from from the Trump side of things.
00:11:10
Another factor is that about 10 days ago, maybe 2 weeks ago, there was a ruling by the World Trade Court that Trump’s justification for the tariffs that he was putting in place, which was a financial emergency or an economic emergency, that that rationale was actually not valid because tariffs of various kinds have been in place since I think around 1913 or so.
00:11:35
So kind of hard to have an emergency that runs for that long. But anyway, now a big part of the, the challenge that we have with market volatility is based on the financial media, media sensationalism right now.
00:11:51
And maybe back, going back say a week or 10 days ago was really just kind of coming off of the, the similar sensationalist fear factor that they had drummed up during COVID. And we’ll show you that here in a moment. But negative headlines, they only Dr. volatility.
00:12:09
They drive investor emotions, but they don’t drive the fundamentals of companies. So that’s a very important thing to remember. And the results, of course, is that from all of this media sensationalism is that they drive panic selling and then followed by panic buying.
00:12:26
It’s actually difficult for investors because it it plays with our fears around loss of money, which is a very big one. But then again, thereafter it also creates opportunities if you’re prepared.
00:12:42
There’s another factor that plays into it right now as well, and that’s the fact that financial media used to be non partisan, used to just be, you know, here are the facts.
00:12:53
And if they were looking at things on a political basis, they would just kind of look at things on a, on a relatively fair minded basis. These days, Bloomberg and BNN Bloomberg here in Canada and CNBC out of the US are blatantly anti Trump. So that colors a lot of their coverage.
00:13:12
Fox Business is blatantly pro Trump. Very few people in Canada actually have access to to Fox Business. You can hear it on your SiriusXM satellite radio, but it’s not available as a cable option up here. So that that is not available as a as an offset or a balancing mechanism.
00:13:33
So what are the tariffs actual impacts on consumer prices? Well, we think that it’s actually going to be more of a one time step up from these tariffs like we said probably about a 10% step up tariff. But thereafter it should be back to kind of a normal course of inflationary increases in in prices.
00:13:57
So that’s, that’s our view that it’s, it’s going to be more of a one time step up. And if we take a look here, so this is the personal consumption expenditures deflator and it is the Federal Reserve’s preferred indicator, not the actual consumer price index.
00:14:14
And you can see here that it is back to what is considered very close to a normalized level. The Fed has a dual mandate, it’s full employment and price stability.
00:14:27
And for them price stability is keeping the inflation rate or the the PC in this case right around that 2% neighborhood and we’re getting closer and closer to that. So that’s a very positive sign.
00:14:41
So again, we may have that one time step up, but thereafter we think it’s going to be a fairly smooth sailing. In Canada, we have a fairly similar story. We don’t have APCE deflator here as a specific economic measure, but we have the Canadian core inflation rate.
00:15:01
Keep in mind that this is the rate of increase. This does not mean falling prices. This just means that the rate of increase is slower. You can see however, that it has actually never fallen below 0, which means we never had that full on deflation.
00:15:20
Now here in Canada, the core inflation rate or the core CPI does not include food or energy. Let that sink in. So food which is energy for the human body and energy like heating our house or driving our cars, things like that, it’s not included in in our mix.
00:15:40
So that’s a little bit of a a misleading factor, but at least a lot of the prices are stabilized. I’ll say there’s another factor we talked about confidence or sentiment. This is one of the the most reliable and most looked at consumer confidence indicators.
00:15:59
It’s the University of Michigan consumer sentiment indicator or guide. And you can see here that when consumer prices or when consumer confidence bottoms, market prices are often at their lowest and they create attractive buying opportunities.
00:16:17
This was the bottom of the recession 1980 coming off of the the Volcker massive, massive interest rate increases to try and kill inflation. This was our late 80s, early 1990 recession here.
00:16:35
Interestingly enough, this is the great financial crisis, which of course started back here in 2008 and went through 2009, had a little bit of a, a double bottom here and then again here in 2012 and then here. This was kind of the, this was the bottom of the COVID panic.
00:16:55
We had a recovery back down here we’re in 2022, which was basically when we had stocks and bond markets off by 20% at their at their maximum draw downs in 2022. And they finished the year of course down about 11.8% each for both stocks and bonds. And here we are back in that neighborhood again.
00:17:18
So when consumer confidence is actually at at its low point that usually indicates that we are at or near a bottom in the economy or in the in the markets. So let’s take a look at market volatility in the moment.
00:17:34
So here we are, this is 2025, it’s the S&P 500, so kind of the broader broad indicator to 500 largest stocks in the the US And at its peak around February 18th or so, the S&P 500 was up 4% on a year to date basis. And then from peak down to the through here was down 15%.
00:17:59
NASDAQ was down about 22% around that level as well. This right here, this was the so-called Liberation Day, the marketing or the branding name that Trump used to describe when he announced sweeping tariffs for basically everybody and then has backed off since. But you can see what a drop that is.
00:18:24
And of course, in the moment, this feels really, really nasty. But here we are back right now and this is to basically to the end of May right here. And the S&P 500 is basically maybe up 1% right now on a year to date basis, was basically flat by the end of May. And that was after all of this panic.
00:18:46
And this is in the moment. But if we take a step back and look at what market volatility really means in the big picture, we can see that this was a small drop. I won’t say it’s Much Ado about nothing, but it was Much Ado, probably too Much Ado about something that wasn’t really that significant.
00:19:10
I’d say the the panic from COVID was much greater because it was a public health, a public health disaster that had market consequences. This was a political disaster with market consequences. But as you can see, time is the great healer and the great teacher.
00:19:33
We just need to keep our heads throughout these difficult panic periods. So there are some technical indicators that are giving us a lot of hope. This one here from investing.com is actually an aggregate of about 8 different indicators as of the end of May.
00:19:53
And we were in the Strong Buy neighborhood. And that’s based on a whole bunch of things like overbought, oversold conditions, the RSI, which is the relative strength indicator. It would be based on some volumes.
00:20:10
It would also be based on trend direction and also based on company earnings and a few other indicators. Market participation is one of those indicators that is very, very helpful.
00:20:24
So in a generic sense, market breadth indicators show what percentage of stocks are actually participating in in a rally. And the more stocks that are participating, the better.
00:20:41
So of course, for a couple of years we’ve had tremendous concentration from the big seven, the mag, seven tech companies, megatech companies in the US, but it’s been shifting to a much broader market coverage, which is great. So historically improved breadth equals positive returns.
00:21:02
And a shout out to to my friend Victor Adair, who at my request provided me with a couple of looks at the New York Stock Exchange advance decline line. This is looking at it weekly and goes back to 2020.
00:21:17
And you can see here, this was basically right around the time when stocks had had bottomed and started to recover. And right here again, when stocks had bottomed and started to recover. And this is when dividend growth stocks really started to take off to the outside.
00:21:36
Again, These were significant market turning points. And what happened back here in kind of the April 7th to 9th range or in that range, that’s actually when things started to turn up on the advanced decline line on a weekly basis.
00:21:56
If we look at it on a daily basis as well, we can see in a little bit more detail here, of course, it was April 2nd. So that’s when you had this, this sharp drop and basically people were dumping everything.
00:22:08
And but then what started to happen as we started to recover and again, a much higher percentage of stocks continued to participate in the rally. And that’s a very, very healthy thing. Another thing that’s very positive going forward, at least in the short term, is global fiscal stimulus.
00:22:30
It’s effectively a spending spree. And yes, the the governments of the world are breaking the bank. Actually, I don’t think they have anything left on their Piggy Bank. That’s a great anachronism now these days since since their coffers are actually empty.
00:22:47
But in the US, Europe, China and even in Canada, there’s an increase in fiscal stimulus in the short term that’s a little bit of a sugar hit for or an adrenaline hit for for markets, which is positive.
00:23:01
It’s going to be focused on military infrastructure spending and kind of broader economic support that could be social programs, some different ways to to define that.
00:23:14
And it’s likely that in the second-half probably in towards the last third, maybe the last quarter of the year, especially in the US that we’re going to see some liquidity easing. And by that we mean lowering of interest rates.
00:23:28
Again, it is temporary sugar, but it at least gives a little bit of a pick me up to to markets when there’s still some uncertainty out there in the broader in the broader marketplace. Probably one of the most pleasant surprises though is actually kind of at a fundamental level.
00:23:48
Earning season just wrapped up about 10 days ago or so. Earnings growth, the S&P 500 was up 11%, sales growth at 4%, which is good earnings going up faster than sales growth because of finding efficiencies.
00:24:05
That’s so even though there was sales growth on the top line, there was greater earnings growth by being more efficient and on and earning surprises were up 8% overall. Now, right now the guidance is cautious. So guidance from from companies, official guidance is cautious due to the uncertainty.
00:24:28
But what we see above there still very decent numbers. But on the other side of it and we’re going to because we’re not just looking at all the positives. Was there a pull forward factor And I’ll say yes, there is and I’ll show you that in the next slide.
00:24:43
And if tariffs are drastic, they could have an impact, but if they’re just bluster, they’re not going to have as much of an impact. And again, we don’t think that the tariffs will be as drastic as they were first first portrayed as being. And we’ll see what, what pans out from those.
00:25:04
So this is the, the misleading indicators or what I’m referring to as the pull forward In the USQ one, GDP was down by about .2%.
00:25:14
And that’s very understandable because essentially we had a temporary lull that was caused by very widespread uncertainty amongst companies and frankly amongst consumers given the number of US trading partners that the US actually has.
00:25:31
And, you know, what would the tariff rates be on all the different things that that we consume on an ongoing basis, which are luxuries, which are necessities, where do they come from, all that sort of thing. Here in Canada, of course, we’re only concerned with our trading relationship with the US.
00:25:47
But because we knew that tariffs were coming, in fact, we knew that there was going to be this April 2nd big announcement from Trump and Canadian GDP was up about 2.2%. And again, this is looking backwards at things, but essentially Canadian businesses and probably consumers as well.
00:26:08
We’re buying inventory from the US in advance of the threatened tariffs. We didn’t know what they would be, but there was a little bit of stocking up for prices really took off to the upside.
00:26:18
So we don’t want to get too far ahead of ourselves and think that things are really super and great and all that. So there is we’re cautiously optimistic and we’re optimistically cautious. And then there’s the interest rate outlook.
00:26:32
We could bring on a fixed income manager who could talk for hours about this, but in in a nutshell, the Fed is likely to hold interest rates at their current level until until that PCE deflator indicator comes back below that 2% or into that 2% neighborhood. It’s still a little bit above that.
00:26:56
We’ve got the the next Federal Open Market Committee meeting on June 17th and 18th and thereafter there is the the gathering at Jackson Hole, Wyoming. Every year you’ll be having to think it’s mid August or so.
00:27:10
And it’s interesting though, because between the FOMC meeting next week and Jackson Hole, that two-month period is a period when there are a lot of people on vacation and the junior traders are kind of manning the trading desks and the the people in in New York are out of the Hamptons or the Adirondacks or, or wherever.
00:27:33
And so there can be some volatility when you’ve got some less experienced traders who are are on the trading desk in these major institutions. But we’ll see what happens. At last week’s June 4th meeting of the Bank of Canada, they held steady.
00:27:49
They would like to be in a position to be able to cut interest rates a little bit more, but they don’t want to get too fast.
00:27:56
They also don’t want to get too far ahead of the US, But the other piece of it, as well as they want to make sure that Canadian inflation continues to come back down before they start to cut rates.
00:28:08
There’s a strong incentive for Tiff Mackle to cut the key interest rates because mortgage rate, mortgage renewal rates are still a substantial issue, particularly in Vancouver and the Greater Toronto Area.
00:28:21
And I would say probably places like Vancouver Island as well where prices have inflated substantially. And then frankly, maybe even in the Okanogan. Longer term though, we have some optimism for bond performance. U.S. Treasuries as of June 6 last week, so that was on Friday basically U.S.
00:28:41
Treasury, the 10 year benchmark U.S. Treasury was at 4.4% and that has some opportunity or that has some, I’ll say potential for going down, which would mean some opportunities for capital gains for bondholders. And so that’s kind of the good news on that side of things.
00:29:03
We’ll look at fixed income in a little bit more detail in some slides down down the road here, but we also want to make sure that we don’t lose track of what the the long term negative is. The real monster is, is not the tariffs. It’s not it’s not climate change.
00:29:28
The real problem, the real monster is sovereign debt. Now this is from Fred, which is it’s the the Saint Louis Fed, they publish all this stuff. It’s a phenomenal resource. And this shows the US debt to GDP ratio going all the way back to the late 60s.
00:29:48
And you can see how debt to GDP was slowly, slowly coming down. This part of this was the the incentive. This is when when they went off the gold standard on my dad’s 44th birthday, which would have been August 15th of 71. And of course that was to pay for the Vietnam War.
00:30:10
And so we had the US the US economy was starting to heat up. In fact, we were in a bit of an inflationary or a stagflationary environment where inflation was driving up prices faster than than the economy was growing. But on a on a nominal basis here it actually helped the the debt to GDP ratio.
00:30:36
And here of course, this was the the Reagan era when they had trickle down economics and tons and tons of spending in the US military leading to the end of the Cold War along with communism kind of imploding on itself. Follow the Berlin Wall 89 collapse of Soviet Union 91, etcetera. So here we go.
00:31:00
Fast forward, we go into the great financial crisis, we see this big, big spike up and that’s basically quantitative easing in action where there was just a ton of borrowing and of course that that means debt issuance. And so we had a significant spike up here.
00:31:23
Now this part here is where you see the COVID era where again, tremendous deficit spending, the economy of course, went into basically kind of a, a dormant phase. And then as the spending wore off and the economy started to normalize, we kind of got back onto a track.
00:31:46
So you can see it’s can almost draw a line here artificially shows us getting back onto the path that we were on before. Now, this is where we are right now. Going forward is where we have even bigger problems.
00:32:06
Now we’ve switched here from the the official numbers used by the Federal Reserve and now we’re looking at projections.
00:32:16
Now, the CBO or the Congressional Budget Office, they use a slightly different definition of outstanding debt that is a little bit more conservative than what the Federal Reserve uses. So their numbers are a little bit lower, but the most important part here is what the trajectory looks like.
00:32:35
So going back here to 2019, we saw the spike up what their projections were and now here we are. You can see that regardless of which baseline that we’re using, the 2024 baseline or 2025, that the trajectory is up very steeply.
00:32:59
So the big problem here, of course, is that we continue with these massive deficits. So again, the US debt to GDP is projected to rise and budget deficits are driven by tax cuts, but basically no real restraint on spending.
00:33:16
Unfortunately, a lot of the DOGE cost savings that were uncovered are not going to actually get ensconced in actual legislation, which is which is a sad thing, but that’s going to continue to drive things up.
00:33:35
Now, it’s interesting here because these projections go back a little ways and these were before the so-called big beautiful bill that Trump is trying to navigate through both houses of Congress. Now here we are going forward.
00:33:55
So the outlook for from the Congressional Budget Office for 25/20/25 to 34 was a 10 year deficit in the $21 trillion range, still a huge amount.
00:34:08
And when they look at when they calculate the outlook including the big beautiful bill, then it’s an additional 2.4 trillion or 23 trillion and federal debt in, in terms of trillions of dollars before the big beautiful bill at 3rd projected at 36 and for next year at 38.6. So growing rapidly.
00:34:37
It’s it’s looking very, very scary. And the debt to GDP ratio, according to the more conservative definition that or formula that the Congressional Budget Office uses will jump by 6.7% from 117 to 123.8. Regardless of which calculation or formula you use. That is a recipe for a long term disaster.
00:34:59
That’s why we say that the the real monster is the sovereign debt issues. Question arises, who’s going to buy all that debt? It’s interesting. We had a conference call with one of our portfolio managers about 10 days ago and they brought up this slide.
00:35:22
And I’d like to point out that the headline on the top of this Bloomberg screenshot is misleading. It says Asian economies pile into American assets and I looked at this and there are PM are fixed income. VP didn’t say anything about this and I looked at that.
00:35:41
He said what do you think’s wrong with that? I said is this constant dollars? Is that or are these like deflated for, you know, taking into account inflation? He said exactly. So since 1997, you can see the increase of the, the net cumulative net purchases of US bonds, U.S. Treasuries, U.S.
00:36:02
debt and Japan has been fairly constant. You can see there’s been a reduction recently by mainland China, which makes sense because of course, if, if you’re being threatened with war by a country, why would you want to hold their debt?
00:36:20
You know, I’ll buy your bonds so you can, you know, make more missiles and bullets and tanks and, and, and ships to come and attack us. So of course they are decreasing their holdings. But the main thing here is that this is not grown with inflation over the years.
00:36:37
And what this does not take into account is the size of the float, the use of the purchases by the Asian countries that we’ve been counting on for buying so much of the the debt issuance in the US.
00:36:52
But when we look at what the total outstanding debt is right now in the 34 to $35 trillion neighborhood, it pales in comparison, right? So it used to be a larger percentage of a smaller float and now it’s a smaller percentage of a larger float. So who’s going to keep buying it?
00:37:10
Well, it’s going to have to be more internal and more domestic types of, of purchasers, which will be interesting because I think that the US investment industry has probably woken up to the fact that U.S. Treasuries are probably not a great bet long term.
00:37:33
This I think is indicative of the way that the US, I’ll say the US political narrative drivers, they are just, they’re focused only on like GDP and growth and all those sorts of things. And there’s the politicians especially are in no way concerned about the long term effects of debt.
00:38:06
And I think that they’re basically like wile a coyote. Now, we had to use this whole screenshot because that was the only way that we could avoid any problems with trademark infringements because this was taken from an article. But that’s exactly what it’s going to be like.
00:38:23
Someday we’re going to see that the sovereign debt markets, the bond markets are going to go no bid and that’s when we have challenges. Frankly, I’m far more confident in the equity market. So if we look here on the sovereign debt basis, Canada is what we call less bad.
00:38:44
So this is the Canadian debt to GDP and again, this is a slightly different source, looks like a little bit more realistic in, in terms of considering it’s, it’s close. This US number is much closer to what the Saint Louis Federal Reserve publishes.
00:39:05
So I think it’s probably a little bit more accurate. So you can see the Canada’s debt to GDP is is lower.
00:39:13
Unfortunately, this leads our politicians to say and think and introduce budgets maybe that would take advantage of our ability to spend more because we can, quote UN quote, afford to service the debt.
00:39:31
Now, the trouble here is that this is before the new Carney government was elected and the spending binge that is likely. And again, we don’t yet have, we don’t yet have a budget planned.
00:39:46
Apparently we’re not allowed to know where our money is being spent, and apparently we have to wait till the fall for an economic update. But who knows what that’s going to look like going forward. So this is a situation where Canada’s less bad. This is where Canada is really, really bad.
00:40:04
And this is on the real GDP per capita. So this is the productivity gap going back to 1970 or so. You can see that the US has always been more productive, more efficient.
00:40:20
On a per capita basis, in terms of how much real economic activity is being generated and especially the last 10 years, you can see that the gap has widened very substantially. And yes, this is the COVID era, but that’s the COVID era up there as well.
00:40:40
Basically, Canada has been flat for the last seven or eight years and the projected gap for full year 2024 was at $22,000 a year, which is a dramatic, dramatic difference.
00:40:55
So last year, 2024, I believe the US productivity was up about 5.2% and Canada was down about two point right around the 2% neighborhood. I can’t remember that number exactly off the top of my head, but it was in that neighborhood.
00:41:11
So as bad as the situation is in the US, with their debts of GDP ratio, they have a greater likelihood of being able to kind of grow their way out of it. Economic growth is the only way that they can really outrun A sovereign debt crisis.
00:41:27
And I don’t know that they can ever completely outrun it, but we’ll see what happens. Here’s to hoping. There’s continuous talk now about the US dollar and its reserve currency status. We have seen recently that foreign inflows to U.S.
00:41:44
Treasuries have been weakening, and that is in part because the US dollar has been weakening. Trump made it extremely clear that he wanted to weaken the US dollar for the sake of making their imports or sorry, their exports more affordable.
00:42:05
But what’s also happening is that there are other assets that are being bought up by central banks around the world. So we’ll call it Canada. Well, no, Canada doesn’t have any gold or crypto because we’re not smart enough to do either of those.
00:42:22
But the Bank of Japan, European Central Bank, Bank of England, People’s Bank of China, etcetera, they are actually increasing their their reserves and 2nd now to U.S. dollars held in U.S. Treasuries.
00:42:40
The reserves, second biggest reserves now are gold and crypto was actually being picked up as an alternative, specifically Bitcoin. Now does that mean that the US dollar is losing its reserve currency status next week or next year?
00:42:58
No, it’s a weakening of its dominance, but that doesn’t mean that it ceases to be valuable or ceases to be an important currency.
00:43:11
And in fact, oddly enough, the size, the massive, massive size of the US Treasury market is, it’s so big that it is actually at this time still really the only place in the world that huge amounts of capital could be parked on a temporary basis.
00:43:34
So even though that debt has an interest rate clock that’s ticking and, you know, driving up the cost, the servicing cost for for the US government, it does provide a place where global capital can still hide.
00:43:51
Now, there’s no credible alternative just yet, but we do know that a BRICS currency is being worked on in the background. For reference, you see there over on the right, GDP for Europe, for the EU and for North America is approximately 551.1 trillion U.S.
00:44:10
dollars annually versus GDP for the current 11 BRICS members is around 11 and a quarter trillion dollars. So obviously you know, basically about 20% the size of the GDP for the EU and North America.
00:44:28
However, we have to remember there are new members coming on board in the BRICS countries and they also have a huge portion of the world’s population.
00:44:39
And as we see an increase in their standard of living, as they have access to cheap, reliable, scalable oil and gas, thank goodness for fossil fuels, they see a significant increase in their standard of living. And that is going to change their role and their impact in the world.
00:44:57
And of course, when the US made the big mistake of of cutting off Russia from the SWIFT payment system, that created a bigger incentive and more urgency for them to start working on their alternative, their own alternative for the BRICS countries, their alternative to the SWIFT system.
00:45:16
We’ll see what comes out from that. So let’s talk about the fun subject, the Buffalo in the room.
00:45:24
And I say Buffalo in the room because of course that is kind of originally what Saskatchewan and Alberta were referred to as the Buffalo region before each province came in separately in the Confederation.
00:45:40
So this issue we saw ahead of the the federal election was going to be an issue when Trudeau prorogue Parliament in order to, you know, facilitate the coronation of Mark Carney. My colleague Sandor said that he thought that it there was a good chance they could kind of pull off the switcheroo.
00:46:04
I was doubtful. Unfortunately, he turned out to be correct about that. One of the things I did see and say right out the get go was that if the Liberals won another, won another election, that we would see a significant rise in the Alberta separation movement.
00:46:25
And that very certainly has happened within a day or so. We had some announcements and some statements and kind of some lines in the sand that came out from from Premier Daniel Smith and things have been rolling ever since. So why does Alberta want to separate or why?
00:46:48
And I’ll say why is there a separation movement?
00:46:50
Because Alberta is obviously not a monolith, it basically comes down to some factors that are a combination of respect and recognition for what Alberta provides to the rest of Canada in terms of cheap, reliable energy and the royalties and the GDP that it produces.
00:47:14
And also the fact that the Eastern media, they have traditionally viewed and talked down to Albertans and Westerners, but specifically to Albertans and treated us like like hillbillies and rednecks.
00:47:33
The reality is that we have a post secondary education level here that is basically on on par with Ontario at 69%, BC at 68% and here we are at 67%. We also have the youngest population in the country and that’s a a major factor.
00:47:53
We’re very vibrant and and hopeful and productive and we’ll show that in just a moment. But another issue, of course, is that Alberta and parts of Saskatchewan, and I would say probably the northern 2/3 of BC have a political culture that is more about the sovereignty of the individual.
00:48:14
It’s more about provincial autonomy. They like, you know, as little government as possible and what’s been happening of course, especially in the last 10 years, is that the federal government has been encroaching on provincial jurisdiction.
00:48:29
And in the case of Alberta, it is specifically around resource development and major infrastructure projects, pipeline specifically.
00:48:39
So there there’s the economic rationale around resource development, but then there’s also, of course the the whole concept of equalization, which results in on a net basis, Alberta sending about $15 billion a year into Confederation, $15 billion a year more than it gets back in services.
00:49:01
And that $15 billion is divided amongst the other provinces. And we see that as being rather unjust. So when we look at Alberta’s GDP per capita, we are tops in the country by I’d say quite a bit. And you can see that Saskatchewan is is in second place.
00:49:20
Saskatchewan, especially in the last 1518 years has done a tremendous job of resource development. Of course, they’re well known for uranium and potash, but they have also done a tremendous job of developing their oil and gas fields as well.
00:49:39
And so Saskatchewan is a much more financially or economically vibrant province than it than it was say 30 or 40 years ago. So you can see the economic rationale. And Martin Armstrong even goes so far as to say that without Alberta, Canada becomes a third world country.
00:49:56
That might be a little bit of a strong statement, but as you can see here, these three western provinces together are the three strongest in the country. So there is certainly some incentive for that. So let’s talk about the the process and the kind of a scope of the discussions around separation.
00:50:20
So Premier Smith dropped, she lowered the threshold for a citizen based initiative from 20% of of the voting population, voting age population, which is around 600,000 people to 10% of the number of people who actually voted in the last provincial election.
00:50:44
So that number has dropped to around 177,000. And also from the initiation of gathering the signatures required to force a citizen based referendum, the time frame has been expanded from 90 to 120 days. So that is a very, a very significant relaxation, I’ll say on the time frame as well.
00:51:14
Now the timing on when an actual referendum is likely to happen is in I would say in the first half of 2026. There are some folks who have been pushing to have it included with the municipal elections in October of 2025 here in Alberta.
00:51:33
And I think that would be a bit of a mistake because it would be it’s a big enough issue that it deserves its own standalone referendum because municipal elections are important.
00:51:47
We also need to have enough time to fully discuss and debate and look at the positives and the negatives of this one subject without the complication, or I’ll say the the noise of municipal elections.
00:52:03
They’re important, but this is probably a more important question now, probably is definitely a more important question. So the official position of the UCP and Premier Smith has been very, very clear. She is in favor of a sovereign Alberta within a united Canada.
00:52:22
In fact, that was the, the name of the first legislation that she introduced right after she was elected almost exactly 2 years ago, just over 2 years ago. And of course, she was elected to be the premier of a province within Canada.
00:52:38
So for her to support separation would be actually an abrogation of her duties. So she’s taking the right approach in my estimation. And of course there’s other provinces that could be involved in this. Saskatchewan is an, is a natural one, I’d say, but northern BC as well is a possibility.
00:53:00
We’ll see what that looks like. There is also a very significant divide between rural and urban. We have clients in rural Alberta who are ready to go yesterday and they have very good reasons for for that.
00:53:17
But here in the urban areas, that’s a little bit squishier and it’s a similar division between kind of Conservative and Liberal or NDP voters between rural and urban. So that’s not surprising. Now we haven’t heard anything in kind of the last 057 days or so.
00:53:37
But the range of polls in terms of Albertans in support of separation was between 29 and 36% and there was 1 outlier, which was 47%. But yeah, typically you have to throw the outlier ones as well. So possible outcomes either constitutional reform or Alberta slash western separation.
00:54:05
So the first one here, constitutional reform is that’s the Doomberg option. So Doomberg of course is the most successful research and economic subscription service on Substack. Doomberg has been on Michael Campbell’s Money Talks numerous times. Doomberg is an excellent source.
00:54:28
They have how much more positive view of how this is going to unfold. They think that basically Alberta has substantial leverage for demanding reforms to equalization and of course to the the restriction on resource development etcetera.
00:54:46
And that that is going to create an opening of the the Constitution and Quebec is going to demand, you know, more special treatment as well, because we always have to remember that Quebec is more equal than the rest of us.
00:55:04
And that is actually going to be the opportunity for Alberta to have special reforms on on our behalf. And that opens up basically the opportunity for more interprovincial and federal provincial deal making.
00:55:22
So the Doom Berg kind of view of how this all works out is that there will be an opening of the Constitution. There will be lots of toing and froing and and lots of heavy breathing and shouting and angst and wringing of hands, but that ultimately it will result in a stronger confederation.
00:55:45
That’s their view. The the other possible outcome is that there is assist the citizens based initiative leads to a referendum on voting to become independent from the rest of Canada with a clear majority. There is of course the Clarity Act that followed in 1998 from the Quebec referendum in 1995.
00:56:11
And so there’s a very clear process that that can happen. If that happens, there will be disruption. There’s no doubt about that.
00:56:21
There’s, you know, lots of unanswered questions regarding currency, although I think that’s probably the easiest 1 cause Alberta could basically adopt the US currency as as its own, which would make a lot of sense considering so much of our revenue comes in the form of U.S. dollars.
00:56:40
The other matter is there’s the Employment Insurance Fund, but the bigger deal, of course, is the Canada Pension Plan. How much of the Canada Pension Plan funds would be transferable over to Alberta for the running of our own pension plan?
00:56:58
And for those who are thinking, well, why should Alberta get its own special pension plan instead of the Canada Pension Plan, we could ask Quebec the same thing. But of course, with the Canada Pension Plan was introduced back in 67 or 68, right around when I was born, Quebec chose to go its own way.
00:57:20
And there is the Quebec Pension Plan. So there’s a very good, there’s a very good precedent for that, but there’s also issues around transportation and infrastructure corridors. Now keep in mind that Alberta and Saskatchewan are the only two provinces that don’t have direct access to tidewater.
00:57:38
And so people say, yeah, we’d be in a worse situation or the same situation. Well, the fact is, is that eastern goods need to get to the West Coast and a lot of those goods coming in from Asia to the port of Vancouver, they need to get to Eastern Canada as well.
00:57:53
So we have, we have a strong motivation to negotiate deals like adults so that we can have a free flow of goods through. And of course, from our perspective, that would include something like, I don’t know, another pipeline to the West Coast.
00:58:15
There is of course, another issue which Premier Smith was very open about and said we have to consider the rights of First Nations peoples in this this potential separation.
00:58:29
Now, there’s a very, very big gap between what First Nations leaders are saying and what the opinion polls are saying amongst the First Nations population. Of course, with the current federal government being the sugar daddy for First Nations, the elected band officials are extraordinarily corrupt.
00:58:54
They love the system as it currently is. They and their families and their friends get rich.
00:58:59
And of course we still have massive, massive problems with poverty, poor housing, terrible health, horrible addiction, unemployment, and, and not even access to basic basic necessities like, oh, I don’t know, clean drinking water and things like that.
00:59:20
So the elites would like the current system to stay in place. So they’re against Alberta separation, but the populations on First Nations reserves are not thinking quite so much. They see potentially this as an opportunity to be treated better.
00:59:39
Now one of the things that’s that’s coming out of course is the fact that there is a new government federally and there seems to be some positive talk coming out of Mark Carney when it comes to the development of of Nash of product or projects of.
01:00:01
National interest, I think is the is the term that he’s using.
01:00:06
The trouble with that is that we are in a situation where we have been, and when I say we, I mean, the province of Alberta has been betrayed by the federal government when it comes to restrictions around resource development and pipelines for so long that we simply don’t trust what they’re going to say.
01:00:29
And, and we’re kind of living in Missouri on this. We kind of like to see what it’s what the actual tangible actions will be, you know, not just promises, but actual legislation and guarantees around that sort of thing.
01:00:45
And Sandra and I were talking and we did a little bit of research on this and came up with five things that we think would be absolutely necessary to completely diffuse the Independence, Oregon separation movement in Alberta.
01:01:04
And that would be guarantees of pipelines reworking out or eliminate elimination of the equalization formula that results in Alberta feeding the rest of of Canada. Economically, we would have to see a scrap of the emissions cap, which of course basically restricts our resource development here.
01:01:25
We would have to get rid of the tanker ban on the West Coast and the no more pipelines bill known as C69 would have to be gone. If those things were to happen, then I would see that there could be a diffusing of the separation movement.
01:01:45
But until that actually happens, I don’t think that we’re actually going to to to see this quiet down. And I actually think it’s extremely wise of, of Premier Smith to have dropped the, the threshold for a citizen space initiative that is a referendum on Alberta independence.
01:02:05
Because if you don’t give that portion of the population an opportunity to make its voice heard and to make to make the arguments publicly and put it to a vote, then all you’re going to do is create resentment and, and rebellion. And, and it’s just bad for social cohesion.
01:02:25
And frankly, it would would be bad for the economy as well. So I spent a little bit more time on that one then perhaps I anticipated. But it is a major issue that’s going on here.
01:02:37
And I think it’s an important thing for us to, to be open to just having rational adult discussions about there’s a lot of emotion tied up in it, of course, because United Canada is a is a great thing.
01:02:50
But the way that a significant portion of Albertans are feeling is that it’s a financially abusive relationship and it has to change in order for the relationship to continue. So we’ll see what happens.
01:03:08
So again, going back to the optimism piece, I don’t know if I can pull off a segue like that after talking about an Alberta separation. But of course the the media is feeling a lot of the negative sentiment that’s out there in markets. But again, the data tells a different story.
01:03:25
We have these these very reliable market indicators including breadth, consumer sentiment, sales and earnings, etcetera that are providing some advanced client lines, things like that, that are providing some very good indicators for growth going forward.
01:03:42
And of course, volatility could be your friend. We do this of course within the framework of what we call our forward thinking portfolios. I’m conscious of the time here. So we’ve covered this in previous webinar, so I won’t go into detail on that.
01:03:59
In terms of sectors that we see some opportunities in, we certainly see in the US in particular the tech AI and and the peripherals around that big opportunities.
01:04:11
So the peripherals being things like data centers and utilities, the consumer discretionary segment of the market, particularly in the US financials particularly here in Canada actually are are doing well and they’re still reasonably priced at about 18 times forward earnings Healthcare.
01:04:31
And when we say healthcare in Europe, we’re meaning really kind of pharma companies. And that’s because of some of the reforms that are being introduced in the US because of course, US consumers pay a whole lot more for pharmaceuticals than other countries.
01:04:50
So there’s a lot of disruption in that space right now. So looking more so into Europe for that, for that particular sector, commodities in general, which we’ll show in just a moment from a geographic basis, the US still has the strongest economy. They are still the world’s reserve currency.
01:05:08
They are still the biggest market and the best ideas, the most innovation is still coming out of the US. So we we remain fast on on that geographic kind of concentration.
01:05:22
Canada and Europe are starting to look a little bit more attractive due to to the tariff situation with the USI would be cautious, more cautious about Europe than Canada just because of this thing called the special military operation or the the war in Ukraine as it’s known because that is not settled yet.
01:05:46
So for myself, I’d I’d prefer Canada over over Europe. Of course we’ve been running a, a commodity based portfolio that we call Corn Explorer now for a little bit over 4 years. Year to date, it’s been very, very positive at 15% as of the end of May.
01:06:04
The one year’s a little bit below the bench or below the benchmark substantially on a three-year basis, we’re basically on a parallel with the benchmark, which is 50% S&P, 550% the TSX. But since inception going back just over 4 years, we’re at a little over 17% versus 13 on a compounded basis.
01:06:25
And the standard deviation is only slightly more than the benchmark. So we’re thrilled with that performance and you know, we’re always, we’re actively managing the volatility on that as much as possible, but we’re thrilled with the results and the world needs, the world needs stuff.
01:06:44
The world needs oil and gas, the world needs uranium, needs copper, precious metals, lithium, rare earths, base metals, all those sorts of things. And Canada has those things in, in abundance. So on the fixed income side of things, it’s not just for safety.
01:07:03
We see in the US of course, yields are lower or sorry, higher there because Canada’s dropped interest rates faster because of our mortgage situation here. So we’ve got about a 4.4% yield in the US Treasuries.
01:07:17
Second-half of the year, probably the last third of the year is likely when we’re going to see some Fed rate cuts and that create some opportunities for capital gains there. The five to 10 year Canadian investment grade corporate bond index is yielding right now at about 3.86.
01:07:36
And in the US, the one to five year investment grade corporate bonds is yielding 4.68, which is a pretty decent yield when you’re considering inflation in the 2% neighborhood.
01:07:48
It’s good for retirees of course who are looking for stability and income as a supplement to the dividends in their portfolio. But of course we have to watch out long term for inflation. And one last piece there which is on alternative investments.
01:08:01
Of course they add a great degree of diversification to reduce risk that protect your capital during market declines and because they are not mark to market, they are not correlated to market movements.
01:08:13
I would say that private real estate and infrastructure and private equity are probably the best places amongst the the alternatives going forward. And of course due diligence on those is required and those are an important part of our client portfolios.
01:08:30
And just as a as a call back, this is our model that we use for how we approach things. And you can see that your family’s life goals are right there in the center. The importance of fully understanding our clients life goals.
01:08:45
It cannot be overstated because your life goals are the specific objectives that flow from your values, your beliefs and your priorities. They are your why. They are what motivates you.
01:08:56
They’re the reason that you save, the reason that you’ve deferred gratification and have invested your funds and provide you with financial independence and perhaps even a legacy. So of course, if you want progress, you need equal parts of time, money, and a willingness to change.
01:09:15
And if you’d like to entertain that, of course, applied knowledge is power, there will be an exit survey and a follow up e-mail. You can let us know if you’d like a complimentary consultation.
01:09:26
And of course, you can visit our websites & up for our video and webinar library if you have not done so already. And you can contact us through through the contact form on our website or just e-mail send or directly.
01:09:42
And I’m going to take a very short break here, catch my breath, get a drink of water, and Sandor is going to bring in some of our questions. All right, welcome back.
01:10:52
So I have a question here, Andrew, do you think that the tech AI sector could face the same collapse from over enthusiasmthatthe.com sector did orthe.com bubble did? I don’t think so. You know, there’s, I mean, there’s always a lot of enthusiasm and things can get overvalued, etcetera.
01:11:14
But the.com bubble was it was based on, again, too much enthusiasm, but there were companies that really didn’t have any kind of earnings and we callitthe.com bubblebecauseifyouput.com in your name.
01:11:32
That was supposedly some kind of a magic, a magic pass, the magic formula so that people could invest with confidence in your company even though you had no, you had no earnings. So of course the.com era was really kind of a tech revolution.
01:11:53
And you know, the Internet is here, we’re operating over the Internet. So yes, there’s going to be some overvaluations, you know, that will lead to you know, some some price readjustments, but I don’t think long term.
01:12:09
So OK, the question here on Alberta separation, how will CPP get split that I lived and worked in Alberta for about 10 years now in BC and retired. Will my CPP decrease by my Alberta years and then I need to apply to Alberta for that portion? That’s a great question.
01:12:30
And the answer is nobody knows yet.
01:12:34
It’s CPP is one of the, the biggest questions because of course here in Alberta, we have a lot of young people who are contributing and a lot of people who, who go through the same situation that you did where you, you lived in Alberta and contributed, but now you’ve retired somewhere else.
01:12:54
So the answer is we don’t know yet. And that will be one of the most complex questions to, to answer. But I don’t think it’s it’s something which is impossible to actually to actually work through.
01:13:09
And I would remind everybody that Alberta has Aimco, which is the Alberta Investment Management Corporation, which manages all of the public sector pensions in Alberta. So we already have a pretty confident infrastructure here on the asset management side of things.
01:13:27
And frankly, I think we can probably do it more cost efficiently than the Canada Pension Plan Investment Board does. Next question here, Armstrong. Armstrong says it’s a race to the to default between Europe and Japan. They recently said France falls in 2027 and then the EU.
01:13:46
If Alberta goes, does that create the default event before the EU? Any word from Armstrong when Canada would default? I have not seen any references in my readings of Armstrong’s work to when Canada would necessarily default.
01:14:07
He said for a very long time that it is a race to the bottom for default between Europe and Japan. France is is a basket case. So is Germany even though they’re not part of the EU anymore. The UK is is teetering on the edge.
01:14:25
They are, they are almost, they are almost a failed state when it comes to managing their finances and their political unrest and their migration situation, their basket case. And of course, Japan has has been struggling with its debt to GDP for for decades now. I don’t know. We do.
01:14:58
We do know that when when we start to see real problems in the in the bond markets in either the EU or Japan, that the money’s going to flow to North America. That may be something which helps to shelter Alberta a little bit from that problem.
01:15:18
And we don’t even actually know if Alberta would necessarily default on that. So another question here, Is the AI facility that Kevin O’Leary proposed for Grand Prairie gaining any traction or investment? He suggested this would generate billions for Alberta.
01:15:39
Kevin O’Leary is the, he’s essentially the Canadian version of Donald Trump, I’ll say. And it’s interesting because he’s at the opposite end of the, of the follicle spectrum, of course, with Trump with his beautiful hair and Kevin O’Leary being a Chrome Dome.
01:16:02
But he’s the proposal that they threw out there was really just a whole lot of bluster, not a lot of merit to it. I happen to have made a private investment recently in in a an AI data center that’s closer here to Calgary.
01:16:25
And I could potentially access some of the some of the factors that led to making that decision. And one of them was the fact that the O’Leary proposal is basically dead in the water. All right.
01:16:44
Can I comment on how the proposed 50% withholding tax for foreign investors on US dividends would impact how to invest in the US? That is part of the big beautiful bill. It’s one of the terrible things that’s that’s buried in that big omnibus bill.
01:17:04
It would be, I would say it would be a negative for investors who are seeking dividends because of course you, you have a 50% withholding tax on the dividends. Capital gains are a different story. They are not taxed in the US.
01:17:18
They’re taxed in the country of ownership, sorry, where the investor resides. But it would be a negative.
01:17:25
I don’t think there’s any question about that wouldn’t really have any effect on kind of the growth strategies, but it would have a negative effect on on investing for dividends in the US But there are other countries in the world, there’s certainly good opportunities for dividend investing here in Canada and frankly still in Europe.
01:17:45
There are some, there’s a smaller number, but there’s a a number of very high quality, very competent companies in Europe that are still dividend payers as well. So it’s not like that’s taken off the table. Why does it matter that IWM and your portfolio managers are independent?
01:18:07
What does that mean and what are the benefits? Well, essentially, it means that there are no investment banking connections.
01:18:15
So there’s supposed to be a Chinese wall that’s between the investment banking operations of say the big banks like ATD or an RBC or BMO or or whoever and the asset management divisions and the brokerage divisions from those companies.
01:18:32
But that Chinese wall is actually more of a paper thin Japanese wall and a lot of stuff gets through. And so there’s no influence that comes from those relationships. And the other piece of it, I would say is also the size of our portfolio managers who are. Pardon me?
01:19:02
That’s what a mute button is for when you sneeze. Our managers are also boutique managers. They are large enough to have access to all the technical expertise and systems and experienced investment professionals. But they don’t.
01:19:22
They’re not burdened with being so big that they would move the market when they make a major investment into something or get out of something. So you talked a lot about technical indicators. Is that what your portfolio managers used to invest in stocks? What about fundamentals?
01:19:47
And you talked about buying quality companies, etcetera.
01:19:50
Technical indicators are part of the analysis and the technical indicators that I was referring to today we’re mostly kind of broad indicators about market sentiment, consumer sentiment like consumer confidence, but also kind of the the bull and bear ratios and things like RSI indicators, which is relative strength whether things are overbought or or oversold, so.
01:20:23
The technical indicators that I was referring to were mostly about the broad market. They are helpful when it comes to timing the purchases of stocks. But of course it’s always a combination of those fundamentals and technical indicators.
01:20:40
So it’s it’s about both says here you, you painted a far more optimistic view than I have and almost feels like you’re just cherry picking info because a recession is coming for sure if we’re not already in a recession, at least in Canada.
01:20:58
Well, we actually did talk about some of the challenges that we have. So I actually don’t think that’s a fair question. We said that the doom and gloom was overdone, but the fact is, is that companies are still doing well overall.
01:21:18
We’ve recovered all of the declines really that we saw following the the Liberation Day announcements, etcetera. So I actually think that that question is not really valid. And what are your views on Bitcoin? You brought it up as an alternative to U.S. Treasuries.
01:21:41
Oh, well, Bitcoin is, it’s growing and growing in in popular acceptance. And as the popular acceptance grows, the institutional interest grows and it’s becoming more and more mainstream. So it’s not anything esoteric anymore or unusual or kind of fringe or anything like that anymore.
01:22:11
I still view it mostly as as a trading vehicle, not necessarily a store of value. But my view on it is not really important as much as what’s most important is how the rest of the world looks at it. And it’s growing in acceptance.
01:22:29
So and one last question here, can you paint a picture of what a sovereign debt default for US bonds would look like? Obviously it wouldn’t be good, but how would you play defense in a run up and what types of investments might be best?
01:22:44
Well, I remember Martin Armstrong describing what a sovereign debt default would look like. And that is when we would see bonds go what’s referred to as no bid. That doesn’t mean there’s no bid at all.
01:22:59
It means that there’s no bid anywhere close to what the closing price was on the previous day or what the asking price is at that next day’s open.
01:23:10
So it means that there’s a massive gap between the the bid ask price and it’s kind of like in real estate where you throw in what’s called the stink bid that’s so outrageously low that you don’t think it’s going to be accepted, but you just kind of roll the dice and see if maybe you’ve got a desperate seller.
01:23:33
And that’s kind of what it’s like with with a bid ask spread. So it would be a massive, massive disruption.
01:23:42
Stocks would be in a position where there would be a temporary downdraft because a sovereign debt default or at least a, I’ll say a sovereign debt crisis, not necessarily a default, but a crisis which would mean a devaluation of the bonds and a significant increase in interest rates.
01:24:04
In that situation, the safest thing is probably in ironically short term cash or you know, perhaps bankers acceptances, you know, 30 day notes, things like that. So when we talk about a sovereign debt default, that doesn’t necessarily mean all U.S. debt.
01:24:24
It refers mostly to stuff that’s kind of, you know, 10 years and further out on the on the yield curve, you know, in the in the 20 to 30 year range and things like that. It would be a difficult situation, there’s no question like that.
01:24:38
But the fortunate thing is that because we know it’s coming over the horizon, we’re not going to be caught off guard. We play strong defense with put options and larger cash positions in our equity portfolio and and in a situation like that, I’d say cash is king.
01:24:59
So all right, so that’s it for our questions for now and I am running out of juice here. Thank you everyone to or if we’re sticking around for the question and answer and we look forward to connecting with you sometime soon.
01:25:16
If we can be of service, please drop us a note and we look forward to hearing from you soon. Bye for now.
