The Canadian Investor - 2023 Year in Review

Episode Date: December 28, 2023

In this episode, Simon Dan and Braden go over the 2023 investing year in review. They talk about the biggest stories of the year and what did not go as they expected. They look back at the failure of Silicon Valley Bank, the AI race, the impact of interest rates on stocks and more storylines from 2023! Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Bélanger. The Canadian Investor Podcast. Welcome to the show. We have a special episode, different intro today, because I have two gentlemen here joining me today, both Dan Kent and Simon Bélanger. And we're going to go through our year in review. That was 2023. All of us are going to

have some specific hot takes about the year. Next week, we're going to do our specific bold predictions for the new year. So some of the most awaited episodes of the entire podcast, and you have all three of our faces here, all three of our voices. If you're listening on Spotify or Apple, go to join tci.com. If you want to see our faces as well as Dan, you've got your portfolio coming in there next month as well. Correct? Yeah. I've added it all on. That was a few weeks ago. Looking forward to getting that on there in 2023. Looking forward to doing the first three-way video here. It's going to be exciting. You're stealing my joke, Dan. Too good. Well, let's kick it away here. I think you guys are sounding better too. I think I am both the only one that's not sick and the only one with hair on my head today i have to

do this yeah i mean i've been listening to the pod with you guys this has been a recurring theme a topic on the show yeah i mean dan though yesterday i'm pretty sure i saw a piece of his lung pop out when he was coughing it was uh he did a couple episode recordings it was rough for him but yeah i think you're right. He sounds a little bit better today. Hasn't coughed yet, so that's a win already. Yeah, I was reading Equitable's earnings and I was in tears trying to contain my cough. It was so bad. Because the earnings report was just so good. It was so good, yeah. I just wanted to cry.

All right, let's kick it off. We're going to go in the order of Dan, Simone, Braden, Dan, Simone, Braden for our topics here today. So without further delay, give it a rip. So I started off with, I mean, I guess 2023, I mean, you can tell by the thing I'm going to go over that it did not go as expected for a lot of investors. And I actually took the topic of just kind of having a look at the amount of money that flowed into the money markets and fixed income. So a few podcasts ago, I had mentioned that TD did a study that highlighted that 47% of Canadians haven't contributed anything to their investment accounts due to the rising

cost of living in 2023. And I mean, for those who do seem to be still tinkering with their portfolios, it's pretty clear just from the fund flows that we see that a large amount have either shifted out of Canadian or US equities and into money market or fixed income opportunities. So over the last year, there's been just under 20 billion in inflows to Canadian fixed income and money market funds, which the vast majority of that is going to money market funds. And just to give you an idea how big this is, the five-year inflows of these funds sits at 24.59 billion. So I mean, there is a ton of money being dumped into, whether it's a money market fund, I think this even counts like HISA ETFs, things like that. And when we look to Canadian equities, there's only been inflows of $599 million.

And Canadian income equities, which I'm pretty sure would be just dividend stocks, income paying stocks, income paying funds, they've only seen inflows of 1.31 billion. So about 2 billion. And over the last five years, these funds combined had 18.6 billion in inflows. So you're talking like a fraction of the inflows into equities as they were before. And even more surprisingly, US equities have net outflows. So as per Y charts, they have around 544 million in outflows. So this wouldn't exactly be US stocks. These are ETF flows. So this would be just Canadian domicile funds that either contain US equities or US funds. So over the last five years, those had inflows of 23 billion. So there's clearly a massive,

massive shift here from stocks to money market funds, when in reality, like look at the stock markets this year, outside of the TSX. They've just been absolutely ripping. So it's pretty clear a lot of Canadians are scared of the markets and they're hoarding money into these fixed income options. It's not exactly all from that. I think the high interest rates from these funds have caused a lot of people to put any sort of emergency fund or excess capital they have in them because they're so liquid. For a lot of people, though, I'd say it's a market timing, market fear type situation. And the worst part about it is even with how much the TSX has struggled this year, these money market funds have been suboptimal in terms of total returns. So XIC, which is TSX index ETF, it's up around 8%. On the year S&P is 21% and NASDAQ is over 40%. So I mean, you're seeing 21% returns on fund flows that like net outflows, people are selling off these stocks

while they're ripping 21, 40%. And the one really good highlight, I did watch a video by Ben Felix, for those who don't know, he's a big Canadian YouTuber, big advocate for indexing and just a very smart investor. He went over a study that highlights how investors' expected returns are negatively correlated with the market's expected returns. So pretty much what this means is investors tend to be most scared of the stock market when it's in a situation to provide the highest expected returns. So I mean, the market dumped off in 2022. It was pretty easy for people to be scared of the market when in reality, it ended up returning the most. And just one last point.

So when you filter out the funds that have witnessed the largest amount of outflows in Canada over the last year, which would be US and European equities, they have the number three and number four largest outflows outside of energy and preferred shares. Year to date, US and European equities are the top two performing fund glasses in Canada.

So they're the third and fourth being sold off and they're the number one and number two performing. But yeah, I kind of found that interesting, just where the money's going and in reality where it would have better off been this year. And I think that's how wild 2023 has been. Yeah, and right now it's pretty bullish, just sentiment, right?

As we're recording that, so it's kind of funny, the correlation. So you do wonder if people are overly bullish right now and the market returns over the next little while will kind of go inverse or not. I mean, it remains to be seen. And actually, as you were talking about those Canadian domiciled but U.S. funds, remember, Braden, when we were doing those national bank ETF reports? Unfortunately, they stopped doing them, which I thought was really great. But one of the last one we did was actually reflecting just that the S&P 500 BMO index fund was one of the worst fund in Canada in terms of inflows so far that like so far in the year. And I think that was up to July or maybe August.

So it definitely lines up what you were saying. Yeah. I mean, look, that investors over the previous 15 years, largely, have not been given the opportunity to earn real returns on, I don't know if real returns is the right word here given inflation, but earn a satisfactory return to motivate them to use these instruments when it comes to rates moving up so quickly and them being actually appetizing. A lot of these instruments have become appetizing for the first time in over 15 years. So I'm not surprised to see how aggressively that money has moved over there and into an instrument like an exchange traded fund, which as an asset class has had an extremely resilient amount of asset flows into. resilient amount of asset flows into, regardless of if you're talking about money market or equities or a bond fund. The fund flows into ETFs as a whole has been remarkable because there's more self-directed investors than ever using them. So I'm not surprised, but it's definitely been one

of the most important stories of the years for self-directed investors, I agree. important stories of the years for self-direct investors. I agree. Yeah, definitely. So I guess I'll go and continue on that interest rate theme because obviously, I think the inflows in the money market funds is probably a big reflection of interest rates being so high. Probably also, actually, before I go there, probably also people preparing, maybe people are selling off a little bit of their equities in preparation for, I don't know, you know, mortgages coming to term in the next year or so and making sure that money is safe and not in a volatile instrument. I'd like to think people are being cautious that way. That would be a valid reason, in my opinion, to put some money aside in a safer instrument if you're looking at significantly higher mortgage rates, for example, when you renew. Yeah, it's definitely a possibility. I think the one thing about this is what pushed these products to be really attractive is

ultimately what pushed stocks down, right? So when these products became the most attractive, stocks were probably trading at more attractive valuations, which would eventually mean higher expected returns in the future, typically. So it's tough. It's a tough situation. Yeah, no, exactly. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA

account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY, do-it-yourself investors, Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked.

The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there

and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Now, one of my takeaways for this year, obviously it's easy to forget because it happened nine months ago at this point but is the failure of silicon valley bank and u.s regional banks so as a refresher here on march 10 2023 svb failed after suffering a bank run svb was a bank that was that mostly served customer in the tech space and startup space but you, different areas as well in the Silicon Valley area.

SVP's failure was followed by Signature Bank and First Republic Bank. And in terms of asset, these three were actually second, third and fourth largest bank in largest banks to fail in U.S. history on an asset basis at the time of failure behind only Washington Mutual that failed during the great financial crisis. And the main cause for the failure for First Republic and SVB was interest rate risk. The banks held US treasuries and mortgage-backed securities, and they had gone down in value because, as you were saying, Dan, interest rates were solo when they were purchased. And as interest rates rose very quickly, the value of these bonds actually is inverted to that. So they started going lower. And as the rates started rising and the bank needed liquidity, they had to sell those bonds at a much below phase value, causing the banks to fail.

And there was also, we didn't hear as much about those i mean people that weren't into crypto or hated crypto definitely talked about those but there was also silver gate bank that came before all of this silver gate bank really its demise was that it had a bank run of its own because of the ftx collapse in late 2022. And they decided to just unwind operation. But there was also a signature bank that failed. And I'll say that in air quotes for those of you not watching on Join TCI. Because there is still a lot of debate whether it was actually warranted if the bank should be shut down or not.

It definitely had some exposure to crypto. But there were some people on the board especially bernie frank that was quite vocal about it that they he didn't think it should have been shut down and he was behind the dodd frank act that came after the financial crisis for tighter regulations so i mean that was definitely something interesting. And following the collabs, the Fed established the Bank Term Funding Program, the BTFP. Under this program, the Fed makes an advance to banks in exchange for eligible securities, such as U.S. Treasuries, at par value, regardless of what the current value is on the market. So that ensures that the banks who need cash don't need to sell treasuries at a loss. They can simply use this program and borrow at par against the treasuries. And I'll finish here that the SPDR S&P Regional Bank ETF, its ticker KRE, has recovered slightly since March,

but it's still really underperforming this year financials as a whole, and it's down 17%. Dude, this was crazy. Yeah. Like three or four days in through the weekend when there was fear of mass contagion of, I don't know if you guys remember, but there was over that weekend, that Sunday before there was any comment from the US Fed, there was mass hysteria around contagion and widespread bank failures. Yeah, it was not good. I actually have a pretty interesting story in relation to one of those ISA ETFs in regards to this, which would be HSAV. It's the one that doesn't pay a distribution. So it's kind of a bit more tax efficient. It

doesn't pay a distribution so you can sell it and get a capital gain instead of interest income. So it got so popular that Horizons had to suspend subscriptions. So it ultimately ended up trading at a pretty big premium to the NAV. And if you had bought this right when that crisis happened, you were down, I think three and a half percent on this fund in like two weeks. Because even the panic here, like this is all like deposits at National and CIBC, I think. But even the panic here, like people were dumping that fund to the point where the premium just was wiped out in a few weeks because they were afraid like that the these deposits wouldn't have even been protected which i mean you look at it now it just seems like a crazy thought now but during that time people were freaking out

yeah i didn't realize that i didn't realize they they saw that for each salve yeah oh yeah it dropped and like you know it's like oh whatever three and a half percent but this is like this is a high interest savings etf like you shouldn't be this is about as liquid and as safe as it gets and it dropped over three percent in two weeks this was also highly highly controversial around how capitalism should work if you guys remember that as well, this was a very, very, very controversial topic among everyone who was following the story around do you let them fail? Do you let capitalism do its thing?

Do you throw them a lifeline? Do you throw depositors a lifeline? Or is it their job to assess counterparty risk? XYZ, is this a risk to the startup ecosystem because Silicon Valley Bank is the one banking all of them? What's the contagion with First Republic? There was a large amount of debate around how this should be handled in the eyes of capitalism versus ultimately what happened, which is, you know, taxpayers pay, basically. You know, you mismanage the balance sheet and taxpayers pay. Yeah, pretty much. And one of the things that's interesting, and we'll probably not know this for years down the line, but regulators tend to fight, tend to do regulation based on the most recent crisis. And they don't look forward at what could potentially go wrong.

And that's one that's been one of the big causes. Right. There's been all these regulation that came after the great financial crisis because they wanted to make sure that there were, you know, credit risks were contained, but then interest rate risk kind of got overlooked. And one of the things that will be interesting is that BTFP program, so the Bank Term Funding Program, I think originally was supposed to be around $30 billion. I just looked up the Fed report to Congress. The total advances is now at $114 billion. And the program's supposed to end in March of 2024. So that remains to be seen. It's just something interesting, a little tidbit of information that I think they underestimated the uptake that this program would have from financial institutions.

Yeah, good one, Simone. It's so weird how this one, the story almost just completely slipped my mind, which is fascinating and tells you a little bit about how our brains all work in terms of news, this never-ending cycle. It's mind-blowing. No, exactly. But now I'm looking forward to your first takeaway, Brandon. Yeah, I have two takeaways. I'm deciding which one to go with first. My two segments are one about AI and then the other one about Magnificent Seven. But we're talking about the stock market, you're in review. And I don't think that there's a bigger story for equity markets

than the S&P had a great year, brackets, sort of. Yeah. Yeah. Pretty much, yeah. Magnificent 7, for those who are unfamiliar, I think it was Bank of America

coined it on one of their outlook papers in Q1. And it took off as a, you know, there was the FANG stocks, there was the MAGMA. There's been all these like acronyms to describe these mega techs that lead results for the index. And so Magnificent Seven really took off

as the coin phrase, which is by market cap here, I'll try to list them in order because they're not in order. Apple, Microsoft, Google, Meta, Nvidia, Amazon, Tesla, probably butchered the order, but those are the companies, all right? These are the seven companies that are in the Magnificent Seven. So Nvidia, Meta, Tesla, Amazon, Microsoft, Apple, Apple, and Alphabet, aka Google. Now, the insanity is that we are now at a peak of the largest companies as share of the S&P 500. Today, this is November 30th ending data done by Goldman Sachs. So 12 days ago, we'll call it as current as it could possibly be.

29% of the S&P 500 by market cap is in the Magnificent Seven, which is remarkable. The seven companies have never been higher since their data recording this pre-1980. data of recording this pre-1980. The indexed return of the Magnificent Seven year to date is 71%. So that's actually November 30 to November 30, so one year. During that time, the S&P 500 did 19%. And the remaining 493, so S&P 500 X Magnificent 7, so the remaining 493, only did 6% during that timeframe. Only did, right? It's like, oh, what a terrible time, right? That's not a bad year, but it just underscores how much of the return decomposition has come from these three names. And I have some more statistics around this, right? Like, oh yeah, they're overvalued. Oh yeah, this and that. Maybe, okay? But these companies deserve higher multiples, at least some of them in my view.

Many of them certainly do. If you look at a trailing 12-month net margins, they're basically double the other 493 constituents of the S&P. Forward growth rates is 11% on sales for the Magnificent Seven consensus for next year through 2025. The S&P is only 3%, consensus for next year through 2025. The S&P is only 3%, so roughly historical inflation. The S&P forward PE of the entire index right now is 19. Of the bottom 493, it's only 16. And of the magnificent seven, it's basically 30, 29 and a few decimal points. It's basically 30, 29 and a few decimal points. So I believe this is the biggest story of the stock market in 2023 when it comes to just pure play equities. There's been no more important names to own.

If you've owned just an equal weighted S&P, you've gotten waxed by the market cap weighted version of the index. And so I didn't think a year interview without talking about the Magnificent Seven made any sense. No, I think that's a great point. I mean, at the end of the day, I'd be, do you know how much the RRSP that equal weighted is? That must be around 10%, right? I'll look it up right now. 6%. Yeah, probably. Well, that would be the rest, right? But it's still- That's X. Yeah, that's X. 7.5% year to date as of today. But let's do November 30th ending so that this date is apples to apples. 4.7% S&P 500 equal weight has done less than 5% during that time frame.

So astonishing difference. Yeah, because some of the smaller or worse performers are probably more weighted than then the big ones that return are less weighted, right? So that's interesting. No, I was just curious how that performed. But I think that's a great point. I mean, it's been a good year. And obviously, the QQQ NASDAQ has been crushing it.

I think it's like up 40% or something like that. Yeah, I was looking back. One of my bold predictions last year was like that the QQQ slaps the regular S&P 500. I think, what did I say, like 5%? No, yeah, I think it's the only one we got right. So a little preview. I don't know. I feel like this episode is going before the other one.

So hopefully a little preview. Okay. Well, you know, I should have said by, you know what, nearly 50%. Like, oh my God, it's outrageous that the difference in performance. It's pretty huge. Yeah. Like an equal weight S&P is not doing much better than the TSX even, which is like- That's right.

TSX is just chock full of rate sensitive companies. It's pretty much returned. Yeah. I think, what is it here? 2% over the last year. So, I mean, it's, it's not much better. I mean, not, not owning these companies, whether you owned them like individually or through like a S&P 500 index fund. It, I mean, that's where all the returns are coming from this year, pretty much. Yeah, exactly. Yeah, like who had, you know, just own Microsoft and double your money this year,

like on their bingo card, right? Like that seemed like an absolutely ridiculous proposition to have for a company at its size, but year to date, Microsoft has returned over 60% if you do total return. So just bonkers numbers. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online

broker by MoneySense. and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. That is questtrade.com. I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time.

And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the app store and I'll already on there. People are just on there talking, sharing their investment ideas, and using the analytics tools. So go ahead, blossom social in the app store, and I'll see you there.

Yeah. You want to go with your next one, Dan? Oh yeah, sure. This is definitely a sector that did not perform well this year. Probably not in 2022 either, and that is renewable energy companies. So I looked up, the reason I came across this is I looked up, I wanted to figure out what was the worst performing funds of the year. So I looked up the worst performing Canadian funds of 2023. And out of the eight of them, six of them are renewable energy ETFs. And then there's a marijuana ETF in there and a psychedelics ETF. So the vast- Basically inverse 2018 basket.

Yeah, pretty much. Well, I would say like 2020 too, like renewables went absolutely bonkers in 2020. So yeah, I mean, six out of eight renewables, they've all gotten beat up pretty bad. You're talking like from 25% to nearly 30% losses. So after going through a pretty impressive run through the pandemic, rates are at multi-decade highs. And a lot of these companies, most of them require a lot of capital borrowed. They've just witnessed massive valuation resets. And this is a bit off topic in a way, but a lot of these, this kind of goes to like fund managers and how they'll kind of create these funds based kind of

on what is moving the market at that time. A ton of these clean energy ETFs were launched in 2020, 2021. So they all have very small AUMs. Like you're talking like maybe 20, 20 million. Some of them are only like six to 10 million. The only one that's notable is maybe the BMO ETF, which just has 50 or 60 million. We're seeing that right now with covered call ETFs, huge amount of push for like covered call ETFs, just because that's kind of what's, you know, drawing the interest right now. But I mean, in terms of renewables, it's not exactly exclusive to renewables. Pretty much all utilities have

taken a bit of a beating. But the regular utility sector here in Canada had only finished down around 3% on the year, whereas renewables were just significantly, significantly more. And the sentiment towards these companies has just been absolute rock bottom. So I mean, one prime example would be Northland Power, which is typically like it's a pure play renewable company. It's a low beta utility, like it usually doesn't move that much. But to start off the year in 2023, the company revised its guidance down by about 10%. And it's down 40% this year, just in terms of share price. Pretty much the only renewable company that has kind of

bucked the trend this year would be Brookfield. It's actually up 4%. When you look to companies like Boralex, Canadian Solar, Interjects Renewables, Algonquin Power, although they're mainly regulated, they do have a bit of a renewable division. They're all down like big amounts. And I looked at the biggest clean energy fund. There might be a bigger one, but I'm pretty sure BMO's clean energy is one of the bigger ones. I took the top eight holdings, which account for about 40% of assets. So there's a single stock in the green. four of them are down by 40% and two of them are down by 70%. So there's no doubt that during the pandemic, I mean, sentiment to a green transition went way too overboard, especially like with free money. I mean, policy rates were at a quarter point. So these companies could borrow with

pretty much very little risk. I don't know in terms of next year if they end up cutting rates, if there's going to be some money coming back into the sector. I mean, personally, I just own Brookfield and I'll probably just continue to add to that. But yeah, it's been a really, really tough ride for renewables. I think in terms of distributions though, like dividends, I think Algonquin's been the only one to cut. I don't think any of the other ones have. Yeah. I don't think so. Yeah. I mean, I own a Brookfield renewable partners and it's done. All right. I think it might be around like flat if you calculate total returns for the year. Yeah. 4%. Up 4%. so pretty much just a dividend yeah

pretty much a dividend but i've had it for since most of my stake in them was back when i can't remember the company but they purchased a company that i was holding terraform power yeah when it was in bankruptcy and talks were that brookfield were going to purchase them. Actually, they had purchased them and I just got into Terraform and Brookfield didn't own the whole thing. They only own like about 40% and then they eventually just rolled up all of it and I got a nice premium because of that. But yeah, that's the only one I hold because yeah, it just seems like there was a lot of hype around it. Obviously, it's been up and down, but overall, I think it's still been quite a good investment for me,

but I've had it for almost six years now. Nothing to add for me beyond what you started with there, Dan, is the rate-sensitive names have been getting smoked this year, and these are in that basket without a doubt yeah exactly and that's that's gonna be my next takeaway from this year is gonna be a lot and a lot of it is around interest rates but who's kidding who right they've had a massive impact on markets this year you know the meme of the two astronauts and he's like, he's got the gun to his head and he goes, so it's always been about interest rates? And the guy goes, he goes, always has been. That's how I feel about this year.

No, I mean, it's just been crazy. I mean, the market has been moving wildly on rate expectations. And the first thing I wanted to mention here, obviously, what's really rate sensitive is going to be the big six banks in Canada. I think the biggest takeaway here for me was that the increase in provisions for credit losses has just been very massive. Dan and I talked about that very recently, a couple episodes on the bank's earnings. We put things in perspective because you hear these big numbers, billion here, there for PCL, and people end up thinking it might be more than it actually is when you compare it to the total number of loans. But to just give a bit more perspective, I grabbed some data from a little financial slide that I use from time to time

called FinchChat.io. Oh, wow. Sounds like it might be the best website ever made. Yeah, exactly. So I pulled the data. And I mean, I always double check one time to make sure the data is good. And it's always good. So props to you.

You have any doubt these days? Come on. We got institutional data. No, no, I know, I know. A year ago, trust trust me i was checking every data point as well but now that it's all institutional you can rest assured yeah so royal bank added 2.5 billion in 2023 td added 2.9 billion national bank the smallest of the bank added just shy of 400 million cibc added 2 billion scotiaabank added 3.4 billion. And BMO added 2.2

billion. And obviously, that's a reflection of the increased stress on Canadian consumers and businesses. And the banks are preparing for some potential turbulent times to come. And that's where interest rates had a big impact. They had a big impact on consumers, businesses. And we saw that in the stock market too, with stocks that were rate sensitive, like Dan just said about the renewable sector, which, you know, obviously there's going to be a lot of utilities that kind of fall in that category as well. They were hit pretty hard this year, although it feels like I looked at the data and it's definitely it's almost a story of three quarters because as soon as rate expectations starting to shift in like early

mid-october you see a significant change in the returns and a lot of the they're not quite positive for the year but you can definitely see how they've been impacted by the market now pricing in to some degree, some cuts in 2024. Obviously, there's some debate on when it would happen. And you know, maybe they won't, maybe they will, you know, a little preview for a bold predictions, I'm making one regarding rates that I'm sure I'll be wrong about in 2024. But nonetheless, it's still fun. But for those watching, I'm actually showing here two funds. So you have here a utility, a US-based fund, XLU. And then you have XRE, which is a real estate TSX-listed fund. And you can, not as much with the real estate, but you can still see a bit of a line where it's kind of trending down the whole year.

And then starting in October, it trends back up. So that's obviously because bond yields have been, you know, trending down since October. And we've seen that with the U.S. and Canada. So the U.S. 10-year kind of peaked in terms of yield around, again, October. And the Canada 5-year, the same thing. So we've seen some big shift here. And it's just really interesting looking at that and all the different things that it impacts. Obviously, the Canada 5-year, for those that don't know, it actually impacts those fixed-rate mortgages or the five years fixed rate will a lot of it will be based on the Canada

five year because that's what banks will look at in terms of okay well we can lend you this money for five years or we can place it in the markets and buy Canada bonds so it's been really interesting it's been a tale of three and one I guess three quarters versus the last quarter and to me it'll be really interesting what happens in 2024 with rates. You know, we'll make some bold prediction, my bold prediction with rates always bold. We're having fun with it, but it's really hard to predict where it's going to go. And I know if you go on TikTok, you get these realtors that are saying like, oh, there's going to be a rate cut in January. Well, that's pure BS. You should always think about these as probability outcomes. And anyone who tells you something for sure is full of it. That's just, yeah, that's how I see things. Especially when it comes to macro, you know?

Yeah, you never know. Especially. Well, yeah, especially when you're a realtor, it's like, oh, buy now because, you know, once they start, you know start cutting rates, prices are going to go up. Well, there's a lot of things that go into that. It's no guarantee that home prices will start going up because if we're in a full-blown recession and people are losing their jobs, what money are you buying a home, right? Incentives, incentives, incentives. Yeah. I think someone called called charlie once uh had some great quotes regarding that yes yeah it's almost like they're motivated to get you to buy a home

oh to tell you what you want to hear yeah it took me a while to put that together thank you dad yeah wait is it me now i think it's me now, unless you guys want to add more on rates. Yeah, yeah. All right. Well, we can't talk about 2023 without talking about AI. That AI word that has consumed the conversation, both casual and professional conversations this year. I believe this is, of course, one of the largest stories.

It's been an important story for stock markets too. It feels like it was the saving grace of venture capital investors. And it feels like it was a bit of a saving grace in terms of looking towards the capabilities of large tech and them winning this race with all the data they have and the distribution they have. Mentions of AI in earnings calls went from 10% at the middle of 2022 to 35% of S&P 500 companies mentioning AI during quarterly conference earnings calls. That is remarkable. It peaked in about Q2 of this year at around 35% of quarterly calls. ChatGPT launched in November. Its exact birthday is November 30th, 2022. So this is a 2023 story, right? Like it basically launched December of last year, and here we are full trip around the sun, basically only that's how old it is. And there was a time in the beginning of the year when everyone and their dog was talking about ChatGPT and their new AI model, GPT 3.5 from OpenAI. And I think rightfully so, it was a magical first

experience. It was super fun to use right out of the gate. In March, they came out with GPT-4 and it was like, oh damn, this is even better. It's only a few months. People were starting to see the pace of innovation. They get their API available to the masses and you see AI everywhere. And that includes us. It changed my business overnight when we launched FinChat. We even renamed our company after that new launch. They come out with this amazing voice, computer vision integrated right into Chat GPT, the list goes on and on and on. You start to see resemblances of AGI in less than one year of learning about chat GPT. AGI means artificial general intelligence, which means like the sci-fi movie AI that has like consciousness, can think for itself, do tasks. And that's a bit of a holy crap moment,

right? You're seeing this pace of innovation in real time. And then you probably see what I believe as the most insane quarterly report. So it's throwing up Terminator on the screen. Yeah. I'm like, that's what AGI thinks about. That's AGI, exactly. Then you see, how about you share your screen of this chart here too? Because I think we saw the most insane quarterly report I've ever seen as a history of my time as an investor, at least in the last few years. I think this is the chart of the year, maybe company of the year, surpassing 1 trillion in market cap,

NVIDIA's data center business in the July quarter grew over 100% quarter over quarter. Not year over year, quarter over quarter. It was 171% growth year over year to the comparable July quarter, which is bonkers. Over $10 billion in sales for that segment alone from just a little over four the previous quarter. It then grew again monstrously here in Q3 for their numbers, NVIDIA, which represents a 278% year-over-year growth rate for their data center business. This is every large company sprinting to get capacity, sprinting to get hardware, and sprinting to participate in artificial intelligence. NVIDIA has been the largest benefactor of that, I think, of any public company today. They're being rewarded for that. Next year's growth rate26 estimates are bonkers. NVIDIA only trades at a PE of 24 next year's earnings,

which is insane. You know, people are knocking it for being such a bubble. If consensus estimates are right, that's the big if. If consensus estimates are right, then it's certainly not. I think these things are a little bit more cyclical than the market's willing to admit. But to me, this has been the stock of the year. It has been the story of the year. And I think this is the chart of the year of NVIDIA's data center business. Look, we'll look back. I've said this middle of the year of nvidia's data center business look we'll look back i've said this middle of the year i said at the beginning of the year i said it on last year's bold prediction that 2023 will be

the year we remember as the ai arms race nvidia has been working on it for 15 years and that's why they're the story of the year today they're having their moment yeah and there there's definitely and that's one thing remember when they had that blowout quarter the first one in may right that's when like they had that first quarter where it really blew expectation and my my thing was look if there's that much demand and there's that much money to be made, you're gonna see competition coming in. It might take six months, it might take a year, and we're starting to see that competition really firm up. So AMD came in with their next AI chip. It may not be as powerful,

but it may be a good alternative, especially if there's a backlog for nvidia and i think also amazon is uh yeah amazon is developing one as well they're designing one on their end so and you have these are you know amd but also amazon these are deep pocketed companies so i think 2024 you'll see that competition definitely firm up to try and get some market share away from from nvidia and we talked about moats right in a recent episode too you have to be careful in terms of moats because this kind of stuff i mean will can really change quickly it can change quickly i'll i'll counteract that and look i have no strong position uh or opinion on nvidiaIA stock from here. But the software that they've built, the programming language called CUDA

that runs for NVIDIA, there is a gigantic developer moat, which is an important network effect. There is a developer moat around NVIDIA right now that cannot be understated. And anytime you have the best hardware and the best software together with the developer ecosystem moat, we've seen it work really, really well. Again, no opinion on the stock here.

And of course, eventually, competition always has its way in this world of capitalism. But right now, for those reasons I've mentioned, they're in a really good spot. I do think that they are. It's just really hard to bet horses on these names. It's the reason I've stayed away. But staying away from the video is obviously been a mistake. And if those next year consensus estimates are even remotely close, and if it's not as cyclical as I think it is, then it's not very expensive either. Yeah, it's going to be pretty, like even you see like other companies like Broadcom is up like 100% on the year. It's just been bonkers.

I mean, Nvidia earned $3.34. And in 2024, they're expected to earn $12.30. Jesus. and in 2024 they're expected to earn $12.30 jesus 2025 $19.72 2026 pretty much $24 so i mean it's yeah it's crazy that's when it can't it becomes a little bit of a head scratcher when these estimates like when they start projecting so far out i'm like wow yeah so much stuff can happen in between i use about six quarters with actual signal. And then after that, I drop off. Yeah, 2026 earnings are just, I mean, it's a guess, really. It could change so much.

Yeah, and one thing I wanted to add, it's going to be really interesting on the kind of geopolitical front, right? Affecting these companies, how US will impose sanctions or restrictions, I mean, on China specifically. Because we saw them in October of last year having these restriction for you know the most powerful chips and then one thing we haven't talked about recently is they updated those restriction because Nvidia was selling still abiding by the US rules but they were, but they were selling to China some AI chips that were not as

advanced as their most advanced chip. They were still compliant with the restrictions. So the U.S. actually made some modification to these restrictions. And then a couple of days later, Nvidia slightly modified the chips to make sure that they were compliant, but they were still able to, will still be able to ship chips to China. So it's going to be really interesting that kind of back and forth between restrictions imposed by the US and what companies are doing to kind of just barely meet those and still offer products to China because China, you know, it's just such a large customer for them, the companies that are located there. And obviously, from a geopolitical standpoint, if there's going to be a tit for tat kind of thing where you'll get China,

you know, trying to impose some kind of restrictions on their end, I know for them, it would be more potentially the material used in these chips. Yeah, that was probably the, well, that was probably the most interesting thing on my end is how this will all play out. I mean, you obviously have China as a massive market, but you also have the United States that probably doesn't want to be shipping top-end chips in this technology to China. So I think this will be the most interesting thing moving forward. I haven't spent too much time in this space, but they already butt heads a lot. So, I mean, something of this technology, I'm not even sure.

The new regulations came out just a few weeks ago, didn't they? I think we talked about it. Yeah, early October. Yeah, early October. But they said it's not going to impact sales over the long term, I think NVIDIA said. But like during the short term, they might have some difficulties. Yeah, I think they modified the chips ever so slightly so it may just be a production thing i haven't looked that deep into it so it's probably just um you know modifying the production

line on the tsmc and so taiwan semiconductor which is a great name to play this whole ai thing asml and tsmc are sitting right here in the middle of it if you're comfortable with the geopolitical risk that you're mentioning exactly if you're comfortable with the geopolitical risk which is a you know it's not a small risk so i think that's worth mentioning definitely how are they doing on that arizona plant i saw that thing's gonna be absolutely i thought it was like 2025, I thought it's set to open or something like that. Yeah. Got it. Yeah. Got it. Well, are we all done here, folks? I do have one last thing. I think we can all chime in. It's an easy enough one to add. I added it in there because it is Canadian specific. So I'm going to ask both of you a

question and you can let me know. So is the first home savings account the best investing account ever if you're eligible for it? Yeah, this is a good important story of the year too. Thanks for bringing this up. Dan, how about you go first? It is pretty key. I mean, I wish they had it around when I was around. So from what I understand is you don't have to buy a home with this and you can just transfer it into your RSP. Is that what you were saying? See, I thought I was under the impression you had to use it for a home eventually at some point. But I mean, it's crazy. It gives you $40,000 plus your contributions back. I mean, the one interesting thing

that I always told about this account when it first came out is if you're buying a house in like the GTA or in Vancouver, all this FHSA does is pretty much pays your mortgage insurance back to the company. So you pretty much put 40 grand in there

just to pay your mortgage insurance. So, but I mean, it's still, it's a big headstart for some people. And I think you can, you can combine this with the home buyers plan, which allows, I think they upped it to 35 K of your RSPs, but those you have to pay back. But I would say for sure, it's like, we already have a hard enough problem, like a hard enough time for people saving up to buy a house here in Canada, except in Alberta, it's still pretty cheap here. But if you're looking in more popular markets, this account is going to be pretty key. Yeah. If you're eligible, I mean, it's a no brainer. And this is a good reminder. We're recording this on December 12th. This is

going to come up before Christmas and the new year, right? Yeah. I think it's going to come up before christmas in the new year right yeah i think it's going to be coming out on the last episode of the year and then we'll have an episode on the first as well so i think this would be the thursday after christmas before new year's if i remember correctly yeah all right so if you're hearing this and you're eligible and you haven't opened an account stop everything and do it because you'll get, that increases your, you'll be able to catch up on the 8K for this calendar year, right? Yeah, that's correct. You should be able to, yeah.

Yeah, so it's good timing. So lock that in. My answer is it's pretty amazing. It combines kind of a best of both worlds with the TFC and RSP. I guess the only knock on it that dan mentioned is like with asset prices of homes where they are in these major regions it still feels hopeless to the to the millennial starving artist who who racks up 40k here and then go, oh, great. Yeah, like I have my CMHC insurance payment. Great, wonderful, perfect, thank you.

Yeah, and I mean, it is, so you have to be a first-time home buyer, but if you don't end up using, I think it's 15 years, and then you transfer it to an RSP and basically end up getting just an RSP, right? You got the tax credit for it. But if you want to really benefit from it and purchase a home, then you get, you know, you get the tax credit. So essentially, you know, you get the RSP benefit, but you also get the TFSA benefit

where you don't, you're not taxed on the withdrawal and you can put it towards the home. So that's why it's the double benefit. And that's why it's the double benefit. And that's why it's such a great investment vehicle. I think, you know, you can say whatever you want about the current government that we have, but I think this is a good idea for people looking to buy a home. And there's different strategies, right? Some people may be more conservative. They may be closer, maybe a year or two away from purchasing a home. And maybe there are some people that are like, look, I'm going to have to invest in equities if I ever want to possibly own a home. And at least with this, I can turbocharge my returns without having to pay any taxes on the way in or out.

So I think, you know, obviously there's going to be people using different strategies. You want to be careful because there's limited contribution room. By the same time, if it's your only shot at potentially getting it, I mean, it's hard to blame people for, you know, be taking a bit more risk and going like all equity, for example. Yep. I agree. Thanks for listening to our year in review, the year that has been 2023. And Dan's joined the podcast here too as well. So that's, of course, a large story here in our world. Thank you for listening.

We appreciate you. The show goes on. We'll be around all through the holidays and of course through next year. This is a good chance for us to plug some of our stuff, of course. Go on to jointtci.com. It supports the show. You get this pod, the three of us here on the video, as well as our monthly portfolio updates for all three of us, our actual portfolios, our real money portfolios, as well as go to finchat.io. It is a amazing research platform for stock research. And Dan

runs stocktrades.ca. Lots of great research there. If you're a self-direct investor looking for research on stocks that you might want to own in your portfolio, look no further than stocktrades.ca. I think it's a great website and go check it out. We'll see you in a few days. Take care. Bye-bye. See you in a few. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.