The Canadian Investor - Bank of Canada Holds, Housing Cracks, and AI’s Infrastructure Problem

Episode Date: July 18, 2026

In this episode of The Canadian Macro Investor Podcast, Simon and Dan break down the latest Bank of Canada rate decision and monetary policy report. They discuss why the Bank of Canada held rates steady, how the bond market is increasingly driving borrowing costs, and why housing is becoming a more important risk in the central bank’s outlook. They also look at Canada’s increasingly divided housing market, with Ontario and B.C. under pressure while several other provinces continue to hit new highs. The discussion covers condo weakness in Toronto and Vancouver, the impact of unsold inventory, rental market dynamics, CMHC MLI Select, and how mortgage products and government policy are shaping real estate investment. From there, they shift to the U.S. rate outlook and why the Fed may have less room to raise rates than prediction markets or futures markets suggest. They discuss rising U.S. Treasury bill issuance, the potential role of stablecoins in creating demand for short-term government debt, and why higher inflation targets may become more politically and financially attractive over time. Finally, they dig into the AI investment boom, including new Chinese open-weight models, pressure on OpenAI and Anthropic’s business models, data centre constraints, Tourmaline’s proposed Alberta data centre opportunity, and what semiconductor drawdowns may be signaling for broader markets. Tickers discussed: TOU.TO, SMH, NVDA, TSM, AVGO, AMD, MU, ASML, META, QQQ   Watch the full video on Our New Youtube Channel! 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  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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All right, welcome back to the Canadian macro investor podcast. Daniel Foch here, one of two hosts of the Canadian real estate investor podcast, and Simone Belanger, one of two hosts of the Canadian investor podcast. And we get together every Friday, go live on a bunch of platforms, Instagram, TikTok, YouTube, Facebook, LinkedIn, X, and just talk about macro, what's happening in the market, how it's going to impact the asset classes that each of us discuss on our shows. So what are we talking about today? There's a lot of stuff going on.

A lot of stuff. So we heard about the Bank of Canada, a rate decision, their monetary policy update, which will be touching quite a bit on. Aside from that, I did a little bit of research, and I'll make the case as to why I don't think the U.S. can raise rates. I also compare the CME Fed Watch data to prediction market. It's completely different. It's like they're living in two different worlds.

So we'll touch on that too. I think we'll probably talk a little bit about AI. I think last week you mentioned in passing the new models that had been released, some recent ones that there were some Chinese model that was announced as well. I think Moonshot, if I remember correctly. Yeah, Kimmy. Yeah. Yeah, Kimmy. How that could impact U.S. models, markets as a whole, the profitability behind it.

I also saw the announcement. I don't know if you saw that, that Termaline is looking to build a new data. Center in Alberta and using a natural gas fired power plant to power it. So just building on what was announced. Not the same meta one? No, no, that's a different one. It just got out this morning, CBC article. So we can touch on that as well.

So anything else, I know like housing, there's some fun stuff going on there to Bank of Canada potentially. Bank of Canada. Yeah, I mean, Bank of Canada, no hike. And then also, I think, you know, the monetary policy report, it obviously was, they observed a lot of interesting stuff. The funny part is like a lot of their models mentioned that they had to have oil from 70 to 75 a barrel. Yeah.

And then skyrocketed the next day. And then, you know, they also called out condos, a couple of other things. Like, you know, they downgraded their forecast for housing on the GDP next year. So lots of stuff on the go that I think we'll get into on the, where we get into the monetary policy report side of things. Okay. Yeah, let's start there. Do you want to start by the, Just essentially the announcement, interest rate announcement, what the Bank of Canada said.

Did you have a chance to look at the press conference? Yeah. So, I mean, I think you and I both said that we expected this outcome, right? Yeah, exactly. I'm not surprised. And you can tell the market doesn't care anymore. Like, market's not surprised. There's two reasons why I think this might be the case.

Because even when I think about the mortgage products that people are using, and I've pulled up this chart before, but I'll pull it up again, the CMHC mortgage. mortgage, what is it, mortgage industry report. Yeah. It shows that basically, you know, the majority of, in the most recent reading, the majority of borrowers, new, new mortgages that are being issued are actually variable. And then the second most common is your three year fixed. So you would think that the, you know, your borrowers or your market is actually, you know,

should care about the, the bank of Canada is doing. But I would say that the bond market is really a lot more. in control of what's happening, I think, in the rate environment now. Housing side, like, you know, five-year fixed mortgage versus the variable, you can set that aside. But I just think that the bond market is really doing more work on rates and on setting expectations of the Canadian economy than what the Bank of Canada does. So I think that they've kind of just become a little bit less relevant to the consumer that people, like, you know, the joke that I made was like, realtors are no longer rushing to post about the Bank of Canada announcement on

their Instagram pages. But that I think that that like is kind of an embedded sign of, you know, how consumers are reacting and thinking about the, their role and what's going to happen with rates and whether or not we even care. People just bored, right? Are they exhausted by thinking about it? I don't know what your thoughts are there. Well, I mean, I think it's, yeah, I think people are just tired of hearing it. I mean, they've, a lot of realtors on TikTok or whatever, I've been saying for what better part of three, four years that there'd be, you know, sideline buyers coming in, rushing in, buying homes as interest rates would come down. It was the first one, you know, all just wait, it's going to happen, never really materialize and were what, like 300

basis points lower at this point? 275. I don't know the exact amount from the peak. And it's also messaging and you're kind of the exception in the world. That's why I love the Canadian real estate investor podcast, but I like what you talk about because you're real and you don't try to sugarcoat it just to pump your bag and increase your business. But the reality is a lot of the real estate industry. And of course, I'm just talking as a holder, there are some really good and realistic realtors and mortgage brokers out there.

But I think at the end of the day, they've been sending this messages that there was pent up demand and it was just going to happen, never happening. And now, you know the data better than I do, but I've seen it time and time again. We're looking at pretty rough market, especially in the areas that had the most run up during the pandemic. For sure.

Yeah. Well, it's interesting because the markets, you're like, I mean, let's just call Ontario and BC rather than going even city level. But, you know, Ontario and BC, let's go back all the way to like peak of the market. Right before the bank of Canada fired the rate hiking cycle, warning shot. You have Ontario and BC are down, you know, nine. I'll pull up a really cool chart on it, but they're down nine days. 20% from that period of time. Every other market is up in Canada, like at a provincial or local level, or not a local level, but if you go like province by province, before rate hikes, right?

Yeah. So like, well, no, they're up since, since before rate hikes. So a change in in house prices from January 2020 to present day in Nova Scotia or Quebec or whatever is, some of them are hitting all-time highs, man. So it's really becoming a tail of two markets. in Canadian real estate, which I'll pull up a chart to kind of show you, like, visualize what I just mentioned actually. But yeah, no, so and, and, you know, unpacking that, well, why would those markets be doing better than, you know, Toronto, Vancouver? Well, they're priced income, you know, people didn't have to lever up as hard to buy. And so, you know, you get the result that there's greater affordability, which means market participants can still

purchase today because, you know, they're not seeing a negative wealth effect. You're not seeing all this volatility and fear. And so I think that that's how we kind of got where we are today. Well, it's all about like the one image I tend to just remind myself of, it's, the markets are like a pendulum, right? So if it swings too far on the right side, it's going to swing back on the left side. If it stays near the middle or it doesn't move too much, then it won't move too much one way or the other. So I think that's, I know it's an easy visual, but I always like to think about that and you can, you know, you can just think about that visual and it explains a whole lot when you think about the most expensive markets and the ones that are doing well right now.

Yeah. Yeah. So if you look at the chart here, like you have, I basically have every province, Alberta, B.C., Manitoba. So if you, like, New Brunswick's like just coming off all-time highs. Manitoba looks like it's hitting all-time highs. BC's down, right? And I have the table below that it'll actually show you the Delta from January 2022 to then. But like Newfoundland, Labrador, all-time highs, Nova Scotia, Ontario's down, P.E.I, you know, they're up, not, not meaningfully, but up, Quebec, all-time highs. You know, if you look at, like, Newfoundland and Labrador, since January of 2022, so a month before the rate hiking cycle started, up 40%, where Ontario's down 20. So. It'd be interesting to see even more like localized, right? Because, you know, I live

in Ottawa and people that know me know that. And it's, I can go local for you. You can go. Oh, yeah, I'm just kind of curious, right? Because it feels like a bit different in Ottawa, although I still feel like just looking at prices and this is just anecdotal. I still feel like it's probably down a little bit, but it's not probably as much. Yeah. If you baseline from your January 20202 average price, which was 704, and it is up about 6%, but it's been pretty volatile. Yeah. But Toronto skews so much for Ontario, right?

Like, it basically pulls everything down or up. For sure, yeah. Yeah. Yeah. Yeah. So, I mean, like on a city by city basis, it's also pretty volatile. Like, you get less data, right? So, yeah.

And just to get back to the Bank of Canada announcements, so you said you saw the press conference. I know they talked about this, the monetary report, but they also had a question regarding condo corrections, especially in the GTA and Vancouver. And there was a reporter asking that and thought what they thought about this potential buyout program. I can't remember that the word. the use and obvious, I think it was the deputy government that answered the question, Carolyn Rogers. And she was saying, look, those markets are undergoing a significant correction. Like,

these are the words that she use. They don't really know too much about the bio program. It's clear that she was tiptoeing around and didn't want to get into the political crossfires there. But she said maybe it could alleviate that a little bit, but she did acknowledge that those markets are facing some significant corrections right now. Yeah. And they even mentioned that in the monetary policy report a couple of times. So I've always tracked like how many times the bank of cash. I want to know how much they're paying attention to the housing market. But I've always, I literally have a historic chart on number of times the word housing appears in a monetary policy report. And this one's pretty high by comparison. I think like 11 mentions where it's like a low

one would be like four. And you can you can see here under their residential investment reading basically they expect it to increase. But the there's some affordability challenges in some housing markets and a large stock of unsold small condominiums in Toronto and Vancouver. And they do mention condos again about in their risk segment where they're talking about the pickup and GDP growth may not be sustained. And one of the reasons is because the overhang of unsold condos in Toronto and Vancouver, along with affordability issues, could mean that a recovery and housing activity is slower than expected.

So I, like, I mean, you would really only put those in if you're not super confident that your model is going to be correct and you want to build a bit of a buffer to if people call you out on being wrong later, you can kind of say, well, we did, we did mention that here. Look at this note, you know, so I think that, you know, they're paying a lot of attention, more more attention than I would have expected to the risk that is happening in these asset classes right now, and especially the condo side of things. Yeah, and even this one here, so it kind of shows exactly what you were talking about here. So you see the GDP forecast, GDP growth. So you see the yellow is that. housing. So you see it was a negative drag in Q1. For Q2, they're seeing it as essentially being

you know, flat. Not much of a positive, I guess a slight positive. But yeah, that's what they were saying. It went from a drag to being like no impact, but clearly in the forecast, they are factoring in that it could continue to be a negative impact there. Yeah. And if you annualize that out, they actually put in here that housing would go from. So their original four, forecast for 2026 was that it would be negative 0.1 percentage points on the GDP growth. So it would be a net drag. And now they're estimating that it'll actually be a negative 0.2 drag. So they've doubled how much they think it's going to drag on GDP. And then they go to next year where they're expecting just a slight improvement at 0.1% positive, not till

2028 where you really get it pushing those numbers that we saw kind of normal pre-pandemic GDP growth from housing market activity. So I think that this, This tells me that they are not feeling super optimistic about the housing market right now when I think about the bank can as language around this. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom. They're the ones who spend the most time in the market.

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and I know this, obviously, it's a space that you know, but clearly rentals, like pretty much anything else housing during the pandemic, were selling at a premium. Are you starting to see in different areas in Canada where there can be some really attractive opportunities for investors in terms of even like triplex and stuff like that kind of rentals?

income because I'm just thinking, look, you're, we're seeing in the headlines that overall rents are declining for most big locales in Canada. I have to assume that that's dragging the prices down for rental units or buildings that, yeah, that you can own as a landlord. Yeah, so there's, there's a couple of converging forces here that I'll talk a little bit about. So rents are falling, okay? And I think I've mentioned this a little bit when we talk about like CMHC, MLI Select and just like the market and how it behavior. around rental product, but rents are falling in most places in Canada, and vacancies are rising. But when you look at the type of product that the majority of investors are using to do these

types of deals, and again, like if we're talking triplex, 4plex, that's below the minimum cutoff currently for CMHC MLI Select. But anything five plus units, people are buying with a product called CMHC MLI Select, which basically makes it possible for you to yield or like cash flow, a property at a much lower income. And you do that by having a 50 year amortization. And this is where it gets interesting. On a 50 year amortization, so you're buying down your monthly payment, but you're also paying like 80% of your mortgage payment in the first five years of your term is interest. And so you don't, like you care a little bit about your income input, so vacancy and rent, but you care a lot more about what the bond yield is doing because that's the

That's what is going to impact your cash flow and pro forma more than anything. And so I think it matters a little bit. The part that I find is- Are you seeing a discrepancy between that threshold of being eligible for MLI select and not? Like I would assume logically that anything below five units is probably trading at a discount because you can't cash flow it as well. So therefore they have to compromise on the price. Am I wrong?

Yeah. No, you're right. So like where, I mean, it's kind of just, you know, show me the incentive. I'll show you the outcome, right? So where historically and like if you go to the U.S. market or on any other normal real estate market, you would have the smaller you get, the higher the cap rate because the more likely you are to, sorry, the lower the cap rate because the more likely you are to be competing with an end user, right?

So like the marginal buyer who has a qualitative incentive to pay more than you as a landlord. But in Canada, your yields at like five plus units are pretty much the same across the country, which is the craziest part. I mean, there's a, you know, like Toronto and Vancouver are pretty standout. And then when you get into larger, more commercial products, you start to get a little bit more range in yields at a geographical basis. But your investors are basically making, you know, they're basically willing to pay whatever the highest number that they possibly can is relative to what that CMHC,

So your market basically right now is a spread over the Canada five-year bond deal or CMB maybe might be a more appropriate benchmark simply because that's the biggest model input for any of the deals that are happening. So yeah, like it's a it is a big market distortion, this product to tell you the truth on the valuation side. But the spinoff is the market distortion is in favor of tenants, right? Like it makes rents cheaper relative to the value of the property because investors are willing to. accept a lower yield. It's investors that are absorbing the risk and it's getting a ton of housing created. So nobody really seems to care, right? Investors are like, great, I can get government insured insane leverage. Renters are like, great, I can rent for cheaper and there's a huge supply flood. And the government's like, or CMHC who's issuing these mortgages is like, we're accomplishing

our mandate of getting more housing created, which is their mandate. So everybody's sort of feels like a win-win position. But then, you know, there's the externalities do exist. And, and are worth paying attention to. Yeah, no, that's a good. I was just interested in picking your brain there. And in terms of the BOC, anything else that stands out for you. Obviously, they talked about headline inflation reaching 3.2%. In May, I believe they said it should get back to their 2% target in early 2027 with about 17 caveats and risk.

And they even had an interesting question where there was a nervous reporter asking the question and was basically asking them, are you guys overly optimistic based on all the risks that you keep saying with that? Yeah, trade risks. I mean, they can't come out and say it's all going to burn down, man. Most of this whole thing,

and it's the policymakers as well, is like tempering expectations, like trying not to look like an idiot by saying something that's so wrong that people can come back and burn you, which I think Tiff really learned his lesson with, the rates will be low for a long time thing. And you can tell he's a lot more careful

about things that he's saying. as, but yeah, of course they are. Of course they're like way too optimistic. They like they can't not be. They can't say that things are going to be horrible. And not that they are, but they can't say that that risk really exists. Because then you get idiots like me who make YouTube videos about it and, you know, for the clickbait and scare people. So the one thing I did want to add actually on the on the outside of the BOC, but what we were talking about on the triplexes, fourplexes, etc. is the Canadian Spring Economic Update in 2026 announces the government's intention to increase flexibilities for mortgage insurers to offer products to borrowers building three and four

unit housing. So you could see that that unit number floor that I mentioned pushed down on the credit product that I mentioned before for all of the other things that I was describing. So that's an interesting piece of the puzzle. You're almost encroaching on your owner owner occupied territory. Yeah, that's pretty crazy. Like it's basically anything that's rental. That's more than a unit. More than two. Yeah. Because like two you would still get, I think like one. One in five, I think it's one in five borrowers have a secondary suite in their house, which is crazy. That's a crazy number.

So, you know, so there's a lot of owner occupied that maybe have a mortgage helper or their multi-generational households or whatever. And something like one in five who are purchasing want to do, want to buy a place with a secondary suite. So a lot of people are using this. And we see this a lot with our multiplex events. So we host these multiplex events across Canada. we put together a bunch of people who are experts in the space and they present to a room full of people who are interested in learning as much about the space and investing in this type of product.

And every year we have more people coming to these events who aren't investors, who are owner occupiers, who want to learn about how to do this stuff so that they can subsidize their mortgage or have their parents move in with them or move into their parents' place. And so that there's a line that I think they're trying to draw it at two units, that, you know, where do we want to cut off investor capital from being involved in? in residential real estate and where's the line where it kind of blurs into your owner-occupied space and they're competing with the marginal buyer. And I think the last piece that I'll add that I think this is interesting to follow their thought pattern on is when they ban foreign

investors, foreign investors can still buy five plus unit buildings. So you're seeing a lot of foreign capital flowing into deals like the ones that I'm describing and using the product like the ones that I'm describing and it's getting housing created. They're not net competitors in the housing market, they're net creators in the housing market. Will that, you know, is that setting us up to say, okay, well, we have the credit product and now we need to add the capital and are we going to allow? Because right now it's four plus units for foreign investors and for five plus for CMHC, MLI select.

Are we opening the door for the foreign buyer ban to expire next year? Yeah, that's, I would not be surprised. And I wouldn't be surprised. Doesn't like, doesn't all of this just create perverse incentive? I've just taken on more debt? Yeah. isn't that what Canada is all about? Like, that's our national sport, man.

I mean, it just feels like we're kicking the can down the road or just creating some bigger problems down the road. But it's, uh, well, like, I don't know. I mean, Canadians are not, like, at a certain point, like, you kind of just, like, you kind of just create a product for your market, man. Like, as much as I hate to say it, like, we, you know, we blame like we as like a society or whoever blame policymakers or, you know, whoever it is. for our problems, our debt problems, but they don't make Canadians go and borrow money.

You know, like, yeah, it's expensive. And maybe you could argue that inflation has an impact because people are levering up to be able to afford basic life. But household indebtedness in Canada is now what? That climbed back to 180. And we saw it pretty significant. We're number one. Yeah, number one in the G7. But we're typically top five globally, depending on if you're using debt to income versus a couple of other metrics. But like household and debt in us at 180% of disposable income, we've climbed back to that number after what looks like to me a pretty optimistic period of de-leveraging for Canadians.

And I was hoping that we were finally done with this binge. Obviously not. So, you know, we as individuals probably also bear a little bit of responsibility on this. But the challenge in a debt-based economy is, you know, you go and, you know, If you go finance a couple of vehicles and whatever and, you know, lever up all your credit cards and then you go try and buy a house, the government's going to say no, we're not giving you, or sorry, the lender's going to say, no, I'm not giving you more money. And now we have the same issue with us in aggregate at our economy. Hey, we, hey, guys, we need you to go borrow money to spend money on stuff to stimulate the economy. And then you go to the lender to ask them to do that. And they say, well, no, like, you know, everybody's, everybody's leveraged to the guild. So you can't eventually, you run out of future self that you can borrow from. And I think, that that's the point we're at. You can't, you can't hit much higher than 180. We tried it and it didn't work. No, exactly. So, yeah, anything else on the monetary report? I know GDP, they're, they're kind of wishy-washy on the GDP predictions. They say it should look a bit better by the

end of this year and keep improving for the next couple of years with the caveats again about oil staying in the 70, 75 percent. And I believe it's been flat essentially for the last year. Yeah, I think the other piece is Canadian dollar that they mentioned. Yeah, yeah. That, you know, that they basically, they observe that, you know, there's a risk of oil pass through to inflation, but there's also the Canadian dollar that's been depreciated. Could that pass through to consumers as an imported inflation, right? That right here it says inflation could be higher of global cost pressures or the depreciation

of the Canadian dollar pass through more persistently to consumer prices or if excess supply is less than estimated. So I think that there's, you know, the fact that they're paying attention to the risk of imported inflation, they're tempering two very, very tough beasts right now, which is one, you get oil-driven cost-push inflation and two, you know, and you have to, so I think that this is illustrating to me their potential reluctance to cut, which is if we cut too aggressively ahead of the Fed and CAD gets smoked, then we, we observe that there's a risk of imported inflation if we don't, you know, position the Canadian dollar strong for trading purposes

and import purposes. Are you seeing my screen right now? I'm not. No? There we go. I think I just had to turn it on. Okay, there you go. Yeah, still getting used to this new platform.

But this one I thought was really interesting when I came across that. So essentially for those not familiar, so Sear is just like an exchange rate weighted versus other exchange rates. So they have the Sear, which includes the U.S. dollars and the one excluding the U.S. all. It's not just a Canadian dollar being weak against a U.S. dollar. It's a Canadian dollar being weak against a basket of other currencies and, you know, a lot of it being trading partners. So just reinforce that. And I think I read on the monetary report unless it was somewhere else.

But they're also finding that businesses will likely try and pass on the prices increase to consumer, but they may face really sob demand. And so they have limited flexibility at being able to pass that on. So I thought that was interesting because we did a couple weeks ago. We talked about Walmart and those price decreases that they had done. And I think what you're starting to see as businesses maybe a quarter ago, we're saying that, oh, if oil prices stay elevated, it's going to pass through to the consumer because we just can't take on those price increases and eat them. We can't continue doing that forever.

but I think now you're starting to see a reversal of businesses saying like, look, okay, I guess we have to figure something out because we are realizing that we cannot pass that on to the consumer. The consumer is too weak. Yeah, no, 100%. Yeah. And so this tells me that I think everybody's fearful. And even the U.S. Fed, it seems like it's kind of trending in a similar direction with their language. That everybody's fearful that the oil price issues and gasoline price issues. I mean, oil prices are one thing, but gas prices are still like at super elevated. levels, everybody's fearful that this is going to lead to a demand destruction, not that it's going to trickle through to inflation. And the most recent US CPI reading kind of alludes to that being the direction, I think, that it's already come down a little bit. You know, that makes me more confident with my original call that I felt that demand destruction was the more likely outcome for the oil price shock that we're heading into. Yeah, did you see? There was also, I'm trying to find here. I don't know if I have the tab, but the data came out in the U.S.

I couldn't find similar data in Canada, but the basket item at grocers are actually down. So the number of items that people are actually buying at grocery stores down after being slightly up. I think it may. June came down, I think, 1.8% a year over a year. So people are actually buying less items as a whole at a grocery store. Again, tying in with what we had talked about with Walmart. And I'll be on the lookout for earnings calls for especially the big grocers in Canada, see what they are saying, because we have.

have just a handful of not even like three large grocers in Canada. So they'll probably start seeing that would be my guess is that the next quarter, they'll probably start talking about that. Yeah. Yeah, I would anticipate. I think your read on that's pretty, pretty bang on. I think it's just a matter. Like, I've never really been through a major market cycle like this. So I, my thing is, like, I always read about them and study them in a historic context. And when you're reading history, even though you see sort of like how many years passed by and the data points that you're observing, there's still, you know, you're just reading it all at one time. And so you don't really have a grasp for how long things take. And so whenever I make calls, I often like speak

about them or think about them as if they're going to be, like have some degree of immediacy to them. But the truth is that everything takes a lot longer to break than we might anticipate, which is the part that I think has interested me the most about about this is watching it play out and thinking, ah, it's got to, it's got, it's going to break soon. And then it's like it takes another year and another year, you know, that's that's, that's one of the pieces that is actually kind of blown my mind on the whole thing. And then something I wanted to, uh, talk about here. I know we had been chatting about that. So I'm just sharing polymarket here. It's very similar for Cal sheet. So I share this tab instead. So you see before the orange,

line is before 2027. So essentially, prediction markets are saying that the next Fed rate hike, there's a 50-50 chance that happens this year or not. And I thought that was really interesting because there's a bit of disconnect with the CME Fed Watch tool that still says there's a 100% chance for a rate hike by the end of this year. I tend to believe the prediction markets here, just because the CME Fed Watchell has been wrong quite a bit over the last two, three, four years ever since the rate hiking cycle began. Well, I think like that I'm going to have to. I got to bring the chart up again.

The market is not good at pricing and what's going to happen with rates. You know, like I think we can just call it what it is. Exactly. Fed Fund futures literally not a valuable, you know, thing to use and what the, it's always, I think it's good to use on what the market thinks is going to happen because that weighs on sentiment in the way that people are allocating assets. But it doesn't, if you're actually using it to guide your, use it as your crystal ball to guide your decision making process, you are, you're literally flipping a coin. It's wrong 50% of the time, right? So, or greater than 50%

of the time, like, you know, as it shows on this chart. So I would, I would fade Fed Fund futures pretty much like I think that that would be, you know, I always like looking at it and figuring out seeing what the market's thinking, because there's always a trade to, on the other side of it. you know, if something happens where the market was sure that they were going to hike and then it comes off and, you know, you can always catch the opposite side of that trade as a sentiment address. But otherwise, like, it's not a good guidance tool, right? No, exactly. And so I was working on this this morning because I just started digging and then, you know, like sometimes you get in the rabbit hole and you just keep going and going and going.

Less than that. You've been there than that. So I did this chart just to and illustrate. So it's based on U.S. Treasury data. So it just gives you an idea. It doesn't like the main thing to see is this is new issuance that is done every year, whether it's new debt being issued or dead that's maturing that's being issued. And the big blue line is U.S. Treasury bills. So anything under a year. And you can see the issuance as a percentage just keeps increasing over time.

And the reason why I'm showing that is because the more you issue on the shorter end, the more you're dependent on the Fed's fund rates in terms of the interest rate. Obviously, the longer you go on the duration curve, the more the bond markets will actually dictate what the rates are. Obviously, I know eventually they could start doing some yield curve control. That does have some other consequences to it. But I just wanted to show that, look, there's more and more being issued. And we saw the Genius Act in the U.S.

That essentially said when it was approved last year for stable coin issuers, the essentially requirements that they have to use the U.S. treasuries, and most of them will likely just use treasury bills. So you're creating this new demand. And a lot of people around the world, sure, they would not be getting any interest on those stable coins. But if you live in a country that has rampant inflation, you have an extra incentive to actually own U.S. dollars almost as capital preservation.

So the reason I wanted to say that is the Fed does not, I mean, these are smart people. Scott Bissand, Kevin Warsh, and let's be honest, in reality, yes, they're supposed to, the U.S. Fed is not supposed to be concerned by the fiscal sign, but let's be honest. I mean, they are, I'm sure they're working hand in hand with U.S. Treasuries. They probably wouldn't say so. By the end of the day, I think they realize that the interest cost is just so high and something has to give. And I do suspect that long term, what they are probably trying to brace the public for is that, you know, get ready for inflation targets. That'll be more around 3, 3.5%. Not out of control in terms of inflation target, but even said in his initial press conference, he didn't alluded that that 2% target is kind of just arbitrary. So I think, yeah, go ahead. You can, I'll chime after. I was just going to say, I mean, the Bank of Canada has dropped studies on this, too. Like, they, So we know that they're at least, like at a minimum, they're paying some attention to it, right?

They did a staff working paper in 2018 on could a higher inflation target enhance macroeconomic stability. So, you know, this is, and you've heard the Fed mention it too. And I think myself and a lot of other people have talked at length about how, you know, it would be worth bracing for the Fed and all central banks becoming a little bit more comfortable with a higher inflation. Yeah, because if you just start looking at the numbers, you know, just 100 basis point increase in interest rate probably results in 50. Just you looking at treasury bills, 50 billion, 60 billion or so in a higher interest costs. And obviously that will increase as the debt increases year after year. But it just goes to show that they don't have a whole lot of flexibility. And one thing that they have more control on is that shorter end of the curve. And at the end of the day, we all know the U.S. has a massive debt, I think, what, $39 trillion, $39.5 now it's at. The only way that they can really go forward medium to long term is they have to do either a hard default or a soft default.

And we all know that they won't do a hard default. So the soft default is you devalue your currency, you repay the debt with money that's worth less over time. So bondholders will take the head. But what we'll probably see is longer term bonds will probably rise in yield that. as the market demands that unless they start doing some yield curve control, or they just start issuing almost everything on the shorter end of the curve. All that to say that, I just, I don't see it that they would rate, like, raise rates.

I just, the more you think about it, the more I'm like, really, are they really going to, like, raise rates? I just don't see it, yeah. No, yeah, I'm the same, and I've never felt that that was going to be the case. Like, you know, there are the, I think like people have a hard time deciding which Dumer case they want to lean on. and there's the stagflation people that are like oh stagflation is the worst thing that we could ever see and they just pick the meanest dumer case that they possibly can and so they lean to stagflation but i just don't see stagflation or like or you know the the hiking to try and temper inflation being a realistic outcome i completely agree with you and i didn't i'm like you can tell you can

feel it on the ground that that recession is a far more likely outcome than a you know ripping economy And actually, I might use that to segue unless you had something else. No, no. I just wanted to, because I just wanted to mention it because it does have impact on what Canada does. Obviously, what the Fed does will have an impact in Canada. So I just wanted to say that because I think a lot of people say, well, you know, what if they raise? And then Canada might be forced to raise because the gap will be too big between the two countries. The Canadian dollar will weaken further.

Don't be so sure that they'll be raising rates is just what I'm saying. Yeah. Yeah. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom. They're the ones who spend the most time in the market. I've been a quest trade user for over five years,

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the ability for them to charge higher rates on a yield basis for bonds. And I'll use that to segue a little bit because you mentioned about Kimmy and just what's happening. I think last week was one of the most insane weeks for progress in AI since like GPT3. So you had like Fable 5 a couple of weeks ago and they kept resetting their limits. And then you had chat GPT come out with 5.6. You had GROC 4.5, which to me shows that the SpaceX, AI acquisition of cursor is paying off almost immediately because they're fine. Like I've never taken a GROC model seriously, to be honest with you.

And I do now. You had meta randomly come out with Muse Spark 1.1. And interestingly, that's what got Zuckerberg back on Twitter to announce it, because that's like, you know, where all the developers are. And then this week you got Kimmy. Moonshot, yeah. And then two weeks ago, you had GLM 5.2, which was the first Chinese open weight model you get to opus level, like quad opus levels of intelligence,

that's an open weight model. So you can go and download the weights and run it on your own hardware. And this is when you think about the threat. I don't think it's a threat to a place like InVidia, who's going to be selling you the hardware to do that. If you want to run it at your own house, you want to go buy a black well and use it to heat your Canadian house. Like not a bad idea, actually.

But, you know, the Ns, you see they have that? You can buy it. No, I didn't see it all. I think I think you should. showed me an image if like maybe a month or something ago. Yeah, you can have it like almost in your backyard, use it. Yeah, dude, they'll literally install a day. Yeah, I think you're the one I think. Yeah, that's true. I think we've talked about it on this before. Yeah, like, they'll literally install a data center on your house. So anyway, all of that to say, you know, the when we, I don't,

I don't worry so much about the invidias of the world. I think their big headwind is if developers of AI product get off of Kuda, which is the type of development that, that you developed these models on. And China is actively trying to do that with the Huawei chip layouts or configurations. I don't know what the technical term is for it. So that, you know, that's the headwin for an Nvidia, but the headwind is more for your upcoming IPOs

with Anthropic and OpenAI, who now all of a sudden have competition that can sell the same thing, at least on an API basis. Like, you know, the question is like, why would you still use a U.S. model if you can go get a Chinese one for cheap. I can think of a couple of reasons and we can discuss them, but the big reason right now is because,

as it stands, Anthropic and Chad GPT will subsidize your consumption on a pro plan to the tune of 10X. So, you know, until that goes away, until everything's on API, which we probably get to,

you know, the more compelling. But it is, you know, this is a real, real risk for these labs in Canada that, that are in the U.S. that are at risk of being replaced.

by Chinese open weight models. Well, I word a caution for the IPO to SpaceX is well below the IPO price now. So I think that would, if that then doesn't give them pause at the potential IPO, I'm sure how SpaceX is doing. And that's only with a 5% float currently trading. So I don't know what's going to do when shares start unlocking. I think it's going to be towards the middle or end of August. There's going to be starting to be some unlocks.

but that would be the other reason there that, yeah, SpaceX IPO is what did well at the beginning with all the hype, but some issues there. But the other thing I can think about for AI that could become a bit of an issue is, so we're starting to see a lot of in the U.S. There's a lot more and more temporary bans that are happening on data centers in cities. New York, I think two days ago, just past the first statewide ban on new data centers being built. Apparently there is more states considering that. I know there's cities as large as Seattle. Reno also put some temporary bands on. If you're seeing more and more these bands going on,

isn't it a risk for the hyperscalers with the buildout? I mean, they're obviously making plans. They're obviously making plans to buy those chips, those GPUs, the memory. We even saw Micron having a certain volume take or pay assigned with some of the hypers. I mean, isn't that a risk if you start making sure you can get your hands on that equipment and then it just starts sitting on a shelf devaluing while you're not even using it?

To me, that's another kind of, that's another risk that we're not really talking about all that much. Yeah, no, excellent point. I think the, you know, the land is a very small component of the total cost of these. So, yeah, if you bought land in New York, you know, it's not like they're paying, the trillion, a billion dollars for a piece of land and now they have to sell it into an illiquid market. Like, they're buying in most cases raw land, which is why the governments have the ability to even exercise jurisdiction or prevent these projects. And so it's not worth like an insane amount of money. The loss would be absorbable. Like even, you know, most developments of

this scale, like your land cost is like less than 10% of the total piece of the cost structure. it's even less when you think about them building a massive building and filling it with incredibly expensive GPUs like the who cares you know I think you know to me I think that you're going to think they'll just turn around and go somewhere else that will allow them to yeah and and pay a little bit more on on cost to get the power run there or I mean they're limited in in such that they have to go near power plants you know like they have to be close to big power sources the computer of the internet go, like the, you know, your Ethernet cables or whatever, getting there is a little

bit of a consideration, but not a huge one. I know the space pretty well because I used to help people buy Bitcoin mining facilities in, in like 26. Yeah, I remember. Yeah. And yeah, we flew all over the country doing a lot of that stuff. And so, you know, your compute matters a little bit more than your internet connection matters a little bit more than Bitcoin mining, but not a ton. The big piece is, is power. And so there's, they're limited to. you know, okay, yeah, there's maybe a thousand areas where I'm close to a sufficient amount of power. Alberta, which you have on screen here being one of them, where they're just flaring natural gas and we can easily get power for basically free. I think this is an opportunity for like for municipalities

or state governments to start doing their actual job. They're all corporations, by the way. They should be competing with one another to create good policy environments to if they want economic growth. And you're going to, and there's such an easy winners and losers case. And we think about this constantly on the, on, when we think about real estate investment, which is which, which jurisdiction do I think is actually going to make good economic decisions and boost the value of my real estate asset through the infrastructure that they create that's going to create jobs. It's going to create economic growth, et cetera. And you can easily outperform the market by picking the right place with the right

policy. So I, you know, you can see it in Alberta. You can see it in other places in the US where they're like, you know what, we don't negotiate with terrorists, right? We don't pander to NIMBYs. So we're just going to do what we want. And if you don't like it, then there's, you know, 10 other provinces in Canada that you can go to or similar thing with certain states in the U.S. So you now have the ability for the public sector to start competing with one another

in the product that they deliver to their consumers who are taxpayers and benefit from infrastructure and economic growth. That's my two cents on this, which is nice to see. And you can see it happening in Canada with development. in charges city by city, you know, so many different policy layers where municipalities are starting to finally compete with one another because they realize that the taxpayer is their customer and they actually want to earn their business. Yeah, and this, for those that are just listening to the podcast, so essentially turmoil and oil announced that it would be building

or I guess they're looking for a tenant or a partner to build a data center and they would have almost like an RFP, I guess. Yeah, yeah, essentially. It was kind of weird when I read it. It's like They don't have a partner just yet, but I guess it would be one of the hyperscalers, most likely. And they would build essentially a power generation facility on natural gas. So it's something I had talked about on the podcast, probably six, seven months ago, is that you might start seeing this where you have natural gas that is trapped because we just don't have the infrastructure to send it elsewhere. And you have these natural gas producer like a termaline that decide, you know what, we're going to partner and we're going to make sure. that, you know, we find other uses for natural gas that we have that we can't send to the U.S. or

the West Coast or anywhere else in the world. And that's what they're doing right now. So I thought it was interesting. It came out just this morning was a CBC News article for Edmonton for those interested. Yeah. I mean, there's a lot of, man, I posted about this stuff on my Instagram and like people get really, really serious about data centers. They're not, they're not thrilled, happy, mixed, or? No, I mean, there's, well, it's, it's, it's, a lot of Natives. I think most people just really don't care, you know, like, but, but like the people who do care a lot.

Or did you see my ex post on this about like the, I, I, I, I, I, I, I, it was inspired by my rant last week on this show about how, you know, people, they, they, they want to, they want to, they want to be able to scroll, they want to be able to have an infinite scroll and, and, and, and use chat, you know, they don't want to, you know, they don't want to, you know, they don't want to have a data center near them. It's like, you know, you have to think about the consequences of the things that you need in your life. And so I got to find that. There's a very small proportion of people who actually pay for an AI subscription. And that I think it's like five percent. Yeah, I think it's a really low number of the amount of people that actually pay for it. Here's my tweet.

It says, we don't want data centers. We hate them. They're bad and evil and serve no good purpose. and then it says also people and it's just like a picture of a guy on his phone all night under the blanket. And I'm like a screen, screen time like 18 hours on chat, JVT. So anyway, like it's just, it's always amused me,

the cognitive dissidents that people have. And they just don't know what, you know, it's like, I hate cops, but I also hate crime. It's like, well,

what? Anyway. Yeah. And I mean, for me, I'm, it'll be interesting how this develops because I, I still think it is a risk.

I understand what you're saying that these, uh, hyperscalers can just choose another piece of land. It's not like land is the largest capex expense in the buildout, but you also have to factor in qualified labor. You also have to factor in enough power nearby to be able to get to the data center. But also changing those plans, I mean, at the end of the day, that takes time too. Like I'm not saying when you have something plan and then you're like, okay, well, there's a temporary. Yeah. Engineering, parties, approval. Exactly. So there's a temporary ban. Will it be renewed? Like,

should we just wait until the temporary van stops or will the city council or the state start extending it indefinitely now we'll make new new plan so i think that is one part of the risk that i do think is there you you might not agree with it but i feel like there's just and yeah enough these are the risks that we study constantly on our show right like it's funny to me that all of the sudden people are observing that that real estate development is hard you know you because you have you now have all of these massive you know everybody was like oh greedy developers blah blah blah it's like well now you have all the you have all the biggest companies in a world all of a sudden need to become real estate developers overnight and they're realizing that there's a lot of headwinds

there's market risk there's geopolitical risk there's legislative risk there's uh you know nimbism right that you know community risk environmental risk like there it's it is so cool to watch real estate development get pulled into the limelight in such a big way with these data centers. And anybody who's been in the industry for a long time, just laughing and being like, oh, they finally figured out what this is all about, right? No, absolutely. And I guess maybe the last topic I wanted to touch, unless there's something else you wanted to talk about in terms of AI. No, I'll get on my end. Okay. So I want to pull here. So I don't know if you, like, I know you pay attention to,

the stock market a little bit, not as much as I do, and we do on our show. But this is the, so SMH, really good proxy to see what's going on in the semiconductor space. You can see some of the largest holding here. Is my screen sharing? Or you blocked me again there. Yeah, I got to, I have to click a button to add it to the same for some reason each time. Okay. There you go. So SM8, so the Vanek semi-conductor ETF, really good proxy if you're looking to see how semi-conductors are doing, obviously the names that people are very familiar with, Nvidia, 20% weighting, you have TSM, Broadcom, AMD, Micron, and so on.

But what you can see, this is a chart for actual drawdown. So I'll make it a bit larger, so it's easier. So it just looks at recent peaks and then where we're at right now. And essentially, we're in a 15% drawdown. And the issue we're getting is that semiconductors are becoming a larger and larger portion of major indices, because they're all market cap weighted. So if you start looking at the SNP 500, it's almost a tech index at this point or the QQ,

they are feeling that impact quite a bit. And it just goes to show that the markets right now, as soon as this sector sneezes, the whole market catches a goal. So that's what you're seeing. I thought it was interesting because you're starting to see investors questioning whether, like, it's easy to see the profits. I mean, you don't need to be a mathematician and looking at the earnings. of an Nvidia, Micron, AMDU, you name your semiconductor that they're just crushing it.

ASML who produces the EUV machines, so extreme ultraviolet, essentially the machines that produce the most advanced chips, they're saying that they're getting orders left, right and center. They actually want increased capacity. And you're talking about machines that cost $250 million plus. So these are massive machines. So increasing the capacity for that, they definitely have to see that there is. demand there and you're starting to see memory makers that are traditionally been in a very cyclical industry, which chips are. So chips are very cyclical. And they've always been a bit reluctant to add

in more capacity because of that being a cyclical industry. You don't want to have too much capacity. And then you go into the downturn and, you know, you get the double whammy. They're saying that demand is through the roof. But what's really interesting is now you start combining that with what we just talked about some of the potential issues in the buildout of data centers. You also start thinking about some of the cheaper models. Our businesses starting to shift to, okay, AI, yes, we can tell it can really help our businesses, but we also have to rein in cost. And I know this is something we've talked about in the past is at which point do you feel like you start, you know, spending based on the task? So if you're just looking to

to summarize, you know, a paper that's 50 pages. Maybe you can do that with a less advanced model versus if you have a really advanced agentic task, then then you use Fable, the most recent model for Claude. So do you think like businesses will start doing that? Do you think it'll have an impact potentially on the earnings of these or the profitability or lagged of these companies? This is such a good question. And we, it's funny because like we've done a whole research thing on this for my industry, which is the real estate space. And we analyze every time a new model comes out. So we've already started analyzing Kimmy on, you know, this is, this is realtor work, but we, you know, from the start, and the industry is just getting to this. And I think it's

interesting to see the model developers stop trying to push for the most intelligent model and start trying to push for the most reliable and cost effective model. And they're acknowledging that there's an upper bound to that willingness to pay curve that you're describing. But, you know, we went all the way down. We analyzed like everything that a AI can do that a realtor can also do. So like here, showing booking and coordination. I'm just using this as a real world example because we yeah. No, no, it's great. Yeah. Regular knowledge work, right? CRM management, MLS property and document work, offer writing and assembly. And we rank all the models, which Kimmy, by the way, beats Fable 5, which is the crazy part. That's amazing. It's amazing. And then we, so we have like full ranking breakdown.

But the thing that I think that we did that I haven't seen anybody else really do on analyzing AI. So we do the unit economics of this, which is cost per CRM follow up, right? So four cents per CRM follow up on Kimmy K3 on API. GPT6 sole is seven cents, right? Cost per home evaluation completed. And I think that this is where the market is going to have to start being more intelligent about the way that we think about these API input costs, because there are a lot of tasks that actually you cannot get an AI to do them for less money than a human.

And there are a lot of tasks that you can. And the unit economics, and I think the more that labs start to cater to that being a thought process, this is, you know, we've discussed this. This is going to be the biggest catalyst. And I think the catalyst is whenever Anthropic and Open AI flip into IPO mode and having to start be accountable to shareholders, nobody, you know, I'm not buying either of those companies if they're subsidizing people's

AI consumption to 10x what they're paying them a month, right? Like that was just a stupid thing to invest in. Yeah, there's only been kind of rumors of how much money they're losing because they're losing there's a table. There's a table. Have you seen that? Yeah, I haven't seen reliable data on it. It's more. Let me see if I can find it and we'll wrap up with that. It's crazy. Because they are losing money. That is the, yeah.

I think with the chat GPT, is this it here? So with a chat GPT pro, you can get with two so with that's $200 a month in compute you can get up to $14,000 in in compute I think here I have the table here one second this is this is crazy dude like so this is whatever this I I get the vibe that they're all behaving as though they believe that the unit economics will improve where where do they get that data or it's like a pro okay it is approximate yeah so you yeah so two two hundred dollars a month clawed max eight grand a month you can spend two hundred a month chat GPT Pro 20X, you can spend $14,000. Yeah, it's not hard to calculate, right?

Like the data is you know how many tokens you consume and you know what a token can cost on an API basis. But if you were to use every, like max out every single time, which not a lot of consumers are doing. So they're not like not every single person that's using it as consuming that we're describing. But it still illustrates how bad the business model is. To make the product compelling, they priced it so low.

that they cannot make money based on their input costs. Yeah, and now there's so many models, too, that it just, the risk of this becoming a bit of a commodity is real too. I know, man. And they keep self-improving. So like the rate at which you're getting the Chinese models who have way more users and user data, right? Like anybody in China, they have, you know,

they have what, 3X, the number of people using AI compared to the U.S., they're going to develop faster because they're, the way that these models developed the best for the user data. Yeah. The one thing that, you know, originally you were seeing Chinese models losing at was U.S. companies were afraid to use them because of data concerns. But because they're open-weight,

and if you put them onto the right hardware in the U.S. environment, you actually don't really run the risk of that because you're in control of the hardware where the data is being processed. And so you're actually seeing a lot of U.S. companies switching over to open-weight, but local production. And so that, you know, where anthropic and open AI did have a little bit of a wedge where they were, you know, they were getting into the sales funnels and saying, hey, guys, you don't, you don't want to trust these Chinese open weight models with your, you know, legal AI company

data or whatever it is. They're losing. They're starting to lose there in a big way. Yeah. Even more fascinating. So, I mean, this is like just so so cool to watch, to be honest. Yeah. I mean, you can just Google anyone wants to do it.

You'll find an example. of large companies essentially capping the AI usage for its employees because they would get like massive bills. And now they're capping the AI usage or purposely throttling it or encouraging to use cheaper models. So that's what you're seeing. But it's it's just very fascinating. I find for unit economics and I'm looking forward if they ever IPO, I guess we'll see. Maybe they need to IPO because private markets at some point will just not want to give them any more money. and then they'll have to tab the public markets.

Yeah. Yeah. Oh, I think that they're probably running into that point at it. Right now. Yeah. Well, yeah,

and especially if the, the viability of a really, really juicy IPO starts to disappear as the market comes to the terms of the fact that, I mean, there is definitely a point where this gets scary for them, I think. And you still want to be able to capitalize on,

no offense to the market, but the stupidity of the market right now. Like, people are willing to buy stuff at insane and stupid valuations. Like, you might as well use that to raise money. and then, you know, let the valuation blow off. Like, look at SpaceX.

And, and, you know, like, that they, that they wanted to be the first one to do this, really. It was probably smart for them to do it. Yeah, because now, I mean, especially with how the stock is done, clearly SpaceX, they're fine right now because they, they raise the money they needed to raise. But, you know, it's not even, it's been, what, like a month, a month and change. And the stock is still, it's already below the IPO price. So it is a cautionary tale And potentially some investors will see that and say,

OK, maybe we'll just wait and see what happens with these with OpenAI entropic. But I think this is probably a good point to end in. Anything else, Dan? No, I think we're good. Yeah, it was a fun one. Yeah, different topics. Let us know, too, if there's different things you see,

especially on the macro front that you'd like us to talk about. I'm happy to dive into those. We do it a bit differently here than our respective show. shows. It's always a fun discussion. We do some preparation, but there's also stuff that we kind of do off the cuff. And I feel like we have ideas that kind of come in as we talk. So it's always fun to do. Yeah, 100%. Cool. Yeah, thanks, man. Have a good weekend. And I'll see you again next Friday. Okay. Sounds good. The Canadian investor podcast should not be construed

as investment or financial advice. The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence. or consult with a financial professional before making any financial or investment decisions.