The Canadian Investor - Canada’s Condo Bailout and Apple’s Memory Price Problem

Episode Date: June 27, 2026

In this episode, Simon and Dan Foch break down the latest Micron earnings and what they reveal about the massive demand for AI infrastructure. We look at why higher DRAM and NAND prices matter beyond semiconductor stocks, how rising memory costs could flow through to consumer products like iPhones, laptops, gaming consoles and data centers, and whether Apple price hikes are an early sign of broader tech inflation. We also discuss the latest inflation pressures, including the impact of higher oil prices, and what these could mean for central banks and consumers. Plus, we dig into the BC and Government of Canada condo bailout, what it says about the state of the housing market, and whether policymakers are once again stepping in to soften the landing for real estate. Tickers of Stocks Discussed: MU, AAPL, NVDA, AMD, MSFT, GOOGL, AMZN, META 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.

If you're a DIY investor ready to take control of your portfolio, BMO all-in-one ETFs simplify the process. Whether you're new to investing or looking to streamline your existing holdings, these all-in-one solutions are designed to help you invest smarter. With management fees on popular portfolios now reduced to 0.15%, you get professional diversification at a lower cost. Check out the asset allocation ETFs at BMO-EET. investing is simple but don't confuse that with thinking it's easy a stock is not just a ticker at the end of the day you have to remember that it's a business just my reminder to people who own cyclicals don't be surprised when there's a cycle if there's uncertainty in the markets

there's going to be some great opportunities for investors this has to be one of the biggest quarters I've seen from this company in quite some time welcome Welcome back to the Canadian macro investor live Friday lives lunch hour. We're a little early this week, 1150. Today, what are we talking about? Simone? There's a lot of crazy stuff going on. I feel like we're going to talk a little. It's a very mixed bag. We've got the builder bailout. We've got some AI. We've got some micron. We've got inflation. Apple raising prices. Ripple effect into inflation. But I think all. Overall, just consumer electronics. I think people need it into upgrade computers, phones, even cars. Like, there's electronics, everything, appliances, you name it. Anything that requires memory or storage in terms of, yeah, like flash memory, things like that, just get ready for higher prices.

Yeah, 100%. So let's start with that. Talk to me a little bit about that because I guess like micron stock is hitting all-time highs daily, it feels like. And sandisk too, right, I think? Yeah, anything memory related, S.K. Iynex would be another one that's doing pretty well. Though they, my crown is down today after being up, I think it was up like 15, 16 percent yesterday. And usually we do earnings. I do earnings with Dan Kent on our Thursday episode, but I think this is worth mentioning. First of all, we've recorded some episodes in advance. We're taking like a week off next week.

But if there is macro stuff, I'll bring my, my recording equipment and we might still have our Friday live next week. So stay tuned for that, but I think it's pretty relevant on the macro front. I mean, you're talking about businesses now, like these memory business. Micron is around 1.4 trillion micro cap, sorry, market cap. So it's pretty, pretty massive in terms of companies. And they increase revenue 74% on a quarter over quarter basis and 34% over a year. Like that's, I know you're not into stock, Stan, as much. but that's, even for someone who's not into stock,

that's like crazy. And revenues came in 21% higher than they had predicted three months ago at the end of their second fiscal year quarter. So it's just a blowout quarter for them for Micron here. Yeah. Yeah. So this is translating to significantly higher storage costs basically for compute or like for Apple, like you said, Xbox.

as well. Like, how does this impact the regular consumer? Because I feel like this is a headwind also for this big AI and tech boom that we're discussing it. Yeah, so you're seeing the headwind on several fronts. And the reason why it's so high, it kind of comes down to HBM's high bandwidth memories. So essentially, what's happening is Micron, S.K. Hynix are seeing massive demand there from obviously hypers. So they're diverting capacity from the RAM, so stuff that you'd be using in your computers such that's using your phones, TVs, smart TVs, things like that. So they're diverting capacity for that because HBM is much more profitable for them. And the same thing for NAND-D, which is used for storage devices like SSD drive, is on the kind of commercial or

business side of things. It's much more profitable than solid-state drives that would be for your iPhone, for your computer, you name it. And over the last year, I don't know if you're aware of that then, but prices for DRAM, depending on the type of DRAM that you're looking at, I've increased three to four times over the last year. And it's around three times as well for storage as well for memory. So you're seeing massive implications here. Obviously, some of the hypers, what they're seeing, its higher cost for them, but they're also booking well in advance.

So they started having these take or pay contract. Micron talked about that specifically. So essentially what it means is that whether you buy. it or not, you're on the hook for a minimum amount. So it's a bit like pipeline, same kind of model as pipelines. So maybe the pipelines would, you know, contract something that they'll be using 70, hopefully using 100%, but they're on the hook for 70% usage, whether they use 50% or not. It doesn't matter.

There's that kind of guaranteed pricing. So it does allow these companies to have more certainty for their revenue and less cyclicality, at least in the short term, and they said they expect this to continue beyond 2027. So there are ripple effects in the economy, but that's essentially what's causing it here. And of course, this is increasing cost for think of all the electronic manufacturers. Like there's essentially RAM and storage and pretty much most things that electronic that we use today. So it's rising the cause there as well. Well, yeah, that's what I, like that was the chart that I pulled up that shows like the Wall Street Journal is calling the AI build out the third wave of inflation and they and it shows

basically changes in consumer prices for software and accessories from a year earlier massively inflationary and then the amount of capital that's going towards this stuff like spending on data center construction and capital spending at the five large hyperscalers the charts are pretty reflective of what's going on there so I feel like it's very much a story of like this this being the bull run being cost pushed into basically what is an inflationary, you know, spiral almost, right? And is this, like, it bifurcates the market a little bit because you should have a consumer that's getting crushed by the prices. We're already seeing businesses starting to scale back their like token AI spend, you know, because they're basically

just getting completely out of control. I think it was like Uber said they spent like 500, was it 500 million in a month on like AI coding agents. And so, you know, know, you're starting to see we're tapping up against the top of that cost curve for what companies are willing to pay on the cost benefit. And then at the same time, you have, I don't know if you've been following this stuff with like chat GPT 5.6, but I told you I'd mention it because they basically were supposed to release 5.6 yesterday. And then the US government basically said that they're going to ask them to stagger the release of it because they are concerned about safety, like, you know, because of the security concerns with Claude Fable,

like, uh, for anybody who doesn't really know the story there, quad Fable five came out. It was basically a dumb down version of their mythos model, which is like the most powerful model they've ever released. And mythos, like the, apparently there was stuff that the NSA said that like it was able to create like massive security vulnerabilities really easily. And basically the Fable is supposed to be like a. version of that model with guardrails where like people can't do those things. It won't do like nefarious activities. But then I think it was somebody inside of Amazon said that they were basically

able to jail break it. And so the model was only live. It's crazy. Do you have you heard this like story? Have you been following the story? It's pretty fascinating. Yeah. So somebody inside of Amazon in their security basically said that they were able to jail break it and get it to behave like mythos, the like higher risk model by just like telling it. it that it was, they were asking it to review their own code to like help them identify vulnerabilities for themselves, you know, so like all you had to do is basically, yeah, so, and then they reported it to, I guess the, they reported it to Anthropic first apparently, and then Anthropic basically didn't do anything about it. So then they said, okay, well,

we can't like, I guess they felt the social, or like the moral hazard and the social good was, okay, we, we have to notify the government of this because this could basically take down a bunch of like tech companies and infrastructure and whatever. And the government stepped in and the model, they put an export ban on it. So it, like technically, it can only be used by American nationals, or sorry, American-born, like American citizens and American-born citizens. So not even like foreign nationals, naturalized American citizens. So it can't be used by anybody outside of the country and it can't be used by anybody inside of the country who's not American. And obviously, this is a a logistical nightmare for Anthropic to actually be able to enforce this. So they just

completely shut it off. So it was available for three days. I'll say like it was incredible. Like it was like a world changing. Yeah. AI. Oh yeah, dude. Like, and I, I, I hadn't been on Claude since January because of like I just really didn't like what they did with OpenClaw and I switched over to chat GPT because they were still allowing people to OWOTH into OpenClaw. So we built an entire like AI platform for real estate professionals. that automates most of their work on like the open claw framework. And we were using chat GPT a lot more because it allowed us to do that. And but then I obviously had to try this model.

So I got an anthropic max subscription to play with it. And I was like clawed pilled, I guess is what they call it like instantly again. So the idea now is that chat GPT 5.6 would be comparably powerful. And the US government now has regulated anthropic fable away. and it's also now willing to regulate a competitor's product away. So you've really got this massive government involvement in the AI space. And the big question that people are asking is, well, what happens when, you know, the Chinese open weight models that are open source, like I can go download it and run it on my own hardware.

What happens? They're typically like five to six months behind. So what happens when they have a model of comparable quality if the U.S. hasn't figured out the regulation? plus, you know, the U.S. is kind of like, they're really creating, they're taking the steam out of people's, like, everybody wants the newest model. And so they're taking the steam out of this bull run where people, and there's charts that show if you go to OpenRouter, like the amount of people spending money on U.S. models versus Chinese models, which are a lot cheaper. I'll pull the chart up when you're speaking, but the U.S. spend on open router compared to Chinese model spend is, is like, you know, there's a, I think there's a big risk at kind of could take over the provider, the model provider side of the AI thing. So anyway, I'll leave it there and I'll let you kind of let me know any of your thoughts on everything. I just dropped on you. Yeah. Yeah. I mean, it's really interesting, especially if you start, yeah, seeing the U.S. government being more involved. I think they're really

stuck between a rock and a hard place because they want to win the AI race, but they're also realizing that these tools are quite powerful with every model coming out. And I think some of these AI companies that I've been kind of scaring the population about like what, you know, potentially AI could do like the worst outcomes. I think they have to be careful because now I think you have the U.S. government taking notice. But I don't think they're going to scale, throttle it too significantly because I don't think they can afford to lose that AI race to China. Yeah. Well, it's a new like space race, right? It's a new like arms race for, for, And, and yeah, I think that this does become a big issue.

Like if you look at how much China, like Chinese models are gaining traction by comparison to U.S. model use, I mean, like the U.S. model like hasn't really grown all that much. And then the, look at like look at the, what's happening with the, with these Chinese models. And, you know, this post claims that a lot of it's because they are cheaper and they're faster and they're good enough for most tasks. And I feel like that good enough for most tasks piece is actually like very key. Yeah. Because, you know, most people don't need like a rocket science.

to do like we like in in my business like the company that I work for like my actual day job is you know an AI company that builds technology for the real estate space and real estate's not like it doesn't I don't really need a state of the art model I don't need to be paying insane token costs when I can get most of what I need from a you know a GLM 5.5.2 or you know I'll pull up some of the benchmarks on some of these other models but like so they're rapidly approaching the quality of these US models. And I think if the US continues with this regulation, this could really,

like I agree with most of the people saying here that this could really cause a big issue, to be honest, because it's going to give them a runway to catch up pretty quickly. Yeah, and that's right. Like I think we're probably the exception to the rule where we tend to not care too much

if a model works well for us, we'll pay the extra. But for a lot of people, it just becomes, yeah, the lowest cost option that is good enough. And I don't know about you, but in my life, I think, you know, I consider myself, like, decent with AI. I've, like, coded a bit. I've kind of, you know, like, even our video editing, I'm starting to use a lot more AI, save some time there. But what I'm realizing talking to people

in my life is most people are not, you know, even to close to my level. And I feel like I'm probably middle of the pack in terms of adopting AI. I've adopted it for quite a bit of thing. but I still think the majority of the population is still not quite there yet. And once they do get there, they'll probably be satisfied to a much cheaper model or a kind of freemium option. Maybe there is models that start like being free without too much restriction, but you start getting ads. Like, I don't know, but I'm sure you're going to see some more different types of models and more cost of effective options too. Yeah, 100%. I mean, like, there will become a race for reliable, like not super intelligence, right?

Like just reliable entry level models. Like super intelligence is great. And I do, I do think that we should be trying to progress on the frontier. But the reality is like most people and most use cases in the, in general business is AI is going to be replacing entry level things. So like moving paperwork from point A to point B. And I don't need a model. like we're going to actually probably start and end up seeing what you call SLMs or small language models that get stripped down and specialized for each industry so that you know when you give it an

input it knows exactly what it's supposed to be doing and it isn't checking trillions of parameters whether or not it needs to do open heart surgery or or sequence my dog's DNA or whatever right like why do I need all of those things in the model when it's all it's doing is you know for my job like in the real estate space it's booking a showing It's mapping out the properties. It's doing maybe some zoning researcher analysis on properties or doing a valuation or doing marketing. I just use this example because I'm very close to it and I'm familiar with how it works. That I think that that is a question mark for the frontier models of like, how are they going to monetize super intelligence?

Like, you know, you can only really sell that. Like the smarter it gets, the more limited the use cases for it get and the more limited the use cases that can profitably use models gets. So I think that this is a fascinating question that not a lot of people are thinking about. Because AI has just been very exciting. And basically until this happened, it's just been like constant growth. And then boom, the growth is like, okay, well, the government says, hey, it's going too fast, too much. And I will say, like these, have you watched the AI doc yet? The, like, it's called the AI doc.

It's like a documentary. No, where is it? It's on YouTube, but you have to pay for it. That's okay. Yeah. Yeah, it's like, I don't know. It's just like, I think it's, everywhere, but you just have to pay to watch it. But yeah, it's pretty cool. And they have like all

of the, all of the guys from the labs who talk about, like talk about. And, and these guys are all talking about like Dario's in it, um, Sam Altman's in it. And they're talking about, oh, we need to be regulated. We need to be regulated. Right. They're talking about like, and, and I think Dario, especially, and I know Braden talked about this when he was on the, on the pod, like, you know, their marketing is very like, like, scary, right? Like he likes to. And, and now I think it's really biting him where he's been a doomer about AI like replacing everyone's jobs and needs to be regulated and now all of a sudden they're like oh you know why did you regulate us and so i i think careful what you wish for from a lot of the guys who had been been pushing for that i'll leave it

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So go ahead, blossom social in the app store, and I'll see you there. I guess on still the impact of AI. So did you see the Apple price increases, like I was saying in terms of, you know, you're getting all this demand from the hypers that's starting to affect now, have some ripple effect in the economy? And we don't even know in terms of, you know, construction material, availability of labor, of skilled labor in the U.S., like what kind of ripple effect that will also have, but Apple just announced some price increases, MacBooks, depending on the model

increase around 15 to 20 percent, iPads 20 to 30 percent, and max 15 to 32 percent. No iPhones yet, but I think it's just a matter of time because I saw something that Tech Insight posted. So they estimated that get that for the iPhone 17 Pro, It costs about $50 for memory plus storage costs, and that now the 18 Pro costs about $200 for that same storage and memory costs. And you also had Microsoft with their Xbox's, increase the prices 25 to 30 percent, I think yesterday as well, and even stopping production of the biggest storage option, the 2 terabyte. So you start seeing companies already making that. Yeah, and it's RAM, too. Like Apple used to make this like M3 Mac Mini that had like 256 gigs of RAM and they don't do that anymore.

And that was three generations ago. So like they, you know, and they pulled that off the shelves. So yeah, I like I think basically, you know, you think about like inflation and what's happening with inflation and the oil price spikes and stuff. And that, you know, those are exogenous things that the central bank can't really control. But then you talk about, you know, these entrenched inflationary forces in that, that are happening from the market, that specific market for compute and AI related things running too hot. And nobody in the world doesn't interact with computers, right? Like Exactly. So this is a-

over like 15 that doesn't have a phone. Right. Yeah. So this is one of those factors where this is going to become, I think, a contributing factor to inflation pretty quickly. And that was like those charts that I brought up at the beginning. Let me see if I can share them again. Or you might see the other thing is you might see that shrinkflation get into those electronics where they just, they try to mitigate price increases by lowering the specs, right? So making less storage, less RAM, which then affects performance. And the crazy things, and I know you know this, but just to be clear, is that technology typically, like, gets cheaper over time. Like, that's how it's supposed to be. Yeah, exactly.

Innovation is deflationary historically, right? Like you get more efficient computing. You have something called Moore's Law, like the size of a microchip and how much storage can fit on it. It's supposed to shrink over time. But now we need more of it because we have this newly introduced compute thing that, you know, this compute demand that's just been crazy. I don't know. Have you seen the thing on where you can put like a data center in your house? No.

I'll find it while we're, uh, while we're, uh, while we're chatting. But yeah, so here, I'll, I'll pull it up. Actually, I have it here. But basically, you know, Nvidia now will pay you because they're running into problems with the grids and stuff like that. Basically, there's this company where you can get your own, like, data center, like they'll put a blackwell right on your, on your house. And you use your own electricity at consumer costs. So it reduces their AI costs. I think this is just funny because it interacts with real estate, right?

There's some heating benefits because they can actually recycle it as like a heat pump. So it could be cool for Canadian markets. And, you know, it allows them to decentralize the grid a little bit. this is like how desperate they're getting with the to try and keep up with the demands. I guess the question is like if if innovation does become deflationary and these compute costs shrink over time like or the the amount of chips or whatever required does that take some steam out of this as well, right? If the models become more efficient or whatever. Because right now it's just like bigger, bigger, more compute, more training, etc. But I think that it could, you know, eventually we could

start trying to sharpen the demands. And anyway, we'll use this to segue over to inflation a little bit because we're talking about inflation and how this is obviously going to cost. And then we can go to that bailout because I feel like, you want to hear about the bailout. I want to hear what you. I've just been talking so much about it over the last little bit. So, but yeah, we'll go. You know, we talked a bit about it.

And I've also watched a few things that you put out too. But I find it pretty fascinating. But yeah, inflation, I mean, did you have a deep look into the Canadian CPI? Yeah. Yeah. Were you surprised like headline coming in around 3.2? I'm always surprised that CPI reads as low as it does like because when you get like US CPI quite a bit higher.

But so our basket's quite a bit lower. This is why I always thought it was funny when the politicians were saying like, oh, we have the lowest inflation in the G7. It's like, well, they're all like every, every CPI is measured differently. So I don't think that's really fair. But yeah, like I'm not surprised that inflation is rising. I think it's still going to continue to rise. And then eventually it'll fall.

And there was like there's a couple of charts that I have up on this. this is from James Thorne here about, you know, basically inflation expectations are falling pretty significantly. So I think people are basically saying, okay, yeah, we thought it was going to get bad, but now we're realizing like nobody can pay these costs. So I think the market is communicating that it's already starting to see the demand destruction happening as a result of inflation. That's my, that's my perspective. I'm curious to hear your take. But I think we've probably got a couple more months at reading high. And then I think, I mean, it'll obviously, it'll, it'll always kind of sustain a little higher, but, but because your, your price level has actually moved up on a

year over year basis for a lot of these goods. But I do think that we'll, we'll start to see demand destruction and a collapse in inflation, probably just in time for them to not hike rates, to tell you the truth. Yeah. Yeah. I mean, I think you might be on to something there. Obviously, what's happening in the Middle East will probably still have an impact there. I think you have oil prices that are almost back to pre-war levels, which it is still interesting because you get some conflicting news. It seems like on a daily basis on what's going there, whether the DMOU, the ceasefire will carry on or whatnot, but also, you know, you had to, I think a ship was hit by a missile

like a day or two ago or yesterday. I can't remember exact timing. So, and yes, you're seeing ships come out of the straight, but I haven't seen really reports that ships are actually going in back in. So it's basically the ones that were stuck there now are coming out, which will probably ease a little bit, you know, some of the pressure, but you're still not going to be making up all that loss supply that you've lost in the last three months. So I think I'm still like I'm not an energy expert or anything like that.

I've read a bunch of analysts. And for the most part, you know, my sense about what the analysts are saying is they're also a little bit kind of confused. as to why the market is pricing it that low right now. I know there's factors like China lowering its imports that probably help, most likely drawing on its domestic strategic reserves. But you have these kind of factors. Then you also have what's going on with Russia and Ukraine. Ukraine targeting more and more energy facilities in Russia.

And I think I saw a Routers article saying that Russians are even contemplating now an export ban on diesel because they're facing some supply. shortages there because of some of the damage made to its own infrastructure. Yeah, I think, I think, you know, the, like, your two biggest markets of consumption of oil are, are using their strategic reserves to continue buying down the cost and hoping that they can get by long enough for Trump to solve this, which just doesn't seem to be the case. Like, I just, I don't, I don't know what the optimistic, like, I don't know the bull case for, for people who believe that that will actually take place, right? I don't know. I don't know what your thoughts are there. Yeah, I mean,

My point was just that at the price that oil is right now, I do still think that there's a lot of potential upside in the price of oil. I agree. Yeah. Yeah. And obviously that would clearly, you know, see into inflation as we've seen so far. So that is the one piece where I'm, you know, I'm wondering a little bit. And then you have all this AI spend that's happening. There's going to be physical, like ripple effects in the economy as well.

And I just feel like we don't fully know what these impacts will be. I get where you're coming from that you could see inflation start lowering down. But one of the concerning pieces is still food inflation. I mean, foods rose, I think 3.8% over a year, 0.7% month over month. So more than 8% annualized. And then fresh vegetables are up 9% you over here and 5.5 month over month. So really concerning. and I feel every single print, like as far as I can remember at this point, that food inflation

seems to be too high. And this is official metrics from the government. It's not even like your own personal basket. Right. Yeah. And I think that you, you know, we've mentioned this a couple of times, but like the big challenge is like the two things that people buy the most, food and fuel are becoming exceptionally expensive. And people feel that a lot more.

And so that causes them their inflation expectation to get like to aggressively kind of to aggressively reprice, which I think is is kind of one of the risks that the headwinds that they're trying to deal with here in tempering consumer inflation expectations. It's not as much like it's not, you know, I pulled up the chart about inflation expectations in the U.S. But Canadian inflation expectations are not as tempered. They're coming down quite a bit, but they're not as tempered. And we have the business inflation expectations from the monetary policy report.

But it feels like, I mean, when, you. When you think about like rate cut or sorry, rate hikes, like the market's pricing in that the fed's going to have to hike. We talked about this pretty at length in the last macro call. But the market, it feels like and what what the Canadian dollar is doing, the markets also seems to be pricing in that the Bank of Canada won't be able to follow them in hiking. You know, and if they, you know, I know the Bank of Canada and their most recent presser said that they wouldn't be opposed to it and that they have obviously like their mandate and that they're going to keep trying to keep inflation. where it is, but by and large, like fuel costs and food cost inflation from cost push on fuel isn't something within, within the scope of control of monetary policy. So if they hike rates to try and destroy a little bit of demand, is it actually going to even have an impact?

And I think that that's what differentiates us quite a bit compared to the U.S., which is the U.S. has this huge, very real economic boom happening in one sector of the economy, which is going to be putting pressure on, on, you know, the, the economy running hotter maybe than the central bank wants to. Interest rates could probably take some steam out of that if that was their objective. Or, you know, in Canada, we, we don't have that happening. And so, like, I think the Bank of Canada is really stuck, even, like, because I think that if the Fed hikes, I don't know if they're going to be able to follow. And I think the market, that's what the market's telling us to tell you the truth. And I'm not, I don't know, like, I always try and pull out my bias, because I don't,

Like people would say, oh, realtor, you know, you want rates to come down. It's like, well, you know, historically I usually will take the contrarian or like Dumer case, but I feel like the Dumer case is probably a demand destruction and recession and interest rates have to come down just to save the consumer from getting crushed. And I feel like the U.S. will probably end up in a similar position, but I don't know what your thoughts are there. Yeah, I mean, to be fair to you, I think you're probably the exception to the rule in terms of Realtor.

I think you're pretty brutally honest. comes to that, but yeah, I mean, I think the Bank of Canada stuck between a rock and a hard place. Yeah, I mean, they said it. Their discourse changed a little bit. They acknowledge that inflation might stay higher for longer in their previous thing. Now you have Warsh. How are they going to be reacting to what he's going to be doing, maybe using a bit of different approach, not focusing as much like we talked last week on lagging data, but looking at more kind of data that's telling them what is happening in real time. Is the Bank of Canada going to be doing that? But like you said, I think, yes, they're focused on inflation, but they're realizing that the economy is extremely

weak. So I think that also ties in well with what we saw from OSFI in terms of lowering regulation and trying to allow banks to lend more, encourage them to lend more. We'll have to see if they're actually going to do that or potentially be using that money for buybacks or dividends. Again, I don't, I don't recall seeing any restrictions in that like they did during the pandemic. So we'll have to see what they actually do. I'm sure they'll be getting some pressure. But I feel like that is an area where they're trying to stimulate the economy without having to lower rates. And I know Scott Besson, I know that's something that they discussed a whole lot in the U.S.

Same kind of things in the Dodd-Frank regulation pass. I think they're really trying to push as a way to stimulate the economy, allowing banks, commercial banks, to just lend more by softening regulations. I think that's the approach that they're probably hoping will work, that will allow them to not lower rates, and probably just stand path. That's kind of what I'm seeing right now, or my interpretation at least. Yeah, I would agree. Having cash on hand is essential for any business.

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Yeah, I don't think there's any really progress on a deal on. That's the latest I saw or did I miss anything? Yeah. Well, and like there was like this video of Trump like saying like, oh, you know, like what kind of idiot signed that original deal, which is funny because it was him, right? Yeah. And he's like, oh, you know, we're going to, we're not going to sign, which, which if he says they're not going to sign that, I guess then it would just be status quo. But I feel like he always positions this way before he like gives himself a horrible deal. So I feel like, I feel like I'm not actually that worried for Canada and Kuzma. Whereas historically I was because the way that they were positioning was as if they wanted to kind of blow us to bits in that regard. Yeah, I think the more

I see of Trump the more when he has this kind of language, he's almost looking for a way to make a deal, but show that they gain something. So I think the U.S. is probably just wanting like to like have some kind of a win that he could even bring for the midterms, right? Like just showing. Yeah, they want a marketing win, but not like a real win. Yeah. That's it. So whether it's, I don't know, opening the Canadian dairy market more to U.S., I know that's been really a a sticking point for years. I'm not sure exactly what they would do, but I think they need a win. Exactly like the Iran deal, the MOU,

like Trump was spinning that as like an amazing deal for the U.S. Even though things are far worse than they were when the conflict started. Even I think a few weeks ago he said that inflation was pretty good because they could be way worse. So it's just despite the conflict. So I think if Trump has a way to spin it, that can, benefit him politically. I think that's, that's the angle that Canada should be pushing. I'm sure they're trying that. Like, I don't think they're stupid on the Canadian side, but I, it's still surprising that there still hasn't been, yeah, more development so far. Yeah, I mean, I feel like he's

obviously busy with other stuff, regulating AI and, and doing Iran. So I feel like it could just end up also being just forgotten about in all of his other things that he's doing. And, and, and, and, and maybe we just, you know, slip by untouched or unscathed for a minute there. So yeah, I'm curious. I'm very curious to just see how it plays out. But okay, let's jump to the developer bailout. Let me, let me, which, like, I understand why people call it a bailout. And I think there are some elements that would make it look that way.

But I think it's still too early to tell. And it seems like based on the blowback that they're getting. Like, originally the way that they talked about it, it's. I mean, even CBC. grilling one of the ministers. I don't know if you saw that interview. Like the BC housing minister, I think. Yeah.

Yeah. Well, there's, yeah, BC, like, well, there was, well, we're talking about the one on CBC where they're like the NDP housing minister. Yeah. And they're like, oh, these are still the details that we're working on. Exactly. You do wonder, like, wouldn't you want to make sure you have those details down before announcing this kind of deal?

Well, this is the thing, right? Yeah. And the full video is. really good too because there are like there is like a portion where they're talking about the bc developer builders association whatever it's called and they're like blaming the government for the situation in terms of like empty units and government policy for us holding down immigration but i'm just an outsider here but it really didn't seem like they were crying wolf when 2020 2021 2021 when things were just you know they were just probably making money handle

over fist. Yeah, nobody had a problem with the policy when it was making them insane amounts of money, right? Yeah, like, look, I think, you know, the developers came out and said, and there was a video of Carney saying, like, nobody, no developers asked for this. I, like, if they didn't ask for it and we, and we want, like, I think that there's a very easy policy penstroke for the government to get the, what is it? Like, they, they have cake on their face or something like that. Is that what you say? Egg on their face. Egg on their face. Yeah, I think that's the, yeah. Yeah. Like, Like to get to get rid of that is they so earlier in the year, let me just, I'm going to try and find this like this proper article on the CRA website.

So earlier in the year, they did this in Ontario, right? They did the Ontario GST. Yeah, Ontario GST. And it wasn't like it was poorly received, but it wasn't like this. Like it, you know what I mean? And it like it was called a builder bailout and whatever. And I like, I support lower taxes. on everything in Canada, especially housing.

And so I think I always found it funny when, you know, conservatives who are supposed to be against the, you know, more taxation and more government involvement, we're saying that they take issue with taxes being removed. You know, who ends up benefiting from taxes being removed on housing is typically the end purchaser who now the builder can discount by that new tax amount and the end purchaser ends up getting a lower price. That's good, right? Like, I think that that's good. And you have to separate that one. But it's always, like, discounted by that same amount,

though? I would, I'm just playing devil's advocate there. Wouldn't, like, the builder be incentivized to discounted, but not maybe pass through 80% of it instead of 100%? Well, like the people, a lot of people made this argument, but, you know, sure, a builder can choose to keep all the entire HST rebate if they want, and they can continue selling zero houses. So, you know, they've given them tool to reduce prices, which is a way to make their product more marketable. And builders are capitalizing on it. I mean, we did an exhaustive, let me see if I can find it. We did an exhaustive white paper on this for like the price discovery that we observed in the market since the GST, HST rebate was announced. So I think I took you through this, but basically like you saw a small

amount, 118 listings in our cross-section raised prices, a larger, much larger portion drop prices, and then a significant portion left them unchanged. And it was very similar data for actual pre-construction. That was resale pre-construction. So you had like 25% cutting prices. Anything that would be unchanged, like in the unchanged segment here, would also be available at a discount. Because if the price hasn't changed and the buyer,

like until this policy receives royal assent and builders can actually capitalize it into their price and collect the HST and then issue the rebate themselves, the buyer gets entitled to the rebate. So if a buyer is buying at the same prices as they were before, or they get to capture now at this discount, which is about roughly 10% compared to what it was before. Here's the problem and also the opportunity that I think.

So when this was being positioned as a bailout for builders in Ontario, a lot of people were saying that builders now are taking supply into their, into their own inventory or sorry, taking their own inventory and buying it themselves and then renting it out. So when I originally mentioned that this was going to happen in 2022, and everybody called me an idiot, I said that there was a couple of mechanisms that they would that they would use to do this. And one would be reducing taxes, some sort of tax in the structure.

I said probably development charges, probably GST, HST, maybe even land transfer tax, which hasn't happened yet. And so they've done that. Then the other mechanism that I mentioned was that they would increase the financing available to convert this to rental. So CMHT has something called CMHC standard, which is like similar to their MLI select multi-unit rental program that allows you longer amortizations, not improved loan to values, but like here it says on their site, amortization periods of up to 40 years for existing properties and 50 years

for new construction, which new construction would qualify for like brand new condos, although you have to qualify prior up to 85% of the lending during the construction phase. So this is a credit product that makes the developer or the owner of who are of any type of rental unit, reduce their monthly cash flow obligation, therefore improving their positive cash flow. So I mentioned that this would be another thing. And then I also mentioned that we would start seeing mega funds and even potentially state sponsored activity to actually just purchase these units because the units were going to be sitting there and they're going to try and get the easy win of basically taking all of these units and saying, oh, we have made these available as homes, right? And they can hit their their targets

without having to actually build anything. So all of this was something that I had forecasted. Now, I think if I'm in the housing minister's office, and I'm trying to walk this back very quickly and get rid of the problems that I'm dealing with from a PR perspective, the policy that seems like to make the most sense to me is this deemed supply on the CRA.

So if I'm a builder and I build a condo and I want to sell that condo to myself, right, or self-supply, it like I take possession of it and I just choose rather like okay let me let me back up here if I have a brand new condo and it's sitting empty okay I can I have two options I can put it into inventory and I have to put an inventory loan on it if I'm putting an inventory loan on it I'm probably paying 8% and there are some good publicly traded versions of companies if people want to get exposure to that like firm capital is a good example of a company that does a lot of

these like condo inventory loans so it basically would be like what a construction loan but once the condo is finished and you're just sitting on it. Okay. Exactly. And it's an interest only facility typically and you can continue marketing the units for sale and, uh, you know, you can hold them in inventory. It's still a brand new house. And so if you do that, um, you're, you're taking a lot of risk, right? So the risk that you take as a builder in that scenario is, you don't, you can't sell the unit at a price that's profitable, which we know that builders aren't can't do right now. you after two years of it being vacant, at least in the city of Toronto, have to start paying the vacant homes tax. So now you're paying an extra 1% per year for the, to, for the privilege

of keeping the unit vacant. You know, if you, if you write down the prices, you're going to piss off a lot of the purchasers that bought the other units in your building to, you know, because you've just devalued their, their properties. And so builders aren't super incentivized to blow out inventory. And we have seen some and some have been selling at like, you know, 675 a foot, whatever. This is where people are like, oh, you know, well, everyday Canadian should have an opportunity to buy houses at these deep discounts before the government does. It's like, well, they do. Like, honestly, you can.

You can go to a builder and try and buy them a unit at deep discounts. And you could probably get one. But even the guys who are selling at $675, $700,000, $700 a foot, which is like 10, 15% below resale value, it's like 50% below their original strike prices on these preconstructions, they can't sell all the units. Like, the market is no bid pretty much. They're selling some, but they're not selling like a meaningful enough amount. So we have a very big problem. And this is to me, the government acknowledging that this is a systemically significant problem, which is what I mentioned before when me and Ben Rabidu did analysis on literally every single

property in the GTA that was at risk here. We calculated about $30 billion in unrealized losses between owners and developers, between the original price that was agreed upon on a contract and the current market resale value. That probably has gotten worse since we did that analysis because that was in 2023. three. So what what would people prefer to because people are saying well the builders should suffer. Okay. Well, what's a what's a good way for the builder to suffer? That's door number two. So door number one is they suffer by holding them an inventory and eventually bleeding out just

paying interest and you know, holding these units for 10 years just paying 8% per month like you know, it doesn't make any business. Yeah. Can they can even survive that? Some like there are some very rich builders in Canada like that you know a lot of the ones who can't who are who can't survive that are already toast. So why don't we just like let it be, let the market forces go. You know, some will go bankrupt. It's going to create probably a drop in prices. Yeah.

It's going to be painful for a couple of years. Yeah. But then we'll come out better on the other end of things. Or do you think there is, I know you shared with me that Bank of Canada paper that was published a couple of weeks ago. And I think they're increasingly concerned about risk to the financial system that could be coming from other places than banks. Yeah.

So I think the answer to the question is like, let's give the builders the benefit of the doubt that not a single builder then that what Carney says is correct, that not a single builder asked for this. Okay. Well, then somebody else probably suggested like they didn't just imagine. And politicians never lied to. Right. Right. But so, well, is the like do, do are they getting, I don't want to say marching orders because I don't think that that's how it works. But are they getting data from somewhere else that's.

suggest that there is a bigger risk here because like the what you described like the if how okay if we let the market play out then it then it comes to your illegabilistic banking system like to in order to clear all of these out let's let's play that tape to the end if I'm a builder and I bleed out on my inventory loan then I go delinquent and then I have to pay or then then the lender has to take all of those units back and then the lender can now sell them through power of sale process at a better price and this process takes a very long time because there's, you know, we haven't done a lot of power of sales over the last several decades. So there's not a lot of judges or, you know, courts that have experience in it.

Like, I work a lot in lender dispositions and doing power of sale work and they take incredibly long and it's a very cumbersome process. So I would say the logistics and the efficiency of that being delivered to the market comes with a lot of negative externalities that are worth trying to avoid if you can avoid them. And I'm not saying that that means that it requires a bailout. I just think it's a very inefficient way. Like you're creating a lot of what I would call probably rent-seeking and economic inefficiencies in the process. Like, sure, let's let the market figure it out. Do we want every file to have hundreds of thousands of dollars of legal fees and get backed

up in the courts? Like, the bureaucracy is going to figure out a way to monetize this anyways, you know, through the court system making a ton of money or whatever and make the social cost of it way worse than it needs to be. is this is that the government bailing out builders a better evil than that? I don't know. Like I would say I don't think the government should be this involved in housing period, but it's too late for me to feel that way.

Like no, you know, it's not going to just because I feel that way doesn't prevent them from doing that. So do you think they're scared of my bleed into the banks if they don't intervene? Well, if you, if you want to let the market play out, the banks have to be involved. Because like if builder or or we do what I'm going to what my recommendation is. So let's first explore like banks. So in order for builders to fail and these units to fail and then builders to let the market do what it's saying, either builders need to write down their profit significantly enough to clear these units out and take a loss. And then somebody in the capital stack gets in trouble.

So equity probably gets wiped out. Then you start looking at, okay, who holds a construction? loan while it's typically a large big six bank or some sort of like syndicated fund that maybe it's an AB structure that the big six banks have exposure to. And you saw like a private sector bailout exercised by some of the big six banks on this over the last couple of years anyway in the form of blanket appraisals. Yeah. I knew you were going. Yeah. So they they figured out a way to still keep the original purchasers accountable to the contract. But that was mostly the GTA, right? Yeah. Like I don't know, I don't know the Vancouver market well enough, but blanket

were still like, yeah, they were a thing. And then basically I think OSFI started to take concern that it was allowing lenders to go over 100% loan to value because they were going to 100% or 80% loan to purchase price. And that... Do you want to explain what blanket appraisal, how it was just for people not familiar with it? Yeah. So blanket appraisal is basically if I, if I'm a buyer and I purchased a condo in one of these buildings for $1,200 a foot, then the lender would give me an appraisal. saying that the every unit in this building is worth $1,200 a foot no matter what. And so when I show up on closing date, usually, you know, if my, my unit is now probably

worth $900 a foot, the, the appraisal would probably come in low and it would make it difficult for me to close on that unit. I would have to come up with a cash differential to buy the lost equity. The blanket appraisal would make it so that I could actually. get the loan to my original purchase price. So let's say LTP, loan to purchase price. And irrelevant of the value. The problem is if my loan to purchase price is 80%, let's use a million dollars, okay? So bought a condo for a million, yeah, bought a condo for a million bucks. And my loan to value is, is 80%. Or sorry, my loan to purchase price is 80%. So I can get $800,000

loan. This, but this property, and I paid whatever, $1,200 bucks a foot or, you know, this property is now worth $600,000. Yeah. Now I'm at, now I'm at 120% LTV, 110%, over 100%, which is not allowed by Basel 3 in the Canadian banking system. So this is where the problem lies. Yeah, so the buyer has to come up with an extra 200K or whatever the amount is to respect the proper loan.

They should, but the blanket appraisal prevents that from taking place. So it's still based on that $1 million. Yeah. Exactly. So you, so yeah, so the bank would advance a loan at 800,000, even though it's only actually worth 600,000, and now the bank is in a position over 100% loan to value, which is not allowed. So this has kind of come to a bit of an end because there has been pressure from, I mean, the public saying why should a pre-con speculator get special treatment on loans that I, right, like that I couldn't get?

I mean, it's special treatment that could blow up in their face too. Like it is, it's small most like an extent and pretend. Yeah, like that, you know, the pre-con investor, I mean, it's an extent and pretend basically because they're still going to be bleeding money if they get out that loan. And obviously the risk that the banks are taking on by doing so. Well, I also think it's funny because like if I'm the bank, like, and I know you guys talk about banks in this and like, I actually think it's like if the banks have, they've obviously run a model on this. They've done some sort of actuary and really like calculated their risk exposure. If I'm the bank and I think, okay, I just gave somebody a,

120 LTV loan on a condo that's cash flow negative, that customer will never go to another bank over the life of the mortgage. Like, how long is it going to take for them to have enough equity in the property to go and shop that to a competitor of mine? And then to be in a cash flow position where they can shop that. So their cost of customer acquisition and their risk of churn goes down a lot. So it's smart business from that perspective, right? They can also, yeah, they'll be like they'll be forced to renew with them and probably

the best market rate. And it makes me think of, you know, in this. Simpsons when Mr. Burns tells Homer in one episode that you're here forever. Yeah. It kind of reminds me of that. Yeah. Yeah, it is kind of like that. So, okay, so all of this takes me to my actual, like, policy proposal that I think

would, would do well. And then we can, like, kind of wrap up on, on this topic. So I mentioned how, like, builder, so with the Ontario program, people already interpreted that as a builder bailout, even though builders can't actually capitalize on the GSTHST themselves, they can only really. capitalized by by reducing the price and making it easier to sell their units. However, if they could buy the units off of themselves and get and realize that GST, HST discount without having to deal with the CRA self-supply issue that I mentioned, which which basically says that the CRA will

not give you an HST entitlement to an HST rebate if you buy the unit off of yourself. Am I explaining that well enough? Like that makes sense? Yeah, yeah. Okay. So if you're a builder and if people want to builders suffer, shouldn't we say, okay, hey, you made your bed, and now you get to sleep in it. You can play by the same rules as everybody else. You can buy your own units off of yourself, and you can be the one who holds these units. You get a credit product that's available to the market, which is 40 to 50 year amortizations on these new rental units. You get your GST, HST, rebate, which is available to the market to all the other consumers. And the builders bail themselves, out, right? They take possession of their own units. And if you're, if, if, if, if I'm a policymaker,

like this is a really easy way to look like I'm taking a hardline stance on on, on, you know, not bailing out the builders, being progressive and, and smart with tax policy by reducing taxes on housing, which is what we're trying to do here. And it seems to be that's the one piece of any of their proposals that actually get support from both sides, which says, hey, we, we shouldn't tax housing like alcohol and cigarettes. And then you're also like making it look like you're tough by saying, oh, hey, the builders have to bail themselves out. So I don't know why they haven't done this yet. I've talked to a lot of people in on the files. I guess it's maybe the H.S. Sting angle that would be a bit harder to explain because they're still, I mean, they're not doing a bailout,

but it's almost like they're giving them a pass a little bit. Yeah. Well, but they've already given that to the market. So all you really, like, and the, and, and the media and the market. But it's easier to justify when you're saying it's first time homebuyers, right? Like, Well, but it's not just first time home buyers now. It's anyone. It's like it was originally first time home buyers. And as soon as they announced that, I had said, give it a month and they're going to realize that this is going to do nothing because no first time home buyer is going to afford to buy new homes. And it was it was two months. And, you know, and then they said, okay, I were going to expand it to everybody. So they now made the GSTHST rebate available to any buyers, except for builders who want to buy units off of themselves. And so, so again, not a lot of people know this, by the way, like with the CRA self-supply, like as it stands right now, the market and the media is operating as if, like, even I was speaking at an event on Tuesday called Site Summit, which is like one of the big construction events, and I was speaking beside one of the smartest people in Canadian real estate when it comes to this stuff. And he was talking about

it as if builders are buying units off of themselves. So even the sum of the sharpest people don't realize that builders actually technically, based on what the CRA's rules say, cannot buy units off of themselves and realize the HST benefit. So the market already thinks that this is what happened. You know, they don't really have to retell the story and get in trouble for it again by just adapting the rules ever so slightly to get to make it possible for builders to self supply and realize. So that's what I think is next here.

We can, I don't know if you want to talk about the rent to own thing at all, but we can, we can talk about that. Well, we probably should start wrapping this up in a few minutes. Yeah. So maybe, yeah, go over the rent to own quickly. But I guess maybe just on that, like, okay, I think that would probably help some developers, but aren't some of them going to be cash flow negative? I know they have, they can get these extended loans.

But at some point, like, I mean, rents are coming down. Like, are they all, like, some might still, it might still not move them needle for them. I agree. But it shouldn't, right? Like, bad models should fail. So, and, but like, give them, give them, tools that everybody else has. So like anybody else can go by, I can go buy 10 condos, put a 40 year mortgage on them, get the HST rebate and and be negative cash flow or leave enough equity in

the deal that I can cash flow. So maybe I have to leave 30% in. Right. And it's still CMHC insured. So like the taxpayer has some exposure from a loan perspective. But the question just becomes, it's really just equity, the equity piece of the capital stack, right? So either I'm getting no money out of the deal and I'm paying an inventory loan and paying 8% on all the equity that I've left in the deal, which is all these unsold units. Or I can replace some of that with debt by buying these units off of myself and I can get maybe 50 or 60 or 70% of my equity out of the property in the form of debt, whatever is going to allow me to cash flow. And then I would cash flow the units. I would rent them out and cash flow the units. And I'm suffering. Yeah, absolutely. Even a builder who gets it who has good

numbers is going to suffer as a result of what I just described. Like, that's not a good position to be in, but it's, it's better than sitting on, on, you know, 100 vacant units and paying inventory loan interest rate on it plus a vacant home tax on it and never knowing when I'm going to be able to exit those units. And I think it's also certainly better than the government taking possession of those units. Like, builder, if we're going to make, if we're going to say we were going to be tough on builders and, you know, they, they have to eat their own, make their own bed that are sleep in the own bed that they made. That's the best, mechanically the best way for them to deliver that solution. Or if you want to really be, you know, cut throat as a government, say, look, do exactly

what you said. And your other option is, we'll buy the condos, but we'll give you, uh, you'll give you'll give you liquidity now, but for much lower prize then, then you can. They're claiming that, they're claiming that they're going to buy them at below market value. After the blowback. Yes. They're, yeah, they're claiming that. But that could be a way where you're, basically saying like, you know, or we'll buy them significantly below market value. So if you're completely screwed, come and see us. We'll make a deal. It'll benefit us. But if not, here is your other option. Yeah. Yeah. So I think I'm, I'm curious to see how this whole thing shakes out. I think it's, this has got to be like the biggest political like, like, like there hasn't been

an issue of this scale yet for, for the Carney government. Has there? From your perspective, like that's been as much of our like, yeah. I would say this is. Definitely the first one that they really seemed like they stepped in it. Even admitted, I think, yesterday that they did a poor job. Yeah, he said. Yeah, we did a poor job. Yeah. But also, they were still not able to provide details.

So maybe that that's a good way to wrap it up. Yeah. I don't think they have the details figured out. And I think that they were just trying to communicate their intention. And that was not a good idea, apparently. It's one thing to say you have like big things planned for like infrastructure project, things for national security developing or whatever it is

and come up with the private details later because these are massive projects this is not anywhere near close to the scale of those massive projects so not having a good baseline a blueprint of the details I think it's pretty I don't want to say incompetent

but it's pretty naive that people wouldn't see that and right away think okay developers you know made tons of money during the pandemic it and now they're literally asking for bailout from the government. Like it's really hard to not come to that conclusion. For sure.

Yeah. And I understand why the public is reacting the way they are. For sure. Cool. And especially. I guess we'll leave it there. Yeah. As like cost of living is going up and people need help and then you see that.

So, but yeah, I think you're right. Good point to end it on. I'm sure we'll get more information on that next week. For the live show, just stay tuned. We may be skipping a week next week just because I'm taking some time off. We'll see if we can make it work, Dan. If we can make it work, are you able to do it potentially sooner? Because my birthday is around that day and I may be having a few drinks later in that day.

Yeah, yeah. We'll do it early in the morning. Okay, sounds good. So stay tuned. We'll try to do it, especially if there's some big news, but if there's not too much and we'll just skip the week. Sounds good. Okay. Well, it's fun.

Thanks for listening, everyone. The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guests 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.