The Canadian Investor - Canada's Economic Forecast and Record Immigration

Episode Date: April 10, 2023

We start the episode by answering a listener question about timing the markets. We then talk about Canada’s population increasing by 1 million in 2022. We finish the episode by looking at the federal budget’s economic forecast. Symbols of stocks discussed: ASML 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 Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

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Yeah. Yeah, I'm going to have to send you the link so you get that set up. It's definitely a game changer for sure with reducing echo. I think you've sent me the link four times now and I'm like, I'm going to get to it. Prices change. times now. And I'm like, I'm going to get to it. Prices change. You could have like a service where you just monitor Amazon prices at this point for certain, you're getting some serious experience in it. Today, we have a great show. We're going to get into a listener question. And then we're going to talk about Canada's population growth as well, And then we're going to talk about Canada's population growth as well, latest sources. And we got a new federal government budget.

So Simone, you're going to talk about economic outlook on the macro side. And then I'm going to talk about the interesting story of Alimentation Couchetard and Metro, the grocer. And two very Quebec origin stories. This is the most Canadian investor podcast episode of all time. This is very Canadian content here today. All right. Let's kick it off here. Question from Tom. I'll read the question, then you can kind of handle our answer here. Hey, Brandon and Simone. I noticed a few times you guys have mentioned that trying to time the markets is difficult, should be avoided. Yet I noticed on a recent pod, you guys talked about buying, about trying to avoid buying good businesses when they're overvalued. That feels

like a contradiction to not trying to time the markets thing. Maybe I'm misunderstanding. Hoping you can clear things up. Love the podcast. Keep up the markets thing. Maybe I'm misunderstanding. Hopefully you can clear things up. Love the podcast. Keep up the amazing work. I think this is actually a great question because they can feel contradictory. How are you thinking about this one? Yeah, I think that's a great question from Tom. So I'll speak for myself, but I think we have similar approaches here. And like I mentioned before on the podcast, I like to buy great businesses, but I like to buy them and I can hold them for long periods of time. But obviously, timing the market is impossible to do consistently. We've talked about that time and time again. There's an important distinction here between timing the

market and buying a company at a valuation that seems reasonable for what you're getting. And I think that's the important nuance because at the end of the day, you can look at a company, have a certain valuation in mind for the company to hit that valuation. You buy the company and then it just keeps getting lower. So you're not, you know, it's definitely different than timing the market. If you overpay for a company, even for a wonderful company, there's a good probability that it won't end up being a good investment just because the price you paid was too high. And a perfect example, in my opinion, is Microsoft. And that one is cited quite a bit. So some people may be familiar with this one Microsoft as a company clearly has changed a lot over the years but it's been

a really good company for a long time especially in the enterprise space operating system if we're thinking about Windows also their productivity tools with Microsoft Office, that's been a thing since pretty much when they took over. Not took over, but took the lead over. I think it was Corel, which was Ottawa-based. That used to be the tool in the 1990s. And then I think it was WordPerfect, if I remember correctly. I'm dating myself a little bit. And email, it was Lotus Notes.

Those are the old tools. And Microsoft peaked around $60 a share during the tech bubble in late 1999. And it took them 16 years to reach that price again. Clearly, there were some dividends in there. So if you factor that in, they probably had slightly more than just break even during that time. But you would have easily outperformed Microsoft during that time with just purchasing a S&P 500 index fund, which you could argue was also overvalued during the peak of the tech bubble, but clearly less than Microsoft, who was directly in that industry. And if I learned something over the last couple of years that I need to put more importance on valuation, not that I did not put any importance on it before, but the higher the valuation,

the more things have to go perfectly for the company. So essentially, you have less of a margin of safety the higher you pay, the higher price or higher valuation you pay for the company. So unless there's a broad market crash or the markets are bearish on a specific sector, it's very rare to find a great business at a cheap valuation. However, you'll see that the value of these businesses actually does fluctuate and those businesses will hit more value, reasonable valuations from time to time. It might not last a long period of time, but it will happen at some point. And one that comes to mind is one that I bought recently, ASML. So we've talked about it a whole lot in the past year.

So I encourage people to go back to those episodes if they want to learn more about it. But essentially, ASML has a monopoly on extreme ultraviolet machines, which are just machines that are used to produce the most advanced chips. That's the easiest way to sum it up. And the demand for its machines is as strong as ever from customers like Taiwan Semiconductor Company, TSMC. The problem with ASML is that the valuation is always pretty high. I mean, it's a profitable business. It's a monopoly. But back in the fall, what happened is the market was really bearish on semiconductor,

especially TSMC and ASML because of geopolitical concerns, but also semiconductor designers like an AMD or NVIDIA just because the medium term outlook wasn't looking great with this industry being notoriously cyclical. So those two companies, TSMC and ASML actually took some pretty big hit to their valuation. And that's when I decided to start a position in ASML because my assessment was that those concerns were overblown. Not that there won't be any impact if things escalate between China and the US because there clearly will be. But the aggregate of the various possible outcomes still made ASML a very attractive investment. And that's just an example here. But I still paid, if you ask people that

are into value investing, I paid a super high multiple for ASML at the time that I purchased. I paid it was in the high 20s in terms of p ratios if people want to wrap their heads around it i can't remember off top of my head what the price of free cash flow was but it was relatively high as well compared to let's say a bit more traditional businesses and a value investor would see that and would think wow you clearly overpaid but for a company like ASML that has a monopoly and I think a pretty good growth runway, that valuation was actually reasonable. But I didn't get it at the bottom either. It actually went down a bit more and then went back up afterwards. So there's a couple of ways I can take this is right then in your explanation, you are not trying to

time the bottom of ASML because you didn't and had no expectation of it. You just thought compared to historical norms, historical multiples, it is trading much cheaper than it has for one of the great businesses in this world. And so you thought it was an advantageous. To me, this is more of a macro versus a micro question. I do not try to, from a macro perspective, time the market or think I have any sort of edge on where the broader market is going to head in the next three, six months. broader market is going to head in the next three, six months. On a micro perspective, the valuations of businesses can change dramatically over a short period of time. And this is why when you have a list of great businesses that just tend to trade too high,

that just tend to trade too high, March of 2020 rolls around for me. And I loaded up on a few really high quality names that all got destroyed, 30% in basically a couple of weeks for no real reason, or maybe they were going to even be benefactors from a stay-at-home situation. That's me being advantageous versus me saying, this can get a lot worse. I'm going to wait till the bottom. That would be a mistake, for my opinion, on trying to time the market, something I can't do. When it happens, you mostly just got lucky. And so that's the way I'm thinking about it logically, because I do think it's silly to say, you're never going to time the market, so don't try to be advantageous of opportunities. That's the whole goal as an investor, if you're buying individual securities, is to try to be advantageous, not to be confused with, I'm going to try to time the bottom,

or I'm not going to invest any money until there's a market correction. You could have done that from basically 2009 all the way to 2020, sat on your hands for 12 years waiting for a market correction that never happened during that time stretch. And you lost in a couple bags of the S&P gains during that time. And so that's to me trying to time the market versus waiting for a fat pitch. me trying to time the market versus waiting for a fat pitch or sorry, a fat pitch coming across the plate and you swinging is different than trying to time and wait and wait and wait for some fat pitch that might never ever come. And so I get that they're a little bit contradictory and this is what makes it more art than science, in my opinion. But I think it's a great question because it's something that people think about all the time

and struggle with and something you and I will think about and struggle with as investors for as long as we do it as well. Yeah. And the way I do it, I know we're a little different there, but I'm lucky enough to have a work pension. It's a defined contribution pension where essentially my employer matches my contributions up to a certain amount. And every time I get paid, every two weeks, that money is invested right away into an index fund. It's a global index fund that has allocation to a lot of familiar names, especially US ones in terms of the top holdings. And that happens consistently. So I'm always investing in the market. And then the extra money that I put on my own, of course, I try to be, I would say, yeah, not necessarily

just opportunistic for the most part. So I have a list of companies that I really love and if I find one of those companies that have strong conviction is that for whatever reason the valuation is down and I don't think it's you know a valid reason let's just say for the long-term thesis then I will definitely take advantage of that so that's kind of the mindset I like to take. But again, I think having a general valuation where you want to invest into a company is way different than trying to time it because you may have that valuation in mind. But trust me, it's happened to me multiple times where it hits a certain valuation, I invest in it, and then it goes down another 10% or something like that.

So, and that's fine. I mean, I'm comfortable with the assessment I did. Exactly. That's it. That's the price of admission. And let me just say like what I personally do. I can say like some playbook, but this is actually what I do. Every single month, I have a set contribution of what I am going to commit to investing every single month. And I dollar cost average that very

consistently. So this is me. This is me not trying to time the market. It's me trying to add to my positions over time, long period of time, keep compounding it no matter what the market's doing. That's me not trying to time the market. And there have been several circumstances where I have massively dumped cash and increased that dollar cost average if I see an opportunity. March 2020 is a perfect example. I almost luckily just timed the bottom. It could have went another 25% down. The world is ending the global pandemic. That could have happened. But I saw something like Visa MasterCard marked down 30% on a business that, look, it doesn't matter if you're in person or online, you're doing transactions, it's going through the payment rails. And so that's when I went aggressive and probably did a whole year's worth of contributions in

one month. It's kind of like, empty the war chest. Hope nothing goes wrong because that emergency fund, it doesn't exist anymore., I'm comfortable taking that level of risk. Should everyone? No. And so, this is really kind of a personal thing. This is a great topic, really. Yeah. And the last thing I'll say, and I mentioned this a bit more recently in the past year because it has changed where, you know, you can actually get pretty close to inflation, not quite on cash with, you know, instruments like money market funds or a high interest savings account. I know we, you know, EQ Bank always has our sponsor. They always have some of the top rates.

But, you know, for people who want to keep money in their brokerage account, you can have money market funds that give you pretty close to like five percent on your cash so you do have that alternative if you find that things are quite expensive you have that extra flexibility of waiting a little longer and knowing that you're not you know you're purchasing power is not getting slaughtered like it was a year and a half ago when interest rates were at record lows and inflation was at 8% or so. So I think it's good to adjust as well as things change because it's an extra tool in your toolkit. I think that's good to remind people. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade

as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly.

Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked.

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

The New York Times says Canada grew a record 1 million people from immigration. The country's growth was fueled almost entirely by newcomers as the federal government pushes more immigration to plug labor shortages. Here it is quoted, last year, Canada added over 437,000 immigrants and an additional 608,000 non-permanent residences. Non-permanent residents, sorry, not residences. We need more residences. We need a lot more residences. Yeah. Such as refugees and those on study or work permits, the census agency said in its report, it said the Russian invasion of Ukraine was one of the largest driving factors of net increase in each province of non-permanent residents. That's quite fascinating. Well, I know we have a gigantic Ukrainian population in Canada.

There's over a million Ukrainians before all of this already in Canada. I think it is the largest population of Ukrainians outside of Ukraine is Canada. I have to look that up on my next thing, but I'm pretty sure that's true. From CIBC, total population grew by a record 1.05 million to reach 39.57 million. So we are closing in or already hit 40 million. Probably already half, right? That was until Jan 1st. We're now through the first quarter we gotta be at 40 mil now probably yeah i mean if the same levels continued and i'll just say um i guess yeah it's probably close i would say yeah probably right around there right around there you know yeah right around there may be 40

million persons walking through the door i would say probably at some point in next couple quarters would be when we hit it but you know i did do my part with our little lady i mean yeah yeah yes one extra one extra belanger is uh is of this world in canada so yeah i did my part time for me to get busy uh about 96 percent of the rise was due to immigration. So this was confirming what NYT was saying. More from CBC. The increase helped Canada retain its position as the fastest growing G7 country. Okay, very interesting. G7 country. Okay. Very interesting. 2.7% population growth rate. And this rate would lead to the population doubling, but every 26 years. So a 2.7% number and doing the math, okay, it doubles every 26 years. This is what people need to think about with inflation too, right? Usually in a normal time, we're at that kind of number and it contextualizes that it is worth half as much, 26 years later. So think about when inflation

is running at the numbers we have it now, what that does to the doubling every once in a while. So very interesting. Now I got a third piece here for the segment, a study conducted in 2021 by Boston Consulting Group, BCG. The U.S. falls behind Canada as a work destination. Pandemic lowers mobility in global workforce study. Quote, only about 50% of people are willing to move to another country for work, according to the survey, which included 209,000 participants in 190 countries. So, okay, pretty good sample size. That's down from a 64% willingness level in 2014. The lower willingness to relocate was expressed by respondents in nearly every country in the world. Very fascinating.

You got to think like the work from anywhere definitely has a big impact on this. You can enjoy a US pay company and live in Bali. That sounds pretty good. So maybe that's got something to do with it but it looks like that was a trend that was already happening before yeah i don't know what to make yeah yeah i mean i think because it was done in 2021 i think there's probably some covid impact to that whereas people may have been more reluctant to travel for different reasons for work, right? So I think there's probably part of that.

I think it'll be interesting if they do a similar survey a couple of years down the line, what the trend is. If it continues being lower and lower, then you think you have a trend. But my suspicion is, you know, maybe it'll be back at around, you know, close to the 2018 levels of 57% or so, maybe like 55% or something like that. I should include here. I did a Twitter poll last night that now has almost a thousand votes. I forgot to include this. Let me paste this in. Here you go.

So I put a Twitter poll out last night. I said, please only answer the poll if you're working five days a week in the office before 2020. So if you were nine to five or five days a week in the office before the pandemic, how often are you going in now? And I am shocked at how even this is. So the number one most picked answer was 28.6% that they are back to five days. So a little over a quarter of people are back to five days in the office. And then another quarter, 25.9% are saying never. So very interesting. So quarter of people are back five days. And of course, this is 737 votes and there's still some time left on the poll, but decent, decent data set here. And a quarter are never, never going in roughly a quarter on three to four days a week and roughly

a quarter of one, two days a week. So we got half people at hybrid, a quarter at full back and a quarter never. This lines up pretty similarly to what I would have expected. But the fact that roughly half of people are either going in never or just one day a week from their five days a week is pretty crazy that that how persistent that trend has been and it comes down to in this labor market it is hard to like employees have had the power uh during this time so it's it's really hard for these employers to push something maybe not that long with our population growth but Yeah, true. Yeah, that's true. I mean, I'm laughing, but it is one of the reasons, right?

They're doing it to try and alleviate some of the labor shortages that we're seeing across the economy. So that's one of the big reasons. Oh, and of course, to bring in some more voters for the current party. But we don't get political. Yeah, exactly. We won't get into that. And I will talk about the budget, but I will keep it just, you know, not political. Keep it Thanksgiving dinner, Simon.

Thanksgiving dinner, Easter dinner coming up. The last thing I'll say for here is I'm looking to do a segment in the next little while to look at how office real estate is trending in Canada because there's been a lot of data out there and I do have a small position in allied property REIT so I have vested interest in doing a segment like that but comparing that with what we're seeing the U.S. because there is some potentially big problems brewing in the U.S. potentially big problems brewing in the U.S., especially with regional banks being on the hook for the figures I've seen and heard is about $400 billion in commercial real estate loans, tied a lot to the sector of office real estate where they're seeing extremely high vacancies.

So when those loans come up, higher interest rates, regional banks being under pressure, as we know with the SVB collapse and a couple of other banks we've seen in the U.S., there could be some pretty big problems brewing in that space. And I want to compare it how it fares in Canada versus the U.S., also seeing where, you know, in general, the debt is located in Canada. And your little poll made me think about that because clearly, what we're seeing in this poll is leading to higher vacancy rates when it comes to Toronto real estate office is back to full occupancy still less than half. It's a trend that's persisted more than I would have expected. Yeah, that's it so um as something i'm looking to do maybe uh maybe i'll work and collab with uh you know dan and nick who knows um because i know they're they're in the know when it comes to that i'm just putting out there maybe uh they'll they'll text me when they hear this episode

about it um but yeah that's about it so are we good to to move on to the federal budget? The federal budget. Let's do it. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep

is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. questtrade.com. Calling all DIY do-it-yourself investors, Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building and people share their portfolios, their trades or investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends,

and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. So I wanted just to focus on the economic outlook because clearly, you know, it's a big budget. There's a lot of stuff, you know, to unpack. And I'm sure those are interested.

I've already dug up whether, you know, you like what's in there or not. I don't want to get into that because you know we try to stay away from politics but i thought it was pretty interesting just looking at their economic outlook just to see you know where they think things are going because typically governments and it's not specific here to the liberals i mean i think you can go back to pretty much any government is that you know they try not to be too pessimistic in their budgets, right? They try to paint a picture that things are improving, things are going well. So this one was a bit different. And I think that's really interesting from that perspective. So at the beginning of the budget document, if you

download it as a PDF, I think it's like 300 and something pages, you'll find the government's economic outlook. It's roughly, I think slower economic outlook or more pessimistic will just mean less tax revenues for the government. For example, it means less money from capital gains because chances are, you know, people are not seeing as much capital gains, whether it's selling a business or, you know, typically if the economy kind of goes down, you can make a case that there's going to be less capital gains from like just selling stocks, for example, less money from income taxes. Clearly, if some people are losing their jobs, there's going to be less income tied to that and less money from sales tags, because if you lost

your job again, chances are that you're cutting back on your spending and clearly that will affect tax revenues for government. And before I chat about the economic outlook, I think it's important to point out some of the economic data that they use. So they use real GDP growth quite a bit. And unfortunately, I think it's a bit unfortunate that they use that because I personally think it's not a great metric. i think it's a bit unfortunate that they use that because i personally think it's not a great metric i think gdp per capita is much better but may not look as good in terms of using it and i don't know what past you know parties have done i suspect they probably did a similar thing but that's just a little pet peeve of me is just GDP growth. It's just not a great metric,

because if you think about it, we just saw, you know, a million new people arriving to Canada. Well, if the GDP stays stable, but your population doesn't increase, okay, so the, you know, GDP per capita stays stable. But if the GDP stays stable, it may be okay, we did not enter a recession, but you've increased your population by a million. Well, it's a lot less rosy than just looking at GDP. And that's how it can skew things a little bit. Any comments on that? No, I think it's a good point. I mean, the per capita piece is an important piece. Yeah, exactly. And it's not just on governments right even like mainstream media they tend to use just gdp when they talk about you know recessions economic growth they never talk about gdp per capita which is a bit more tied to um i guess

how efficient is the the overall economy but anyways that's just a little pet peeve that I have. And one thing that I did like... You got to think like how much commodity price fluctuations too, right? Yeah, yeah, exactly. And one thing that I did like is that they added like a graph that they spoke about consumer and business confidence, which has been trending down. So clearly that's not the best sign. And for consumers, it means pulling back on spending. And for businesses, it means

dialing back on investments or making less investments. And they also had a chart in terms of the interest rate forecast. So they even went ahead and put that chart, which is based on the future. So, you know, the markets... You must not listen to the podcast, you know, putting out interest rate forecast charts. Well, I mean, yeah, and they took it, I think it was from the futures market. But clearly, the futures market has been wrong before and they'll be wrong again. But I think it's just interesting to show that they're... And based on that, my assumption is the federal government is anticipating a pivot. Let's just say that from the central banks, because it's currently, you know, around, I think, four and a half percent, I think, in Canada right now. And they're forecasting here by 2025 that it'll be down around 3%, but that's based on market expectations. But they did have it on the economic outlook.

Now, they mentioned that they surveyed the private sector economists, and based on that, here are their projections. They expect a shallow recession resulting in a decline, peak to thwart of 0.4% in real GDP. And for those who are not familiar, real GDP just essentially includes the impacts of inflation. So it kind of normalizes, you know, it takes inflation into account. On an annual basis, real GDP should grow 0.3%. Unemployment rate is expected to rise from 5% to 6.3%. So that's a pretty big increase right there. The thing about unemployment rate, though, is it's not the best metric because it also doesn't take into account people who have given up

looking for a job. And that's one of the main criticism of unemployment rate because you have to be actively looking for a job and not have one to fall into that 5% bucket currently. Inflation is expected to fall below 3% in Q3 of 2023 and to reach 2% in Q2 of 2024. And before I continue, what are your thoughts on that? I don't know if I have any particularly hot takes. I mean, them going out and posting this, you know, chart 15, Canada and the United States policy rate expectations that it's going to trend down. Yeah, sure. Okay. Sure. We'll take that as a data point. All the previous data points from

them have not been particularly useful, but nonetheless, we'll take it as a data point. I think the big question here is just like, where does, for me, I think it's like, where does inflation like land and then where does that go in the next 12 months and how that affects consumer confidence a lot? Because you're just seeing a lot of softness and just in general conversation with like the people who can afford nice things and are wealthy are doing great. And the people who are paycheck to paycheck, who are just getting by before, those numbers just don't work anymore. The math isn't mathing. And that's going to be, that's the real problem there.

There's a big kind of disparity. Yeah. And, you know, I'm listening right now to one of the books of Ray Dalio. I think it's Navigating Big Debt Crises or something like that. I always butcher his titles, but it's interesting listening to the book and seeing what's happening right now with banks or even, you know, government government spending not only in Canada but globally and a lot of the things that he mentioned in his book which by the way is like five years old you know is we're seeing happening right now and the inflation projection I think that's a little bit dangerous to do just because we saw I think it's OPEc plus uh they announce uh pretty significant cuts in the oil production which just shot up the oil price yesterday and if oil gets more expensive

yes it's good for parts of the economy of canada out west specifically but it's also gonna be a big you know it's gonna fuel inflation and no pun intended yeah it's super it's also going to be a big you know it's going to fuel inflation and no pun intended yeah it's super it's super inflationary exactly so and i they do mention that there are things that could happen and there's a range they'll just strip it out of the cpi number yeah uh yeah the core cpi but what i'm saying is i think making these kind of projections, it's really tricky. And I don't want to make them. I've listened to really a lot of macro people. And I've seen people who say similar things to what the government is saying here. And I've seen people saying that basically we're entering a decade of high inflation. that basically we're entering a decade of high inflation. So we'll see. I think there's a lot of different factors involved. And now the last thing they say in the economic statement here, well, in terms of my takeaways, is their overall GDP, which is nominal. So that includes, you know, it's not adjusted for inflation projection. So the projection for Canada

are much lower than the fall economic update. So things have changed quite significantly in terms of the economic outlook from their perspective. They are now projecting it to be lower by $16 billion per year on average compared to the downside scenario in late 2022. So now their base case is actually lower than what they were projecting in the fall and obviously there's been things that have happened since that you know have made things a bit trickier and i know you're playing with the document which is making oh yes that's okay grabbed a huge piece of the document and moved it around. That's all good. And the last thing I think that sums it up well here is directly from the budget document. And I quote,

Canada's near-term economic outlook remains uncertain while the February 2023 survey of economists suggests a shallow recession 2023. The wide range of views amongst forecaster highlights many plausible outcomes ranging from a soft landing to a more pronounced downturn. So the base case is that we'll see a softer recession, but it could potentially be worse. And again, there's a lot of things to unpack in the budget, but I just wanted to look at what they're saying in terms of the economic outlook. I don't want to be alarmist here, but like I mentioned before, typically governments will want to paint a somewhat rosy picture. So I think it's important to take note that they are not painting that rosy of a picture. So that's pretty unusual for a government in power to do. So something I just found it interesting, like I said, I'm not looking to

say one way or another, like we don't get political here. But it's hard to not take note when the government in power kind of says like, oh, things are going to get a little tricky for the years to come. Did you notice that they did the buyback tax confirmation? Well, yeah, I mean, that was a given. To me, that was automatic that it would be happening. would be happening yeah for those who don't know we're talking about the um yeah the u.s kind of paved the way on this one by implementing a buyback tax and so this canadian fall economic statement announced that the uh the government would or sorry they confirmed that that statement will introduce a 2% tax on the net value of all types of share buybacks by public corporations in Canada effective Jan 1, 2024. So, there it is.

We can't already do this. Yeah, they had announced it. And in the US, it was effective effective i think january 1st of this year but it's one percent and then it'll be two percent for canada um i will be fascinated to see data on public businesses if we start seeing a little bit of a shift i don't think it would be a massive shift but a bit of a a shift to companies maybe changing their behavior for capital allocation, whether it's investing a bit more in the business because they don't want to pay that buyback tax or maybe doing a bit more dividends over the buyback tax. So that'll be

interesting if we see that. I think the government's intent is to clearly collect more taxes on the one hand but on the second hand i think their stated intent is to encourage investment so that the companies actually reinvest in the business and therefore create more job opportunities i actually think it's a good idea and i'm not a tax i'm i usually, you know, less tax is better. Like that's, you know, I'm not a big tax guy. Whoever says that, actually, I don't think I've ever heard that. I love paying tax. Who in the world's ever said that?

But I actually think this is a pretty decent idea for a lot of these companies to think about capital allocation a little more. for a lot of these companies to think about capital allocation a little more. I don't know if the 2% moves the needle at all, or Q4, we just get like a dump of buybacks from these companies. Just like move it off the balance sheet, buy the stock now because we don't want to pay the 2% next year. I don't know if that'll happen. I guess we'll see. Does the 2% move the needle on buyback decisions? My guess is it's not enough, but it might be, if they're humming and hawing on a certain number, it might move the needle from that perspective to another decision to invest in the business

or pay more to the div. We'll see. Yeah. And the government doesn't hate the div, right? Because if they pay it as a dividend, the dividend's already taxed, so they'll get revenue from there. It's basically double taxed. Yeah. Well, I mean, you can get some tax credits, but yes, it's definitely, it's taxed at a higher rate for um than the buyback and maybe you know maybe there's a positive lining because you know we've seen companies buy back stocks before at like the peak so maybe it'll prevent some companies from doing some stupid buyback decisions protect them from themselves exactly because there is nothing worse than reading on a financial statement you know their annual report they bought back you know x amount of stock for whatever at an average

price of whatever and then one year later the price is like cut in half it's like oh yeah what a great capital allocation strategy you guys did there. Maybe paying a dividend could be something to think about. That was the story of Meta and Facebook over the last like three years. Oh, yeah. It's like, oh my God, cannibals of their business buying back all the stocks, eating up all the shares and the stock just went lower and lower and lower. Yeah. I get a better time now, yeah yeah i've done the year of efficiency baby oh yeah that's it the year of efficiency i mean if buyback is done correctly it it does bring a lot of value to shareholder but that's that's the issue

i mean i think i think a lot of public companies have no idea what they're doing when they buy back their own shares. Unfortunately, you'd think they would be able to identify when it's good value versus not. But, I mean, we saw a wet slew of buybacks during like 2021, especially. 2020 companies were a little more conservative because there was still the you know covet 19 was new they wanted to have a bit more kind of a cushion just in case and then interest rates were low the floodgates just opened 2021 you saw tons of buybacks to essentially you know the markets was they were at an all-time high so a lot of of companies did not do a very good job there. Yeah, for the most part. I mean, look at the banks and they were not allowed to do anything with their capital for a long time. So they're like, hey, we need to do something with our

balance sheets here. So we'll give them the benefit of the doubt. But you're right. I mean, you're right i mean the irrationality was all over the place everywhere you looked it was euphoric oh yeah and uh the buybacks too look no further than that oh my god the meta buybacks how much capital do they buy their stock out of like 150 bucks from now and it's and it's rallied a lot since then yeah we need to we need to also look at uh ipos because we haven't looked at it recently i know last year was a down year but just looking at the first quarter of this year it'll be interesting what uh ipos look like i'm gonna say still not great uh but we saw that explosion in 2021 and i guess the back end of 2020 as well i'm just looking at meta had a peak to trough drawdown of 76 percent from september to november from september 21 to nove 22. So a year and a month.

A trillion dollar company had a drawdown of 76%. That is insane, dude. It's good value if you like the Zuckerberg. The Zuckerberg. Yeah, it's rallied 136%,

but it's still almost not quite half of what it was at the peak. Yeah, 300 peaked at like 370. It's 214 today. So quite the rally off the low, but holy smokes. I didn't even think that was possible. I mean, the trillion dollar status is just insane. And then to think that it had a 76% drawdown from there when its core businesses were fully intact, the fundamentals of the core business were fully fine. You just had capital allocation, You just had capital allocation value destruction with the buybacks and the meta reality labs to make no one want to own the stock in that 13 months. That's exceptional. The market defies gravity all the time. I think I'll leave this CouchTard thing for next week. What do you think? I think we're done. Yeah, I think we're good. This CouchTard thing for next week. What do you think?

I think we're done. Yeah, I think we're good. This CouchTard story. It's a good one. I'll save it for another time. All right. Thanks for listening. We appreciate you very much.

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