The Canadian Investor - Dividend Stocks Are Getting Crushed

Episode Date: October 9, 2023

In this regular episode, Braden starts by talking about a company he’s recently added to his portfolio. Simon goes over why many high yielding dividend stocks are seeing significant drawdowns. We finish the episode by going over the start of SBF’s trial in New York. Symbols of stocks & ETF discussed: ASML, USRT, XRE.TO, XUT.TO, IDU, BEPC.TO, AP-UN.TO 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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the captivating Simon Belanger. We are so back. It's been a while since the two of us have gone on the pod here and discussed all the things that we want to talk about

with the world of financial markets, things we're doing in our portfolios. But it is so good to be back and see you. Simon, what's it been like? It's been guest after guest. How are the numbers doing? Are people liking this? I think so. I mean, got a lot of good feedback for the two guests that I got, the episodes that are already out.

And then people will be listening to this. We'll also have heard the earnings and news that I did with Dan Kent from StocksTrades.ca. So, yeah, that went really well. Everything went well. And the two that are already out, really good feedback. So, Mikey from, well, the dividend guy. So that was great going over Enbridge and then talking macro with Rich Diaz. That was fun as well. Well, it's been nice to have a break. You are an investor in my company. And so I was closing our financing round. So very, very busy with that. I don't have an official announcement yet,

but everything is closed. We raised a couple million Canadian for the company to keep growing, hiring and scale it out. So very, very exciting stuff, but good to see the pod. I'm looking here on our analytics, buddy, September, September was great. Hey, hey, listeners, September is always good. Yeah. Hey, listeners, keep it up. All right. This, this, this show, the show goes on and the show keeps growing. We'd love to see it. So Simone, those who are subscribers of joint TCI.com got to see this already, but I finally bought ASML and I wanted to highlight it on the show. Cause you know, you've been a shareholder for a while or for a year. I bought it. Yeah, I bought it last year.

Remember when there was like the tech meltdown, but definitely tech was sold off a lot. Yeah. In the fall of 22. Yeah. So, I mean, it's still not at the price I bought it at, but it's definitely in my update. Actually, it's funny that you bought it because I had it as one of the stocks I'm keeping an eye on because the valuation has definitely come down and it's looking more and more attractive. I might be adding soon as well. So it's funny that I guess great minds think alike. But I guess great minds think alike. Yeah, because September, a lot of stuff got rocked. And you're going to talk about it. High yielders. The TSX is now negative year to date.

The S&P equal weighted is now negative, which is crazy because it shows you how much of the index is weighted towards those. What are we call them? The magnificent seven big tech stocks now. So not everything has been all great for stocks here in 2023. And so what does that mean? Opportunity for adding to, or in my case, finally, it's been a while since I've got a new position, adding to what I think is one of the best businesses on planet Earth, or at least one of the most important businesses on planet Earth. I think we can agree on that. So I like to think that I have a nice watch list. I use Stratosphere's dashboarding feature. And I keep track of, obviously, those companies' fundamentals, but also just how you go on performance tab and you can just see how it it's performed year, three months, six months, year, five year, all that stuff. And it just gives you an idea of just like what's been working and what's been not working in the manicness of Mr. Market in the short term.

And sometimes Mr. Market gives you some new ideas. Now, is this a very cheap stock? No, I think it trades at like 30 times historical. It's a little better on forward, but it had a really, really nice run here in 2023, which has been nice to see off a poor, as you mentioned, 2022 for these stocks. So what I really should have done is be as smart as you and buy it when you did it in the fall of 22. So here's a lesson on- Yeah. It's hard to know though sometimes, yeah. I had strong conviction though. Like I really wanted to buy ASML at that time.

And so I look back and I go, it was my number one pick at the time. The valuation was a lot more attractive. And when you have strong conviction, you know, you only get so many pitches and you only get so many punch cards. So when you have strong conviction, act on it. But neither of us can rewrite history. And this is one of the best businesses in the world, dominant position in lithography, that M word monopoly. Now, the second best time in my view is now from then, and I will likely

be continuing to build a position over the next few months because it could be rough for these names over the next few months or next few quarters because analysts are predicting a heavy slowdown in demand for the consumer side of this business when it comes to electronics. So I could say like everything X data center chips. Long term, the importance of this business cannot be understated. They are essential and continuing to push the envelope in the computing era. A stock you've owned for some time now, I no longer have to feel jealous on the sidelines. So it's a small name for me now, and it's time for me to build it up. Hopefully,

the analysts are right that it's a rough few quarters because this is a stock i want to hold for a long time yeah and i think the geopolitical dynamics will definitely be a tailwind here i think you can debate whether it will be or not uh because uh you know they still sell a lot of their machine their deep ultraviolet so duv so they're less i guess i would say less technological machines that don't make as high performing chips they still sell a lot of those to china so that's something to keep in mind but the fact that there's this kind of bilateral world now we're not i don't think we're in the world anymore that it's solely the u.s there's kind of the u.s its allies and then there's kind of the U.S., its allies, and then there's kind of the BRICS with India kind of flip-flopping between both sides, I would say. But that new dynamic, I think the U.S. is not being shy of that.

They are trying to build the capacity to manufacture semiconductors in the most advanced one in North America, whether it's in the U.S, but also some of their friendly countries like Canada, Mexico, and other countries in Europe. So they're definitely investing heavily into that. And I think that'll be a big tailwind for a company like ASML. And the, I forget the name of it, there is a Chinese entity that is attempting to be a player in EUV. Because right now, to be a player in EUV. Because right now there is one player in EUV, which is ASML. And so they want to reduce their dependence on that. But from my research, which is the last week or so before I bought the position, it sounds like they are far, far behind on EUV in terms of making any advancements or production readyready type machines. Because these machines are unbelievably complicated. It is mind-blowingly complicated. They're

blasting a laser at the smallest piece of molten tin that you can possibly create, which is microscopic, to make these things. And they you know, there are hundreds of millions of dollars each. And, you know, it's a very important bottleneck in what is now become the most important technology on earth, which is these advanced chips. It rules our lives and it's going to rule the next era of computing as well. Yeah. The company you're referring to, I believe, is Shanghai Microelectronics Equipment or SMEE. That's right. That's exactly it. I knew it was an acronym just like this one. Yeah, exactly. And it's going to be very difficult for them, even if they pour tons of money. In China, I think one of the big issues is them pouring money, but it's also making sure that that money is actually invested efficiently. And that's always been a bit of an issue in China where the government has been pouring money into certain things.

So you have to, you know, give props to capitalism where, you know, businesses are actually investing and developing this technology. So we'll see whether it works or not. Something to definitely keep an eye on if you own ASML, but I'm not too concerned from the time being, but you know, that could change in a year or two. That could change. Maybe they do figure a way to do it and then offer an alternative to ASML. Yes. Don't buy and hold, buy and verify over time

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Yeah. So, I mean, it's funny because the title of this segment, which will probably be what we have the title for the podcast, but dividend stocks getting crushed. And it's been a really bad month for stocks in general. I would say the past month hasn't been great. The S&P 500 is definitely down around 5%, 6%. If we factor in today, we're recording on October 3rd. But especially sectors that have higher dividend payers and more debts.

So according to sectorspdr.com, I think it's a great side just for people looking to see the different sectors. They do a really good breakdown to show how the sectors are going. The only issues is you can't, you only have kind of set timeframes. I could only go one month, but I will use some different data here a bit further on in this segment. And for context here, I used this this morning, so it's probably worse than this because it's not been a great day today. But utilities, when I pulled the data, were down 10.3% in the past month. Real estate down 9.59% and industrial down 7.73%. So the three things they have in common clearly, these are, they tend to be businesses

that are pretty reliant on debt. That's just the realities and they pay a dividend. And a lot of people invest in these businesses because they want that big dividend. So clearly, you know, the higher rates are starting to put a lot of pressure on it. But I think the market, obviously, as people can see in the past month, I think we can say it's market as a whole. Obviously, there's pockets that have done better than others but it's all red so for our join tci subscribers you'll see it everything is red like you said earlier i think the snp 500 equal weighted is negative now for the year the snp tsx which is heavily weighted towards dividend

stocks is also negative not surprising so now to continue on that. So most of this actually happened after September 20th. And for those who are into macro, they'll probably know what this means. This is actually when the Fed did their latest rate announcement and they actually did not increase, but Powell spoke. And essentially, I'm just recapping, it was a couple weeks ago, but essentially he just told people and investors that rates will stay higher for a longer period of time. So since then, the S&P 500 is down 3.5%. The USRT ETF, which is the iShares US Core REIT ETF, is down 8.1%. The Canadian equivalent, which is the XRE.TO, so the iShares Cap REIT ETF, is down 8.1%. The Canadian equivalent, which is the XRE.TO, so the iShares CapREIT ETF is down 8.8%. XUT.TO, which is the TSX Cap Utilities ETF is down 10.5%. And IDU, same thing, utilities,

but on the US side is down a massive 12.2%. So you can really see there's been a big drawdown, especially in those sectors that are highly rate sensitive. And you can see for the last month, it's definitely not great for that. But I think it's important for people to keep that in perspective, because it can definitely create some opportunities. Anything you wanted to add before I continue? You just hit it, right? It's those rate sensitive, highly levered, what I'll call stock bonds that are getting crushed so heavy because you have a risk-free rate, which is acceptable and maybe attractive now for yield investors for the first time in gosh knows how long. And a lot of those names are very, since a lot of them have regulated returns, are very

levered. And so it's a bit of a double whammy there as rates shift up. Now, I look at some of these names here, real estate, utilities. Some of them have other issues as well, like maybe real estate in particular, if you're talking about commercial or office. Utilities, it really depends on their balance sheet, how all of this is kind of structured. It doesn't mean that they're all screwed just because they have higher interest payments. Some of them in this basket, you'll find a lot of opportunity as well, I would say, because putting that kind of label across the entire sector, the market does too. The market does that. And so that can be opportunity when searching into these baskets. Do I have any particular names off the top of my head? No, maybe you have some to look at here, but when there's blood on the streets, as the saying goes.

Yeah, no, exactly. So I'll talk about a couple names here. I'll finish. I'll double click on what you just said too for the race, how it's impacting some businesses more than others and the reasons for that. But I mean, people have been asking me questions for two names specifically. So Brookfield Renewable Partners, which is down 20% or close to it since September 20th, which is crazy. And, you know, I laugh here because it is one of the big moves for utilities. Yeah, they are. Yeah, big moves. And it's one of my larger positions.

So, you know, you can if you own it, I definitely feel your pain. But at the same time, I'm a long-term investor. And I am dripping BEP. So that's the dividend reinvestment plan. So every time they pay a dividend, I get more shares. So for me, I'm not too concerned because the dividend payment was actually a couple days ago. And I got some more shares than I usually do. And I just see that as being able to buy them cheaper. And, you know, at the end of

the day, I've talked that before on other podcasts is when you have a longer term horizon and you have these kind of dividend stocks. I mean, one of the better outcomes you can get is it actually is deep. It actually trades at a very low price multiples for an extended period of time while you're just accumulating. And then when you're in the kind of phase of having to start receiving income from it or having to sell some shares, that's when you want them to go up in appreciation. Obviously, some people may be in that phase of their life and they're being more impacted by it. And definitely, obviously, you might have to reevaluate your portfolio, especially if that's, you know, part of your financial plan of your income plan. But that's

not where I'm at currently. And then the other name was Allied Property REIT, which is down 14%. And it's been down pretty massively all year, but that's down 14% since that dreaded September 20th date. Now, Brookfield Renewables, there's nothing new. People were asking, is there anything new? No, there's nothing new aside from an update that came in yesterday from management. They put a news release out that they announced an automatic purchase plan

that came out yesterday. And in short, it gives management more flexibility to repurchase shares. So essentially, that's management saying that they believe this is overdone. I'm reading between the lines here, but they see value in repurchasing some of their outstanding units. And that's very Brookfield. They tend to do that. So if they see value, they'll usually go ahead and be able to repurchase shares at a discounted price if they see the price being too low in

their view and they'll maximize shareholder returns by doing that. Now, Allied Property read is a little bit different. So nothing new from their front. No news. Their earnings is coming out at the end of the month here. I think it was announced a couple of days ago. And there is an interesting video that I will link to the show notes here. So their new CEO, Cecilia Williams, was interviewed by BNN Bloomberg. And I think it's worth a watch. I mean, it's nothing new for me. Kind of aligns with what Allied was saying in their latest earnings release and earnings call. So it's really nothing new.

I think for Allied, it's definitely a mix of the market being bearish on office space. And it's interesting because Allied actually just paid down a billion in debt recently with the sale of their data center portfolio. So I think they sold it for 1.3 and they used 1 billion worth of that to pay down debt. So they're actually pretty well, you know, they're from a balance sheet perspective, they're actually in a pretty good situation. So it just makes me think that it's just a market pulling down the sector as a whole. And, you know, I still think there's going to be headwinds in the short term for office space,

but it's a company I'll follow kind of quarter by quarter, making sure I'm staying on top of it. And, you know, if I see some really bad warning signs, maybe I'll reevaluate. Obviously, I'm not going to blindly just hold on to it. But I think that's probably the reason for Allied. And in terms, did you have any thoughts about Brookfield saying that they would be repurchasing shares about BP? I think, like I was mentioning, it's a very Brookfield thing to do when they see an opportunity to deploy capital in just a different way, right? That's in their DNA, right? Is go against the current thing.

You know, that's always that's been their mantra now since the entire era of Bruce Flatt for now over 20 years and before him as well. And so nothing surprises me when they go against the grain here. The office one is interesting, right? Because markets or sectors or specific names bottom at when they find maximum pain with investors. And I think that that, you know, like how much more, you know, how much more can the maximum pain be found because it's been really really painful for a lot of these names and so it's not to say like oh here's the bottom or you know it's coming soon but there has been a ton of pain inflicted here i think that the the catalyst for these names in particular to turn around is like,

what is the future for all these renewals? There's so much uncertainty for anyone to have any confidence in the renewals on these leases for an allied or something. If it goes good, you're going to see monster returns on it. that i see it pretty asymmetric but i do also think that there's could be more max like you think you found maximum pain and it could get a lot more painful in the future yeah well one of the things that their ceo was saying and that interview from bnn bloomberg is that they're seeing tour activity being high. But one of the concerns of the businesses is not the return to office, it's the macroeconomic environment. So that's a big concern because the businesses are seeing the economy starting to slow

and they're being very careful with their capital allocation decisions and committing to new leases. So I think that, which is not different, she said, from past cycles, which I totally understand. But you have that double whammy of interest rates on top of that. And also the return to work that's, you know, kind of we're still seeing where it's going. Right. We don't really know what for sure where it's going to go. But at the end of the day, I think the big drawdown that people are seeing, it all comes back to Powell's going, right? We don't really know for sure where it's going to go. But at the end of the day, I think the big drawdown that people are seeing, it all comes back to Powell's speech,

especially going back to the two weeks, which is speech. I think the market just realized that rates will be staying higher for longer. According to the CME FedWatch tool, the market is not pricing a greater than 50% probability of rate cuts until the second half of 2024. And that used to be much sooner. I think it was like by the end of this year, just like a month or two ago, there was a decent chance of a rate cut by the end of this year. And then Powell's speech actually happened and that pushed back everything. Obviously, that changes on a daily basis, but I always find it interesting because it does give a good sentiment of what the market is thinking. And then this, you know,

the second part here is, I don't think it's a surprise to anyone, but US bond yields have risen in the past year, but it's even more pronounced when you look at the change in the last month. The longer you go on the yield curve, so the duration, the more the change is pronounced. And it levels off around the 10-year mark. If you look at the yield curve, and Canada is no different when you look at the five-year bond. It's actually increased, like, very significantly. I don't think people realize how a lot of, like, I know people who are into this and look at it a lot will realize. I know people who are into this and look at it a lot will realize, but if you look at just since September, I mean, you're looking at about, I'm just ballparking here, but 50 basis point increase. And the central banks have not said that they were increasing the rates.

It's just that the market is pricing in these rates for a longer period of time. And that's why they're actually higher. So if people were holding like, you know, bond ETFs that hold five years Canada bonds or 10 year US treasuries, like anything beyond five years, you've been hit pretty hard in the past month because the value has gone down to match with those higher rates. So the actual price or the underlying value of those bonds has gone down to match with those higher rates. So the actual price or the underlying value of those bonds has gone down. So I think that's one of the other big thing that's kind of playing here. And to put things into context, the yield on the 10-year US bonds and five years for Canada haven't been this high since 2007. So that's a pretty long time. And essentially what this means is investors can get about 4.7% on the U.S. 10-year currently

and 4.5% on the 5-year bond for Canada. And in our current financial system, that's seen as the risk-free rate. And I put that in air quote because I do think there's risk in everything. There's nothing as risk-free. Two years ago and essentially since the financial crisis, investors who were looking for yield really only had two options. So if you're looking to get yield, like let's say four or five years ago, it was either dividend stocks or like junk bonds or risky debt assets. These were the really two, unless you know another one, Brayden, I'm not sure.

No, I don't think so. Yeah, and so higher rates also mean that for a lot of these dividend payers, they will have to pay more in interest costs or reference debt, whether it's because of variable credit lines or cheap debt that's coming to maturity. And I think that's one of the bigger

issues as well affecting these dividend stocks. So I'll just finish here by saying what I'm doing. Personally, not much. I'm not planning to sell any of my dividend position because I believe the businesses are solid. I am looking at adding to some of my existing dividend paying companies. I actually added a little bit to Brookfield Infrastructure Partners this morning. dividend paying companies. I actually added a little bit to Brookfield Infrastructure Partners this morning. But looking at Canadian National Rail, I also have my eye on a few REITs, but I need to do a bit more research. It's not ILI, it would be some new REITs. But I think the main takeaways for people here is, I think there's three things in my mind you have to keep in mind. First, for these higher yield companies um understand what the debt looks like

how much they have in debt and how its structure is really important is the business model sustainable and then do it they have sufficient wiggle room in their payout ratio for their dividend because that will dictate whether they can keep the dividend increase it or cut it buffett i think it's in uh have you read the book buffetology it's obviously it's obviously not written by him yeah it's kind of like i heard of it yeah it's like a summary of all of his writings and all of his learnings over you know several several decades and buffetology had a section about his admiration for i think think he called them stock bonds, or they're like bond-like stocks or whatever, however they referred to it in the book. And what that means is just like equities,

stocks that have sufficient income yields on them that kind of like act as bond proxies, even though you're buying the equity. And I think so many, especially on the TSX, Canadians have been very attracted to this type of asset. Look no further than the constituents on the TSX-60. Very low growth, high yields, usually pretty steady cash flows, very levered, usually pretty steady cash flows, very levered. And yeah, I mentioned high yields. When you have now competition for that style of asset with higher rates at lower volatility profiles, and you have the double whammy of those very levered assets having to deal with higher interest payments, it's a tough environment from these names when rates go from zero to where they are in such a short timeframe. That's not

very normal. I think it was, I saw on Twitter, someone described it as you have a beach ball underwater. You know, when you have a beach ball underwater or like a basketball and it really wants to, it really wants to like sprout up there because it's, you know, all the air and the ball. So that's what the analogy is, is that keeping rates at zero for that long was like keeping the beach ball just like spring loaded, ready to rise up. Because that move from zero to where it is today happens so fast because the beach ball is just being pulled under there for so long. And that's the way I think about what has happened with these names is these blue chip names. I'm calling them blue chip with air quotes have been dealing with a completely different environment for so, so long, all the way till 2008, which is a good segue to my segment on the podcast here today, which is called Climbing the Wall of Worry. I pulled data since 2008,

because I think it's an important distinction between pre-financial crisis and post-financial crisis. And stocks are said to climb the wall of worry. This basic concept is that stocks, as an asset class, have done excellent, or at least very good for investors, returning around 10% historically, if you look at a long, long time horizon. Real return after inflation is less than that, but 10% historically. Now, if you listen to this podcast, you know my frequent reminders that stocks actually rarely return around 10%. Usually the market in calendar years is up big or down big. That's actually way more normal historically than anywhere producing around the average. So stocks have gone through

these large global headlines and they climb what is called the wall of worry. So just since then, there is a huge list on this graphic, but I'm going to just share a few of them. So Lehman Brothers files for bankruptcy. The Federal Reserve arranges takeover of Bear Stearns by JP Morgan. Okay. Right after that, we had this H1N1 virus global pandemic scare. There were earthquakes in Haiti. Greek debt was a joke. What were the companies?

Yeah, there was greece i think portugal man portugal yeah oh man that was like 2012 or 2011 yeah something yeah it was like mid 2010 i think yeah greece portugal and there was a third country that it was just assumed they were all going to default on their debt okay interesting. Interesting. There was a flash crash. There was a US debt crisis lingering. Deep horizon oil spill, if you remember that one. Portugal got bailed out in 2011. There was this new spawning of the European debt crisis. The S&P downgraded the US debt rating during that time. North Korea confirmed successful nuclear strike testing. There was an Ebola outbreak. There was a government shutdown. Argentina defaulted on its debt again in 2014. We had lots of US politics here that I'm not going to get into. There was an

airstrikes in Syria, the Fed funds rate. Donald Trump comes into power. Drama with OPEC. Hurricane Harvey and Irma were both devastating to the US. Huge changes on imports from imported steel and aluminum. Drama with China. What do we got here? COVID-19. We forgot about that. And then there's more and more. And China cracked down on big tech. 2022, inflation goes crazy, war in Ukraine with Russia, on and on and on. I listed about one third of the list of these headlines as I'm just going through and reading them since 2008. Now, that's not that long of a time when you think about the hundreds of years that that 10% annual return comes from. During that time, Simone, since the low of 08, the S&P had a total return, including dividends, of 528%, which represents a compounded annual growth rate of 13.2% over that roughly 15-year period. Now, that's just since 2008. The market has been climbing the wall of worry for a lot,

lot longer. And we're always worried about the current thing until there's the next current thing. And I tweeted this out a few days ago and I said, pessimists get to be right. Optimists get to be right in the long term. Sorry, I messed up my own quote. Pessimists get to be right in the long term. Sorry, I messed up my own quote. Pessimists get to be right in the short term. Pessimists get to be right in the short term. Optimists get to be right in the long term. And before I round this out here and get your take, that's cool and all, but it sounds great. I get it. Stocks go up. But why? Why? Why do stocks climb the wall of worry? And why has during that time, the S&P had a total return of nearly 13.2% compound annual growth rate. And the reason is, is that index is made up of businesses. And those businesses, the value of them increases as stocks follow earnings. Those companies have produced more earnings during

that time. Look at a historical EPS of the S&P versus price. It fluctuates around that line, but it follows earnings. Now, I actually believe the more correct modern approach is stocks follow free cash flow per share, but that's not as catchy as stocks follow earnings, is it? So the term earnings will work just fine for our understanding here. And one last quote here from Howard Marks. Occasionally, people lose track of the fact that in the long run, stocks can't do much better than the companies that issue them. End quote, Howard Marks. Mic drop. Howard Marks.

Mic drop. Boom. There you go. Yeah. Howard Marks, Mic drop. Mic drop. There you go. Howard Marks, by the way, who made a lot of money buying cheap debt around the financial or it was, what was it? Non-investment grade debt, I believe, around the financial crisis where it was trading at pennies on the dollars. And I think you made a killing doing that. He had a really good memo that he released a few months ago. And it was earlier this summer. And it was basically just bashing on the mistake of low rates for so long and that that should never happen again. That was a huge mistake. Yeah. I think he's right. Oh, I think he's definitely right. There was no reason aside from just not wanting to go into recession.

But recession is just a normal part of markets. And when you try to delay it, you create other issues. Exactly. And yeah. And now I think we're seeing it. And, you know, I think people have come to the realization that a recession has to happen to make things better going forward. It's going to be hard for some people. Recessions always are. You know, they impact some people more than others, and that's

fine. But the reality is there's economic cycles. And if you try to play with monetary policy to try and avoid them, you're just delaying the inevitable. And oftentimes it's making it worse. So you're delaying a recession that would have been pretty mild to a bit more, you know, noticeable recession because you tried to keep interest rates low when it was the perfect opportunity to slowly raise them because the economy was doing well. But hopefully, you know, our almighty central bankers have learned their lesson. It's just like muscle. If you want your muscles to grow bigger and stronger, what do you do?

You train them into the point that the muscle fibers actually break. Yeah. And then they have to rebuild stronger. And so, that kind of, it's an analogy kind of that I'm thinking of right now of just there has to be, you know, the down for you to come out of it stronger. Look at long term credit cycles and short term credit cycles. So 30 minute YouTube video on the economy, how credit cycles work by Ray Dalio. It's like a 30 minute animated narrated thing by Ray Dalio. It's on YouTube.

And if you haven't watched it, it'll open your mind to what we're thinking about right now. Yeah. Yeah. And if you're any bit interested in macro, you should listen to Ray Dalio. I could listen to him hours on end. I mean, he's just so smart.

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the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. All right, last topic on the slate here today, some scam bank run fraud. Yeah, SBF. So Sam Bankman freed, the trial starts, I believe it's today, huh, that it starts? Yeah. I think so the trial starts i believe it's today on that it starts yeah i think so yeah i think it's today so i'll just recap recording this on tuesday october 3rd uh the trial started today yeah so you know i'll do this as a shorter segment obviously this is a bit more

of a news item but i'm sure we'll be probably talking about in next month or so I'm not sure how long the trial is actually supposed to last but I don't know about you but for me it's one of the most interesting trials I can remember I know a lot of people like watched a Johnny Depp versus Amber Heard trial that happened a couple years ago and that got a whole lot of press but for me because you know of my interests is just sbf is just the one that it will be really fascinating i'm definitely gonna try to look at a recap every day just to get a little bit of sense of what's happening how about you yeah it's one of those things where you can't look away because it's just unbelievable the things that they did.

Allegedly. Allegedly. That was committed. Yeah. Oh, yeah. Sorry. Allegedly. I'll let the courts decide.

Yeah. Yeah. So allegedly. Yeah. So SBF is facing, he is facing, not allegedly, he is facing seven charges in total, which he has pleaded not guilty to. They relate to wire fraud securities fraud commodities fraud and money laundering so a lot of fraud charges i'm actually especially interested in hearing what caroline ellison has to say because she is the former ceo or co-ceo of alameda research

for those who are not familiar with alameda Research, it was a crypto hedge fund that allegedly used customer funds from FTX to cover losses. And she will be one of the main witnesses against SBF. And for those not aware, SBF was out on a bail until two months ago when it was revoked. The reason it was revoked was due to witness tampering following allegations by prosecutors that he had leaked Caroline Ellison's diary to the New York Times. So this just gets more and more interesting. Weren't they lovers? They were lovers. goes over the fact that she had you know it was difficult for her to still work with sbf after they were no longer together and all the different things she didn't feel competent

at times that's what i kind of heard i read the new york time articles just to to get a sense because it was leaked over to them uh but you know this guy's judgment is just not the greatest. Like, he was living with his parents. Shocker. That's the hot take. Oh, my God. Yeah. It's just like, you just wonder.

Like, anyways, it just sounds like he was trying to, like, I honestly am not quite sure what he's trying to do. It'll be interesting to trial for that just to see what strategy what defense strategy they're using because it sounds from what i've read they're looking at a strategy angle well i think the angle and i could be wrong that they're looking to play is that he's the victim here that he was listening to his legal team and that they should have known better and he was just doing what the legal team was signing off on so that's what i've heard that he's gonna try to do um who knows i mean that's why the trial will be so fascinating because we'll know what angle he's taking uh but anyways that's kind of my take i will definitely be checking, you know, not spending the whole evening, but every day

maybe like taking five, 10 minutes to just have a quick recap of what happened. I'm not, you know, I'm sure it's going to be live stream. I'm not going to be watching that nonstop, but definitely still have an interest in what's happening there. Have you, so just before we started recording, Michael Lewis, who's the author of many famous financial event books, a lot of them have to do with fraud as well. The Big Short, for instance, is his original book. Then there was the movie adaptation from The Big Short book.

He is doing the SBF book, and it apparently just came out yesterday or something. And he went on 60 minutes and I have to send you it up. You have to watch it after he defends this man. He says he basically defends his fraud. And I have been such a fan of Michael Lewis for so long. And everyone's like commenting, like, how much did this man get paid off? Like how, like what is happening here? Because it's clear fraud. Um, and, and he's saying things that are defending, uh, my, uh, SBF coffee Zilla, who's the very famous YouTube video who exposes scams. He tweeted just now finish finish reading Michael Lewis's book so you don't have to. You are not misled by that 60 Minutes interview. It is a full out defense of Sam

Bankman Freed. He spends more time questioning the intentions of the bankruptcy John Ray, bankruptcy lawyer John Ray than he does Sam Bankman Freed. I am speechless so that's really disappointing because this guy is scumbag megan freed is a scumbag is carolyn ellison up for charges as well she i don't know more uncomfortable than any other human in the world like yeah someone talks i i want to cringe yeah i mean i don't know if she's gonna end up having to serve time it'll probably be reduced because obviously the whole point is that she's cooperating with authorities and i think they really want to get sbf i think that's the whole point behind it but uh i don't know this i'm kind of speechless maybe i'll read the book just to have an idea it was a 60-minute interview was.

But remember when he was tweeting? That's what I don't understand. He was literally tweeting months before, weeks before the bankruptcy and the fall of FTX happened. And literally lying to people. And it was obvious afterwards that it was a lie. People were saying saying but you said something completely different so it would change exactly like his story at one point it was you know i think for months he was just saying ftx was fine was an insolvent like all this stuff he

was saying on twitter um that turned out to be completely untrue um so that's what i find a bit confusing but also like we were talking before we recorded i think he goes and i don't know i haven't watched a video yet but it goes on to say like if there wasn't a bank run ftx would have been fine well that's the whole point ftx was not a bank like a bank is the only thing in our system that can operate on fractional reserves. If you have an exchange, whether it's stocks, whether it's for crypto. You can't be mingling funds, yeah. No, you should have one for one.

If I have one Bitcoin, one Ethereum, you should have one Bitcoin, one Ethereum to bag that. If Braden has one Bitcoin, one Ethereum, one Solana, whatever other crypto coin you want to talk about you should have that same ratio backing that not an equivalent amount in another you know crypto or a token made a made-up token like the ftt i think they had um so that's where i take it issue with it it's like okay like you know bank run could be an excuse when you're a bank but this is not the case so when you told me that i was just i mean i guess i was just 60 minute i'll make um i'm just going on what you told me here but uh and what coffee zilla said but uh yeah i'm a little confused as to why if that's the case he would go out and say that. It's like the Wolf of Wall Street quote. It's a fugazi.

It's a fugazi. Like all the co-mingling of the funds. What does he say? Fairy dust, fixie dust. It's all made up. That's how I feel about this whole situation. It was all made up. It was all fraud.

And here's the part that makes people so mad. This is obviously classified as white-collar crime, right? Billions of dollars stolen via white-collar crime, which is this essentially version of a Ponzi here with crypto. And he's on bail, but he's walking around in the Bahamas having a good time. People are rightfully frustrated with how these types of criminals are treated in the system. And I 100% agree. You know, if you were to, the amount of damage and pain caused to people and families from this level of crime far, far surpasses the things that people are thrown in jail for years over something that was done not via white collar crime. And people are so rightfully upset about that. And I think that

it's completely fair because the amount of damage that these criminals cause with white collar crime and financial crimes like this cannot be understated. If all the allegations are correct, he should go to jail for life. That's my opinion. That is my hard opinion on this. No, I totally agree. And obviously not to get too grim. And I just, while you were saying that, I just typed in FTX suicide. And there's countless stories of people that took their lives or were on the verge of contemplating it. I know it's harsh to hear, but because they lost all their money on FTX

and I think it's stuff like that because people see, oh, it's just white-collar crime, doesn't affect anyone, or it's just money. But people's life can be ruined with this kind of stuff. And it's the indirect cause that you see. And this is nothing new right i think there was um bernie madoff i think there were some people that took their own lives because of that including his family yeah exactly oh yeah that's right yeah one of his sons so people tend to forget just because it white collar crime but you know a lot of the time it's actually more devastating than you know other

types of crime so i think it's really important because the scale can far surpass you know for lack of better term traditional crimes you know good old traditional crimes uh the scale can far far surpass it when you have something like this. So we'll be following along on the trial one because we're interested in it. And, you know, I, I, I like, I like seeing justice for this kind of stuff. I hope it's treated properly, but time will tell. Thank you for listening to the show, getting grim at the end there. Thanks for listening.

We didn't plan that. Thanks for coming along for the ride on the, on the show, getting grim at the end there. Thanks for listening. We didn't plan that. Thanks for coming along for the ride on the show. We are here Mondays and Thursdays, like clockwork. The show goes on. You can support the show. And as I mentioned there, my note about finally purchasing, getting my act together and finally purchasing ASML, finally purchasing, getting my act together, finally purchasing ASML. That was posted yesterday on jointtci.com because every single month we have our monthly portfolio updates. And as well, it supports the show. Simone posts his quarterly income portfolio that he does for the listeners. And originally it stemmed from helping out his parents and there's gonna be some high yield i can tell you that yeah i don't think that portfolio is doing very well this month no but

income seekers yeah income seekers and then this um this podcast also via video as well is on join tci.com so you get all three of those wonderful things for what is it like nine dollars canadian i think it's nine six euros nine canadian i've seen the weird amounts yeah yeah yeah yeah we'll get an email like six euros being deposited your account i'm like what yeah thank you for that person from europe yeah yeah it's good to see some support over the pond there. Thank you for listening. We'll see you in a few days. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.