The Canadian Investor - Elon Musk Warns Investors and Brookfield’s Offer to Shareholders

Episode Date: October 26, 2023

In this episode, Simon is once again joined by Dan Kent from stocktrades.ca. They go over the recent earnings from Tesla, TFI International and Netflix. They also talk about the recent offer from Brookfield Corporation for shareholders and what the volatility in the bond market means for investors. Ticker of stocks discussed: BN.TO, BNRE.TO, TFII.TO, TOUT.TO, XOM, CVX, TSLA, NFLX,  Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter : @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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So how's it going, Dan? Pretty good. Just got back from vacation. It's a great episode. Finally, there is actually more content. So how's it going, Dan? Pretty good. I just got back from vacation. It's a lot colder here now, but yeah, thanks for having me on. It was really fun to do the last one. Looking forward to this one now that we got a bit more earnings. Yeah, a bit warmer weather, right? You got actually sun and stuff and you came back to a snowstorm in Calgary. Yeah, it was 47 degrees in Mexico and now it's like minus two with three feet of snow. Yeah, I mean, I have to say I'm kind of happy we don't have snow in Ottawa just yet, but I'm sure it's going to come sooner rather than later. I'm kind of hoping not until Christmas or maybe a day before Christmas. So you have that white Christmas, but that's kind of what I'm hoping. But let's get into it.

We have a lot of stuff to go over today. We'll start by, you know, we had a lot of questions with these Brookfield warrants for the reinsurance company. So I know you got quite a few questions on your end too, right? Yeah, and it's pretty confusing, the whole concept of this. Like, it took a while to kind of figure out what they're doing. Yeah. Because like BNRE, the reinsurance, they do publicly trade and they're like, they're the exact same price as Brookfield Corporation.

So, I mean, what I took from it is just the tax benefits overall, the return on capital versus the dividend. Yeah, exactly. That's kind of the main takeaway as well. So I'll give the points, kind of the overview for everyone. So Brookfield Corporation, ticker BN.TO, listed in Toronto. It's dual listed though. So they are providing essentially Brookfield Reinsurance, just as you were saying, for those not aware,

BNRE, if I remember correctly. So it's an insurance company providing insurance services to both individual and companies. And holders of Brookfield Corporation can exchange their shares for newly issued Brookfield Reinsurance exchangeable class A1 shares on a one-for-one basis. And I wanted to specify the A1 because I think they already have some exchange imposed shares, if I understand correctly from their little graphic that they had in their SEC filing. Yeah, I believe they do. I'm looking at the graphic right now. I don't exactly know too much about Brookfield Reinsurance, but it's kind of like a, well, what is it? It's like a $400 million market cap company. It's relatively small when you consider the fact Brookfield Corporation is $68 billion. These are for class A voting shares. Yeah, it's,

I'm trying to see here. Pretty much what they're doing is they're decreasing the market cap of Brookfield and increasing the market cap of BNRE. Am I correct in that? Yeah, that's the takeaway I got. So for our JoinTCI listeners, you'll see the graphic I'm looking at, and it's taken directly from the SEC filing that they did along with that. So essentially, that's my understanding. And it was, I'll be honest, like it took me like an hour and a half to go and reread, like not the whole document because that would have taken days,

but the important sections. I must have reread it like four or five times just to make sense of it because it's lawyer, you know, it's legal talk, right? So it's not the most, it's not like reading a point form, anything like that. But essentially, the total being offered is 40 million shares, which represent

about 2.44% of Brookfield Corporation's outstanding float. The offer is valid until November 13. And the share count like you were referring to from Brookfield would be reduced by the equivalent amount of shares up to the 40 million if fully exercised. So essentially, if it's fully exercised, it'll reduce the Brookfield share count by 2.44%. And for those who do take them off on the offer, the share would be exchangeable back to Brookfield Corporation. And if you don't go ahead with this offer and you keep your Brookfield shares, then you don't have, you won't be able to exchange into the Brookfield Corporation. And if you don't go ahead with this offer and you keep your Brookfield shares, then you won't be able to exchange into the Brookfield reinsurance past the deadline.

And according to Brookfield, and this is straight out of the document, so the purpose of the offer is to increase the equity base and the market cap of Brookfield reinsurance without diluting the shareholder base. So what you were referring to Brookfield Reinsurance is quite small. And according to them, this will better reflect the size of its operation that have grown since the formation in 2020 and provide a better market for the exchangeable shares. And there's a quote that I thought was interesting, kind of referring to what you were saying for tax purposes. These differences may result in certain investor preferring to hold our exchangeable shares because Canadian and US investors will have the opportunity to receive returns of capital instead of taxable dividends,

and non-Canadian investors would have the ability to receive distribution without the imposition of withholding tax. So I think that's probably, in my opinion, like you said, I think that's the biggest takeaway here. I mean, they made this really complicated, but obviously they must have had maybe some shareholders asking for this, some important shareholders or trying to get some more liquidity for Brookfield reinsurance. I guess those are the two main reasons. Yeah. I mean, you can, you can convert, you can request the offer and then you could convert back to Brookfield.

Whereas if you don't, if the deadline goes by, you, you can't do anything. And I mean, to me, that's pretty much what this is like the return of capital. It's tax free, reduces your cost base. It's going to be more tax efficient than holding, you know, getting a dividend, which is which is a taxable, taxable payment. But I mean, that's kind of what I took from it. Yeah, it's a it also depends what account. Right. People have it if they have in their TFSA or RSP, then it's probably a non-issue.

But I think that's important, right? The return of capital does reduce your cause basis. So if you end up selling the shares eventually, then you'll have a higher kind of potential capital. Kind of a delay, really. Yeah, it's a delay, exactly. So I think that's a good overview. Hopefully that makes a bit more sense for people for those who don't have it in a registered account. And there are tax implications, probably word consulting your accountant or a tax professional, because you know,

that's our understanding of it. It wasn't the easiest thing to understand to begin with just rereading it. But yeah, just hopefully that makes a bit more sense. Cause I, we must've had like five, six emails easily from that and tons of mentions on Twitter. So hopefully it makes sense. Anything you want to add or we want to move on to some Canadian earnings here?

Nope. That's about it. I mean, I own Brookfield. I don't think I'm going to be taking up this offer. I'll just keep my Brookfield shares. I don't really think I need to convert them. No. The simple method, do nothing. So yeah, TFI earnings.

Yeah. So go for it. I know you did the notes and Brayden, I'm sure will listen to this episode because he owns TFI. I know he follows the stock pretty closely, but I think you'll be interested in knowing that. Yeah. It's one that I've owned for quite a while too. This is a mixed quarter, so revenue matched expectations, but earnings came in quite a bit lower. And it was kind of a very poor outlook, I would say. There was a lot of stuff in the quarter. They kind of really warned about a slowdown overall. They mentioned it a lot, like more than usual. So less than truckload, which is 45% of their business, which is like smaller shipping, but it can still be, I think anywhere from 500 to 15,000 kilograms or pounds or whatever it is.

But they're seeing double digit declines on both a quarter over quarter and year over year basis. So it's probably because of discretionary spending. I mean, we have to remember 37% of this company's business is either retail or automobiles, which are both heavily exposed right now, especially auto, like with rising interest rates, vehicle sales, it's becoming much harder to own a vehicle. And overall, just fears of a recession are mounting a little more now than they were prior just because of, you know, just their entire business pretty much took a double digit decline overall, just strictly due to demand really, except their logistics segment, I think, which grew 40% year over year, but it was pretty much solely due to an acquisition.

Recession wise, back in 2007, you know, 2007 to 2012, which was pretty much the worst economic conditions since the Great Depression. I mean, this is a company that maintained and grew operations in almost every single year. They maintain margins. They had one bad year. I think it was 2009. But outside of that, they performed quite well. So I think the stock is holding up quite well since. I think it's still down 20% from peaks.

But I think a lot of people have confidence that they can kind of get through this. In terms of the debt, so the company issued $500 million in debt on the quarter. And after this issue, it's 100% of its debt is fully fixed. So it has no floating rate debt, and it's locked in an interest rate of 4.5%, which is pretty attractive right now. And it has a maturity of over nine years. So average maturity of over nine years. So yeah, like the, you know, financing costs actually went down on a year-over-year basis. And you're seeing a ton of companies with just skyrocketing financing costs. But they have an interest coverage ratio of 12x, which is pretty much their EBIT compared to their debt. So regardless of where interest rates go, I mean, they're in a pretty strong

position that way. And then finally, just a 14% raise to the dividend. So it's 40 US cents a quarter. Yeah, I wonder what their payout ratio is. Do you know? It's very low. I know it's like under 20% of cashflow. Okay. So that makes sense. I mean, it must be relatively positive for the medium to long-term to go ahead with the dividend raise, but a low payout ratio, we talk a lot about it. I mean, that's what allows you to do it does create a buffer. So if you do want to keep raising the dividend, or you want just to keep that buffer and, you know, not have to cut it if times get tough. I think it's important. And I just wanted to double click on the their interest coverage. So EBIT for those not familiar with it is earnings before interest and taxes. So it's a common measure that's used to,

you know, just to calculate how much leeway you or how much money you make on, you know, compared to the interest payment. Yeah, so pretty much, yeah, it's earnings before interest and taxes compared to the interest it owes on its debt. So I mean, 12X is a very, very strong coverage ratio, especially when all your debt is fixed. Yeah. Yeah. And I think that's a good point because I've been hammering the point now for quite some time. I mean, since the last couple of years, whenever they started raising rates, I guess early 2022 at this point, just make sure you understand the balance sheet, the debt, how it's structured, because floating rate or variable debt, it's essentially, it can be very dangerous. And even if they do refinance some companies or be looking, depending on what their credit rating is

and how tight credit is, they could be looking at pretty high rates, even if they go fixed. So I think that's an important thing to keep an eye on. And I mean, it's another company in this kind of space, Canadian National Rail last quarter, and I'll be interested in saying what they said, but they were raising kind of the alarm bell as well saying that, you know, it's coming up. And I might be wrong, but I think a year, you know, down the line, we'll look back and right now we'll see we're already in this recession. That's what I think. Just listening to earnings calls, listening to what companies have to say, that's my kind of assessment.

Do you agree with that or you think I'm making a bit of a leap here? of a leap here like when you look at all these logistics companies like like cn rail uh cp kansas city like tfi like all of them are reporting you know they're just tempering expectations like even in its outlook like tfi's outlook they were really really cautious on you know there's probably not going to be an increase in demand over the short term, which makes complete sense. I mean, most all of its segments saw, you know, 20 to 25% declines in revenue. And I mean, like, the thing about it is, though, like, there's nothing on the quarter, at least to me, that seems like it's anything outside of just slower demand, which is, I mean, I guess should have been expected in a way, which is why I think the stock isn't really trading that much off highs. Yeah, that dreaded lag effect. It's starting to happen.

And the one I'll definitely make sure we look at is Canadian Tire because I think Canadian Tire is extremely important for the Canadian economy. Not the fact that it's a retailer itself. Obviously, they have good insight on what they're selling whatnot but their financial services how where people use those cards outside of canadian tire they can provide a lot of insights on the spending habits and they warn you know they had a pretty bad earnings call the last one basically saying like they're seeing a big shift in what people are spending on to more essentials and definitely reducing spend on non-essential things whether it's you know going out you know even traveling although you know they saw some increases there's some deceleration

there so that's another company i'll be really interested in watching for this earnings season yeah we saw that with Costco too a while back, just big dip in discretionary spending. People are just kind of focusing on just, I mean, groceries, rent, mortgage, things like that. Yeah, no, exactly. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission

free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a

combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. So now we'll move on to, I guess, a sector that's doing pretty well. So if people and definitely in your part of the country, so consolidation, the oil and gas sector. So it's been happening both in the U.S. and Canada.

We saw some pretty major transaction announced in the U.S. in the last couple of weeks. And major is probably even an understatement here. These are massive transactions. Both are behemoths in the space. And I'm sure even if people don't know much about oil and gas, they'll recognize these names. At least if you've been to the US, you would have seen them. You've seen their gas stations. So the first one, recently Chevron, this Monday, said that it had agreed to buy Hess for $53 billion in stock. The total value of the deal is $60 billion when you include debt. And these are part of the upstream. So upstream is essentially just a fancy word to say it's kind of the discovery and extraction part.

So they're bolstering that. And a few weeks before that, you had ExxonMobil, who said they would be acquiring Pioneer, ticker PXD. So when including that, that deal was approximately $65 billion. There's also been some in Canada. So there's been several. I don't have all of them listed here. So just a couple example but um earlier this year so a few weeks ago suncor announced that it was buying a total energy stake in the fort hills oil sands mining project for just under 1.5 billion and

total energy is a french energy company for those not familiar with it and termaline announced a week ago that it would acquire 100% of Bonavista Energy Corporation. Termaline, ticker TOU on the TSX, and the transaction for that would be $1.45 billion. It's expected to boost its gas production by 10%. And I didn't know that, but Termaline, I'm sure you're probably aware, they're the largest natural gas producer in Canada. Yeah, so this is the one deal out of all of these that we actually like looked into quite a bit they're largest in canada and fifth in north america i believe it is but this deal i think they paid 725 million in shares and

725 million in cash and it's yeah i'm pretty sure's going to be immediately accretive to free cash flow. So it's pretty crazy, the valuations in the oil and gas sector, how low they are that these tourmaline can just pretty much buy this company half with shares. And it's just an immediate boost to free cash flow. It already operates like where they Bonavista, it's already the industry leader in the area that Bonavista operates. So I think it'll be just almost, I mean, the synergies are almost immediate.

So it just made so much sense for a tourmaline. And I mean, these companies, I think the larger oil and gas companies, the ones that are very efficient are just going to be able to like, I would expect that there'll be a lot more mergers and acquisitions over the years. Like Bonavista, I think is a relatively expensive producer, not like super expensive, but it's more expensive than Tourmaline. it's more expensive than tourmaline. So like the idea there is that tourmaline is just going to buy them, probably be able to make them much more efficient, which is in turn going to just turn out more cashflow for them. I can't even remember how many, like the special dividends that tourmaline paid out this year.

It's crazy. I think they generated almost $10 a share in free cashflow. It's just, it was just silly. Like they're not going to generate that much next year. But and for a lot of these oil and gas companies as well, a lot of them have shifted to a strategy of just paying back all their cash flow back to investors, which I mean, with the uncertainty in the energy sector is probably what a lot of investors want.

I mean, they don't want acquisitions like this are solid, but I mean, new projects, things like that. There's a lot of uncertainty there. So I think a lot of investors in the sector appreciate essentially these companies generating the cashflow and just pushing everything back to investors. Yeah, I mean, I'm just sharing here for, yeah, join TCI. So people see the amount of dividends they've paid it's it's not it's interesting so they seem to have like a quarterly regular dividend that's like 25 cents

or 26 cents a share or so in that ballpark that they seem to be increasing but they then have like four times a year almost or not quite but uh but a special dividend. That's like a dollar or two per share. So it's interesting. I mean, I actually don't mind that. I'd rather companies paid a smaller regular dividend. And then when they do have the cash on the balance sheet, they don't commit to anything specifically and just issue a special dividend. I guess when you do it so frequently like that, people may get used to it. Investors may get kind of used to that special dividend. But yeah, it's quite impressive. I didn't realize I knew they did the special dividend often, but I didn't realize it was. Yeah, I'm trying to think there's like eight

dividend one, two, three, seven dividend payments so far this year yeah it's uh and it's pretty considerable and it's not a read yeah exactly it's like if you look at the trailing yield it's like over 10 and when you look at the forward yield it's like 1.2 just because yeah they only pay uh what would it be i think they raised the dividend to $1.12 a year just recently after the acquisition. But yeah, like I could see them, you know, generating that much cash flow. Like they could easily make additional moves. I mean, in terms of the Chevron and Exxon, I'm not too keen on like the US oil and gas space. I know these are pretty big acquisitions.

Like Chevron is worth 300 billion so a 60 billion dollar acquisition is is quite big but uh there's so many tiny players in the canadian industry that i think like just major players like tourmaline canadian natural sun core like i think there's going to be a lot more activity like this and i mean i think they paid 1.45 billion but i think uh bonavista had operating income of like 500 million dollars so they really didn't pay that much yes i mean yeah it sounds like a good deal and i'm just with you i think we're going to see a lot of consolidation just because prices have been quite low in the past decade or so. Overall, especially if you adjust it for inflation, prices have been very low. So what tends to happen is these oil and gas companies don't invest as much.

That's just part of the cycle. I mean, obviously, you invest more if you think you're going to get a higher price because then you're going to get a better return on investment. I mean, you can go you can see it return on invested capital kind of follows the price of oil for these companies. I mean, it makes sense because, you know, it goes with the income. But it'll be interesting what happens. Definitely, I think people are realizing that we're not getting off of oil anytime soon oil and gas um and it's probably here at least i mean uh probably at least a couple more decades if not more so i think you know i think i'd rather see companies in canada

and the u.s than getting it from elsewhere that probably don't have as good practices or even in some cases, human rights record. Yeah, there's a lot of promising companies in the Canadian space and the US space. And I mean, as you said, valuations just keep getting cheaper. I think a lot of these, if you had a company that was generating this much cash flow in any other sector, I think they would trade at like two or three times the multiple. It's pretty crazy. But it just seems like there's such discounted valuations in oil and gas. Not a lot of people want to invest in it. No, no, exactly.

Well, now I guess we touched enough on oil and gas. So we'll move on to Tesla earnings. So you worked on that. Mr. Musk himself had some interesting comments. I'll let you go over that and I'll probably chime in because I did listen to part of the conference call, which was pretty entertaining. Yeah, it was. As usually is the case with Elon. As usually is the case with Elon.

He was, like I said, he was a guy who a lot of the time, like in the pandemic, he could do no wrong. But now a lot of people after this conference call are kind of criticizing him for being a bit too blunt, I guess. Earnings of 66 cents versus 73 expected and revenue of 23 just shy of expectations for 24 billion. So double digit misses on both ends. And the automotive revenue only grew 5%. And with it currently making up 85% of the business, it's obviously, you know, when you're seeing single digit growth,

especially at the price Tesla trades at from, you at from a segment that makes up the vast majority of your business. It's going to take a hit. I think it's lost almost 20% in years since this report, maybe a little less, but it's energy generation like solar batteries, things like that, which is 6% of the total business did grow by 40% year over year though. Gross margins are taking a big hit business-wide just due to the price cuts, also due to rising material prices. So 719 basis point decline in gross margin, 964 basis in operating margin, and a bit to margin of 706 basis points so like huge declines across the board they've now reported a decline in earnings for four straight quarters and margins have been on

a constant downward slide since 2022 and to the conference call that was just strictly from the earnings report and then you get to the conference call. And Elon Musk pretty much said that it was mostly about the Cybertruck. A lot of the negative stuff inside of the conference call was from the Cybertruck. He said there will be enormous challenges in reaching expected production and actually getting the truck to be cashflow positive. In, you know, in a way, he pretty much said building the prototype to this thing was really easy, but actually getting this thing to production and making money off of it is proving to be very, very challenging.

They pushed out delivery to late 2025. They don't expect any in 2024 anymore. And he actually said word for word that they dug their own grave with the Cybertruck. Yeah. I mean, it's, it could look at trucks are popular, especially in the U S right.

DF one 50 is constantly one of the best selling vehicles in the US and all the pickup trucks that you can find and all the big three are, you know, really good sellers. I can see why they would bet there. You know, personally, in terms of aesthetics, I'm not sure I would get that. I mean, it feels like right out of a sci-fi movie. But I mean, yeah's it's interesting and i do like where you're gonna get to after the cyber truck in terms of uh what he's seeing from consumers and the demand for teslas in general so yeah he well in terms of uh still i think this is related a bit to the cyber truck and just overall demand which would be consumer-based. He's very hesitant right now on that mega factory in Mexico.

So he's pretty much saying right now that buying a car is heavily dependent on the monthly payment. People really... I mean, you should, but most people don't look at the total cost to own when they go to buy a car. They just want a set monthly payment and right now he just said like interest costs are just eating all of that monthly payment amount so they're having to continue trying to cut costs because people he said just outright like people cannot afford teslas right now and And near the end of the conference call, he started speaking on

numerous bankruptcies of motor vehicle companies during the financial crisis. He was saying Tesla just can't go top speed into the environment we could be heading into right now because it just buried a lot of automotive companies back in the day. And he even said, you know, if they hadn't got financing back in the financial crisis, he said it was something like two to three days before Christmas. He said their payroll would have bounced after Christmas. So that's how tight they were. And he said he just didn't want to make the same mistake again.

And I think a lot of people are getting freaked out a bit by this conference call overall. I mean, there was a lot of comments in there that were pretty, like I said, pretty blunt. Yeah. I mean, I, I personally, like, honestly, like, you know, for me and I think a lot of people like personally, I find like there's a almost this love eight relationship with Elon. He's very polarizing. Sometimes I, you know, I'm amazed with what he does, like in a good way and then the opposite in a bad way.

But, you know, I think he's right in terms of payment. I mean, we saw it with housing in Canada during the peak. People were just looking at the monthly payment, they were, you know, getting these variable payments because that's the only thing they could afford at the peak. Not thinking what would happen if interest rates went up, you know, 100 basis points or 200 basis points. I'm trying to obviously know it went up more than that, but I'm trying to just portray that. You know, I think a lot of people weren't even considering that possibility. I think a lot of people weren't even considering that possibility. And obviously, the Bank of Canada definitely said that rates would stay low for a long time and not to harp on that again.

But I do think a lot of people probably never heard the Bank of Canada say that. And the reality, they just look at the payment. And I honestly think he's absolutely right in terms of that people will look at the payment, whether they can afford or not, not the total costs of the vehicle. So can't really disagree. And in terms of how the economy is going, going forward, I mean, who knows? Obviously, we've had some mixed data. But I think like we said earlier, I mean, I think we're heading into a recession. But whether that's true or not, it's definitely more uncertain going forward. And I think it's prudent to, you know, be a bit more cautious as a business owner. I mean, if you end up being too cautious, I think that's fine. They have a really good brand, I think a lot of people

will still want Tesla's even if it's, you know, they take a step back right now for two step forward in the future. I think that's entirely reasonable. Yeah, I think it is too. Like, you could take this, you know, a couple ways, you could get scared by it, or you could kind of have a little confidence that, you know, it's not going to be a situation like it was 15 years ago when they were two days away from missing payroll. The payment is like, I think the monthly payment, he was mostly stating just in regards to the price cuts. Because I think a lot of people were asking him why the price cuts aren't really having as big of an impact as they thought. It's killing margins and impacting sales,

but not really increasing demand. And he just said, if you have a 500... He didn't say this, but what I'm saying is, you have a $500 payment a month and $100 of it is interest. Right now, that same $500 payment, even after costs are cut and, you know, $400 of it is interest. Like you're, you're paying a lot more interest in the payments are ultimately going to go up, even though the car is cheaper. So again, people never look at total cost to own. So when they just think of those monthly payments, it makes it tough. Yeah, exactly. And just maybe to add the one last thing here before you go on is that, you know, GM came out, I think, today with their earnings or yesterday, and they essentially pulled their guidance for the rest of the big three are trying to get into, you know, more and more electric vehicles, I think they're going to have a really hard time.

Like I'm, you know, I'm definitely in terms of the stock price and how Tesla will do that. Who knows? Because I think sometimes Tesla, the valuation and, you know, fundamentals are a bit out of whack. But I'm definitely as a business more bullish on Tesla than the big and fundamentals are a bit out of whack. But I'm definitely, as a business, more bullish on Tesla than the big three, just by the way their structure is in terms of how efficient they are and their cost structure overall. Yeah. Tesla is much more expensive than the auto producers. It often trades at 50, 60, 70 times expected earnings. A lot of that is due to the

fact that they have growth outside of simply auto sales. But I think for right now, 85% of the business being auto sales, it's going to trade like an auto company in a way. And they're really, really struggling on that end of things. I mean, a lot of the push was for the Cybertruck as well, which is, you know, pushed out deliveries are pushed out almost two years from now, I guess. Yeah. But at least I heard him say that they have like a million people that put a deposit on it or something, right? I mean, it's not worth much when you're not producing producing it but uh i think that's one thing he mentioned is that uh there is a lot of demand for it they just have to figure out uh their production because uh you know apparently it's quite hard yeah especially

like you don't want to have a million people putting deposits down and and you know negative you're losing money on them right he? He said profitability is going to be very difficult because yeah, the prototype is easy. The manufacturing process is definitely not. No, exactly. Anything else to add to that or moving on to our next segment here? Nope. That's pretty much 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

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it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Okay. So the next segment, this is a bit more macro, but again, it has definitely a big impact on stocks. So I wanted to provide a bond yield updates because it's been in the news a lot. Mainstream media has definitely, you know, started noticing and the especially when we look at bond

yields, the US Treasury. So the 10year bond is really the benchmark that people tend to look at. It's been quite volatile. So I did these notes yesterday morning, so Monday morning, and we're recording this on Tuesday at 1pm. And I looked at the 10-year yield. So yesterday morning, it was up over 5%. And right now, and actually earlier today, it was down like 15 basis point from there. And right now, I believe it's around like 4.82% around there. So roughly 20 basis point in a span of just like less like around a day. And for those who are not aware, like it may not sound like a lot, but for US treasuries, these are massive moves. Like it's extremely massive. And it has, you know, it's very volatile and makes it

very difficult for a lot of investors, especially institutional investors. And it has impact on the stock market. Anything I kind of saw you, I think you were checking the yield right now. Yeah, I was checking. It's 4.83. Okay. So I was right around there. Yeah, it's pretty close. But I mean, it's like if you consider how big the bond market is, for treasuries to move like this much, because it's all relative to demand, right? The yields are all relative to demand. So there's, yeah, there's a lot of money involved to move this much, much more than the much more than the stock market.

Yeah, exactly. And for like, maybe we'll just double click on that. Because I know some people know exactly what we're talking about. Some might not as well. So when the Bank of Canada raises interest rates, or the Fed in the US, it's really the short end. So it's short term boring. So that's why if you have like I have an ETF called BIL. So it's US Treasuries one to three months, it almost lines up perfectly with what the Fed's fund rate is. So if that funds rate, so the interest rate in the US increases, and the yield on bill ETF will increase kind of in lockstep. But then the further down you go, so whether it's two years, five years, 10 years, then that is dictated by the market. And just like you said, so when you have bonds, if the yield is going down, it means

there's increased demand for bonds. If the yield is going up, it means that there's a lot of selling action and selling pressure. So that's the, it means that there's a lot of selling action and selling pressure. So that's the, it's kind of the inverse of what sometimes people will think. So that's the relationship with it. It is an offer and demand, like Dan said. And, you know, it's important because it bases the rate for a lot of financing that, you know, individual businesses will take, like the five-year Canadian bond, which has been extremely businesses will take like the five year Canadian bond, which has been extremely volatile, while it impacts five year mortgage rates. Because the banks what they look is they'll say, Okay, well, I could, you know, take the money I'm lending for

mortgages and park it there, or I can lend it to you with a premium. So that's how they gauge it. And the same thing goes with the 10 year on other types of financing. Anything you wanted to add to that part? Before I continue? No, that's summed it up pretty good. It's, I was going to mention the portion on mortgages, like they're often, you know, the 10 year treasury is often thought of the risk free rate. So a lot of people compare this to what they could get earning additional risk elsewhere. So a bank, if they can earn 5%, they obviously don't want to loan at lower than that. So that's why a lot of people wonder why this would impact something like mortgage rates. Because a lot of the time when these escalate, like, people talk about how fixed rate mortgages are going to go up. And that's, that's pretty much

why. Yeah. And, you know, US treasuries are essentially the basis of our financial system. Like, that's what it is. Like, we don't have a gold back system. It's based on US treasuries, and the 10 year is the primary one. There's longer duration, shorter in the US. And, you know, one thing that people have their interest in learning about this is there is something called the MOVE Index. And the MOVE Index measures the volatility of US treasuries. And it's a reflection of market volatility, similar to the VIX for stocks. So if people are interested to see how volatile it is right now. They can have a look. You can just Google it.

You'll be able to find it. And it's pretty significant because right now it's been the highest since March of this year when we saw the, you know, collapse of Silicon Valley Bank and other regional banks that imploded. And it was very high in the great financial crisis as well. So that's something to keep an eye on because, you know, there's a lot of impacts that you can have with higher volatility in the Treasuries market. And just so people understand how massive the global fixed income market is, it's not a total debt market. It's a global fixed income market. It's much larger than the global equity market. So I was looking to try and find some figures, but the one that kind of seemed to be reoccurring the most was a report from Barclays that estimated

around $130 trillion in fixed income in 2022. And that's compared to about $42 trillion for global equities. So it's really, you know, it dwarfs the equity market. I know we talk about equities mostly on this podcast, but I think it's just important to, you know, understand that. And I think the last thing here we wanted to talk about, do you want to talk a little bit about the dogs of the TSX? And I'll show the chart that you got, because I wasn't aware of the dogs of the TSX. I was aware of the, I think it's the dogs or something like that of the Dow, but I think it's a bit different the way it works. But you, you know, I learned something earlier with you today. Yeah. So this is, I mean, I guess in relation to just the fixed income talk, this is a lot of the reason why especially higher yielding, slower growing companies are taking a

big hit this year. You're seeing risk-free rates of 5%. So a lot of investors are going to think, why would I take on the equity risk to earn a 6% yield when I can get 5% treasury and it's risk-free, right? So the dogs of the TSX, it's much like the dogs of the Dow, where essentially at the start of every year, you take the highest yielding 10 stocks on the TSX 60 index, and you pretty much buy an equal weight position in them. And for a very long time, this strategy outperformed the TSX. It was by like 4% or 5% annualized over like a 15, 20-year period, I think. over like a 15, 20 year period, I think. But this is the first time in quite a while that it's actually facing like some pretty crazy pressure. You can see from the chart,

it's underperforming the TSX by 10.1% this year and it's underperforming the S&P 500 by 21%. So this is going to be, I don't have the list right off the top of my head, but this is going to be companies like Algonquin power, power corporation, uh, probably either bank Nova Scotia or CIBC. I would imagine they'd be in there and bridge TC energy. So there's going to be a lot of high debt load, slow growing, high yielding companies. Oh, there it is. Yeah.

So this is I made the model portfolio to kind of simulate the returns. So it's just an equal weight position of all these companies. And it just kind of shows how attractive dividend stocks were when the risk free rate was what, 1% or 2%. Earning a 5%, 6% yield is a lot more attractive when that's the situation. But now that you have the risk-free rate sitting at 5%, and who knows if it stops here, these stocks become less attractive for investors for the most part. So it'll be interesting to see how this portfolio does

over the next couple of years if we don't see policy rates come down. But a lot of people, a lot of Canadian investors follow this strategy pretty religiously. At the start of the year, they'll buy these stocks and at the end of the year, they'll buy the next set. And it's kind of an active in and out situation. Oh, interesting. Yeah, and I looked up the dogs at the end of the year, they'll buy the next set, and it's kind of an active in-and-out situation. Oh, interesting.

Yeah, and I looked up the dogs at the Dow, and it's the same principle. So I think I just – my memory failed me for a second. I knew it was like the worst performing, but it wasn't. I thought it was that, but it is the highest yielding. But I think – I mean, I know you're like that too. I'm like that, and I know Brayden is. We try to focus more on businesses, and I think I mean, I know you're like that, too. I'm like that. And I know Brayden is like we try to focus more on businesses. And, you know, I think it's it's it's a dangerous strategy to just look at yield because then you could start, you know, getting into businesses that don't have great fundamentals or other things that are going on.

And, you know, just using a yield based strategy. I don't know. I think there's a lot of kind of cautionary tales to go with that. But I guess we'll switch to the last thing here on the dock pretty quickly because we're running a bit long. So do you want to tell us about Netflix earnings and kind of the main takeaways here? Yeah, so they had a pretty simple

quarter so they came in relatively in line like small beats on revenue and earnings but the thing about netflix is it's seeing a crazy turnaround just overall in its business operations um year over year revenue return to high single digits. Operating margins are finally starting to normalize. I think they're like 20% to 22%, whereas like a year ago, they dipped. It was crazy. They were low single digits, I think. last 11% revenue growth to close out the year. And I think the main thing for Netflix, and I think it was a lot of the bear thesis on Netflix was its password sharing, like how it was going to get rid of it where you couldn't share accounts anymore. I think a lot of investors thought that this was going to just kill them. A lot of people would cancel and not return when in reality, it's actually causing their subscriber base to grow in a big way. And they say this password sharing is... Or the elimination of the password sharing is pretty

much what's fueling growth. Pretty much like the lull in growth in 2022 is hard to pinpoint. I don't know why they experienced such a big slowdown. I know they were spending a ton of money on new content, but I mean, the resurgence in new members, just because you have to have separate accounts now is actually causing them to rebound in a big way. They're ramping up content spend. They're going to spend $17 billion in 2024, which is around $4 billion more than last year.

I think some of those costs are probably due to that strike that went on. I mean, it's probably going to cost them more money to produce the same amount of content that they would have expected previously. And another thing, another thing that a lot of investors thought was not going to be a good thing for the company is those cheap ad memberships that they have. But it's actually driving a lot of their new signups. 30% of all new signups out of the countries that offer it are opting to take the cheaper subscription but watch the ads. Which is not only like a benefit from a subscription standpoint for Netflix, but there's also big money in ad spend, period. It's a high margin business.

Ads, sponsorships, the company's really just getting started. Yeah. Your thoughts on that? No, I mean, I think it was a pretty good quarter. I mean, I've been, I don't know, kind of flip flopping mentally with Netflix. I thought like it was kind of a bold move to do the password crackdown. But then, you know, in hindsight was probably smart. So you get people hooked on this service and then, you know, you force them to pay for them eventually. I know for me, like we Netflix, the only one we have on a recurring basis, like we have a set budget per month for subscription and we have to fit it within that.

So we'll have like, you know, one month we may have Netflix and Disney and then another month if we're watching more like Crave, then we'll have Netflix and Crave. So we have to stay under a certain budget. crave so we have to stay under a certain budget but the main reason for us is we have the most expensive one with Netflix is because you know you can add in accounts yeah so you pay I think it's like nine bucks or ten dollars extra per additional account but they get the premium membership as well so you pay like 25 bucks plus 10 plus 10 per account i think there's a maximum of two additional accounts and uh both my parents and my in-laws so and they like netflix so we're kind of stuck in uh with our subscription for netflix that's for sure yeah i think like initially i think it would have been you know a lot of people when they crack down on this we're like you know oh whatever i don't need it

and then you know time goes by and you're like oh man you know and they subscribe to netflix right so they might have cracked down on it initially but now i think they're seeing people returning to the platform who might have been kind of piggybacking on somebody else's membership so yeah no i think at the end of the day i think it was a good call and for the content content spend, I remember reading that after the strike was done for the writers, that an analyst was saying that there was potential for Netflix and other studios to just essentially produce a bit less content. less content because it's going to cost more to produce that content. And they'll be a bit more selective in terms of the type of content they produce just because the cost is higher. So I don't know whether that's going to be the case or whether it'll be noticeable if

they do do that. But that's something for people to keep an eye out. Maybe in a year or two, if you notice there is a bit less new content on Netflix, that's probably the reason for it yeah they might opt for more quality over more quantity i mean i get i'm imagine they'll just kind of watch to see you know user retention and stuff like that if they do put out less content yeah we've always subscribed to it i can't i couldn't see us ever canceling it it's the only one we subscribe to so yeah I don't know

no I mean I mean I got it I think I moved out of my parents like 15 years ago I was one of the early adopters where like there was barely anything there was no like Netflix like you know productions it was just like movies on there like it was I think most of the revenue when i started subscribing was still from those mail order dvds um yeah you can order they spend the dvds which by the way i think they didn't they stop not too long ago i think they still had it huh i think i saw i didn't know they still had it yeah i think they still had it but yeah anyways i think i'm just going on a tangent here but i think that's it for us today uh thanks a lot dan again for co-hosting do you want to tell people where they can find you

i know while stocktrades.ca but also on twitter i always forget your handle but uh we do follow each other for those uh wondering yeah so stocktrades.ca and my Twitter handle is stocktrades underscore CA. Okay, there you go. And yeah, thanks for having me on. It was great again. Yeah, no, thanks for coming on. And so we'll talk to everyone next week. See ya.

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.