The Canadian Investor - Europe's Energy Crisis & Canadian Banks

Episode Date: September 1, 2022

The latest from The Fed, our discussion on the energy crisis unfolding in Europe with tightened natural gas supply from Russia. Braden discusses the uprise in social app, BeReal. Then we wrap up some earnings from Autodesk, Canada Goose, and Canadian Banks. Tickers of stock discussed: GOOS, ADSK, RY, CM,  Aritzia writeup: https://www.stratosphere.io/company-search/ATZ:CA/ Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast 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. The date is August 30th, 2022. My name is Brayden Dennis. As always, joined by, hey, the father, Simon Belanger. How you doing? Out of 10, how much sleep have you got in the past couple of days?

Probably a solid two or three. Hey, you know what? That's two or three more than zero. You know, it's challenging from the sleep front, but when you see that smile, it makes it all worth it. It's just, yeah, it's like never more than two, three hours in a row. So that's why it's a bit challenging. Right, right. Well, we might get some features from the baby on the on the call today so just just know if that's that's what you're hearing today on the podcast it is what you think it is simone kick us off we got a good episode of news of earnings of interesting things happening with social apps you You're going to round us out later

with Canadian bank earnings. And you know, the Canadian Investor Podcast listeners want to hear about that stuff. So let's kick it in right away with what's happened with the markets lately in the Fed. Yeah. So the Fed in the US. So Jerome Powell's speech last week sent the markets really tumbling. That was Friday. And you can actually look at the chart of any major index Friday, and you'll see exactly when the speech came out because the markets really started going down. So US Federal Reserve Chair Jerome Powell, who I think probably everyone knows by name now, if they didn't. Why is Jerome Powell such a celebrity? I don't even know if celebrity is the right word, but everyone knows his face. He's memed on so hard.

Oh yeah, exactly. Well, he did a speech at Jackson Hole Economic Symposium and it really sent the market going down last Friday. And same thing this week, it's been pretty much downward since then. The big picture macro, I think it's important to understand what the markets are doing, at least on a very short term to medium term basis. Everyone knows if you've been listening to this podcast, we're long term investors, so we don't worry too much about macro because in the long term, it shouldn't matter too much or very little. But I think it's still important to understand it because if you understand it, you're less likely to panic when you do see these broad market sell-offs like we're seeing pretty

much right now. And what Powell said is essentially they will continue being aggressive to curb inflation, meaning that they will continue increasing interest rates aggressively. To me, I'm not sure why the market was surprised by this. When we last spoke about the US CPI numbers, when they came out for the July's figure, the inflation was lower than June. But I said on the podcast, I'm like, this is way too soon to say it has peaked. And, you know, I think it was, I'm just going on memory, 8.9 or something like that. It was down 30 basis point compared to June, something like that. But it seemed like the market thought that was enough for the Fed to

raise the rates aggressively going forward, even though Powell has basically been saying that their plan was to keep being aggressive until inflation would be curved. And I think the market, when they heard this latest speech from him, they realized that they were being serious about it. And then obviously from a Canadian perspective, my best guess is the Bank of Canada will keep being aggressive as well because they tend to follow the direction, whichever direction is set by the US Fed. So I would not be surprised for more pretty aggressive interest rate increases from the Bank of Canada before the end of this year. Have you followed the Bank of Canada on Twitter

yet? I have. Yeah, I looked at the thread you were saying, I think the last time you recorded, it was pretty funny. they're threads that they go ahead and explain like economic policies and like i get it they're trying to educate but also help people understand some stuff when they you know why they're doing what they're doing but they do it in such a terrible way like they do it by like kind of making you feel dumb and kind of gaslighting you. Like it's whoever's writing them needs to change their tone of voice. Yeah, it's basically like it's your fault that you're asking for salary increases. Exactly.

And things like that. And this vicious circle that inflation is going up. That's essentially what they were saying. Yeah, they're like, like, let me tell you about inflation. It's your fault. And for reasons X, Y, and Z, they're very strange. Podcast listeners, have you checked out joinTCI.com? Because Simo and I are doing, it's the end of the month, we're doing our roundup on what we're doing with our own portfolio. And you go to joinTCI.com, the Patreon there, and you see our monthly portfolio updates. But brand new, because I publicly promised it on the podcast, so now I have to do it,

is giving you guys the spreadsheet that we actually use for our portfolios. So it will track your holdings. And then every month, you just put the balance in CAD. And it's a manual way, but I actually think it's a good way for you to just kind of stay on top of the process. And once a month, you go in there and you update it. It accounts for cash flows. It accounts for all of your accounts. And I have found that the brokerages do a mediocre job at best of giving you a complete picture of your stock investing portfolio returns. So hopefully you guys like that. That is at join TCI dot com. All right.

So I did a this is not like me. This segment here. I did a little bit of a macro European. Macro is fascinating. I always find it pretty fascinating. Obviously, I love investing too, but especially when you have geopolitical stuff going all mixed in all at once, pretty interesting, I find. Yeah. Yeah, no, it is. And so, as Simon hinted at before, we are long-term investors. We are holding a select group of fantastic businesses that can flex their competitive advantages for a long period of time, regardless of macro situation for the most part. No matter what rates are doing, no matter what the Bank of Canada is doing, these businesses

are strong. And we do focus on that, but there is a major situation developing in Europe right now around energy and natural gas. And so I just wanted to call that out and kind of demystify it and do my best to explain what's going on here. So here's a quote from CEO Ben Van Bearden. That is the most Dutch name ever. He's the CEO of Shell, the major oil producer. It may well be that we have a number of winters where we have to somehow find solutions through efficiency savings, through rationing, and as a very, very quick build out of alternatives, that this is going to somehow be easily over, I think is a fantasy we should put aside.

We should confront the reality. And so the CEO of Shell is going out here and basically warning Europeans to brace not just a tough winter of short supply of nat gas, but a string of winters with exorbitant power bills, electricity rationing, and issues as Russia squeezes gas supplies. gas supplies. And so most of this is around the fact that Russia is a large exporter of natural gas through their basically state-owned public company, Gazprom, that moves mostly gas into Germany and some parts of Eastern and the middle of Europe. And it is very critical because many of these countries have pretty aggressive winters, right? Like these Nordic countries need nat gas and they need nat gas to run the power plants as well. So it's not only like a heating and cooling issue, but it's also a power plant issue for electricity. So I'm going to do my best here to break down what I think is happening and what I know is happening. And so we've already known that Russia is curtailing natural gas delivery to Germany through their pipeline called Nord Stream 1. halted basically not soon after the invasion of Ukraine started. There were so many sanctions

happening and that project was halted. And that would move even more natural gas with Nord Stream 1 and now Nord Stream 2 into Germany and then through Europe. So I am in no way an expert on geopolitical tensions happening right now in Europe. I know as much as the next guy, but I used to work in power. And the latest development today is that Engie, which is a French utility, a very large French utility, will not be getting enough gas from Gazprom to reliably produce additional power. So France is about 70% nuclear. Fun fact, the CEO of the French nuclear authority in France now works for Ontario Power Generation.

Fun fact, to come work on those nuclear. I did not know that, yeah. Those nuclear, I know because I've met him 20 odd times and he's just the sweetest old French man. He's like exactly what you'd picture. So, beyond the 70% baseload, they produce power with natural gas turbines. And so, this is looking like a pretty bad situation heading into fall and then winter, as this infrastructure is critical from Russia to move gas as Europe kind of freezes up in through late November,

December, January, and the Shell CEO saying that we should be prepared for multiple winters of not enough gas. Now, here's where things get a little weird. And this is where the geopolitics kind of override sense of business. And this is something for investors to think about, whether you're investing in Europe, whether you're investing in China, Russia, these emerging markets, is that politics can come first over rational business decisions. We've seen that with what's happening in China, with their big tech companies. We've seen that now with the invasion in Russia. So Engie, that French utility owns 9% of the Nord Stream 1. And they're being told, oh, you're not getting gas. So it's very complicated, right? Things are more complicated than what they seem. Now, Simon, this is where Canada becomes part of the conversation. In Canada,

Simone, this is where Canada becomes part of the conversation. In Canada, Siemens has been repairing turbines for Nordstrom. Sorry, Nordstrom. Like the clothing company. Which they are not doing well, by the way. The mall conglomerate. Yeah. No, Nordstream, which is a pipeline that goes from Russia to Germany. Yeah. No, Nord Stream, which is a pipeline that goes from Russia to Germany. Under sanctions,

that turbine, one of those turbines has been just sitting there in Canada. Now, threats were basically made saying that if they don't send that turbine back ASAP from Canada, like that's Russia saying to Canada, we'll stop the flow just straight up into Germany or reduce it even further. And so now in exemptions against the sanctions, Canada's returning these five gas turbines under the request of both Germany and Russia. And so then Canada's like, okay, fine, you can have your turbines back. And what a shit show. This is balancing war geopolitics and wanting to hurt Russia with these sanctions, but then also not destroying the supply into Europe as we head into winter is such a delicate balance. And it's a confusing and sensitive situation that people need to be paying attention to. And it's obviously

going to continue to affect commodity prices and energy prices across the globe if this keeps getting worse. Yeah. And it'll probably affect some publicly traded companies adversely that are located or have heavy operations in Europe too, right? So if one of your input costs is primarily natural gas or energy in general in Europe, you'll probably see a big increase in expenses. So I'm sure we have some listeners that do have some exposures to companies in Europe. So that's something to keep in mind. Again, this could be resolved in the next year or like even less, or it could go on for several years. So it's hard to say, but unfortunately,

it's not something you have much control over. Yeah, well put, right? It's like, what do you do in this situation? The answer is not much, right? Like, not a lot, but it is something to keep watching. Yeah. And I mean, if you're owning European utilities or like a basket of European stocks, you're definitely going to see this kind of come out. But again, is it a short-term thing? Is it a long-term thing? Who knows? It's really hard to say. 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, 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 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. Now, moving on to some earnings. This one came out a couple weeks ago, but because of, you know, baby being born and all that, I wasn't able to talk about it.

Canada Goose a couple weeks ago released their Q1 2023 2023 earnings and it was pretty good, I think. So sales rose 24% to 70 million. Keep in mind that most of their sales actually happen, you know, later on in the year and early on in the next year. So that's why it may not sound like all that much. Comparable direct to consumer DTC sales grew 11%. The gross margins increased 660 basis points to 61% during the quarter. I know I've talked about higher margins in the past. Again, they will vary depending on what they're selling. Obviously, they're not selling all that much in terms of PARCA right now, just based on the season. Now, SG&A.

6.6% up on gross margins. And that's a comp, right? Yeah, that's a comp. Yeah. Oh, that's good. That's really good. Because in the past, I think I've talked about like 70%, but that's because a lot of their higher margins park up, for example. Right.

So just so people, you know, if they're keeping track. That's not being sold in Q2 or Q1, 23, their fiscal. Yeah. Now selling general and administrative expenses, what we refer to as SG&A was up 33%, which outpays their sales increase by quite a bit of 24%. And their SG&A expenses are about three times those of the cost of sales. So regarding the gross margins here, just for context, though, that's a pretty significant increase. Something, again, to keep in mind for expenses, you want them to at least be in line with sales, not outpace them too, too much. Net loss increased 5% to 62 million,

and they were free cash flow negative for 200 million for the quarter. This was about 28% more than last year. Again, they look like they will be free cash flow positive on a full fiscal year basis, just the nature of their operations. Now, their guidance remained intact in terms of revenue for fiscal 2023. They're still expecting between $1.3 and $1.4 billion in sales. They also kept their EBIT. So that's earnings before interest and taxes margins outlook intact. So they're predicting 19.2% to 20.7%. So within that range, they kept that intact. So it's really that's some good news as well. And I'll just say

it again, I really like this play. It's still on a short list for me. Using the mid-range of their guidance, they'll grow sales about 23% this year. And right now, they are trading at just about 1.9 times sales this year's revenue. They are profitable on a full-year basis, both on the earnings and free cash flow basis. So it's really interesting. There's also been repurchasing shares at a pretty nice clip here. The one thing for me that's kind of preventing me of starting a position just now is I definitely want another quarter or two,

maybe a two quarters to get more that winter season to see if those SG&A expenses are more in line with their sales growth. So it makes a bit more sense here. It's one that you keep banging the drum on and everything seems to look good for the most part, I think. You know how I have my hesitations. Now, Adrian and I tomorrow or on Thursday, we're going to do a recording on Aritzia. Nice.

Yeah, for next Monday. Yeah, stay tuned for that on the podcast. We're going to do a deep dive into Aritzia because he has done extensive modeling for Stratosphere. And that report is actually now live on Stratosphere. And so we can link that in the show notes. That's for Aritzia for paid subscribers who want to read that research. But we're going to do a deep dive onto it on the podcast for the next recording. And there's a lot to like, and they have been announced some

really smart partnerships with people that you and I wouldn't know, but they own the female demographic between the ages of 16 and 30. Yeah. These people, right? It's not going to appeal to us or probably, you know, many people will listen to the Canadian investor podcast, but we're talking about insane reach. I don't know if you know who Emma, Emma Chamberlain is. Do you know who she is? I know. Maybe we have dads with daughters in that demographic who knows, right? That know who Emma Chamberlain is. Yeah. Okay. If you're, if you're a dad listening to the show and you have a daughter between the ages of, I would even go as far as like saying like 14 to 26, asking if they know Emma Chamberlain is. And dude, she is one of the biggest internet personalities in the world

in terms of like subscribers. She's got 16 million followers on Instagram. Oh, wow. subscribers she's got 16 million followers on instagram oh wow she's got like uh you know tens of tens of millions of subscribers on youtube and oh dude her podcast i was looking at it dude her podcast is listened to like more times than our podcast by like a hundred thousand times yeah i might know i might know her in 15 years so maybe yeah maybe by then my daughter yeah exactly yeah your daughter will be we'll be watching emma chamberlain vlogs no but they just announced some huge partnership with her and aritzia and i'm like the investing public doesn't really think about that as like that's a huge deal deal, but it is. All right. Let's talk about

Autodesk. You know, I talk about Autodesk. We talked about it in our like 15 stock portfolio the other day, and they basically had just released earnings then. And it's the same as always, which is good for one of the most sticky, consistent software companies in the entire planet. It is one I own and revenues up 17% on a comp basis. And that was actually a slight acceleration, which is nice. And it's not very common. You see an acceleration on top line for companies between 2021 and 2022. That hasn't been a common theme. So that's good to see. Billings was the same on that 17%. And dude, the margins are insane because they've completed the shift for all of their platforms to a SaaS

model and very sticky net retention rates between 100% and 110%. They're maintaining that across the segments, that architecture, engineering, and construction to AutoCAD, to manufacturing, to their media segment, and the other segment, all 15 plus percentage growth, 18% on that core architecture, engineering, and construction market. It's just really sticky. And it's a moat that I continue to test my thesis on if the moat can be disrupted. And I'll ask, I have the ability to have so many engineers in my network going to engineering school. I'm like, what's going on? Autodesk still dominating. And there's an interesting thing that I think is underappreciated. And it's kind of the way that Adobe has such a strong moat, is the file type can only be accepted in certain formats.

So like, say I'm an architect and I need you to upload this thing into my system, but I only take AutoCAD files and they're not going to license out the ability for other competitors to use that file type. And so they have this really sticky moat with the file types is one thing that I've really noticed. It's what Adobe has done so well. Like you can't open a PSD Photoshop file on a competitor's platform. They would never allow for that. It's a breach of their moat. And it's very similar here. They're guiding allow for that. It's a breach of their moat. And it's very similar here. They're guiding for over 2 billion in free cash flow for fiscal 23, which is a little under. And you know how I like to track

what they were guiding for about five years ago? It's slightly under that mark, about two and a half for fiscal 23. But that's still growing at close to a 20 compounding your growth rate even at this level so we'll give it to them but andrew agnos when he came on to the business and he was guiding for those free cash flow numbers in 23 you know you want to see him hit it shoot for the stars whatever you know five years out we'll give him a break but yeah i mean it would be nice if they hit their numbers like from that perspective yeah exactly i mean on a five years basis, you want to be pretty close.

It's kind of, it's pretty hard to project that far out. But yeah, you want the management to actually, yeah, deliver on what they promise. If you can't, then maybe don't do five years. Exactly. Maybe he just wanted to set a bold line in the sand for his first year as being CEO, which I can appreciate. Exactly. Now we'll move on to Canadian banks.

We'll do that in kind of two segments. Brayden, I'll have a quick segment in between. I'll just do two, but it's kind of the same story for all Canadian banks here. They are down on increased loan loss provisions. So that just means that they're putting money aside because they think people will, the increase of people not paying their loans will increase. So that's essentially what it is. Obviously, we're not bank experts. I know them fairly well, but, you know, I'm not a bank expert by any stretch of the imagination.

Now, I'll look at Royal Bank and then CIBC. And there's a reason why i chose cibc and not a td or bank of nova scotia for example and i'll talk about that a bit later now for rbc it was not a great earnings release like just i just mentioned and they're following the trend here of all the other big canadian banks total revenues were down five% to $12.1 billion. It was up 8% on a sequential basis though. So that is good, I guess. Net income was down 17% to $3.6 billion. It was down 16% on a sequential basis. Net income was down 4%. So if you look at for each segment, so 4% for the commercial banking segment, this was mainly due to credit loss provisions and loan loss provision, credit loss provisions. I'll use those interchangeably.

They mean the same thing. So if ever you look at earnings release or supporting documentation for banks, you see those two terms, they mean the same thing. Net income for their wealth management segment was up 4%. Net income for their insurance business decreased 21%. Net income for their investor and treasury services increased 86%. And net income for capital markets was down sharply 58% and primarily driven by challenging market conditions. So you'll see there was some big increases for the investor in treasury, but that's actually a very small portion of their profits here. So that's why they're still looking at net income being down 17%. You look at this and okay, looks good, looks good. For all of these companies and RBC,

especially because they are the behemoth in capital markets for Canadian banks, their capital markets business and all the large investment banks or capital markets across the US as well, same kind of figures. That being down 58% is what's driving so much of that net income across their company being down 17%. It is a gigantic part of the business. And it was off a huge high in 2021 with capital markets. And I'm not surprised to see 58% seems like a lot. But that's the highlight for me is looking across all the bank results. And it's like

the impact of interest rates, tougher macro economy, and capital markets being much different in 2022 than they were in 21. Yeah, that would be a good segment. Because last year was like, I think a record year for IPOs, right? So we should look at how it's looking so far this year, that could be a fun little segment to do in the next month or so while we're kind of getting closer to the end of the year. While you're doing CIBC, I'll see if I can pull up how many IPOs there have been this year because it is going to be a fraction of what it was last year. Definitely. I'll see if I can find that. Sounds good. Well, I'll finish up here with royal bank so eps was down 15 to 2.51 and obviously what i mentioned earlier they added 340 million for credit loss

provisions in this quarter that's compared to them releasing 540 million last year during the same quarter so last year they released that amount because they had put some provisions in in 2020 because of the pandemic, and they ended up not needing a big chunk of it. So that's why they released it. And now it's kind of reverting back to adding more money. And now RBC also expect mortgage growth origination to slow due to rising interest rate because just fewer people will qualify for mortgages. And they also said that credit card delinquency rates have increased to their pre-pandemic levels. So obviously, it's still a very well diversified bank, very well capitalized. I didn't go into their capitalization ratios because I find that a little bit boring, but

you can definitely find that very easily on their investors relation. They do a really good job. I'll hand it to them to just provide that information to investors. Still, obviously they're doing quite well, but definitely I think there will be some slower times ahead for RBC. There have been 149 IPOs on the U.S. stock market in 2022. At this time last year, there was 712 done by August 30th of 2022. That's like 80% down? 80% down. It's 79%.

Look at me lack of sleep and doing the quick math. Yeah. Holy smokes. I mean, you're off by 0.9%. Yeah, yeah, okay. I wonder how that affects globally is, but I mean, he's probably on a very similar type of factor. The US market's a very good indication, I think,

for the IPOs, yeah. 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 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. Let's talk about this app. Okay. So this is a quick break for me to flex on all of you because in mid-July, I talked about this app called Be Real. And if you're under the age of 2022, you have it downloaded on your phone. I'm quite convinced of it. People are absolutely eating it up this generation. I talked about how Instagram is making this risky bet. They're trying to be TikTok,

and it leaves people with no app to connect with their friends. Believe me, this demographic ain't going on Facebook. They don't have Facebook. They have Instagram, TikTok. They text each other, Snapchat, and now they have this app called be real okay since i talked about that be real had 21 million monthly active users today they have 73 and a half monthly active users so like three and a half x roughly in a very short period of time today. So you want, you see this screenshot? Oh yeah.

I see it. Yeah. The Apple app store, the top, top app, top free app today. I took the screenshot today, be real. And then you get Tik TOK,

Google, Instagram, WhatsApp, and then it's only showing the top six or whatever there. Unbelievable. Now, I always try to pay attention. You know, people you might be listening to, I don't do all this TikTok and Instagram and sure.

Okay, whatever, that's fine. But always try to pay attention to important moves and companies being made in this space because they are very important businesses. They're advertising businesses. They are gigantic and they are serving a huge, young and growing demographic that will be the largest part of our economy in not very long from now. Look at the hundreds of billions in market cap of public and private companies serving this market. There's close to a trillion in market cap serving this exact market.

And Be Real is currently making a big splash. So it's still a private company, but pay attention to it. They've already signed on some big brands to do very clever stuff. Okay. So this is, here's an example. Chipotle, since the app is all about like showing what you're doing in real time, like very authentic, you have like a minute to share like what you're doing. You take a photo, you show your friends what you're doing right now. Brands like Chipotle are going on there and saying, here's a promo code that lasts for one hour right now. Brands like Chipotle are going on there and saying, here's a promo code that

lasts for one hour right now to order from our mobile app. So that's going to drive mobile app downloads for Chipotle and it's going to drive orders. And so they're doing these clever things on B-Real. So look out for these kinds of things that big brands and advertisers are going to start doing because you know how I read that, Simone? That is really good advertising spend for these companies, really good advertising spend. And when there's really good advertising spend, advertisers go there and you make this gigantic business out of it. So look out for this. I mean, it's still early innings or 73 and a half million active users.

I wouldn't be surprised if it hits 100 million active users by the end of September. You know what's smart, too, about that advertising strategy for Chipotle, for example, they can do that one hour promo when their restaurants are not very busy. Exactly. So it could be like three in the afternoon where, you know, you're kind of in between lunch and dinner, but you're getting an awesome deal. So you drive up actual demand when there's normally a downtime. So that's a, to me, if I'm a business, especially restaurant business, makes a whole lot of sense.

Yep. And they're looking at that. I mean, I'm speculating, but they're also mostly looking at that as you see that you're on the app, you're like, shit, I don't have the Chipotle app. I got to go download it. And so getting those mobile app downloads is also extremely valuable for the company. And so it kind of does like a twofold thing, right? And this is just one use case. There could be many. And maybe it'll kind of wake up Meta or Facebook to actually listen to their users when they are saying they're not liking something and they keep pushing what their algorithm is telling them to go ahead and push. You know, it may have worked for so long, but at some point there's a boiling point and people

just say enough and that's not what we want. And Zuck only cares about Metaverse at this point anyway. Exactly. Doesn't care. So now finishing off with CIBC like we alluded to a bit earlier. So the reason I chose CIBC here is pretty simple because a very large portion of all of their loans are mortgage loans. I believe they have the most exposure as a percentage of their total loan portfolio of all Canadian banks. And I'll give some figures here. It's very high. This is the bank that is the most attached to housing. Exactly.

I didn't look at all the recent charts for all the banks, but it's having probably the roughest time of most of the banks right now. And with the downturn that we're seeing in Canadian housing and rapid interest rates increases, this is the major bank I think it will be really hit pretty badly. Again, I'm not saying they're going to be the next Lehman Brothers or anything like that, but I think they could really have a rough time in the coming years if the central banks are really being that aggressive. So I had a look at their Q2. So now they just released Q3. But the reason I looked at their Q2, it's I looked at Q2 fixed income investor presentation. And I was able to find in there that 56% of their loan portfolio is mortgages. So I knew it was around 50%, but 56%, it's really high.

I couldn't find the data that is tied to variable mortgages, but I think it's safe to assume that it represents at least a third of their mortgages. Because last year, CMHC, so the Canadian Mortgage Housing Corporation, reporting that 34% of new mortgages were variable, and that climbed to 53% this year. And the reason why variable mortgages are dangerous for banks right now is that as interest rates rise, actually rise quickly, mortgage owners or individuals who have mortgage will start hitting their trigger rates. So trigger rates means that your mortgage payment is now all interest and the payment has to increase so that you're actually paying capital.

There are other options available, usually like a making a lump sum to reduce the principal. And I think there is other options as well. But this is a pretty big risk, in my opinion, for CIBC, because I was listening to the great podcasts of Dan and Nick, the Canadian real estate investor. And they were talking that a lot of people were opting this year for variable rates because they could not qualify under fixed mortgage rate. So they were using that as the only way they could really get a home. And they did a great job a few episodes ago of actually doing a deep dive into trigger rates. So I do encourage anyone who wants to learn more about that. Yeah, I listened to that one. It's gold. It's really good. I do encourage anyone to go to that one. Now, if you compare CIBC to RBC, for example, RBC has more Canadian mortgages loan than CIBC, but it does represent a much smaller percentage of their total loan portfolio.

Now, obviously, I wanted to outline this because a downturn in the housing market, which we're seeing right now, could really hurt CIBC compared to other Canadian banks. And now looking at their Q2, I'll just do a quick overview here. Their total revenues were up 10% to $5.6 billion. Net income was down 4% to $1.7 billion, but up 9% on a sequential basis. Earnings per share was down 5% to $1.78, so in line with net income. They added $243 million for credit loss provisions compared to a release of $100 million last year. So the credit loss provisions, if you're a CIBC shareholder or you're thinking of starting a position of all the banks, I would definitely keep a very close eye on this in the upcoming quarter because you will see what they think how risky their loan portfolio is and I have a suspicion that this

amount will keep increasing in the coming quarters I know their chief risk officer made a statement back in June saying that they were comfortable with their amount of risk, but that's also before the Bank of Canada increased the interest rate by 100 basis points. So this one, I think I'll keep doing every quarter release CIBC just because of this, because I find it pretty fascinating how exactly they'll be doing with the Canadian housing and how it's shaping up right now. I have no hot takes because you can hear much better hot takes from Dan and Nick over at the Canadian real estate investor. So it's like our podcast, but the Canadian real estate investor podcast. And if you search it up on your podcast player, you'll notice it looks very similar to our podcast artwork, except it's two handsome men, Dan and Nick there.

And the reason that the covers look the same is because I made both of them with my expert Photoshop skills that don't exist. Yeah, I wonder if Nick keeps getting hit on because of his mustache and look. It's good flow, man. Two great looking labs over there at the Canadian Real Estate Investor Podcast. But go ahead and check that out. If this stuff is interesting to you, if you're owning rental properties, if you are looking to get in the market, they do a good job of also explaining the glossary of terms. Yeah. Very good. We try to do that, right? Because he's like,

you're like trigger rate. What the hell is a trigger rate? Yeah. Well, they, they kind of explain that. And so that's nice for people who are just getting in the market or they run a collection of real estate holdings and they talk to their, their insurance person and they're, they're using words that they don't understand. You could be more aware of what's going on in your rental business as well. So, go ahead and check that out. So, we got an exciting fall, you know, summer's basically, I hate to say it, but it's winding down here. You got your hands full for quite a while, but you're going to be still grinding up the podcast. Yeah. Well, I'll be back for two episodes next week. So obviously, well, we'll be recording next week. So it'll be next Thursday and then the following Monday. But big thank you to you

and Adrian for recording tomorrow because unfortunately, anyone who's had kids, they probably know where I'm coming from the first week, especially supporting the mom. It's not easy. I mean, obviously, you look at that little face and it makes it all worthwhile, but it's still, it's definitely, it's not easy. And I do understand now people saying, you know, when babies sleep, you sleep, although I'm not a good sleeper during the day. So, it's really hard for me to get naps in yeah but we've been basically going to bed at 8 p.m and waking up around 9 a.m and getting six hours within that time frame so that's right yeah right i was gonna say wow they're sleeping more than me but yeah that's not uh that is not REM that is not REM sleep through that a lot of volatility in this sleep let's just say that well people listening here appreciate you doing it because we're going to be here Mondays and Thursdays.

And then Adrian, it's going to be sweet. We're going to talk about Aritzia. And I know you'll enjoy the convo because it's a company that you have been digging into quite a bit. I mean, the way that they have broke ground in the U.S. is it has some Lululemon rhyming to it. It kind of feels like that story, just 10X smaller in market cap about, not quite, but almost. Yeah. All right. Thanks for listening to the Canadian Investor Podcast.

Dude, I'm so pumped for NFL season. Oh boy. I got my NFL fantasy draft coming up here soon. Nope. I can't be doing any stock investing research for the next week, dude. It is strictly NFL research. Thanks so much for listening today. If you're new here, we are Mondays and Thursdays. If you have not done the following, if you are on Spotify at the top, there is a button called follow and there's a rating button there that's kind of new. So if you've been on Spotify and not given us that rating button, do that. If you are on Apple Podcasts, it says subscribe, right? I'm about

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