The Canadian Investor - Higher Rates are Starting to Hit Home Improvement Stocks

Episode Date: May 25, 2023

In this episode, we discuss the looming debt ceiling limit in the US and what it means for investors. We discuss how venture capital has been flowing since interest rates have been rising and what the revised guidance from Lowes and Home Depot tells us about where the economy is going. Symbols of stocks discussed: HD, LOW Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! TCI meetup registration 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 Bélanger. The Canadian Investor Podcast. Today is May 23, 2023. I am here with the very legendary Simon Bélanger. Good sir, we are more than halfway sold out of our meetup on July 7th. This is the Canadian Investor Podcast meetup in downtown Toronto on July 7th. That is a Friday evening.

It's three hours. The link is in the podcast description. We are more than halfway sold out. So if you're listening to this and you want to come and you're available to come and to that night do it before they're gone yeah no exactly i think it'll be fun my hotel's already booked so i'm excited uh excited to see people there it is uh just 30 bucks and comes with drinks and food and the venue and we're and we're just trying to get our dough back. This is not a hyper-profitable endeavor, I can promise you that. All right, let's kick it off today. We are talking about tech layoffs and update on the private markets, since I thought it was quite relevant, the AI predictions, and this.s debt ceiling which has become probably the most

annoying buzzword on financial twitter maybe of all time yeah i know the debt ceiling so i'll go into a bit more detail what's going on with the debt ceiling not to make too much of it but definitely um i'm not making many moves regarding that. I just made one move, which people, when I explain it, they'll probably understand why I did that move. It's pretty logical, but we'll get there a bit later in the podcast. So in terms of tech layoff, I had done this, what was it? I think it was at some point in January, I had looked at the website. January, I had looked at the website. So it's layoffs.fyi. It's actually that's the that's the link for people interested. And what I'll be doing as well as I want to share my screen just to show people here what it looks like in terms of the layoffs. And I'm still getting to getting used to

the share in terms of the new software we're using. But people will be able to look. So if you go on that website, there's different views that you can look at. You can look by companies by layoff, little asterisks here. It may not look like it's accurate. It is actually accurate because what they do is they essentially there's different rows. For example, essentially there's different rows. For example, Emeta, who did two sets of layoffs, or I think it might even be three by now. So there's going to be different rows.

So this I just sorted in terms of the per layoff, the biggest amounts, just to give people an idea. And then you have these charts here that give you an idea of the tech layoffs in 22, 2023. All that to say that it's not looking, you know, the year has been pretty rough in terms of tech layoffs. It's not been the best for people. And I'll just stop sharing here because I can go back to my notes. So there's been 186,000 layoffs in 2023 for Q1 alone. That's compared to 84,000,000 Q4 of 2022 and if we're looking at Q1 2023 alone that's more than all of last year as a whole and Q3 it seems to Q2 sorry it seems to

have slowed down a little bit their their tally is 31,000 layoffs but obviously I'm not sure if that will pick up throughout the year. One thing that we've talked before is tech companies now, especially the big ones, right? Because I took for the people seeing my shared screen for the video, you'll see that a lot of the top 10 layoffs are all the big tech companies. So Google, Meta, Amazon, Microsoft, Ericsson, Salesforce. So these are some of the largest companies that are trying to be more efficient because they're seeing growth slow. So they're trying to be at least keep the profitability to where it is.

And we talked about it with Mark Zuckerberg sometime backwards, the year of efficiency efficiency and it seems to have spilled into the broader space as a whole once it's uh once a few dominoes fall from these big tech companies they no longer have the pr risk of being first and mr elon musk decided to step up to the plate first as massive layoffs hit Twitter. And then it seemed like basically from that point on, all of the big tech companies no longer had to be first in the press. And you think this doesn't matter in their decision-making? Trust me, it absolutely does. Because these are people's lives, this is their livelihood, this is their career. And so layoffs is never something

you wanna be in the news for. So once that has fallen, we've seen tons. And one thing that I'd like to add here is two pieces of optimism. is one, there is a good chance that if you got laid off from one of these tech companies and you're listening to this podcast, first of all, I'm very sorry. I'm wishing the best for you, but here are two pieces of optimism for you. Okay. One is you are now, you now have one of the best resumes, like you're in the top 1% of resumes on planet earth. And two, your skills are extremely valuable, almost anywhere in almost

every organization that is looking at digital transformation as a top priority. And what I'll say is number three is if you were at one of these large companies, chances are you got a pretty nice exit package far up and above what is the legal law and what is like expected for most large companies. And so maybe you have quite little bit of runway to do things that you've always wanted to do, take that trip that you've always wanted to do, or try starting a company. You know, this is the downturn is when the most amazing companies are built because typically there's not a lot of funding available. So you're forced to be profitable right away. Two, you have a large amount of people that are now highly

skilled and available in the workforce because if you're building a company and the talent is being competed for not only by you building a startup, but also Google, Meta, Amazon, it's really hard to convince people to not take a 300K total comp and work at one of these companies to come join your startup and make dirt and ramen as their annual salary. So those are three things to think about if this has affected you and how to be optimistic about this. Because in my view, honestly, I'm not just saying this, more pros than cons here. Yeah. And I think I'm a big believer of trying to make the best out of a bad situation. And clearly, whenever I talk about layoffs there, I try to look at it more from an

investing perspective. But of course, when people are affected, obviously, there's still the human side behind it. But yeah, generally, I think my motto is just trying to take situations that, you know, at first may be hard to take, really difficult, obviously, if you're a good employee. For a lot of people, it'd be a hard thing for their ego, for example, to be let go, especially if it's the first time. But take some time. You can take a couple weeks. There's no need to rush.

Oftentimes, taking a week or two, just calming down and not saying anything. You wouldn't want to be out there like the Maple Leafs doing press conferences when they're right fresh of being eliminated. Sorry, I had to take a little jab there. It was too easy. That's okay. It was ripe for the taking. Yeah. But I think it's just a good reminder. You can make good out of bad situation. Even if you don't start your own business, if you go to another job, if you're receiving severance and another job, that could be an opportunity to and another job, you know, that could be an opportunity to almost set you up for life, right? If you make the right decisions, you can

invest the money. You know, if you're not too lavish, if you actually make some smart decision, actually, you might be better off in the long term. That's right. What do they say? One door closes or another one? What's this? It's such a cliche saying, and I'm still butchering 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, 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. That is questtrade.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. That is airbnb.ca forward slash host.

Let's talk about an update on private markets because this is related. We're in this downturn, right? Who's ringing the bell that it's a recession? Meanwhile, big tech companies march on to... I was hoping you'd have a more positive segment, but it's kind of hard right now. There's a lot of negativity out there. Well, I just said the three keys to positive thinking here, Simon. Private markets, okay? So, markets. So we talk about public companies 99.9% of the time on this show, if not 100. But it's still interesting to see what's going on with private funding and deal flow in venture capital specifically. And so I'm not talking really about private equity here, but more so venture capital is not isolated because the VC world, venture capital world, often uses public company comps. And it's also a reflection of the amount of risk on money available flowing in the system ready to be deployed. Just look no further than the deposit

growth at Silicon Valley Bank over the past 10 years. Look no further before the blow up. You can see it basically go exponential. Hyper low interest rates saw venture deal flow go mental, grow rapidly through the 2010s. You get these kind of like historic firms, the ones that backed the early, for lack of a better term, Web2 winners. And a lot of it went bust in the fall of 21, not only in deal flow, but also private and public market valuations of venture scale, hyperscaler growth companies. And according to Crunchbase, I was looking at their latest report that covered the first quarter of 2023, global funding in the first quarter reached 76 billion, marking a 53% decline year over year from 162 billion in the first quarter of 2022. Now, that's interesting because the first quarter of 22 was also down year over year. So this is including the 10 billion investment into open AI and the six

and a half billion round for Stripe. So if you back that out, you basically have, back out the six, back out the, yeah, like 60 billion for the quarter. So it's really a lot like two deals that drove a significant portion of this spent. So every funding stage here, quote from Crunchbase, every funding stage last quarter was down 44 to 54% year over year. A clear signal slowdown is not confined to late stage funding. Investors across each stage scaled back as they took time to assess new investment opportunities while guiding existing portfolio companies. I've talked to handfuls of VCs over the past month or two, it seems like just the sheer number of deals is dramatically down from their usual deal flow per year. So we'll see what happens. Of course, these things are very cyclical. You have rates go from basically zero to where they are today. You have risk on money going from whatever to, okay, maybe I should be a little bit more cautious, all in the span of basically fall of 21 till today.

yeah and i mean at the end of the day even for venture capital right it has to be worth their while even more so when you can get five percent on your deposits whether you go through you know you have preferential rates at certain banks or you go through money market funds so it makes all the sense in the world right why should they risk in a company that you know there's a low likelihood of success versus having that guaranteed rate of return i obviously they still do to some extent but they're probably much more selective and i would say yeah they're probably they're probably more strings attached i would guess as well yeah like you can't just raise venture debt like you did a few years ago. Like it's the economics fall off quite significantly.

Now, this is not the death of venture capital. Without a doubt, it is certainly not. But it is a step down from what I will call maybe peak euphoria. Yeah, I would agree with that. I mean, it's pretty, it's kind of funny, right? The graphic that you showed is, that you have on the notes here, it basically shows peaking around Q4. I guess Q1 was still quite high high and then you have the interest rate raises

that start happening and then you see the significant decline and now it's kind of leveling off. Yeah. And there's probably a quarter or two of delay between like, you know, you sign a term sheet in November of Q4 21 and that closes in Q1 22 when crunch base captures this deal flow. So it really starts to show up in the numbers in Q2 of 22. The positive here is that if you look sequentially Q3 22, Q3, 22, Q4, 22, and the most recent Q1 of 23 has been stable. It's been actually flat at around 60 billion each quarter, or a little bit higher, close to 75-ish. It's hard to tell from this scale. So that's, you know, we'll take what we can.

We'll find one piece of positive news at the end of this segment as well which is that it's been relatively stable here finding uh finding a base at about 75 billion dollar of deal volume uh since q3 of 22 yeah no exactly uh now we'll move on to the next segment you talked about it so the u.s debt, which seems to be what all major financial websites just can't get enough on. Remember my disdain for the word unprecedented? Do you remember that? Oh, yeah. Yeah. This is the new one. This is the new word they use at the top of every single financial site. Yeah. And I mean, there is, I've been reading quite a bit on it. So there is some differences and some similarities. So I'll go kind of over just to give people a bit of an overview what's going on, probably a bit more nuanced than what you'd read in terms, obviously the headlines.

So obviously the U.S. debt ceiling and, you know, in the U.S., they're on track to reach that ceiling most likely around June 1st, which seems to be what Janet Yellen is saying. Janet Yellen, who is the secretary of the Treasury of the U.S. Now, what's been happening is Kevin McCarthy, who's the Republican Speaker of the House, and Joe Biden have been negotiating to come to terms so that they can raise the debt limit. Essentially, there is a debt limit. It has to be agreed upon between the House and the President.

And Republicans are looking for spending cuts while Democrats would rather minimize spending cuts and then increase taxes. So those are kind of the two camps. Republicans control the House, the Democrats control the Senate, and obviously Joe Biden's a Democrat as the U.S. president. In the past, American politicians have always been able to come to an agreement. However, there's always been some it's always been kind of last minute type of deal. There's also an option that Biden could use and to say that the debt ceiling is actually not constitutional based on the 14th Amendment. However, there is a time constraint related to that, and it would most likely be challenged in court as well by the Republican, most likely ended up in the Supreme Court. So it's not clear whether that's an actual

option or not. I don't want to get into politics here. It's just the fact that that's essentially where the two sides stands right now. And from all projections I've seen is a default by the US would be, it really depends on the length of the default. If it's just one day and then they come to an agreement, there's most likely not going to be too many major consequences. However, it could impact the trust that other countries and foreign investors do have in U.S. Treasury. So that's always one of the things that could happen, even if it's a, you know, very short term default or a technical default where it's, you know, some of the obligations are not paid, but it's not a full fledged default, which would mean that

the U.S. is simply not, you know, paying any of its obligations. What I think is a bit more alarming this time, and it's hard to put your pulse on it, is there's a lot of polarization in the US. So Republicans and Democrats, I'm not a political expert, but it does seem like it's as polarized as it's ever been. And there almost seems to be that either party party i don't know if they really want to come to an agreement or not they all like it i almost get the impression i don't know if the same for you brayden but it's almost as if they're okay with not getting an agreement so they can blame the other party well that's that's the game isn't it yeah exactly um which would be that's the you know that's what they should just teach in politics 101 yeah yeah and i mean so i don't know whether to some extent they're bluffing or

not but regardless i mean the optics are not great right now but i think most people do expect that there will be a deal and they will be able to raise the debt ceiling hopefully each side can actually come to some sort of agreement, make some concessions that are acceptable to both of their parties. We'll have to see. There's not that much time left. There's about a week left as of this recording. So for me, I'm not really changing any of my investments because if there's a major default long term, there's going to be some major economic pain on the world, but also obviously the US, but on the world as well. So like I said, the longer it lasts, the worse it's going to be.

I've read a few papers on what economists think it could mean. put my cash, if you'd like, and my TFSA that I'm ready to deploy if I want to into this ETF, ticker BIL, which is one to three months US Treasury bill. The reasoning behind that was that it's backed by the US government. And I'd rather have that there versus depositing at a bank where it's not CDIC insured with things like PSsu which is a u.s savings accounts etf but seeing that it's getting closer and closer i decided to actually change my mind there got a five dollar you know a trade cost with quest trade and i ended up buying back psu i think just the fact that there is a non-zero chance that it could default, I think to me, not having my cash tied to US treasuries made a whole lot of sense. So that's the only change I made for the rest of my investing portfolio. I haven't made any changes. So that's how I'm

kind of approaching it. Next up, we have your your segment here but the reason that the reason that i waited is because my follow-up segment is builds off this so if you want to go again uh it'll make sense very shortly okay no sounds good so uh basically i want to give you props because obviously you made a good prediction in terms of your bold prediction for AI and how there would be a lot of hype. And I think, what did you say? Did you say there would be almost a bubble forming? I can't recall your exact bold prediction. I'd have to check back, but it was basically, there will be a bubble in artificial intelligence, mostly in private, but also in publicly listed AI stocks. Yeah. So I'll just give a few numbers here just so people can actually wrap their heads around it.

And then I'll show a graph on Stratosphere, which kind of shows all the name so people can, you know, have a visual idea as well. So ETF Q2UM is an interesting ETF. It has names like NVIDIA, AMD, ASML as their top holdings. The ETF currently is up 14% versus 5% for the S&P 500 SPY, which is obviously the one that most people kind of track when looking at the S&P and that's over the last six months why six months that's pretty much when chad gpt and ended up uh getting a whole lot of hype i think it came out what in november if i remember correctly just around that time right oh wow now i'm all right i think it was yeah it was in the fall right yeah okay yeah it was in the fall, right? Yeah. Okay. Yeah, it was in the fall. Pretty sure of that. Yeah. It seems like so much more recent, but I'm going to find the launch date. So I'm still pretty confident on my six months here.

November 30th, 2022. Okay, there you go. So that's almost like six months to the day there. Very close, at least. So QQQ, which is the NASDAQ, the power shares is up 17% during that same time period, actually doing better than the Q2UM that I talked about. You can make a case. The big reason for that, it's because it's being pulled by names that have been pretty hyped up. Well, not hyped up, but let's just say they've had AI tailwinds like Microsoft, Google, NVIDIA, and Meta.

Microsoft is up 30% over the last six months, which obviously it's investment in open AI. NVIDIA is up 89% over the last six months, which is just insane. Wow. You know, most semiconductors are actually doing all right, but it's kind of crazy that NVIDIA is up so much. And since Google announced on May 10th that it was making BART AI available in more than 180 countries, excluding Canada, obviously, it is up more than 16% since that day. So I just want to say congrats.

That's that's pretty well done. And I'll actually just share my screen here one last time. So I just want to say congrats. That's pretty well done. And I'll actually just share my screen here one last time so people can actually see a visual representation. I don't know this company, but the company is called C3.AI. Yeah. I've heard of it, but I'm not very familiar. Yeah yeah i don't know what they do but here's here's the thing it actually doesn't matter because the ticker is ai so the stock is up 143 year to date yeah and if you're looking here at the graphic i was talking about and uh yeah my apologies for the tab here was looking a little funky.

But so the bottom line here is actually the S&P 500. So I have here the Q2UM ETF, Microsoft, QQQ, SPY, and NVIDIA. So you see that over the last six months, looking at total returns, although most of them don't pay much of a dividend or none at all, you're seeing the names perform quite well, actually crushing the S&P 500, which you can make a case it's being pulled down by other sectors. But I figured I'd show that to people because it actually makes a little more sense and put things in perspective here. Well, I was talking about return decomposition last week, right? Where it's like, if you don't include big tech, NVIDIA and Tesla and AMD, you are flat year to date on the S&P 500,

like in terms of the top 20 contributing almost all of the return decomposition. Look, NVIDIA is an interesting one, right? Where it's like last year when the stock was getting on a pretty serious drawdown, which almost every growth name was on, I thought it looked quite interesting, but I couldn't get there on valuation. That was then.

That was 90% ago. Look, NVIDvidia could very well grow into its valuation of the over the past over the next 10 15 years if everything goes right but you are tossing out value you are tossing out margin of safety so far out the window with many of these names. And that's fine. Just be aware of that. There cannot possibly be a margin of safety on these names trading at bajillion times free cash flow. So we'll see how this plays out. There obviously are some category winners here in the space, in the infrastructure, and with NVIDIA being the clear-cut winner here in terms of the most advanced chips. Just from OpenAI alone, they have billions and billions of revenue that's going to be unlocked with orders that they have on back order. Because each GPU is like 30 grand or something. It's like insane.

So they can flex price. They have a lot going for them that the market, I think, has far surpassed in terms of being priced in. I could very well be wrong, but you need everything to go right for the stock to work from here. That's my take. Yeah. And I mean, the company, I didn't realize it's like worth $750 billion. Yeah.

That's crazy. I mean, I think NVIDIA is a good company, but I'm not sure if it's worth $750 billion. But yeah, no, I hadn't realized how much of a run up it is. It's been insane. And you got to give the company a lot of credit, like Jensen, the CEO. Dude, the guy's an absolute killer. He even just looks cool. He walks around with his slick leather jacket and he's just the man.

I'm all in on that. I think that it's a great company. But as an investor, you have to recognize everything has to go right from here to make money and maybe it does, but that's the margin of safety completely out the window. 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. All right. So thank you, sir, for the recognition. I don't get as many bold predictions right as you are. I have a couple thoughts here. I'll say, yes, we can chalk it up into the wind column probably by mid-February there.

There's obviously a bubble forming. The hype is certainly overwhelming and it finds its way into even the most casual of conversations. And I know that without a doubt, there's a bubble forming in public AI stocks and venture deals too. History doesn't repeat itself, but it does rhyme. So that's happening. What I will counterpoint this with is when I first made this prediction, I hadn't given enough time to play around with it, let alone build. I've built an AI company in this timeframe with FinChat. So where I was skeptical was about how fast there would be until there is defined utility of this technology. And oh boy, there is certainly defined utility that is obvious and people are seeing value in it every single day in the hundreds of millions of people.

Now, the progress and advancements of potential AI assistants and agents already this calendar year is alarming. The rate of change has far surpassed what I thought would be possible. And so where there is certainly a lot of built up air in a bubble in terms of valuations, the underlying technology is just so, so amazing. So I'd like to say that, like, I wouldn't be pursuing it so intensely career-wise if I didn't come to that conclusion a few months ago. With FinChat, we recognized right away the ability to turn extremely unrefined thoughts

into beautiful outputs. You turn natural language into amazing outputs. With FinChat on the plus, you can actually just say, provide me a list of stocks that meet criteria X, Y, Z, A, B, C, and it'll produce that for you using GPT-4 and the data from Stratosphere. So that's amazing. You turn like really natural language, unrefined thoughts to beautiful outputs. I just tried, I'm very skeptical of some of the GPT plugins. I think that there are some of them are quite bad. I just used the GPT plugin where it connects to the internet. And I said, tell me who Braden Dennis is. And it got like 99% of it really well. It links to my LinkedIn profile. It says I, you know, I'm the founder of Stratosphere. I'm an investor

who hosts the Canadian Investor Podcast. I started investing when I was 18 and I decided to make a leap into building businesses. That's all very true. I'm pretty sure that must be transcripted from the podcast or something because even the there is like how I would say it. But it also says I'm a principal investor at Alliance, the German company. Oh, that's used to me. Where it came up with that is so confusing because I have no idea. That's not documented anywhere. have no idea. That's not documented anywhere. And it doesn't actually, it says it's, it actually sources my LinkedIn profile as how it came up with that, which is obviously not correct. And this is an example where it hallucinates with such confidence, you know, like, and that's where

I really want to build something that doesn't do that. And that was kind of the genesis for FinChat and like having it like as your financial assistant that provides the actual data to back it up in a table and in a chart, because every other tool today hallucinates with confidence. And that's terrible. Like at least hallucinate with like, I'm pretty sure this is right, but it doesn't do that. It does it with complete confidence. So there's still a long way to go. I'll round this out with saying that there's certainly a bubble forming with valuations. But history has a keen ability to repeat itself. innovation and technology that changes vast amounts of you know products that serve horizontal markets like this happens time and time again so that's not surprising i'll counter that with i'm shocked by the pace an alarming rate of change it's both concerning and exciting. Yeah, yeah, I think so. I mean, yeah, with a young daughter,

obviously, sometimes I do worry at what things could look like in the future. Maybe I shouldn't have watched Terminator or something like that. Yeah, kind of scares you a little bit. But I think there's a lot of good I would almost like to see on chat GPpt and bared ai to if they have some kind of meter where you know there gives you like probability of accuracy of information 80 or 85 depending on you know you're not you're not a celebrity or anything so maybe someone like you they say okay well this the probability that this is accurate it's like 75 80 percent right that way i think something like how much did it have to reach into its language model to spit out something yeah versus i grabbed this and translated it from a source right here yeah

because it almost feels like they maybe saw an ad on linkedin or something and they pulled the information and mismatched it with yours i don't know i'm trying to make i understand how it would have come up with that yeah i'm i'm not really sure i guess the here's the problem no one is you know like that's that's that's where a lot of people have concern here is it's such a black box. I think that they're already kind of getting in trouble for not being the most data friendly and privacy friendly, some of these large companies. And there's no sort of drilling in from here on the interface of how did you just make up that I'm a lead principal investor at Allianz in

Germany? Where did that come from? It's just completely unknown and no one has an answer for it. So that's, like I said, I'm both excited and concerned for the alarming rate of change. excited and concerned for the alarming rate of change. Yeah, and I use ChatGPT and I'm planning on using a VPN to try Baird AI as well just to see how it looks like. But personally, I would always double check all the information. So I think that's really important for people to understand is if you're using it as a tool, use it as a tool, right? I think something I learned in university is, you know, you could use Wikipedia, but I used Wikipedia more as a tool back then to, you know, get the sources from different subjects. And then I'd read the actual paper that I would reference, and then it would help me doing research papers at university. And that's almost how I would approach this AI right

now, this language model. How do you call it? Large language model, LLM. LLM. So that's how I would approach it because like you just said, it tends to hallucinate a little bit and I think you're going to see some pretty awkward papers in university with kids trying to use that. And then it just kind of hallucinates like half of the paper and the teacher is like, OK, clearly you use some kind of AI product to do that. Not to mention, since it's trained from like kind of a defined set of vectors and sources, the way it speaks and the way it translates information and the way it creates documents

is very noticeable by other AIs. Like there's AIs to detect that this was written by artificial intelligence and a large language model. And so those are really good at detecting that. And so I think that that's, it's like the equivalent of, you know, hey, teacher, you didn't check the homework. Whoever made these tools are the equivalent of the kid who asked the teacher about checking the homework at class. No, exactly. Now, I mean, just because we'll move on to the last topic here, the last segment.

And I was reading just some headlines this morning. I usually go through, I have Apple News Plus, and I was reading that obviously Lowe's came out with its earnings today, and they were guiding lower for the rest of the year following essentially very similar kind of guidance that Home Depot did a couple of weeks ago. So without going over the full earnings here, I wanted to touch on this quickly. The numbers I'll be referencing are the midpoint because usually, obviously, with guidance, companies tend to give ranges. Now, both are saying that sales will be down this year. Lowe's is saying around 2%, while Home Depot around 2.5%. Lowe's said that its adjusted earnings per share will be down 3%.

They didn't give the numbers that was not adjusted. So, take this with a grain of salt. Home Depot said that its earnings per share will be down 10%. And I won't go into more detail than that. But you know, one thing I wanted to point out, first of all, these companies are affected by commodity prices, for example, lumber. So as the prices come down for lumber, clearly, it's going to affect the top line. In terms of, you know, earnings and profitability. Obviously, they've also seen some impact from inflation.

They're not immune to that. But I think it's important to remember, I think we're starting to see here the lag effects of the rapid rate hikes that we've seen across the world for central banks. But, you know, maybe more with Home Depot and Lowe's thinking more of U.S. and Canada here. And I would venture to say it's probably people that are pushing back non-essential home improvements because they either can't afford it, can't qualify to get financing, or even they're deciding to spend on other things because, you know, travel, for example, because, you know, they did a lot of home improvements during COVID because might as well, since money was really

cheap, there was not much to do. So you might as well improve your home. So I think you're starting to see this effect of higher rates and shifting customer behavior, at least in the short to potentially medium term. I don't think I'm not trying to be doom and gloom here because, you know, I feel like a lot of our segments weren't the most positive today. I actually own Home Depot and I think it's not a bad opportunity to look at Home Depot and potentially buy it if you want to hold it for a very long period of time. It's something I've been considering, especially if the stock continues trading sideways or even downwards a bit more. Clearly, there will be some headwinds. I think that's pretty clear

in the short to medium term. But if you're a long-term investor, it actually could be a good opportunity to start a position or add to a position because they're very good businesses. I don't know Lowe's as well, but typically, I mean, Lowe's and Home Depot are very close, right? They're same kind of sector. So same, very similar type of businesses in terms of home improvement. So it's something I wanted to touch on just because I think we're starting to see the effects. But again, it can create a good opportunity if you're a long-term investor. If only Lowe's smelled half as good as Home Depot does.

No, you touched on an important point here, right? Which is like, none of this is investment advice, of course. But if you're trying to own a great business like Home Depot, you are trying to buy it when its opportunity in the short term and medium term is both uncertain and guided down. It's so contrary to what the human brain wants to do, which is buy Home Depot and own Home Depot when the story is perfect and everything is wonderful. That instantly goes into the price of the stock. Like, hence our NVIDIA conversation that we just had. Hence our NVIDIA conversation that we just had. It's a business like Home Depot that's really easy to recognize on that because it's just obviously great and obviously the leader. And Lowe's here will bucket it in.

And just obviously a long-term winner with a tremendous management team and just like hard to be disrupted by the e-commerce world, just given the nature of the products they sell. So you want to buy when there's blood on the streets. And there's hardly blood on the streets here, but the outlook is obviously worse than it was six months ago. And so that of when long-term investors should be getting excited and not running for the exit. Yeah, exactly. Like clearly there's macro forces in play because if it was company specific, they would not basically have the same guidance. So I think that's safe to say. So I think that's safe to say. And like you said, I think at this point we would have seen, you know, a Walmart, Amazon or, you know, name your other large retailer try to eat their market share. I think it's just too complicated to to try and disrupt a Home Depot or Lowe's. I think they have a really solid moat. I mean, you know, these competitors, I'm going to add Costco there as well. They, you know, they obviously compete on some items with them.

But, you know, I don't think we're going to see anytime soon lumber at Costco and, you know, at Walmart or, you know, get some lumber shipped from Amazon in one or two days. Footprint alone is a huge. Exactly. A huge barrier like what costco always has like 4200 skews no more no less per location it's like hyper optimized like yeah it's you know walmart is now the everything groceries and lumber like yeah exactly but i don't see it happening no the investment it would require would be ridiculous, even for those businesses. So I don't think these two businesses are going anywhere anytime soon. Again, it could very well go down in the next year or two from here, but you get a pretty nice dividend as long as

you're patient and you think the outlook is positive longer term. Obviously, you do your own due diligence. This is not investment advice. It's just my opinion, but I think it might be a good time to add soon enough. It's funny, right? If you share this and you're like, oh, clearly these guys think Home Depot is better value now today and I wholeheartedly agree with that. But there with, you know, the outlook today, the real softening in demand for home improvement, how much rates have impacted and how the real estate market has trended

and probably going to trend for, I wouldn't even say the short term. Like I would say medium term, multi-year probably. Yeah, I think that's fair. Multi-year for here. So if you go buy home devo stock and you think today and you think that it's good value today, just know there's no real catalyst for this thing all of a sudden moving higher. And so you need to build expectations and kind of a plan for a position if you're going to actually own it for a long time. Because if you buy Home Depot today, yeah, you're getting paid to wait. But there's no catalyst that I can see that moves this thing materially higher over the next

three to five years. And so just kind of have these things in mind if you're actually long-term to be actually long-term. You know what I mean? Yeah, exactly. I think the biggest catalyst will be at some point when interest rates start coming down so people can potentially tap in home equity and start doing home improvements. And then the other one would be potential government subsidies or government programs to encourage people to do that. You know, extra unit, especially in Ontario, we're starting to see changing the legislation with would remove pretty much all the single family home zoning. But again,

that's one part, right? So people need to have money to be able to do that or credit to be able to do that, the loans and so on. You know, I think longer term, there are some tailwinds, but, you know, I wouldn't be surprised if Home Depot is down and lows as well a year from now. That's, if Home Depot is down and lows as well a year from now. That's a pretty good chance in my opinion. Like you said, you have to have a long-term approach and the conviction. If you don't, you'll probably end up losing money on it because you'll buy it, it'll go down, you'll panic,

you'll sell, you'll buy high, sell low. That's the investing philosophy of the ages. You have to buy high and sell low. That's the investing philosophy of the ages. Yeah. You have to buy high and sell low. Thanks for listening so much to the podcast. We really appreciate everyone tuning in. If you want to see us on video and sharing charts and our screen of all the things that we have on that we're looking at our notes our research that is on join tci.com that is the patreon join tci.com it is nine dollars canadian per month you get what

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