The Canadian Investor - Higher Yields, Canada’s Housing Gridlock, and Investors Turn on Google

Episode Date: July 25, 2026

In this episode of the Friday Macro Show, we look at why Google sold off after earnings despite strong headline numbers, and what rising AI infrastructure spending could mean for the broader market. We also discuss Canada’s latest inflation and retail sales data, why consumers may be reacting to higher prices through demand destruction, and how rising bond yields are affecting mortgages and housing. From there, we dig into Bridgemarq’s dividend cut, the changing economics of real estate brokerages, the “Great House Transfer” problem as boomers struggle to sell, and why the next wave of AI IPOs could face a much tougher market than expected. Tickers discussed: GOOGL, GOOG, BRE.TO, TOU.TO, NVDA, META, AMZN Watch the full video on Our New Youtube Channel! 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  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. 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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Welcome back to the Friday Macro Show. Now we actually have a title for the Macro Show, not a restringing. live. So yeah, we'll come back. We have quite a bit on the slate. Pretty crazy in terms of macro. We'll talk a little bit about CPI coming out in Canada. We'll talk also about Bridgemark, new capital allocation, essentially cutting its dividend by 96%. For those not familiar, they own the real estate brokerage Royal LePage. We'll talk about Google drops 7% on earnings that look quite good on the surface. So we'll touch a little bit on that. But just the free cash flow thing, in your view, yeah. Like, I mean, it feels like pretty well priced, man. Like, I'll kind of give, I have some reservations that what's happening with Google. I mean,

you can make a case both way. You can make a case that it's well priced. You can make a case that there's a lot of risk that are not being priced in by the market right now. We'll talk a little bit about that. Of course, Dan Kent and I on our Thursday episode will be diving a bit more into that. We'll talk about the new U.S. tariffs, an additional 50%, on about 20 billion worth of Canadian goods. We'll talk to a little bit if we have time, Canadian retail sales. Not sure if you had the chance to look at that, Dan. No, I didn't actually.

I meant to because it's in my calendar. My open claw puts it in my calendar, but I didn't, I should have just got it to give me a summary. That's okay. Yeah. So if we have time, there's so much to talk about, obviously, resuming tensions in the Middle East, what that means for oil. We'll talk also about what that means for bond yields that have been rising pretty significantly. And I guess if we have time along with the retail sales, maybe talk a little bit about

the Japanese yen hitting, what, something like 40 year low, something like that. So just being hammered. So a lot to talk about. I think we'll also talk a little bit about boomers not being able to sell their homes. So we were just talking about that as we started recording. I know you've been posting quite a bit about it. So I think it'll be a fun topic to talk about. Yeah. Cool. Where do you want to start. It's, uh, do you want to talk about June CPI? Sure. Yeah. Okay. What's your, uh, what's your first impressions on it? Well, I think like my, and I didn't look at the retail sales, so I don't have a ton to compare to on the consumer, but like, you know, our original read was this, you know, the acceleration, like gas prices have gone up significantly, even though oil is,

is being controlled and low from an input perspective by the strategic petroleum reserves, which I think we want to discuss a little bit. So consumers, it feels like are, you know, can, well, we saw gas prices come down in that period of time. But I feel like consumers are, you know, there's potential that they're reacting in such a way that was sort of like what we forecasted that, you know, you're more likely to see a demand destruction outcome

than a inflationary outcome. So I think, you know, I don't think the inflation story is over. I'm going to try and, I got, I missed the budget. on your screen share there, but I'll figure it out. I don't know if you want to try and share it again, actually. Let me see if I can find it. Sure. Yeah. The, yeah, I mean, your consumers seem to be reacting in such a way that like there's probably limited upside to like, you know, significant long term upside to inflation, the inflation story in the long term. I think that, you know, gas prices could probably give us another couple of high, high monthly readings on, on inflation.

but it seems to me like both the U.S. and Canadian consumer are sort of reacting by spending shrinking on the inflation side. So I do still think that, you know, conflict in the Middle East, oil price shock is more likely a recessionary or demand destruction outcome than an inflationary outcome. I don't think the consumer, especially in Canada, but even in the U.S., can absorb the energy. shock. Well, I think the data supports exactly what you're saying and I'll show it with the retail sales because I know you haven't had the chance to look at it, but it definitely supports what you're saying here. So just wanted to show here. So in terms of year over year, gasoline was up 20 percent. But if we're looking for May to June, so essentially that's a period where the ceasefire started taking place. Gasper oil prices started trending down, of course, feeding into

gasoline prices as well. So you had a 10 percent decline. on a month over month basis. And I think the headline number came at 2.8, which economists were saying expectations were around 2.9%. So definitely a bit softer than expected. But if you start looking here for retail, you actually start seeing something a little bit interesting. So in terms of gas, and this is May,

so it's not like the same month, but I think it still supports what you're saying. So you're seeing in May that retail sales for gasoline station and fuel vendors were up. I'm not sharing the right tab here. There you go. So they were up 3.1%. But in volume terms, it felt 2.7%.

And May saw a big price increase in terms of gasoline prices. And I think this is exactly what you were saying. I don't think there's a better data point than this right here is you're actually, yeah, retail sales as a whole on a nominal basis were up 3.1%. But in volume, terms they were down. So clearly there's some kind of demand destruction happening. And obviously, again, May versus June, but I think it tracks to what you're saying. Yeah. Yeah. So I guess the question becomes like, you know, bond yields are ripping again, you know, pricing in that, you know,

we've talked a bunch of times about how the Fed will probably need to hike or the market, that's what the market's trying to say. I just don't see it, but the market keeps trying to price that in. And the question sort of becomes from my lens is like when does that end and when does the market get realistic that you know we're we're not in an economy that can support you know rate hikes I mean or just the market's really you know the bond market's wrong and Fed fund futures are wrong which you know they I think again it's a coin toss yeah yeah I mean the two year is consider a really good indication as where where Fed's fund rates are going and if people don't believe us You can just go back five years and the rate hiking cycle.

So you're looking right here, just showing here what it looked like in 2022. So July, you saw the open for July was like 2.9% for the two year and then ended at 3.5%. And then in September, just like a month and a half later, that's when the Fed's fund rate actually was starting to hit that level too. So it was a very good indicator and usually seen as a good indicator as to where the Fed's funds rate is going. but I agree with you. It's just, and even going back to the first press conference of Kevin Warsh, he did mention during that press conference that it really depends on what area of the economy you're looking at. And he pointed, I've said it before, but he pointed to real estate that it seemed pretty restrictive right now at the current rates for their U.S. real estate market.

Whereas other areas, I think he pointed to like AI, for example, all the spending around that, you can make a case that it's not restrictive. enough and broad swats of the economy, you can make a case that it's not restrictive enough. So I still think they'll do a wait and see approach and I really, I still think that rate hikes are pretty unlikely. But look, could be wrong on that, but that's my take on it. Yeah, I like, I think we are still aligned on this. Nothing's really changed my view. If anything, the data points that we're getting just cemented my view that recessionary outcome is the most likely or at least a demand destruction outcome and that the bond market

and Fed Fund futures just are becoming more and more wrong by trying to price it in in the opposite direction. Yeah, and so what kind of, just transitioning that to the Canadian housing market. So how do you see, what kind of impact do you see? Because clearly I'm looking, sharing this over the last six months,

but if you take the last month here, the five-year bond yields for Canada, have risen what like 20 something basis point so around three to three point two right now three point two and most obviously a lot of that is very correlated with what we've seen the mill lease in the past month too yeah i mean your bond yields are are up they've been ripping for the last like week in a bit like basically since we spoke last i mean they were up last time we spoke they haven't like so your five-year bond yield sort of dictates what your five-year fixed mortgage rate should be based on, you know, the substitution effect that banks could otherwise, they can lend

money to, you know, Simons to buy a house and they charge them maybe 200 basis point spread, or they can lend money to the Canadian government and, you know, whatever. From what I can see, like, banks aren't eager to price this in. So that tells me that either they don't see significant willingness to pay or like price elasticity on consumers who they're already having a really hard time originating new loans like you know most of their business right now comes from the existing renewals or you know so we're not seeing a ton of acquisition loans so they probably say okay well we're going to constrict mortgage demand even more if we if we start pricing it in it so their spreads their risk premium are shrinking basically which you know i think is interesting because

because I don't think the risk is decreasing. And usually you would see a risk premium decrease, shrink if risk was decreasing. I mean, they're up a little bit, but they're not up relative to, like, how they should trade relative. Maybe we're just early. Like usually it does hit with a one week lag, give or take.

But I don't know what your thoughts are there on that. But I like, and the other thing that's interesting is, I mean, we've seen a pretty clear variable rate preference from consumers on the most recent reading from CMHC. I'll pull up the CMHC residential mortgage industry report, but basically, you know, the last reading, which was a while ago, and, you know, rates haven't changed much since then. And for a period of time, your variable rates were becoming more compelling from a price perspective. But if you look at it here, sorry, I'm trying to get the zoom and scroll thing going here. I don't know if that works. Yeah, sweet. basically your variable rate, it's kind of hard to see it because it's like a very pink line, but 45% of total new mortgages is 42% of the most recent reading, which was February of 2026, by the way, so quite a few months ago.

And then you're fixed, three year fixed is more popular, your five year fixed, which is historically, like if you go back to a normal market, well, pre-COVID was historically your most popular rate is actually the second least common rate right now. So, you know, people are taking. the variable. If we continue to see the fix get more expensive and the Bank of Canada doesn't really chase the bond market, which I don't see them doing, you'll probably see more people start shifting into this variable rate preference environment, which I think we've seen a lot of so far in the last little bit. Yes, I'm curious to see how that plays out because I think

that creates a little bit of a, if you go back on this chart, it creates a little bit of an embedded vulnerability to any eventual upside that you might see in rates. Like the last time that we saw consumers pile into the variable was literally the worst possible time in human history. I think they've done that, which was like January of 2022 was peak variable rate taking. And then what a warning shot was fired two months later. And so everybody who bought, everybody who took a variable during that period of time. And this, it's interesting to acknowledge that this is actually a negative externality of the stress test because during that period of time, your variable rate was so, so much

significantly cheaper. Most people were choosing it for pricing rather than for, you know, be out of rate preference or trying to capture downside or whatever. You know, if they were getting 30, 50, maybe even 100 bips less on their rate, it would amplify their buying power because it was below the stress tested rate, whereas, you know, the fixed now was at 4% at that point because the bond market was already pricing in that rates were going to need to go up during that, you know, around that period of time. So people were qualifying for a fixed at 4% or 6% and in a very, in a variable at 5.25, which was the minimum qualifying rate. So there's a like structurally different reason why people were had the variable rate preference during that period of time, but it still did

create a pretty catastrophic outcome. So it's worth acknowledging that, you know, if we see consumers really, really pile into the variable, you, you could end up with a similar setup where the Bank of Canada gets a little bit trapped in how much upside they are willing to create in, in the interest rate environment so as to not blow out variable rate borrowers again. Like, you know, I think they feel like they maybe learn their lesson. You can tell just the way that TIF talks at the pressors now, Raid wrote the future of rates that he's reluctant to give too much guidance on that. So I don't know if you have anything you wanted to add there.

Yeah, I mean, and how much control do they really have on inflation when it's coming from? A lot of it is just coming from higher energy prices right now. So how much control did they have on that? That is, I think that is a question, right? I think he's mentioned that a few times. I know Kevin Warrich has mentioned that in the U.S. He actually went as far to say that they want to control kind of the after effects, the ripple effects of it.

Even that I kind of question that they have the tools to do that. Well, I think it's interesting because they can still not add to inflation by making credit too cheap and also adding a ripping bull market to oil price shocks. And that's obviously a far greater concern in the U.S. than Canada. Like, and in the U.S. with this massive KAPEX spend, how much money is getting pumped in from, you know, foreign direct investment and, you know, all of the capital that's going into the AI trade, that I understand why Warsh might feel like, you know, yeah, super low rate environment might be a little bit too risky for, for them. But in Canada, I mean, our consumers are tapped out. Like, you know, we're 180, we're back to 180% debt to household income. I don't really feel. like cutting rates is going to stimulate the economy too much in Canada. It will be used as a tool to try and soften the landing that we're heading for. I don't, so I don't know if TIF has a similar fear. I think you can see it in the monetary policy report. They're very clear that they're

paying a lot of attention to the risk of imported inflation and that basically if they, you know, if they see CAD, like they acknowledge that we talked about it in the last week's episode that that CAD has weakened pretty significantly. I think that that's probably the big reason why they're reluctant to cut. I don't think they're reluctant to cut because they're afraid of a domestic bull run inflation or like, you know, overheating the economy. I think that they're reluctant to cut to weaken the return on the Canadian dollar. I don't know if I need to explain that, but basically, you know, like if your yield that you can

earn in a country, you know, you'd have to buy Canadian dollars to be able to buy the yield on on Canada's economy. And so the... It just creates more demand for the Canadian dollar. Yeah. Yeah. Yeah. Yeah.

I think that's the simplest way to do. Yeah. So if we, you know, if we weaken the Canadian dollar relative to USD, there's a risk that every good that we import in USD becomes more expensive. And CAD's not just weakening relative to USD. Like it's not a USDA strength story. It's a CAD weakness story, right? Yeah, exactly.

And even for Canadian investors, right? Like I've talked about that on the podcast quite a bit. Like when you're looking at Fed's fund rate, that is what, like 125 basis points higher, 150? I don't have it right in front of me. It's always about there though. Like that's kind of the spread that you would want or not, maybe not that much, but. Maybe not that much. But eating 100 range, I think, right?

Yeah. And if you forget about exchange rate for a second, if you're an investor, I mean, you can't really control the exchange rate. That's out of your control. What will happen? You can try to predict as best as you can. But what you can't actually control is the yield that you get on your money. And clearly right now, the U.S. is offering a much more attractive yield.

You're getting what on the 10 year? You're getting 4.7 roughly now on the Canadian. It's definitely lower. I don't know. I was checking the five years. So I don't know a longer duration, what it would be yielding right now. But essentially, if you want to invest your money and get some yield, much more attractive in the U.S.

If you're looking for tips, so inflation protected treasuries, Those have actually gone up in yields that they're offering and they'll give you, I think your real rate of return is starting to be around like 2.4. It's gone up pretty significantly. So they're becoming more and more attractive for people who want some more inflation protection versus the longer, the regular bonds that just give you that fixed deal. Yeah, no 100%. There is an old saying in investing. It's not about timing the market, but. time in the market. The most successful investors aren't usually the ones trying to catch

every top and bottom. They're the ones who spend the most time in the market. I've been a quest trade user for over five years, and the reason I stick with them is that they remove the friction of regular investing. With no commissions on stock and ETF trades, you don't have to wait until you have thousands of dollars saved up to make a move. You can contribute small amounts regularly and keep your portfolio growing consistently, removing the stress of trying to time the market. And they keep making it easier to build a well-rounded portfolio. Soon, you'll be able to trade precious metals through Questrade, giving you even more ways to diversify. Questrade makes the whole process seamless, allow you to focus on what really matters your investment strategy, not trying to avoid

fees. Ready to invest, head over to questray.com, open and fund your account with code TCI and receive $50. Conditions apply. We've booked a cottage for early July, and I'm already picturing the kind of trip where the days are pretty simple. Mornings outside with coffee, my daughter running around with our new puppy, afternoons by the lake, and those quiet evenings with my wife watching the sunset with a glass of wine after everyone else has gone to bed. And while we're away enjoying that time together, the timing also made me think about our own home back in Ottawa. Early July is such a busy time in this city, with Canada Day and Blues Fest bringing so many people in. That got me thinking about how our home could be put to good use while we're out of town as it's just sitting empty.

Listing our home on Airbnb could create some extra income to help cover part of the trip, while also letting another family enjoy our neighborhood during one of the best time to visit Ottawa. They could walk over to a local coffee shop, spend the afternoon at a nearby beach, and use our place as a comfortable home base after taking in everything happening downtown. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. Smart investing doesn't have to be complicated or time consuming. With BMO All In One ETFs, you get a complete diversified portfolio wrapped up in a single ticker.

It's easy. Whether you're conservative investor or more aggressive, BMO has an all-in-one solution for you. And now, it's even more cost-effective. BMO has cut management fees to just 0.15% on select asset allocation ETFs, helping you keep more of what you earn. Simplify your investing today at BMOetFs.com. What's next on the list? We got lots to cover. Okay, so we talked a little bit about real estate, so let's stick to that,

and then we can move on to Google. So do you want to talk a little bit about Bridgemark? I know you know the industry well. I did some research on what exactly happened. I was trying to understand the business model. I wasn't super familiar. Correct me if I'm wrong. So the owners of Royal LePage,

essentially the business model of a brokerage firm is they get a certain amount per realtor in each office. And then they also get a percentage of the gross commission that the realtor earns, right? That's the business model, Yeah, so basically, I mean, they make the revenue in a couple of different ways. They have the monthly recurring revenue, which is desk fees or like, you know, so like people pay a licensing fee to Royal Page to have their, you know, a portion of their monthly fees to have the Royal Page logo

on their signs and access to their infrastructure, CRM, et cetera, whatever. So that's the MRRR side. And then the greater portion, well, so it is interesting. Like the way, there's a couple different ways that businesses are structured. And Royal Page would be sort of in the old structure, which is probably one of the big reasons why they're having a hard time capturing, any upside that you might see in the, in the, in the revenue model of a real estate professional. So Royal Page, Remax, and Remax was recently acquired by Real Broker. Real Broker runs sort of this new revenue model, which I'll get to.

So Royal Page and Remax, they sell the logo, right? They sell the name, the brand, the franchise model, and they sell that to, brokerages and brokerages pay them a certain amount or their agents pay them a certain amount, but they don't actually capture a percentage of commissions. Royal Page added a business called Royal Page Real Estate Services where they got back into the brokerage trading space. They had a certain period of a non-compete and with their franchisees, and then they also had a certain period of non-compete with, I think it was, I can't remember the name, it might have been CBRE or one of the big commercial brokerages where they weren't going to trade in

commercial space, which has since expired and they've added a commercial arm. So they are trying to expand a little bit into becoming actual brokerage and collecting splits on revenue. But that's not the majority of their agents. They collect revenue by paying. Like a monthly fee or whatever. Yeah. Right. Yes. Okay. And so why would this business model work going forward? Like that's where I'm having trouble wrap my head around it. Because what I read and give me, tell me whether it's right or wrong is just that they also provide like research marketing services they try to provide some value but nowadays with AI and all the tools that are available like honestly like your network is more important than your brokerage firm like am I wrong here that this is a bit of an arcakes uh business model

a hundred percent yeah like uh and and then and the easiest way to to indicate that the market also believes what you just said is the pricing on the real remax deal which we've talked about on another episode, but Remax is even more aggressively only exposed to the vintage version of this model, which is we collect fees to rent out our local. That's a nice way to say it's vintage. It sounds better. That's the organic gluten-free version. So Real, who bought Remax or partner, it was more of an aqua-hire, like a merger.

It was closer to that based on it was a mostly stock deal, and it was like 65-45. or something, you know, real broker and a lot of these newer models, Compass, EXP, they're massive real estate brokerages, basically. So they actually can collect their revenue from the realtors as a percentage of the commissions that the realtors earn at scale. This wasn't possible when Remax and Royal LePage got into the business hundreds of years ago. I think A.E. LePage, which is what Royal LePage is derived from, was like the early 1900s or so like 1920s or something.

So, yeah, I think it was 1920s because they just had their 100 year anniversary. That model depends on their brand having cashé and value. And Real, if you assume that Remax is literally only, like their primary revenue stream is renting their logo out. I think 70% of their revenue comes from it. Real basically priced their logo at like $300 million. So it's not worth anything. But the market kind of clapped back and said, well, you know, it reprised the deal,

at least from what I could see at a point where it's sort of saying, we don't believe that there's upside in the real estate trade, period. And this is the same thing happening now with the way that this is traded. And it was just was in response to, I think a lot of people like BRE, like a bridgemark because of the dividend. Like it was a pretty high yield stock. And then basically they cut the dividend and had posted negative earnings for the first time in decades, which was bound to happen.

and can it recover some market share, maybe, I don't know, but. They cut the dividend by 96% too. So it wasn't a small cut. They went from monthly to quarterly. And yeah, they did massive cut, but like I'm showing here, you can see that the writing was on the raw. Like free cash flow was way down and they had kept the dividend unchanged. I think they're just, it's probably a prudent move if they want to survive going forward

because you can't reinvest money you don't have. Mm-hmm. Mm-hmm. Yeah, and then the bigger question becomes like the actual larger structural or cyclical headwinds to the industry, which is I called it in like 2021 that we probably saw peak realtor like forever in the industry. Because, you know, you had tons of people piling into the trade for something to do during COVID. You know, you saw this millennial moment where millennials were all coming of age and rushed into buying in the housing market. you have this huge boomer cohort of realtors retiring and leaving the business. Sales volumes were high during that period of time.

And so I think all real estate businesses, but especially ones that are recruiting heavy, like I actually think your traditional models are less at risk because of the, you know, their revenue, their revenue is really just $100 a month per realtor or whatever, $10 a month per realtor. So like, you know, it's not the price elasticity isn't as massive. Whereas like the models that depend on. on your exps or reels of the world that are, I don't want to call it a pyramid scheme, but like functionally they're an MLM model where realtors sell, like realtors recruit one

another and sell the, you know, the proposition, the sales proposition of the brokerage and there's a stock options associated with it and all of these things, which, you know, we can get into another time because I always be curious to hear your take on it. I know I've talked to Mark Cohodes about this. Yeah. You know, Mark Cohodes. And he has some, I mean, like he basically said, it's like, He's like, I'm surprised that the securities companies are comfortable with this.

So you have, because you have, you know, realtors basically out there convincing one another to join their brokerage to get rewarded for contracting and getting stocks that they have whole fixed gates on to. So they have bonuses to bring in more people because the company that gets more money based on the amount of heads. Okay. Yeah. Yeah. But so you go and look at like a stock chart like real or EXP. I mean, they peaked aggressively during that pandemic period. I'll pull one of them up.

And then they blew off thereafter. And there's two factors. I mean, one is that new model is like it's easy for real to come into the market and say to all the EXP agents, hey, well, you know, you're in this layer of that pyramid. Why not come to the top layer of my pyramid, right? And then, you know, the other actual headwind is in major cyclical downturns like this, the number of realtors, it shrinks massively. Like, you go back to the 1990s or the global financial crisis in the U.S.,

number of realtors crashed significantly, and it takes a really long time for people to start reentering the business and growing again. And then you also have that coming of age story, retirement story, and the fact that like you mentioned, technology is probably going to start replacing a large part. I really think that peak realtor is behind us and the profession will continue to decline. And it seems like the market agrees with me. Okay. And I guess just before we move on to Google quickly, like what's happening is, Is the Canadian real estate market doomed for the next decade because boomers can't sell their houses? Like, what's going on there? I know you've been posting a lot about that.

I don't think that this is just a Canadian story. I think this is a Western world story. And I've been researching this like very, very heavily for like six years. And I started writing a book like pre-AI about this. I never, like I thought this was going to be like my life's work. And, you know, I would put it out when the actual moment hit. But the moment is starting to hit. You can see it. So if you look at like the U.S. market right now, I'm going to pull up like this is probably the most fascinating chart in macro in my perspective right now, which is I've got to find a really good quality version of this chart. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom.

They're the ones who spend the most time in the market. I've been a quest trade user for over five years, and the reason I stick with them is that they remove the friction of regular investing. With no commissions on stock and ETF trades, you don't have to wait until you have thousands of dollars saved up. to make a move. You can contribute small amounts regularly and keep your portfolio growing consistently, removing the stress of trying to time the market. And they keep making it easier to build a well-rounded portfolio. Soon, you'll be able to trade precious metals through Questrade,

giving you even more ways to diversify. Questrade makes the whole process seamless, allow you to focus on what really matters your investment strategy, not trying to avoid fees. Ready to invest, head over to questray.com, open and fund your account with code TCI and receive $50. Conditions apply. We've booked a cottage for early July, and I'm already picturing the kind of trip where the days are pretty simple. Mornings outside with coffee, my daughter running around with our new puppy, afternoons by the lake, and those quiet evenings with my wife watching the sunset with a glass of wine after everyone else has gone to bed. And while we're away enjoying that time together, the timing also made me think about our own home back in Ottawa.

Early July is such a busy time in this city, with Canada Day and Blues Fest bringing so many people in. That got me thinking about how our home could be put to good use while I were out of town as it's just sitting empty. Listing our home on Airbnb could create some extra income to help cover part of the trip, while also letting another family enjoy our neighborhood during one of the best time to visit Ottawa. They could walk over to a local coffee shop, spend the afternoon at a nearby beach, and use our place as a comfortable home base after taking in everything happening downtown. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. Smart investing doesn't have to be complicated or time consuming.

With BMO all-in-one ETFs, you get a complete diversified portfolio wrapped up in a single ticker. It's easy. Whether you're conservative investor or more aggressive, BMO has an all-in-one solution for you. And now, it's even more cost-effective. BMO has cut management fees to just 0.15% on select asset allocation ETFs, helping you keep more of what you earn. Simplify your investing today at BMOetFs.com. While you say that, I'll just post a little anecdote. I love when you have like big trend and I see an anecdote near from where I live.

So there's a house not too far from where I live. It's been listed for like five months. And I've seen the couple ones. Clearly late 60s, early 70s. They listed the house. You know, it's a bungalow nice inside. But I know the market, the area fairly well, kind of seemed a bit on the priceier side. They dropped the price about a month and a half ago by like 10%.

still not selling. There's an open house every single Sunday. I kid you not. And it's still sitting on the market. And it's a pretty desirable neighborhood as a whole. It's not that far from center town, but far enough that it's a quiet neighborhood. Typically, young families will love to come here. And it's in a price range that should make it relatively affordable for, you know, a working couple to afford in these kind of conditions. And it's just been sitting on the market. and they seem to, I haven't talked to them, but my perception is that they're probably kind of fixated on a price. Maybe their retirement is dependent on selling at a certain amount,

and they're not listening to what the market is saying because they were listing throughout, listed throughout the spring period, and now we're entering the summer months, and clearly I think people move less, because especially if you have kids, it starts getting harder to move in time for school and all that stuff and the logistics.

Yeah, so, I mean, You're like families, it's funny because people are always like, oh, you know, I'm going to get a better price for my house in the spring. You know, prices are higher in the spring. But it's actually a selection bias in the data. Most families that are buying family-sized homes prefer to purchase in April, May, June, so that they can move during the school year, close in the summer, and then get into a new school district. So you're absolutely right in the seasonal cyclicality of real estate there. Summer, typically you see, you know, life event independent consumers. So very much like, you know, stronger condo market, smaller product, investors.

et cetera. So yeah, so the the thesis that I have is that, you know, we hear a lot about this great wealth transfer, right? And how we have trillions of dollars of assets are going to move from the baby boomer generation to the next generation. And I, the name of the book that I've been writing, and Nick and I talk about this a lot on the Canadian real estate investor podcast is the great house transfer, you know, rather than the great wealth transfer. Because if you, if you look a composition of assets by household, you know, it's easy to look at it by dollar and say, oh, there's tons of concentration in stock and equities and business interests and all of that stuff. But by dollar, that is entirely skewed by the top 10%. And I'll pull up another

chart on asset distribution in a second. And actually, I'll just pull it up now because it's probably more relevant to what I'm saying. The, you know, if you do it by household, the vast majority of of wealth is concentrated in the primary residence, right? So if you look at just, if you look at your middle income, middle income households on average, and this is middle income, so the lower you get, you get more households and more concentration in the primary residence. 61.9% of their net worth, which is like an average net worth of $300,000 or something, is concentrated in the primary residence. As you get wealthier, you get less. And this is a very interesting thing for people to observe where we are in a wealth creation.

We use housing as our primary wealth creator in Canada. You want to be richer, own less of your primary residence as a percentage of your total wealth. But so, you know, take the number of households, the amount of people or the amount of houses that need to sell to potentially fund require retirement or be, have the equity access to fund retirement is massive as we have the largest generation. in human history ever retiring. And the problem is that the next generation, who's the price setter, the buyer, is your Gen Z and millennial purchaser, maybe some Gen X, but Gen X is probably more on the exit and entry phase. On purely a price to income basis, if you take the aggregate purchaser, they are so far

away from being able to pay the prices that the market is currently at, that it's a stalemate. It's a pure stalemate. And this is like your bit-ask table for the housing market. Well, they're basically in there. Like, the younger you are, the less likely you are to be in that upper income slash. Yeah, you haven't as much time to accumulate. Yeah, exactly. Which is, it's perfectly normal.

So that makes a whole lot of sense. Yeah. But every other handoff of housing wealth from one generation to the next kind of happened in the same price to income range, which is around like three to five X. we're at like, you know, during this period of time when boomers first purchased their houses, that ratio blew out from like, let's say, 3x. There's like two major metros in the U.S. that are under that 3x. Actually, I don't even think there's a single one now at this rate.

So there's a clear mismatch between the buyer's ability to purchase the assets and the baby boomers hopeful sale price for said assets. Now, a lot of people will say to me when I make this argument, oh, you know, well, they're just going to die and hand the assets down. Sure, absolutely correct. But then you have to go and examine, if that's the thesis that we're using to substantiate why my claim is wrong, we have to go and say, well, what is the most likely outcome of a house that makes it into an estate?

And that most likely outcome, statistically, by a massive margin, is that the estate sells the house. So they still rely on, because, like, I don't know about you, but, but, like, I expect that I will be in my 60s or, you know, by the estate. the time my parents pass away and I inherit their wealth. I would hope that I've figured out my housing and wealth issues at that point in my life. So I don't think that hedging our economic future on building an inheritance economy is a sustainable way to project for this great wealth transfer, a great house transfer to take place. And the other piece is if I decide that,

you know, me and my brother have a conversation and one of us decides that we're going to take over my parents' primary residence and move into it, I still vacate. I'm a net net. If I'm in my 60s, I'm vacating another house to move into that house. If that makes sense, right? It's not like I was living with my parents and they died and I'm in my 60s and then I just stay in their house and there's no net. I still have to net vacate a property. So I'm creating supply while consuming demand. So I don't think that anyway, I'll leave it there because I have been on a rant, but this is obviously something that I've studied a lot, passionate about. I think it's a big, huge headwind that nobody's paying attention to. Yeah. And even when there's only one sole care for the property, a lot of the

time it might be like maintenance costs for example might be an issue the upkeep of the house taxes all of these other things that are like aside from the actual house especially if the parents were you know much older maybe they were not doing all the maintenance required now there's some big work maybe they wanted to take over the house but after seeing all that they decide not to but um let's move on uh to another topic let's talk uh we always talk about AI a little bit it's hard not too. Just, I mean, it seems like there's a big set of news every single week. This week there was Google that was the big piece of news a couple days ago. They released earnings if you've been living on their rock. Essentially, the stock was down 7%. For a company as large as Apple, sorry, as Google,

it's probably, or alphabet, I guess is the name, but I'll probably interchange Google and alphabet. Yeah, that's 7% is hundreds of billions of dollars loss in market cap in market value. So it's not insignificant. And a lot of people were kind of wondering why this happened because cloud revenue was up 82% revenues, up 24% backlog, up 10% to 514 billion. But it really comes down to CAPEX guidance. So really the money that they're spending to build out the AI infrastructure and it's becoming even more massive. So if you're, I'm sharing here free cash flow from Google. And can you know it as the outlier then?

Yeah, yeah. I know, I've seen some pretty starts on that. I mean, if you shrink that, it like looks super dramatic too, right? Yeah, yeah. It's pretty wild. So I know we have some people that will just be looking at this from just listening to it as the audio. But essentially, Google has been free cash flow positive for as far. as this chart goes. So it goes back to May 15 to May 2015. And this quarter that just came out

was the first quarter that they were free cash flow negative. They are spending more and more on CAPEX for that AI buildout. And a couple of things that stood out during the call is, first of all, when they came out in Q4 of 2025 with their guidance for CAPEX spending, it was, I don't have the exact number here, but I think it was like 175 to 185. And then in Q4, you know, they came out and said, oh, by the way, for 2026, it's actually going to be another 5% more than what we had previously stated. And now they came out. And then again, they said, you know what, for 2026, it's going to be even higher. So since the first time they came out with their CAPEX guidance for 2026, in the span of six months, they've increased it by 11%. They're also saying that it's going to be higher for 2027. And

The other thing that was really interesting on the call, and I am flabbergasted by some people that are on X that follow these companies that are supposed to be like expert or they know these companies well. One thing that kept being missed is that the CEO and the CFO were asked a few times on the call, what's the return on invested capital for this AI spent? And they did not answer. They gave some non-answered. They said, oh, they're seeing- They're news that they, their new version of like the Blackwell, I can't remember the name of it, has a 10x improvement on tokens per like kilowatt or whatever. No, no, no. It's their TPUs, right?

Is that it? Yeah, yeah. For Google? Yeah. But essentially, like, just to my point here is they're spending more and more money, but they essentially don't know whether it's going to provide an appropriate return on investment. I'm sure there's some amazing number when it comes to backlogs, but these. backlogs will have to be filled with, you know, some investments. So there's all these issues that are plaguing Google and you're really changing from a business that for the last 10 decade or so,

it was an asset light business, right? So it was an ad business, probably the best ad business that the world has ever seen. And I know, neither gave them a good run for their money though. Yeah. Yeah. Yeah. No, it's, but meta's in the same boat, right? So you had these businesses that were asset light that when you acquired a new customer that was paying you for advertisement, the cost for you for that customer was very small versus the revenue that you were getting. And now you're looking at a business that's spending more and more money. It's no longer an asset light business. They're issuing equity.

They're issuing debt. And it's not just Google. It's pretty much all the hyper-scalers there. And they don't know whether that will provide a return, an appropriate return on investment. They can't even answer it. And that's the most worrying part when you look at a company like Google is, you know, you're spending all this money, but you don't know what kind of return on investment. And even though they're saying it's helping the business, they don't provide concrete numbers. They just don't.

And, you know, it might be a time to buy the company now because the stock has been down. But at the end of the day, I think a lot of investors that are jumping on the opportunity to buy it are just overlooking the potential risk. down the line that these investments just do not return the appropriate amount of returns on your capital invested. Yeah, you have to be really confident in the revenue thesis that they're creating by pumping this cash into data center spend, which I am. Like, I think it's a good picks and shovels play on the AI trade where Google, like, as somebody who works, you know, very accidentally, but pretty heavily in the AI space, you know,

building tools for real estate professionals in from AI like we basically built an agenetic harness that does realtors jobs for them like 80% of their jobs for them we've plugged in and trade and and and and benchmark all of these models and I can show you some other benchmarks that are relative relative to like all industries but the you know Gemini it is interesting to me that both Gemini and meta muse spark are they don't perform well and like you would think I haven't benchmarked 36 flash, which came out recently, but I just don't have access to it significantly enough in the harness. But they're not, you would think that Google, who has all of the data, you know, like they have like the majority of the data from the internet over the last X amount

of years. They know what's important to people and how people use the internet. You would really think that they would have, I mean, data is one of the bigger inputs in creating good AI. You would think that they would have better outputs. And it surprises me that they still, as we're seeing like GROC who acquired SpaceX AI acquisition of cursor, which obviously paid off almost instantly, they released a really high quality model. I don't understand how Google is so far behind on the development of actual models yet. However, they do stand to create a, I mean, the people who are very far ahead on the models, you want to talk about free cash flow, negative free cash flow, these are like, I mean, open AI and anthropic or cash incineration

machines. And where does most of that revenue go? What goes to Google and Amazon and all and and VDIA and all of these other businesses that actually own the, the energy input for, you know, for these models. So I like that they're kind of hedging the fact that they, and again, I don't know a ton about stocks admittedly, to be honest with you. I'm really more of a macro guy. And I, And I've learned a lot about this space, the AI space, just from being immersed in it. But just as somebody who thinks about these businesses, I like that they are hedging against their inability to create good models by getting revenue from another space and still getting good exposure to the AI side of things.

I mean, I don't see a world in way. I mean, yeah, chips are going to become more efficient. And, you know, then prices, you'll probably see price come down. And then that'll probably increase the consumption of AI because one of the big limiting factors and people really, really actively adopting AI massively at a business level is cost. So I would say that I think that this is not a bad play for them. Do I think that is priced appropriately on the stock side? No.

Yeah. I think that's the issue, right? When you're spending now they're forecasting to spend over $200 billion next year and pretty much 200 this year. When you're spending that much money and the pricing power comes into question because we talked about it and you can see it with the various Chinese models. like you have a wide spectrum of pricing, a very wide spectrum of pricing. And if the cheap, like if you're a business owner,

you're going to look for the cheapest model that can accurately do what you want. Well, yeah. Yeah, yeah. Sorry, go ahead. I'll pull up a really interesting chart on that. Yeah.

You might not go to the cheapest model because if you go to the cheapest model, you might not achieve the results that you want. You might go like middle of the line. You might use the most expensive. So Claude, Fable, whichever version I forget, but the most expensive model for a few specific tasks that it does very well, but the cost is prohibitive. So you're staying to that model for these specific tasks. And then everything else you're using a cheaper model.

And I think more and more we're just seeing that it's being commoditized. And that's why, like, I think it's extremely worrying for investors when they listen to the call, they have this. CEO of Alphabet, not able to answer or provide a clear answer on return on investments. And then you see these new models that are coming out every single week, it seems, that have a cheaper cost per token. And especially now as the top models are really switching to a usage-based model. And I've heard a few stories of business owners, people that I know that were surprised with the bill that they got from some specific models that are now not questioning their AI usage,

but they're looking at alternatives that are more cost-effective because as much productivity gain that you can get, that gain has to match to cause that you're paying. If you're getting a 5% productivity gain, but your cost is tripling, something's got to give there. Yeah. So this is a really interesting saga from my perspective.

So I put up the chart that shows how Chinese models are now greater than 50% of all U.S. token share, which is interesting. And there's a couple of things happening. Like you mentioned the commodification of the models. The other thing that we're seeing happen with the last batch of models is the labs are getting away from trying to create models that are super intelligent. Because I think people have realized that superintelligence breakthroughs are not profitable. And, you know, only anthropic really seems to. care that much. Like, I don't think, I think that if Open AI wanted to create a FABEL comparable model or Mythos comparable model, they probably would. They're, you know, that everybody saw what

happened with the U.S. government getting involved in, in that. And I've used FABEL. It's an exceptional model. It is far too powerful for, like, it doesn't, I don't need that. I don't, I'm not sequencing my dog's DNA, which is an example that I use all the time, but some guy actually did that, just like to, to, It's a problem that's a dog. You know, I'm not trying to, you know, solve a year-old physics problems or, you know, anything like that. Like, and most work, most profitable things. What about the meaning of life then? Is it, does it do that well?

No, no. You know, I'm trying to get it to, I just talk to it as much as I possibly can so that when I die, my kids can have my AI to talk to that's been trained on my existence. There you go on the episode. Yeah. No, I think that GROC, a trashed EPT-5-6,

what models are clearly trying to do now is be more reliable at things that people actually need at a better price. And I just think this is an interesting development. And it's a good thing

that AI companies are now saying, okay, we know that our baseline consumer is somebody who moves paperwork from place to place and needs us to review documents and blah, blah, blah. Like, we don't really care that much about, you know,

scientific breakthroughs and whatever. And so we're pushing towards an actual business case for AI. So that's another piece. And then the final piece is the U.S. government starting to get involved in the conversation with accusing Kimi of distilling Anthropics fable. But it's like, this is a funny discussion, right? Because it's like, well, Anthropic distilled the entire internet into a model. And then a Chinese company distilled their model into.

So it's like, well, it's bad when the Chinese company does it. So that piece is interesting. And the final piece that I'll mention on that is that Kimmy did something really interesting with the K3 model, which tells me, like, Dave, I think they, if I'm an AI company and I'm like, how do I do the exact opposite of the competitor that is getting complained about the most? I'd be looking at Anthropic. Anthropic is obviously very famous for, you know, putting rate limits on consumers and all of these things. And I think this is going to be a big headwind for their IPO because they quite simply do not have compute and they can't afford to run their models and provide the subsidy that they're currently providing. Open AI can. And Dario said, you know, how Sam Altman was going full yolo on compute, but it was the right call, right? It was clearly the right call. Kimmy, rather than selling more seats on their, on their K3 model and nerfing the models or, you know, like if you go try and buy or subscribe to get access to the K3 model right now, you can't get it. So what they did was they actually gated new

subscriptions rather than dumbing down the experience and pissing off their customers, which I think was actually a very, very intelligent business move. And I think that that's something that we'll continue to see going forward is you start to get this scarcity effect happen. It is, it is by and large one of the best models that I've ever seen. I only ever use Claude to do front-end development for the stuff that we do at the company. And I'm not a developer, so I don't really know anything about the stuff. But like, as somebody who is non-technical and just punches in, like, please do this thing. It does. It makes them more beautiful. front end. Whereas Claude used to do that better than anybody else, it really is an exceptionally

good front end developer for my purposes. And I still use GPT-5-6 for the back. But if that was Anthropics primary value proposition, I mean, Kimmy crushed them on a couple of fronts, which is, I think there's, I mean, SpaceX felt like they were in a bit of a hurry to IPO. And then- It's funny you're mentioning that I was actually pulling the SpaceX, sure. Yeah. It did feel like they were in a bit of a hurry to IPO. And then I mean, I think whoever IPOs last is in trouble. And I'm so interested to see who ends up being the one. But I think that what we're seeing happening right now are huge headwinds for OpenAI and Anthropic IPO in the U.S. market.

I think whoever IPO is next is in trouble. If this is any indication, and keep in mind, SpaceX has a tiny float right now. And I think a couple days after their earnings that's coming up, they're going to be unlocked. but they're going to be unlocking, I think, 20% of the shares, something like that. And that's coming up, I think, on August 4th, if I remember correctly. And SpaceX, it's down roughly like 15% since the IPO price. And from the peak, it's down about 50%. So it's definitely, it does feel a little bit like they may have marked the top here.

And it does put into question, like how much money investors are willing to be pouring into these AI plays. I think that's a really, that's, that's, that's just a really interesting question. And to me, again, like, even with what you said and what we've been talking about, I still have doubts as to like, if this, all this spent on infrastructure, if it'll actually provide the ROI, I just really don't know. Because the amount of money being spent right now is just so massive. And just to tie that to the macro side, too, if we see a pullback. in the stock market. Are you going to start to see that top of decay, start pulling back on the spending?

Are you going to start seeing GDP contract as well? If you have the hyper-scalers or just saying, okay, well, we've spent hundreds of billions of dollars. Maybe it happens next year or the year after. And you know what? We're not seeing the returns on it. So we're scaling that back. And obviously, especially in the U.S., GDP is being supported in big part by the AI buildout.

So what would it look like without that? Yeah, 100%. No, I agree. I wish I could chat longer. I just realize I have another call coming up. But I think you're right. I apologize. Yeah, I, no, it's all good.

But like, I think that if SpaceX pricing is setting the precedent for what an IPO looks like, I mean, it's going to shake the confidence of anybody who would have piled into that trade on it, like on anthropic open AI. And so I think that they're, you know, I mean, you see this. You, you know, it's a sort of dot com bubble. Every major, you know, new innovation. It's not to say these businesses aren't exceptional and last and provide something of value and will be profitable in the fullness of time. But I think that their IPOs now are going to be exceptionally turbulent.

And it's just going to be a sight to behold, man. It's going to be a fun one to watch. Yeah. And history has shown us one thing is every new innovation is actually starts off with a lot of capital destruction. Yeah, for sure. No matter how much it revolutionizes things that are going forward. man. What's that? Exactly. So we'll know in 10, 15 years

from now, but I don't want to keep you too much longer if you have to head out to a call. I think it's a good point to wrap it up. Cool. Yeah, no, I appreciate it, man. I think we got through everything. We rushed through a couple, but that was good. Yeah. Yeah, anything else we'll pick up on the next week. Yeah, exactly.

Yeah, I think we can talk maybe about the Middle East oil a bit more next week. We'll have one more week of data so we can talk about that next week. Yeah, yeah, for sure. Yeah, and It's a, I mean, it's a progressing story and we're monitoring this situation. So let's see what happens there. Cool.

Amazing. Thanks, brother. Have a wonderful weekend and I'll see. Thanks for tuning in, everyone. Thanks, everybody. The Canadian Investor podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decision.

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