The Canadian Investor - Investing Opportunities in Market Volatility and the US Bitcoin Reserve

Episode Date: March 13, 2025

In this episode, we talk about recent market volatility with the NASDAQ dropping 4% in one day, marking its largest single-day decline since 2022. We unpack what's driving this volatility, including uncertainty surrounding tariffs, Trump's ambiguous comments on recession risks, and the unraveling of the Yen carry trade. Big tech companies are feeling the pinch, with Tesla down 46% year-to-date. We also discuss the U.S. government announcement of a Strategic Bitcoin Reserve and what it could mean going forward. We finish by discussing the recent earnings from Costco's and Franco-Nevada. Tickets of stocks/ETFs discussed: FNV.TO, COST 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 Finchat.io 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.

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 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 or February. 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

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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. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We are back for a news and earnings episode. And there's a lot of news to talk about today

because the Donald Trump or the orange man as I like to call him is tweeting something or truthing, whatever you call it on his platform. Every single hour it seems like and every day when it's affecting Canada and tariffs on Canada, which is obviously creating a whole lot of volatility in the markets and I know you want to talk about that a little bit, right? Yeah I seen a tweet earlier, well not a tweet, whatever platform he has that like Truth Social or whatever and he had mentioned...

A truth. A truth. Yeah. He had mentioned that like, oh, how could Canada put tariffs on electricity that's like a basic life necessity or something. I'm like, well, didn't you tariff everything? Yeah. I mean, yeah, like, and I thought also the US didn't need Canada and they were finding out our, our energy. So yeah, I mean, it's, uh, it's definitely causing

some volatility. I mean, this has to be the most volatile the markets have been since 2022. I want to say that they might even be more volatile than that 2022 bear market, but I do remember the index is taking some like 4 or 5% dips on, youth, which is what three weeks ago, the NASDAQ was actually up 2.7% on the year and the S&P was up around 2% and they're now sitting on losses of and I guess this wouldn't even figure in today. So if I factor in today, the NASDAQ would be down around 11% and the S&P 500 8% just three weeks later. It's been pretty crazy. I mean, the TSX is doing, I would say much better, but still it hasn't been pretty since late February.

I mean, it was up 3.5% on February 19th. It's now down 1.4%, probably a little bit more today. TSX today is down around half a point. So it's definitely, you know, the more resilient index, I guess through all of this, but it also hasn't had to run up the US indexes have over the last while. So that's not really all that surprising. I mean, aside from all the tariff news, I think what really sent the markets down on Monday, at least, and I didn't actually have a chance to listen to this interview, but apparently Trump did an interview on Sunday in which the reporter asked him whether or not the US will enter a recession.

And he pretty much stated, you know, he didn't say no, but he had mentioned that it would see a big period of transition. So he said he hates to predict things like that. But what they're doing is very big. I don't know if you had a chance to watch that interview, but I mean, as soon as he dodged the question about the recession, I think that's a lot of what kind of put the markets in a tailspin Monday for sure. Yeah.

I mean, I didn't watch the interview. I heard about it. And when people started thinking about about it it does make sense what he's saying there's a couple of aspects to think about in my opinion so the first one is if they want to make some big changes in terms of reducing government spending and they have said that they want to try and tackle the debt which I think as a side note they will have a lot of trouble doing if they don't start looking at social security, at the military.

I think they have started looking at that and Medicare. Without those three big items, they'll have a very hard time to reduce the deficit as much as they say. That's the first hand. But whenever you're reducing expenses as aggressively as they are saying well it means that there's less government spending and that government spending trickled through through the economy whether it's only 20 30 percent that results in actual GDP growth it's still a decent amount that will no longer be there there There's no longer going to be that spending. There's US government employees that are no longer spending as

well. So you add all of these things up and you can understand why the US could be going into recession, especially if then you add in the impacts from tariffs and higher prices in the US that may result in American consumers consuming less because they're facing higher prices. So all these things have ripple effects. And then obviously if you want to do that, the way to do it, which that's what they're doing, if I'm Donald Trump, I'm just trying to think how he thinks, right? And who, you know, that's probably impossible to do.

Difficult, yeah. But if you want to do major changes if you want to do major changes you want to do them as quickly as possible and if there's a recession you want it to happen as quickly possible because the midterms are coming in less than two years now and he wants to make sure that the pain is felt now and by the time the midterms arrive there's actually a recovery starting and then they can hope to keep control of both the Senate and the House in the US. So I think that's the the whole game plan behind it in terms of making these moves early. If they have a bigger game plan in terms of endgame I think that's where it gets a little more confusing. Does the US want to be more the superpower of the Americas?

Does the US want to keep more influence around the world or do they really want to just go the isolationist route and just kind of zero out pretty much every other country regardless of where they are? Yeah. I mean, I think of what all you said there, like the main thing is, is like there's a lot of uncertainty. Yeah. I mean, obviously the markets, it's, it's no surprise that they really don't like uncertainty whatsoever. And I think the fact that, you know, I think if he, I mean, this is obviously just me speculating, but I think if he believed

they could probably prevent a recession, he would probably have said that yesterday. He kind of says a lot of things. So he just like dodged the question and I think that scared a lot of people. And I mean, people were already scared prior to this. So I imagine they just heightened the fears. And again, like the constant unknowns in regards to tariffs, I mean, in regards to interest rates in the United States. I mean, in regards to interest rates in the United States. I mean, in a matter of a day, you know, tariffs they'll be on, they'll be delayed, they'll be threatened to be larger, like in a day, like you just never know.

And it's causing some craziness in the markets. I mean- Marjorie doubled on aluminum and steel as we saw the announcement today, which by the way, we should say that we were recording on March 11, because by the time you hear should say that we were recording on March 11, because by the time you hear this on the 13th or 14th, it might be completely different.

But yes, Ontario said it was raising a 25% export tariff, I guess, to US, I think mostly New York state, on electricity. And as a response to that, now Trump said he has increased the tariffs from 25% to 50% on steel and aluminum. So it's not looking great. Let's just be honest. Yeah, there's going to be economic pain. I think nothing's 100% but I think to me in my mind, it's as close as 100% that Canada will be in a recession this year if we're probably in one right now, to be honest.

And the US I think is highly likely as well for some of the reasons, as I said. And I think the other reason they're doing it so quickly is if the economy is turning south in the US, it can still blame that on the Biden administration. Exactly. The closer you are to the Biden administration, the more you can blame it on them versus doing this a year

Down the line then it starts getting harder to blame that on the previous administration Yep, definitely. I mean the longer these linger like the tariffs I mean, it's yeah the longer like the more guaranteed it will be. I mean Canada is gonna suffer be more guaranteed it will be. I mean, Canada is gonna suffer big from this if those steel and aluminum tariffs continue. If we look to the Mag-7, they're down anywhere about, like on average, nine to 12% when you look at, you know, like Google, Amazon, things like that,

with the outliers being Meta, which is actually still up year to date, and Nvidia down 21%, and Tesla which is getting you know, absolutely thrashed. It's down around 46% and it was funny because I actually forgot the final Mag 7 stock and remember I showed you that yesterday. I googled the Mag 7 and for some reason like this 5X leveraged Mag 7 ETF ETF showed up and its year-to-date returns were minus 69%. So I mean, it's just crazy. I mean, I don't know why you'd ever go 5x leverage on the MAG7, but those funds do exist. But yeah, yesterday, largest single day drop on the NASDAQ since 2022.

And another thing which is kind of, I can't remember the last time we brought this up, but what I was reading was the yen carry trade kind of creeping back into the conversation. So in a nutshell, that involves effectively like borrowing yen at very low interest rates in Japan. You then convert that to US dollars and then invest in higher returning assets.

I mean, for example, and I'm just kind of making up the numbers here, but you may be able to borrow some yen at 1%, you then convert it to US dollars and buy Treasuries at 4.5. So there's a bit of a spread there, but apparently it's not Treasuries. It's a ton of the money is in the mag-7 as well probably US equities overall and Japan increased interest rates in January I think to their highest level in almost two decades and apparently they're going to be doing so again so this is kind of causing a bit of unwinding of this carry trade which I can't remember the last time this came in it would have been like probably late last year no it was in was in July. Okay, so late July. So

you can see it here. I'm showing the chart with the yen to USD. So a lot of people will talk about the exchange rate between the two. They'll actually compare the US dollar to yen. But just to show here, I'm comparing the Japanese yen to the US dollar. You can see clearly in July, so you have the yen starting to straighten in and then the yen carry trade, I think, started having some issues at the end of July. So you saw like a quick, you know, quick pull down, well, actually a quick leg up for the yen compared to the US dollar. And that's what led to some, a pretty decent pullback, if I remember correctly. I think it was around 10-15%

depending on if you were looking on the S&P 500 or NASDAQ and then you're starting to see the same thing happen. So ever since I would say mid-January the yen has been creeping back up. So it is a bit like what we had explained back then for the episode is where people are essentially had explained back then for the episode is where people are essentially borrowing in the yen and then converting that to US dollars to invest in the US, sometimes in US treasury bills, but it could also be, it could be doing on the mag seven, like you said, even on Bitcoin or on other types of assets. But what happens when the Yanks straightened and they have to cover their position, now

it's costing them more money, especially if of course their returns have not been great, it's even more so it's compounded. And what makes it worse in a lot of cases, it's highly levered as well. So you have like this double whammy where a small loss could be magnified a whole lot, depending on the amount of leverage they would be using.

Yeah, that's well explained. I mean, that's dragging on it a bit. I mean, I haven't looked into it too deep. I just know that there was a couple articles that popped up that kind of said that this is unwinding a bit, which is the exact same we've seen last year. However, last year, it kind of disappeared after a short duration of time. So, I mean, it'll be interesting to see what happens here. We didn't have that much uncertainty in that time last year though. That's a big difference. The only thing was like, I think that was about to happen was the, the swapping of Joe Biden for Harris.

I think that happened around that time in like early August potentially. So that, that's the most uncertainty, but, um, nothing like we're seeing. No. I mean, if you, if you,, if you combine this with the Trump situation and just the uncertainty about forward policy period and in terms of interest rates, things like that, you could see larger drawdowns moving forward. I mean, I can say this for the first time ever.

I have some dry powder. I would say I've been investing for a very long time and I've been a hundred percent invested almost exclusively but I have been kind of trimming back holding cash right now because like I don't know you just it's not that much I'm still like I think like eighty eighty eight percent equity but I mean I just don't really feel the need to buy anything right now, especially with what's going on and how it changes on a daily basis. I mean, if there's definitely, if you're heavily concentrated in big tech, I mean, you're definitely feeling it right now.

And I mean, I see a lot of people comment on how the SP 500 is only down 5% on the year. This is nothing, which is true. Like on the year, 500 is only down 5% on the year, this is nothing, which is true, on the year it's only down 5%, but if you go to the last three weeks. The drawdown. Yeah, the drawdown, it's not nothing. It's been pretty big. We look to the NASDAQ, it's down 13% over three weeks.

The S&P is down nine. Those are not small pullbacks in a three week period. And meanwhile gold is up in the 14% in the last six months and actually closer to yeah I guess 14-15% and in the last three months it's up 7%. So I think gold is telling us something that people are flying more and more to gold as a safety asset. I've been pretty vocal, obviously I own gold between that and Franco Nevada. It's over 10% of my portfolio now. So take that with a grain of salt. I am talking my book a little bit here, but I've been saying this for quite some time. It's just, I think it's something in my view that should

be in everyone's portfolio, at least a little bit, doesn't have to be a huge percentage, but just to offer some stability because now we're seeing that the correlation, even though gold seemed to be correlated to the stock market for a few months there, you're not seeing it as much now where gold is actually remarkably resilient in the face of this market drawdown Yeah, definitely. I mean I I don't own any right now I used to own Agnico and I kind of sold it at a profit way way way too early So, I mean that's just the bar of soap theory there But yeah, I mean the one thing that hasn't been doing very well is the digital gold. No, exactly. I like the transition. I was going to go there too.

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In terms of news, if you're connected to the Bitcoin space, you may have heard this. For those who aren't, you probably have seen it too. So the US announced Bitcoin strategic reserves. So the executive order by President Trump to create a strategic Bitcoin reserve uses seized Bitcoin essentially through criminal and civil forfeiture. So they'll be keeping those. They will also keep other digital asset that were forfeited in criminal or civil proceedings. Specific to Bitcoin, the crypto and AI Tsar, David Sachs, also posted on Twitter that the

US government may also purchase additional Bitcoin provided that it is done in a budget neutral way. Which a lot of people I think miss this part. Definitely through mainstream media, I think it's something that was missed a little bit and You may be wondering like okay. What the hell does that mean? Budget neutral way there's a couple like it definitely leaves room for interpretation. So that's 100 percent For sure a way that's been speculated That could be budget neutral would be to revalue the US gold holdings to market value.

So for those who don't know currently the US government value its gold at a price of $42 an ounce, which is obviously much lower than the $2,900 an ounce that we're seeing in terms of market price. Some people even say that there's been some suppression of gold prices on the open market for years and years that gold's true price should be much higher than that, but that's a debate for another day. Regardless, the price that they have it on the books is much lower and the US is said to own over 8,000 tons of gold or 261 million troy ounces. And currently the US gold is valued at 11 billion at that 42 dollar an ounce. At the current market price it would be worth more than 761 billion. It's a lot of money

but at the same time the US I haven't looked at their debt but I think it's around 36 trillion right now so it is more of a drop in the bucket. But what they could do is they could revalue gold. They could sell some of this to buy Bitcoin or even not have to sell any gold, but instead issue gold certificate and then turn over to the Federal Reserve based on this to essentially as a Federal Reserve to provide the US government with liquidity and in exchange for those gold certificate and then they could use part of that liquidity to buy Bitcoin. So that would be a way that it would be budget neutral with some kind of just accounting shenanigans if you'd like to say. I mean the reval... the revaluation I think makes sense to me

it should always be close to market value But again this could be a way to do it whether other countries follow suit or not I think you'll probably see countries in the next five years that will announce once they've added Bitcoin to the reserves You'll see some countries coming out of the woodwork because the issue is it makes no sense to announce it before you start before you start doing it because you'll essentially push up the price. You'll pay more. Yeah, you'll pay more. So in terms of game theory, if you want to make sure that you're not left out, it makes a whole lot of sense to do it. And you want to keep in mind on what potential other governments, institutions may be doing in the future. Whether Canada or not should be doing that, I think a lot of people would be opposed to

it and that's fine. The way I view it is we should look at diversifying our reserves away from US Treasuries. Canada does not own gold, although we own a lot of land that has gold in it, so I guess you can start mining it and it would be relatively easy for the government to acquire some gold but I think to me it would make a whole lot of sense just as a hedge and in case this becomes a more widely adopted 5, 10, 15 years down the line I think it makes sense for a central bank to have a little bit of it. It doesn't have to be a lot, but I think that would make sense because what if you don't and then it becomes one of the most in-demand assets years down the line, then you wish you would have had done that.

And if you do and it doesn't pan out, then as long as you don't do a big proportion of it, you're not hurt too badly. You just pretty much explained the exact reason why I own it. So I mean I guess in that way it makes sense. Didn't he do XRP as well? Well they ended up so who knows the original tweet came out like a Sunday and it wasn't clear yet what the reserve would be. I think that came out like a week before it was announced. And it was originally like, yeah, XRP, Solana, but some people were speculating that he was just pumping his own bags.

I've seen some people say that maybe they were just trying to set expectations to people be like, oh no, what the hell are they doing? And then just turn around and say like, oh, actually we're just like doing it for Bitcoin. So like people are go, oh no, what the hell are they doing? And then just turn around and say like, oh actually we're just like doing it for Bitcoin. So like people are go okay with it is good. All like, you know, you close people into the room, you throw a grenade and then you get ready

to negotiate type of deal. So maybe, maybe that was their intent, but it sounds like they will only hold on to assets that they own already. And the only one they could potentially buy is Bitcoin provided that it's neutral for the budget. So that's that stand side. And the assets they own would have been like criminal

seizures and stuff. Yeah, yeah, exactly. That's it. Yeah, that makes sense. I guess we'll have to see since then the price of Bitcoin is tank. So we'll have to see. We'll have to see what happens there.

But next on, so speaking of digital gold, we'll go to a retailer that does sell some gold. So some actual gold. Costco. Yeah, Costco. Yeah, so Costco, I mean, it's been on quite the run over the last while. That's an understatement really. It's been one of the better performing stocks in the country over the last few years. It reported one of its softer quarters in quite a while. So this is actually

the first time the company missed earnings expectations since mid 2023. It was a pretty small miss. I mean, earnings came in at $4.04 when they were expecting $4.11. But the thing is, when valuations are as high as they are, I guess you could say, I mean, even a small miss is gonna send it downwards, no doubt. Comparable sales, they came in at 6.8% company-wide, with Canada coming in at 4.6%, the U.S. 8.3%, and internationally at 1.7%.

This is pretty interesting because the U.S. is typically much lower than this and Canada has been typically much higher than this. When we adjust fuel and foreign currency fluctuations out of the picture, they came in at 9.1 percent company wide. So I think lower fuel prices and probably some big swings in just the currency overall over the last while, regardless of which country they're in, that probably kind of impacted comparable sales.

They exceeded expectations pretty much in every area, except Canada. They came in a little light on the Canadian side. And another interesting thing here that they had mentioned, the company signed a new agreement with its workers, which includes a $1 raise on the top end of their service clerk wages and an additional $1 raise every year through 2027. So this puts their top end wages right now at pretty much 32 US dollars an hour,

which kind of surprises me. Like I knew the company paid well, but not really that well. And I think they had decent benefits, too. Yeah. Like they like 32 US dollars an hour is that's a pretty good wage for a retail position. And I mean, I guess in a couple of years it'll be 33.90. Their bottom end wage increased 50 cents to 20 dollars an hour. So they did mention that it would put some pressure on margins, more so that bottom end wage, probably because more people are paid that

than they are the $32 an hour wage. But they said ultimately, the margins will be impacted. But their main goal is to maintain their status as an industry-leading payer overall, make it a good place to work, which, I mean, it does matter, especially this day and age. It reported a 5.7% increase in foot traffic, but only a 1% increase in average ticket price. But again, this is kind of impacted by gas and FX. Average ticket would have been up 3.2% if you factor that out. So still some pretty good growth. Membership income came in at 1.19 billion. That's up 7.4% year over year. And renewal rates, again, crazy strong, 93% in North America and 90.5%

worldwide. They said inflation came in at low single digits on the quarter with fresh foods being one of the main drivers of inflation overall. And for the most part, it came from meat. I mean, they said they're seeing a shift to consumers for lower cost meat items like pork and chicken, probably because of just how expensive beef is these days. I mean, people are probably cutting it out on a budget. Yeah, ground beef is not that expensive. Yeah. It's still like, if you look at ground beef for versus say ground pork, it's like, it's crazy expensive.

So, I mean, I imagine they're just cutting that out just because of the costs. And again, the quarter wasn't all that bad. I mean, the margins dipped again, which likely is what led to the earnings miss, but you know, the conference call kind of relayed that it was, you know, there's going to be pressure on it from those wage increases and just overall inflation in the products.

And the one interesting thing is the CFO said customers were willing to spend, but they're continuing to see trends of customers being very careful with where they're spending their dollars. And this has been the case for like the better part of what two years now, probably, which is why Costco is just soared in popularity. But they kind of said they not only expect us to continue, but they expect it to worsen just because of the overall uncertainty in regards to tariffs, in regards to, you know, the U S in terms of a recession,

you know, an acceleration and inflation maybe. And I mean, overall when you have a stock trading at 50 X expected earnings, any sort of slight miss or even, you know, potential talk of headwinds is is probably going to, you know, cause it to take a hit, especially because Costco is kind of a company that grows in the high single digit range and it's trading at, you know, 50 X earnings. It's down around 14% since mid February. And just a quick look at the chart that looks to be You know the largest drawdown since the 2022 bear market. Yeah. Yeah, I think That would be it. Yeah, 2022 was the yeah largest drawdown Saw around 30% so now that 14% it is definitely

Next Monday, I'll be talking with Braden some of the stock that I have on my radar rapid firing a little bit and Costco is one although I It would have to go down quite a bit more for me to want to start a position but I'm thinking with all this uncertainty and The raising likelihood that there's gonna be a recession in the US and Canada and possibly a global recession as well I think names like this could take a bit of a beating so we'll have to see and I think it's a wonderful company So one that I'd be happy to buy at a depressed price

Even though it might be a year or two of struggles to you know to turn back around longer term yet, I mean in the event of, I guess the economy slowing, I think they would still see some pretty big activity. I mean, overall, I shop there definitely because it's just cheaper in my eyes. I mean, it's more expensive just due to the bulk purchases. But I think overall- You end up saving. Yeah, for sure. I save a ton of money. It was actually a tweet from FinChat. This was a few weeks ago, but they said their enterprise value per warehouse stands at $507 million. So

each single Costco location would be a small cap company on its own, which is pretty crazy. Yeah. be a small cap company on its own. Which is pretty crazy. Yeah. Yeah, they're, I mean, the business model is probably, I mean, you could argue one of the best. Just, you know, it's pretty expensive right now and you know, it's just going through a bit of a drawdown. Yeah, and as much as Canadians are trying to buy Canadian right now and I'm definitely trying more to buy products that are from Canada myself. One thing that I haven't heard many people saying they'll be cutting out is Costco. So that's the one thing that I've not heard anyone say yet to me that they would not be

shopping at Costco because it's an American company. Yeah, I mean, I would imagine they source some, I mean, there's plenty of American companies I guess that sell Canadian goods. I know Loblaw is, this is a bit off topic, but Loblaw is putting the, they're putting like stickers on for Canadian goods and they're also putting stickers on for tariffed goods. So you're going to know what's been hit by a tariff. Okay. They said that this morning. That's a, I mean, it's a good strategy because they've been taking a lot of heat, right, for higher prices.

Yeah, exactly. For food in the last five years. So, I think it's a smart move for them and I think for people who want to buy more Canadian, that's for sure. And I was shopping at a local place that it's like just this big produce place. And they've always made it clear where it's coming from, but it's definitely clearer now. But you can see like product from Mexico, US, and I've been giving priority to Canada and then Mexico after. It's just like, yeah, I mean, at the end of the day, look, I think the one thing that this has done, that Trump has done to Canada is, you know, I'm not speaking for everyone,

but the impression I get is you're seeing a lot more Canadian flags hanging from people's houses. You're also, I'm hearing a lot more unity behind all of this where there's this perceived common threat versus, you know, even six months ago where it felt like there was a lot more polarization in Canada. So definitely we'll have to see where that goes but no that's good anything else to add for Costco? Nope. Whether it's a ski trip to Whistler, a business trip or a summer getaway in Western Canada, one thing's for sure when I travel I want to stay somewhere that

feels like home. That's why I always book Airbnbs, and while I'm away, my place could be earning me some extra income as an Airbnb too. It just sits empty while I'm away, so why not put it to work? I've also thought about hiring a co-host from Airbnb's new co-hosting network. If hosting sounds overwhelming, a co-host makes it easy. A local, vetted co-host can manage everything for you from creating your listing, handling reservations, and even welcoming guests.

Turn your home into a way to earn extra income while you're away and it's empty. Find a co-host at airbnb.ca forward slash host. 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 RSP 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 QuestTrade.com for details. That is QuestTrade.com. Are you buying Canadian? Well, why not invest Canadian? At BMO ETFs, we're committed to helping you build a brighter financial future because it's our future too. This is our home and as Canadians ourselves, we know what you need to grow wealth right here in Canada. Visit BMOETFs.com for more. So I'm going to talk here Franco Nevada, so they released Q4 in full year. I'm gonna talk mostly about the full year results just because we I think we may have touched on Franco Nevada like once in the quarterly earnings so I think it'll provide some good context and feel free to jump in I know with stock trades you

I think you have this on your premium side. Yeah. Yeah. I've followed Franco for quite a bit. Yeah. I mean, I own it. So all a full disclosure. So I own Franco Nevada. I built a pretty decent position last summer. It's done quite well. I mean, it was if people bought it like around December, 2023, January, 2024, they would have crushed it because then you had the Cobre Panama mine that was shut down. That was a big portion of their revenue. And obviously the stock has recovered and then some. There's a lot of different reasons,

but if you understand the business model, you probably would have figured that it wasn't a good thing, but the business model of Franco probably would have figured that it wasn't a good thing, but the business model of Franco Nevada makes it that they aren't overly reliant on one bet and a bet being different mines, whether it's royalty or streaming agreements. Yeah, I think, uh, yeah. Well, I think what was it? First quantum, I think.

Yeah. With the co-operated mine, I think it was like 20% of EBITDA. I could be wrong on that, but I know it was a decent size. But I mean, it was a decent chunk. It seems to have pretty much recovered all those losses. And then I mean, when you think about it, there's still a chance that that mine could come back online, which would be a, which would be a.

But they've already written it off. Yeah. It's kind of funny. that that mine could come back online, which would be, which would be a- But they've already written it off. Yeah. It's kind of funny. It's a zero, yeah. It's kind of like a, it's a zero issue, but it's not necessarily completely dead in the water. It's very likely dead in the water, but yeah, they-

Know it. They've done very well, all things considered. Yeah, so for those not familiar, so if you're a new listener, like I mentioned, Franco Nevada is a precious metal streamer, primarily, but they also do royalty deals. So precious metal streamers, so streaming means that they provide financing for mines in exchange

for the right to buy a portion of the future production at a heavily discounted price. And obviously when the price of gold, a lot, I'll say gold a lot, portion of the future production at a heavily discounted price and obviously when the price of gold a lot I'll say gold a lot but again they have precious metal but the majority of it is gold what's good with that is they have a set price they have very little cost associated with that so any kind of increase in the gold prices goes a lot of it goes to the bottom line for a company like a Franco Nevada versus company that are actually

in the mining exploration and production, where yes, higher gold prices is good, but they also have to compete with higher prices of production. So in an inflationary environment, they'll end up paying more. So some of them have, obviously they've all benefited from higher gold prices, but it's been mitigated for some of them because of higher costs.

And the other way they make money is using royalty agreements. Now royalties are a bit different, will typically be based on the revenue produced by a mine. So they'll get a percentage of that and obviously an exchange often it will be for an investment in the mine. So it is that's their business model they end up taking tons of different bets some may work out some might not but they do that and over the long haul more the deposit tends to outweigh the negative so that the ones that do work out will more than outweigh for the bets that did not work out. And that's what's so great about this business model

is they have bets all around the world. So that's why I like this company. It's not capital extensive at all. And I'll touch more bit about that later. So in spite of having tough comps for 2023, when you factor in that most of 2023 had that Cobre Panama mine operating, they did quite well for this year. So they had their revenues, I think I deleted this portion, but if I remember, yeah there you go. So revenues, I thought I deleted it So revenues for the year were up 9% down 9%

Sorry, but up 15% if you zero out the Cobre Panama mine, which I think is useful because yeah most of this year last year, they did not have that in place and For context it did stop operating in November 2023. So most of 2023 had that mine. And keep in mind that an ounce of gold price in USD increased more than 26 percent in 2024. So clearly that was a big boom here for Franco Nevada. And it was achieved also by selling 26 percent less of gold equivalent ounces because in big part of that shutdown, of gold equivalent ounces because in big part of that

shutdown. Now gold equivalent ounces also known as GEO is a metric used to express the value of other metals mined in gold value. So it's a really important metric especially for a company like Franco Nevada that most of the revenue comes from gold sells but they also get other precious metals They also have revenue from oil and gas and to provide some context here 77% of revenues came from precious metals altogether But 64% came from gold sales alone. So it gives people an idea that gold is still the The most dominant resource here, but the came from oil, gas and other metals.

The average price of gold sold for the years versus 2023 was up 23% to 23.87 US per ounce and for Q4 specifically it was 26.62 per ounce and keep in mind we've talked about it a little bit in this episode gold is now trading at 2,900 an ounce So it should be I mean who knows where the price will go. I am very bullish on the price of gold I won't hide that and maybe it goes sideways this year. Maybe it goes down a bit Regardless, even if it goes down to 25, 2600, they're still looking at pretty nice result because it'll still be higher than the average gold price of last year. And net income was 552 million compared to a loss from last year, but the loss was primarily due to the impairment charges

because of the Cobre Panama mine. Freecastful was down 24% to 422 million, which makes sense, right? Because the impairment are non-cash items. So it's normal that they had a bit less free cash flow because of a bit less production this year or production, well, sales because of the lack of Cobre Panama. They completed 1.3 billion in acquisitions and commitment in 2024. And this will all be financed with cash on the balance sheet. And that's the other thing about Franco Nevada that I love is they have zero debt. And they're pretty committed to only financing projects with cash. And they are guiding for a total geo sold for 2025 that will increase by 7% if you're using the mid-range of their guidance.

They also expect their geo for precious metal outputs to steadily increase over the next few years as new projects come online and they start getting royalties or streaming deals online with those. And they also announced a dividend increase of 5.6%, which for a dividend investor, it's their 18 consecutive year of dividend increases. Yeah. I mean, if you think of how much gold has struggled over the last two decades,

like it's pretty impressive. They've been able to run it up for, for 18 straight years. I don't know what it is with the, with the streaming companies. They just don't like debt. I mean, Wheaton Precious Metals has zero debt as well. Is it zero? I thought they had a little bit, but not a lot. I mean, when I look at Y charts right now, long-term debt, zero. So I mean, they don't like carrying debt. I mean, they have a lot of, you know, both of them have quite a bit of cash

to finance these deals. So really, what's the reasoning to take out debt? I mean debt is obviously attractive in some situations but I mean the oil and gas I think is definitely dragging them down at this point in time. I remember looking into the quarter and there's some pretty big declines from the oil side of the business but the precious metal side of the business is doing very well and I mean they're doing exceptionally well considering, I mean, the big hit they took from Cobre Panama. So yeah, it was a pretty good quarter. I kind of, you know, I wish I had bought this company, but it's one that I've covered for like literally six or seven years, but I've never owned.

Yeah, I just love the business model. I mean it doesn't trade very cheap it definitely trades at a premium compared to miners but there's no operating business model. What's that? There's no operating expenses right you think of those miners like exactly the the mining business is just it's crazy like the input costs you have and like the is just, it's crazy. Like the input costs you have and like the, like just the workload that goes into it. I mean, whereas these streaming companies, they pretty much just get a chunk of that

with having absolutely no exposure to the operating expenses. Yeah, and it allows them to spread out their bets way more geographically, not that the big miners don't. I know they have mines around the world, but it's also much harder to set up and operate a mine in different jurisdictions than it is to have streaming and royalty deals that give you a part of the production for streaming deals or royalty. You can really

spread out your bets more so you're not as dependent and that's a big issue with the crowbray Panama mine that we saw is Politics. Oh, yeah, can there risk with miners like depending on where who the government is where it is There's always a risk that sometimes that mine will just be shut down or nationalized by the country itself. And I think that's why it makes that in my view is the reason why it's such a premium play. Franco Nevada and even Wheaton, I haven't looked at them too closely in the last little while. But for these kind of businesses, and I'm showing this for our Joint TCI viewers, like you can see the breakdown between commodity, geography, asset, and deal type. So I'll go with deal type, almost 50-50 between stream and royalty and other

as a tiny portion. The assets, you can see that there's all, I guess, they're major mines. So and energy type, I'm not quite sure about the assets here. So I'll just move on and The geography you can see there is Canada and USA. It's about a third South America It's about a third Central America is maybe you know 10 15 percent and rest of world is maybe a quarter So you have that divided but it's it's pretty well spread out and the commodity mix I won't go into detail because most of it like I said earlier a lot of it is gold and then is spread out between Oil gas and other precious metals. Yeah, I mean in regards to the just to the overall

Exposure that's kind of why I own when I did own Agnico. That's kind of why I own it I mean they were Kirkland Lake Merger as well, but the majority of their mines were either in Canada, the USA or Australia. Whereas, if you look at the impact of that mine shutting down, so you look at first quantum, when that mine got shut down, they fell 74%. Whereas Franco fell around 22. So you can just see the difference between a streaming company and a mining company because once that mine shuts down, I mean first quantum. It was to me the biggest mine they had. They're screwed. I mean that's like putting it lightly. I mean you see it

fell 74% in a matter of a few months. Now, it still hasn't recovered either. I mean, it's still, you know, it was at $39 a share before the mine shut down and it's at 17 now. So huge impact. Just kind of shows you the huge risk in miners versus the streaming companies. No, exactly. And that's why I own it.

I can obviously take that with a grain of salt. I mean, I own it. So take what I say, do your own due diligence. None of this is investment advice, but it's done quite well for me. I'm happy to own it and I'm probably going to be looking to add to that position if there's any kind of pullback. Gold has played a pretty nice place in my portfolio over the last year and it's definitely nice to have right now because it does provide a bit of stability compared to everything else except cash maybe. But cash, the problem is you have less upside, right? But you do have that dry powder. So yeah. Cash is doing quite well in 2025 thus far though. Cash is no longer trash But anything else to add I had another name on the dog but I think

We're we're about around the 45 minute marks. Usually the sweet spots So anything else you want to add or we'll just call it an episode. No, that's it. Thanks for this thing everybody The Canadian Investor podcast should not be construed as investment or financial advice. The hosts 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 decisions.