The Canadian Investor - Lumber Tariffs Hit Canadian Producers and Tesla’s Deliveries Slide

Episode Date: April 24, 2025

In this episode of The Canadian Investor Podcast, we break down a whirlwind week of headlines that continue to move markets. We start with the latest from the Trump administration, where the president announced plans to reduce the 145% tariffs on Chinese goods—though no specifics were given and he made it clear the rate won’t be going to zero. Markets also reacted sharply to speculation that Trump might replace Fed Chair Jerome Powell, only for him to later walk back those comments, stating Powell would remain in his role until the end of his term.  We then dive into Tesla’s earnings, where the company posted a 9% year-over-year revenue decline and a 40% drop in EPS, with falling deliveries and razor-thin margins putting pressure on the stock—despite a surprising post-earnings rally.  We also cover American Express, which delivered solid numbers driven by younger cardholders, and remains resilient thanks to its premium card base and growing fee revenue. Over at BlackRock, inflows hit $84 billion for the quarter. Finally, we take a look at West Fraser Timber’s results amid increasing trade uncertainty, highlighting the company’s strong balance sheet and the challenges ahead for Canadian wood product exporters. Tickers of stock discussed: WFG.TO, BLK, TSLA, AXP 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.

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. Canada. Visit bimoets.com for more. 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 back with Dan. We are here for a news and earnings episode

Thankfully we have the Americans and more specifically Donald Trump that provides us news on a weekly basis So there's more stuff on the tariff front even some comments he made from on Jerome Powell and the Federal Reserve also we do have some earnings including Tesla, some Canadian one, a timber company that we don't really look all that often. So it'll be interesting to look at American Express and then we'll wrap it up with BlackRock at the end. So before we get started, are you enjoying these markets, Dan? Oh yeah, it looks like it's another dump and pump yeah I mean like two days ago he wanted Powell fired and then today he comes out and says he's perfectly fine with him. Yeah and

now I think well I guess we'll just get started here and it's more and more it feels like a headline driven market right it's pretty much whatever is headline is is coming up whatever Trump or one of his lieutenant in an administration lack a better word says something about trade tariffs or even the Federal Reserve comments it's moving the market so tariff on the tariff policy Trump said that the US would be reducing the hundred forty five tariffs on Chinese goods. He did not specify the exact rates but said it would be lower but that it won't be zero. And we are recording this on April 23rd at 11am Eastern time. And it looks like the headlines I'm

seeing on CNNBC right now is that there is an opportunity for a big deal on trade. This is what the Treasury Secretary Besant is saying for the China and US relation or trade war. So we'll have to see whether this actually happens or not. If there is a deal, then is this a really good deal or not? But I think it's clear that there will still be tariffs on China. It all depends to what extent. It'll be interesting to see how China reacts as well, because we haven't heard too much on their end, just aside from essentially Chinese, the CPP saying that they would like not back down in front of US tariffs. So it'll be interesting to see

whether they're actually open to negotiating with the US or not. Yeah, I mean, it kind of seemed like a stalemate here. And it looks like Trump has given in for the most part. I mean, I don't know. It's going to be interesting to see. He has not given in. It's part of the negotiation.

So it's its grand master plan. So let's not say know, let's not See caved in that's what not supporters would say. Yeah. Yeah part of the deal Yeah, I mean the I think the the Powell news kind of is good is good as well because I know that Would definitely cause some rockiness in the markets like earlier when he wanted him punted I mean the you know that would definitely cause some rockiness in the markets like earlier when he wanted him punted. I mean, obviously the Fed is supposed to be an independent body and they definitely don't want political meddling in there like trying to get them to force rates, force rates down

or fire them. So that news I think is causing a bit of a boost as well. But I mean, we got a time stamp everything because it can change this afternoon. Yeah, exactly. So now the markets are up. I think the NASDAQ's up close to 4%. The S&P are close to 3%. So we'll see maybe it'll be red by the time, by the time the day is done and then people will listen to this tomorrow and we'll say what are you talking about? But Trump also had some

comments on the Federal Reserve like you had mentioned essentially without reading the whole tweet or truth from truth social and our joint TCI listeners will see the true the tweet I'm referring to but essentially said that Powell was a major loser and that he was too late and that he should lower interest rates. So well, obviously the market did not like that. And then on Monday, they opened much lower. I think it was in big part a reaction to these comments. But Trump has since said that he had no intention of firing Powell before the end of this term. So the markets I think my interpretation is that they like to see that and we had a good day yesterday

it's looking like a good day as well today I think this probably a bit more on the heels of a potential trade deal between the US and China but it just goes to show that this is definitely a headline driven market and that I don't think the volatility is going away anytime soon. No, I don't think so. I mean, he just kind of comes out with some some crazy, what are they, truths? I mean, yeah, he just trade up called them what? What were you saying? Mega losers? Oh, yeah, no. Yeah. So Mr. Too Late, a major loser, lowers interest rates. So yeah, he's basically saying he should be lowering interest rates and he wasn't afraid

of doing it before the election so that Joe Biden or Carmella would win the election. So that was his whole rant on April 21st if people want to look it up. Yeah, and I think their feud goes way back to even his first term because I remember they were in a big spat back then as well. So yeah, I mean, like you said, headline driven market, I mean, they can swing four, five, six percent on a single tweet, a single, it's just crazy. Yeah, 5% swing is just another day in the Trump era. Trillions of dollars, yeah. Yeah, exactly, nothing to see here.

But now we'll move on to some actual earnings and we'll look at a company that has a lot to do or people are tying very closely to the Trump administration and that's Tesla. Yeah, so Tesla came out with earnings, I believe it was yesterday or it might have been this morning. I actually can't remember, but they had revenue decline by 9% year over year. So that missed street expectations by quite a wide margin, I think. I think it was in like the $19 billion range when they're expected to report $21B or something like that. So

earnings came in at $0.27 which was also well below expectations for $0.43 and is actually a 40% decline year over year. Vehicle deliveries came in $336K around that mark. This is actually the company's weakest quarter since 2022 and is down 16% year over year. Vehicle deliveries haven't really shown any sign of growth rates since they started escalating in 2023. And I'd be interested to see if this picks back up again once the Fed lowers rates. The difficulty here with all the tariff uncertainty is the Fed is going to be pretty reluctant to do so.

I think. And I mean, if you look to actual deliveries, we're back to, you know, what would that be? September 2022 levels, even below that, they've effectively gone flat for the better part of, you know, two years now. And I mean, that's I would imagine there's some, you know, political situation there with Musk. But I think it's also just an environment of, you know, the situation there with Musk, but I think it's also just an environment of, you know, the total cost to finance one of these vehicles. I mean, they aren't cheap. I remember Musk actually said comments on that. I believe it was back in 2023 where he straight up said that the financing was hurting a lot

of sales. Yeah, exactly. And I mean, at the end of the day, too, I think it's probably a combination of that and a lot of people just not wanting to buy a Tesla that are shopping for cars just because it's tied to Elon Musk. I think this is probably having a material impact. How big? I'm not sure, but definitely in Canada and Europe, I can see a lot of people not buying

Teslas because they don't want to support Elon Musk. So that is probably weighing on the results as well. But like you mentioned, I think more importantly, I think it's just people just don't have money or the financing cost is just too high to buy these vehicles. Yeah, and I think they're trying to mitigate this to a certain extent. I mean, affordability is definitely on their minds. They do plan to roll out a cheaper model for consumers in the first half of 2025. They had mentioned on a call. So I mean, I think that's, you know, within the next few months here. And I think also increased competition from, you know, Chinese automakers is also putting some pretty substantial pressure. But despite,

you know, like if you were to look at this quarter, like on a surface level, like it was not a very good quarter for the company at all, but it's up quite a bit this morning. I think it's up seven or 8% as we're recording this. And I do think it's primarily, well, obviously the market being up in general is probably going to push it upwards, but I think it's from Musk. He had stated that he's not going to be as involved with Doge starting in May. Like his activity in that regard is going to decline because he did state on the call that his role in that has impacted Tesla's brand. So I think a lot of investors are probably liking that news as well. But I mean, is that really gonna help the brand

or is the damage done? I mean, I don't know, that's difficult to say. Yeah, yeah, no, I agree. I have no idea, but it's definitely, it's having an impact, that's for sure. To what extent, I think that's debatable. And would it last? I think that's debatable as well.

So just time will tell. Typically, I don't like to bet against Elon but Given the precarious position he's put himself in and how people identify the brand with Elon Musk I would be very reluctant at Starting a position in Tesla just because it also I haven't looked Dive deep into it, but I don't think it's either like trading very cheaply either.

So it's still trading. No, I actually like. Yeah, nosebleed valuations, right? Still. Yeah, I mean, it just like, it's weird to me, you know, people won't buy a Tesla because they don't like his involvement. If his involvement stops next month,

are they just gonna be like, oh, it's all good now? He's not doing it anymore. I don't know, That's tough to say. Revenue declined by 9%, but operating expenses actually increased by 9%. Automotive revenue, which is around 73% of the business is getting hammered. It's down 20% year over year. Energy and storage revenue grew by 67%. This kind of cushions the blow a bit, but it's still a relatively small

portion of the business. I think just off the top of my head, automotive revenue was close to 13 billion and I think energy and storage is like 2.7 billion, I believe. So it's a smaller portion of the business and you know this company, you know, no matter what it has moving forward, it's still, you know, 70 some percent of the business is in that sector So it is an automobile company at at this point in time and and operating margins are getting really razor thin. So They declined by 343 basis points on a year-over-year basis. So they're only sitting at 2.1 percent Right now and they're actually down 4.1 percent on a sequential basis. So compared to last quarter EBITDA margins also took a hit so they're actually down 4.1% on a sequential basis. So compared to last quarter, EBITDA margins also took a hit. So they're down 133 basis points.

And the company had mentioned the decline in profitability is from reduced vehicle prices, deliveries, and just overall investments made into AI and other development projects. And I mean, the margins are like, they've been declining for quite a while now, I'm pretty sure. I was just looking at their report,

like just their kind of spreadsheet or their PDF layout in their report. And I believe their operating margins were like 11, 12% a few years ago. So you're seeing a big, big decline in that. And obviously having to reduce vehicle prices is definitely not good because the cost of producing those vehicles likely hasn't gone down very much. So if you're having to cut prices to get vehicles to sell, it's going to directly hit your margins.

So it looks like they will introduce fully autonomous paid rides in Austin for its robo taxi over the next while here and it does plan to test it out there, roll it out a few more cities and then do a wide scale rollout in 2026. And they also mentioned that their humanoid robots will be rolled out in Tesla factories by the end of the year. I don't really know much about these, but it plans to develop more than 1 million units a year by the end of the year. I don't really know much about these, but it plans to develop more than 1 million units a year by the end of 2029. In terms of like you had mentioned, I've just never really understood the valuation on this

one. I mean, plus I would just never own it because I believe like I would never bet against Musk, but I just, I think he's too much of a probably loose cannon for me to ever, you know, buy the company. I mean, look what he did with Doge. It, you know, obviously materially impacted the brand. And I mean, even despite taking a beating over the last wall, the company just seems crazy expensive. I mean, it does have a lot of interesting innovative products,

systems in the pipeline, things like that. But I mean, you can buy tech companies that have substantially higher operating margins. They're way lower exposure to input costs and they trade at like less than half of the valuation. So I don't know. It seems like a company that, and it's crazy to think too, because it's down what? Like 40 some percent this year.

Yeah, the drawdown. Yeah. I would still view it as just just crazy expensive. But I mean, overall, it just wasn't it was not a good quarter. And I don't know, it's hard. It's hard to predict why the stock is up at this point in time. But I would have a feeling that it's probably, you know, a little bit involved with Musk, stepping, stepping back from Doge and kind of trying to at least begin to try and repair the brand damage that's been done. Yeah it could also be a combination of that and just the markets being up the last two days in general. I think

investor sentiment has turned around a little bit. It's probably temporary. I wouldn't be surprised if we get another down day tomorrow and I'm showing here for a joint TCI, you'll see that automotive revenue is still the vast majority of their revenues here. When you're buying Tesla, you're still relying on that. Of course, people who invest in Tesla usually are investing in Elon's vision for the future and more into certain types of ideas like the humanoid robot and it's worked well for them in the past, right? Like who would have thought when they started producing, I can't remember what the model

was, but you know, the initial supercar that they had. So their strategy was always to, you remember that when they first came out? No, I know this I remember Yeah, yeah so the strategy they had was to start off with higher margin expensive cars to Get the business rolling because obviously starting a car company is very expensive and I think Elon had put pretty much all of his money at that point and then as They rolled that out. they would start working on more affordable models. So I think the second model was the Model S I think that came out.

I could be wrong a little bit, but it was, you know, the more expensive luxury everyday model and then they came out I think with the Model 3, the Model that the kind of SUV one as well. So make it available for more of the masses and then I'm assuming that's what they'll do with their more affordable version is probably reduce margins but try to get it on volume. Yeah, it seems like it's a pretty good idea. I mean obviously you roll out the higher model catered to higher income earners and then kind of work your way down You know more middle class, but yeah, I mean it I don't know It's it just seems like a company that's gonna be in a bit of difficulty over the next while but still is

Relatively rich in valuation. I mean, I don't know. Yeah, you got to be a true believer. Yeah They they actually did report I believe it was yesterday because I remember looking at this quarter and I'm like, Oh God, it's gonna get whacked tomorrow, but then it's up like 7%. It may be a delayed whacking, maybe. Yeah, maybe. With the headline driven market, I'm not, I am honestly not surprised that we see companies issuing not great results, the stock is up or issuing great results and then the stock is up or issuing great results and then the stock is down

because the overall market is down. Like I think we'll be seeing a whole lot of that in the coming weeks, months, and probably up until next year, until the midterms to be honest. But anything else you wanted to add for Tesla, we'll move on to the exciting world of timber. Yeah?

Yeah. Welcome back into the show. This is the Canadian Invest of timber. Yeah? Yeah. Welcome back into the show. This is the Canadian investor podcast made possible by our friends and show sponsor EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market.

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For those not familiar, it's tickered WFG. It is a publicly listed Canadian company and of course they produce mostly softwood lumber but different a few different things that are just derived from that as well. And I wanted to look at them first. It's not super busy on the Canadians earnings front just yet. It will be starting to work well. I think we had a few names that are reporting later today.'s going to be more reporting next week but I figure it was good to look at just to see what they're saying in terms

of tariff uncertainty that's been my big thing for this earnings season is just hearing what companies have to say because depending on the sector you have different takes on what the impacts of tariffs might be and obviously certain sectors would be impacted more than others. Now, there was a really good quote in the earnings release that I think explained well where they're at right now. Demand uncertainty for wood building products persists more broadly given ongoing housing affordability challenges and this has only been magnified recently by a US administration that has both threatened and imposed higher lumber duties and punitive tariffs on many of the products we export from Canada to the US.

So I think it really encompasses what kind of situation they're dealing with right now. And they also mention in that earnings release that they will be continuing to focus on variables that they can control like cost cutting and modernizing mills where it makes sense. So I think that's the right approach to do because when you're looking at tariffs like that there's really no point in trying to control what you can control at the end of the day. This is largely going to be dependent on what Trump's decide.

Like it will be dependent mostly on one man. I know there's going to be a report provided to Trump. So there's a, they have until the US Secretary of Commerce has until the end of the year to send a report to Trump on lumber. And that report basically could result in higher tariffs for the industry so we'll have to see they're kind of in a holding pattern right now

Wes Fraser and I'm assuming most of the Canadian lumber industry now in terms of actual results sales were down 10% you over a year to 1.5 billion so it kind of reflects some of the challenges that they say they're seeing net income was up 20% to 42 million, while earnings per share was up 10%. The good news is that they have a net cash position of 190 million, so they do have a solid balance sheet, although that net cash position

has been trending down a little bit, so something to keep in mind. But that's the kind of thing I'd wanna make sure if you're interested in investing in the lumber industry given the level of uncertainty and the fact that this has traditionally been a contentious industry between Canada and the US right it's not I remember I was a teenager and there were discussions about tariffs on Canadian software lumber so it is not anything. And I think if you're getting into this space, you really have to look at the companies that have solid balance sheets and have a proven track

record. I'm not an expert in these, but you definitely want to, that's what I would do is just stay on the side of quality when it comes to these companies. Yeah, and they're like investing in them for the long term is extremely difficult because of how how cyclical they are. I mean, if you look at the West Frasier, I was just looking them up like their income statement. They had net income of three point seven billion dollars in twenty twenty one. So they earned. So this is a stock that trades around one hundred dollars, and they earn thirty four dollars a share in So they earned. So this is a stock that trades around $100 and they

earned $34 a share in 2021. Yeah. And now like their last in 2024, they earned a dollar 45. It's crazy. I mean that, well, obviously lumber, like the big supply chain issues and the skyrocketing price of lumber had an impact on that. But I mean, yeah, these are like their results are just going to be so cyclical, depending on like you think housing starts. Obviously, the tariffs are a big issue. You have just the overall price of lumber like it's these companies are crazy hard to just kind of buy and hold for the long term just because I mean, you seen a wild earnings were in 2021 and it's effectively traded pretty much flat since then. But it's going to be interesting on the tariff front. I don't know how like I don't know how much Wes Frazier actually supplies to the US.

I would imagine it's probably quite a bit. Yeah, just based on this, I would say it probably was going a lot to the US. Obviously there was a lot of renovation constructions going on in Canada in 2020-21-22 but especially in the US in certain states like southern states there was a lot of building happening during that time because there are typically states that have less regulation so it's more the market that dictates things. So if you have low interest rates and you also have really high demand for new homes, then clearly there's going to be a whole lot of building a lot more over in certain states

and I'm saying certain specific states in the US. So that would be my guess. I'm not, like I said, I couldn't be completely off, but I'm thinking, you know, states like Florida, Texas would have been prime construction. I know, like I've read a lot of on those two states, listened to experts, and I know there was a lot of of building and to some extent overbuilding that happened during that time frame. So I'm sure Wes Fraser Timber probably benefited from that a little bit. Well, you can tell this is one of the craziest charts I've seen. Yeah.

If you look at the chart, it's just nuts. From a $3 billion profit to a $167 million loss in like two years. Crazy. Yeah, exactly. No, that's good. So, we'll move on now. Let's do BlackRock and we'll finish with American Express here. Yeah.

So, BlackRock was one that we had ready last week, but we ran out of time. And it's a pretty interesting quarter from the company, especially when we look to like flows, which I'll talk about in a bit. But adjusted earnings increased by 15% year over year. That beat expectations by quite a wide mark. Revenue was up 12% year over year

and operating margins increased 1%. They sit at around 43.2%. So there was $84 billion in inflows on the quarter. And it looked like in the first quarter, at least the pace of American inflows are slowing down a bit. And like European, Asia, things like that, they're picking up. So on the quarter, inflows to EMEA were around 41%, but on the entire year, they were only 32%. So there's definitely an escalation there, and it'll be pretty interesting to see

if this is a trend that continues. I mean, obviously we've had a few good days in the US market, so who knows? In the second quarter, we might see an inflow back into US equities. Total organic base fee growth rates were around 6%. So that's right in line with their asset growth. And the interesting thing here is there was some of the largest institutional outflows in terms of index funds in the first

quarter of 2025. Well, retail showed one of its highest inflows in years and you have the chart here. So when you look to know our sorry net flow, as you see retail 13 billion in inflows in Q1 2025, which if you look to Q1, like the first quarter is typically a time of higher inflows just because of, you know, you're thinking of TFS a top ups, RSCs, just in cash tax season, things like that. But it was more than, well, it was just under double the inflows of Q1 2024.

And then when you look on the institutional side of things, there was actually outflows of 46 billion, it looks like. So, I mean, there's definitely two different perspectives here. I mean, retail is without question the first quarter of 2025. They were buying the dip, whereas retail was kind of exiting or sorry, institutional was kind of exiting. So that's just a, it's a really interesting trend that, you know, I'll be curious to see if it continues. And then when we, when we look to 2023, it's interesting as well, because in 2022, the markets were quite ugly. And in in 2023 they kind of picked

back up again but we just seen a lot of outflows on the retail side of things and to a certain degree on the institutional side of things as well. But if you ever kind of want some insight on the activity in terms of flows, I mean Black Rocks quarterly reports are a great spot to go. They give you a pretty a lot of good insight into this and it's just it's really interesting like how aggressive retail was in the first quarter buying the dip and I mean who knows maybe it works out. Yeah. It's it's definitely possible. We've had a few big days. We've had some ugly days as well but yeah. So far I mean it's looking pretty good. So it was about the dip after the after liberation

day. Yeah, it's looking pretty good. So we'll have to see whether it was a good move or not long term. I know what I'm doing. I think I don't know if I mentioned it on the podcast, but you know, so I because I left my job, I have funds for my pension, I'll transfer to a locked RRSP. And then what I've been doing with my cash is slowly DCing in some index fund, just because I think there's going to be more volatility. So I'm just dollar cost averaging a bit more, not necessarily on a specific schedule, but more on a kind of opportunistic basis, just because I think there's just so a variety of possible outcome like I think

we could be in a prolonged bear market like I think things could rebound quickly especially if the government starts stimulating a whole lot and the central bank starts stepping in and start quantitative easing and start pumping the price of assets with a lack of better words so I think there's all different kinds of outcomes possible. So I want to make sure that I do have a decent amount of skin in the game. Yeah, that's pretty much what I've been doing as well. I mean, I still hold a little bit of cash, but I typically buy every week and you know, whatever happens happens.

So in terms of alternatives, which kind of includes things like the company's real estate, private equity, private equity, private credit, etc. is seeing some pretty big growth. So fee paying assets under management grew to 381 billion this quarter compared to 300 billion in Q1 of 2024. The prime driver of this growth is in its infrastructure alternatives, which would be investments in transportation, waste management, energy, things like that. However, although it doesn't say it in the report, I'm almost positive that the bulk of this growth,

they acquired global infrastructure partners back in January of 2024. So that's probably why that's accelerated that much and why the fee paying assets kind of increased like that. But some interesting comments from Larry Fink, he does mention that they're going to be aggressively targeting the private market side of things. So they plan to roll out new products to,

I believe they said their primary target was wealthy European investors. I mean, this is definitely an untapped market. It's won a ton of investors are interested in. I mean, we've seen WellSimple come out with private credit, private equity. I mean, at first, I believe you needed a lot of six figures, maybe investment, but I think that's gone down

as well as their- Democratizing or whatever these investments. And I think the fact that it's called alternatives is just completely stupid. It's basically like, you're essentially buying, like let's take private equity. You're essentially getting businesses that are just levered and not market to market versus buying on the stock market, which they're marked to market. And somehow it's an alternative.

I have no idea who came up with that term but it makes no sense in my head. Like it's basically you're levering up a business and you're calling it an alternative to equities. Like how the hell does that make sense? Highly illiquid as well. I mean, it's not like you can just, yeah. I mean, the craziest thing is,

is he even went as far as suggesting a shift from, you know, the traditional thinking of a 60 40 portfolio to like a 50 30 20 portfolio where 20% of it is invested in private assets. Yeah, OK. I mean, that like I personally think something, you know, 20% is quite high. But they do. They're definitely targeting this as an avenue for growth. And I do remember Braden, I think it was on the bold predictions, he pretty much predicted

this that there would be huge, I can't remember the exact prediction, but he mentioned something about private credit, private equity exploding. And I mean, BlackRock is clearly seeing it and they're targeting that segment of the market extensively. Overall, it was a pretty good quarter, but I'm definitely interested to see how this company does moving forward if the market continues to be volatile. Like BlackRock is a company I've owned for quite a while. It's one of my bigger positions and it's going to be very market cyclical to the market,

obviously. If we do get a prolonged bear market, I mean retail, they've been interested in buying the dip in the first quarter, but the longer this drags on I think you're gonna see that trend kind of kind of wear away. But yeah, it was Pretty big, you know abnormally high inflows of retail investors in the first quarter of the year And it's it'll be interesting to see if it continues No, no, I think BlackRock is just a really good barometer of to see how the markets are doing. Yeah, exactly. And I'm not surprised.

Like the private credit really seems like the next thing that Wall Street is trying to get to retail investors. It's just and when Wall Street goes all in on something towards retail investors, that usually starts ringing alarm bells for me as a retail investor. It's just because Wall Street will tend to push stuff where they can make money no matter what and how do they make money no matter what, it's with fees. So that is something that I'm, I've been pretty critical of for that reason.

I feel like the more you see these kind of products being pushed, the more that to me it's just an indication that Wall Street is all in on this and Wall Street is really good at marketing stuff that will make them money. And I think this is just the next thing. Yeah, you see it all the time. I mean, I guess a quick example, it would be just the passive income craze you've seen, throughout the course of the pandemic,

you've seen covered call ETFs, and then they added leverage to them, and then they started fine tuning it to be at the money, to increase that yield, and now we're getting like single stock levered ETFs, like it's, and all of it is to effectively grab fees. I mean, that's how these companies make money. Now we're getting single stock levered ETFs. All of it is to effectively grab fees. That's how these companies make money.

iShares hasn't really gone down that route at all. I don't know if they will. That's more of a smaller niche thing. If they can make money off of it, even if it's not the best investment, they're going to push it for sure because fees are their main way of making money Yeah, and I think I know I went a little bit on a rant But for people thinking about private equity and private credit like just keep that in mind like you're essentially Like this this alternative word like it's not accurate. It's just a branding thing

It's just a marketing thing. When you think about it, what is private equity? I just said it. They'll typically take either buy out a private company or they'll buy out a public company, take it private, they'll lever it up and then they'll non-market to market. They'll essentially decide themselves what it's worth and then they'll say it's an alternative because it's not mark to market, so therefore it's not dropping 20% when the market is dropping 20% but in reality if you try to sell it when the market is down 20% you'd probably be selling it at a 20% discount anyways so it's just it just doesn't make a whole lot of sense and they just brand this as alternatives if you're

looking for alternatives, look for actual alternatives. In my mind, you know, maybe you look at commodities, certain types of commodities, something like gold is an actual alternative to that. Even I think in my view Bitcoin, but like this is not an alternative. Like this, in my view, is just not an alternative. Yeah. No, they had the, I don't know if you've seen that, this was during like the big drawdown where they had the chart of the stock markets and they're all in the tank and then there's like a chart of private equity that hasn't moved. It goes up probably.

Yeah. Yeah. Yeah. It's, yeah, I don't know. I think no matter what you say, it's going to be something that just continues to grow. I know when WellSimple came out with it, I got so many questions. So many questions about it. And yeah, I mean, obviously again, it's all marketing. They're marketing it as... I can't even remember the returns of well simples as well We're just crazy over the last bit, too

Yeah, but then when you started to look at the fees and everything it was in that grade And then you also have the liquidity risk where one of the traditional liquidity exits for private equity is taking the companies back to the public markets and taking the companies back to the public markets. And it's not like the IPOs have been booming in the US and even less so in Canada. So it is creating an issues where oftentimes these funds that have a certain duration, now at the end of the duration,

they are finding themselves like they have no exit. So oftentimes they have to roll it into new funds and then it can get investors pretty pissed off because they were under the expectation that they would be able to get the liquidity at the end of the duration of the fund and they're not able to. And that's something that's been happening more and more.

Yeah, and it's just, you know, it's something that if you're gonna get into it, you need to first off something that if you're going to get into it, you need to first off, figure out, figure out if you are, if it even fits within your portfolio in general, your risk tolerance. I mean, these companies aren't doing, I don't think they're doing anything, you know, shady in regards to like, they like, well, simple kind of lays out everything you need to know how risky the investment is. But, you know, if you do a lot of quick research by into this fund without actually diving into all that stuff, I mean, it can get you into, I wouldn't say quite a bit of trouble, but there's definitely more underneath the surface

than a lot of these, you know, major companies are kind of letting on to be. Yeah. Yeah. And I think that's it. And I think the issue is you get retail investors that are like, well, it's managed by professionals. It's fine. Exactly. It's labeled as an alternative and they don't fully understand the risk.

They just kind of look at all the selling points from it. Oh, like, look, when the market was down 20%, we weren't down 20% with our previous fund and stuff like that. So if you do invest in that, make sure you do your research. I personally don't think typically it's a great idea. I think there just are better options for my money out there. But to each their own, if people want to drink

the derivative Kool-Aid, they can, and that is their money. So. Welcome back into the show. This is the Canadian Investor Podcast made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking.

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Don't miss out, start trading commission free stocks and ETFs today. Visit questrade.com to learn more. I'll move on here to the next company on our list. The last one, American Express. So American Express, it's a company that I've had on my radar for a little bit of time. I was reading the report, I listened to the call, and the more I look at it, the more I wanna buy it. So definitely if there's a bit more of a pullback

with the markets in general, I think this is one I will pull the trigger on. So their build business was up 6%, and the build business, simply the amount of good and services that are purchased through the American Express cards that they issue because that's important. American Express does kind of both. It's kind of a hybrid between a bank and a Visa and MasterCard.

Obviously their network is not as big as Visa and MasterCard. It's definitely the third on the list there, but Visa and MasterCard will essentially run the network. So when you get a Visa or MasterCard, it'll be issued by your bank or a bank. Whereas Amex, you'll see both. You can get a card directly issued from American Express or go to whatever. Most big banks will also issue their branded American Express cards. So there's kind of these two ways here.

For the build business, it was up 7% on the consumer side and 13% on the international side for the quarter. Younger-olders are really driving this increase with millennials and Gen Z spend up 14% compared to 5% for Gen X and 1% for Baby Boomer. So clearly they are starting, you can tell they're resonating with the younger generations. On the commercial side, it was up 2%. Total revenues net of interest expense were up 7%

to 17 billion for the first quarter. So it is looking pretty good in terms of numbers. Their loan book continues to grow 7% which is a bit of a deceleration compared to the 13% they had last year during the same quarter but still pretty solid. On the delinquency side it seems pretty stable. So I was looking at a bunch of different delinquency metric. Their net write-off rate stayed at 2.1% for the quarter and their loan loss ratio, which is essentially the amount of provisions that they have on their

balance sheet compared to the total loans outstanding, was the same at 2.9%. It's much higher obviously than the banks because remember when we talked about the Canadian banks, actually I think it was when we were talking about JP Morgan. And JP Morgan, I think was at 1.6, 1.7. And then the Canadian banks are probably in the, between 0.5 and 1% right now, I would say would be the range for most Canadian banks. But you have to keep in mind that,

the majority of their loans are credit card loans. So it's normal that they would have a loan loss ratio that would be higher than banks, which have a variety of different loans. Yeah. And I think we had talked about JP Morgan back and you know, a lot of it depends on the loan profile. Yeah, exactly. You know, RBC I know is very mortgage mortgage heavy so that might be impacting as well. The one

thing I'll say about this this younger holders is that really a thing of popularity or is that a crisis in terms of the cost of living? Yeah I mean they see they say that they're definitely very they have premium card holders too so they So they're premium customers in general. So that amount, that's a term I think, I may be butchering it a little bit, but they were using something like that on the call. And it seems like they have a pretty good chunk of the more affluent younger generation.

At least that's what they were saying on the call. So we'll see. Yeah. And I mean, at the end of the day, that would make sense because you need to be able to afford the fees for the most part. So they do have some cards that do not have any fees. And if you're looking at this here, so the cards in force, so you have here the green line. So that's the actual average fee per card so for those just listening it's been essentially up into the right so I'm going back here all the

way back to December 19 it was $61 average fee per card and now you're looking at the latest quarter where it's 111 so it's pretty much like close to doubled in that time period and what's also really encouraging is that the average or the cards in force or the average cards are outstanding have been steadily going up during that time period. I would say there was a little dip in the in 2020 and then it's been going up. That's been going up at a 5% compounded annual rate just the cards in force. So I think yeah the yeah go ahead the fees are crazy to me like I don't know I think I pay a fee on my Costco card but like I would never pay a fee on a credit card. I mean I guess I had an Avion card for a

while yeah that's just like it wasn't worth the the fee to me especially like that's a whole other story but it's pretty clear that people are Are willing to pay the fees on these cards, which is surprising to me because I know a lot of people Will sign up for these cards with fees and the the net benefits really don't You know, you don't really come out ahead, but I mean obviously, uh, you have to make a calculation Yeah, american express must be doing something right with you know in terms of their rewards Mm-hmm, which is something you can do with chat GPT or AI right like you can compare different cards and you'd say look I'm gonna be spending

Approximately this amount on This kind of stuff this amount like throughout the year and then they can factor in the fees and then they can compare which card makes the most sense based on your spend. Sometimes a fee card may actually be better for you, sometimes it may not. So it really depends. I think it's just case by case depending how much you use your credit card or not. Yeah, they used to have websites that did all that, but now it's that but now it's all GPT. The next year, so net income was up 6% to 2.6 billion for the quarter. Earnings per share was up 9% since they bought back 1.2 billion worth of stock. Net card fees, like I said, was up 16% year over year. While net interest income was up 11 percent because they do make money on those loans and although they acknowledge the economic uncertainty during the call they kept their guidance unchanged which I was a little bit surprised but they mentioned

that on the call that the guidance incorporates that economic uncertainty they probably started mapping out or building scenarios for that probably at the end of last year would be my guess if they're keeping it unchanged here. The combination of having what they call premium card holders, that's what I was mentioning before, and a big part of their revenues coming from fees is really helping them to be more resilient in an uncertain economic time as we're seeing right now

and less dependent on car spend and interest income like competitors. So that is something that's really interesting and for them in that the competitors for them here would be other large banks. Because keep in mind again if you're paying a fee for a card with TD for example you get one of their premium cards you pay 150 bucks a year, whatever, the fee goes to TD. It might still be a Visa or MasterCard, whatever it is, that would use the rail network of Visa and MasterCard, and that's how Visa and MasterCard will make money

as they get a tiny portion of that fee that's when the card is used on the network. But it's interesting that they're saying, you know what, our fee model is actually making us even more resilient. The counter argument that they didn't say would be that maybe it's something that people cut back on if they're struggling a little bit, maybe they kind of downgrade to a card that has no fee.

So that would be the counter argument to that. But so far it looks at that model. It's almost like the Costco model a little bit. Yeah. Well, I mean, I think there could be, I remember when I had that Avion card, I would kind of just call in and kind of say it's not worth the fee and that I want to cancel it and then they just refund me the fee. So I mean, you could, yeah, you could get a bit of pressure in that regard, but yeah, that's the main difference from American Express, because a lot of people wonder why companies like Visa and MasterCard

like trade so much more expensive than a company like American Express. I think they're like quite a bit more expensive. I mean, there's obviously they're entirely different companies. Like like you said, like American Express handles, you know, a lot of the financing. It's like it has that added risk there, whereas Visa, MasterCard things, they're just kind of the payment network. So that's the key differences here. But added risk or upside too, right? Like, so you have to see it. Yeah, exactly. It can go both ways.

Exactly. It can go both ways. And that's why I like Amex is because I don't own any banks in my portfolio. I mean, I guess I do indirectly with index funds, but I don't outright own portfolio. I mean, I guess I do indirectly with index funds, but I don't outright own like specific bank stocks in my portfolio. And to me that would, this is a company that would actually give me some of that exposure while also giving me exposure to the third largest card network. So that that is actually part of the attractiveness for me because I already own a small position in Visa and MasterCard so I'm covered there but I actually really like American Express for that reason. So if there's a, it was trading at pretty high multiple, it still is even though it had a pullback so it is one that I will be just keeping an eye on if there's

a decent pullback. Don don't be surprised if I I Come on the podcast and say I started position American Express Yeah, I mean I own a bit of it to directly through Berkshire Berkshire. Yeah. Yeah, he owns Why I'm pretty sure they own quite a bit of it actually. Yeah, yeah, it's like in the 1990s or something Yeah, they've owned it for a very long time. Yeah, it's been a great investment for them. Yeah, so that covers it for today. Anything else you want to add before we let people go here? Nope, that's it. That's a good point to wrap it up.

Well everyone, we really appreciate your support. Thank you for listening. If you'd like to sign up for Joint TCI, it's jointtci.com. I am working on some additional content. We will be increasing probably in the next month or two. We'll give a firm date on that for the subscription fee. So existing subscribers will be grandfathered into the current fee and then just new ones will have to pay the new fees.

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You don't have to sign up if you just want it to have a look quickly. We do share a portfolio on a monthly basis. I also share my parents retirement portfolio and what I do there. So it's a fun little thing and I make sure to respond to all the comments within a day or two maximum, unless it's a long weekend. So I was a little bit delinquent on that a couple days late but people completely understood. So I appreciate everyone listening and we'll see you next week on Thursday and then Dan will be doing from starting next Thursday every every episode pretty much unless we have guests or our quarterly mastermind I think what Brayden was calling it. So you'll be hearing more of Dan and I in the weeks to come.

Yeah, thanks for listening everybody. It's going to be fun. 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.