The Canadian Investor - Real Estate M&A, Sticky Inflation, and Canada’s $25B Gamble

Episode Date: May 2, 2026

In this episode, Simon Belanger joins Daniel Foch for a live macro discussion covering some of the biggest stories in Canada and the U.S. They start with Real Brokerage’s proposed acquisition of RE/MAX, breaking down the deal structure, why RE/MAX shares are trading below the headline offer price, and what the market may be signalling about dilution and the real estate industry. They also discuss Canada’s new Canada Strong Fund, whether it really qualifies as a sovereign wealth fund, and the risks of governments trying to balance commercial returns with politically strategic investments. The conversation touches on government-backed investments in strategic industries, comparisons with U.S. policy under Trump, and the challenge of measuring success when national interest and market returns may eventually conflict. The episode wraps up with a look at the latest Bank of Canada and Federal Reserve decisions, the risk of sticky inflation from higher energy prices, the possibility of stagflation, and why both central banks may be stuck in wait-and-see mode until the data gives them a clearer path forward. Tickers of Stocks Discussed: RMAX, REAX, INTC, MP, LAC, TMQ, X, BAM, SPY, XIU Watch the full video on Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. All right. After 20 minutes of technical and personal logistical difficulties, We're finally here with our, is this the first live that we're going to be doing that's actually going to make it on the podcast? It should be. Yeah, as long as your internet doesn't mess up this time around. Yeah.

So, yeah. God willing, this will be also a podcast episode. But Daniel Foch, joined here by Simone Bellanger talking about, what are we talking about today? I think we'll talk about the acquisition. I think you've talked about on your podcast, the Canadian real estate investor. So real to acquire remax. Obviously, Bank of Canada, raid decision, talk a little bit about the Fed as well.

And then probably touch a little bit on the new sovereign wealth fund or the Canada strong fund or anything else too. If we get some questions, I'm happy to approach those two. Yeah, I feel like there's a lot of news, right? Like we got the sovereign wealth fund thing going on. We've got Enbridge Pipeline Extension, which I think we covered a little bit. We've got, I mean, it sounds like Keystone XL is back on the table. So, I mean, I feel like there's a lot of news in Canada. It's nice to see some meaningful efforts to diversify our economy.

I hope that they are actually going to be delivered on, I suppose. And I think that that's people's like natural inclination as to not necessarily trust, you know, announcements that come from the red team. But let's see. I mean, you know, they've, they've, as they've called it, the new newly rebranded, new liberal government has been delivering reasonably well on some of the things that they've promised, not so reasonably well on other stuff. So where do we want to start?

Do we want to start with the real remax thing? Yeah, let's do it. So I can go over the deal for those who are listening because this podcast will be available on the Canadian investor podcast feed. So you'll say it's going to be a different podcast cover with Dan's a younger face on the podcast cover and myself as well. So we didn't talk about it on the podcast. A deal values remax at an enterprise value of around 880 million. And for those not familiar enterprise value is just market cab and then you add in the whatever debt they're taking on.

So that would be valuing the current deal. It's valuing remax at around seven times EBITA once synergies I've been achieved. I've seen that with a few transactions recently where they kind of value it. But they're like, oh, it's actually lower. It's a better deal. If you factor in synergies, I'm always a little bit skeptical when it comes to that because those tend to be easier said than done. there's been the transaction values the shares of remax at around 1380 and you were asking me

and i'll touch on that why the shares are actually trading for less i'll just pull it up right now i think they're trading around 11 dollars per share if uh if i remember correctly when i checked a bit earlier today so yeah 1101 so almost smack on 11 dollars per share so shareholders will be able to choose between 1380 in cash or 5.15 shares of the new entity real remax group. Now, there's a caveat to that and that's the reason why the share prices are actually much lower than 13 and 80 because remax shareholders will actually receive between 60 and 80 million in cash from the transaction. So you can just look at the total value of the transaction, what the market cap is currently for remax, which.

which I think it's in the $3,400 million, something like that, maybe a bit more, the market cap right now. So there's a little discrepancy between that $80 million and the $3,400 million. So the remainder of that would be with new shares of the new entity. So what's going to happen is even if a lot of shareholders end up opting for the cash, well, it's going to be prorated. So they'll get a little bit of cash and shares. So essentially what you're seeing right now is the share price of rematch.

kind of reflecting what the real share price is. And you have real stock that took, what, a 20% haircut or so since it's been announced. So I'll just share my screen here. I do have this for people to see. So you can see here. So this is just the last month. It's looking at the drawdown. So essentially the peak in the last month, how much it's down.

You can see the big drop here. So let's just say it's down about 20% or so since it's been announced. So the remax shares are essentially reflecting that because so much of the deal will be tied to real shares or real remaxed, a new entity, whatever is going to be called. So it's going to be tied to that. And the reason it drops so much is also part of that deal because, you know, it's capped at $80 million in cash. So how are they going to get all the other shares? There's going to be a whole lot of dilution. So what you're seeing in terms of the price is the market factoring in a whole lot of dilution.

that will happen for existing real shareholders. So that's in a nutshell why it may look like you could arbitrage it, but at the end of the day, it might not really be an arbitrage. It's probably just a more reflection where the shares are trading right now. Is there anything, like, are the pricing dynamics that you're seeing play out? Is this purely a function of the valuations of the two entities relative to like the deal terms? like, you know, the basically 5.1 shares of real for, uh, uh, or 5.1 shares of real for every share of remax or whatever. Or is it like, is there, is a market telling us anything about like

evaluation and how it feels about the real estate market? And my like first pass on like trying to interpret it was like that the market was saying that maybe like neither business like it could be a great deal for both businesses objectively like all of their realtors might benefit. You know, real makes technology. Remax needs technology. Remax has lots of agents, real needs lots of agents, but the markets, I thought, was sort of communicating that maybe there's not a lot of growth left in this industry for either party and they might not benefit that much from either. Is there any, any like signals on the way the future looking based? I know what you're saying. I think my interpretation would be that the market right now is

saying short term, we just see a whole lot of dilution and probably not enough value to make up for that dilution. That's essentially what I think the market is saying. long term, you may be completely right, it might actually be a great deal for shareholders, but short term, I think what the market is seeing is basically like, look, are you blind? Do you see what's happening with the real estate market in North America? And I know some of these have more than just North America and exposure, but I think the market is just saying, yeah, it's not looking good for a few years. I think they're just, I mean, if you're looking here, I pulled up.

I got some of the charts here, so Remax. and you're seeing. But it's just more like pricing and deal signals than like. Yeah, I think it's more pricing the deal. And it's essentially the market just saying, okay, like the deal is dilutive. There might be some benefits to both businesses down the line. But I don't think they're near term. And they're not making up for the amount of dilution that they're seeing.

Yeah, because if you see and I know they're different business models, remax and real, you know them better than I do. but I think remax is pretty telling. So for people looking on the live stream right now, you'll see that the revenues essentially peaked at the end of 20 or in 2021. And it's been declining ever since. Profits are been up and down a little bit. The profits are in green here.

So they saw a loss back in 2023. They're generating free cash flow. But again, free cash flow has been pretty bumpy. So you saw a nice run up up till the peak of the pandemic. and ever since the business has been struggling a little bit. I mean, it's still profitable, but I think when you look at it from the market, to me it's pretty obvious that it's just look, there might be some benefits,

but in the short term, it's heavily dilutive for shareholders, and we don't know exactly when the new entity will benefit from that. Or when it will actually offset the dilution is probably a better way to put it. Right. Okay. It makes a lot of sense. I'm glad I asked you because I, I like had my own kind of like thoughts on it, but I obviously don't know stocks as well as I know real estate. I'm the first person to admit that. Yeah, I mean, usually too, and what we had talked about is oftentimes you'll see some arbitrage opportunities, especially if the market is saying, okay,

well, we're not sure if this deal is going to go through or not. So whether it's financing requirements or whether it's regulatory approval, that the market is not 100% sure whether it will go through or not. But in this case, from what I've seen, it seems like both should be fine. It sounds like they have financing to close the deal. And from regulatory perspective, you know that better than I do, but from what I saw, it shouldn't be too much of an issue. Yeah. Okay. Good to know. I guess then general thoughts on like M&A activity. I know like in recession area, you kind of do see like a lot of mergers and acquisitions, businesses trying to like, you know, make more strategic moves, protect margins, etc. Real estate industry has obviously been pretty clearly in a recession for the last several years,

like declining sales volume, declining prices, et cetera. But is this the kind of thing that, like, does this signal anything to you about the market? Do you think that M&A is more of a bare market than a bull market activity? Yes and no. I mean, you can look at past if you think of boom and bus industries, whether it's oil and gas or even gold or precious metals. I think a lot of the time you'll actually see a lot of MNA happen when there's a bit of a bull market. So you have some larger entities buying up some smaller ones. But in the case of bear market, you can also see some for different reasons, right? You have some smaller players that are just struggling.

And then the bigger players are coming in a bit more as a lifeline and are able to get a better deal on those assets because they're trading out of discount because it is a bear market. Right. Yeah, okay. If you have smart management, you do buy in bare markets because that's when you have the best deals. But again, it could take a few years until it materialize, whether compare that to buying in a bull market where you're paying oftentimes a premium. You're bidding against multiple players for the same assets. So that's, yeah, that's kind of the way to see it. Makes sense.

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Check out the asset allocation ETFs. at BMOETFs.com. I guess do you want to move on to a couple of other exciting things, sovereign wealth fund? I mean, I know you, you know, you're hearing talking to the privatization of airports,

Bank of Canada announcement. What do you want to jump into first year? Yeah, I haven't looked too much on the privatization. I saw the headlines for the airports. Yeah. So maybe you can lead a little bit for that. I mean,

for the Canada Strong Fund or Canada sovereign wealth fund, I had time to think a little bit about it. We did a segment on Thursday on the podcast. really for me without rehashing it because I'm sure people listening have heard a whole lot about it. Obviously there's the initial contribution of $25 billion. The way I see it is essentially the government of Canada is investing on margin and they're hoping that they'll get returns that are above their borrowing costs. So it's pretty simple. They'll have to issue debt.

I mean, we're seeing some massive deficits or whether they issue it at 3.5, 4%, whatever rate they get. then they're hoping that their returns will deliver market returns, which is kind of funny, because this is where I think this is a real head scratcher for me, because you're looking to invest in strategic Canadian projects, but then deliver market rate returns. I guarantee you at some point they'll have to choose between the two. Or, well, like, when you say market rate, like, what are we saying? Like, we're not seeing, like, SPACs. They didn't specify.

So are they talking about the TSX? here are they talking about i guess it'll be mostly equities so yeah they'll probably be comparing that to the ts or are they going to turn around and try to compare that to private equity returns like i'm not quite sure it's very vague but at some point you have to decide right like are are you putting a priority over certain things are you is your priority that the government invest in projects that are good for national security, maximum economic growth, or maybe you want to save jobs so you make investments like that, which I would say they may not provide the best returns if that's the goal. But we really don't know, right? The governments may have some incentive. I know they talked

about Arms Lane, creating a Crown Corporation for that, getting support from BDC, EDC, a bunch of different Crown Corporation as well. But the reality is, even it has an independent board and CEO, it's not truly independent because at the end of the day, the shareholder is the federal government. And if they have a project that is dear to their heart, even though the corporation does not necessarily see it as the best project, they'll essentially get directive from the federal government to make it work. So there's definitely going to be some incentive at times coming from politicians. That's something to keep in mind.

And especially if this fund goes beyond the current liberal government, so whether the conservative come into power, then, you know, people are quick to jump at the liberals, but you always have to think beyond the current term, right? What could happen? And the conservatives could have much different priorities and keep this fun open and some of the investments and then make some new one. But then you also get into the issue in terms of returns, especially because there's a retail component to it, which they did not provide a whole lot of detail.

but a lot of these investments will be illiquid. It could take years until we know the actual returns they provided. The government could take some losses. They could make some massive gains too. They could be taking outsized risks here because they're prioritizing certain sectors that are important in their view to the Canadian economy. It also could prioritize certain sectors at the detriment of others. We've seen the liberals do that in their 10 years or so where they prioritize.

green renewable energy at the detriment of other sector like traditional energy or conventional energy. So there are all these questions that come into mind. Of course, the risk of corruption, mismanagement and efficiencies, misappropriation. These are all risks that could happen when you have something that's politically driven. And of course, how are they going to deal with potentially investing alongside or into firms that have clear ties to politicians and the one that comes to mine, you can probably tell me which one it is. I know you've mentioned it, but Brookfield, right? Yeah. Yeah. Yeah, it is funny. Like, I know, I mean, it's like, did we discuss this? I think, like, we've only really discussed this privately, like, how, like, I think Paul,

like, I generally just think politics is kind of dumb because it's like, and it's just designed to, like, turn people against one another and convince us that we're all divided when we're actually probably far more united at the media and then, then we're being told. So I'll, I'll caveat with that as I get into this discussion, because I'm going to offend. both sides equally equal opportunity okay if you offend both sides equally you're in a good space yeah so it's interesting right like the right had no problem with i don't know is crony capitalism a right word like is that what we're like is that what we would call this or like where you kind of like cronyism doesn't imply it's illegal right it's just like your homies like yeah i would probably

call this more i think it's michael ever that has a really good term it's called statecraft calls it so that's kind of that would be part of of it where the, yeah, the well-being of this state is kind of the takes precedent over everything else. And I think that's where it's heading. Yeah. But so you've got like special interests, right? And we have two very clear comps on how like different types of the voting populace, at least in Canada, felt about this phenomena. And it seems like, you know, they are willing to turn a blind eye if it's the right as an example when it's Trump if it's going to get their candidate elected but now it's an issue and again in Canada doesn't really matter because

Canadians couldn't vote for Trump but like you know they again didn't have a huge issue with it in that period of time I didn't I don't think it didn't seem it seems to be maybe progressing a bit more towards like hey maybe some of this stuff isn't isn't like what we're cool with but now they're like huge anti special interests or whatever you would call it now that it's Carney in Canada. And, you know, vice versa. The left had a huge issue with it during the Trump campaign and had very little issue with it during the Carney campaign. And again, it's just sort of like favoritism around like, hey, I'm willing to bend my morals and exercise this clear cognitive dissidents because it suits like, you know, my political agenda. And so what

it kind of tells me is that like most people actually don't really care to be honest with you. Like I think people have sort of just accepted that politicians of whatever shape and size are going to do things like this. And it's maybe not necessarily a horrible thing if it can advance. Like, I don't know, like, I think about like the Dawkins, like selfish gene or just like if you look at like any literature on like selfishness or greed and how it can actually like perpetuate a society and people pursuing their individual interests. And so it kind of just fascinates me as like a thought experiment around like, do we really care if like it's a Brookfield thing? if it ends up getting the, and maybe throw out that example to, so as soon, like to not inflame people, do you care if, you know, if things are getting accomplished in the U.S. or in Canada as a result of this and the voting populace does benefit and some other people benefit as well?

Like, I don't know. It seems like voters don't really care that much, right? Yeah. Yeah. And I mean, at the end of the day, I think people will accept a whole lot of the EC results, right? they see the benefits behind it. And I think one thing that's really ironic about all this, because obviously Trump is not very popular right now in Canada.

He's being used to blame for a lot of our problems, even though they started well before he took power. And I'm not trying to be saying Trump is right or anything like that. But the reality is what they're doing right here is kind of a playbook of the Trump administration. And people might not want to admit it, but since Trump took office, back in 2020, They took a stake in Intel and MP materials, lithium Americas, trilogy metals, and U.S. steel, all industries that the U.S. government sees as strategic. And this will likely look very similar to that. I don't know for sure, but it's kind of ironic that it's kind of the playbook.

That's what I'm saying. Like I think it was ironic like before like you even highlighted that, which I hadn't really observed. So like that makes it even more like just it just makes it more like a, a, uh, a, a funny thing to evaluate from my perspective. So then, like, do you, are you confident that in either case, like in the U.S. is obviously an easier market to generate returns in. Who knows whether or not those are real returns or if it's just because they're better at printing money because they have the, you know, the global reserve currency. But the, you know, they have the golden press. Yeah. Yeah. Do you, like, do you think that either of these, these instances are going to deliver

returns. I mean, you know, if I go back to like the GFC, like that, you know, a lot of those bailouts and like bond systems were actually really good revenue generators for the U.S. government coming out of the, out of the recession, right? Yeah, I mean, they could. They could end up providing good returns. I mean, Trump, I think, was tweeting like that the U.S. government has made, what, like three, four billion now on its Intel stake. He was out out a true thing on truth social, not a couple days ago because it's been, it's been on absolute tear but I guess there's I mean they could still generate positive or very good returns but the problem is I think it's false to think that it just there's two there's these two conflicting mandates right

so at some point I think the national interest mandate I'll just call it as that will take precedent over the returns and I think that's where it's not dangerous but for retail investors that want to support this fund and use it I think it's fine If you want to invest in those kind of projects alongside the government, that's completely fine. It's your money. You do what you want. But don't expect massive returns. If you do get good returns, that's great.

But realize that if push comes to shove, the first mandate will take over the other one. I have no, like, that is 100% sure for me. And if the government sees it as good business to almost provide an equity investment into a company, because they're just losing a whole lot of jobs in Canada and not necessarily because it's really strategic from a national standpoint. They will probably go ahead and do it. And that I would say has a higher likelihood

of not being a very good investment. And this could just be one of several, but I think that's always a risk that you'll see is where the politics kind of kick in and then the true spirit of the fund starts shifting a little bit. So how do you expect this to? to play out then. And when you're saying the true spirit of the fund, like in this context, you're talking more about Canada than the U.S., I would imagine, because there's no like formal

fund. It's more like they're taking investments in individual companies, right? That's what it sounds like from what the page and a half that they had on it in the spring economic update. I mean, they did say they'll have more information on it. Yeah. Yeah. Okay. Interesting. And then, I mean, I guess like it's obvious that at least like, you know, I think we kind of acknowledged in the last alive that, you know, I thought it was funny. Like Trump can't help like trying to do real estate deals like Greenland and like the 51st state and like, I know that's like obviously an insensitive way to like make a joke out of it because it's like not, uh, it is kind of like this, uh, interesting language to come

from the president of the United States. But, you know, even with the stuff he was saying about like like, like Israel, Gaza and like with the like the tweets of like the like beachfront plan and like, you know, it's just like such a like real estate guy, like real estate going wild. right? But then you look at like Carney and it's like well I mean you know being an investment banker and a central banker and then at Brookfield it's like he also can't help like you know they're just want to like let their skill set kind of creep into public office right and it's like okay well now we're going to do a bunch of infrastructure projects obviously he has a very deep network

and people who are connected and people who stand to benefit as a result of that. So setting aside like the fact that there's clear conflict of interest that people are are expressing concern about on social media. I'm not necessarily one of them. I think I've made my my position clear that like I think if it's yeah can make people money and serve the public interest like I just see that as like the like capitalism and the economy effectively like rewarding somebody for creating that that social benefit. But you know, which again like that's that's more of a meditation on like the structure of markets and capitalism than anything else. But does it do we think that these connections and special interests and conflicts of interest and whatever make it more likely that he does a good job at getting infrastructure

built and like pipelines and roads and hospitals and whatever right like what do you think like do you think that there's a there's a you know now that we're moving a lot of you know at least on paper and and sort of in promise moving a lot of capital from op-ex layoffs of public servants to capex even though we're hiring just as many people but it's just on the cap-ex because they're projects, right? Do we think it's going to deliver results, project results, not returns. Let's set aside the returns for now. Yeah, I mean, that's the hope, right? That's really the hope. And I think one of the benefit that is, like, I don't want to be just critical or not critical. I think we're being pretty fair on this. Yeah, I think we're fair. I think the one thing, the one

benefit that I think it is, is, and I've talked about that on our Thursday release, is just at the end of the day, there are some projects that the government will probably have to get involved in if they want the project to go ahead. And I gave the example, like, let's say they want a pipeline from Alberta all the way to the east to happen. Like, I'm sure there's going to be private businesses that will be interested, but it may be a project that there will need to be some kind of government involvement or guarantee or, yeah, maybe the government takes a stake in the project just to show, look, we're on board with this project. We're supporting it.

We're putting money where our mouth is. So I think from that perspective, I think it could be a good thing. As long as it's done transparently and pretty efficient and there are some actual results. And I don't know how exactly it will be quantifying the results. Because clearly there's the whole return aspect of it. That's one part. But of course, the first mandate will be to, you know, help the Canadian economy, grow the infrastructure. go and support important projects.

Like how do you measure that level of success? And that's the part that's a bit more difficult to measure. Yeah. I guess you're right. And like that. And I guess there's also like a skew on their like ability to create a return and such that, you know, like they can always pump like more public dollars or like print, not maybe not print, but like asset optimization, I believe is the word you're looking for.

Yeah. Yeah. Like because they can just keep like, yeah. So is there like, is there any. issues with that, like kind of, I don't know, like overstating or understating returns or benefits or whatever, like. I mean, you worked at Brookfield, right? So they have all different kind of models to show that their private equity assets are doing well or private credit. I'm not taking a job at Brookfield, but Brookfield is notoriously opaque as a business and they rely a whole lot on models.

And sometimes you have to take their word for it. So I think there is going to have to be a rust element in all of that. But there is also going to be some projects that they are going to invest in that will be multi-year potentially take as long as a decade. So it's, to me, it actually feels a little bit like private equity in terms of you, you probably won't see returns for a lot of these investments for several years, if not decades plus. And then whether it's market beating or equal to the market, then that remains to be seen. But that's kind of, that's the way I see it. I'm kind of neutral on it. I'll be honest. There's definitely some, I have some reservations on a whole lot of things. But I mean, we'll have to see. And at the end of the day, the U.S.

is already doing something similar. They have tons of debt. Of course, they're the reserve currency. So a lot of people being critical, I mean, if you're critical of the Canadian government doing this, you should also be critical of the U.S. government. And I'm sure there are governments around the world that are doing something similar. I know it's not a typical sovereign. and World Fund where they actually have surpluses and then they reinvest those, but they're essentially doing what other governments are already doing. Yeah. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom. They're the ones who spend the most

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

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So then the comparison that people make, like, I've always felt like a, you know, a sovereign wealth fund could be something good for Canada, provided it was like coming from a position of strength, right? But like I think the easy like comps that you would kind of lean on would be, Norway, is it Norway? Sweden or Norway? Norway? Norway. Yeah. And I guess UAE has one. Yeah. UAE has one. I think Singapore too. Yeah. But their sovereign states have far less debt, I think, right? Like they would have been launching these things from a position of much lower deficit. Like you're not borrowing to create it, to my understanding? Is that like a Norway, they're not. That you A, UAE, I don't believe either. I'm not quite

sure when it comes to Singapore. I know China does have, I think, funds that are a bit like that, but China is a bit in a different position where it does have a lot of U.S. assets to deploy, right? So a lot of, you know, it sells good to other countries. A lot of, well, a lot of those goods are being sold in the U.S. so it gets paid in U.S. dollars for the most part. So it has to reinvest that money somehow. So I think China does have a bit of a different incentive here than. Canada would have. But that's typically how it is. But if you Google or put sovereign wealth fund,

they don't really differentiate. Technically, I mean, even you'd see people qualify even something like CPP or CESA Depout Plasman's Quebec, which manages QPP. Technically, they'll kind of place them still as a sovereign wealth fund.

These things just become like zombie funds, though. Like CPP is like notoriously bad at like beating the market and it costs them a lot of money to do. that and I know you work in like the pension space so you can you've you've kind of like rebutted my my like the comment I just made like I think very gracefully in the past but like I you know like kind of like Warren Buffett right like in order to make investments of like that size you have to like you're it's very hard to find big wins but you know like couldn't they just invest in the S&P and just like call it a day

and not well they can't just invest in equities right so they have to have some fixed income because they can't they can't have all their assets and something that's very volatile, where they have liabilities that are being paid right now but into the future. So when it comes to pension funds, you always have to balance kind of the current liability, growth, but also stability and able to be able to pay those obligations down the line. So just to keep things relatively simple, that's how it works. Now, Keza de Port Plasman's Quebec. That one is really interesting because a CPP is meant to get the best, you know,

they're really trying to achieve the best possible returns where in Quebec what they're doing is kind of a dual mandate they want to achieve the best possible returns while also supporting the Quebec economy so that one is a little bit a little bit different could be a study case to see maybe how this fund might be although it's not a pension fund so it's kind of hard to put them there but having that mandate to support the economy and I know they've done some blunders in the past Keza de Poet Plasman's Quebec, but again, it's that dual mandate that they have as well. So this one's definitely a bit different here. But yeah, pension funds are ultimately they also have to keep in mind.

They have like a fiduciary duty towards, you know, the members or in these cases, I guess the citizens or constituents that paid into those funds. Interesting. Okay. What else do we have on the docket that we were going to talk about? I know, well, the Bank of Canada, I thought, you know, someone being in real estate, you already forgot about that. I, well, I put it a video on it. Yeah. And, yeah, I mean, like, look, I, um.

Yeah, I want to hear what you think about that one. Well, like, look, I don't think they're going to, they can't be in a hurry to cut into, into an inflationary environment. So, I mean, very similar to a trade war. They're just going to keep waiting and seeing. I mean, it was like, so they, I track the, like, a. appearance of a certain number of words in in the past monetary policy reports because they put out a monetary policy report yesterday as well right yeah they did yeah so uncertainty we're at like you know first trade war monetary policy we're at COVID levels of like the number of uncertainties in the in the

report so you know like I mean COVID it was very clear like that this was a deflationary outcome and they were in a hurry to say okay we're going to respond to that with cuts this is like we don't know oil price shock I mean a tariffs they originally didn't know is this going to be deflationary on are we going to lose a bunch of jobs or are we going to see those costs get absorbed by the consumer and it becomes inflationary. And, you know, not that Montessary policy can do anything about that with oil prices either, but the, you know, they certainly can help not exacerbate it by cutting and adding more stimulus to the economy. So I think they're just going to keep waiting until we have some material economic data. And you probably need like, what, three months? We had,

we had GDP print this morning or yesterday. I can't remember. But, and it was, mildly positive in like saying it was like 0.02 or point two so you know mildly positive in feb so it looks like we probably will not have a recession in Q1 uh you know because we had our Q5 our Q4 was was down so now we've been what if you look at the last five we flirted with the recession yeah it's been like up down up down up down or up down up down up down up down so i mean you had two two quarters in the last year but they weren't consecutive i think it really depends the whole thing really depends on the on how this oil price shock uh moves through the economy. Historically, and we talked about this a lot on last week, historically, more likely to,

you know, cause fast spike in inflation, demand destruction, recession. But, you know, I think their concern is the consumer and the market and probably disparity in the market has made the economy appear, at least in the last little bit, more resilient to inflationary spikes than the past. And so could this end up pushing through further into six months or a year of sticky inflation. Like, their forecast are that inflation is going to be in the threes until the end of the year and come down early next year. So, like, you're not really, like, in a race to cut into that environment unless you get

some really bad prints on GDP, unemployment, like, you know, unless you basically have to walk out and be like, all right, here we go, we're going to pull the alarm. We're going to do the thing for you to try and rescue the consumers. So I would say I don't think there's upside and rates. I don't think there's downside and rates in the foreseeable future. Probably more likely to see downside than upside, even though the bond market. it's kind of pricing the opposite, but I still, I think they're not just not going to make a move until we have more clear data points to say the truth. Yeah, I think so. I mean, I listened to it.

To me, the base case is that rates just stay unchanged. But then they did mention, you said, like I think word for award, oil prices stay higher than expected and creates broad inflation pressure. Then that could see them increase rates. Third, I mean, things change on the trade front. So the economy really slows more than expected, then that could lead them to do some rate cuts. And then I guess the fourth and fifth scenario, those are the ones that he was asked during the press conference. I don't know if you saw that.

But essentially, there are some tougher scenario where negotiations take a turn for the worse and oil stays higher for longer. And when he was asked that, you could tell he was just like a fish out of water. He basically, yeah. for them to come out and say the word stagflation, right? So that's probably why, like, you know. Oh, they were, it was uncomfortable. Yeah.

Yeah, I mean. Some of the questions as there are pretty stupid, but some, once in a while, you get a good one. And that one you could tell, you could almost tell, though, that it's like a fear. Like, you could tell his answer was like, well, if it gets to that, we'll deal with it. But also, we don't know how we'll deal with it. Because that is, yeah, the worst case scenario. because then, yeah, exactly. You're seeing the economy slowed down

and potentially inflation stay higher and longer. So they're kind of screwed and stuck between a rock and a hard place. Yeah. Yeah, I mean, like a pure stagflation would be like one of the worst outcomes possible, right? But like there's no, there's no, I don't think there's a worse setup for a central bank. You know, I think, I guess the question becomes like, you know, with record deficits and all this like government spending. Like are we, is fiscal dominance also at play here a little bit where, you know, they can only do so much to cool the economy when the Fed's spending record amount of money on, you know, on projects and growing the economy? And I guess the other thing.

And maybe just to clarify fiscal dominance is when the central bank is essentially forced to react because the government is spending so much, right? Like they don't, they're not truly independent because they're at the mercy of what the government is doing in terms of fiscal spending. Yeah, yeah, or basically like they're not in the driver's seat because fiscal policy rather than monetary policy is providing more stimulation to the economy positively or negatively, which seems to be the case for the last little bit anyway. I guess then it kind of like leads me to, you know, the Fed, right? Yeah, that was that was an interesting one. Yeah, yeah. So, so what's going on there and like what is, you know, most people are of the perspective of the Canada can't really cut until the Fed does. I don't know if that dynamic changes at all as a result of like petro dollar versus imported inflation, but and what your read is on that. But I mean, assuming that that's the case, like what are we looking at from the Fed and then, you know, does that give Canada room to follow? Or are we sort of like in a position where we are kind of in trouble because we don't have as much room, but we have a consumer that's way more indebted.

And so we're actually far more sensitive to these high rates than the U.S. economy. me and they don't have to be in as much of a hurry as us. Sorry, I asked you like, 10 questions there. Yeah, no, I'm going to start off. Like, did you have a look at the semi-fed watch tool? Yeah. It's pretty wild how it changed since the Fed announcement. I think it was the most volatile I've seen it, honestly.

Yeah. Yeah. Because I think I looked at it was for last week, and it was basically 50-50 chance that we would just like have a cut versus no cut, just stand pat by the end of the year. And now you're looking at like 50% chance into, September of 2027 that were at the current rate. So 18 months from now, roughly. You're also looking, let's stick at the 18 months. So you're also looking at an 18% chance,

actually, let's say 20% chance of an increase. And then about a 25% chance of a rate cut, which is pretty crazy. It just, I thought it was really interesting just how big of a shift it was. So those rates are looking like at least the market's pricing and like those rates are going to stay higher for longer. So is like, do you think that like that Trump is trying to game the yield curve like with war and like trade war and stuff like that and was trying to like push them to get rates lower or like do like what's your read on like what are they doing and why? Like does he not understand the economy like exceptionally well and like the mechanics of like how some of these things are and how they're. moving into rates like because he'll like I think he'll do something and then the results like the results that probably should have been obvious prior materialize and he's like not happy with it like he expected a different outcome right yeah I mean it's it's really hard to know what

trump thinks I don't think I really look this is just my opinion but I really think they thought Iran would be over within like actually they do thought that like that would be really interesting I think they thought it would be extremely quick I think think the perception I get and from some of the people I've been reading that are pretty connected, trying to get some independent stuff as well, is that, you know, I think they were surprised how well it went for Venezuela and thought they could achieve potentially something similar and as quickly and how important Iran is, but also in the grand scheme of things when they're also trying to establish who, you know, the power structure with China going

forward, right? So it's clear that Iran has a role into that as well. I really don't think they thought we'd still be here. What, two months now it's been? Yeah. You like that, it just feels like very foolish to feel that, like to believe that now. Like the like history would tell us that. I mean, I guess it's just like a fallacy of presidents that they like historically are overestimate their capability at doing well, egos, right? Yeah. So like I think egos plays a big part. I mean, like, you know, I play poker every now and then, and I do pretty well. And you'll see incredibly smart people that you think they should do better.

But it's just they can't separate their ego from logic. It's just the ego takes over. And I don't think Trump is any different. I mean, it's not just Trump. I think a whole lot of politicians, they prioritize their legacy. And they kind of zone in on one thing, I think, for him it was probably to be the president and took care of the Iran question or the Iran problem. And then wasn't really thinking about the potential outcomes of the war and what it could have

on bond markets, what it could have on inflation. I mean, isn't that like their job to like evaluate all of that stuff like second order effects? Like it feels like like I look like I would do that on my investments maybe, right? But I feel like I'm always now thinking about like second order. order effects because the best deals are made there. Like you don't, isn't it these people's jobs to like really evaluate that stuff? Okay, well, a question for you.

Do you think when he has all his advisors in one room, do you think the advisors are telling him what he wants to hear or what he needs to hear? That's a good question. Like, I mean, it's tough to say because you think about this with the guys like Elon like as well, like, or you know, any like American kind of like very successful business person. It's like, does it serve you to surround yourself with yes, man? but I don't know, I would guess, you know, based on the composition of the, of the administration or cabinet, or whatever you call it, that it's probably the, that people are telling him that what he wants to hear. But that, like, that is, that I guess that just leads to the outcome that we're in now, right? So, okay. Yeah. That's fair. That makes, like that, that tracks. I feel like that's a, it's a plausible explanation for why things are the way they are. Yeah, I mean, I think, and I mean, you see this in organizations all the time. I always get fascinated with, like, sports. sports management and all different like teams in the same league and how differently they'll do

things. And then you hear things about certain teams being kind of an open box, not an open box, but like a place where they encourage different ideas. They encourage being questioned on their ideas. And those teams tend to do pretty well. And then you hear of other teams that, you know, you hear of scouts or assistant general managers, other people in their organization, and you hear usually down the line, not, you know, a few years after, but you hear that people were just not there to provide different opinions or they didn't feel safe to provide different opinions. And whatever you think about Trump, I don't know, it doesn't give me all the fuzzy and lovey feelings in terms of that I'll be safe if I give an opinion that goes against what he wants to hear.

Yeah, he likes firing people for sure. I mean, he literally had to show his line as you're fired, right? Yeah. Yeah. Okay. Yeah, tracks, fair. But to get back to the feds, so I thought what was really interesting, so I'm sure you saw that to the dissidents, or, yeah, descents.

There you go. I was just looking for the war. So the dissents. So the last time there was four dissents was back in 1992. So it's been quite some time. And one of them was for a rate cut, but it was interesting that the other ones were because they thought the language was too dovish, was leaning too dovish. And they dissented not because they disagree about keeping rates unchanged,

but because they thought that doveish language should be removed. And it was also interesting that even though Warsh may be pushing for a cut, and we don't know, a lot of people assume because he's been selected, I think he's going through the process, not confirmed just yet, but he's been handpicked by Trump that he'll want to cut. But what we're seeing with Fed chairs is they tend to also care a whole lot about their legacy. So he probably also doesn't want to be perceived as the guy who. But I feel like Valkler is like the most well-known legacy.

No, but there's also, there's that point. There is the inflation legacy. But do you also want to pre-perceive as the last, as the like guy that came after Powell that essentially made the Fed less independent? Right. Like, look, man, I've been saying for a long time with the current brand of politician, like, Trump didn't even really start this. Like, I think he did a little bit in, in like COVID.

But like, this is bit the bigger part is, is like, this isn't just a Trump thing. Like, it's not even a partisan like comment. Like every like there's how many Canadian politicians, federal, provincial, et cetera, have may have open. Like, I mean, Carney is actually does it the least. Obviously, probably because he's a former central banker. respects the independence and understands the importance of that that line. I mean, and he probably just knows that he can just like rather than just yelling at at Fed chairs or whatever, but Bank of Canada governor, he can just exercise fiscal dominance by spending more and be

in the control. He's the central banker again if he wants, right? Like, you know, but also how easy would that be for the opposition to pounce on if he starts. But they haven't like, I mean, think about like, think about and nobody's done it, nobody's really done it to Trump. like because I don't think that I think that the idea of central bank independence is like a hard thing to like it's a hard thing to brand and communicate to your average voter and consumer and if you have to explain it properly then it starts to like really lean into like oh let's explain you know financial systems and then people are like this is this is a little weird like do we are we sure we like this? you know, maybe we actually want them to not, you know, and, and I, I just, anyway, all of this to say, like, in Canada, like both, I think it, I think both Pierre did, yeah, I mean, Pierre said he was would fire tip, right? Trudeau was writing open letters saying that rates needed to come down. Doug Ford was doing the same thing, Eby, blah, blah, blah, like all these politicians who have no

right, who shouldn't even be like communicating, especially not in a public forum in that way, to the central bank. And it's not to say, like, whether or not it's going to be effective because it obviously is not at all. It's more just like you're literally putting in public for the purposes of populism that you are disrespectful of what I would say is one of the most fundamental tenets of capitalism, right? So yeah, but most people don't see that. I don't think it's weird, actually. I think it's a no-brainer for politicians because if they criticize and they say, oh, like you should be cutting rates and then the bank central bank doesn't cut rates they can go back to their constituency and say look if i tried here's a letter yeah i tried and if i would have been uh at the head of the bank of canada

federal reserves i would have cut rates things would have been better and blah blah blah but then on the other end if you're the central banker you kind of doomed if you do doomed if you don't because if you do go ahead and you kind of listen but you say you're doing it for your own reasons and then it backfires the politician won't say like, oh, well, you know, I was pushing him to cut rates. They'll just say, well, you know, they should have seen this happen. Like, they're the experts. Like, they cut rates and they created this crisis, like whatever it may be. So if you're a politician, you really have nothing to lose, even if they actually listen to you and you do it.

Because they, who takes the blame in the end, it's going to be the central banker. It's never going to be the politician. Yeah. No, it's a good point. point. Okay. You've successfully convinced me that their logic like really checks out. I mean, to me, there's just no downside of doing it, right? If they want to be reelected, it's just, yeah, it's super easy to just, yeah, to blame the central banker one way or another. And then, yeah, you take the high road either way.

Yeah, fascinating, man. So what do you think that happens now then? Like Fed stays kind of where they are, BOC stays where they are. Like, it's just basically we, it's just wait and see, right? is this is the how quickly is it well oil price spike going to uh kill the economy but like i think tiff's commentary at least in the monetary policy reported and the presser feels like he's his concern is more that the economy will actually be more capable of absorbing this inflationary shock than i like when i showed you that oil price spike chart yeah and it's like spike blow off recession right like yeah you know 20 iterations of it since like the 1950s makes sense but like it seems like him and even with the Fed, they're actually concerned that the populace might actually be better at

absorbing these shocks as they've proven in the last little bit. They'll pile on debt or whatever to get by. And then it actually just, you know, the prices of everything just go up and it keeps getting pushed through. And now we're in like the, you know, second round of inflation. Yeah. I mean, I think they just want to wait and see, right? I think they're probably trying to see if it's going to go one way or another. and then they'll act.

I mean, if it kind of stays in the middle, then they'll probably just, yeah, they'll stay in path until they have clear data and then they can just justify their inaction or inaction, action or inaction based on the data or lack of data that they saw. So I think that's where, that's probably where they're going to go. The most fascinating question, though,

as if prices really spike, to what point is demand for oil inelastic? I think that's the best question to ask. Because it is an elastic to some point, but it has a limit. And I just don't know. Is it 150, 160? Like, what is it where you really start seeing demand and people looking for alternatives? Well, I think that the hard part is it's not like, it's not so much the elasticity.

It's more like the margin compression on the businesses that are using it as an input, I think, right? No, that's right. Like second order. So, yeah, like if you look at inelastic goods, like food, and fuel are probably going to be there, right? Like, yeah, maybe I'll switch to, like, I'll just eat, like, crappier food and crap dinner or whatever for the short term to get by because I can't afford all the stuff that's more expensive.

But. Or drive less a little bit or take public transportation or got a cheaper car or whatever. But it's, you know, what about like durable goods and home building and, you know, like other, like, it's not, you know, concrete and like, you know, all of these other things that not just food and fuel where now they're like, okay, well, our margin, either we're absorbing the cost and our margins just shrank by, you know, whatever, 5% or the consumers absorbed the costs and our, and our orders just shrank by 5% because, you know, people aren't going to want to absorb the price and they're going to go,

they're just going to cancel the project or whatever because the numbers don't make sense anymore. That's, I think, the economic contraction can happen in both consumption and business environment, which is probably of greater concern, right? Well, yeah, definitely. if you're thinking about just natural resources, right? The extraction is super energy intensive. So at some point, you're going to have like something's got to give. Either you get margin compression like you just said or they increase their prices or probably the reality will be a combination of both. And that could still, though, lead into potentially some layoffs for

companies that are trying to cut cost to offset that because maybe they don't have a whole lot of pricing power and they have to cut their costs in some ways. So there are definitely some second order effects that not just, yeah, not just projects being put on hold, but potentially just companies to that have to lay off people just to make the economics work because they can't pass the entirety of those costs to other businesses or customers. Yeah. Yeah. Maybe we'll leave it there. I think, right? We've been a 55 minutes, almost an hour and we'll Yeah, anything you wanted to wrap up with or things that we'll talk about. I think we got Braden for next week for the AI thing.

I think so. Yeah, we'll double check. But if not, I mean, I feel like there's a whole lot of different news that come up every week. But no, this was fun. I mean, the real acquisition of remax and talked about it and hadn't really dove into it. So it was fun to look at that in more detail, do some research yesterday and this morning on that. and then obviously the two central banks and the Canada's first sovereign wealth fund. Yeah.

There you go. Cool. All right. Well, yeah, we'll chat. I think next week we're going to try and cover AI if Braden's available. If not, we'll probably just keep going deep on macro. But I'm curious to hear Braden's take. I mean, obviously, I have somebody in bed.

I have my own thoughts and we'll talk a little bit about it. But I'm curious. So, yeah, so stay tuned for that one. Make sure you hit all the buttons, like, subscribe, all that stuff. And check out our lives if you're a listener. This is going to be the first one that actually goes out on the pod feed. but these are going to be live Friday lunch hour basically so like nobody's in the office anyway on Friday so just tune in noon I think we get like we get 200 plus on Twitter but we're

going to be on YouTube and her X I guess it is on YouTube and next week I got it all figured out I know how to plug in properly to the Instagrams and TikToks of the world now so I think we'll get and we'll try to schedule them so it kind of pops up and people can actually have reminders on there's a way to do it so I've done it before so I'll I'll show you you down even though you're better than me with most social media. Yeah, no, amazing. Okay, awesome. Well, thanks.

I'm a great weekend, man. Take care. The Canadian Investor podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.