The Canadian Investor - Shareholder Drama and TSMC Gets a Boost from AI

Episode Date: January 25, 2024

Welcome to the latest episode of the Canadian Investor podcast with your hosts, Dan and Simon. Tune in as they delve into the latest financial updates and earnings reports. In this episode, they analyze Birchcliff's significant dividend cut, break down TSMC's earnings, unpack the shareholder feud at Parkland Fuel, dissect Goldman Sachs' financial performance, and share insights from a recent interview with CIBC's Deputy Chief Economist, Benjamin Tal, featured in The Globe and Mail. Stay informed and engaged with the Canadian Investor podcast as Dan and Simon navigate through the dynamic landscape of financial news and discussions. Ticker of Stocks discussed: TSMC, GS, PKI.TO, BIR.TO 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  Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We're doing our news and earnings episode. Dan, how's it going? How are you enjoying those oilers that have done literally a 180 and have been crushing it since starting what, three and nine or something like that?

Two and nine. Two and nine. Okay. 2-9, okay. They went 2-9. It's pretty crazy. Can't even really remember what losing feels like. Are you showing off in front of Calgary fans or what? Because you live in Calgary, right? So there must not be that many Edmonton fans over there.

There's a lot of Oilers fans here. Edmonton fans over there. There's a lot of Oilers fans here. Edmonton is pretty widespread. I think mostly because of just the teams they had in the 80s. And there's a very large Oiler fan base. But yeah, I'm going up to the game tonight. Hopefully by the time. Yeah. Yeah, me and my buddy have, we have a half season set. So we drive up to usually six or seven games a year each and take that in so hopefully we're taught by this by the time people are listening to this they've they've won 14 in a row yeah that's pretty crazy i mean i was just asking i didn't even know we hadn't prepared this i didn't even know dan was going to the game but yeah i have they i heard they have a couple of

pretty good players i think one of his uh one of the names is Meg David, if I remember correctly. Yeah, some people have heard of him. Yeah, yeah, he's pretty good. Well, enough about hockey, because obviously you're not joining us to chat about hockey here. There's plenty of hockey podcasts out there that are much more knowledgeable than we are on the subject. And we'll start off by Birchcliffe cutting its dividends. So you want to go over that, Dan? Yeah. So Birchcliffe is taking quite a bit of heat overall in the oil and gas sector just because of its dividend cut last week. I'm pretty sure they got rid of their

CEO or he stepped down. I'm not 100% sure on that. And then they got somebody new in and who pretty much immediately turf the dividend, but while not completely turf, but slash it by 50%. So if you've been following Birchcliff last year, it made a really weird decision to just all of a sudden, pretty much tenfold, it increased its dividend by 900%. So it went from, I believe it was $0.02 a share quarterly to $0.20 a share quarterly. So I mean, for the most part, this, I mean, for me, at least it set off like immediate alarm bells. I have never witnessed, I don't know about you, I've never seen somebody, a company jacked a dividend by 900% in a single go. I don't know if you've remembered anything like that.

go? I don't know if you've remembered anything like that. I don't remember. I mean, I've seen some pretty significant dividend increases, but usually, yeah, I've never seen something that high. Oftentimes, you see like 15%, 20%, 30% increase. That's a pretty significant increase. And it's usually companies going from a really low payout ratio base to something a bit more industry norms. But do you know what their payout ratio was when they made that decision? I'm pretty sure it was pretty low. I'd have to look it up. But they were generating quite a bit of fund flows and cash flow. If I could look up the payout ratio.

Yeah, and for those not familiar with it, the payout ratio is just looking at the dividend payment and comparing it to the earnings of the company or the net income of the company. Sometimes I will also compare it to the free cash flow. So I'll look at both because there are slightly different metrics and it gives you an idea whether the dividend is sustainable or not. Yeah. So back when they raised it, which I believe was in December or January of 2023, I can't remember 100%, but it was about 25% of free cashflow. And then pretty much every single quarter it doubled. So the next quarter it went to about 55%, then it went to like 125%. And now it's about 200% of trailing 12-month cash flow.

So, I mean, the majority of well-run oil businesses, at least in my experience, they have a base dividend and then they issue special dividends based on cash flow. So we see this with Tourmaline who they return 100% of cash flows back to investors, which is why last year you saw huge dividends. If you look at Tourmaline's yield, it'll only be around 2%, mostly because they're only factoring in the base dividend. But the company paid out, I think, more than 10% just because of big special dividends. Canadian Natural, I believe right now they pay out 80% of free cash flows back to shareholders. And then when they hit, I believe it's net debt of, it's either under 10 billion or 8 billion, they're going to do the same thing as Tormline. So, I mean, these companies seem to be doing it the right way, especially with how volatile oil is. And I mean, outside

of the oil and gas sector, you see this all the time with companies like Labrador Iron Ore, Wheaton Precious Metals. They all have these base dividends. And then when there's excess cashflow, they issue special dividends. It works very well. And I mean, when you have a base dividend and then an added variable rate, you could maintain your base dividend regardless of the prices. And it just, it kind of seems more stable. But I mean, a few people that kind of commented on my mention of it said that people shouldn't have expected this dividend to be permanent. They were already under the impression that it was temporary. But the thing is, it's like there was no mention by the company whatsoever that the dividend would be temporary. They did say,

I believe if it got to around $70 WTI and I think $3 natural gas, that it could possibly be cut. But just straight commentary from their report where they hiked the dividend. This is directly from them. They said, our board of directors has improved a new five-year plan for 2023 to 2027. It's designed to generate substantial free fund flow, deliver significant returns to shareholders and establish a meaningful cash position. And they expect to grow production by 10%. Five-year plan provides for cumulative free funds flow of $2 billion. And our board of directors has also improved the previously announced increase to our annual base dividend to 80 cents per common share for 2023. So I mean, I don't know about you, but there's nothing in here that would give any indication

that the dividend could be special at all. No, and I think companies should do well to be clear when there's that. And I mean, I was definitely smiling because I own both Canadian Natural Resources and Termaline. So I was like, oh, yeah, well, I mean, it's a big reason why I own them because they're well-run businesses. And that's the whole point of a special dividend is investors don't expect necessarily that to be reoccurring, especially I think it's really important, especially for those that are kind of relying on that income, especially if you're looking at retirees, you can budget better. If

you're just looking at the base dividend, you kind of look at that as your base case. And then anything additional is just a bonus. I think that's the way, honestly, that most businesses, even the ones that have more stable cash flows, I mean, a lot of business are cyclical to some extent, and I think that's a great way to do it. You do a very low dividend that, you know, it's not guaranteed, but almost guaranteed because it is so low, whether it's 10, 15, 20% payout ratio. And then as you get the excess cash, you can decide to, you know, is it better to buy back shares or issue a special dividend? I just think it gives the company so much more leeway and they're not kind of stuck into paying a dividend when it might not be the best thing for shareholders,

even for shareholders in the kind of medium to long term. Yeah. And it also doesn't put you in situations like this where you hike it 900% and then have to slash it by 50% a year later. I mean, the one thing I find interesting is they said they plan to deliver significant returns to shareholders and establish a meaningful cash position. They talk a lot about shareholder returns, significant shareholder returns, significant shareholder returns, but they're down. I think they've recovered a bit today. I have their down around 48%, but I think they are up a bit today. So not quite that much, but they're down, you know, I would say over 45% since they pulled this off. So, I mean, that is not significant returns to

shareholders at all. And I mean, the is not significant returns to shareholders at all. And I mean, natural gas is down quite a bit, but if you look at the other major players, like Oventive is only down 17%. Tourmaline is down 7%. Arc Resources is up 16%. So this is definitely, you know, Birchcliff is outside of the norm of natural gas drawdowns over the last year. And I really think it's because of what they did here. I mean, this is a prime case why you don't chase income. Because at the time, an 80 cent dividend, and I can't even remember what Birchcliffe was trading at in terms of price, but it would have had a relatively high yield just because of that insane increase in one go. And I mean, nobody could have predicted

natural gas prices would come down to the point they are now. But I think just to cut a dividend into a five-year plan, the first year of a five-year plan where you're talking about how much money you're going to return to shareholders, it looks bad. Yeah. And I have the chart here comparing just Birchcliffe and I put Termaline. And yeah, pretty close to what you're saying. So total returns here, so it does include the dividend paid for people wondering. So it's total returns including the dividend. So we have Termaline's down about 8% over the last year.

And then you have Birchcliff that's down 40%. So can't agree more. I think it's really important, again, reinforcing payout ratio, just being aware of that, because that alone can tell you a lot about the sustainability of the dividend. Listen to what management has to say is probably the other thing. And in terms of the 900% increase, I think you can also compare that to companies that have a yield of like 10 double digits or high single digits or just out of whack with the industry. When it's too good to be true, it probably is. I think that's probably the best kind of tip I can give to new investors is if you see a dividend yield that or a dividend increase that may look too good to be true, I would say the vast majority

of the time it will be. So that's probably just a lesson learned here. Yeah. And the thing about it is now too is, I mean, the dividend, the payout ratios are still quite high. So I mean, even after the cut, I'm not sure if my data is showing the payout ratios before or after the cut, but I mean, let's say it's before they're at 200% of cash flows. So even slashing at 50%, it's still pretty tight. So yeah. The math doesn't add up very well. Yeah. If there's still more pressure on natural gas and oil, although Birchcliffe is mainly natural gas, I believe, you could see more dividend cuts. Because if you think about it, it's still 5x what it was before they raised it. And even that's an abnormally large increase. Yeah. And I think at the end of the day,

I think it's important just to listening to what management says. And sometimes if it doesn't really make sense, I mean, there's tons of companies out there. You don't have to, you know, focus in on one company. There's a lot of good companies that are trading at decent valuations, especially in the oil and gas space in Canada. There's some good quality companies there to choose from.

So anything else to add then there? Or we'll move on to something else? Nope, that's it. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free,

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But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. So we'll move on here to TSMC earnings. So Taiwan Semiconductor Company.

So this is, I would argue, and I don't know what you think, but this is probably, you know, I'll just say it. I think this might be the most important company in the world right now. Do you agree or disagree with that statement? It's got to be pretty close, especially like with just the explosion in semiconductor popularity over the last while. Yeah, exactly. And that's one of the big reasons. And I'm sure, you know, you can argue that, you know, it's not one of those.

It's a big tech company. You could even argue it's Saudi Aramco because of all the oil they produce in the world. But the major reasons why it's so important is because they produce 90% of the world's most advanced semiconductors. And that's just a fancy way to say, like, either computer chips or chips that go into your smartphones, cars, all that. So the most advanced ones, 90% of them are produced by TSMC. And one of the major reasons why there are tensions between China and the US over Taiwan is because of this company. It's because the importance of this company for the chips that we not only use every day, but that are used in military applications. So in terms of results, they were quite good. The market was better than expected. So revenues decreased 1.5% year over year to $19.6 billion, but they did increase 13.6% from

the previous quarter. It might not sound like it was an amazing quarter but it did come above guidance gross margins came in at 53 percent and that was at the top of their guidance operating margin came in above of their guidance at 41.6 percent they also broke down their chips based on the nanometer so just to keep things simple here the smaller the nanometer. So just to keep things simple here, the smaller the nanometer, the more powerful the chips will be. There's various reasons for that. But one of the things is you can essentially use less power, but there's other reasons as well. Now, I pulled out some data. So TSMC percentage of revenue by nanometer size. So this year, so what they just released was Q4 2023 compared to Q4 2022. So the three nanometer, which is the smallest chips that they produce currently,

that was 15% of their production versus 0% last year. That's because they had just started producing them at the end of last year's quarter and had not yet shipped them. Now, if you go to the 5 nanometer, slightly larger chips, 32% for 2022, 35% for 2023. The 7 nanometer was 22% for 2022 and 17% for 2023. And then other was 46% for last year and 33% for this year. So it just goes to show that yeah, a lot of their production is actually on the smallest chips, the most powerful chips. And the other segment here would just be the less powerful chips. So even lesser than the ones I just mentioned. And their share of revenue that's

going to high performance computing, so that's the kind of computing that would be used for AI, for example, is steadily increasing over the years. And it's now firmly in front of the smartphone revenues, which was the top revenue source for years before 2022. And it's really staggering in terms of how that has evolved. So it was, you know, smartphones are still important, but I think we can start seeing that there is a bit of a saturation there. And now it's really starting to shift to high performance revenue, high performance computing. And for those watching on Join TCI, they'll see the evolution of that.

So you'll see that the red bars are the smartphone chips, and then you'll see the blue bar is the high performance computing. Anything you wanted to add there before I finish off, Dan? No, is that chart on a year-over-year basis? Yeah, that chart is on a year over year basis. It was still not including the most recent quarter just because on FinChat, I looked at it just as they released a quarter. It's probably there now. And I would assume that it's actually even higher right now. And they did have on their earnings release so the presentation uh did did say that smartphone was

38 percent for the year and high performance computing was 43 so it definitely looks like 2023 continued on that trend yeah it's kind of like a muted growth until you hit like you know recently and then it just explodes i mean i haven't paid too much attention to taiwan semiconductor but i know they're a massive massive semiconductor producer and i mean if you remember i mean remember when we had that shortage during the pandemic like the absolute chaos that caused across everything like smartphones automobiles all that kind of stuff empty car lots because they didn't have you have these semiconductors to produce the vehicles. It was pretty crazy.

Yeah, exactly. And it just shows the importance of this kind of company. And the reason, and they're so important, and I'll finish by this. So they produce $9.4 billion in free cash flow for the full year. But they had CapEx, so capital expenditures, expenditures of 30.4 billion for the year that's because they invest massively the machines that need to be acquired to produce these chips a lot of them come from asml it's a dutch company i actually own that in my portfolio so these machines are the most advanced one are in the 200 million dollar range.

So these are very expensive machines. They're not easy to operate. So they do require very specific expertise, which over time TSMC has become very good at. And they've invested large amounts of money to be able to constantly be ahead of the game. And that's why they're producing 90% of the world's most advanced chips. And for 2024, revenue is expected to decline 6.2% compared to Q4 of 2023. Sorry, that was Q1 of 2024. The mid-range of the guidance is $18.4 billion.

The mid-range of the guidance is $18.4 billion. Their gross profit margins are expected to be 52% and 54% and operating margins between 40% and 42%. So it's a great business. I mean, the main thing and the main drawback here is geopolitical because there are some risks with Taiwan's semiconductors and obviously the situation between them and China. It'll be interesting what happens, especially I'm not an expert on the Taiwan political. Yeah, what's politics? What's going on over there on there? Yeah, yeah.

But they recently had an election. And my understanding is the party or the candidate that won was not the kind of pro-China candidate. So it'll be interesting to see what comes of that. And obviously, the other wild card is what will happen in the US election as well. Because I think with depending what Trump has been saying, and he seems to be, at this point, the shoe in candidate for the Republican, it really seems like he'll be running again as a Republican candidate. Yeah, I think he had a statement saying that if he was president and China invaded Taiwan, that he would be very reluctant or wouldn't even

want to defend Taiwan. So it's gonna be Yeah, obviously. So it's gonna be interesting. Obviously, things can change. And again, I'm not a geopolitical expert, but it's definitely a big wild card here. And as much as I admire that business and what they've done, that's probably the main reason why I'm not interested in investing in TSMC. But then again, I think you're probably getting a discount because of that fact. Yeah, I would imagine so. And their Taiwan Semiconductor is an ADR as well, right? Like a depository receipt? I think so. I think it is. Yeah. So I think like Alibaba and Taiwan Semiconductors are ADRs. So there's a different element there. Like I know with like Alibaba,

you don't actually own Alibaba. I'm pretty sure a holding company does and then you pretty much own that holding company so I mean there's other elements of risk there too but yeah I think it did the election didn't work out in China's favor I think but I think they've been pretty like muted on the reaction of it I can't say I've paid too much attention to it recently yeah yeah I mean there's a lot of things so I've been reading and listening to a lot of podcasts and reading on articles on China, what's going on right now. And the reality is their economy is really sputtering. They now have a declining population because the birth rates are so low. made historically that when you have powers that are showing signs of decline, they can get more

aggressive because they kind of see this as maybe the last chance to be able to do that. But there's also a case to be made that maybe Xi Jinping and the CCP, the Chinese Communist Party have, you know, other preoccupations right now, like not alienating the demand of the world for their products, especially the Western world, US, Canada, Western Europe, which has a lot of demand for Chinese products and what an invasion of Taiwan or aggression towards Taiwan's would do with towards that. So there's, there's a lot of moving parts. I am quite fascinated by what happens there. So there's a lot of moving parts. I am quite fascinated by what happens there. And I do hope there's a peaceful resolution. But something to keep in mind if you do want to invest in TSMC, that's a big wild card. Yeah, there's definitely too much turmoil in the world right now to even keep track of. Seems to be all over the place. Yeah, exactly. But now we'll, uh, you know, we'll cross the Pacific ocean and get back to Canada with some, uh, I guess more drama in the, um, I guess energy space, not, I guess,

park. Yeah. Anyways, you can go ahead. So the Parkland fuels and, uh, there was a shareholder feud going on in the last couple of days. Yeah. So Parkland Fuels is very similar to Couchetard for a lot who know that company, except they have gas stations. Fast Gas is one of their major gas stations, but they're much like Couchetard except they have refining exposure. But for the longest time, this happened probably, I believe it was a year ago too, but they've been getting into spats with their major shareholders. So this came out not too long ago. Parkland is a company, by the way, I've owned for quite a time, quite a long time. I think I purchased it first in 2015, but there's been like a couple multiple situations of drama here. That's really making me rethink it. I mean, like, it's just been

too much over the last year, but it has had a good run up over the last year, which it kind of makes me feel like these spats are kind of being viewed as a good thing by shareholders. But anyways, not too long ago, two board members from Simpson Oil, which is a huge shareholder of Parkland, which is a huge shareholder of Parkland. I believe they own around 20% of the company. They just left the board. And then Simpson came out with a release that said Simpson Oil remains committed to the core energy industry and will continue to invest and participate in companies in the industry that adopt strong corporate governance practices and prioritize the interests of their shareholders. So because of this statement, Engine Capital, which is a much smaller shareholder of Parkland,

they own around two and a half percent, $200 million worth, I think, at the time of the release, they said. They're pretty much saying that Simpsons press release was a direct attack on Parkland that they aren't adopting processes and practices that prioritize shareholders so they pretty much say that the company getting into fights with its largest shareholder could

impact shareholders severely and significant changes needed and i mean simpson does own a ton of parkland so they are correct in that fact that if this actually got nasty to the point where simpson sold off a large chunk of Parkland, or it kind of came to light that these two left the board for some negative reasons, I mean, that would definitely impact the share price. Engine kind of went into a lot of detail about what has gone on. I mean, one of the most alarming things is they had stated that they had requested a meeting with the board for over a year. And after it was finally approved, the board gave them a 30-minute discussion in which management seemed completely disinterested in anything they had to say.

And I mean, they're not a huge, huge shareholder as large as Simpson. But I mean, when you have a 2.5% stake in a public company, that's a big chunk. So this was kind of alarming to me. And then, I mean, they went on to outright accuse Parkland of lying, stating that Parkland was fabricating information about them discussing particular things with Simpson Oil. And they also accused Parkland of misleading investors by pointing out short-term shareholder returns versus long-term shareholder returns. And they just go on to speak about Parkland's underperformance. I believe this is a bit out of line because they try to downplay the long-term success of Parkland in relation to Couchetard. So

they pretty much take it, they compare them against an industry peer and yeah, CouchTard has performed very, very well. Parkland has performed very, very well as well, just not as good. So they try to use this to kind of downplay the success of Parkland. Over a 10 year period, Parkland has still outperformed the S&P 500 and most of their ridicule on shareholder returns was over this decade long time period. So they compare it to CouchTard instead of, you know, maybe a broad-based index, which is fair in a way because it is a competitor. You could have bought one over the other and you'd have a lot more success, but I think it's kind of a bit, you know, it's downplaying its overall success a bit. They pretty much believe the company will waste millions of dollars in this spat with Simpson. And it's pretty much calling for a complete overhaul of the board,

which today they did hire a new board member. I didn't really have time to look into what it is, but I'm pretty curious if this is going to bring changes in a positive way, or if it could, if it could impact the company in a negative way. I trimmed my position not too long ago just because it ran up so much. But I think I'm going to hold on for now. But this stuff, it definitely makes you uneasy. And I mean, Parkland's had a tough bit post pandemic, but it was a very, very strong stock for a long time before COVID hit it pretty hard. But yeah, I don't know. I don't know if you pay attention to parkland at all or not not that much i read a little bit because i knew you were doing a segment on it i always forget they own all these different brands like

pioneer ultramar so they're they're a big company and i mean there's a lot to like. And one of my, I guess my biggest mistake was to think that Couchetard, Alimentation Couchetard could have some issues down the line, maybe like five, ten plus years. I was saying that like four years ago, three, four years ago because of the shift to EVs. time goes by and the challenges with either, you know, charging stations or also, you know, having electric vehicles in Canada when it's minus 40 or minus 35. I mean, I've seen countless stories now of people, you know, just having their batteries almost completely drained because it was so cold outside. And I'm sure people have experienced that before where i have my smartphone in my coat and you know it's really cold outside and i've noticed that the battery drains way faster so i think that's still a challenge and so and i mean even with the federal you know federal government mandating ev in the next when is it like 2030 that it'll be like 35 i think yeah something like that i'm not sure if that will like go through a hundred percent and i think it will give time to a parkland

or alimentation kushtal to invest in ev charging networks on top of their gas station network and the advantage too is if they do have a good EV charging network, is that it takes more time to charge your EV than fill up your car. So if they can make a good experience around that while people are waiting for their cars to be charged, it could really boost their sales as well because there are typically right convenience stores located around that. So I don't know. I'm kind of I've changed my views on these a little bit and i still think they're really interesting assets obviously i think alimentation crystal has really shown to be a really good operator in the space but maybe there's more upside uh going forward to a parkland fuel because clearly they're behind alimentation crystal and maybe maybe that's what

it takes to um get them to be a bit more efficient in their operations yeah because it's definitely like when you look at uh kushtar versus parkland on like a on like a valuation basis parkland is much much cheaper i wonder well first off it's going to be probably because of its refining exposure so parkland has refined a refinery whereas kushdard is just straight up gas stations for the most part so there's going to be a different element to that but i also think that this entire like board thing is also causing you know maybe parkland to trade at a discounted rate relative to you know what it's earning and i mean in terms of this is kind

of a bit off topic but uh pretty interesting they ran, I don't know if you saw that, the winter EV test that they ran. So the government spent $76 million over the last six years to determine whether there was negative outcomes from Canadian winter weather when it comes to EVs. And their result was inconclusive are you serious yeah yeah i mean just take your freaking smartphone and leave it outside you'll see how quickly the battery drains is the same technology for the battery like i why oh my god i mean yeah it's a lot of money spent to get no results yeah yeah exactly like obviously it's not an issue if you have your car plugged in the whole night while it's minus 20 minus 25 but if not everyone has i think a stage 2 or stage 3 charger i think those are different kind of

chargers um depending on the speed and how quickly they can charge your car. Not everyone has those at home. Some people may not have them with their condo, for example. It may not be an issue if they have indoor parking, but if it's outdoor parking, then it can become an issue. I think that's a bit, yeah. I mean, I've heard from multiple EV owners that it can be a challenge when it's extremely cold. I'm not the you know obviously

we're not talking about minus five here we're talking about like minus 15 minus 20 or even colder i think it's not as bad as you get in a bit warmer weather but that's yeah i mean it's makes me happy as a taxpayer i'll just say yeah yeah but we had uh a web i don't know if the people listening from alberta we had they had to issue a warning like when it was minus 50 they they issued a warning that the grid was yeah i saw getting overused so they they asked you to like unplug all appliances or mate like stop using major appliances unplug unplug your evs. And I mean, we haven't even remotely started adoption here in Alberta. I mean, there's three people with Teslas on my street, which is pretty surprising because I've barely ever seen one around the area I live. And there's

three on my street, which they were still like moving around when it was minus 50. But I would imagine the length on those batteries is pretty short yeah but and i can probably determine that without spending 76 million dollars yeah exactly crazy i mean it's just it affects the range right so i mean the cars will probably i'm sure they'll still work but the range of battery will be drained a bit more so it'll be interesting i think for me i'm all for EVs as long as it comes from clean energy, whether that's nuclear, whether that's hydro, whether that's wind and solar. But the problem with wind and solar is it's intermittent and the sun is not very, not very strong in Canada this time of year. So that's always an issue. But as long as we can get

it from low carbon sources, I think that's fine. And as long as we can get it from low carbon sources i think that's fine and as long as our grid can actually be able to handle it and i've had a conversation with someone from hydro ottawa here who said like they're really concerned with ev charging for the grid like someone an actual technician that said it's a real concern so i I know Ottawa has a decent adoption. I mean, I see Teslas all around and other EVs, but I'm not in a hurry to get it just because I don't feel like right now it's worth the money. No. You know, that's pretty much how I'm feeling right now. Obviously, as the technology gets better, there's more charging station. Hopefully, the grid is adapted to be able to handle it i'm open to it but i'd probably be more open to uh plug-in hybrid i think that i think would be something i'd be more

open to because you always have the option to to go to gas if you need to you're not screwed if if it's really cold weather or something like that yeah and i think hybrids are are becoming pretty popular these days more popular than electric i think at least here in alberta as well i mean it gets really cold here like it gets really cold here in the winter like it is uh it is way different than anywhere and maybe maybe saskatchewan similar but it gets absolutely freezing here you know i think it's colder than ottawa but uh we get i think it's more humid here that's probably the biggest difference yeah yeah we uh minus 30 minus 40 and even this year minus 50 is not

not out of the question but yeah i mean in regards to parkland i mean this kind of stuff like worries me as a shareholder but i mean i look at the the the stock right now it's it's up five percent on the week since this came out so clearly clearly, I mean, like I said, they did this a year ago. I don't know if it was engine that came out. I can't exactly remember who did this, but they came out a year ago and pretty much said the same thing. Like the board is a joke and the stock is up 50% over the last year. It's done quite well. So something to keep an eye on, at least I'll keep an eye on it as well. Just like I said, I've owned this one for quite a long time. Yeah, and probably the last thing I'll mention for Parkland is I think the refinery is actually quite interesting, the refinery aspect.

The reason for that, we did an episode last year and I started digging into, especially in the U.S., but North America in general, is there has been a lack of investment in refineries in the past five to ten years. And it could really be a valuable asset because if there's a lack of investment, there's some that have gone offline. Clearly, if there's demand for gasoline, oil products, and it needs to be refined, obviously there's different kind of refineries depending on what product they want to achieve, but it could potentially give them even more pricing power. So that's definitely an interesting business to have. Yeah, it just comes with a bit of issues as well. Like I know last, I think it was last year,

like it shut down for a certain period of time, which really hurt them too. Whereas like I said, a lot of people compare this to kustard but like they're just they're pretty much a pure play gas station company whereas this there's a little bit of a different element here more exposed to commodity prices things like that but uh yeah they do own parkland they do own a lot of like brands you wouldn't think of like they own m&m foods which was a really weird acquisition by the company but one that's actually worked out yeah they bought m&m like two years ago it was about two years ago probably and they plan to uh

put the products in their gas stations which they are in the gas stations it seems a little weird to me but it's worked out quite well like m&m foods is not like it's not like upper tier food but it's also like not gas station food to me it's not something you can just go microwave i guess you can yeah i mean it yeah it may be i think i haven't gone there in a long time but i think it's definitely like a somewhat value offering for people at least at least in m m shops so maybe maybe that part will do quite well as people are trying to stretch their budgets. So yeah, that's interesting. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now.

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in an Airbnb in South Florida for a combination of work and vacation, and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host that is airbnb.ca forward slash host i think we've talked enough about parkland here i think we'll skip i was looking to do a segment on shipping and what's

going on and the potential impact obviously what's happening in the red sea and also in the panama canal that's been extremely dry. So they had to reduce the volume there. But I don't think we'll have time to do the rest we had to do. So I'll keep that for next week. And what we'll do instead is I'll go over and talk about a recent interview from Benjamin Tal in the Globe and Mail. And then you can let us know in terms of earnings for Goldman Sachs, because Goldman Sachs

is always an interesting bank to look at because they're an investment bank. So very different than what people often think about like a traditional bank, which is more savings and loans bank. So, you know, obviously you deposit your money, they take it and then they loan it out to someone else. So I think we'll go to that. Now, Benjamin Tao, for those not aware, he's the Deputy Chief Economist at CIBC. I always find his takes and what he has to say really interesting. I don't always agree with it. I'll just give my takeaways. And by all means, Dan, feel free to chime in as well, because I know I think this is the kind of stuff you're really interested in as well now yeah so he did an interview last week with the globe like i mentioned here are some of

the main takeaways i do encourage people to go and read the few the real the full interview i mean if they're interested now the first takeaway here that he said is and when i say he i think it's more of a reflection of cibc CIBC and their whole team over there. The Canadian economy is in a per capita recession. And the only reason we're not in a recession right now is because of population growth. And just to add into what he's saying, GDP per capita is simply dividing the GDP by the population. So it negates population growth. the GDP by the population, so it negates population growth. And I'll argue here personally that we are already in a recession in the traditional term of two consecutive quarters

of GDP contracting. GDP declined 0.3% in Q3 of last year. We still don't know exactly how it looked like for Q4, but I'm sure that'll be coming out soon. And even if we're not in a kind of recession to consecutive quarters, clearly the economy I don't think is very strong right now. He says that the US economy is still strong, but inflation is also coming down, which means that central banks are lightly done hiking. And now it's simply the timing of when the rate cuts will start he believes the markets are too optimistic about the timing of the potential rate cuts starting in q1 i think a lot of people are saying like q1 or early q2 i've seen a lot of people thinking like our economists saying it could happen like even in april may. He believes the Bank of Canada and the Fed would

rather overshoot on high rates to ensure that inflation is down, which makes him think that they will start cutting in the second half of the year. Now, this is where it gets really interesting. And I'll want your take after I mentioned this, Dan. So he thinks that there will be 150 basis point cuts in the second half of the year in Canada and 100 basis point in the US. And the Bank of Canada will continue to cut rates in the first half of 2025 and bring down the overnight rate. So its main policy rate to 2.75% or 275 basis points. So what are your thoughts on that this is like we should have invited him to the uh to the bold predictions yeah the year that is a lot like i think it would have to get

pretty bad for it to go down by that much in a year like that is a lot yeah because that's in the span of like he's saying that in the and essentially of like you said like for second half of 24 to the second half of 20 first half of 25 so it's a year span that it would go down 225 basis points which is is pretty crazy more than 50 basis points a quarter yeah that's that's some huge cuts but i mean like in terms of the canadian economy like it's pretty obvious just from you know what you see that it is struggling like i think well what did we talk about the one time i can't remember the amount of profitable restaurants like it's like only one out of three i think are profitable or something like that or even one one. Yeah, I don't remember. It's staggeringly low compared to pre-pandemic. And also, TD did that study that showed that 47%

of Canadian investors last year hadn't even contributed to their accounts. So I mean, clearly, there's some money issues in the Canadian economy right now. And I think it's even going to get worse if they don't start cutting. So it'll be interesting to see. But this would be pretty rapid. I would say soft landing would not be achieved if they're slashing 225 basis points in a year. Yeah, I mean, I definitely would have to agree with that.

And clearly, look, I think this is probably just one of the possible scenarios that they have in mind it's probably the one that they think is the most likely to happen but it's possible they they're putting like you know 40 chance on this one 30 chance on you know maybe 100 basis points cut in the second half of this year and another 50 next year. So I think people just have to take, you know, keep that in mind that when you have economists saying that, usually they'll come out with their highest probable outcome. So it's just something to keep in mind, even if it sounds a little, you know, it might sound a little crazy. That's just typically how they'll do it. Now,

he believes that the Bank of Canada is focusing on services inflation minus shelter. So the metrics that the Bank of Canada will look at, so the CPI, the Consumer Price Index, so there's different ways to look at it. So he says that they're subtracting shelter because shelter costs are increasing because of higher rates. And higher rates means higher mortgage payments which is pushing inflation up he thinks gdp will grow at 0.6 percent in 2024 so it will be a very weak year yeah he actually i think the imf uh he was quoting or the question was about the international monetary fund that was saying like canada will have like one of the stronger GDP growths out of the G7 at like 1.6%. Even says in the article, like, he's like, I don't really

understand where they're getting that from. But I mean, he agreed with some of the things they were mentioning. And the two biggest risks for the Canadian economy in his view is unforeseen geopolitical risk and inflation being stickier than expected, which could keep rates higher for longer and slow the Canadian economy. Excess savings are rapidly coming down for Canadian, which helped them keep their spending up. But now it's starting to show in the economy. And I think, you know, what you just mentioned about that TD report with people not putting money aside, like clearly, if they're not putting money aside is because they're trying to pay their bills

and because they don't have enough disposable income to do so. And companies will most likely see their profits margins go down in 2024. And investors will need to be more realistic about profit expectations because companies have been able in recent years to increase their prices. But as people have less money to spend, businesses also have less money to spend. So when there's business to business transactions, I mean, something's going to have to give. And oftentimes, I mean, either margins come down or, you know, the other easy way to do it traditionally is just layoffs if they want to keep their margins off, which in turn would put even more pressure on the economy. And obviously, that'll put pressure, according to him, on the stock market.

But interest rate cuts could help certain sectors. He, you know, mentioned, for example, utilities that could see that as a boo boost because their interest payments would come down if they have variable debt. And the Canadian dollar will remain under pressure in 2024, but could recover in 2025. So those are my main takeaways. Like I said, I encourage people to read the full article. Really insightful. Anything else you wanted to add before we finish off with Goldman Sachs? No, I think that's about it.

I would say that the cuts, there's a lot of rate-sensitive companies here in Canada. Like you said, utilities, but then you have telecom companies, pipelines, which I guess would be, in a way, a utility. REITs would be a big thing. You could see not too bad a performance from the TSX if they did cut this much, because a lot of those sectors have performed very poorly the last, well, I mean, since they started aggressively hiking in 2022. But yeah, 0.6 growth is relatively weak. That is not good for an entire year yet. not good for an entire year yet. Yeah, even some of the banks, I remember last week when I did kind of the RBC investor where all the bank CEOs were at, some Canadian banks are better positioned

than others for rate cuts just based on how their loan portfolios are structured. So it could definitely help some of the banks as well and obviously alleviate pressure as well on some of their potential delinquencies in their portfolios. So there's a kind of double benefit, but it depends on the bank. But yeah, that's about it. I thought it was really interesting. And because it's Canadian focus, I thought it would be interesting for our listeners too.

Now we'll finish off. Do you want to tell us what Goldman Sachs had to say about their earnings, I think, a couple of weeks ago? Yeah, I think it was, they reported maybe early last week, but they had, I mean, they did not too bad in regards to expectations, but they've had a really rough go with things over the last while. It's missed earnings estimates in three of the last quarters. Net income took a pretty big hit. It's primarily due to provisions, but it's also due to a big slowdown in investment banking. In addition to this, the company is starting to exit consumer lending.

So they're exiting that department, which results in some costs, provisions. The investment banking, obviously, with the markets not doing that well, is going to go down as well. The drop in net income for 2023 was the second largest drop among major banks in the USA, trailing only Citigroup. So investment banking revenue has pretty much plunged for Goldman over the years. So in the fourth quarter of 2021, Goldman over the years. So in the fourth quarter of 2021, investment banking brought in over 3.6 billion. And in the most recent quarter, it was 1.65 billion. So you're talking about a more than 50% drop. But the biggest indicator here, however, is that Goldman is still seeing investment banking revenues dip, whereas most of the other banks like JP Morgan, things like that,

they're starting to see a recovery. I'm not exactly sure why this would be. Investment banking is kind of Goldman's bread and butter. So you think when it would increase for the other banks, it would increase for Goldman's. It is growing its asset management business at a pretty reasonable clip. But I mean, for the most part, when you think of Goldman, you think of an investment bank. Because even though it's fallen off dramatically from 2021, it's 1.65 billion in the fourth quarter is still more than banks like Morgan Stanley, Bank of America, JP Morgan, and Citi. And when you look at the seven largest financial institutions in the United States. Goldman is pretty much crushing them in terms of overall returns over the last five years because of that investment banking

exposure. But since the start of 2022, which is pretty much directly correlated with when they started jacking rates up, they've pretty much traded flat. However, that still puts it as the second best performing big seven bank in the USA. JP Morgan is the only one that has done better. I guess if you're unaware of what investment banking is, so it mostly deals with corporations who are maybe looking to issue shares, maybe acquire other companies, have their assets managed. So it's not really hard to figure out why their investment banking revenue skyrocketed in 2021.

So many companies were going public. They were looking for other investment banking services. We were in what pretty much many believe to be a market bubble, which I find kind of funny because they were calling 2021 a bubble, but we're closing at all-time highs right now. So I mean, it wasn't much of a longstanding bubble. Rising rates are especially tough for a company that focuses on investment banking because as debt gets more expensive, as mergers and acquisitions get more expensive, it just slows down dramatically. So they're going to be a company that's earnings are primarily driven by market conditions. It's not like you said, a retail-based bank, consumer loans, things like that. It doesn't really deal that much with it. It's more so on that investment banking side. it's not hard to imagine they continue to struggle if they don't start cutting rates and again they made a pretty big shift exiting the retail sector to focus more on investment banking which i mean we'll see how that plays out in the long term yeah and their brand i believe was marcus right for the

the retail that i think so pretty sure that was it yeah yeah and i think they were behind so they were the lender behind the apple card in the US as well, the Apple credit card. So I think it was with Goldman Sachs. I mean, I think they tried it. They're probably going back to their bread and butter. And I'm not surprised that their investment banking hasn't gone well just because it's been, I did with Braden,

so we did an episode and I did a segment on the global IPO trends for 2023. Encourage people to go back to that episode to listen in because we do a pretty good breakdown and it was not a good year for IPOs. And that's one of the core parts of investment banking. It's not only that. They'll also help companies finance or add debt issuance. So that will also be done through investment banker usually. But IPO is a good example where 2023 was a significantly worse year than 2022.

And 2022 was not a great year. So yeah. Yeah. So it was really booming during 2020, especially 2021, or let's say the back half of 2020 2021 when you know basically free money right out there with the zero interest rate policy or almost zero interest rate policies from central banks so people were looking for growth there were these crazy valuations for growth companies ipos i mean it would have been crazy for them not to IPO when there was so much demand. So I can see why a Goldman Sachs would have benefited that greatly with that. And then the other way around the last couple of years. Yeah. I mean, it's kind of the one aside from Goldman, a good company to kind of get like a Canadian insight on this is TMX Group. I actually got Braden to put their KPIs on Stratosphere

because they have a lot of like interesting, you know, you can see their listing fees, you know, the amount of companies that IPO in the past while and it's noticed a significant decline. It's not surprising that in December of 2021 was the absolute peak. And now you look now and it's just going down, down, down, like constantly. It's just, you know, you're not going to get as many

companies IPO-ing in this environment than you would in 2021, just because you're not going to get as high evaluation. It's going to cost a lot more, things like that. So Goldman's always going to be a company that fluctuates around like that. So yeah, is this the listing? Yeah, so for those listening on Join TCI, they'll see it. But this is a quarter by quarter look in terms of TMX Group, the initial listing fee revenue that they get. And it's basically what like a mountain almost it goes up that peaks in 2021 yeah exactly 2019 through i would say yeah pretty much like the first half of 2020 it's kind of stable goes down a bit and then it picks way way up and then starts declining towards the end of 2022 into 2023 and then it's

just really really low i believe there was one yeah there was one tsx ipo last year yeah i kid you not i think it was this royalty company i can't remember who braden knew about it because he had golf with the guy uh who owns it or is one of the major shareholders. Anyways, I don't remember which one it was, but there was one on the TSX. There were more than one in Canada as a whole, but there was only one on the Toronto Stock Exchange. Yeah, it's getting really, really slow in that regard and i mean tmx is also uh the canadian securities exchange and the venture which is going to be more even more amplified when you know we're in there in the environment like 2021 but yeah from 20 december 2020 to december 2021 it looks like a listing fees almost tripled and now

you look from 2021 to september 2020 around trip basically they've yeah they've gone below what they were in in 2020 like they're the lowest according to this chart they're the lowest they've been over you know the last five years so yeah yeah it's not a good environment no not a great environment but i think it was uh still a fun episode we touched on what A lot of oil and gas, some financials too. But the earnings are definitely starting to pick up. So we'll have some more earnings to talk about. It was a great episode. And definitely if you're a new listener,

we do appreciate if you can leave us. Take a few minutes at most, even sometimes just a second if you're on Spotify. If you can leave us a five-star review there. If you're on Apple Podcasts, just write a short description. It's always appreciated. Makes us feel good as well. And you can find Dan's work on Twitter or at StockTrades.ca. My Twitter handle is in the description, Fiat underscore Heisberg.

And Dan, I always forget what your Twitter handle is, but it is in the description. It is StockTrades underscore CA because somebody had taken StockTrades long before we existed. Okay. So one of these days I will know it by heart and I won't have to ask you about it. But yeah, thanks a lot for listening. Join us next Monday for Brayden and I. We have an episode coming up on just some metrics to look at when you're starting to look at a company. I think it'll be really useful for a lot of new listeners and a good reminder for some people that even have been investing for a while.

And join us next week on Thursday. Dan and I will be back with a new episode of News and Earnings. We'll also know what the Bank of Canada will have done, which is set to be tomorrow. We are recording on Tuesday. Yeah. Thanks for listening, everybody. We'll see you next week. The Canadian Investor Podcast should not be taken as investment or financial advice.

Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.