The Canadian Investor - Stocks Go Down as U.S. Inflation Comes in Hot

Episode Date: September 15, 2022

In this episode we go over the Bank of Canada 75bps increase and the US CPI coming in higher than expected. We give our thoughts on GameStop and Dollarama’s earnings. We also talk about the recent Apple Flagship event, year to date bond returns, Brookfield Investor day and the upcoming Ethereum Merge. Tickers of stocks discussed: BAM-A.TO, GME, DOL.TO, AAPL Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital 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 to Stratosphere for free 🚀 our platform for self-directed stock investing research. 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. The Canadian Investor Podcast. Today is September 13th, 2022. How we doing? My name is Brayden Dennis. As always joined by the wonderful, the esteemed. Do you like that one? That's a new one. The esteemed Simon Belangerange how you doing buddy i

i'm excited to see you i don't know why when we started the call before we got on i was like why haven't i seen your face in so long but it's literally been like three days it's been the same as usual it's probably longer when when we just had the baby but no it's been uh you know just staying pretty active overall whether whether it's on Twitter or just physically as well. Obviously, with the big macro stuff going on, that's pretty interesting today to say the least. You know what it is? I went to Florida and back since it's on. It just feels like it's been a long time. Dude, have you been watching Boba Shett? This guy is on an absolute heater. Today, we're talking macro, but one quick second,

because this guy is putting on an absolute clinic for the Blue Jays right now. Yeah. I think he won player of the week in the American League. I saw this morning. Yeah, he did. Yeah. And Jays are just doing well. I mean, they're pretty much, I wouldn't say guaranteed, but it looks like it's all said and done just needs to shuffle in terms of the standing of the actual lining up for the playoffs but it sounds like the teams we know the teams who will be there just depends on who they'll be at playing at this point you know they got like seven more games against tampa still here so that'll matter all right so today lots of macro talk today and it's timely. This morning, we got the US reporting their inflation

numbers. We do have some specific company news later. We got some Canadian names in there as well. Dollarama reporting their 89th quarter of the quarter, of course, right? Like Stitch, them and Lululemon. I just wanted to have this note at the top of the quarter, of course, right? Like you stitch them in Lululemon. I just wanted to have like this, you know, note at the top of the show today, because of course, you know, this is a reminder that of course the stuff we're talking about today is interesting, topical and important, but you know, our stance for the long-term as long-term investors is buying and holding great businesses, letting them compound for a long time. We're going to keep dollar cost averaging on stocks regardless. If the market is down, we add. If the market is up, we add.

No matter what, we keep adding because we can. And if the market environment looks grim, I get it. You're not going to time the market. Simone's not going to time the market. No one's got that crystal ball. You ain't timing the market reliably. So focus on what you own and what you can control. There's bear markets. There have been many.

There's going to be more. It's normal. Just learn to love it, buy great businesses at better prices. And you know, Simon, it's so funny, right? It's like, this is ultimately what we're trying to do when the opportunity presents itself. So, hey, when it presents itself, show up, man, show up, you know, some nice strikes coming across the plate, you know, show up up and this is what you hope for. Learn to enjoy and appreciate the volatility because it's your friend if you're not answering

to client mandates like the pros are. Yeah, exactly. And I think I've been dollar cost averaging. Obviously, the ETF ITOD is the one I've been doing consistently. And when there's big drops like today, I think the NASDAQ is down 5% now as we're recording. When I did my notes at noon, it was below 4%. So I guess that part's no longer accurate. But the way I see it is, you know, dollar costs, I mean, I dollar cost average regularly. That's why it's so powerful. And then when I do see these drops where there is some really interesting opportunity, I'll usually have enough dry powder where I can actually be opportunistic and just add a bit more when it's a time like this. Or, you know, like we did in March of 2020, we were both on kind of little buying sprees when that happened. Yeah, exactly.

All right. Well, that out of the way, let's do that macro talk to happen. Yeah, exactly. All right. Well, with that out of the way, let's do that macro talk, baby. Yeah. It's like, you know, it's all everyone wants to talk about. And of course, it's top of mind for everything, especially with no companies reporting earnings. Like it's good timing. Well, yeah. Also, no one has like micro data to point to other than, of course, dollar am on their 90th quarter of the week. Yeah, exactly. So I'll kind of do them in reverse order here. So the UAS CPI print came out this morning, and obviously it sent markets really, really down.

I mean, it was kind of funny. You would look at around 8.15 AM. If you looked at the futures, everything was up about 1.5% roughly. And then as soon as it came out around 8.33 a bit after 8.30 things started going down and it's been basically increasing ever since. So US CPI went up 8.3% in August and 0.1% on a sequential basis versus July and that was higher than most expected. Most expected around 8% slightly below it and obviously the market went down sharply now the two most important segments i would say because they

affect everyone food was up 11.4 percent and shelter yeah 11 that's a big print big print and then shelter was still up 6.2 percent, it was kind of up across the board. I encourage everyone, you know, just have to type US CPI August 2022. And then you'll get the official US government website. And they break it down just like Stats Canada does for Canada. So, you know, you can actually look by category if you're interested. And, you know, to me, we were talking about this, it kind of baffles me that the markets were that surprised because if you listen to what the fed has been saying whether it's jerome powell himself or other committee members because there are a bunch of people that take well discuss these decisions ultimately powell decides because he's the chair i mean they've been saying that even if

there was a slight pullback in inflation for several months, it would not have much impact on their views on how they would increase rates going forward. They really are looking at reducing inflation in the long term. They're looking to get it under control from 18 to 24 months. 24 months. So I think this is mostly driven by either traders or people that were probably expecting another Fed pivot, which now clearly, I guess with this print, they're realizing that it will probably not happen, at least not in the short term. Yeah, that's a good roundup. I like that you highlight the two food and shelter numbers because that can kind of get buried under the 0.1% sequential basis headline, right? Like that's the one that's going to show up, which makes sense, right?

That's the number that I would be eyeing too if I'm looking for one number. But that food line item, like that's what eats into savings rates, right? That's why you're seeing across most countries and Canada especially, that savings rate drop, what is the income to total debt ratio tick up over, yeah, up to maybe all-time highs. I forget. I think Dan from the Canadian Real Estate Investor Podcast shared that on Twitter this morning. And so, yeah, those are the numbers that really stand out to me. Yeah. Yeah, exactly. So, yeah, it's definitely hurting people in general. And it'll be interesting in the U.S. because you're having the midterms coming up, right?

So you're probably going to have, not to get into politics, but you're going to have Democrats on one hand that will try to cling on on anything that's positive. And then the Republicans will definitely go and try to highlight how it's getting worse. So I mean I always get fascinated because you get the same set of data but they try to spin it both different ways. So I just always get fascinated but with the midterm it's going to be really interesting because there could be a shift in power you know with the U.S. the way whether it's Congress I think there could be a shift in power there and potentially the Senate. So that could affect their policies and could have some impact on investing, maybe not major, but still something to keep an eye on. I'm just reading this right now. Have you seen this? Canada wants September 19th moving forward to be a national holiday to mourn the death of the queen. Oh, really?

Have you seen this? I saw Australia, another country to have a stat, but I thought Canada was not going to do anything about it, but maybe there's been development. Here's the news I'm seeing right now. Canada will mark death of Queen Elizabeth II with a national holiday day of mourning on September 19th. They'll work with the provinces moving forward to make it like a completely national holiday. Holy smokes. What do we call that?

Is it buying votes or is that another term that I should be more familiar with? I don't know. Yeah, I guess people like stat holidays. But yeah, so we'll move on. Did you have more comments on the CPI print or we can go to the Bank of Canada, the other big macro, the raise of 75 basis points? Yeah, let's hit that. So I think as it was widely expected, the Bank of Canada raised rates by 75 basis points. We referenced it quickly in our

last recording just because like as we were recording, it came out. They said they decided to raise the rates by that amount because inflation remained high, even if July saw a slight pullback due to lower gasoline prices. Now, along with that, they said that the economic growth and consumption remain high, and they acknowledged that the recent interest rate hikes had cooled the housing market as expected. And they've been pretty shy of talking about the housing market. So it was interesting that they commented on that. Now, they said that given the current outlook on inflation, they still judge that they commented on that. Now, they said that given the current outlook on inflation, they still judge that they will need to raise interest rates further without

giving more detail on that. And clearly with this US CPI print, as a general rule here, like, you know, whether you think it's the best approach or not with, you know, TIFF and the rest of the people involved in the Bank of Canada. Reality is like the Bank of Canada tends to take, you know, follow the lead set by the Fed. So that's just a reality. What we're seeing, I would not be surprised to see some more hikes in the near future from the Bank of Canada. Now, obviously, this impacts a lot of people, especially for those who have variable mortgages and HELOCs. And you don't have to look very far to see how some people have really come on hard times. You just have to check the replies to the Bank of Canada tweet about the rate hike announcement to see how some people are really desperate.

And there's tons of examples. If you start looking through Reddit, I think Housing Canada, it's pretty sad to some extent, especially like I did a thread on Twitter basically, you know, saying it's pretty clear that some people just did not really understand what they were signing up for, especially for variable mortgages or HELOCs. Because they seem to think that their payments would not increase that much once they hit the trigger rate. Or in some cases, had no idea what a trigger rate was, even though they went for a variable mortgage. Right, like their 25-year period is like 60. Yeah, I mean, we're kind of laughing. Obviously, it's not funny. But clearly, I think the thing to learn about this is before you sign up for something, definitely make sure you understand, do some research. And if you're not sure, just ask questions.

You're better off asking questions first and then, you know, getting them than being in this situation that unfortunately some people are finding themselves into. Yep. Look, it's the it's just the nature of just thinking twice, really doing your homework. I think that Canadians have been sold a, I don't know, like a notion that home ownership is the most important financial goal you can think of. I don't know where this came from. I don't know where it sits, like where it came from in our society. But over the last couple of years with low rates, you know, you've seen it. People just foam out into things. They just were just so far out of their budget and, you know, a couple rate hikes. And it's like, oh no, like, oh, what am I going to do? It's in a very unfortunate situation but hopefully you know

just someone listening to this can kind of learn from that yeah i mean when we bought her house i got into it with our realtor because she was of the opinion that real estate never goes down right never goes down and i was telling her and that rates are never gonna go up yeah and i kept pointing to her like okay so what happened in the States? She's like, oh, well, you know, that will never happen in Canada, like a correction like this. And obviously now we're in that situation. So I think, unfortunately, I know there's some really good realtors out there, but I know there's some that, you know, don't really have their client's best interest at times. I'll just say that. Hope your realtor doesn't listen to this podcast. I don't think she does. I wouldn't hire her again. I'll tell you that. Hope your realtor doesn't listen to this podcast. I don't think she does. I wouldn't hire her again. I'll tell you that. I love it. I love Savage Simone.

Dude, I love that energy out of you. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way.

As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com.

Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March 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. 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. Let's talk about bonds in 2022. It sounds like a pretty grim episode overall. That's kind of because it is. I mean, look at the performance of the market lately. It's past the heck down 5% today. That's kind of because it is. I mean, look at the performance of the market lately. Has to hack down 5% today. That's the mood we're in today. No, but I started with the preface at the top. How does all of today's discussion change my outlook for the next few months, years, and decades? Literally, I would venture and say, doesn't affect the way I'm looking at anything at all. It's not actionable right now. I'm not selling equities. I'm not moving out of positions. I'm holding on to great businesses for a long time. With that out of the way,

this segment is where I feel for you. I sympathize for people and I feel your frustration if especially you are a retiree or eyeing retirement. I get it. I feel your frustration because the 60-40 portfolio, okay? The 60-40 portfolio being a traditional portfolio allocation of 60% stocks, 40% bonds, this classic 60-40 portfolio is thought of as like, you know, an all weather type thing that provides upside from 60% of your portfolio in stocks and 40% in bonds providing that, you know, stability and it's going to lower your drawdowns. All right. This calendar year, 60-40 has got wrecked because bonds have also got wrecked, not just equities. This is one of the toughest, toughest years, calendar years. So far, I know we had some fantastic performance, a monster bull run up to the

pandemic and then March and I started June to the end of last year, the fall of last year, monster gains. That's amazing. You want that. This year, every asset class is just getting rocked. Something you should hope for as a long-term investor with a long-time horizon is this kind of volatility. But if you're not in that situation, what do you do? The 60-40 has gotten absolutely crushed. to you is to show that it's nothing to do with you. It's not your investing skill. It's not the securities you've picked. It's not the bonds that you've selected. It's not your person that's helping you out, providing you this podcast, not advice whatsoever. But you have someone in your life saying like, oh, let's put some bonds in, whatever. It's not their fault either. Because don't have imposter syndrome this year. Every DIY investor, unless you're like highly concentrated into some

winner, you're getting wrecked. So do the hang around for me. All right. Just promise to me, to yourself right now, listening to the podcast, do the hang around for me, have some positivity because it's not you. Okay. So since the start of the year, the FTSE All World Index and the Bloomberg Global Aggregate Bond Index have dropped 16.8% on a 60-40. And that brings me to a blog post that I found from, his name is Michael Batnick. He makes content on Twitter. He has a couple of podcasts. I've got to know him personally over the last couple of weeks just because of Stratosphere. And dude, by the way, our company, we've adopted this thing called Big Batnick Energy because the guy has just the most hilarious... Dude, this guy's awesome. And he creates good

stuff online. So follow him. He made a blog post called the worst year ever. Okay. If you see this graphic here that I have in front of you, Simone, it shows the left side and yeah. So the Y axis is the aggregate bond index. So that's the Y. And then on a scatter plot is S&P 500 returns. In the bottom left, you have greater than 10% losses on the aggregate bond index and more than 15% on the S&P 500, which is the worst stretch to any year going back to the inception of this bond index in 1976. You can see here on this next chart that I have for you, the 60-40 portfolio is in its largest drawdown by a wide margin,

complete outlier statistic. And so this is not a segment for me to say, hey, you're screwed. It's a segment for me to say, hey, this isn't on you. You've been in safe assets, aka bonds, and gotten taken to a pretty big drawdown. So don't freak out. It's not you. There are people with way worse drawdowns if you're in a 60 portfolio, 60, 40 portfolio. So just do the hang around for me and just stay optimistic because I think there's brighter implied returns from here than there was in November of last year. Yeah. And it's pretty simple to explain why the bonds have not performed well, because it's just math, right? So you have the market, you had

historically low rates, and now you have rates that are trending up. So what's happening with existing bond or bond funds is they're adjusting to match what the market is demanding in terms of rate and that means they're dropping in price whereas in 2008 you have that on the graphic there the reason why bonds perform pretty well was because the fed and the bank of canada and central banks around the world actually started drastically lowering rates to try to stimulate the economy after the financial crisis. So that's why bonds actually performed well. So in a rising rate environment, existing bonds will not perform well.

In a lower rate environment, they will perform better. So that would be the reason why. Right. Because the yields going up basically is how that formula works. Exactly. So the price has to adjust downwards to match those yields. When I go through after Brookfield's update that they did this morning for Investor Day, I'm going to talk about that historical treasury yields and how, yeah, they're up, but they're still historically very low. Yeah, yeah, exactly. Now we'll move on, I guess, to the next segment. One, I guess, a little bit more upbeat, especially if, you know, you own a broad-based index fund.

You probably own this company or if you own it like me, you know, it's a pretty good news. So Apple had their event last week. It's their flagship event that they have around this time of year, every single year. Now they came out with five main products here, the iPhone 14, iPhone 14 Pro. It looks like the base iPhone 14 price will not change. Same thing in the U.S. if you compare it for when the iPhone 13 was launched last year. Although some countries are seeing increases because of, yes, you got it, inflation. are seeing increases because of yes you got it inflation they also launched new apple watches the apple watch ultra which is a super expensive aim that more kind of high-end athletes i would

say type of watch and then the series 8 apple watch that is kind of the next generation from the series 7 they have their new airpods pro that they launch as well. They are also launching Apple iOS 16 that will have some new lock screen features. That looks pretty cool. I looked at the video. I don't know if you saw the new iOS 16. Dude, I'm rocking an old iPhone 8 right now. I'm probably the worst guy to be chiming in here. My 11 just stopped working. So i'm back on the old tech you know what my 8 is faster than this 11 ever was i sound like a like you know guy complaining about technology here but it's true like the 8 works better so i'm sticking with it yeah i don't change mine very often the reason i have a 13 is i used to have like basically use my work phone as my personal phone. And then I kind of decided to get one.

And I got a pretty good deal on a really generous plan with like a, you know, very cheap phone to add on to. And I wanted the twelve, but the thirteen was actually like two dollars more a month. So I was like, OK, I'll go with the thirteen. And you're loaded anyways. Who cares? So the last thing here apple fitness plus so it will be priced at 12.99 per month and will be able to be shared with five family members it'll be interesting how much you know how like a peloton for example could be impacted by that but from me i mean it really

sounds like you know this is just a next logical step for Apple you really see them kind of working on creating that ecosystem getting people kind of sucked into it and you know some people would get the latest iPhone like I'm not one of those you're clearly not one of those but reality is probably three four five years down the line you will get a new line, you will get a new iPhone. And you'll get a new iPhone because you're in that ecosystem and everything you work on is with the Apple ecosystem. So I think the Apple Fitness Plus is just another thing that they can add to that. And obviously, their services segment, we talk about it every time we talk about Apple earnings. It's been one of the fastest, if not their fastest growing segment. So it's not like huge as some of their segments, but it's starting to be pretty significant too, just because the growth rates are amazing.

Yeah, we track it annually and every quarter on stratisford.io for that services segment. The margins are incredible. It ticks up constantly. They're adding more and more. And I think you and I talked about the advertising business that will come online soon that will, I believe, contribute like sizable amount to that service segment. That's going to be high margin and sticky. Everything you want in a business, basically, like there it is, like literally everything you could possibly want to from like qualitative perspectives. Yeah, no, exactly. So I think it's a great business. That's why I've owned it and it's been one of my best performing holdings. Just a little company named Apple. Small, tiny one. Now, like how stupid was I to not buy Apple like 10 times earnings,

like five, six years ago when everyone said the iPhone was like- Everyone was freaking out. Yeah. Yeah. Well, like iPhone sales were like kind of like stumbling and everyone's like, oh, it's hardware. You can't invest in hardware. Look at Nokia. Look at all the cell phone providers before. And myself and everyone was just missing such a key element, which was, And myself and everyone was just missing such a key element, which was, yeah, but were people addicted to their Nokia? No, this ain't the same. This ain't the same game, man.

Yeah, so I get it. I get why you're a shareholder. All right, Dollarama. Let's do it. They come in clutch. We need a Canadian company to release earnings just at the peak of no one reporting any earnings. And so they come in clutch. I'll make this quick because they've already reported 140 quarters for this year. Overall, solid, very solid, very solid quarter, very solid year for this business. And geez, year to date, man, everything's getting crushed.

I've been talking about everything's getting taken to the woodshed. Dollarama stock is up more than 20% year to date. It's up like 40% trailing 12 months. That's the stock. Oh my God. And they're buying back shares too. Let's look at the numbers. Sales increased 18%. Look at this number. This is the impressive number. Comparable same store sales growth increased 13.2%. That's that organic. They're growing without even needing to open new stores, but they did open 13 net new stores. Man, I'm highlighting this on the doc, that 13% organic same store sales growth is mind blowing.

Really, it is. And I think it's the pricing. I think it's the pricing. EBITDA increased 25%, which is now 30% margins on EBITDA margins, which was up 28.5%. So this company has very steadily increased profit margins over time. For a dollar store, man, that is impressive. Now, I believe this is the best in breed dollar store. They're so well run. They just own this US market. It looks like hardly any competitors. It's like some fragmented players out there for sure. You mean they own the Canadian market? Is that what I said?

You said the US market. Yeah. Newsflash. Dollar M owns the US market. No, they own the Canadian market. Is that what I said? Newsflash, Dollar M owns the US market. No, they own the market in Canada. What I meant to say is that it's just so much better than the US peers because there's so much competition down there. There's like five different like huge publicly traded US dollar stores that all have a lot tougher time raising prices. Because you and I have gone back and forth. They're raising the price to $5 on some of the highest priced items in the store. My take is, I don't think people are going to bat an eye. And I pulled something from the MD&A here. Here's a quote. The introduction of new price points up to $5 consistent with the corporation's multi-price point strategy in place since 2009

was announced on March 30th, 2022, which is them increasing the prices to $5. The rollout is gradually taking place in stores throughout the course of fiscal 23. I read that as expect more same store sales growth. That's how I read that going into next year. Because they keep flexing pricing power. Expect margins to keep ticking up. Expect that organic growth to keep ticking up. Expect modest net new stores opening. But my God, they have got this down to a science.

Yeah. Yeah. And I'll admit it. I was wrong. I thought they would see price pressures, especially with supply chain issues. But what's happened is people are looking for cheaper options, even if their prices are increasing compared to what they were pricing things a year or two ago. It's still much cheaper than other options for people. So that's what you're seeing obviously the numbers are showing it and anecdotally you can also look at you know the bay trying to revive the zeller's brand as kind of a proof of concept here to show that these lower price options are actually you know very attractive for people right now who are trying to find better alternatives or cheaper alternative when there's high inflation. Totally. Yeah, that's right. It's like,

it doesn't matter what the price is, like the number, the integer, the value is what people are going to go for. And that's it right there. It's like when you go to Costco, it's like the prices have gone up, but they're still operating at like 11%, 12% gross margins on those items. That hasn't changed. That model is still the same, and that's just inflation at work. Exactly. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees.

They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March 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. Now moving on to our next segment. Some of you, I know we have some listeners that are really into crypto. So you may have heard the Ethereum proof of stake merge. This segment is sponsored by ShakePay, which is Canada's easiest way to buy

and sell Bitcoin and Ethereum. Now, Ethereum is the second largest cryptocurrency by market cap after Bitcoin. It will be merging from proof of work to proof of stake. Proof of work simply means that computers complete highly complex... Isn't it the other way around?

No, proof of work to proof of stake. Yeah. I thought it was the other way around. No, no. I'm proof of state. Yeah. I thought it was the other way around. No, no. I'm so stupid. I don't know what I'm talking about. Keep going. Okay.

So proof of work means that computers complete highly complex mathematical problems. The machine, or they'll often refer to them as miners, basically the miner machine that solves it first gets rewarded in Ethereum or obviously Bitcoin if they're mining Bitcoin. However, one of the biggest issues with this and what it's been getting a lot of flack for, it's very energy intensive. Now, proof of stake mechanism means that you lock in 32 Ether, which is roughly 70,000 Canadians right now. which is roughly 70,000 Canadians right now. And then the network looks at all of these staked Ether and selects randomly who validates the next block of transaction. In return, whoever is selected gets a reward in Ether.

That's the currency for the Ethereum network. This is a big chain and it's been anticipated for several years now. They've pushed back and pushed back this date, but it is scheduled to happen around September 15th. So by the time you listen to this, it could be very well happening. Now, if you have a ShakePay account, for example, and you have some Ethereum. Well, whether you have some or not, you'll have received an email about it. Explaining what you can and cannot do while this is happening. So I'd encourage anyone

that has a ShakePay account just look at the email it's very simple to understand and just follow what they're saying if you don't want to have any issues while the merge is happening and I would also encourage anyone who wants to learn more on this Coindesk has some really lengthy articles very very well made on what you need to know about the merge and some articles that also explain the differences between proof of work and proof of stake. So if you do want to learn more on it, it is available for you pretty, you know, very well taught out. And I think fairly easy to understand. And if you do own Ethereum, there's really nothing for you to do. The change will happen automatically for you. I think maybe that should be your next segment, a deeper dive into the difference between them,

selfishly, because I would like you to do that so I can listen. Yeah. And not think it was the other way around. Yeah. So that would be great. But no, this is good because I mean, it's also helpful for people listening, right? Because whether you believe in Bitcoin or not, let me play devil's advocate. You think it's, you know, rap Poison Square, like Charlie Munger, right? But you might be interested in the actual underlying technology that is going to be important, whether it is with digital currencies or with just storing a very decentralized ledger. I think that this is important to pay attention to, whether you're a believer or not. I don't

care. I think that it's important to pay attention to regardless, because you just have to be nonpartisan to this stuff. It's happening. So trying to pay attention, right? So if you could do that and I could listen, that'd be great. Yeah. And one thing I'll definitely add is when our next federal elections do happen, you can market now, cryptocurrencies and Bitcoin, it'll be much more on the forefront than it's been in recent elections. So I think, you know, especially with Pierre, yeah, it'll be, I think, something that all the politicians will be asked about. So, you know, to just be at least aware, at least a general idea how it works, I think it's to your benefit, like Brayden said, whether you believe in it or not.

Let's move on to Brookfield Asset Management's investor day that they had this morning. I didn't watch it yet because I'm in the deep of startup trenches right now. But I got the slides here. I got them in front of me and it's pretty cool because they did this big macro update, of course. It's done by Mark Carney. Many of you will know who Mark Carney is. He's got some credibility for that. Yes, that's correct. If you're not familiar with Mark Carney, he served as the governor of the Bank of Canada from 08 to 2012. So maybe you weren't an investor back then. And also the Bank of England afterwards. That's right. Yes. Before coming on to be

part of the leadership team at Brookfield Asset Management. I remember when that happened, you pointed that out as a cool hire, like a good hire. And it's a good person to do the macro. He's not as stiff as Tiff, I'll just say. Yeah. Yeah. So, you talked about the usual suspects, right? Nothing you haven't heard before. It's the usual suspects. It's inflation, energy insecurity, tight labor market. There's a couple interesting slides from macro perspective, but also Brookfield updates that I think are cool. So here's a chart, shows rates on US treasury yields from 1970 to now. And you can see that from the bottom of 2020, yields on treasury T-bills on bonds have gone up, but they are still historically very low. When you go back to

the 70s here, they peak early 80s at almost 16%. Dang, imagine locking in some long-term bonds at that point, going to the beach for the next- It also illustrates the 60-40, right? No wonder the 60-40 will do well when the trend over long periods of time is that yields are going down. So your existing bonds are always increasing in value. That's right. That's why I've been drumming on it where bonds just to me in the past couple of years just really did not make sense. Hey, man, talk about that because you have been, you know, it's hard to come on this podcast and shoot your shot because, you know, this podcast has gotten to a big enough point now where when we're wrong about something, even though we don't claim to be right about much at all, people let you know, right?

Oh, yeah. You have been so solid on the fact that don't let people tell you that in this environment, you've been saying this for three plus years, that they're a safe instrument. Look at the actual value. They have gone down since you've been saying that. You've been so right. And you're right. Look at this trend from yields going all the way down. Of course, the value of your bonds have gone down for all this time. Look at yields. Well, as the yields went down, the bonds would have gone up. But now as the yields were so low, yeah, exactly. I'm just mixing up everything. You know what I mean? Yeah, I know what you mean.

Yeah. So, oh, man. And it's too bad because a lot of people who own bonds just didn't fully understand. They were just told bonds are safe. And obviously, the capital, I think it's safe to what extent the underlying asset is. Obviously, treasuries tend to be quite safe because they're backed by the US government, but a lot of people don't understand why they could go down in value, and that's exactly why. Yeah, exactly. Thank you for the correction. I did not mean the value of the bonds go down. I meant the yields. Now, they also talked about the business, thankfully. I can only do the macro for so long. And they talked about why their work is so important on a global scale. And then Bruce

Flatt, Bruce Flatt's got that dog in him, okay? He just slides in this little slide in the deck here. Based on our plans, the value of current Brookfield shares should compound at about 17% through 2027. The estimated plan value per share of $175 to $200. This is USD. I'm assuming they're talking about the NYSE figures here, which represents 17% compound annual return. Now, here's another few things here. They said, in the short term, we have had an excellent 2022. They've attracted a record 118 billion of inflows. They have 110 billion of deployable capital today to put into deals. And they said here, we should be able to grow to 2 trillion assets under management and 1 trillion in fee bearing capital based on their estimates during that timeframe. So, you know, I've been talking about how, you know, one of these days we're going to be recording the podcast and I will be given, or you will be giving the Brookfield update and we'll

say, yep, they have a trillion of assets under management. I think it's like 800 today. I forget what it is. That's going to happen, right? They estimate that it's going to be cool. We should be able to hit 2 trillion at this rate. As for the spinoff, they have provided some more light on this. The ticker BN is proposed symbol for the Brookfield Corporation. Remember how I was talking about this, the ticker BN is proposed symbol for the Brookfield Corporation. Remember how I was talking about this, like they're going to call the mothership Brookfield Corporation on the TSX and NYSC and spin off the asset management shares as a 25% special distribution, 25% of the asset management business as the ticker BAM. So you're basically how this works. It's

quite simple. If you own BAM today, those shares are going to turn into BN, and then you're going to get kicked off BAM shares for a special distribution of 25% of the asset management business. So if you're trying to wrap your head around that, it's not that complicated. It's just really that you're going to see some BAM shares show up and your current shares turn into BN. Yeah, it'll be marked as a distribution. That's just sit on your brokerage. That's usually how they do it.

And I believe them because I ran recently just a total returns for just BIP and BEP, my two biggest positions of Brookfield. And I'm going on memory here was about a month and a half ago, I did it. But BEP for the five years I've owned it, I've was exactly I think 17-18% total returns, and BIP I was 12-13%. So I believe them when they say, you know, 17 is probably on the high end. But I think, you know, I'd be happy with anywhere above like 10%. I'll be more than happy. And I don't have any reason to doubt that I'll be able to achieve that. Yeah. They typically don't say things that they don't have really good

conviction in. And so I'm long and I'll continue to be long on the shares. And especially with the market going, you know, with all the volatility we're seeing. And if we're seeing the bear market extend, say, another six-month, year or two, whatever it is. A company like Brookfield can really extract a lot of value. Capitalize on that. Yeah, they can really turbocharge doors return by finding distressed assets that are really good. But the companies were not well managed. They're getting them on the cheap. They do Brookfield, Brookfield things. They turn

it around, improve the efficiency, and boom, that's basically the Brookfield playbook right there. There it is. They basically stole the real estate business from the public markets. They're like, all right, if you're going to completely devalue this thing and think that no one's going to your office ever again, good. We'll buy all the shares off the public market. And that's exactly what they did. Yeah, that's it. Now, the last part here of our show today, so GameStop, so GME earnings. I thought it would be fitting because it's everyone's favorite meme stock, I guess. They reported last week, not much in terms of reporting. I thought everyone's favorite meme stock these days was Bed Bath & Beyond. I think that's these days, but let's just say it's the OG.

Okay. It is the OG stock. Okay. Exactly. Net sales were down 4%. Cost of goods solds were down 1%, but SG&A expenses were up 2%. Their net loss increased 76% to $109 million. Inventory is up 23%. And they lost 6.5 times more money on a free cash flow basis for the first six months of the year compared to last year. And they lost $439 million of free cash flow for those six months. They have a bit more than $900 million in cash on the balance sheet. So it's not looking that great for GME. I'll just put it out there. And the $900 million on the balance sheet is actually down from $1.7 billion last year. So it's not, you know, it's not all roses. I know some people think it's a great turnaround play. I do not think it's that. And one of the things

they mentioned, and you know they're probably kind of desperate for good press here because they said they launched a digital nft wallet marketplace to allow gamers creators collectors to buy sell and trade nfts on that i mean to me i find that hilarious because there are whether you know again going back to the crypto isn't this like a year too late well exactly like we're in a obviously it's a big I find that hilarious because there are whether, you know, again, going back to the crypto. Isn't this like a year too late? Well, exactly. Like we're in a obviously it's a big bear market right now.

And NFTs were really hot a year or two. And I've never been a big believer of NFTs in their current forms. I think the technology could lead to some really interesting things in the future. But there's some really big established marketplaces like OpenSea being the largest one. And for them to get in there, it's a head scratcher for me. It just seems like they're trying to get some sort of good news out there. And they put this on their press release. So clearly, they want people to have a look and be thrilled that they're launching this. This is a year too late. This is funny stuff yeah i mean structurally

these companies like are just you know hoping for a turnaround when in reality the core of their business is just becoming obsolete yeah exactly and speaking of meme stocks you know we've talked a lot in the past and i didn't put this in the notes. It's a bit out of left field, but you'll understand why I'm bringing it up is we've talked in the past about, you know, the stock markets for investing, you know, in good businesses for long periods of time. best valuation possible. But I've been just browsing Wall Street bets recently. And if you need a reminder of not to gamble in the stock market, for whatever reason, it's a badge of honor for a lot of these Wall Street bets people, they are posting their losses. And it is massive. Like, I don't know if they're all true, but you're seeing people having half a million in portfolio down to $300 and stuff like that because they're going on- Yeah. And the comments are like, wow, you're an idiot. Well done.

Exactly. Yeah. Anyway, so look, I don't want to laugh too much. A lot of them, I think they're losing it on options trading and just betting on basically all they have on just one set of options. So clearly, if it doesn't go their way, poof. But if you need a reminder that the stock market is for investing, not for gambling, that's a good reminder right there. The stock market casino just never dies. Although the people who are really making serious coin long term are not doing that stuff. And so, you know, like think of every great investor who has compounded their money into absolutely ridiculous sums. They have all been very lethargic in the way they operate,

right? Like very slow to act. They don't trade. They're not in and out of stuff, right? Like that's the way to go, man. Yeah. And the ones who do trade and make money out of it, they're usually big players like hedge funds and they have tons of resources at their disposal and they're pretty relentless. And a couple algos on there. Exactly. So, I think I'm going to on the warren buffett side and steady as she goes yeah no i think that that is wise dude good episode that's the episode have you one thing have you seen uh this ai art no i haven't this ai generated art like you like type in a yeah i think i've seen yeah i've seen something on twitter about it yeah Yeah. Dude, it's crazy. It's the first really

application I've seen in my direct viewpoint of being like, oh my God, that is truly artificial intelligence making something I can appreciate in seconds. It's scary, but very cool at the same time. The art that it is making, I don't know what the implications are of this technology, but I think that it's going to get very interesting over the next decade when the most realistic images can be generated from AI, how people are going to decipher what is real and fake. I don't understand how that's going to work out, like how that's all going to play out. Yeah. I don't know either. I mean, I guess stay tuned. That's the only thing we can do, right? Yeah. Yeah. All right. Thanks for listening to the show today. If you want to support the show,

If you want to support the show, go to join tci.com or by, you know, what also helps is just checking out our sponsors. When we read those ads, go check out their sponsors because they make this show happen consistently. So Simone, I can put in the time and effort to do this. Even if we don't get direct kickback, Hey, they may come back and keep supporting the show. So go, go support the sponsors of the show. When you hear one one that sounds interesting. And lastly, stratosphere.io is having a sale this week. If you are trying to get the KPI data that I've been talking about, I've been hyping up,

we have almost the entire S&P 500 now. We have over 350 companies. We have the entire TSX-60. So every large cap TSX-60 name, we have KPIs and segment data 10 years back annually and quarterly, and I'm giving it away 50% this week only. So go check that out at stratosphere.io. There's a little promo banner, a thing at the top, and you can get some info on how to get that 50% off lifetime, not just like for the first year, forever. So that's stridesford.io, and you'll be able to get 50% off that KPI data, which is pretty nice at that price. I mean, that's a pretty good deal. I think you'll like it. Go check that out. We'll see you in a few days. The Canadian Investor Podcast should not be taken as investment or financial advice. Investor podcasts 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.