The Canadian Investor - Volatile Markets and Trouble at BCE and Starbucks

Episode Date: August 8, 2024

In this episode of The Canadian Investor Podcast, we start by talking about the recent volatility. We look at the recent downturn of US stocks led by the large tech companies and how the TSX is now inching closer to matching the returns of those indices in 2024.  We also discuss the recent Fed rate decision. We also look at the recently released job numbers out of the US and how it could push the Fed to cut rates in September despite the upcoming US elections in November.  Additionally, we break down Amazon's mixed quarterly results and what they mean for the stock, Starbucks' earnings and review BCE's Q2 2024 earnings which contained some positives and negatives for the large Canadian telecom. Tickers of Stocks & ETF discussed: SBUX, BCE.TO, AMZN Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor 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

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We're doing this one a little bit in advance just because of technical requirements for audio editing and so on. So we're recording this on Friday, August 2nd. So a little bit in advance, but I think it's a really good day, Dan, to start recording because there's a lot of stuff happening. We're right in the middle of earnings season. The Fed just had its FOMC meeting on Wednesday. We had the jobs number in the US and the markets are imploding. So how's it going? jobs number in the US and the markets are imploding. So how's it going? Pretty good. Yeah, I spent a week or nine days away from it all. They were doing pretty mediocre and then come back and they're absolutely bombing today. NASDAQ is down 3% as we're filming this. A lot of pretty key earnings reports, like big tech reporting not so good earnings um a few chip

companies reporting ugly earnings and uh yeah it's uh hasn't been a good uh three weeks for the nasdaq at all no it's been pretty rough and i cannot believe that you've fully disconnected i feel like you were still keeping an eye on the markets a little bit while you were on vacation. A little bit. Yeah. A little bit because I had a really good month of July for my portfolio. So I was checking in, but I was trying to, you know, tune it out. Yeah. Yeah, that's good. That's good. Well, we'll get started. So speaking of volatility, so it's been really volatile. And when we were talking about volatility, we're just not talking specifically to the markets going down. Literally, there's been some days where the shift in, you know, the S&P 500 or NASDAQ

or whichever index you're looking at, you know, within a day, it's like a 2-3% variance. Like, it's pretty crazy. It'll be up one and a half percent and finished a day down one 1.5 percent and it's been it's just been a bit crazy and especially with the FOMC meeting the Fed on Wednesday the markets were up and then the last couple days so yesterday and today it's been the other way around so So for the MAG7, Apple is the only stock that is up over the last month and it's essentially breaking even. So that's pretty notable and most of the downturn has happened like you said in the last two weeks. It's pretty remarkable looking at that because

these are the stocks that were literally leading the market. And for the Join TCI viewers, I'm sharing here what they've done over the past month. So Apple is up barely a percent. And then every single other stock. So you have here Nvidia, Google, Amazon, Meta, Microsoft, and Tesla. So they're all down in the past month. Obviously, if you zoom out a little more, it's a bit of a different picture, bit of a different situation. I completely understand that. And they're still performing well when you look over for the year to date.

And I decided to compare the QQQ, which is the NASDAQ, SPY, which is the S&P 500, and XIU, which is the TSX 60. So these are all ETFs that would track those indices. And it's pretty remarkable to look at what has happened year to date. So you had at some point this year, so on July 9th, actually, the TSX-60 was at 6% for the year in terms of total return. The S&P 500 was at 18%, and the NASDAQ was at 24%. And then you compare that to today, and it's not quite a dead heat, but it's very close. So you have the SPY that is actually outperforming now the NASDAQ or QQQ. So the SPY is at 15.62%. You have QQQ at 14.51%. And you have XIU, which is the TSX-60 that's at 11.41%. So the gap has really shortened in the span of about 10 days or so. So just remarkable what's been happening in the market. And there's a good argument to be made that it could be a bit of a rotation into more kind of value stocks,

because let's be honest, the TSX is probably more value stocks when you consider that it's heavy in financials, energy, and those kind of end materials, of course. financials, energy, and those kind of end materials, of course. Yeah, I would imagine the material end of things is what is causing... Well, I mean, financials haven't done too bad in Canada either, but gold is doing quite well. A lot of gold stocks on the TSX are doing quite well. So the gap is certainly closing. And yeah, the TSX contains a lot more real economy type stocks utilities industrials things like that whereas you know the nasdaq is mostly all those tech options yeah if you look to the year like a lot of those tech options aren't necessarily doing that bad but

like no matter how long term your uh outlook is it's it's shocking all the time to see you know the nasdaq has given up i think it's nearly 11 now since like the start of july and even like even this morning so the index it bottomed out the nasdaq was down 2.59 and then you know within 15 minutes it jumped up to down 1.6 and then over the next hour it dropped all the way down to down 3.5%. And this is in like the first hour of the market opening. Like that is crazy. Yeah, strap on your seatbelt and enjoy the ride. So no, it's just amazing.

And obviously now putting things into more context, if you zoom out even more year to date and you pick the Mag 7, clearly they're still doing very well. The only one that's down is actually just Tesla that has been underperforming pretty severely since the beginning of the year. NVIDIA's up like 116%. So if you've held NVIDIA since the beginning of the year, I do not feel bad for you. You've done quite well. You're still doing well.

I do not feel bad for you. You've done quite well. You're still doing well. But it's just to bring some context as to like there has been a lot more volatility in the past month. And like you said, gold has been doing quite well. So gold over the last month is actually up 4%. And what that kind of tells me is there is probably a bit of a move to safety here, especially if investors are starting to get a bit more concerned with debt levels of government. So you're thinking about the US with their massive debt. I think it's beyond 30 trillion, if I remember correctly. Now, they're paying close to 3.5% interest on the debt compared to as a percentage of GDP. So that's pretty massive. In Canada, we're a bit better at around 1.8%. But just to keep that in mind, that it could be investors kind of shifting from typically going to

US longer term treasuries to potentially allocated at least part of that to gold. Not quite sure, but it's something to keep an eye on. And I've been pretty vocal about myself allocating part of my portfolio to Goal. It's still not a huge part, but it's about three and a half percent now. So it's starting to build up a little bit. And obviously, Bitcoin has been doing pretty well over the last month, in part with Donald Trump, who's been kind of made an about face over the last, I wouldn't say the last month, but earlier this year, he spoke at the Bitcoin conference last week as well. So Bitcoin, I think, has been rallying a little bit on that and people betting that, you know, the odds of him potentially becoming president again. So it could be bullish

for Bitcoin. So I think there's a big kind of political aspect and people trying to do like a air quote Trump trade when it comes to Bitcoin so we'll have to see but it's been interesting to look because bitcoin has been definitely like not super correlated in the last month uh with the nasdaq and stocks and i would say even more uh so like even if you look back at the last six months it's not been uh as correlated as it had been in the previous year or two before that no it kind of had its big drawdown before all of this. Didn't it lose like 20% over the course of a month? But now it's kind of stabilized a bit.

I think Trump knows exactly what he's doing by appealing on the cryptocurrency end of things. I mean, just the way he's talking about... Just the way he speaks on it is... I don't know. I find it kind of funny. What does he say? Like, nobody will take your bitcoins or something like that i remember one yeah and he said he would support uh self-custody so yeah i mean he's definitely been either did some homework on it or has been trained because i did listen to his uh speech when

at the bitcoin conference because i was just curious as to what he would say. And clearly he has done a bit of work and whatever people think about him, I mean, he's pretty good at identifying issues that may be helpful for him from a political basis. So that's why I personally take all of this with a big grain of salt, because after all, he's a politician. And I'm very, let's just say I'm very reluctant to trust any politician, whoever it is. So that's just my personal view typically. But in the US, what's happening is that there's a lot of people that are in the crypto space that their main issue and the issue they'll be voting on is the party that's the most favorable to the crypto and Bitcoin space. So it's just a reality.

I think that's just a lot of people are single voter or single issue voters. 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. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go

on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that

you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. 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. Having said that, let's move on here to the big macro. And feel free to interject, Dan, I don't know, did you watch the Powell press conference? No, I haven't really had time since I got home and stuff. I just had the earnings recaps. And yeah, it's been a pretty busy time for me. I didn't have time to listen to it. Okay, no, that's fair. I mean, it's a bit of the same, I would say. But again, the earlier so a couple days ago, I don't think I'm bringing this style like breaking news or

anything. So the Fed's fund rate remained unchanged. Powell indicated that they are more focused on economic growth, or lack thereof of and or lack thereof and job numbers and during the press conference he mentioned that the labor market is still in process of ongoing normalization but that the unemployment rate is still low at 4.1 percent and I'll touch back on that when I talk about the jobs numbers that were just released this morning because because, spoiler alert, the unemployment rate went up. And a quick refresher here, the unemployment rate is a very flawed metric. So that's because to be counted as unemployed, you have to be actively looking for work. So if you're not employed, but you've essentially become discouraged because you can't find a job, and you've decided to stop looking, then you're no longer counting that 4.1%.

So it's something always to take this with a grain of salt because it's not a true reflection, I would say, of the actual unemployment. But that's the metrics that they use. It's what we use in Canada as well. And he said that a rate cut would be on the table in September, but that they would still be data dependent. And the press conference really felt like a shift from them being more focused on the employment data now versus inflation, whereas before inflation seems to be the primary focus was to get inflation in check. But as always, he left the door open to no rate cuts if the data doesn't support it, although it's clear that they are already leaning towards a rate cut here. And I think now with the fact that the payroll data was not great, that was just released this morning,

so it was weaker than expected with 114,000 jobs created. Unemployment increased to 4.3%, so he actually said the 4.1% during the press conference on multiple occasions. So the fact that it's already creeping up to 4.3%, that's definitely something in the wrong direction and that would probably support a rate cut in September. Healthcare jobs led the way with 64,000 new jobs, while IT-related jobs saw a decline of 20,000. And over the last year, people who are employed part-time because they could only find part-time work has gone up 18%. So that's a pretty big shift. So on a year basis. So these are people that would probably be more than happy to get a full-time job, but they just can't find one.

And the average weekly earnings has essentially been flat since May, which might be a sign of wage growth slowing. So those are all things to keep in mind. And then, Dan, I'll let you kind of chime in as well. What are your thoughts on all of that? But I'll just show the Fed, CME Fed watch tool. So I'll refresh here because I had it loaded a bit earlier this morning. It's probably going to be changing a little bit here. So I'm looking at it. Yeah. So it's actually changed pretty significantly. So I had it this morning when I look at a 62.5% probability of a 50 basis point rate cut in the September meeting and a 37.5% chance of a 25 basis points rate cut. And now as I just refresh, it's at 73.5% of a 50 basis point rate cut and 26.5% of a 25 basis point rate cut. So the markets are

pricing in some aggressive rate cuts in the September meeting. So what are your thoughts on that, Dan? That's kind of what I was thinking too. And I saw this first because I read an article this morning that had mentioned that it was like 35 chance but i didn't notice like that it had bumped up to 62 and a half but i mean it makes sense because there is clearly a lot of weakness here in regards to the one thing i'll say in regards to that unemployment rate it does like it's mostly based on the participation rate which is relatively low like i was looking at a chart of it and it's pretty much the lowest it's been since like the 1970s the participation rate like it it doesn't fluctuate by very much maybe like two or three isn't it like in the 60s like i don't have it to 62.7 yeah there you go

and uh besides like uh the drop during the covid pandemic, if you actually trend this back, it hasn't been this low in quite some time. So I believe the US unemployment is still a lot better than Canada's. I can't remember what Canada's. Isn't it in the sevens for Canada? I think it's pretty high. It's in the six, but yeah, it could be seven. You could be right. Yeah.

I mean, it's interesting to see if they do cut by 50 basis points. So one thing I've been paying attention to is bonds. And they're actually up quite a bit over the last while. I mean, if you look at something like ZAG, which is like the BMO aggregate bond ETF, it's actually up, what is it, 9% over the last year. And bonds have just been getting absolutely thrashed the last while. So obviously rate cuts are, I didn't get a chance to look up like a US government bond or corporate bond, but they're doing quite well. Obviously, people are betting on continued rate

cuts and I wouldn't be surprised if the US got a little bit more aggressive, but I didn't be surprised if the U.S. got a little bit more aggressive. But I didn't think it was this odd, 63%. I didn't think it was that high. Yes. So in terms of bond yield, so right now you're looking at the five-year bond for the government of Canada. So, yeah, it's basically at its lowest point it's been in the last five years. So for those who are refinancing your five-year mortgages in the next little bit, congratulations. You'll probably get a slightly less of an increase,

but probably still an increase, myself included, if this can continue until the spring of next year. And then if you're looking here at the, I'll just pull up the 10-year U.S. bond because that's usually what people focus on a little bit more. I know it's been down. Oh, wow, it's actually below 4%. It had been well above 4% for over a year now. Yeah, so it's the first time.

now. Yeah. So it's the first time. Yeah. First time it dips below 4% since I think there was a short dip in late in November of last year, below 4%. But since then it's the first time it dips before below 4%. Yeah. Yeah. And I mean, for borrowers, like I, my mortgage isn't renewing for like another 15 months, but I do pay attention to mortgage rates for quite a while. And I actually saw a few days ago, there was one for 4.3% a five-year fixed, which is one of the lowest ones I've seen in quite a while. It's actually lower than what I have now, which is good because I would expect cuts to continue to come. But again, it's always tricky, right? But again, it's always tricky with bond yields because they won't go down as rates go down, as the central banks are cutting rates. I think a lot of people have to remember that. Yes, they will likely go down, but oftentimes they'll go down before rates actually start getting cut because the market is pricing that in. And then there's always the wild card of markets starting to get worried that governments are too indebted actually start saying, look, we're worried about the U.S., its ability to pay its debt, or even

if we buy U.S. bonds or Canadian bonds, we're worried that it's not going to even keep up with the inflation rate, the yield that we're getting, then the bond prices will go down so that the yields actually go up and that the bond market starts finding those more attractive. So I think people just have to keep that in mind. The bond market, the central banks just don't really have that much control over the longer end of the curve. I think that's just the moral of the story. Yeah. Yeah. And I mean, on the mortgage end of things, you've mentioned it before, just because rates go down doesn't mean fixed mortgages will come down. I mean,

it's immediate relief to variable rate holders. And I think there's quite a few of them. Fixed rate mortgages are like, I think, 70 plus percent of most banks' mortgage books. But there's still a lot of variable holders who are getting some relief right now. But yeah, it's going to be interesting to see what they do in the next few months. 50 basis points would be very interesting. Yeah, yeah. And I guess the last thing I'll mention before we move on to Amazon's earnings here is the political aspect of it. So again, Trump has been pretty vocal saying that the Fed you know, cutting before the election, essentially implying that. So it is the whole political aspect is something that I find pretty fascinating. And I think to me is I can like I've always been reluctant saying that they would start cutting in September because the perception of them not being independent if

they do so. At this point, with the data coming out, maybe it's easier to justify. But again, doing a 50 basis point cut, I think that might be a bit much. So I think the 25 may make a bit more sense because you can clearly say, look, we cut because job numbers are trending the wrong way, can clearly say, look, we cut because job numbers are trending the wrong way. The economy is slowing. Inflation has actually kind of slowed down. The pace of inflation has slowed down. So they can justify that. But the 50 basis points, even despite the market pricing in about 75% chance for 50, I don't know. I'm very skeptical that they would go that far. But maybe I've been wrong before. I'm sure I'll be proven wrong again for other things. So we'll see in September. Yeah. I mean, the numbers certainly justify it.

I mean, especially when we get to Amazon earnings, like even they're reporting, you know, consumers are scaling back, not spending as much. I mean, jobs not in a good state, unemployment rising. I mean, I wouldn't be surprised. They're supposed to be independent. I think like a 50 basis point cut maybe looks a little bit off. But I mean, what you could say is probably like, what are the odds of them keeping rates next meeting? Which is probably, it's got to be next to zero. Well, according to the CME Fed Watch, they're like giving it zero probably.

Yeah. So we'll see. But we'll move on to Amazon. So you said that, yeah, consumers seem to be scaling back a little bit. Yeah. And we had mentioned that Amazon is the worst performing mag seven over that stretch period. It's down like 20%. But it's really not all that surprising

because Amazon out of those companies is going to have the most exposure to the consumer just because they're at its core. It's a retail company. Mixed quarter for Amazon. So earnings per share came in at $1.26. This was well ahead of estimates. They expected around $1.06, but revenue came in at just under $148 billion, which missed expectations by about $800 million. I don't really think these headline numbers are why the stock is facing a ton of pressure. I think it can be partially attributed to the fact that some of its main growth verticals, that being Amazon Web Services and its advertising segment, kind of posted lukewarm results relative to expectations.

Like they're still both growing at a pretty crazy pace. But I think that the market just kind of expected more, especially with a ton of these stocks being near all-time highs. Amazon Web Services revenue came in at $26.3 billion. I think $26 billion was expected. And its advertising segment came in at 12.8 billion versus expectations of 13. So as I had mentioned, year over year, AWS and its advertising segments reported 19 and 20% growth respectively, while the retail end of the business grew 5%. This has kind of been the situation for Amazon for quite some time. And it's pretty impressive for Amazon,

like AWS and advertising, but like, I don't know if there's maybe a perception that they're not really keeping up to, you know, the cloud-based growth of say a Google or a Microsoft, and then the, you know, just ad-based growth of a company like Meta. I think Meta reported revenue increases of 22% year over year. So maybe that's partially attributing to the fact that the company is down 12% or 13% just because of this earnings report. So they stated themselves that they fell short on their revenue estimates, and they attributed most of it to lower ASPs or average selling prices. So they pretty much said that they're seeing a notable shift of buyers trying to select the cheapest product that suits their needs rather than

ordering more expensive ones. And they had mentioned on the conference call that they are continuing to see this type of pressure on ASPs even in the third quarter. The one thing I'll say is I thought i had told amazon to stop sharing my data because i'm constantly looking for the cheapest yeah i don't know if this is like a shift i typically always do that i've never really uh i'm not gonna but it can you know funny story it can backfire i bought like two uh baseball hats like kind of just basic hats i like to call them dad hats and uh they were cheap and i will they were like disintegrating but i wore them a couple times so i yeah i can't really return them so i guess uh be careful buying stuff that's uh too inexpensive yeah i mean what is the idea here

like normally people would search stuff and maybe just buy the first thing available whereas now they're scrolling to the second or third page trying to find like cheaper knockoff options i think they have a bit of uh competition from i can't remember the name of it now but it's like a chinese company that sells like ridiculously cheap stuff timu yeah something yeah yeah yeah Timu? Yeah, something. Yeah, Timu. Yeah. But my wife has ordered a few things off Timu and they are like, it's the quality. Yeah. Like extra cheap is what I'll say. Yeah. In terms of guidance, the company stated that revenue is likely to land somewhere in the 154 to 158 billion range and operating income to land somewhere between 11.5 and $15 billion. So this would represent eight to 11% growth on the revenue side of things, which is pretty typical. Their guidance is typically in this range. It has been for quite

a while. But on the operating income end of things, on the bottom end of guidance, that would just mean flat operating income year over year. And I mean, I'm not really sure why the company is so deep in the red based on this earnings report. I mean, I'm not really sure why the company is so deep in the red based on this earnings report. I mean, it could be just a market thing as well today. I think to me, when you were saying that, I was thinking about it. I think it's a combination of things on the retail side probably slowing a little bit. And then just the overall market sell-off right now. I think it's probably

just a combination if it was a normal-ish day where the market is either flat slightly up uh it would probably be like kind of mid to low single digits down i would think that's kind of what i was thinking too like if the nasdaq was flat on the day it's not down although it's recovered a bit but at its lowest it was down like 13 on the day if the nasda down, although it's recovered a bit, but at its lowest, it was down like 13% on the day. If the NASDAQ is flat, it's probably down like five or four, maybe. But I mean, the core of the business is still growing very well. Amazon Web Services is still growing well. Advertising segments still growing well. I mean, you got double digit growth there. And guidance came in a bit short of what analysts were expecting, but it really wasn't

a massive margin i guess full disclosure i own amazon i added i added quite a bit quite a big chunk this morning to it on the drop uh we'll see how it plays out over the long term but i think a lot of it you know is probably fears because they definitely mentioned their their conference call was really short i had a read of it. It was relatively short, but they do mention numerous times, like not that they're worried about the consumer, but that they're noticing the consumer slowing down. So, I mean, I guess a lot of people might fear that, you know, it's going to continue. It's going to get worse. And they also mentioned, this is weird to me, but I guess it makes sense in a way. They mentioned that Q3 estimates are going to be fairly hard to predict because of a couple notable events that have happened.

So the Trump assassination attempt and the Olympics in particular. And they said they've noticed a shift. Consumers on events like this, they typically shift away from purchases and more towards news events. Okay. It's a bit, I don't know. I guess I could see it. from purchases and more towards like news events which is okay it's it's a bit i don't know i guess i could see it but i don't know how like the trump if i'm gonna buy something on amazon i don't know how the trump assassination causes me to not buy it yeah i don't know and if i'm sitting on the

couch watching the olympics i'm probably sitting on my phone that's the first yeah yeah oh man this the whole ass assassination attempt i mean it had like some pretty big impacts at least short terms on the uh can't remember where the uh betting odds where they're coming from for who may win as uh next president of the u.s i know like it really spiked up because i think a lot of people were betting on kind of the undecided sympathy vote potentially going to trump because of the assassination attempt but i never thought about you know people shifting their purchases uh because of that yeah yeah but they like as soon as i read that i was like wow that seems so odd but i mean clearly

they're like they said it did this wasn't just like speculation they said they noticed the change, a shift in purchases over these two events. But another additional thing, which probably caused a bit of the volatility as well, is they did say they're going to be spending a lot more money building out AWS and AI infrastructure and that capital expenditures will come in higher moving forward. But overall, I think it was a pretty solid quarter. I think a double digit dip is a bit extreme, but I guess people are just worried about the state of the consumer and if it's going to get any worse. Yeah. Okay. No, that's a good overview. I don't have too much to add. 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. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building.

And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment

ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. 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. That is Airbnb.ca forward slash host. Why don't we do BC? Yeah. And then we'll do Starbucks. And if we have time, we'll chat a little bit about Intel and why it's down the gutter right now. So I'll do BC just because obviously I know it's a very widely held name for a lot of our listeners here. And we've been fairly critical about bc so i figure it was a good idea to look at it from an earnings perspective revenues were down one percent

to six billion total services subscribers were up by 3.4 percent to 21.8 million so definitely good on that and and i suspect obviously this is in large part due to population growth that we've seen over the last couple of years in Canada. They even mentioned that in terms of their future growth, population growth was a big part of the potential tailwind for them on the conference call. The difference, obviously, between the two, so the revenues being down and the total services subscribers being up. I mean, it's pretty obvious that they are having some price pressures. I mean, you would not see a discrepancy if they weren't having between the two. So clearly, that is an issue for them.

And they mentioned that during the call that they have had some sustained pricing pressures. And they specifically said that it was a challenge with mobile plans pricing during the call. And operating costs were down 3% to $3.3 billion, and they are focusing at getting costs down. Net earnings were up 52% to $604 million, while EPS was up 60% to $0.59 per share. Free cash flow was up 10% to $1.1 billion. The main reason for free cash flow to be so significantly up is that there was a big drop in capital expenditure, which was $320 million lower than last year. So that will have a big impact. But I don't know about your opinion on that, Dan, but I know they've been saying they wanted to lower capex, but as someone looking at BCE, I'm a little bit worried because that can be done on a short-term basis until, you know, short, medium term maybe.

But at some point, that will start catching up to you if you don't invest enough in your network as a whole. Yeah, ultimately, like these telecom companies, they're very capital intensive. And ultimately, if you're having to cut capex in order to, you know, in this situation, for the most part, continue to maintain the dividend, eventually, it's going to catch up to you in terms of, you know, top line growth, which is inevitably going to catch up to you in terms of earnings growth overall. I mean, a lot of them were very capex heavy during the pandemic, especially when money was pretty much free. And so all of them are going to be scaling down quite a bit.

But most of the telecoms like TELUS, Quebec or Cogeco, they're scaling down to the point where you know the dividend is affordable whereas bce is kind of playing catch up to the point where they're scaling down just to afford it and they're still even though the uh free cash flow was pretty good this quarter they still guided they're maintaining their guidance for a potential 11 drop year over year in free cash flow, which ultimately isn't that good. And I mean, just in terms of the growth, there's not very many avenues for growth for these telecoms right now outside of just population growth. Because their ARPUs, like the average revenue per user, that's been flat to declining for a very long time i mean i know multiple people who pretty much just call all the three telecoms until they can get the best price

and they go with that one like the pricing pressure is insane i negotiated with my provider so when my term came up the two years because i had like a financing plan for the phone i basically called them i'm like okay well i'm paying i think i was them. I'm like, okay, well, I'm paying, I think I was paying $65. I'm like, you're going to have to do better than that. If not, I'm going to go to a competitor. And they're like, well, you know, we can increase your data for the same price.

I'm like, look, I've got 25 gigs. I don't even use it all in a month. So if you can't do a better price, then screw that. So they came back and they're like, they gave me a loyalty discount and they got it down to 50 bucks and increase my data uh from 25 to 100 gigs with that so yeah if you push back and you threaten especially if you have you own your phone obviously you need to own your phone you can get some really good deals and yeah be able to get better pricing or

switch and you'll be able to keep your phone number well yeah and i think that's another element of it too is like for a very long time people would just they re-sign to get the new phone right whereas now it's like people are not doing that like phone people are holding on to phones longer and once you get out of that you know contract you have a ton of flexibility, like bring your own device. I mean, they're, they're pretty much at your mercy because like I said, I've known numerous people who've, you know, they're with, with bell, they'll call, tell us, tell us, we'll give them a better price. They'll call Rogers. Rogers will give them a better price than tell us. And then they go back to BCE and it's just

the competition is, uh, it's, it's pretty stiff right now, but yeah, it's, uh, it's just the competition is uh it's it's pretty stiff right now but yeah it's uh it's pretty tough to imagine like outside of population growth how they can how they can continue to grow and i know i know canada is didn't they set a cap on temporary residents like they're for the first time and it's not i haven't been uh keeping an eye on that all that much but i think i think they have but i think it's still above their target, if I remember correctly. I mean, I could be wrong, but I had an interview with Rich Diaz that came out last Thursday, and definitely it's something for him he's been very critical of, because the poor planning with the immigration and, you know, how immigration is important. And we need to have, you know, fairly high level of immigration if we want the economy to keep growing and, you know, to continue going forward. But we have to also make sure it's sustainable.

And I think we'll have to see where it goes from here. But I know he was pretty critical on the federal government for that. goes from here, but I know he was pretty critical on the federal government for that. And to get back to BCE here, you were talking about the free cash flow and the payout ratio for the quarter. And again, looking at free cash flow for a given quarter, it's going to be pretty volatile. So typically you want to look at that a bit more like on a yearly basis, but just for context, the payout ratio was 85% compared to 88% during the same quarter last year. So a little bit of an improvement here. But keep in mind that the dividend has not been covered when you look at the first half of 2024.

So they're still paying more than they have in free cash flow. And the interest expense is still a big problem for BCE. So the interest expense compared to last year was up 19% to $426 million. And it's just been going up and up. I posted something on X earlier this morning as I was doing my notes for BCE. And I mean the trend is not good. And I just, I cannot understand why they are not looking at just cutting the dividend. The amount of money they could save by cutting the dividend by half or even a bit more than half still yield about three to four percent. So they would still be able to, you know, pay a decent

dividend even if they cut it by more than half. It just baffled my mind. I mean, they're on pace right now to pay roughly, I would say, like probably 1.3, 1.2, 1.3 billion in interest for the year, which is a whole lot of money. And it keeps increasing because you also you have debt that is coming due that needs to be refinanced. you have debt that is coming due that needs to be refinanced. So they now have $6.6 billion of their $38 billion in debt or so that they will have to refinance within the next 12 months. And to provide more context here, because I've had people pushing back saying, well, you know, interest rates are going down. And I don't think people fully understand how the refinancing will work and what the rates they're currently paying. So during the quarter, they issued new debt at a rate of 500, sorry, at a rate of 5.15% and 5.6%. They stated that they also have two notes. So debt that is maturing in early 2025, a $600 million note that is currently yielding 2.5, well, that is has an interest rate of 2.75% and another 1.5 billion note that is currently at 3.35%. So I wanted to say that

because, you know, we get a lot of flacky and I for being really bearish on BCE, but let's be honest, those two notes will be refinanced probably in the five range or at least high four so it's going to be a pretty significant increase in interest on those two notes and they still have more debt coming due later in 2025 so this is just prior to march of 2025 so yes even if rates continue going down they will need to refinance at higher rates. And that's why I've been saying like cutting the dividend to me is a no brainer from a business perspective. I mean, if you use 2 billion that you're currently paying in dividend, you're not even cutting the full dividend, you're cutting a bit more than half, you take that 2

billion and you pay down the debt. And say your debt is on average, let's just say on average, it's like 4%, right? Let's just be conservative. It's 4%. That's savings about $80 million a year by doing that. So if you do that for a few years or even five years, you can get your interest expense down pretty significantly. Your debt levels are on a much more sustainable level. And then you can look at growth opportunities to make the business grow forward and potentially grow your dividend as well, but on a more sustainable basis. But people are just so focused on that dividend. And it's just it's a stupid decision. I'll just say it. It's a very stupid decision from a business

perspective. It's dumb. It's completely stupid. It really puts them in a difficult situation and they have no margin for error. And that's the big issue here. Yeah, there is like there is almost no margin for error. I think when they reiterated guidance, it pretty much I think when I calculated a while ago is about a one billion dollar shortfall in terms of the dividend. So, even if you could you know cut it to the point and like full disclosure i don't think they will cut it i think they should i don't think they will because they're not smart yeah they're stupid i don't think sorry but i'm getting and they like yeah again i don't think they will cut it i think they should cut it but i do not think

the dividend will be cut i mean you might get into a situation where you know next year if they can't you know boost that free cash flow they might have to seriously consider it but yeah it's i'm not exactly sure why they don't just you know scale it down a bit to the point where the dividend is affordable. Because ultimately- I think they're just scared, right? They're scared that too many investors will decide to leave the stock and sell the company because they cut the dividend. But at the end of the day, maybe I'll be proven wrong, but I think that if they were to cut the dividend, there's a much higher probability of BCE achieving higher total returns over the next five to ten years than if they tried to keep the dividend at this level because it's not sustainable.

Just think about an extra $80 million and it right that you're saving every single year if you just cut the dividend you don't need to like suspend it altogether just cut it you still have a nice three four percent dividend i just to me it's a no-brainer i mean you know dan yeah you you own your business you run your business i you know brayden and i too we like we have the business business brayden has a couple and to like, we have the business business. Brayden has a couple. And to me from a business perspective, it was just a no brainer, but anyways. Well, yeah. I mean, I'll stop because going on a rant. As a, as a shareholder, it is, it deteriorates value for them to continually have to come up

with money to pay that dividend. Like it's ultimately not good over the long run if they can't, you know, and maybe they get things together in 2025 and it's well covered. But I mean, at what expense, like how much are you going to cut those capital expenditures? How much do you need rates to come down? Because most of their debt is even if, you know, we see more declines is probably going to come in you know at a higher level like than than what they're uh what it's financed at now and i mean you look at you look at other a lot of people get so fixated on these high yield blue chip dividend stocks and about how the cutting the dividend would be the death of the company but you look at 3m they cut the dividend

they're up like 45 since they cut it after like continual underperformance for years. Intel, I mean, that's a completely different story because- Yeah, let's talk about Intel. It might as well. But Intel, when they first cut their dividend, you would think, oh my God, it's devastating. They cut the dividend. Nobody's going to want to buy this thing it went up 65 post dividend cut and then it of course got you know this is more operationally it got obliterated obliterated that's like that's a completely separate you know situation and again intel i've been pretty critical i think they waited too long to cut it i mean the writing was on the wall for several years that they should have cut it so they could reinvest in the business. And clearly, you're talking about Intel different,

obviously, than a Bell, where Bell is more, it's not as cutting edge, I would say, where Intel, you know, they're competing against the NVIDIAs of this world, even the TSMC, because they have their own foundries as well, Intel competing at the NCAMD. And obviously, it's an industry that constantly like it's moving very fast. So the R&D, the investments that you need to put in are quite high. So to me, obviously, like it was also a no brainer. But now they came out with their earnings and it was pretty bad. We didn do notes on this so we're just going to talk about a little bit off the cuff just based on what we uh kind of read quickly so you want to go over intel a little bit yeah so they had first off they outright suspended the dividend effective q4 yeah q4 so what do they'll pay out they'll pay out one more quarter and then they just outright

getting rid of it and i can't remember how much they cut last year, but they... It was a big cut. Yeah, it was pretty big. And then now they completely suspended it. And a lot of people might think, you know, it's down. Well, I think it's down like 28% now. And a lot of people might associate that suspension with, you know, the fact that it's down so much. And I think it's more so along the lines,

the financial health of the company that's causing the concern and the fact that they're issuing the largest layoff out of any workforce since 2020 or something I read. They're laying off 15% of their staff. They came in well below expectations and they reduced their guidance. They said they're going to go through the largest restructuring in over 40 years for the company. So I mean, a lot of people, they might think that the dividend suspension might have caused this big

dip, but I mean, there's a lot more problems that came out in that quarter. That is the reason for the 28% drop and And it's not the dividend suspension. I mean, the dividend is being suspended because the company will probably not be able to afford it, which is more of an indicator of the price drop than the suspension itself. Yeah. Well, as you said, that's why I pulled off layoffs.fy. So really good, useful tool for those wanting to kind of track layoffs in the U.S. for tech. And yeah, 15,000, it's 15% of the workforce. The one that comes the closest is Tesla earlier this year that did 14,000. And then Google late or early 2023 was at 12,000, but definitely some significant layoffs for Intel.

Yeah, it's I would say the quarter was a disaster. I mean, they expectations were about 10 cents per share earnings and they only posted two cents. So it's it's a pretty big, pretty big dip for Intel. And I think, what is their, their dividend is 12 and a half cents a quarter for one more quarter. Then they're, they're axing it completely. But, uh, yeah, it's, uh, I believe they hit a 12 year low or something like that. Like they it's nasty for intel yeah lowest price since december 2012 or 2012 so you're talking a 15 14 year low for the company and i mean it did take that huge spike in 2023 due to the ai boom but they're from what i read quickly in the in the

conference call and just overall articles about it is there you but they're, from what I read quickly in the conference call and just overall articles about it is they're, you know, they're kind of, they said, you know, that area of growth is not as big as they expected. And they're planning to, off the top of my head, I believe they're, the cuts that they're making, 20 billion this year, 17 and a half billion in 2025. And then I don't think they outright stated a number in 2026, but there's still going to be operational cuts. Yeah. And they're going to be saving about $530 million per quarter. So let's say about $2 billion a year roughly for the dividend by suspending it. And then that's compared to before they had actually just the first well

the cut they did about a year and a half ago so they used to pay uh wow six billion a year for that dividend and now it went down to two billion a year and then obviously once they're suspending it zero we'll see how long it's suspended i have a feeling they probably will not restart it anytime soon because they'll have to focus on getting more profitable and just reinvest, reinvest, and reinvest. Yeah, I mean, if you look at a free cash flow chart for Intel, it is ugly. Like they generated in...

So this would be trailing 12-month cash flow. So at the end of the quarter, March 2020, they had $20 billion in free cash flow. And now they haven't been free cash flow positive since like early 2022, trailing 12-month free cash flows right now or negative $12.3 billion. So I mean, it's...

Yeah, that's the perfect example of a company that is a top dog and then kind of sits on its laurels stops innovating or innovates probably not in the right space and then gets its lunch eaten essentially uh for the joint tci listeners you'll see it's a pretty straggling thing 2020 2021 i'm gonna go on a limb that they were doing well because everyone and their brother and sister was buying a PC because of, you know, the pandemic and having to Zoom and all that stuff. And then once that demand kind of waned, which almost perfectly, perfectly lines up with their, you know, them going free cash flow negative, they started being in trouble. free cash flow negative, they started being in trouble. So they weren't able to identify that the boom was going to be short term and that they had some pretty big issues coming up and now

they're paying for it. Yeah. And if you look to like a buyback, like a shares outstanding chart, it used to buy back a lot of shares. So from 2014 to 2020, 2021, it bought back over just over 20%. I'm doing this just like off the top of my head. It might be a little less than 20, but now like you can tell once, you know, once it went sour from a profitability standpoint, they've now increased their share count by about 5% over the last couple of years. So, uh, yeah, it's, uh, it's not a good situation for intel i mean 30 is well it's down 26 now it's recovered a bit but uh okay that's pretty big that's a big dip yeah it's a big dip so do you want to finish this with um starbucks and then we'll wrap it up yeah so i do find starbucks to be you know a pretty interesting company to go over in this type of environment. It's one that I own and I've just continually added to on weakness as I do think it will be temporary,

but they're struggling quite a bit right now. Revenue of 9.1 billion, missed estimates, earnings per share of 93 cents came right in line. Overall sales are down 1% and same store sales declined 3%. Traffic to its US stores continues to decline. It's down 6%. And for a while there, Starbucks, they were maintaining traffic, but their average ticket price was declining. People were just kind of opting out of the really expensive drinks and getting cheaper stuff. But now they're actually... I think this is the second straight quarter where just overall traffic has started to decline. And the company attributes most of the drop to customers purchasing from grocery stores and making it themselves.

But I do believe there's a bit of maybe competitive element here that they don't want to mention. And that is, we've seen it with Restaurant Brands International. They own Tim Hortons. Their Tim Hortons segment is absolutely ripping right now. And I think it's just because, you know, you can go to Starbucks and pay six bucks for a coffee or you can go to Tim's and pay, you know, $1.80. So it's...

Yeah. Tastes like crap, but the caffeine content is high. Exactly. I get a Tim Hortons coffee once in a while, so don't ask me. I mean, I do find it doesn't taste that great, but it has a bit of a... How would I put that? Nostalgia. Not a nurturing feeling, but a nostalgic feeling for me because it's what I started to get

hooked on when I was at Ottawa U when I was 19, 20. Yeah, I used to drink Tim Horton's coffee. I think I drank it every single day for like three, four years, but I don't really go there anymore. It's, uh, it's gone down in quality, but obviously right now people don't care about quality because I'll argue with you that it's never like never been great. But it's cheap. I mean, it is cheap. And I think that's the point, right? Yeah. You've seen it with Amazon, right? People are, they're going to cheaper products, maybe not as high quality, but it gets the job done. And a coffee, I mean, regardless of how good it is, they do the same thing.

They give most people their caffeine fix for a cheaper price. And I mean, speaking of competition, it is really struggling in China. Same store sales fell 14%. And overall, yeah, it was pretty ugly. Overall transactions and average ticket price fell. China is an excellent growth market for the company, but is also the most competitive by far. I think China has a ton of smaller, cheaper coffee avenues for many, many consumers. And in addition to this, Chinese consumers, as I've mentioned numerous times, they're a lot stingier than North American

ones when it comes to spending and saving. So I think this is kind of a double headwind in China, the competition and just people scaling back. It's grown its loyalty program by 7% year over year. And I think this is a bit of a savings element as well, because, uh, I'm not a loyalty customer, but I know a few people who are, and eventually you buy enough and you get free drinks. So, I mean, maybe this is a situation for people who, you know, when, when they had a lot of cat, they, you know, when they had excess money, they didn't want to go through the trouble of, you know, signing up for the program and doing all that stuff. But now, you know, it, it might seem now it might seem a bit more reasonable to do so.

And they're getting pretty creative when it comes to new product offerings. I didn't know it did this, but Starbucks has Bubble Tea now. And it was so popular when it launched that they couldn't keep up with demand and they had to scale back marketing. Really?

Yeah. Okay. Yeah. I i mean call me old-fashioned but i like my kind of bubble tea to be more like authentic yeah go to actual like uh i know there's a lot of chinese operated bubble teas and taiwanese operated ones at least in ottawa so i like to i'm like i for i think i've mentioned on podcast a few times i was when i was in my early 20s, I went to Taipei for like four or five months and had my fair share over there. So I do like that. But I would probably go to one of those restaurants or shops before I would overpay for a Starbucks one.

Yeah, exactly. I'm still going to try it though. I'm going to try it. I didn't even know they had them but i am gonna try it but one of the most notable news on starbucks isn't really the earnings but it's uh there's a hedge fund elliott management they've taken a stake in the company as an activist investor uh the total position is unknown but it is said to be large there was some estimations anywhere from two to three billion dollars they bought. Up until this quarter, most of the talk was rumor, but the CEO stated in this quarter's conference call that it is indeed true.

So they want an expansion of the Starbucks board, but to my surprise, they actually pitched an offer where the CEO could stay. In a way, this kind of makes sense. He's only been around since 2023, but there was a lot of bad press on how bad he's you know butchered the last couple conference calls so i expected maybe they wanted to see changes on that end but uh that'll be interesting to see these activist investors situations they kind of it's kind of you know 50 50 on whether they work out or not i know parkland fuels had one uh cn rail i think it was CN Rail had a big activist investor that stepped in.

And yeah, it's there. I mean, it happens quite a bit to struggling companies. I don't think CN Rail was struggling all that much, but that investor there just said they could improve efficiencies. But it's going to be interesting to see. I mean, the company has a market cap, I think of around 90 million so or sorry 90 billion 85 billion so if they do have

a three billion dollar stake that's uh that's quite a big chunk usually you'll get them to um you know you'll get the board to listen at least uh did they get a seat uh did you mention that or uh i'm not sure there's. There's not too much. I would imagine they would. Yeah, with that big of a stake. They want an expansion to the board. I would imagine they're going to try to step in in that regard. But, yeah. I mean, in the Parkland Fuel situation, the board definitely did not listen.

They kind of made a big mess out of it. Yeah, that's a bit of a unique situation, but most of the time, these types of situations do drive a bit of changes just because these companies usually step in and buy a big chunk. And I mean, if they did buy 3 billion, that's a, that's a pretty sizable chunk. Yeah, definitely. No, that's pretty, yeah. Pretty interesting. I mean, I think anything that is remotely luxury right now, and I guess Starbucks is probably more of a luxury. I know it's a small luxury, but, you know, compared to Tim Hortons even.

I know where we saw like LVMH being pretty hit pretty hard in the last little while. And it's like any kind of luxury goods, it seems to be like they're having a hard time right now. So it'll be interesting to keep track of that um we'll have plenty to talk about next time we record as well so um it's definitely fun when there's a lot of earnings happening even with the the fed this week there was almost like too much stuff to talk about but uh we'll we'll be sure next time hopefully the markets are not as much in the red when we start, when we record the next one.

Now that this is ending, they've gone up quite a bit. The NASDAQ is up a percent over the hour of the recording. Yeah. Still down 2%, but up 1% from since we started recording. What a crazy day. Yeah, it's going to be, yeah, yeah. I think volatility will probably be the name of the game, at least for the next little while. So, well, we hope you, I was going to say, hope you have a great long weekend.

In Ontario, it's a long weekend coming up, but people will be hearing this after. So, hope you had a great long weekend. And we'll be back next week with another Earnings & News. And if you haven't done so, make sure you give us a five-star review on Apple. Spotify really helps people find us. And you can follow both Dan and I on Twitter or X. I'm at Fiat Iceberg. And Dan, you're at StockTrades underscore CA.

Perfect. So thanks for listening, everyone. The Canadian Investor Podcast should not be construed as investment or financial advice. Perfect. So thanks for listening, everyone.