Chisani Wealth 2023 Money Talks

Audio Transcript Auto-generated

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  Welcome to Quiz

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  Wealth uh Money Series 2023.

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  I'm your host, Claudia Quiz,

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  Principal of Quiz

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  Wealth, alongside my brother Flavio Quean

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  Serena Sori and Kylie Fan.

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  Uh Today's discussion would take about uh 30 minutes in which we would

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  uh provide you with an executive summary along um with our performance numbers,

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  executive uh decisions as well as uh taxation

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  and a little bit of charitable giving. So

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  uh we have a pretty busy schedule.

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  We'll get on to the uh very important um summary which would take about five minutes.

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  Now.

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  Uh It has been the year of the inflation that has not

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  happened really or at least it has been deferred as we think.

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  And if we are to look at the inflation numbers, uh the inflation of 2023

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  we believe it's very different in the inflation of the seventies

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  in the seventies. It was very much demand driven.

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  While in 2023 it's a fiscal policy, government driven inflation

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  and there are very strategic differences in between

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  the two will expand a little bit later.

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  Uh in terms of uh

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  comfort in the market.

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  If you will, there is a lot more call than puts uh in terms of options.

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  That means that uh there's comp complacency in the market and a lot of money

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  managers are thinking the market will continue to go a little bit on the upside.

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  While in reality, the risk, it's quite significant on the downside.

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  Globalization has been played out in 2023 with a

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  major slowdown in some of the emerging economies.

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  And it seems that on shoring has become the order of the day.

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  Now here to date S and P 500 may seem robust. But if we look at the fact that

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  what we call the mag

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  magnificent seven

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  or the seven key technology stocks that carry this rally,

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  we think the rally is quite fragile and it's not relative to the broad market.

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  China's economy is slowing down. There's no doubt about it.

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  We will comment a little bit on what's happening in that economy

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  and the theme of robot organization and artificial intelligence has taken over.

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  Um It's become the theme of the spring of 2023

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  and it will probably play out for the next years to come.

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  There's no doubt there is technological advancements in the area,

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  there will be an impact in, in, in the economy,

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  but we may not see that as being immediate.

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  Now, in the middle of all this, we have to make certain asset calls and,

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  and trades and we would like to report happily

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  that we have not invested on the long side of bonds.

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  We felt that interest rates will continue to rise.

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  And that call has been uh fortunate on our side

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  in terms of equities.

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  We, we've seen uh the rise of technology, we capitalized on it to a certain point.

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  Uh after which we sold,

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  we dispose of a lot of the technologies talks about a month ago.

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  And you have seen that on your statements.

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  Uh Not to mention that uh there's many equities here where we let our winners uh run.

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  But if we felt that there was trouble with the underlying equity or stock,

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  we had to cut our losses.

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  So you will see our report card in detail uh for

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  clients who would like to get into the minutia of that.

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  Uh

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  in terms of hedging strategies, what's uh on our mind right now,

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  it's creating a an investment strategy where we

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  would benefit for markets uh going down,

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  but without taking a necessary risk.

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  So if we can structure something that would give us a zero, basically no risk return

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  and 10% on the upside, we will be tempted to implement that in your accounts.

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  More about that in the future.

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  Equity portfolios have been also solid from our assessment.

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  We'll have all the graphs for you pretty soon.

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  Uh But in, in summary,

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  Canadian Equities and International Equities will

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  outperform the underlying index quite substantially

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  while in the us index against the S and P 500 was slightly underperformed.

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  And that's due to the uh exposure to tech as we discussed a few minutes ago.

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  And uh certainly on the bond side, staying on the short range of the yield curve,

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  uh we have done quite well.

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  Um So that's, that's the summary of our individual, individual components.

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  Now, let's just keep one thing in mind your account performance.

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  It's a combination of the asset allocation

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  and the individual components.

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  So if you are conservative and you have

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  not been exposed to the conservative markets,

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  you'll be benefiting now from increased interest rates.

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  Uh And we have those investment vehicles working hard for you.

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  And the last part here, uh It's about planning and charitable giving.

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  The summary and the message in a way from us

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  is to review your financial and investment plan quite often.

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  Uh And if you plan to donate uh equities or capital gain

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  uh investments to charity,

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  there are changes to the alternative minimum tax and clients who would be

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  advised by their tax professionals to take advantage of that in short order.

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  Uh The new changes to the alternative minimum tax are proposed for 2024.

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  So that is our summary. And now let's dive into the details,

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  economic updates. Uh

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  We decided to split this area down in between contracting,

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  expanding and trending upwards,

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  then we'll zoom into interest rates. We'll look at the interest rates.

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  Uh and the equity valuations.

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  Now there is always housing to talk about.

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  There will be no discussion in Vancouver about housing and where prices might go.

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  And we have a little bit of a graph about the regular

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  consumption cycle since that's really important to every consumer in our economy

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  and how reliable are today's headlines.

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  Now, looking at the contracting in indicators, um

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  the money supply has been the story of 2023 after

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  when they going on a massive fiscal policy in 2022.

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  And prior governments decided to reduce money supply

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  and that has been quite obvious it has significant impact

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  in terms of capital available for personal consumption and business.

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  And if that graph could tell you anything,

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  it's that money supply went from a significant positive

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  number to negative numbers almost minus four minus 5%.

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  Um The graph is quite abrupt uh going up was has

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  been the fiscal accommodation that happened in 2020 around the world,

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  including Canada us and the rest of the world.

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  But look how quickly the money supply is drying out.

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  That should certainly be a reason for concern because what

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  used to be a tailwind has become now a head wind

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  in terms of banks and how they stack up.

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  How do they accommodate to the current economic environment?

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  We have seen banks shrinking and what do they mean by that?

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  Their loan book is getting a little bit smaller banks are

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  very selective as to what loan still be taking on.

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  In terms of liquidity.

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  Governments have become number one competitor if

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  we can generate X in treasury bills.

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  So why would we keep our money in uh on deposit with a, with a bank,

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  Canadian us or international?

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  So there is a little bit of a challenge in there

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  and uh I was going to provide uh a

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  supporting graph here where you could see that after the

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  um collapse of First Republic,

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  the activity at banks has uh gone down quite a bit.

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  However,

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  there is still a fair bit of exposure to the

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  commercial real estate and the residential real estate sector.

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  Uh look at those numbers as you go into May of

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  2023 relative to where they were in December of 2022.

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  So from outstanding loans to their balance sheets to deposits,

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  the banks are going to be pressed.

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  Um and that will have some impact on their profitability. We believe

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  now

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  there is no discussion that should stay away from the second economy of the world,

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  given China's impact on

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  being one of the engines, one of the economic engines and global GDP.

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  Unfortunately, what we've seen here is a lot of on shoring.

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  So the Chinese economy has not received lately,

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  the amount of foreign investment they are accustomed, accustomed to.

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  It seems that

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  the massive supply and chain uh problems that we we've

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  encountered in 24,021 made corporations decide on diversifying the supplier.

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  Therefore, if there is foreign investment

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  and uh that's a big if in my opinion,

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  it has been away from China and you

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  can clearly see how those numbers have turned negative

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  margins and, and corporate profitability.

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  Um just put yourselves in the shoes of a uh CEO of a company in Canada or the US

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  where the labor challenges are there.

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  Uh Cost of doing business has gone higher, loans are higher as well.

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  How would you be able to deal with increased margins?

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  I mean, the first thing you will do is perhaps increase the price.

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  Uh but that cannot happen indefinitely.

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  At some point, the consumer is going to capitulate

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  and say um no more

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  and to support that point,

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  uh we chose one popular stock. This is Amazon here

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  and Amazon is showing how their activity of their facilities.

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  It's close to a seven years low.

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  So we call this in the past the cardboard recession and what we meant by that,

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  if something was produced, manufacturing has been challenged.

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  If something has been shipped,

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  shipping has been challenged and if something has been delivered by Amazon, well,

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  you can see the numbers are not looking as bright from January to July of 2023.

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  Amazon is tracking well below their historical norms for activity.

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  And by measuring this activity,

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  it gives us a little bit of a signal of what

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  is to come in the economic numbers and of course,

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  in the equity markets and the real estate markets.

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  And

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  uh of course, inflation,

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  inflation has been uh always at the forefront of discussions in 2023.

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  And we have all heard about inflation being

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  uh this moment in time

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  put back in the bottle as a genie that has been put back in the bottle.

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  And we don't think that's the case. We think it's quite persistent.

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  Some of the headline inflation

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  and for our viewers headline inflation would be inflation related

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  to all goods and services including food and energy.

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  That headline inflation as it's highlighted here by the black line

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  has come down a little bit.

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  And that's because in the past,

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  we had a drop in energy prices from last year to mid year of uh 2023.

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  However, what we call core inflation

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  has been quite pesky and that is the dotted red line, dotted red line stays there,

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  which makes us believe that the inflation battle has not been won.

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  We're far from that. Perhaps we just, we declare a temporary victory, but

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  there's more chapters to be written in this area and hence

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  our desire not to be in long bonds straight away.

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  We're going to buy our time and see where

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  the economic numbers and the economy will lead us to

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  us GDP and growth.

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  We had a very rosy picture uh projected at the beginning of the year.

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  Uh at least mid year.

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  Most analysts and economists said, well, you know,

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  the US economy now are predicting to grow at 5.6% which by the way,

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  it's a pretty robust number.

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  But if you looked at every single quarter, quarter,

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  12 and three that have been already played out,

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  um and you can see the numbers we landed somewhere in between two and 3%

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  and now we're aiming for 5.6%.

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  Well, that's an enormous amount of ground to be covered for the last quarter.

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  So unless we have some sort of a of a boost in

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  in activity

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  uh to the point of uh of doubling the numbers in one quarter.

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  I think the overall growth is challenged and is pointing

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  more towards a stagflation rather than a fast recovery.

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  And let's also take a tour around the

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  world and see what global manufacturing is doing.

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  And obviously manufacturing has been always a driver in the economic output,

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  a very big driver for the European Union.

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  And you can see that dark blue line European Union, as well

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  as Germany have taken a negative turn.

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  China had a bit of a positive turn coming in from, from highs,

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  but they've also turned negative or if those numbers have

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  have have adjusted since May of 2023.

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  I think the graph shows clearly that

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  there's less and less manufacturing around the world

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  and that could potentially result in higher prices.

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  And if you think about it, if I were a corporation and I were to buy things from abroad,

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  first thing first, I have to create some inventory.

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  Well, inventory is expensive because I have to finance it.

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  And if it doesn't sell, if I'm forced with a uh with an economic slowdown,

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  consumers saying no more, I'm not buying anymore, I'm retreating and saving.

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  Well, that would be a very bad news story for such corporation.

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  So I think it's a result of everybody being very cautious in this area.

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  So that's those are the contracting factors.

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  Now,

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  let's move on to the expanding things and I wish

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  the expanding will not be necessarily credit card and debt loans

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  and everything that stresses the consumer these days.

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  I mean, there's mortgage payments

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  and lines of credit and housing costs overall,

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  whether it's renting or owning those numbers have, have come up quite a bit.

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  And if there is a high demand area

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  um has been rental real estate and we'll talk more about that.

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  But let's zoom in first on to the consumer

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  and see how the essential consumption has gone up.

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  That's quite clearly trending up and the discretionary of 2020

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  at 2020 there was no ability to have discretionary spending

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  and that has rectified itself. But while it opened quite nicely in 2022

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  our discretionary consumption is going in the opposite direction, meaning

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  that people are thinking twice before making that discretionary

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  consumption before renovating their kitchen or buying the,

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  uh, what they call the high ticket items and that would be cars and

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  boats and, and so on and so forth.

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  Now, going in one more time here, um, because I think that's, uh, quite telling

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  for the longest time,

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  the cost of owning a home via mortgage has been the winning strategy since 2010.

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  As a matter of fact, it was cheaper to get a mortgage and own your own place.

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  The rental costs are quite higher.

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  But now because of refinancing and high interest rates,

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  the rental of a small multi family uh residential.

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  Um We're not talking here, big houses, these are just small apartment units

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  uh have escalated. We're looking here at $3000 plus

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  where, you know,

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  to own an apartment where you can probably spend a little bit less to rent.

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  Therefore, the discrepancy between the two is quite staggering,

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  making new buyers,

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  newcomers to ownership of real estate challenged or thinking

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  twice if this is a winning proposition or not.

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  And now in terms of corporate, uh the corporate world doesn't stack a lot better.

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  I mean, if I were a corporation again,

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  I would have to decide twice if it's worth

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  spending the money at a much higher interest rate

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  uh to develop new projects.

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  And if I don't develop new projects, if the cost of doing business is too high.

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  I have two options. I need to increase the price of what I'm producing.

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  Uh Or I just have to continue with the infrastructure that's available currently.

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  Uh Therefore,

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  if you add regulations and all the requirements that the

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  corporate world has been faced with and labor cost,

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  uh corporate America and corporate globally for that matter.

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  Uh It's, it's having some serious headwinds right now

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  and the government, let's not forget the government,

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  the government is just uh perhaps the number one spender.

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  And uh when uh we have uh

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  a variety of initiatives including increasing immigration in Canada.

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  Although some have argued that that may be the

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  stationary

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  in reality,

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  bringing people to the country and trying to find

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  a place for them to live has been inflationary.

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  We have put pressure on rental costs and that

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  demand is severely out of order right now.

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  Uh demand supply factors in terms of rental units.

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  And I think that's gonna have implications in uh

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  in the real estate market.

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  And ultimately, in the overall measurement of inflation,

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  I wanted to give you a little bit of a

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  statistics here as to how many individuals were welcoming to Canada

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  in terms of immigration used to be around 400,000

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  uh people on average.

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  And now the numbers are trending north um of uh of, of a of, of a million.

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  So that's quite significant and well,

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  while this is providing some relief in terms of basic labor.

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  A lot of the new immigration is coming into

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  um into into uh entry level jobs.

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  There is a clear uh repercussion in the real estate market.

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  So now what's trending upwards here,

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  it's worth looking at things that just start inching in steadily.

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  And at the forefront of that is energy

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  and why it is it worth talking about energy is because energy

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  has a cost in everything that you consume on a daily basis.

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  Therefore, if energy prices rebound

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  and will end up with the highs of 2021 or even, you know, early 2022.

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  It's fair to say that inflation will come back.

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  And I'm really interested to see what the new inflation numbers would be.

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  Our transportation and heating costs are definitely higher.

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  Unemployment is trending up a little bit.

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  It is not extremely concerning, but it is definitely a trend.

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  What you don't like is the way the numbers are reported.

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  There could be a lot of people having two or

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  three jobs and they will have a tick mark on,

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  on unemployment.

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  While some of the uh they they're talking of jobs from the category of 30

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  to about 55 years old are disappearing and

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  they're replaced by jobs by the youngsters,

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  which is excellent.

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  On one on one hand, but on the other hand,

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  there's not enough earning power of the younger generation there.

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  So we'll see how the unemployment would pan out.

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  If the economy slows down significantly unemployment,

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  it's not a leading indicator at all times.

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  We have to think that unemployment comes at the

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  end of the cycle in a recessionary situation.

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  The artificial intelligence economy gained some traction.

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  I think we covered that.

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  Uh, there's, there's good, the good, the bad and the ugly.

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  I've, I've covered that in a,

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  in a previous discussion.

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  Um, it has to be regulated and there's, there's complexities.

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  Uh You've seen the anti trust lawsuit uh that, you know,

• 20:14 - 20:17

  the um Google is going through right now.

• 20:17 - 20:21

  So I think the tech regulation will become more and more stringent

• 20:21 - 20:24

  and it will affect the tech names in the, in, in the long term

• 20:25 - 20:28

  and the rental real estate demand uh for the

• 20:28 - 20:30

  number of units that we have available for,

• 20:30 - 20:34

  build in Canada and new projects versus newcomers to Canada.

• 20:34 - 20:37

  Um We are, we are shortage to

• 20:37 - 20:40

  s of trillions of dollars of investment in real estate.

• 20:40 - 20:43

  So I don't really know how that situation will be fixed.

• 20:43 - 20:47

  I mean, New Zealand has taken the path of zoning,

• 20:47 - 20:53

  multi zoning everything and the government took over um subdivision of land,

• 20:53 - 20:57

  uh real estate dropped there by about 25% but

• 20:57 - 21:01

  that has given uh paved the way to new development.

• 21:01 - 21:03

  We're not suggesting that's what Canada should be doing.

• 21:03 - 21:06

  Uh But we're just uh commenting on what other countries have been doing

• 21:07 - 21:07

  and

• 21:08 - 21:10

  uh on shoring and diversification of the

• 21:10 - 21:14

  supply chain supply chain has obviously been affected

• 21:14 - 21:16

  and uh less to

• 21:16 - 21:16

  here.

• 21:20 - 21:23

  And now let's look at the, um, the interest rates,

• 21:23 - 21:27

  um, highly debated as to how far they would go.

• 21:27 - 21:31

  There is a high probability that rates will eventually come to an end.

• 21:31 - 21:35

  The rate hiking cycle has been dramatically accelerated.

• 21:35 - 21:37

  But at some point, it has to reach a plateau.

• 21:38 - 21:42

  We just need to make sure that that's not just a temporary, uh state of affairs.

• 21:42 - 21:43

  So we'll,

• 21:43 - 21:49

  we'll have to watch where the Fed and Bank of Canada will land on uh as

• 21:49 - 21:51

  they're attempting to balance what's happening in the

• 21:51 - 21:53

  economy with the burden of higher rates.

• 21:54 - 21:57

  Uh From a statistical perspective, we're monitoring those numbers.

• 21:57 - 22:02

  Uh We're looking at the first rate cut around April to May of 2024.

• 22:02 - 22:07

  So if someone is uh expecting a uh change, of course, with a reduction of rates,

• 22:07 - 22:10

  I think that may take a little bit longer than anticipated.

• 22:10 - 22:13

  And because this is a fiscal driven inflation,

• 22:14 - 22:16

  it is very difficult to contain

• 22:17 - 22:20

  in the seventies when we had the nifty 50 big

• 22:20 - 22:25

  American corporations demand was high by increasing interest rates.

• 22:25 - 22:28

  The American banks for instance, stopped lending

• 22:28 - 22:29

  and that

• 22:30 - 22:32

  interest rates were higher. Uh

• 22:32 - 22:37

  And inflation was uh put back in the bottle, the Geno was back in the bottle. But

• 22:37 - 22:41

  in 2023 because an enormous amount of money that has been printed.

• 22:41 - 22:44

  And uh as that is uh lent money

• 22:44 - 22:47

  and massive government deficits,

• 22:47 - 22:52

  uh which will most likely continue. Well, those deficits alone are inflationary.

• 22:52 - 22:53

  So this is a bit of a

• 22:54 - 22:57

  sticky point for most uh central banks.

• 22:57 - 22:59

  Now, recession is imminent in our opinion.

• 22:59 - 23:04

  And I think we dodged one in 2023. I alluded to that uh

• 23:05 - 23:06

  at the beginning of our uh

• 23:06 - 23:11

  presentation, uh 2023 the year when recession did not happen.

• 23:11 - 23:16

  However, uh I think we just deferred it for another 67 months.

• 23:16 - 23:16

  At some point,

• 23:16 - 23:19

  the stress of the rates will show left right

• 23:19 - 23:23

  and center in personal corporate and government spending.

• 23:23 - 23:26

  There are a few world economies that have brighter spots.

• 23:26 - 23:30

  I mean, we can look at Brazil, we can look at Mexico and Japan

• 23:30 - 23:32

  that managed to gain some traction.

• 23:32 - 23:34

  Mexico as a matter of fact,

• 23:34 - 23:39

  has become the number one trading partner for the United States replacing China.

• 23:39 - 23:44

  So that's a pretty significant development and shows that on shoring

• 23:44 - 23:48

  or at least restoring activity is taking place at the moment.

• 23:49 - 23:53

  Unfortunately. Uh what's inflationary is the government uh spending?

• 23:54 - 23:58

  And if we continue with the cycle of additional rate increases,

• 23:58 - 24:02

  that's a massive amount of strain on the private sector.

• 24:03 - 24:06

  And uh that's uh that's the story of having two puppies

• 24:06 - 24:11

  and you decide not to give one hungry puppy a lot of food because they overeat.

• 24:11 - 24:13

  Uh that would be the government

• 24:13 - 24:16

  and uh the other puppies paying the price for it.

• 24:16 - 24:18

  So I feel for the private sector,

• 24:18 - 24:20

  they have to navigate some really

• 24:20 - 24:23

  interesting and challenging times so that resilience

• 24:23 - 24:28

  of consumer and and private sector could only be proven to be temporary.

• 24:28 - 24:31

  And I think that's something to keep in mind

• 24:33 - 24:35

  in terms of opportunities, we cannot be all gloom and doom.

• 24:35 - 24:38

  There's always a market, there is always a trading opportunity,

• 24:38 - 24:42

  there's always a sector, there's always a country to go to.

• 24:42 - 24:47

  Uh we look at long bonds as possible opportunities only and

• 24:47 - 24:52

  only when rate cycles are clearly moving in the opposite direction.

• 24:52 - 24:53

  In other words, when rates plateau

• 24:54 - 24:56

  and there is uh signals that rates will go down

• 24:56 - 25:00

  equities of value, value, equities versus growth,

• 25:00 - 25:03

  equities value equities are the equities that will

• 25:03 - 25:06

  uh um will be in the in the area of uh

• 25:06 - 25:10

  of banks and utilities and so on and so forth where growth

• 25:10 - 25:15

  uh technology driven stocks will fall in that category uh will be on the

• 25:15 - 25:19

  value side because we think there will be less volatility in case markets,

• 25:19 - 25:20

  correct,

• 25:21 - 25:23

  preferred reset shares.

• 25:23 - 25:27

  Now, what's specific about his preferred reset shares is that once

• 25:28 - 25:31

  interest rates stay higher for longer, if they do

• 25:31 - 25:36

  the reset coupon will end up resetting at much higher rates,

• 25:36 - 25:40

  which should propel that entire sector, which was unloved for quite a while.

• 25:40 - 25:43

  So we haven't really put a big bet in that area,

• 25:43 - 25:47

  but we're watching intently and I think we'll, we'll probably end up there.

• 25:47 - 25:52

  One big advantage of preferred reset shares is that they pay dividends.

• 25:52 - 25:54

  So they're very tax efficient

• 25:55 - 25:59

  natural gas, gold, uh bulk dry shipping.

• 25:59 - 26:02

  Um With the gold miners, they're all opportunities,

• 26:02 - 26:05

  but they're all contingent to the economy continuing.

• 26:05 - 26:08

  So we're not saying we'll go there in, in no time.

• 26:08 - 26:12

  Uh And if we want to do a trade, if we would like to complete a trade, you can,

• 26:12 - 26:14

  you can go once to regional banks

• 26:14 - 26:19

  if the economy all of a sudden shows that interest rates are going down.

• 26:19 - 26:23

  Uh We, we, we definitely have some opportunities there,

• 26:23 - 26:25

  but if interest rates keep going higher,

• 26:25 - 26:28

  there is a much higher probability of a default of

• 26:28 - 26:32

  corporations and especially the ones in the financial space.

• 26:32 - 26:36

  Uh So that, that's a bit of a question mark for us. Uh Never mind.

• 26:36 - 26:38

  It's on the board for opportunities right now.

• 26:38 - 26:41

  We talked about Brazil, Mexico, India and Japan

• 26:42 - 26:45

  and the rental real estate space.

• 26:45 - 26:50

  Um We have Centurion uh private real estate investment trust in our portfolios.

• 26:50 - 26:56

  He has been a stellar performer and I think that market will benefit from the

• 26:56 - 27:01

  very high amount of immigration coming to Canada and the lack of rental real estate.

• 27:01 - 27:05

  Uh We're not looking at the commercial space in any other way or office space for now.

• 27:05 - 27:10

  We stay away until the story tells itself in that space. It's quite uh

• 27:10 - 27:15

  um interesting. It will take a long time and to repurpose those office towers.

• 27:15 - 27:18

  Uh if they're not used or filled up right now.

• 27:18 - 27:20

  Uh And in the rental revenue is not coming.

• 27:20 - 27:25

  Um Why get into a space where it doesn't seem to be a lot of upside,

• 27:25 - 27:26

  at least at the very moment.

• 27:27 - 27:28

  And

• 27:28 - 27:33

  we talked about the inverse instruments where if we think

• 27:33 - 27:36

  that 2024 will bring some challenge in the equity markets,

• 27:36 - 27:37

  we can benefit.

• 27:37 - 27:39

  Instead of just being on the sideline,

• 27:39 - 27:43

  we'll be able to benefit up to 10% and have no downside protection.

• 27:43 - 27:47

  And we're working right now with the best providers of those type

• 27:47 - 27:50

  of instruments to see if we can bring that to your portfolios

• 27:50 - 27:53

  and things that are priced for perfection.

• 27:53 - 27:54

  I would say,

• 27:54 - 27:59

  NASDAQ and the S and P 500 as it has a very big concentration of tech stocks,

• 27:59 - 28:02

  we have to be very, very cautious in that area,

• 28:02 - 28:06

  as you mentioned about a month and a half ago, we sold our tech names.

• 28:06 - 28:11

  Um Google was the last name that we sold for a 50% profit about two days ago

• 28:11 - 28:13

  if I'm not mistaken.

• 28:13 - 28:18

  Um And we're not saying we won't come back. We love the story of technology.

• 28:18 - 28:19

  It's, it's going to be a trend

• 28:19 - 28:22

  specifically with artificial intelligence, however,

• 28:22 - 28:26

  very difficult in a short time to justify those evaluations.

• 28:27 - 28:29

  So now let's move along to

• 28:30 - 28:31

  the resilience of housing.

• 28:32 - 28:35

  Well, we know right off the bat that there is an imbalance of supply and demand.

• 28:36 - 28:41

  Uh We also know that investors who have had uh mortgages locked in at low rates,

• 28:41 - 28:46

  uh do not want to sell their house right now because they'll be faced with new lending

• 28:46 - 28:49

  and new rates which could be three or four times as costly.

• 28:49 - 28:54

  So that alone is creating a bit of a freezing of the real estate activity.

• 28:54 - 28:56

  But if you put it in very simple terms,

• 28:56 - 29:02

  as I allude here with uh housing resilience in 2020 to 2022

• 29:03 - 29:07

  we dealt with yesterday's mortgage rates which are extremely low as you all know,

• 29:07 - 29:09

  and yesterday's prices.

• 29:09 - 29:14

  So when you have very favorable lending activity, housing is generally high.

• 29:14 - 29:17

  Now, if we move to 2023

• 29:17 - 29:19

  we are going to reset to today's mortgage rates.

• 29:19 - 29:24

  Eventually, eventually all all mortgage reset, eventually.

• 29:24 - 29:28

  Um you know, variable rate mortgages will have to reprice as well

• 29:28 - 29:29

  and

• 29:29 - 29:32

  yesterday's prices are still

• 29:32 - 29:33

  elevated.

• 29:34 - 29:38

  So something has to be told there and the resilience of the,

• 29:38 - 29:40

  of the Canadian market is there because of supply demand.

• 29:40 - 29:41

  However,

• 29:41 - 29:45

  we know that real estate is priced at the fringe, meaning

• 29:45 - 29:48

  that let's say in our neighborhood,

• 29:48 - 29:52

  if seven or eight individuals are comfortable with no mortgages and

• 29:52 - 29:54

  uh owning the real estate,

• 29:54 - 29:57

  if two or three other neighbors would be challenged uh

• 29:57 - 30:00

  because of excess borrowing at the wrong time and,

• 30:00 - 30:03

  and being faced with meeting debt obligations well,

• 30:03 - 30:09

  they may have to sell uh for less and therefore repricing appears.

• 30:09 - 30:09

  Now,

• 30:10 - 30:13

  the negative amortization is very concerning for us

• 30:13 - 30:16

  and pertains to the Canadian banks as well.

• 30:16 - 30:18

  Uh I was reading a statistics that

• 30:18 - 30:22

  um R BC as well as TD they had in between 43 and

• 30:22 - 30:26

  48% of their mortgages where customers have

• 30:26 - 30:30

  refinanced more than 25 year amortization,

• 30:30 - 30:36

  meaning we had to stretch those mortgages to 35 40 sometimes 50 years

• 30:36 - 30:39

  just to be able to make a monthly payment.

• 30:39 - 30:43

  But that monthly payment may not even be able to keep up with the interest.

• 30:43 - 30:45

  Meaning that if I had a million dollar mortgage,

• 30:46 - 30:50

  my mortgage instead of going down, it's going up at current interest rates.

• 30:51 - 30:55

  So if current interest rates persist at elevated levels,

• 30:55 - 30:59

  in a sense, the bank is becoming the landlord

• 30:59 - 31:02

  and the homeowner is becoming the tenant, they're not benefiting,

• 31:02 - 31:05

  they're not building equity in their home right now.

• 31:05 - 31:07

  They're going backwards and they still have to pay

• 31:07 - 31:09

  property tax and so on and so forth.

• 31:09 - 31:12

  Well, that's very concerning. Uh so we always said,

• 31:13 - 31:15

  uh we love Canadian banks long term,

• 31:15 - 31:19

  but if there is ever a credit event that would rock the, the market,

• 31:19 - 31:21

  the investment community and the credit market,

• 31:22 - 31:26

  um we would be uh taking the appropriate measures

• 31:26 - 31:32

  and the fiscal policy, the supply, the government endeavor with immigration.

• 31:32 - 31:36

  Well, that's inflationary, it's putting pressure on pricing as well, which would

• 31:36 - 31:41

  um in my mind, create more uh rental real estate um

• 31:41 - 31:42

  appreciation.

• 31:43 - 31:44

  Now,

• 31:44 - 31:48

  moving on to the consumption cycle and I just use a couple of

• 31:48 - 31:51

  acronyms that we're all familiar with or maybe not all of us,

• 31:51 - 31:56

  some of the younger generation might, you know, I, I had to Google some of them. Um

• 31:56 - 32:04

  Now the in 2021 as we started spending following 2020 lockdowns, um

• 32:04 - 32:08

  There was what he called the fear of missing out expenditure where

• 32:08 - 32:10

  we went out there and we bought as much as he could

• 32:10 - 32:13

  uh including a second property for some uh uh a

• 32:13 - 32:15

  rental apartment,

• 32:15 - 32:19

  uh an apartment in the Okanagan or Whistler or whatever the case might be.

• 32:19 - 32:23

  Uh That's, that's what we called the fear of missing out or the formal trade

• 32:24 - 32:25

  in 2022.

• 32:26 - 32:27

  Uh We decided that

• 32:27 - 32:33

  that wasn't enough. Why not? We only live once you only live once.

• 32:33 - 32:35

  That's the yellow abbreviation.

• 32:35 - 32:37

  So spending accelerated.

• 32:37 - 32:41

  However, by the time the rates and other factors caught up with consumers,

• 32:41 - 32:47

  we find ourselves in 2023 where we have to spend $300 for going to mcdonald's.

• 32:48 - 32:48

  Um

• 32:49 - 32:53

  it is a joke but uh it's probably quite close to being accurate if

• 32:53 - 32:58

  you take four kids to mcdonald's um and consumption has to be reduced.

• 32:58 - 33:01

  So uh Tina is showing up and Tina stands for,

• 33:01 - 33:04

  there is no alternative but to be

• 33:04 - 33:08

  responsible and manage our household appropriately.

• 33:08 - 33:11

  Uh It is quite confusing because we're in the middle of this

• 33:11 - 33:14

  recalibration and we don't know where things are going to go.

• 33:14 - 33:17

  So please don't envy my job on the, on those terms.

• 33:17 - 33:19

  Um As a matter of fact,

• 33:19 - 33:22

  there is a story about an optimist economist and

• 33:22 - 33:25

  a pessimist getting together in the morning for coffee

• 33:25 - 33:30

  and the optimist says it is looking great out there and the pessimist says,

• 33:30 - 33:31

  I think you're right.

• 33:31 - 33:34

  Uh So that's how divided the opinions about the

• 33:34 - 33:37

  market and where we're going are these days.

• 33:37 - 33:38

  Now,

• 33:39 - 33:42

  one thing for sure, very tough to rely on headlines.

• 33:42 - 33:44

  We don't manage money based on headlines,

• 33:44 - 33:48

  headlines bring emotions to the market and managing money emotionally.

• 33:48 - 33:53

  Uh It's always difficult. So if you look at some of those inflation is transitory.

• 33:53 - 33:54

  Well, I mean,

• 33:54 - 33:58

  uh we know how that movie played out. Economy is strong.

• 33:58 - 34:02

  Well, if you look at the service industry and technology that stole the show,

• 34:02 - 34:06

  uh anything to do with manufacturing as well as uh

• 34:06 - 34:09

  other activity there has been has been quite challenged.

• 34:09 - 34:11

  Economic soft landing is here.

• 34:11 - 34:12

  Well,

• 34:12 - 34:14

  I don't know how we can solve land when it

• 34:14 - 34:18

  created so much uh money via printing and uh and,

• 34:18 - 34:19

  and rates are so high.

• 34:19 - 34:23

  Uh uh it is wishful thinking and II I truly believe that

• 34:23 - 34:24

  um

• 34:24 - 34:25

  you know, everything is

• 34:26 - 34:29

  uh going into a direction to facilitate a self landing,

• 34:30 - 34:33

  but it's just not possible in my view,

• 34:33 - 34:36

  um, recession has been avoided. I mean, you know, that's quite clear.

• 34:36 - 34:39

  Recession has been just deferred from, from our point of view.

• 34:40 - 34:41

  Uh, consumer is resilient.

• 34:41 - 34:45

  I think consumer is stretched and they've been given another chance.

• 34:45 - 34:49

  Uh, they've been using equity in their homes but at some point that's gonna play out,

• 34:49 - 34:53

  uh, business cycle is a thing of the past now. I've heard that, um,

• 34:53 - 34:56

  in my 28 almost 30 years uh investment career,

• 34:56 - 34:59

  there's only someone telling us that the investment business

• 34:59 - 35:01

  cycle is broken and that's just not possible.

• 35:01 - 35:05

  Uh There are cycles in nature and there are cycles in business as well.

• 35:05 - 35:09

  Uh higher for longer, we seem to be higher for longer now.

• 35:09 - 35:12

  But if you have a significant shock in the system,

• 35:12 - 35:15

  uh that affects credit or, or, or the investment uh

• 35:16 - 35:20

  um equity markets, I think there would be, there would be a

• 35:20 - 35:23

  change in policy and it could be quite swift

• 35:24 - 35:28

  and uh slaying the inflation dragon. I don't think we slay the dragon.

• 35:28 - 35:30

  I think we're fighting AAA good battle.

• 35:30 - 35:33

  Uh But there's many chapters to be uh written here

• 35:33 - 35:37

  and BRICS countries will trade in a new currency

• 35:37 - 35:41

  that will absolutely obliterate the American dollar.

• 35:42 - 35:46

  And in order, it is possible that BRIC countries will have a new currency,

• 35:46 - 35:47

  they will create a formidable opponent.

• 35:48 - 35:50

  Uh But that just didn't happen.

• 35:50 - 35:54

  So, although the BRICS meeting took place a couple of weeks ago

• 35:54 - 35:57

  and they added a few more members, significant members.

• 35:57 - 36:01

  They have not been able to agree on a new currency.

• 36:01 - 36:06

  So headlines are wonderful over a cup of coffee and they have,

• 36:06 - 36:08

  uh they have entertainment value in many ways.

• 36:08 - 36:11

  Uh Sometimes they're, they're just terrible because it's just gloom and doom.

• 36:11 - 36:13

  We just have to be realistic as to where

• 36:13 - 36:16

  things are going and opportunistic in many ways.

• 36:17 - 36:17

  So

• 36:18 - 36:22

  now I'm gonna go a little bit and uh in the trades and allocation,

• 36:22 - 36:24

  um and what we've done

• 36:24 - 36:26

  the US dollar trades which is,

• 36:26 - 36:28

  are related to the American dollar uh

• 36:28 - 36:31

  holdings or US equities and international equities.

• 36:31 - 36:35

  As you can see on your statements are traded in American dollars

• 36:35 - 36:38

  and when the US dollar goes up against Canadian,

• 36:38 - 36:41

  your statements look a little bit better when the US dollar goes down

• 36:41 - 36:44

  a little bit against the Canadian dollar or a basket of currencies,

• 36:44 - 36:48

  your statements will, will basically show a little bit less.

• 36:49 - 36:50

  Um So

• 36:50 - 36:54

  that's the American dollar and how it fluctuated against the basket of currencies.

• 36:54 - 37:05

  It went as high as 110 100 and 114 if I remember in 2022 October, November 2022.

• 37:05 - 37:08

  But now it's settled at about 104.

• 37:08 - 37:11

  So that was a 10% drop of the American

• 37:11 - 37:15

  dollar against a common basket of currencies that's worth noting

• 37:15 - 37:15

  um

• 37:16 - 37:21

  for, you know, clients who have uh real estate holdings in other currencies as well,

• 37:21 - 37:25

  properties in Hawaii and so on and so forth, the American expenditure in US dollars.

• 37:25 - 37:27

  Uh That's of concern.

• 37:27 - 37:32

  Uh Now what we've done all along, we've used our US international portfolio

• 37:33 - 37:35

  and the dividend available in that portfolio to

• 37:35 - 37:38

  create a cash flow for your holiday fund.

• 37:38 - 37:42

  Just so you don't have to convert from Canadian to American holdings.

• 37:43 - 37:44

  Our report card, there's,

• 37:44 - 37:48

  there's many transactions that we make throughout the year but year to date,

• 37:48 - 37:53

  you can see in Canadian equity. Um We are, we are lucky to have chemical

• 37:53 - 37:53

  um

• 37:54 - 37:54

  Canada

• 37:55 - 37:57

  first quantum mineral and Canadian Western Bank.

• 37:57 - 38:01

  Those are just some of the trades year to date that are in the 10, 10 to

• 38:01 - 38:06

  35% plus. Um we had to cut our losses on

• 38:06 - 38:06

  a

• 38:06 - 38:09

  senior living and Magna International

• 38:09 - 38:13

  um and decided to redeploy the capital now in

• 38:13 - 38:15

  the US

• 38:15 - 38:16

  um International holding

• 38:17 - 38:17

  on glass

• 38:18 - 38:20

  that has given us 100 and 20%

• 38:21 - 38:21

  A

• 38:21 - 38:22

  maybe more.

• 38:23 - 38:25

  And fedex uh A MD, Terre

• 38:26 - 38:28

  and Apple have been very good trades.

• 38:28 - 38:35

  Uh but we lost on mosaic uh fertilizer, Tyson foods, uh LSB industries.

• 38:35 - 38:38

  And eventually we decided that uh Walt Disney,

• 38:38 - 38:42

  it will take time to recover and we can deploy the capital somewhere else as well.

• 38:43 - 38:43

  Um

• 38:44 - 38:45

  Just um

• 38:46 - 38:51

  a summary of our Canadian US and international strategies.

• 38:51 - 38:54

  Those are three separate sleeves that we use for

• 38:54 - 38:58

  you in the investment portfolios uh in different percentages.

• 38:58 - 39:00

  Each client is different and each client has

• 39:00 - 39:02

  their own holdings on top of our holdings.

• 39:02 - 39:08

  Um We are in blue, so Canada 6.5% year to date versus 2.2% TSX

• 39:09 - 39:14

  uh 9.52% in the US versus the S and P 514.

• 39:15 - 39:19

  Now, if you take all the other indices, the Dow or Russell 2000,

• 39:19 - 39:24

  those indices are much more telling of the American economy and they've done a lot,

• 39:24 - 39:29

  you know, less, they perform a much less uh pace than 14%.

• 39:29 - 39:35

  And internationally, we blew that out of the water 15% versus 6.7%.

• 39:35 - 39:37

  So our report card is, uh if,

• 39:37 - 39:40

  if we rank against the S and P 500 we're just a little bit less

• 39:41 - 39:46

  and I'm gonna put on the board here, our Canadian portfolio against the TSX,

• 39:46 - 39:49

  not just here to date because here to date this moment in time,

• 39:49 - 39:55

  uh it shows what we've done since 2020. So 2020 you can see there in blue.

• 39:55 - 40:00

  Uh our performance quite a bit, uh a little bit less uh performing in 2021.

• 40:00 - 40:07

  Uh We went down less in 2022 than the market and we came back roaring in 2023.

• 40:07 - 40:08

  So that's good.

• 40:08 - 40:11

  Uh In the US, if you add all the numbers,

• 40:11 - 40:16

  uh we're gonna be pretty much on par just slightly under the S and P 500.

• 40:16 - 40:17

  And I think that's good news.

• 40:17 - 40:21

  We have a lot, you know, quite a bit less volatility in that area

• 40:21 - 40:23

  and internationally that's been,

• 40:24 - 40:27

  uh, it's not us being originally of European descent. I don't know how but, uh,

• 40:28 - 40:31

  we've always, uh, been very lucky and, uh,

• 40:31 - 40:35

  we know our research in international markets paid off, uh, with, um, with some,

• 40:35 - 40:37

  some great numbers here.

• 40:37 - 40:40

  Um, that, uh, I think we bragged enough about,

• 40:41 - 40:42

  uh, so

• 40:43 - 40:46

  moving on to the next topic, uh, this is a, uh,

• 40:46 - 40:49

  a very interesting topic to us and you may have already your,

• 40:49 - 40:51

  your individual foundation,

• 40:51 - 40:54

  either a personal foundation or a private foundation.

• 40:54 - 40:59

  Um, and, and you could have probably set that up yourself. However, um,

• 41:00 - 41:05

  Canada gives organization that would be able to do that for you if

• 41:05 - 41:08

  you don't have a foundation and you plan to set one up.

• 41:08 - 41:12

  Uh, we have spoken to them and try to negotiate the best possible rates.

• 41:12 - 41:13

  In summary,

• 41:14 - 41:17

  let's say if you have a foundation for a million dollars, an example,

• 41:17 - 41:21

  um, they would charge you at an average rate of about 1%.

• 41:21 - 41:25

  It foundation will be set up in a couple of days.

• 41:25 - 41:27

  Uh, they'll take care of all the administration,

• 41:27 - 41:32

  uh, the gifting to, um, the endeavors of your choice every year.

• 41:32 - 41:34

  I think we have to take out about 5%

• 41:34 - 41:36

  of the foundation and, and give out every year,

• 41:36 - 41:38

  you're in charge and command of where the money goes.

• 41:38 - 41:42

  But all the administration, all paperwork, um all, all,

• 41:42 - 41:48

  all of the um less glamorous work that has to be done by individuals,

• 41:48 - 41:51

  owning their own foundation is taken over by Canada gifts.

• 41:51 - 41:54

  Um And they set up the account for you

• 41:54 - 41:58

  and on the other side, we'll do the money management and our contribution has been,

• 41:58 - 42:00

  we have a couple of clients in this arena

• 42:01 - 42:04

  if you come to us, uh and we set up a foundation in Canada gives,

• 42:04 - 42:06

  uh or you have your own foundation,

• 42:07 - 42:13

  we will rebate half of the management fees as our contribution to your cause.

• 42:13 - 42:15

  So whatever your charitable endeavor would be,

• 42:16 - 42:18

  um or a gift planning strategy,

• 42:18 - 42:22

  we are happy to announce that we will discount the fees by half.

• 42:22 - 42:25

  As a matter of fact, we'll reimburse half of the regular fees.

• 42:25 - 42:30

  Um Now we don't have uh if, if you don't wish to be Canada gifts,

• 42:30 - 42:33

  you can be with other providers of foundation work.

• 42:33 - 42:37

  Uh But from our perspective, our commitment to you would always be kept.

• 42:38 - 42:39

  So

• 42:39 - 42:40

  in

• 42:41 - 42:43

  other parts of charitable giving,

• 42:43 - 42:46

  what's telling for this year is that there are changes.

• 42:46 - 42:53

  I alluded to the fact that the alternative minimum tax um will be uh reorganized

• 42:53 - 42:54

  where

• 42:54 - 42:57

  let's say if you have a large capital gain

• 42:57 - 43:00

  in uh an equity portfolio or in a property

• 43:00 - 43:03

  and decide to donate that before the end of the year

• 43:03 - 43:09

  that might be prudent because now donations of public listed uh uh securities,

• 43:09 - 43:09

  um,

• 43:10 - 43:15

  they didn't used to be uh added to the alternative minimum tax in the past.

• 43:15 - 43:18

  Uh, but now they're included for 30%.

• 43:18 - 43:18

  Now,

• 43:18 - 43:22

  capital gain inclusion rate has increased to 62% to

• 43:22 - 43:26

  50% for the calculation of the alternative minimum tax.

• 43:26 - 43:30

  Now, all these discussions are alternative minimum tax discussions.

• 43:30 - 43:31

  They're not discussions about

• 43:31 - 43:37

  uh uh capital gains on, on non uh on, on regular uh taxation.

• 43:38 - 43:42

  The summary here is uh there's a couple more points here that

• 43:42 - 43:46

  your capital losses this year are not fully netted against capital gains.

• 43:46 - 43:49

  Now, only half of your capital gains will be included.

• 43:49 - 43:52

  It's basically telling you that if you have a

• 43:52 - 43:56

  significant income here and a significant donation here.

• 43:56 - 44:01

  At the same time, the alternative minimum tax has become more punitive,

• 44:01 - 44:03

  especially for individuals with high,

• 44:03 - 44:06

  super high number of individuals or individuals

• 44:06 - 44:08

  who make significant donations to charity.

• 44:08 - 44:12

  So please discuss if your tax professional um

• 44:12 - 44:15

  the ability to contribute something before December 31st,

• 44:15 - 44:17

  if you have those gains indeed

• 44:17 - 44:20

  and review your alternative minimum tax with them,

• 44:20 - 44:24

  we are aware of, am T and on each discussion with us,

• 44:24 - 44:27

  we can run the projections that you would take your

• 44:27 - 44:30

  tax professional or we can add some color to this.

• 44:30 - 44:34

  But obviously, this is uh very much in the wheelhouse of your tax pros,

• 44:34 - 44:36

  your accountant will know much better.

• 44:36 - 44:38

  And guide you accordingly.

• 44:38 - 44:40

  So in summary,

• 44:40 - 44:47

  uh returning to what's in stock for us for 2024 will continue to be diligent.

• 44:47 - 44:50

  We have uh a very interesting year ahead of us.

• 44:50 - 44:51

  Uh But at the same time,

• 44:51 - 44:54

  we'll be opportunistic uh and we focus on

• 44:54 - 44:57

  the opportunities that we highlighted in front of you

• 44:57 - 45:01

  and will prompt you to redo your financial plan and

• 45:01 - 45:04

  investment plan or at least have those discussions with us.

• 45:04 - 45:07

  We'll help with our financial planners and in that area

• 45:07 - 45:13

  and let's uh re uh do all the uh inflation numbers in

• 45:13 - 45:16

  those plans and make sure they are set up for perfection.

• 45:16 - 45:21

  Uh We've very much been in the middle of uh your circle of other professionals,

• 45:21 - 45:24

  including your estate planners and your taxation,

• 45:24 - 45:28

  lawyers and uh and your tax professionals and we'll continue to do so.

• 45:28 - 45:33

  We wish you all a very good uh fall and the end of the uh of 2023

• 45:33 - 45:37

  and look forward to speaking with each of you individually about your statements,

• 45:37 - 45:41

  uh performance of the accounts and uh your pressing matters.

• 45:41 - 45:43

  Thank you very much on behalf of the

• 45:43 - 45:43

  world.