News and articles

Hello everyone. Happy new month and welcome to the weekly roundup. Today we will cover trade relations and market expectations. Hello Ben.

Hi Eva. How's it going?

It's going good except for in October which means we're heading towards winter.

I know. I know. I'm counting down the days. Please don't come yet. Yeah, exactly. Let's make it slow. Yeah.

So, we're going to pick up from where we left off last week. Um, the US and China held the highly anticipated trade talks.

Did anything meaningful come out of this discussions? Um, I don't think really.

I mean, I think they've made some progress. Yes, they've made some reductions in the tariffs and they put some deals in place. I'd say that probably helped both countries a little bit and helped deescalate really a lot of the global tension at least economically between the two countries.

There's so much friction still everywhere. I think that from China's perspective, they're probably trying to feel out the US, see where they're at. From the US perspective, they're trying to find any kind of win possible right now because midterms are 5 weeks away now. So they're trying to find some wins. So slight wins, but there wasn't anything that came out of it where I thought it was earthshattering that it was going to change the outcome of the globe.

I'd say yeah generally good negotiations but nothing huge that changes the trajectory of global economic activity.

Okay. So recent earnings and financing announcements have kind of given us a closer look of at how AI companies are you know funded and supporting each other. Um, is this strengthening the AI ecosystem or is this a risk cycle of dependency and debts? Should be worried.

I think the latter. I think you're right. The latter that uh the be worried. Yeah, the be worried.

Yeah. I mean, the circular financing definitely is concerning. We saw this morning that Broadcom announced the partnership with Anthropic. So they gave Anthropic money so Anthropic would buy Broadcom chips.

So if I if I told you I'll give you lots of money but you have to buy what I sell you. Would you take that deal?

Probably.

Probably until the train stops and then ultimately the Broadcom's going to be the one holding the bag.

So, um, so that's interesting. So, that's, you know, it's 42 billion. They said up to 42 billion. I'm sure they'll take all of it. So, similar circular financing at these other companies.

Oracle is a big one of that. We'll give you money. You just got to buy our stuff or you lease our stuff. Um, don't even buy it. Um, so you're seeing more of that. Um, and so that's a that's a risk and like a concerning one that I would say that, you know, as long as things are growing and things are moving up, I think it's okay.

But it's it's a growing risk. And in Oracle's case, they're triple B now. Um, so they're their credit rating is pretty soft.

I mean, Microsoft and Amazon Apple, they're still high quality, Microsoft being AAA. Um but it's an additional risk to take into account especially with yields at five, six, seven percent right now.

Yeah. Um so we're heading into the final quarter or we've entered the final quarter of the year.

Um it has historically been strong for stocks. But we've seen valuations are elevated, bond yields are high, geopolitical uncertainty is still there. Yeah.

What should investors expect this quarter?

So the next definitely the next five weeks as we head towards midterm there's going to be lots of chatter about that.

What's going on? What's going on with the different leadership races? Uh any type of lastminute deals that Trump's trying to put in place. Maybe like there would be a surprise uh Middle East resolution um in the next 5 weeks. If that doesn't happen, then I think it's that it's not happening anytime soon.

So I think that'll be important to watch. And you know I think that what we're seeing now is uh the focus will be on yields. So last three months right now will really be focused on yields where we see um triple C's like the junky junk trading like 10% higher than governments. So, if you looked at like we'll say a 10-year um triple C bond rated corporate bond, you know, we're we're up like 10-15% yields right now. So, you know, in order for companies to grow, um if they're being charged 15%, they probably got to grow at 20 or 30% in order for them to maintain viability.

So, we're starting to see yields really put pressure on most things. So, I'd say next five weeks really going to be focused on midterms, but yields is going to be the underlying story that we'll have to continue to watch and monitor um as we get into uh this last quarter. Okay, let's see the charts.

All right. So, we are recording this slightly later than usual, but this is October 1st around 3 p.m. So, excuse me.

Anything that happens between now and next Thursday, we will comment on then, but uh happy October.

All right.

Okay. First one off. This is from our CIO office. So chief investment office uh focused around what are the likely outcomes for the say Q4 2026. So exactly what you asked here Eva. So there's three spots. Goldilocks which is uh everything's great. Economic implications GDP is above 2% stable US unemployment rates. Uh what happens if we get that? That's the smallest chance 10%. Equities up bond yields down volatility down US dollar down. So that's you know the smallest sleeve and then trend growth which is uh you know economic activity around 2% GDP stable US unemployment this probably means like we continue to charge along uh these companies come out with earnings and results all all relatively uh reasonable equities march slightly higher in this backdrop so that's really the focus so trend growth 60% of the view there and then 30% is overheat.

 So GDP, real GDP above uh 2% but unemployment rate starts to rise. And so this is something that they need to be conscious of and concerned about. Inflation continues to pick up and this is really kind of the stagflation type of environment that we kind of we've been in and out of now for some time. And so that would be something to look at. sharp pullback in in this type of financing that we talked about off the top. So most of the focus is on trend growth.

The two outliers are leaning towards the one is leaning a bit higher than the other which is that stagflation backdrop and something we need to think about from a from an asset allocation perspective.

This is one of my favorite charts just to look at yields and bond yields. And so this is based on current data. So on the column to the left is the US and the column to the right is Canada. And so this is the overnight rates where we are today. So this is US overnight rates.

So 4% and so just a view on what the market's currently pricing in is another 50 basis points by the middle of next year and then likely cuts on the back back side of next year as well where you have something quite different in the in Canada which is we're around we're two and a quarter uh Bank of Canada is um coming up at the end of this month and so we are not sorry we are anticipating at some point there'll be a raise. We don't think it's going to be at this meeting, but we do think it's going to be one time prior to the end of this year and then two more times next year and then really a flatline.

You know, I'd say that's an economist view just on we think things are going to be okay. Inflation's going to be in check, but GDP is not going to be going too fast. So, there's kind of that view that Canada, we creep up a little bit. The US, you see the opposite of that.

Markets saying things are going to get too tight. financial conditions are going to get too tight and then they're going to have to start to cut rates. I mean, the other piece I'd look at here is just around the the other durations.

Like right now, the 10-year I mean, the 10-year US right now is uh closer to five and a quarter. Right now, we're at like 2002 levels on the US 10ear. And so the view looking forward is that that goes down and ultimately as we get into the back half of next year goes down dramatically. I mean it's something to think about and pay attention to.

Last last part on Canada if you do own mortgages and you are thinking about renewing I'd say these are the things you want to look at. This would be your variable rate and these would be your fixed rates they're based off of. So the fixed years, the two and the five, I'd effectively say look at this rate plus 2%. So if you're thinking about rolling offer, rolling over your mortgages and you're thinking about do I stay variable, do I go fix, what are the implications of such um it's good piece to look at to make a decision on that.

And then yes, so base case uh bullish bond scenario and most likely outcome today. So base case is Canadian rates rise a little bit as I say keeping yield uh starting to be more attractive as we've talked about over the last many months. I've said you know it does make sense to buy bonds for the first time in a long time from a perspective of you can lock in at 5 6% for high quality and AAA in some cases.

Bullish bond scenario if you do own bonds you get a you get a position where economic growth weakens and the Bank of Canada cuts. And so this would be interesting if you long bonds that scenario is uh is a positive in your portfolio. However, what most likely happen is if the Middle East continues the the oil prices stay elevated. This does push a little pressure into inflation.

But the other piece of that is I AI is very deflationary. So those two things are going to continue to battle. But um barring anything material happening, anything breaking in the financial system, that would be more likely the outcome.

And then the last piece is just on uh the short short-term rates here. So this is presently what's priced in as of Monday. 78% chance of a rate increase even though we disagree and I know a couple of other of the uh big brokerage houses disagree with this as well. Um, and lots of data coming between now and then, which would be unemployment and inflation numbers can really affect how this swings.

Same in the US. You know, we're we're looking at a lower probability, but lots of data to cover between now and then. And then if you look at the ECB, looks like the ECB is probably on hold now again. And so that's interesting and we'll have an impact as things progress from here.

As always, the opinions expressed in here do not necessarily reflect those Nashmike Financial. Anything I talked about today can affect you and may be appropriate for you in your investment portfolio. If you have any questions for Eva or I, please reach out. We're happy to discuss and see if any of these things are appropriate for you.

Thank you, Ben. You're welcome.

So, what's on the agenda for next week?

Well, now we are into October officially. So, we got a couple of days here of October. Let's see what happens as numbers continue to come out. But really, the story and getting all of my attention and research is around yields and um with the uh so 524 on the US 10-year and 560 on the halfway there and we're going to see a US uh, you know, 30-year at 10 12%.

 I think that's um, not likely, but hypothetically if we have that, you know, right now the US at current rates, the US is paying north of a trillion dollars in interest alone. Um, on a $3 trillion revenue a country, uh, that's going to be challenging very quickly.

So you know I look at yields that's getting attention. The other thing just connected with that is is uh spread. So what corporates are presently um um charging in order to get the funding.

And so that's really widened out. And so this kind of scenario um could create some financial contagion. And so that's the like that's the real risk to like the grind in the markets and system. And so, as I've been talking about, take profits, buy bonds, take profits, buy bonds. I continue to think that that is the right thing to do at this point. I do think we're going to look back and say, why didn't I why didn't I buy that at 6% or at 7%. Um, so I think it's that environment right now, but so that's what's getting all my attention.

Okay. Eyes on yields.

Yes.

Okay. Great. Thank you everyone.

Remember to visit, subscribe, and follow us on YouTube and LinkedIn at Heart Investment Group.

The link to our daily financial heartbeat newsletters will be in the caption of this video and in your email box if you're subscribed. For our clients, please reach out to me if you have any questions or if you like to have a review meeting with Ben.

Thank you once again for listening and enjoy the rest of your day. Bye. Thanks. Thanks everybody. Bye.

Hello everyone. Welcome to the weekly roundup. Today we will cover trade relations, interest rates, and market opportunities. Hello Ben. Hi Eva. How's it going? It's going pretty good. It's going cold. That's yeah, when the sky gets like this, super clear and blue, that means it's cold out. It's almost like we're skipping spring to winter. That's Canada. We don't—we’ve got two seasons, it seems. Yes, exactly. It's either cold or it's hot.

Okay. We're going to be starting off with U.S.–China relations. China's president is currently in the U.S. for trade talks, with tariffs, AI chips, and critical minerals on the table. What can we expect from these discussions?

Yeah, I think it's a big deal—their relationship and what happens from here. I think most of the things are connected. The main thing China needs is energy certainty, which is a bit in flux right now. They’ve relied heavily on Russian and Iranian oil, with roughly 30 to 35% of their energy supply coming from those two countries. Because those two countries are under pressure right now, China needs support from the U.S. where they typically would not have.

The other key pieces are AI and rare earth critical minerals. Those are major topics being discussed. There has been a global trade war since Trump first came into office, and I’ve said before that the day before he took office was the last day of globalization. Since then, we’ve been heading in the opposite direction.

Critical minerals are important because they go into every digital device we use—phones, computers, smart homes, cars—and the world relies heavily on China for that. The U.S. needs what China has from that perspective. AI is also getting a huge amount of attention because governments around the world have effectively called it a national security issue. China and the U.S. are probably the farthest ahead, and neither wants the other to win.

I don’t think they’ll make much progress on AI, but I do think they could make progress on trade and potentially achieve some small wins. Any small win is positive right now because the market is fairly negatively priced for everything. It’s an important meeting, and with the U.S. stretched so thin, the current backdrop has played into China’s hands. They probably have the upper hand in this negotiation.

The Bank of Japan raised rates shortly after the Fed. What does this mean for global money flows and financial markets in general?

I think we’ve reached an interesting crossroads. For most of my career, rates were moving in the other direction, and now we’ve seen a period where rates are rising. Japan has been the carry trade of the world for decades. You can still argue that you can borrow in Japan at three and invest in the U.S. at five and a half, hedge the currency, and still make money.

The carry trade continues to be a major thing to watch because there is so much leverage in the financial system. Clients often ask what goes up if the market goes down. A hundred years ago, there was usually something else that had to rise when the market fell. But because markets are so leveraged today, a lot of times it is just short covering.

There is a risk in Japan right now. They’ve started to raise rates, and their yields are near-term highs—certainly 30-year highs in many cases. Higher rates slow GDP, so this is a financial system risk. You could get contagion if there is a run on the yen or any financial product tied to leverage coming out of Japan.

Staying on bonds, longer-term bonds are above 5%, and that is putting pressure on expensive stocks. Is it time to look beyond big tech?

Is it time to look beyond the big tech?

What are we doing right now? I think it's a great question with a giant question mark right now. Still,

I mean, I there's this uh investor I follow names Lynn Alden. Lynn said, you know, diversification looks like a st… terrible idea in a bull market. And so I think the that's a bit of an answer to your question around yields are starting to push up right now. So it doesn't make sense to have bonds and some exposure that you know you you'd say this is stupid. Why would I buy bonds right now because they keep going up and you know if you're a trend follower and you know trend is my friend, you definitely don't want to own bonds. But you want to diversify portfolios when prices go down. So, you know, I when I look at things, I try to strip out is the valuation attractive? And so, I would say from a bond perspective, that's how I would think about it. Yes, the valuations are attractive. Who cares about the fact that it's a yield or a coupon or what? Um, valuations are attractive in bond land. Um, so I think you probably want to continue if you're taking some money off the table, taking some profits on your tech names that you can buy a longer dated bond like the the even the 10 uh just looking at US bonds like the 5year right now US is 5%. The 2-year is 4.9%. So, you know, I think you're you're decently served to even have a little bit of exposure if you don't want the duration risk um that you can get 5% um with a with a government bond is is attractive as we've seen. Even if you're in other countries like even the UK or in Australia for example, you can get closer to 6% yields in uh on those. So, yeah. And I know it's a long-winded answer to your question, but I think yes, those are attractive. Does it mean taking your foot off the gas on tech? I still think there's upside with tech.

And they're almost a similar trade because if rates come down, tech's going to do well again. And so, um, it would be something to think about how to have exposure potentially to both, but trimming and reallocating, I think, makes some some sense there.

Okay. Uh let's see the charts.

Okay. So we are recording this on uh around 1:00 on September 24th. Anything that happens between here and uh next week which uh we will comment on then and we'll be into October next week if I can't believe it. Um, so G7 higher bond yields have caught investors attention. So yes, so this is to your point around where we are. What does it mean? You know, if you stripped this aside and said if this is a stock chart, inversion of a stock chart because this is yields, um, you'd see the price on the other side. If you invert this, your price is going to be down here. Obviously, the opposite of this. Um and so price uh from a price discovery perspective, this looks like a reasonable uh buy if you're buying a stock. So yeah, yields have reached new highs. Does it mean we continue to go higher or lower? Every tick of increase increases the amount of debt that the G7 are paying, which increases the amount of pressure on their economy. Um now that you have yields at these levels and GDP slowing, you have a a contracting economy. So yeah, my view is at some point there's intervention and likely the intervention is going to have to come from the the central banks.

We've seen Bent try to intervene in the bond market and the bond market effectively said uh no um you're spending 10 billion where you need to spend a trillion. Um so there's not enough from his perspective, but the central banks can have an impact on this. How high is the yield going to reach? That's the question that everyone wants to know. And if we push a lot higher from here, then I think we have significant risks to the overall markets and economy. If we hover around these levels and maybe sit here for a little while, 3 6 months, um then you may find some stability and uh more of a base from a perspective of what happens to the price level at this point. But that's it's going to certainly drag on the economy at this point and at these levels.uh world hopes for a full reopening of hormuz this year are fading. So this is good from a perspective of this is poly market but from a perspective of what you want to see is you know if everybody thinks one thing is going to happen then the likelihood is the opposite happens and so now that people are not optimistic that we're going to set get a settlement I'd say most of the that noise is priced into the markets and so we've seen oil bouncing around reaching new highs and levels and now everyone thinks they'll be no settlement. We're probably moving closer and closer into that. And so the question is, how are all of these pieces going to play out? Do we get rates come down and a settlement internationally?

If we do, then probably oil prices fall and we get a rip roaring equity market and probably yields lower in bonds. Uh the market's not set up that way and people are generally pretty pessimistic. Um, so I'd say I'd take this as a positive trigger and signal as most of the what's happening there is priced in.

US AI is fueling a construction boom.

Um, so this is the chart around the uh since uh 2014. I guess the black line is

um the general office construction and the red line is data centers. So this is incredible. Um the amount of money that's going towards data centers and where all of the all of the general office space is shrinking continues continuing to shrink and I think this will be seen for uh uh quite a bit in the future. But there's been a lot of leverage associated with this. So all these data centers that being built out are typically being done on leverage. So you're starting to see like Meta and Oracle and some of these names start to be heavily leveraged and if rates are going up on them that's going to put pressure on their debt levels and Oracles already tripleB rated that fell into the junk category that put some pressure on the stock. Uh but this is an incredible growth and I think we know it but still when you look at it this way over a longer period of time there's a massive money that's continued to flow into uh data centers. US debt to GDP ratio on track to reach a new all-time high. And so this is uh really old chart. So this is back since 1940. And so this is that to GDP the black line as we go through here. these darker brown lines as we go over the period of time.

These are recessions. Um and then we look at effectively where we are today.

Um and uh we're heading towards up upwards and to the right and we haven't had a really uh big recession except for co was a recession but that was a supply shock globally that caused it. We haven't had a general economic recession in a while and rates moving up into these levels and we start to see debt to GDP at all-time highs. Um that's going to put a lot of pressure on the governments of the world. This is US. Um and so the US would be the one that everyone pays attention to and wor so far at least has said he doesn't care about this. um at some point he will and at some point this will have a major risk to the US dollar and the US dollar is a reserve currency and so my expectation is that there'll be intervention you know what were the right conditions that Japan had for yield curve control 35 years ago I think we're seeing similar conditions that the US are seeing right now at some point they're going to have to intervene and say you know 2 1.5% is the right level for the 10ear not saying that that's what they've said but something like that will come in and put a cap on it and that will allow the economy to grow and keep rates down and keep the reserve currency status and all the other things that they want go along with it. Um so this is a shocking number and chart that we need to continue to watch and if it creeps a lot higher that'll continue to add global risk to the economy but something to watch and pay attention to. So the opinions in here do not necessarily reflect those Nash Bank financial. Everyone has their own risk and unique investment strategy and theory. Um anything we spoke about today, please reach out to Eva or I and happy to address them and assess if it is appropriate for you. That's it.

Perfect. Thanks. So what's on the agenda for next week?

Well, we head into the end of the quarter. Um, end of the quarter. Hard to believe. We'll be nine months in um and uh end of the first year as well for the uh the total return portfolio that we built. So, it'll be interesting to look through and see how we did um there, which we'll post um sometime next month. Um and uh yeah,

it's been a choppy September. Obviously, we're focusing on what G and Trump are doing, but the war in the Middle

East continues and I think we'll have to continue to watch and see how things play out. Um, I would say that coming into September, I thought, yes, there'd be a lot more uncertainty and that continues to be the case. Um, we're looking towards midterms as well. That's starting to peak its head and that'll looks like that's going to be in November 4th, I guess. But if you look at the poly market of the futures market on that looks presently looks like the Republicans are going to get crush crushed. So let's see what the next six weeks entail.

What's what are the tricks that Trump has up his sleeve to try to turn it in a positive direction for them? Um, I'd say he's starting to get a little bit painted into the corner and he's either got to do something dramatic um in the world or he's going to have to make some pretty big promises in order to change that direction. And so all of those could have major impacts in the market.

So I'd be watching those.

Okay. Thank you everyone. Remember to visit, subscribe, and follow us on YouTube and LinkedIn at Hard Investment Group. The link to our daily financial heartbeat will be in the caption of this video and in your email box if you're subscribed. For our clients, please reach out to me if you have any questions or if you like to book a review meeting with Ben. Thank you once again for listening and enjoy the rest of your day. Bye.

Thanks everybody. Bye.