News and articles

Hello everyone. Welcome to the weekly roundup. Today we will cover US tariffs, oil prices, and earnings releases. Hello Ben. Hi Eva. How's it going? It's going great, sunshining. We're doing good.

Okay, we're going to dive right into it with one of the major news in the past few days. Um, new US tariffs and this

could heat a wide range of Canadian products. Um, so which industries and investments appear most vulnerable and do we see any opportunities here?

I think that's a great place to start. I think that it continues to astound me that this is the same tactic. Every time

we're not happy with something that's going on, we decide to tariff. And so I think we're going to be in the round the before answer to that question. And I

think we're going to be in this cycle where we go, yeah, things start to even out. Trade relations are positive and then we're not happy with something you

do. So, we're going to tax you or tariff you or whatever. Uh that regard, you know, we have a positive news announcement like the the bridge between Windsor and Detroit is going to open.

That's actually going to be a little bit less expensive than the current path.

That's going to save companies money and then then bang comes back out with these uh these tariffs. So, you know, I think

it's going to hit similar um industries that it did before. I think the real target continues to be the car companies

and the businesses that uh that are producing cars and the Stalantis and these these other companies, Magna,

these companies that um have inputs that go into the the manufacturing process of cars. you know, he's going to continue

to try to attack dairy and all of the things that are big uh attention-grabbing items. You know,

ultimately, I think it's uh it's a risk to some further uh pressure on manufacturing in Canada. You know, our

manufacturing sector has been hollowed out. Um one of the worst in the G7 and so this is a further target at that. So,

I think that's that's not great. Carney, I think, has done a reasonable job of reacting and not not playing into this.

They were supposed to do a big celebration with the Gordy Howbridge opening and he said, "No, we're not interested now that you don't want to negotiate with us." So, I think he's

been doing a good job of pushing back when these events happen. Um, but it's a further risk to to the manufacturing

sector, particularly in Ontario. And so, we'll have to see. And the question is where are the opportunities? I think the

opportunities are probably uh not not super clear um except for from the

perspective that we do have this these facilities, these capabilities. If companies could look to pivot and maybe

you know turn towards potentially military business like working on machines and cars that go out to

military or munitions or something along those lines. It's going to take a bit of a creative pivot to see how that could

be a benefit to Canada. I mean, for the most part, everything that Trump's done since he got in has really forced Canada

to look away and look at where their partners, better partners are. They have actually increased um their partnership

with Mexico and that's had a nice uptick um as well as Europe of course. Um, and one of the things that we've seen more

recently is we saw Germany and France say that they're moving away from Microsoft for their cloud uh business

and they've been shifting that towards uh their own independent businesses.

They've asked Canada as well if they want to participate. So long-winded answer to the question, but really I think it's all of this is forcing Canada

to look at how do we better diversify our our exporting partners. Yeah.

Um, oil prices are surging again and inflation fears are coming back.

Uh, could the central bank be forced to raise rates or at least keep them higher for longer?

So, I think it's a it's a great question, something to think about. I you know the natural biases to think

towards the COVID type inflation that we just went through and it feels like that's still kind of the narrative in the in the media and news is that we

remember this so X happened so Y is going to happen and so I think because this is pretty narrow right now at least

on energy um yeah I think it's going to potentially force them to hold longer

than maybe they would want to as opposed to raise. We'll see. We had the ECB come out today and decide to be told said

they would be on hold, but their next meeting September. They said if inflation continues to pressure higher, then we'll have to raise. So, we'll see.

They're they're talking about that. From Canada point of view, we saw the inflation print that was less than expected on Tuesday. Um, so I think that

gives the central bank in Canada a bit of room and so likely on hold. You know, our economics team's view is still Q1 of next year before they consider raising.

There's lots of ground to cover between now and then. Um, but the elevated oil prices certainly aren't helpful. But on the other side of that, you're seeing

the economy slow. So, the economy is slowing and you're getting inflation, you got this kind of dreaded stagflation that everyone talks about. Um, so I'd

say, you know, I think the central banks are in a real tough spot, but because the economy is slowing and inflation seems to be moderating, I don't think

there's an immediate pressure to the upside.

And my last question, I mean, what is a recap without AI?

So, major technology earnings are, you know, showing renewed concerns about the massive AI spending. What does this mean

for investors? What is the real risk here?

Yeah, I think the real risk is that the markets finally say that's enough. I mean, Tesla and Google or Alphabet came

out with their uh earnings and they had a huge AI spend and the market said we don't really like that. Uh Meta came out

last quarter with their AI spend and the market didn't really like that. You know, I think that the the risk is that

we see this knock on and you know, we've talked before we I think we're in somewhat of a bubble in this space.

doesn't mean it's uh bursting tomorrow, but you know, it's inflating. Um, and ultimately coming out of this is there's

a lot of new good businesses. There's a lot of creativity that's happening within these companies. Um, but when you have overspending, which is what's going

on right now, eventually the market's going to say that's enough. Not sure we're there yet, but we're certainly uh as these earnings have come out, we're

starting to see and lean a bit more that way. We haven't seen higher highs in in the markets and that's tending to tell

us that the market potentially roll over. But yeah, I think AI is going to continue to be a part of our future. I

mean, we use it on a daily basis as you know and I think every good business needs to integrate it in a way that can help them be either more effective or

more efficient. Um, but behind the scenes it's it's chaos from what I'm told within the technology sector that you're they're just chasing each other

trying to go faster and faster, more efficient, less battery power. Um, and uh I think it's something to think

about. I'd say my last point on AI is Meta for the first time have started to sell their space. So where they have

their data farms um now they're starting to sell access to their farms as a as a business as an additional revenue line.

So that tells me two things. One potentially that's a positive for Meta because it's an additional income line and two maybe they have too much capacity which is not great um and something to be to be conscious of.

Uh let's see the charts.

All good.

All right. Okay. So, we are recording this on Thursday, July 23rd around 100 p.m. So, anything that happens between

now and next Thursday, I'll comment on then. Um, let's uh jump on it.

8:38

8 minutes, 38 seconds

and it's my anniversary today, so it's a good day. Um, as we uh as we start with I just thought these charts were really

great to look at. This is from ISI ever and it's just a view on real estate in the US and you know the chart I put out

today in the daily was really to show that consumers are actually starting to struggle with their payments. you're seeing debt levels rise and one of the

major factors in that is housing and so the US housing market plays a major role for the health of the US consumer. US consumer is a major contributor to GDP.

So all of these things are connected and not gone together. But on the left hand side, we're seeing housing starts roll over here, starting to tick lower, kind

of new lows, new recent lows. Um and if we look in the middle here, this is the US 30-year fixed mortgage. And so you're

looking at Freddy Mack, so 6.55. So if we look at the 30-year bond, right now it's around 505.

Mortgages in the US are priced off of that. So right now, you're looking at that uh 505 plus to get to 655.

Somewhere between 6 12 and 7 tends to put a lot of strain on the US economy.

And then the last piece on homebuilder survey. So again, homebuilder survey has been terrible and gotten worse and

that's a factor of the interest rates primarily. And so my view ultimately still is that rates need to come down on

the long end. And so it's either going to come down because the world's in a panic or the economyy's rolled over into challenging recessionary numbers. Um so

these are important pieces to say how healthy is US economy. My answer is it's starting to struggle. Couple that with your question just around AI and and

markets. I think these two factors really are another piece that you need to think about. Are they going to raise rates or not raise rates because inflation is important but so is the

economy. This is one that's telling me there's some strain in the US economy right now.

Next one because uh geopolitics obviously is a is the story of the day since President Trump's been in. So

world normalization unlikely before fall. So this is the probability of traffic through Hermuz uh return to

normal. So poly market poly market great place to actually look at stats and think about what what it means and what it looks like and how people are betting

or not betting on pretty much everything you want in the world. Um but I thought this was a great view and look you know

11% chance of things being normalized uh next month 23% chance September and then a 50% chance by December.

Why this is relevant is because it has an impact for what the market's going to do. Because the market is thinking there's a fifth coin toss chance that

this will be settled by the end of the year. There's not too much panic. If we see either of these things start to move in other direction, say this becomes 0%

chance, then you probably get that oil spike. If this becomes 100% chance of a settlement, then you get a selloff in

oil. So, it's an important component to think about. Poly market gives some interesting statistics that you can't find out in the everyday stock and and and bond market.

Next one is uh expected actions by the central bank by end of the year. So this comes back to your question Neva just

around what do we do from here? Canada has one view, US has another view. So you're starting to see this this diverge

where Canada you're starting to see likely likelihood of a rate increase is is moving lower and lower as we speak

and that mostly has to do with inflation getting softer and the economy stalling where on the US side Federal Reserve you're seeing inflation continue to tick

up my view is that has a lot to do with the tariff and trade issues ultimately that's putting pressure on the US consumer all of these trade tariffs

that's flowed back to pressure on the US consumer that's flowed back to inflation pressure. So you're seeing a divergence.

This could have a big impact on CAD US.

Um but important chart to watch from perspective what could happen in North America.

12:49

12 minutes, 49 seconds

And just the last one um like to just think about what we're doing in portfolios right now and trying to look for opportunities because there's been a

lot of stocks that have done quite well on the Canadian side. Maybe you've owned some of the banks or Power Corp or some of those names that have done very well

for the last couple years. It's a matter of sifting through and saying where are these other potential opportunities to make some money from here going forward?

What lines up with their views? This is a company called WSB Global, which is infrastructure and energy company. Um,

great business stocks been beaten up recent uh pressure. I think there's a lot of opportunities to look at here.

This gives a great breakdown for where they can participate. Energy trans uh trans transition infrastructure I think

it's a good business really good started to add this into portfolio and I think it's something that we'll continue to to watch and look for um how to make money

from here look for companies that nobody likes that have good business models and are prepared for growth.

Oh yes, last piece. Can't forget this one. The opinions expressed do not necessarily reflect those of National Bank Financial. Um, everyone's risk

tolerance is different and unique. If you have any question about anything we talked about today, please feel free to reach out to Eva or I and we're happy to address and discuss them in detail with you.

Probably the most important slide. Can't forget that one.

No. So, what's on the agenda for next week?

Yeah. So, we have uh the Fed out next week on the 29th. So, F1C next uh Wednesday, I guess. So that'll be the

thing to watch next week and see what WS is saying and doing. You know, I think we're I'd like to get to see and hear

more and more around what he's doing and how he's thinking cuz coming into this there was a lot of things he talked about he was going to do. Cut interest

rates, not buy back bonds on the further end. Um also said he would do away with the the forward guidance and dot plots.

So not he hasn't done any of that yet.

Um, so you know, I'm I'm not sure if he is the type of person that says what he needs to to get into the chair and then

doesn't do any of those things or just waiting to get take his time and understand all the business before he decides to take action. So I think what

he says is going to be more important than what happens. I'd say there's a extremely low possibility that anything happens in the meeting next week, but

what he suggests and talks about going forward, I think is going to be important thing to watch. Okay, great. Thank you, Ben, and happy anniversary.

Thank you.

Um, remember to visit, subscribe, and follow us on YouTube and LinkedIn at Heart Investment Group. The link to our daily financial heartbeats will be in

the caption of this video and in your email box if you're subscribed. For our clients, as always, please reach out to me if you have any questions or if you

like to book a portfolio review meeting with Ben. Thank you everyone for listening and enjoy the rest of your week. Bye.

Thanks everybody. Bye.

Hello everyone. Welcome to the weekly roundup. Today we will cover geopolitical risk, monetary policy, and market sentiment. Hello Ben. Hey Eva. How's it going? Good. It looks like when I look at my camera here, it looks sunny outside, but it's not true. No, it's not true. It's very dark out. It's a rainy day. Yeah, it is. And you wonder where's summer? Uh, well, last night it was super hot, like mid-30s. Still at 6:00, 7 p.m. Okay, I'm not complaining though because 30° is ridiculous. Yeah. So, this is fine. Let's get some cool.

Okay, we're going to be starting off with geopolitics. Trump has essentially declared the ceasefire over. Yeah. Um, what does this renewed uncertainty mean for oil prices, inflation, and overall market sentiment? Yeah. So I think that's a good place to start. What we shared in the daily was just a look at what was going on with oil prices and, given what has happened, I would have thought we would have seen a bigger spike in oil and a bigger inflation risk jump. So far, I think it's more of the same. As I read through a lot of the commentary going on, it seems like they're probably not going to come to a simple, easy ceasefire agreement. It doesn't look like Israel and Lebanon are coming to a ceasefire agreement either. So, I think the world and the markets just have to be prepared for more uncertainty. I think that's resulted in a lot of chaos in the markets. It's a really strange environment. But anytime there's a risk that supply chains get disrupted again, there's a risk of higher inflation, and that has knock-on effects if the economy slows faster. So I think there are a lot of moving parts, and the market is a little more fragile than it's been in a long time.

Yeah. So the Fed's next move is basically still up in the air. What economic data should investors be watching most closely over the next few weeks, and what could essentially shift the Fed's thinking right now? So, I think we're still in early days with WASH to find out what he's going to do. But I think following CPI or core inflation numbers will be important to pay attention to. Core inflation seems like it's within bands right now. Even though there was a slightly hotter print, it wasn't anything like the coming out of COVID numbers where we were seeing inflation run away or anything along those lines. So, obviously continue to watch that. Watch the forward rates of interest rates in the markets because you're starting to see rates pricing a little higher, which actually surprises me given all the uncertainty in the economies. WASH is going to be important to watch because effectively he's petitioned on cutting rates. But in the first meeting it sounded like he was towing the line around status quo: we're going to continue to do what Powell was doing. He didn't say that in so many words, but that's really what the message was. So his next meeting is going to be really important with the view of what he's going to do. One of the things he talked about doing for years is getting rid of forward guidance. I'd say that would be a key piece to watch, and it would provide quite significant disruption to the market if they start changing their view on forward guidance. But I would think there's a low probability of anything happening in the next upcoming meeting, and I'm hopeful we get more context and clarity around his thinking and strategy from here.

Okay. So my last question is basically around the markets. We are well into Q3, and Q3 has historically been the weakest quarter for markets. Should investors be taking a more defensive approach, or are there opportunities in the volatility? Yeah, I'd say yes to both. If we look back, one of the things over the last decade has been this thinking that there is no other alternative and that you have to own stocks. But we're seeing across the board, like the 30-year Japanese bonds at 4%, 30-year U.S. at just over 5%, and Australian long-duration bonds around 5.5%. You're seeing high-quality government bonds north of 5%. Yes, there's the argument of whether it will protect capital from inflation erosion and so on, but for as long as I can remember, at least 15 years, you couldn't look out into the future and buy really high-quality bonds north of 5%. So yes, I think there's an opportunity for some defensiveness where you can buy bonds that are actually yielding something, so that if there is a correction in equity or risk assets, you have a reasonable amount of ballast or protection. You can take some profits on things that have done well for you, maybe the financials in Canada and some of the tech names in the U.S., if you participated in either of those places. But from a tactical perspective, there are still opportunities. Some of the more out-of-favour names, like Netflix, and some Canadian companies like WSP, which is a big engineering firm in Canada, are touching plus or minus their 52-week lows and have just been trending lower. There are some opportunities where these unloved names can add good long-term growth, while at the same time you can pick up some high-quality bonds that can help protect portfolios if there is a September or October kind of chaos like we've seen in the past.

Let's do the charts. All right. Yes. Okay. I think Ben's frozen up there. Okay, I'm going to try to get Ben back up here. Give us a few moments, please. Thank you. Hey. Okay, there you are. We're back. Yes, you're back. My favourite thing is that Teams likes to upgrade during our presentations. Absolutely. Okay. Oh, I think we lost him again. I'm going to try to bring him back up. Hello. Hello. Think I should just get going before it happens again. Okay, which is best for it possible. Let me know when you're good. I think we're good. Okay. Awesome. All right. So, we're recording this around 1:11 on July 9th. July 9th. Time's going fast.

Okay, we'll start off with the speculative positioning for non-commercial CFTC. This is futures and options. I love this report because it gives a pretty good cross-section of the different areas: equities, rates, FX, and commodities. It gives us a better sense of what's going on from a positioning perspective—are we overweight one thing or the other? From my view, as I look across the different areas, the areas that probably look the most attractive or most interesting from the point of what is positioned the most negatively or positively, the one thing I'd look at is the U.S. dollar, which is positioned kind of neutral to bearish. That's an interesting point of view given what's going on in the world. The other positioning is sterling/U.S. dollar. Again, sterling looks pretty negatively positioned, so across the currency perspective, there are some areas that could look attractive. The last one, which we haven't talked about too much, is this reverse carry trade that's been happening, where a lot of institutions used to borrow money in yen, convert it to U.S. dollars, and reinvest it. Now we see money going back, and the yen has been getting beat up. Yields have been rising in Japan, and the yen is as low as it has been in an extremely long time. In a contrarian view, if we want to get a little more defensive, potentially Japanese bonds with Japanese yen exposure could offer a huge risk-reward if that turns in favour of the yen and yields fall in Japan. The market is not positioned for that as well. That's why I look at this chart from a positioning point of view. If you add a 1% or 2% position that the market is not expecting, that could add some really good alpha to the portfolio. So, I love this chart looking across equities, rates, FX, and commodities.

The next one is expected one-year total return from a change in interest rates. I've had so many conversations over the years about this, but I think it's an important one because often we think when we buy bonds, we buy them with the coupon and hold them to maturity, and that's the only reason why we own them. This comes back a little bit to your question around whether we want to be a bit more defensive and what we would be looking to do. There is still a long-term view that potentially you want a 60/40 or 50/50 portfolio—say 50% stocks and 50% bonds. What you own within those sleeves can have a big impact on how that plays out within the portfolio. If you're looking at buying a 30-year U.S. government bond today, you get 5%, and your principal is guaranteed. In an event where rates come down in the U.S.—for example, if rates went from 5% to 4%—rates fall and prices go up. That bond you buy goes from $100 to $120, effectively a 20% capital gain within that part of your portfolio. If the inverse happens and rates go from 5% to 6%, which is generally what people say in the news and headlines, you get about minus 11%. So, when you look at it from my view, maybe it makes sense to have some duration where the risk is tilted toward the one thing happening, which is rates going up. You get a two-for-one balance and can have some protection if the opposite happens. That's on the 30-year U.S. bond.

If we look at Canada, for example, and you don't like that type of risk-reward but want some stability and want to play a little bit of defence because markets have done well, you can look at the Canada corporate universe. You can buy individual corporates, an ETF, or a fund. We look at both funds and ETFs in this category. You can get paid 4.1%, which is pretty good. If rates go from 4.1% to 3.1%, you get a 10% capital appreciation in that portion of your portfolio. If rates go from 4.1% to 5.1%, which some people may think is a risk, you could lose a little bit of your principal. But the reason why this is great to look at, and why when people say you should only own stocks, is that stocks and bonds are not even in the same category. If you buy a stock, it can go down 50% tomorrow because the company misses earnings, the CEO moves on, or many other variables. A bond trades completely differently in that backdrop. I love to look at this chart, and it's an important piece around portfolio composition and why you would own certain bonds to do certain things within a portfolio.

The last one is for Canada. Eva, you asked off the top what we watch and what we pay attention to. Obviously, lots of things I talk about are centered around the U.S. I tried to put this last slide in around what's happening in Canada and the Canadian market. From a Canada point of view, there are two pieces here: Canadian inflation on the left and the Teranet–National Bank home price index. The home price index may seem like it doesn't mean a lot from the point of view of how it is going to play out in the economy, but if we look at the grey bar, this is the Canada composite index, and we are in the negative category. Montreal is the blue line and is still slightly positive. Vancouver is quite negative, and Toronto is quite negative. So, there's been a lot of pressure on housing prices. Some of it has been interest-rate related, but I think it has more so been a slowdown in the Canadian economy and a slowdown in Canadian jobs numbers. This will be a key piece for what happens to the Canadian economy and what happens to interest rates in the short term. We watch this coupled with what's happening in inflation. As I mentioned, core CPI will be the key one to look at. Average core CPI is still 2.1%, so that's still falling, but total CPI has jumped, and that's something the central bank will pay attention to. Core staying in this range keeps them on hold, at least for the near term. We'll have to continue to watch and see if core inflation picks up. My view is nothing happens to Canadian interest rates, at least in the next three to six months.

That's it for today. As always, the opinions expressed do not necessarily reflect those of National Bank Financial. Everyone has their own risk tolerances. If there's anything in here that you think is interesting and want to talk to either of us about, please reach out. Happy to have a discussion and see if it's appropriate for your risk tolerance. Thanks, Ben. No problem. Finally worked. Made it happen. Tried to go fast. Good. What's on the agenda for next week?

We have the Canadian central bank next week. They have their meeting on Wednesday, so we'll be watching that. Again, I don't think there's anything we need to be worried about from a rates-up, rates-down perspective, but more from a view of what is going to happen in the future, what we see happening, and what the central bank sees and expects from here. Most important is to watch their notes and listen to what they're saying, including any updates they saw last month. The biggest view for me with the ceasefire being over is that the market reacted mostly ho-hum. Oil didn't take off. It did go up a little bit. Gold didn't take off. The market sold off again marginally, but nothing material. We are into the summer months, and August has historically, from my recollection, been more thinly traded and can result in some air pockets in the market. So we'll be watching that. But from a big-picture macro perspective, interest rates in Canada will be the important one to watch.

Great. Thank you, Ben. Thank you everyone. Remember to visit, subscribe, and follow us on YouTube and LinkedIn at Hart Investment Group. The link to our Daily Financial Heartbeat will be in the caption of this video and in your inbox if you're subscribed. For our clients, please reach out to me if you have any questions or if you'd like to book a portfolio review meeting with Ben. Thank you for listening and enjoy the rest of your week. Thanks everybody. Bye.