Good morning, everyone. Welcome to our latest market update webcast. With me as always is Kevin McCreadie, AGF CEO and Chief Investment Officer, and we've got John Christofilos, AGF's Investments Chief Trading Officer with us again today as well. I'm David Pett, Editor of AGF Perspectives blog and your moderator for today's discussion. Before we begin, I need to cover off a few administrative items, as I always do, that are related to our virtual event platform. Today's presentation will last no longer than 60 minutes. Those joining us live can submit questions any time during the presentation by opening the Q&A icon found along the side of the presentation screen. Questions will be addressed near the end of the webcast. Additional resources for this session can be accessed in your attendee hub at the top of the page under the Resources tab. Finally, please note, CE credits may be available for members of our Canadian audience. Okay, Kevin, John, we're all mic'd up. We got our headsets on, ready to go. I've got four main topics that I wanna get through with you today. The first is central bank policy, the second is meme stocks, the third is AI versus internet, and the fourth is the U.S. election. Let's start with central bank policy. Obviously, it's an ongoing topic for investors. My central question on this topic is, there's been a couple of central banks that have started cutting rates over the last couple of weeks. What's next for them, and then others that are still on hold? Kevin, I'll start with you, and then John, you can weigh in as you see fit. Well, yeah, thanks, David, and thanks everyone for joining us this morning. Maybe David, I'll just remind people where we started the year and what's transpired over maybe this last month to get us to this, finally, this long-awaited rate cutting cycle. If we started the year, market had gone from the fall of when the Fed basically and every other central bank in November paused and said, "We're kinda done." You've had this massive rally in equities. You've had a drop in bond yields, almost a full percent on a tenure in the U.S. You got to January, and the market participants, when you look at futures and other things, were saying, "Hey, you need to start cutting now in March, and you need to start cutting seven times." You know, the market should be applauded for navigating basically a repricing of seven has gone to one in the case of the U.S. and not March, but well, well into the end of the year if at all. The market has basically climbed that wall of worry of are we gonna make a mistake here, by hanging on to these higher rates for much longer. We've talked on this call that higher for longer was not gonna be bad for equities, but it does increase the risk of a policy mistake, i.e., you leave rates too high, too restrictive, and you push the economies over. Having said that, we sit here now, over the last 30 days since you started cutting rates, both in Canada and the EU, with an equity market year- to- date, that's up 15%. In the trailing 30 days, and that's using the S&P, the trailing 30 days, that's up 2.5%. You know, I'd say we've navigated it pretty well on the headline index. We're gonna come back to maybe some of the other divergences in the market right now that you're sending some different signals, maybe some of this distortion of the cap-weighted versus equal-weighted, which we can have a discussion on. 30 days later, now we're here. Bank of Canada was up first, they predictably moved to cut rates, with a cautious tone. Clearly, they are gonna be data-dependent. Now they're gonna go meeting to meeting. They think they'd like to cut more, they're very cautious about too much too fast could restart inflation. Probably in the back of their minds is a restart of a housing bubble here in Canada. I think you're gonna be meeting to meeting. My guess is they skip the July meeting and bring forward September. It looks to us as you get two to three more cuts coming in Canada, again, if inflation stays tame and we don't see this big housing lift. In the case of the EU, which was next up, predictably cut too, inflation had been moving to their target. Growth is obviously an issue as well. It looks very much like Canada, sub 1% kind of growth. Now we have a new problem with the ECB, and this is the snap election caused in France. Think about what happened, the euro weakened. If you keep cutting and the U.S. holds firm for a while, the euro could weaken further. If you think about using a weak currency to buy things like oil that are priced in dollars, you could restart inflation. Now the EU has to be a little careful around the situation in France, which we could talk about when we get to the election piece. Lastly, let's bring in the U.S. The U.S. met last week or a week and a half ago or so, and what you got out of the U.S. was what we just said. "Hey, we're not ready to cut rates. We're not gonna talk about raising rates even though inflation is not where we want it to be. It's trending to where we want, but we wanna be patient." That's been backed up by pretty much every Fed speaker we've heard. The Fed has told you we think it's one now. They gave a new dot plot or projections of when, and it's probably not until after the election into December. The market is disagreeing a bit now. Some of the data since that Fed meeting, CPI, which came out that morning of the meeting, but other data that we've seen over the last week, has caused some weakness or this view that things are weakening, and the market is now pricing and saying, "Hey, you know what? Maybe two. Maybe the Fed is wrong. Maybe they have to go earlier." In fact, if the data comes in softer, September looks to be in play. The U.S. now looks to be later in the fall and maybe one to two, whereas Canada and EU obviously have started. Bank of England probably with their data this morning, inflation tracking in the right place, is probably early fall as well. You've seen these now central banks move at different speeds. Long wind away, David, we're on our way to cutting rates. The U.S. obviously not there yet. John, let's get you into the conversation. You come at this from a very unique perspective. You're looking at markets sort of, you know, minute by minute almost as a trader. What have you seen over the last couple of weeks since the Bank of Canada cut and the ECB cut? What's been the reaction from investors from your perspective? Thanks, David, and thank you for the opportunity, and welcome everybody. Let me start by saying that you can argue that the Fed, and we'll start with the Fed, took too long to start raising rates way back when. Now it feels like a century ago, but kept using the word transitory. The big fear from the market's perspective is they wait too long to start to cut. It's happened in history, it's happened before, it can happen again, but it's a fear. Right now, to Kevin's point, and he made the point earlier as well, the market is disagreeing with what the Fed is saying at this point in time. I believe, I've been on the side of two rate cuts this year, one in September and one in December. The data is weakening. For whatever reason, as the data weakens, the market likes it more and more because they're anticipating a rate cut here coming sooner than what the Fed is signaling at this point. Data is weakening. Market is continuing to rally in the U.S. for the most part. That's the Fed. Watch out there is if they wait too long to start to cut. The other thing I'll say really quickly is, what they don't wanna do is cut once and then go on hold again. Once you start a rate cut cycle, you wanna continue with that rate cut cycle for as long as it takes to get to your mandate that you wanna try to reach. They don't wanna cut once and then have to wait and then watch and things pick back up again. They need to be overly sure. The balancing act between being overly sure and waiting too long is quite tenuous. The market is watching that very, very carefully. Canada, I think, and Kevin made the point, they started the rate cutting cycle, and I think they will continue on that rate cutting cycle over the next several meetings. We know inflation is where they would like it to be. Employment is pretty close to where they want it to be. That's occurring, too. Generally speaking, Canada has been out of favor, from an investor's perspective, and the Bank of Canada hasn't helped that cause very much over the last couple of weeks since they've cut. One more maybe quick question on this topic, and then we can move to some of the others. Maybe, Kevin, I'll start with you, and John, you can weigh in. When you, when you think of the Bank of Canada in particular, are they influenced by what the Fed might do, or is this a singular sort of vision that they have, and they'll do what they need to do, and they're not worried about what other central banks around the world are doing? Yeah. David, that's a great question. If you actually listen to that press conference after the Bank of Canada decision, they were asked pretty directly, you know, how far away from the U.S. can you get with this? They clearly are cognizant of it. They don't wanna weaken the Canadian dollar dramatically because then you have the same problem. A weaker currency buying things priced in dollars is inflationary. If you have to pay up for something, you're gonna pass on that pricing and push it through. They're clearly aware of it, same as the European Central Bank. Will they move a couple more times without the U.S.? Probably. Will they move five or six? No. I think you're in the two to three before... They look at the same trajectory. Remember, there are also policy differences here. The Bank of Canada has only one mandate, which is inflation. The U.S. has two, full employment and inflation. They take that into consideration. Inflation is trending down. Part of the CPI calculation in Canada is mortgage rates or mortgage payments. Every time they racked up rates over the last two years, in fact, it was a circular calculation. You pushed up inflation. When you subtract out that housing component or mortgage component, inflation is actually trending, too. With growth as slow as it is here, I do think that they can move couple more times without this worry about weakening the U.S. dollar. It's something they've had to watch. If you remember the day they announced that cut, the CAD dollar weakened for a little bit in the morning, but it came back. The first couple of cuts may be priced in here, but again, five or six, no. They can't get that far away. David, just one quick comment. I heard a great quote from one of our traders down in the U.S. the other day. He basically said, "They're not coordinated, but they are coordinated." To Kevin's point, you know, we can't get too far away. They'll watch what the U.S. does. They'll watch what the ECB does. You know, they'll never say they're coordinated, but in essence, they kinda are. Sure. A lot of that comes down to FX, right? I'm guessing. Just the impact that potentially has on currencies. Yeah. The dollar is still obviously, you know, people forget when people are talking about the de-dollarization of the world, that's gonna take decades, dollar is still the dominant currency here. Obviously, if you have higher interest rates, people wanna buy your bonds, that drives up your currency. If I have to translate my CAD to USD, I sell CAD, buy dollars. You get the effect, right? Money will flow to where the highest return is in terms of interest rates, potentially. Let's move on to our next topic. I'm gonna go a little out of order 'cause I think it there's some connection here. Let's talk about artificial intelligence, the boom that we're seeing, versus what we saw during the internet boom, a couple of decades ago. Maybe the first question is to talk a little bit about the concentration that we've seen in the market. Kevin or John, if you can just maybe articulate that. I think people are well aware that it's a very narrow market in many instances, but maybe we can just go through just how narrow it's been and How the AI theme is driving that to a certain extent. Maybe I'll start. When people fear that they don't know what's going on and things get uncertain, they will crowd into things that they know. In some ways, tech, large quality names with big cash flows, names that people understand have become the new staples when things get uncertain. We have to put that in here too. It's not just about AI. You ask the average person, if I pulled out a mid-cap tech name that no one ever heard of versus Google or Apple, everyone would say, "I know what they do. I know what Apple makes." When we fear things, we crowd into certain things. Those happen to be, and this has happened in the history before. This time it happens to be, many of the large cap tech names. We talked about them as the Mag Seven last year. I think they're probably the Mag Four. Tesla's fallen away, and Facebook's had some issues, right? You're concentrating into 10 names, not all tech. Seven of them or so are tech that are about 36% of the weight of the index. It's not just a U.S. phenom. You see this around the world in Europe. You're seeing it in other places too. This is about at the first level. When I'm uncertain, and I don't know what's going on, it will go to the thing that I understand. In the 1990s, it would have been early 1990s, it would have been Coke and Pepsi or other things. In some ways, this has become the new staples. That's part one. Part two of this is, this first started when we had the first real uncertainty in the market, post-COVID, which was the Silicon Valley Bank shakeout last spring. Fear was we were gonna have another 2008 banking crisis, you saw everything else get thrown out. Everybody ran to these things. At the same time, this AI boom started. Put it in perspective, November of 2022, so kind of a year and a half or so ago, Nvidia's market cap was $300 billion. Okay? It was less than 1% of the S&P. Today, John, it's $3.3 trillion in 18 months. It's added $2 trillion of market cap since the beginning of the year. Okay? Part of this is AI, part of it is crowding because of uncertainty. You're in a place now. Interestingly, I referenced the stat about the S&P being up 15% now year to date. Just over the last 30 days, as I said, up 2.5%. The same 30 days, the equal-weighted take this S&P and cut it and give everybody the same weight is down 2.5%. The year-to-date number, 15%, compares to an equal-weighted stat of 5%. The average stock is only up 5%. If you take the Nasdaq-100, mostly tech in there, biggest 100 names in the Nasdaq, right? Year- to- date, up 18%. You compare that to the Russell 2,000, an index of small-cap stocks, it's actually flat on the year. Mm-hmm. Right. We're having this everything else, but I don't want right now, but of these fewer and fewer names. I'll come back to the. I'll let John talk, but, I wanna make a few more points about where we go with this, when we've seen this in the past before we talk about AI and Internet. Okay? Maybe, John, your thoughts on this. Just really quick. Kevin, I totally agree that the concentration is a risk. I wanna push back a little bit on, I get asked this question a lot, is this 1999, 2000 all over again? I don't think it's anywhere close to what we saw in 1999, 2000 from my perspective. I sat on a trading desk and watched a lot of dot-com companies that had no revenue, no profitability, no nothing, get shot to the sky by day traders and the like. This feels a little bit different, right? This is not the day trading community buying stock in these five or six or seven names, because one, they're too expensive and they're probably not playing in that space. Comparing it to 1999, 2000 from a company to company perspective is not fair because these are real companies that are actually making real money and real products that are being actually put into the market where the Internet boom or bust or whatever you wanna call it, was a bunch of dot-coms that had nothing other than a name that had dot-com at the end of it. I think we need to all level set that this is not 1999, 2000, but the fear and the risk is still the same. These names have grown so quickly, they are getting to a, you know, a valuation that is going to start to scare a lot of people out of the names or at least to shave some of the profitability and some of their positioning going forward. If that perpetuates itself, David, then we may have a bigger problem. If it doesn't, then these names, unfortunately or fortunately, depending if you own them or don't own them, will continue to run higher. The risk is there that we see some of these names start to at least stall out and not continue that massive ascent that we've seen in these names over the last 12 months or 16 months, whatever it happens to be. Not the same as 1999, 2000, but the risk is still there that we could see a pullback in these names. Yeah, let me clarify, John. I wasn't comparing it. I was saying these are high quality names. They're now starting to stretch in evaluations. I do think at the margin, the marginal buyer is still some retail people in here. We can talk about 0DTE options, which now half the options in a given day are now for one day of all options trading. That appeals to me like it's some retail trade in there. I do agree with you. I would say the following, David, before we go to the comparison, 'cause John is right. There is not this. These are profitable companies with big cash flows. You now have a problem, though, of a crowded trade, though. This could go on for a while. That is the problem. These are not cheap names. When you look at the, just the valuation of the S&P, even if you assume that earnings go up 10% next year, which is the driver of stocks, it's probably gonna trade, you know, if the S&P earnings would go from 250 to, I'm gonna call it 275, you're looking at a market multiple that's in 23x, 24 x. To John's point, we're now no longer in a cheap world, and we're at much higher levels of interest rates too. If you discount those cash flows back, not worth as much when rates are higher. You know, this could go on for a while. What happens, right? You know, let me now compare back to the Internet, right? What broke it, right? Think about forget the dot-coms that didn't make anything. You know, Pets.com or whatever the du jour, we put billions of market cap on them because they created a, you know, an e-link from an Oracle database someplace to B2B activity or B2C to the consumer to buy their stuff. What happened was, if you think about the Internet build-out was going to be the next thing. It was the next thing. It had probably the greatest amount of productivity for all of us, the hype came so much earlier, and the productivity came so much later. If you can remember the fiber companies, John, I ran a large growth fund in the U.S., so I very aware of these names that were digging fiber, burying fiber everywhere around the world. You know, every construction site along a highway was building and digging fiber. Every time you had to all that fiber, you had to have a data center, and therefore, you had switches that came from Cisco. The data center was built on the back of Intel chips. One day, the telecoms basically said, "Hey, wait a minute. We're burying all this fiber and the traffic hasn't come." All of a sudden, the guys building the data center said, "I don't need any more data centers. I don't have the traffic running through them. I'm not buying any more servers and chips." You go back to Cisco, and it says, "Well, wait a minute. All of a sudden my switches and routers aren't selling as much." You back up the whole system, it's on CapEx, okay? That's how that ended. The marginal buyer, everyone would own these names. Cisco has never gotten back to that level, right? It took Microsoft, I think 14 years, John, from 2000. I think Oracle got there somewhere in 15, 16 years later, too. Again, I don't know that history repeats, David, but you do have to worry that what happens is everybody who is saying, "I can't keep up with the market, and I capitulate and buy these names, and I sell the other stuff," it just makes them bigger every day. They do start to drag the indexes and the headline around. The day that one of we call them the hyperscalers, the guys like Microsoft, Google, Facebook, right? The day that those guys, one of them says, "Hey, the next version of generative AI isn't that much better than the last version," this thing will slow. Some of those big guys who are doing all the spending, are gonna say, "Hey, maybe I'm not gonna spend as much because I don't see the incremental impact for the spend." You'll start to slow the whole chain down at some point. I don't know when that is, right? This is truly gonna be one of the greatest productivity drivers. I do compare it to the fact that the productivity will come a lot later. The hype will come first. This could and will probably go on for a while. We own some of these names. We... Would we own them in the same weights today that we owned them a while ago? Probably not. What happens is, when the marginal buyer stops and somebody says, "I'm not spending that much," and one of these names hits a soft patch because of the weight in the index, the index will look very, very difficult. Meaning, to John's point, the average stock may actually hold in, and you may drag, but the headline be dragged down by some of these names. That's where the worry comes in. I'd throw the last piece in back to where we started. Seasonally, we're gonna start to get into a tougher patch here for the summer. The moves that we're seeing in some of these names, I just gave you Friday as an example. Last comment on this. We saw the Nasdaq up 42 basis points. We saw the Russell 2000, which is that small-cap index, down 1.6%. You had a headline market. The headline looks great. The average stock inside the market is not doing well. When we look at something called relative strength, right? That's a sign of momentum. When relative strength gets above 80, it's oversold. Overbought. When it gets below 50, it's oversold. The headline on the S&P, Nasdaq are all in that overbought. When you look at the equal-weighted, they're in the oversold. We just don't see those conditions. We've seen them a couple of times in the 1990s. Again, I think my point is these are different. The Internet versus AI are different. To John's point, the backdrop is clearly different. We don't have unprofitable companies, we have a phenom that has been bid up and not cheap, that may have legs to run, there are caution flags here for me. Anything you wanna add on that, John, or? No, there's a lot I could add on that. I agree with 90% of what Kevin says, obviously, but I was actually having an interesting discussion this morning with a bear who was talking to me about these names, and his argument was, everybody owns these names now. What happens if they all start to sell these names? What happens to the market? My pushback was, one, they don't all sell at the same time. Two, on a positive mindset, if everybody owns these names, everybody's looking for an opportunity to potentially buy more. If we do get a pullback in these names, you could see them not doubling down, but you could see them buying more stock. At this point in time, momentum is in their favor, and I could see them continuing to grind higher here, but nowhere near at the pace where we've seen over the last 18 months. It's almost historical in terms of some of the, you know, the market caps that we've seen in some of these names and how quickly they've gotten to $2 trillion or $3 trillion or whatever, and people are starting to get a little bit stretched in their valuation perspective and that is a watch-out. One of the other things I add too, David, on this is. John, maybe you and I can talk about this, one ETF that gives us a little gas that we watch, the XLV. One of the other things that David and I, again, I'm just putting up a cautious flag. These are good companies, they're just way stretched out here. The day someone does stop spending, there's been about $50 billion spent in CapEx on the big guys on these chips and chipsets and the follow through. There's been about $3 billion of revenue generated, right? The level of spending may not keep pace if the revenues don't show up. We have to figure how to monetize this. Right. If you look at what OpenAI did with Apple last week, you know, Apple's gonna create a mini. Everyone's gonna have their own version of basically take about machine learning on your phone about you. But nobody got paid. Apple didn't pay for it, and OpenAI didn't pay them for it. At some point we gotta make money off this, right? That becomes maybe the place where. Again, that's why I say this could go on a long time, at least 18 months. There is gonna be an event risk at. John, maybe you wanna touch on it or I can start it, XLK. A lot of these sector indices out there, XLK is a technology index. It does not mirror the tech weights in the market, so people see these divergences. One of the rules in these is that two names can't be more than 5% of the index. We've got a couple or two or three in that one, and that's about a CAD 70 billion ETF, John? Correct. That are gonna flip-flop here to the tune of $10 billion-$12 billion of sales by the end of the week. Whichever one, I think NVIDIA is winning now. This thing will have to rebalance and buy $10 billion-$12 billion of NVIDIA and sell $10 billion-$12 billion of Apple if these market caps hold the way they are today. The sizing of these things is creating volatility inside of instruments that people may not be aware of as well. You know, I think people are pricing this in, that NVIDIA is going to be the balance winner. We look at the S&P, which was flat yesterday, roughly, John. NVIDIA was up 4%. People are gaming this stuff already. Friday comes, all that has happened, you may see some of this stuff come back out of the market 'cause they've played, you know, the buy the rumor, sell the news kind of event. You're gonna have these kind of distortions when these cap sizes get that big inside of certain vehicles you're gonna have to pay attention to as well. Yeah. David, Kevin makes a great point. People should be aware that a lot of the volume that we see today, and we've talked about this over the last number of years, is arbitrageurs, it's algorithms. It's not fundamental buying and selling. Typically when those cohorts get on the wrong side, there's no discretion. When they need to get out, they get out, and they get out in a big way. When they need to buy stock, and we see this on rebalance days all the time. When you need to buy stock, you go in and buy stock because you need to get to the ETF or the index weight as quickly as you possibly can. To Kevin's point, if things don't go the way that the XLK or other indices think it's going to go, then you'll get a big unwind very, very quickly because they have no discretion. They need to get out almost immediately. Okay. Just a reminder to those that are listening and watching, please send in your questions anytime, and we'll get to those in a few minutes from now. Speaking of gaming, let's talk a little bit about meme stocks before we get into the election stuff. Meme stocks, just for everybody's sake, You know, my quick definition are these are stocks that are being driven by social media to a large extent, right? People posting either blogs or tweets or whatever and it's driving the price up on certain stocks. I guess my big question on here is, even if you're not involved in this meme world, guys, what's the implication to everyone as investors? Whether you're, you know, those long-term investors or, you know, those people that are on the call that, again, might not be involved, but you know, they're seeing it in daily headlines. Yep. That's my broad question, but we can, we can go from there. John, maybe I'll start with you just on your thoughts. Sure. Sure. I got good news and bad news when it comes to meme stocks. Let me start with the good news. The meme stocks, the good news is the meme stocks are actually bringing more investors to our ecosystem. Okay? More and more people, my son, other people's sons and daughters who have never invested all of a sudden catch the bug and they go get themselves an online brokerage account and start to trade. That's the good news, because ultimately, we should all be trying to invest our money as early as we possibly can to have an outcome at the end that's, you know, beneficial for us all. The more people in our ecosystem, the better it is. The problem or the bad news is many of these individuals are trading with money they probably can't afford to lose. Some of them are playing some really exotic instrument types like this single day option world and the like, and they don't fully understand what they're getting themselves into. When that herd starts to go the wrong way, they just jump on that bandwagon and unfortunately lose a heck of a lot of money. It's very common for people to be in and then be out and not come back for a long, long time, which hurts the ecosystem. That's the bad news. We have to, you know, we have to look at this thing with a little bit of hindsight here. The good news is that people are coming into the market more frequently. In fact, I will tell you that I think in the U.S. 56% of all households own single stocks in their portfolios, in their 401(k)s or whatever the case may be. That is an all-time high, by the way, even though it doesn't sound all that high at 56%, think about that. It's at an all-time high. More and more people are investing their money. I would rather them invest in trying to trade some of these meme stocks. A lot of these meme stocks... Hey, let's compare it to 1999, 2000. A lot of these meme stocks today, David, are the dot-coms of the past. They're companies, but they have nothing other than, you know, a ticker, maybe a little bit of revenue and probably don't make a heck of a lot of money. They get bid up to numbers that are just extreme, that in the end, will probably not end up the way people want them to end up. Good news, bad news. I hope there's more good news and people learn from their experiences and stay in the market and continue to invest for their futures. Yeah. My perspective, David, this is also creating... To John's point, we want participants, but we don't want just straight on gambling. No. When you're seeing names like GameStop move up 40% on a day 'cause, you know, Roaring Kitty comes back, right? It has unintended consequences. GameStop, you know, it's fundamentally probably not worth where it's been traded. The companies use these spikes to issue stock to, you know, in the marketplace, so it's raised capital, which one would argue is dilutive. It has unintended consequences, the fact that, you know, some of these names are in short baskets that people use to hedge. I mean, we keep an eye on the most shorted names in the market, right? When stuff like this spikes 40%, and GameStop is, like, a 4.5% weight of that, it creates disparities with some of the hedges people thought they had on. Again, there's unintended consequences of it. While it may not be the extent that we saw in the midst of COVID when people had a lot of free time, it's still there, maybe to a lesser degree, but it's definitely still there. Hey, David, one further point on this, and it's a little dark secret, but I will, I'll reveal it to the group. Meme stocks are not only traded by individual investors. There is documentation out there. There is proof out there that hedge funds, fast money funds are actually trying to capitalize on the meme stock craze, whether that's to the upside or the downside. They've actually hired individuals now that watch the Reddit boards and watch online boards to see what the trend is, and they try to jump and capitalize on that as well. It's just not the retail investor. You are getting some fast money funds slash hedge funds that are actually participating as well. On that front, Maybe this is the last question on this topic. Do you worry a little bit about this, infiltrating the rest of the market, for lack of a better term, in terms of, you know, distorting what you guys are trying to do on a day-to-day basis, what the team is trying to do? Is it a fairly concentrated kind of pool of money that sort of is going after itself, right? Does that make sense, what I'm trying to say? Yeah. Go ahead, Kevin. Yeah. No, we don't play any of these names, David, right? Yeah. Yeah. you know, it's more of a sideshow for us at this point. Where it would impact is if it dragged down a bunch of other names or a sector, right? Where it impacts is if you spike... You know, we have a hedge product that we use called, you know, it's an anti-beta product that's been short some of these names for the right reasons. And it messes with our hedges when someone pushes GameStop up 40%. That's the basic, the small extent to it. I mean, it's mostly a sideshow. Okay. I totally agree, David. It's not gonna affect what we do all day, every day at all. Okay. Let's get to our last topic, and then we'll get to some questions. They're starting to roll in. This probably connects back to my first question about monetary policy, if anything. We've obviously got the big U.S. election. Kevin, you mentioned there's political turmoil in Europe going on. Let's maybe just start with the U.S. election. We've talked about this over the last couple of months, but at this point in time, how do you see it potentially impacting markets as we draw closer to the November date of the election? Yeah. Thanks, David. I mean, for those who don't get Greg Valliere's Morning Capitol Insights, I would highly recommend you subscribe. It's probably, as we go through these next six months, gonna be the most valuable thing. Greg's... We share the same view here, a bunch of us. To the extent that this election stays a virtual tie. Today, it favors Trump by a little bit. It could favor Biden by a little bit. As you creep toward November with that tie staying in place, if there's no real divergence starting to show up, the market is gonna have a lot of indigestion over the fact that we may wake up the day after the election and not know who. May not know who is the president for a week. It could be days. It could be weeks. You'll have people in this scenario, if it's that tight, finger-pointing on both sides about something was wrong with integrity of balloting, you name it. That's not gonna be good for the market. Risk one, regardless of who it is, if some gap were to emerge that looked like a favorite, that would help the market navigate through the fall. The extent it stays closer, it's going to create volatility. There are two near-term events to pay attention to. June 27th is going to be first time that we've had two, not even declared candidates yet. They are the presumptive candidates, will be in a debate. The conventions actually follow this. Clearly, if one of them slips up badly, that may tip these polls. There's a lot of other speculation that obviously, the one that is at risk more so is Joe Biden. Obviously, if he stumbles broadly in this, there will be a lot of push maybe on the Democratic side before the convention to do something different. Low probability that that happens, but that will be something to be market-moving. You have also July 11th, which is the President will be his sentencing. Former President Trump will be sentenced in New York. As you saw the last time, it became a money-making event for him. I think he raised $40 million, and his polling went up. Again, two things to watch, and then you get to the two conventions that will be in July and August, and see who the VP is, 'cause you're essentially going to be voting for either of these guys to make sure the VP, given their ages, is somewhat credible as well. A lot of volatility. Think of it this way. There are 380 million people in the U.S., David. Probably 180 million of them are eligible to vote on that day. This will come down to three to five states, maybe tens of thousands of votes to determine who is going to... The policies are very different with who will win to the rest of the world. If you look at winners, do they bring a majority to any of the two houses? This will get complicated. It will get volatile and especially if it stays this close as we grind through the fall. Bunch of events coming up June, July, and August that between these conventions, this sentencing and the debate. We can talk about it if you want. I can go winners and losers of post-election if you wanna go there for a minute. John, did you wanna weigh in before? 'Cause I would like to hear what, winners and losers a little bit, if there's something you have. No, I think the point that Kevin made is absolutely correct. The market does not want uncertainty. If we have uncertainty after the November election, we will have agita in this market for a period of time. We want a certain election with a certain winner, regardless of who that happens to be, and the market will absorb and do what it needs to do. It's when it doesn't know or there's uncertainty that's gonna cause a lot of grief in this market. John and I were both awake at four in the morning, three in the morning in the 2016 election. Yeah. You have to go back to this. This was a Trump election. The market, when it became apparent that he was leading after midnight or so, the market sold off hard. I mean, we were looming down everywhere in the world. Something happened between there and about seven in the morning, which people realized he was gonna be a deregulatory pro-business agenda. You saw a rapid snap back in the market. Tax policies were gonna change. Corporate taxes were cut. You saw small business optimism jump. We had a strong market in 2017, back of 2016 into 2017 on that back. If Trump wins and he wins a majority of both these houses, which right now he looks like the Senate will go to Republicans, little bit closer in the House. Let's assume he's governing with both houses. Regardless of, you know, what you think of some of the policies, they will be deregulatory. There are executive orders probably being drafted right now to deregulate many of the things that the Biden agenda put in that will be pro-business. There's talk of the corporate tax rate. He met with senior business leaders in the U.S. last week, dropping even further to 15%. They will make a move to extend the many of the tax cuts that were put in in 2016, 2017 that are expiring in 2025. This will be, again, if it's wide and not close, it will be probably a market positive event. If in, as John and I've just said, so long as there is a winner the following day. Losers will be China, regardless of which candidate. There's no backing off of China. If Trump wins, the tariff rates are gonna skyrocket. That may be perceived by the markets as inflationary. If half the goods that we import get a 100% tariff on go into other goods that we make in this country, that means potential inflation. That's something to be worried. The bond market may not like it because if we're gonna extend these tax cuts and keep driving these deficits higher, both of these guys wanna spend. You may see some indigestion in the bond market about, you know, higher interest rates ’cause of higher inflation for some of this. Country-wise, Mexico, obviously, if it's Trump, may be a larger loser. He has threatened basically not just his border issue, but frankly, taking on the Chinese who are going through Mexico to make auto parts and putting them back in the U.S. cars under NAFTA. The old NAFTA or the USMCA, the new USMCA, will be renegotiated regardless of who comes in in 2026. Mexico, obviously not a big winner if it's Trump. Obviously if it's Trump, China's a loser. India's a probably big winner because the fact that people will move supply chains to India. A lot of other winners and losers by sector, but those are the broad ways to think versus Biden, which would be more of the same. Okay, we should probably move on to questions from the audience, but maybe if we've got a little bit of time, Kevin, I wouldn't mind asking you just generally about the election climate broadly outside of the U.S. Let's do get to some questions. First one here is on commercial real estate, the health of commercial real estate and credit card delinquencies and the importance that that has in assessing the future stock market movement. Kevin, I know you've talked a little bit about these two issues. Just some thoughts on that. Yeah, we'll start with commercial real estate. It remains a problem. It's going to be a problem in the U.S. more broadly than it will be here, and I'll explain those differences in a minute. Most of that problem is gonna be felt by the regional banks, to a lesser extent, the insurance companies that have them in their portfolios. It's a simple, I've got to refinance a loan that I put on a mortgage that is gonna be at a much higher rate, and you combine that with many of these are B-class buildings in B-class cities, potentially, who with work from home, occupancies have gone from 85%- 65%. Not only am I have to pay more for the interest rate, the rent that I get has gone down because there are fewer tenants because of work from home. At the combination of those is gonna cause some stress. Pay careful attention. Janet Yellen has talked about it. The Fed is keeping an eye on it. It won't be up in the big banks like it was in 2008. They have very little exposure, and most of that they've been managing through. It's going to be in the more regionals of those 4,500 banks in the U.S. Canada, very different. This will be about the consumer, I believe, more so than commercial real estate. A lot of commercial real estate, just take Downtown Toronto, is owned by the pension funds. It will show up later in the fact that the returns on our pensions may not be what they are or should be versus having the big banks take massive write-downs. There will be some here, but they won't be not to the magnitude as you will see on the U.S. side. The banks here are gonna struggle with the consumer side of real estate, which is home mortgages, right? We're in this peak of the wave now, people starting to refi. What you've got is a lot of people who are in a variable rate, fixed payment product. The payment hasn't gone up. They go to the bank to reset, but they haven't been paying any principal down. Every time the Bank of Canada raised rates, they paid less in principal, more in interest to the extent that some are just attacking on the interest payment to the back. Somebody shows up to refi, and they're gonna owe the bank more than they borrowed, and maybe the house that they bought or the condo isn't worth as much. That's gonna cause a lot of stress, not just in the payment, but coming up with that extra money. You're seeing the concern of the Bank of Canada is that the consumer here is really being impacted. It's very different than the consumer in the U.S., and this is where we go to credit cards. The low end of the U.S. Economy, they don't own homes. They're sensitive to rent, gasoline prices, and food prices. The latter two are still pretty elevated from where we were pre-COVID. Food price is up 30%. The level of things is pinching people in the U.S. If you're someone in the middle class and upper middle class in the U.S., you have a 30-year mortgage that you refied in COVID at 2.5%, you don't have to move for 30 years if you don't like where interest rates are going. It's not like Canada, where they amortize over 30 or 25, but they're only three- or five-year mortgages. In the U.S., you could stay in your house 30 years. That part of the income spectrum, middle class, upper middle class to the uber wealthy, is less sensitive to rates right now. Very different in Canada. You're seeing credit card delinquencies at the low end in both countries start to pick up. Delinquencies in terms of frequency, 90 days, 30 days, and we're at high balance levels, meaning people are starting to spend to support their lifestyles on cards. You're gonna see a bifurcated consumer that will be when you aggregate in the U.S. looks okay. When you look at Canada, the stresses are gonna be probably more real and you're gonna see potential again, why the Bank of Canada has to stay a little easier than the U.S. right now. Hey, David, just one-. Yeah, go ahead, John. Thought on commercial real estate, because I'm not going to touch the credit card comment. Kevin did a great job on there other than to say that people should pay down their credit card just quickly as you possibly can pay them down. Commercial real estate is a buyer beware story. What do I mean by that? I mean that if you are looking to invest in some sort of commercial real estate product, if that product is in the warehouse business or data center business, they are doing exceptionally well. Those are good investments that look like will continue to pay out handsomely for their unitholders. It's when you start to look inside, this goes back to 2007, 2008 when things are being packaged together and really people didn't know what was in the product and they were just buying the product. If you own Class B and Class C buildings in a lot of metropolis cities, you're in trouble. People are not all the way back to work yet. Companies are not coming back 100% of the time. They are giving up space. They either need to be retrofitted, which costs a heck of a lot of money, or they'll stay vacant for a long, long time, and the holders of those properties will either walk away from those properties or, you know, have to pay a heck of a lot of money for it. Buyer beware, look inside the product, see what's in there. If it's data warehousing and/or data centers and that sort of investment, pretty good. Class B, Class C buildings, not so good. We probably have time for at least one more, if not two. Here's a question for both of you, but John, maybe you wanna answer it a little differently. How would John and Kevin deploy fresh capital now? Maybe for you, John, it's maybe more about where you're seeing fresh capital being deployed. Yeah. Because I know that's not really, that's not the essence of what you do day-to-day. Kevin, I don't know how you wanna answer that question, but just maybe a thought on, you know, this idea of fresh capital and where to put it to work going forward. I could joke and say Bitcoin, David, in terms of your fresh capital, but I won't say that. Here's an interesting stat that I saw the other day that was really eye-opening. Prior to COVID, prior to COVID, about 18% of new fresh capital, global fresh capital would be going into the U.S. market, okay? Largest, most liquid, most stable capital market in the world. 18%. Post-COVID, that number has shot up to 33%. Wow. The U.S. a t 18% was the largest. At 33% is, you know, almost a double to where it was. I don't think that trend is gonna, you know, slow down anytime soon. If I'm putting new capital to work, I am putting it in the U.S. because it is the largest and most liquid market in the world, and it looks like the rest of the world is doing the same thing. That would be my answer in terms of where I would see money, and that's where we are seeing money, number one. Number two, we are seeing money flow into the Far East, ex-China, right? Japan, Taiwan, and countries of that sort in the Far East. Europe, up until about, I don't know, call it one month ago, six weeks ago, we were seeing some pretty good returns and pretty good money flows into Europe. That has abated in a big way since what's happened in many countries, especially France, over the last little while. Last, unfortunately, is Canada. That's been a story of mine for now couple years. We are not seeing any foreign flows coming into Canada of any significance. I would probably stay away from as a Canadian, I would probably stay away from Canada at this point, and that's a sad story to tell. Kevin, any thoughts? Yeah, I mean, for our institutional investors who hire us, we put it all in. I mean, they allocate their own cash. For retail investors, I get the sensitivity. Take the U.S. alone. I don't even wanna talk to the Canadian numbers. There's $6 trillion in money market funds that are people watching this market go up, and they're waiting on the side to get back in. I think you gotta be a little disciplined. John, I've talked many times on these calls and other places about the fact that if you try to time this market and you miss certain days, you know, you your return sets are gonna be really. I get where we are at these levels. I would be cautious. I would use a very disciplined approach about slicing an amount of money in each time, each month. Don't try to look for an event. You'll just get pulled off sides. Take an approach that says, "But I wanna take this in five chunks." Just be disciplined. Do 1/5 each month and close your eyes. If it's long-term money, you're gonna get rewarded. If you try to time it's just gonna be really, really difficult. I don't know anyone who could do that really well. Okay. Asset allocation is probably the thing that saves you, which is tip yourself more in a fixed income or other things that give you some defensiveness as you start to allocate in. Maybe build your defensive position first. Okay, one last question. It's about the U.S. dollar, and this idea of Russia, Putin, China, BRICS, getting together to maybe create their own currency, and what that might do to the U.S. dollar. Any thoughts on legitimacy of this happening short-term, long-term, anytime? One of the things that's happened with the Ukraine-Russia war, trading partners have changed hands. Russian oil goes to India, that gets routed back to Europe at a discount. China has become Russia's largest trading partner. The South, as we call it, so think about the emerging markets or the former BRICS. Places like India, Latin America, have actually sided with Russia in this situation. That's where the narrative comes in that there's gonna be this de-dollarization. It will happen, but it's gonna take decades to happen. The dollar is still the reserve currency. You know, you could see it, a lot of chatter about it, but I think it's gonna take a while. This is not a two-year, five-year, 10-year thing. This is decades of changing banking habits. You have to also remember, Russia is basically still cut out of most of the Western banking systems until you get to some agreement. I think it's the threat is there, but it is still a long way out. I would not. It's not what moves currencies today. Hey, David, I think this is correct. The Russian economy is the size of New York State's economy. North Korea's economy is... I don't even know what the size, maybe Rhode Island. I'm not even sure. To Kevin's point, China matters without a doubt. They're a massive economy, but some of the other guys are fringe players at best, and it will take decades to come to fruition, if at all. Okay, John, one last question for you. You talked about having a conversation with a bear earlier this week. Yeah. just wondering what kind of conversations you have with the tiger that's behind you? That's my compliance department, David. I thought I'd bring compliance in to make sure that I wasn't saying something that's gonna get me in trouble. Okay, there you go. All right. Let's end it there. Great food for thought, guys, as always. Appreciate your time. That brings our discussion to a close. We would just wanna thank, as always, to everyone tuning in today. On behalf of Kevin and John, we appreciate your time and support and look forward to sharing our insights with you again next month. Before you go, please make sure to click the Add Session button in your Attendee Hub to register for our upcoming market update events, including our next installment that'll take place on July 17th of this year. 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