Subscribe
Share
Share
Embed
Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.
Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials, with your hosts, Josh Sheluk and Colin White, portfolio managers with Verecan Capital Management Inc.
Colin White:Josh and Colin coming at you because there's a lot of exciting things happening in the world. Well, at least that's what somebody is telling us. So, Josh, is there anything exciting in the world going on right now?
Josh Sheluk:Maybe too much exciting. Is that possible? Can there be too much excitement?
Colin White:Too much happiness?
Josh Sheluk:Well, actually, a lot of this stuff isn't happy happy news. Oh. It's like it could be exciting, but not happy, maybe?
Colin White:Bring us up to speed because I I've been traveling a little bit, and maybe I didn't catch all these headlines as they went by. So educate me, Josh.
Josh Sheluk:I'm pretty sure you've caught these headlines. So we're gonna just gonna do some quick hitters on news of the month, maybe we'll call it that. But I think one of the things that's been very topical over the past couple weeks is this war in the Middle East, if we wanna call it that, and expanding expanding conflict. So I had a friend that said, yeah, we might go to Egypt. And I was like, really?
Josh Sheluk:Do do you know where Egypt is? And he said, yeah, but we're just going diving. So we just land there and then go offshore. So I was like, okay. So you're gonna be diving in the Red Sea.
Josh Sheluk:So, anyway, not the most pleasant experience there right now to to say the least over in the Middle East, East, and it's been affecting markets in some ways, maybe not the way that people would think, though.
Colin White:Well, I think that anything I always take the time to point out of the human tragedy. You know? No matter what your politics are, the human tragedy and suffering that's going on there is unimaginable. We sometimes sound glib in coming off and talking about the financial aspects, but this is why many people have us in their lives to be their financial monkeys. So our our takes here are gonna be more financially related.
Colin White:And and to be honest with you, Josh, I am a little perplexed, befuddled, bewildered at how little the capital markets seem to care about this level of conflict other than a little bit of movement in oil prices? I mean, even that's been a little bit, I would argue, muted for what expectations might have been.
Josh Sheluk:Well, for sure. I think Iran launched these missiles at Israel. What was that? A week ago or 2 weeks ago as we recorded here regardless of the exact date, but it reignited some of the fears, I think. But that led me to go back and look at how some of these things have performed since the first Hamas invasion of Israel.
Josh Sheluk:Alright? So that tragic day on it was October 7th last year. And we had it basically exactly a year between that date and when I was looking at these numbers. And sure enough, global stocks up 30% over that period of time, give or take a percentage point, and oil down 10% over that period of time. So go figure.
Josh Sheluk:Right? That probably if you asked somebody what would your knee jerk reaction be to that or expectation, they would have assumed the exact opposite of that. Yep.
Colin White:No. I I you're right. I I don't think that there's a an academic case that could have been built a year ago rejecting this outcome, which, again, further goes to our, you know, opinion that forecast in the future, even if you get the event right, is still fraud. You know? Yeah.
Colin White:Even if you get the major macroeconomic or major geopolitical event correct, that doesn't even help you in a lot of times because things can move counterintuitively now. I think we could study it for for a decade with a bunch of graduate students to try to figure out what was the expectation baked into the market and how did that expectation manifest itself and all of the mechanisms that went into having that play out with the rules of sovereign wealth funds and all the other stuff you could get into, then we might understand it 30 years from now. So I think the only thing we can do is just take part of the continued lesson that just stop. Like, you know, these are not investable events or investable ideas because they're just not gonna behave in a in a reasonably forecastable way.
Josh Sheluk:Yeah. Do you think Hamas went long oil futures on October 6th 2023?
Colin White:I I I neither can confirm nor deny any conspiracy theories that may be positive, you know, based on world events.
Josh Sheluk:Even they would have been caught caught a bit blindsided by what what happened next.
Colin White:Yeah. Exactly. You know, hey, we're successful in the battlefield. What what happened to our the the bet that we placed? We lost that.
Colin White:Oh, shit. So no, I don't I don't wanna be seen as making light of of a real tragic situation. But I think this is a very serious point and, you know, we we strive to educate people and try to protect them from getting confident. And I think this is just another, you know, great flashing example of the markets have got, you know, based on this incident, have no business reacting the way they've reacted. And, you know, but this is so goddamn always that these kinds of things happen.
Colin White:So, you know, disavow yourself of the idea that you can begin to predict these things with any kind of useful certainty for sure. It it's it's beyond what what would be considered an investable idea as far as I'm concerned.
Josh Sheluk:Yep. Times 2 for me.
Colin White:There you go. You're always one better than me.
Josh Sheluk:Speaking of things that aren't really predictable, jobs. And we have releases out of both Canada and the US over the past month, past couple weeks, actually, that have been quite positive on the jobs front, which is kinda bucking the trend from earlier this year. So should we start changing our minds with where we think the these economic numbers are going from more negative to to back into the positive front? Are you there yet?
Colin White:Well, I'm not it takes 2 data points to extrapolate to a trend. Right? So
Josh Sheluk:I guess so.
Colin White:Alright. At least 2.
Josh Sheluk:Right? Yeah.
Colin White:And I think that you did a good job earlier today when we had a conversation talking about how, you know, these jobs numbers that get released are best described as estimates or generously described as estimates with the sample size that is used and the historic restatement of these numbers that has gone on. You know, again, I think there's a lot lot to be taken with that. They do, you know, not in a vacuum, but in the day it comes out, it does affect mood. Now it's not the only thing on any given day that's affecting mood, but it is certainly one of the things that seems to cause some kind of a reaction in the market. But as with typical daily market reactions, it's probably overblown.
Colin White:I still love the term and I brought this up to you earlier that the people are now talking about the no landing. So we've gone from hard landing to soft landing to no land. I don't even I couldn't describe to you what no landing is. But apparently these numbers indicate that we're having a no landing. But it's I think it's necessarily messy when you have a trend.
Colin White:There's gonna be it's not a straight line. So this is at least that bubble that we should have been expecting along the way. And I'm sure 6 months from now, we'll know whether this is the reversal of a trend or it was just a bump along the way.
Josh Sheluk:Yeah. And a lot of this has happened a lot this year. It's there's been a trend. It seems to be somewhat well established, and then something comes that surprises us outside the trend. And everybody spends a lot of time talking about what if this is different, what if it's changing, blah blah blah.
Josh Sheluk:And then next month, the next data point comes in and we're like, oh, we're back on trend. It's it's kinda like we're following our Google Maps GPS, and we've got off the highway to get gas. And, you know, like, sometimes Google is like, oh, make a U-turn. Go around the block three times, and then you'll be back on track. And you're like, well, no.
Josh Sheluk:I I can see the road. I just need to get back on the road. It's not that big a deal, Google. And I feel like that's we we kinda get lost in that sometimes when we see one thing that happens outside of the path that we think was set.
Colin White:Well, there there's there's 2 layers of messiness. There's you know, when change happens, it doesn't necessarily go in a straight line I mean, even if you can accurately measure it. But then you can also, you know, verify, are we accurately measuring it? Like, is this a an inaccuracy in the tool or is it the the real life experience of, you know, data's a little bit noisy sometimes? And it's probably a combination of those two things.
Colin White:And then there's, you know, you know, all of the stuff that's being released is being specifically released right now in order to influence the elections, of course. And we all understand that. Right?
Josh Sheluk:Oh, god. Don't don't don't go in there.
Colin White:That's why I love doing this raw, Josh. Right now. Yeah. Exactly. That's why I love doing this stuff raw with Josh because he doesn't know what what's gonna come out of my mouth.
Josh Sheluk:So Yeah. Oh, boy. So the next thing that that out of my list is is is rates, interest rates, specifically. So we've seen multiple rate cuts. The last time we did a news, podcast like this, I don't know when it was, but we've seen definitely multiple rate cuts or at least one significant rate cut out of the US since we've last recorded anything like this.
Josh Sheluk:Now the last 3 or 4 weeks, we've seen interest rates go up quite a bit. So explain. I'm perplexed.
Colin White:You want me to explain that? Well, you know, which is it? There's more buyers than sellers or more sellers than buyers. Like, I can't do that gymnastics in my head quite fast enough. I think it's people are beginning and I've said this to you before.
Colin White:You know, everybody talks about where interest rate's going. Well, maybe they're just being. Like, sometimes, you know, you've you're you're where you're gonna be for a while and, you know, so the short term rates may not be moving or may not be expected to move quite so much, especially with the contrary data points coming out. Maybe that's changing expectations. You know?
Colin White:Because we now have a verdant yield curve. It's no longer inverted. It's currently verdant. Right? There's a state verdant.
Colin White:Like, are we are we still in the normal yield curve space?
Josh Sheluk:I think it depends on which maturity you're looking at. We're we're we're both verted and inverted at the same time if such thing's possible.
Colin White:Oh, well, okay. You're gonna you're gonna have to help parse me with with parse that one for me. But but, no, it's I think that there has been maybe a longer expectation that this interest rate cycle from the central banks was going to be more of a systematic thing. We've already missed so many projections on what that was going to be. Maybe there's some dough creeping in.
Colin White:Right? Maybe there's some finally people are stopped betting on because I've even stopped hearing anybody talk about how many interest rate cuts are priced into the market because that maybe is one of the stupidest, most inaccurate indicators we've had in the last 2 years. It's it's been so colossal and, like, meteorically wrong and both in magnitude and timing. So maybe some of that's unwinding. The market has stopped pricing things in.
Josh Sheluk:Yeah. Well, what you mentioned a couple of times there are expectations. This is all an expectations game. Right? That's that's all it is.
Josh Sheluk:That market was expecting one thing, and all of a sudden, the data starts changing the other direction and the market changes their expectations. So the number of rate cuts, I agree, is somewhat stupid, but the number of rate cuts ideas, it manifests itself through the interest rates that you see on the on the yield curve. So that's what we're talking about here. So 3 or 4 weeks ago, the market was expecting maybe worse economic data than we've seen through some of the jobs numbers that we talked about earlier, and better economic numbers means less of a need to be aggressive on rate cuts. That's why we're here today.
Colin White:Yeah. Yeah. No. I mean, the wheels haven't fallen off or not looking like they're falling off anything. Like, you know, there's nothing apocalyptic going on.
Colin White:So the commentators are gonna be searching for apocalyptic ish type things to to kind of, you know, draw out of what's going on right now. And I really don't think it's there. Like, we've have all the geopolitical reasons in the world for the market to be in a complete tizzy right now. The US election, most of Europe's at war with somebody. Nobody's really confident about the outcome of any of that.
Colin White:But the market's still trugging along up again today. So we have every possible reason manifesting itself right now that things should be a mess, and they're just not, which is perplexing and boring and, you know, gonna cause some people to lose their jobs. But you haven't even touched on the most exciting news, Josh. Is that was that the last of the news you thought was exciting?
Josh Sheluk:Yeah. I I thought interest rates were the most exciting thing, but correct me then.
Colin White:Well well, I mean, there's one of our the the big green monster here in Canada has been in the news a couple of times this week. Yeah. That's true. That's true. So t TD Bank is writing depending on how you cut the sheet, you use somewhere between a $3,400,000,000 check to make up for systematic allowance of cartel drug money laundering.
Colin White:That it was a a failure. According to the news reports that have come out, it failed every possible level of the of the institution. And they've had a cap slapped in place that's basically going to prevent them growing in any kind of way in the US retail space down there, which is more punitive in the bank world because banks count on growth and their share prices count on growth. And this is similar to what Wells Fargo went through and they're still capped as And I guess that's pushing 6 years now. You know, so the regulators in the US are particularly unhappy with how TDS has run the shop down there.
Colin White:And that is gonna have a spillover into Canada. And that is gonna affect the Canadian share price. And again, in my opinion, should affect people's opinion of some of these larger institutions. This this wasn't a mistake. This was a systematic allowance of something that was to the short term benefit of the institution that eventually got caught by regulators.
Colin White:And that is a very serious thing. And layered on top of that, they also lost their class action lawsuit this week. Did you see that? Oh, sorry. They didn't lose.
Colin White:They decided to write a $70,000,000 check without admitting.
Josh Sheluk:So they don't have to call it a loss. It's kind of like a draw, but they pay a bunch of money to to
Colin White:get the deal done. Nothing wrong, but here's $70,000,000 because this stems from and all of the other institutions have this pending against them where they were allowing mutual funds to be held in self directed accounts that paid a trader commission that was ostensibly for service. But by regulation, we're not allowed to give any advice to the actual people buying the funds. They just pocketed the money and kept quiet about it. And anybody in the industry who saw that happening, anybody who understood what was happening was just amazed of the audacity that they were allowing it to happen.
Colin White:And it wasn't like they allowed it to happen for 6 months. It was years that that went on. And this is the first of the class action lawsuits to be settled. And I'm sure a press release is going to come out making it sound like it's not a big deal. It's a big deal.
Colin White:It's a big deal that they thought they could get away with it. It's a big deal, the audacity of actually doing that to people, charging a fee for a service that they were not allowed to offer through the channel they were charging it through. I mean, that's just ridiculous. Anyway, that was news this week too, Josh. Maybe we read different parts of the paper.
Colin White:I don't know.
Josh Sheluk:No. Definitely hit my radar. Hit my radar for sure. When people have asked me about this, I think the 1,000,000,000 in fines are somehow insignificant or inconsequential in the grand scheme, but the caps on what you can do from a business perspective are much more meaningful, I think, to their to their success or failure as a business and their success in in growing their their share value. And I'm glad you brought up Wells because I think when the news first started coming out about Wells Fargo and some of their transgressions with the the sales practices, you could kinda shrug it off a little bit.
Josh Sheluk:Like, not to say that it wasn't bad or detrimental, but, like, is this actually gonna affect such a massive organization as well as Fargo? But if you look at their stock price over several years following that, it was a really challenging time for them as an organization. So I think this is maybe not quite as significant for TD as it was for Wells just because it's their US operations and still a big chunk of their operations are in Canada, the TD. But it's it's significant nonetheless.
Colin White:The other thing I would point out is that institutions don't feel pain. Individuals do. And all the individuals responsible for all of this can move their careers elsewhere. You know? So the individuals who who were perpetrators or were accomplices or enablers for any of these activities, their careers have moved on and they're somewhere else.
Colin White:I don't imagine any of them are are suffering any consequences, you know, from this transgression coming to light. And for me, it's more of an indictment in the organization. Again, we have doing when we're looking at investing in a in a company, one of the things we're looking at is, you know, what's the corporate governance? How reliable is this management group? You know, that's one of the things that needs to be evaluated when, you know, you're making an investment.
Colin White:And an organization that has allowed a transgression on that scale and size and to be hit, you know, back to back. I think they also wrote a check last week or last month over the use of, you know, apps for communicating with clients in violation of a couple of regulations. So they've had 3 pretty pretty major quick hits here, which all indicate a lack of some kind of oversight or understanding or less than optimal management standards. So, yeah, that to me starts to add up and say, you know, there needs to be a change. Now maybe it already has happened.
Colin White:Maybe that, you know, this has already flushed its way through the system. Well, that's a lot in a relatively short period of time. We're an institution that was, you know, top of the mountain, like, you know, one of the more revered institutions, one of the better performing institutions. But as it turns out, a lot of that seems to have been built on air.
Josh Sheluk:I would push back. I don't think it's been built on air. I think they've they've likely had a lot of success in the business nonetheless. But I think it's really hard for most investors, even ones that are close to the board or executives to really assess governance and quality management. Like, we could have a conversation with those people, and it's still unless your boots on the ground really on a daily basis, it's really hard to assess, I think.
Josh Sheluk:Yep. The quality of of those those people and really the intentions of those people. So I wouldn't really blame any investors for not being able to see, like, oh, there's some failings in governments here. And I don't think that's what you're suggesting, but I think the the bigger takeaway for me is even good solid organizations that seemingly have stable management teams and good governance and all that, they can still run into issues from time to time. And it comes back to, like, how confident are you in one specific business that they're gonna be infallible at all times.
Josh Sheluk:And even something that has as dominant, of a market position as TD can stumble. And Yep. We've seen dozens or there's hundreds of examples of this over the years, but it's a clear indication that don't put too many eggs in 1 in 1 basket because there's stuff that you're just probably never gonna be able to assess and and forecast or predict.
Colin White:You only really see a light shined on it when there's a problem. So, you know, because this has happened, there's there's been necessarily disclosures. Right? So you start to see some of this that you wouldn't otherwise, you know, have a lens on for sure. And, no, I don't think it's something you can predict, but it is something I think that you should expect and keep in mind when you're when you're being confident or in confident with, you know, how an organization's being run.
Colin White:You know, there's and part of this is is is, you know, trying to build on the idea that, you know, the Canadian banks are not infallible. You know, they're great institutions. They're very well run companies. Well, they don't belong in any kind of a mountaintop because they there are some fairly severe transgressions that happen from time to time with all of them in one way or another. So
Josh Sheluk:Yep. Fair point.
Colin White:If you're breaking a sweat trying to figure out what your financial advisor is talking about, you're not getting the service you need. You probably hate trying to get an answer from them, but you also think moving your accounts will be a headache, and it might be. But working with Dontrocktheboatwealthplanning.comor.ru isn't exactly stress free, is it? Call us. We will demystify the world for you.
Kathryn Toope:For more information on the subject of today's podcast or any other financial topic, please visit us online at veracan.com. That's verecan.com. There's plenty of information there or you can reach out to someone on the team. Thanks for listening. Please note, the information provided in this podcast is for general information purposes only.
Kathryn Toope:It is not intended as financial investment, legal tax, accounting, or other professional advice. Our discussions are not a solicitation to buy or sell any securities or to make any specific investments. Any decisions based on information contained in this podcast are the sole responsibility of the listener. We strongly advise consulting with a professional financial adviser before making any financial decisions. Listeners should be aware that investing involves risks and that past performances not indicative of future results.
Kathryn Toope:Barenaked Money is produced by Verecan Capital Management Inc, a licensed portfolio management company in Canada. We operate under the regulatory framework established by the provincial securities commissions in the provinces within which we operate. The views expressed in the podcast are our own and do not necessarily reflect the official policy or position of any regulatory authority. Remember, at Verecan Capital Management Inc, we focus on aligning our goals with yours, prioritizing integrity and transparency. For more information about us and our services, please visit our website.
Kathryn Toope:Thank you for listening, and let's continue to challenge the norms of the financial services industry together.