A Comment -- General Comments From an Expert (A Commentary)

Future of the US dollar

Long-term perspective is really important. Currency started floating about 50 years ago. He's looking at a chart that goes back to the early 1970s. Currently, the CAD is sitting around $1.40. The average CAD rate is $1.23. Very little time in the last 50 years was it actually at $1.23; either at a significant premium or discount.

Historically, the Canadian interest-rate environment always had to be higher than the US to prevent the CAD from weakening. This was due to our having twin deficits -- capital account deficit, and current account deficit. Capital account deficit: investors globally buying fewer Canadian assets than Canadians are buying foreign. Current account deficit: terms of trade.

As we get into 2025, investors should think about where they own a lot of foreign securities, and exposure that isn't hedged (ETFs are a great example), and where they can flip to a version of a fund that locks in the currency. When the CAD goes back to that median level (and it will at some point in the next number of years), there's a significant amount of currency appreciation that would, otherwise, start working against you.

In the short term, it could go to $1.42 or $1.43, even spike to $1.45. Those are targets where you'd want to hedge some currency exposure.

It will, because there's no other economy in the world that has all the great things that the US does. It's the best dirty shirt in the laundry. Not going anywhere anytime soon.

iShares S&P/TSX Canadian Preferred Share Index ETF (CPD):

We can see that as interest rates were aggressively hiked in Canada from 2022 onwards, CPD’s performance declined. Rates had previously been cut due to COVID-19, and CPD reached a price of $14 at the end of 2021. An interesting point brought up was that expectations of future rate cuts are priced into CPD which suggests limited upside. The expectation is that rates will be cut in December so to an extent, this is priced in. However, further cuts are certainly on the table and the economic response will be the determining factor. We think the Canadian economy still has plenty of progress to be made and future rate cuts would help CPD. Additionally, if corporations are able to effectively grow earnings, then the equity features of CPD’s holdings offer more upside potential than a bond ETF.

CPD has done well in 2024, up 19% due to the declining rate environment we have entered. CPD also offers a high yield at 5.25% so we see the potential in holding it in the short-to-midterm as it offers both income and a some growth upside.
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We're having a really good run since the US election. 

It's been interesting in terms of rotation. The first half of the year was dominated by big caps and tech. From about July until the election, we had a lot of choppiness and uncertainty. Since the election we've had another shift with the broader indices starting to go up, but the leadership has changed quite significantly.

The shift in leadership has seen some of the bigger names (like the Mag 7) start to slow down. Keep an eye on that. Tariffs are an issue. But the USD is a bigger factor; if it continues to go up, that can negatively impact multinationals regardless of whether they actually make something or not.

What's interesting about this year is what didn't happen. We didn't get a big correction in the summer, with August and September usually being weak and choppy. This year, the whole correction got compressed into about a week. Right at the beginning of August, we got a ton of volatility. And then it sorted itself out, and markets resumed their upward course.

Now we're in the time of year where markets are historically strong. So it's quite interesting going forward.

RSI is showing us primarily that the leadership we had before has changed. Even within technology, the first half of the year was dominated by semiconductors. Now they're coming off, and the sector has been dominated by software and communications.

Post-election, drug stocks have not done as well. Aerospace and defense have struggled through November. But we've seen good strength in financials, industrials, and consumer discretionary. A broadening out of the markets. We've also seen small- and mid-caps start to come back.

Intriguing. Fantastic run for much of this year. Nice uptrend recently broken, may be moving into a sideways trend. After a run, not unusual for gold to go into a consolidation range for a few months.

Starting to see a symmetrical triangle formation on the chart. We've had lower highs, but also higher lows -- struggling to get upside, but still has support on the downside. Recent support around $2600. $2500 is a huge round number so it's a psychological marker. $2400 is the previous breakout point. 

Using Fibonacci retracement you could get some kind of retracement in the 38% range, around $2600, and we're just kind of sitting there now. Looking at the chart for gold, you can see the breakout earlier this year at $2000, with the peak about $2800. That's a move of 800 points, so a 50% retracement is a move of 400 points which would put you back at $2400, which is a previous breakout point. 

Based on a mathematical equation. Helps you measure how big a correction or advancement could be. Most people tend to use it for corrections. The feeling is that there are 3 levels of note -- 38%, 50%, and 62%. These numbers come up all over the place in all kinds of relationships, not just those related to the stock market. For example, 62% is the relationship between miles and kilometres :)

If you take the height of the consolidation pattern (for example, resistance of $10 - support of $7 = $3), and add it up again, you get ~$13, at least to start. That's what we'd be looking for over the shorter term. 

Nothing wrong with that. You're better off averaging up on a stock that's been showing good performance, looking good technically, with good momentum or RSI. If a stock looked good before, and it still looks good, why not?

Better than the opposite, which is averaging down -- a mistake that a lot of investors tend to make. You could end up chasing it downward for quite some time.

Definitely a negative for the economy, particularly the manufacturing sectors and export sectors. Canada has dealt with US tariffs in the past, so many with softwood lumber alone. Tariffs come and go, and we've worked through them before. Something to keep an eye on as they play out.

Near term, definitely a negative on the CAD. Under pressure since tariffs were announced. It's broken down past 72 cents, now getting close to 70. If we see continued weakness in the CAD, may mean the BOC may not be able to continue cutting interest rates as fast as they have in the past. Sometimes in the past, the BOC has actually had to raise rates to defend the dollar.

Great question, especially with OPEC+ meeting next week. Here's how he looks at the oil price. On the upside, how high can it go before you hit the pain threshold of the Americans? On the downside, the question is what's the pain threshold for Saudi Arabia and Russia before they do something about it?

So far we've consistently seen that if we get too close to around $65, then the Saudis and Russia start cutting production and stop talking production increases. Downside is around $60-65, upside right now is $85-90. Right now, we're drifting to the lower range.

Payfare (PAY.TO):

PAY.TO is a Canadian fintech company that provides earned wage access (EWA) to gig economy workers. A gig economy worker is a contractor, freelancer, or flexible/temporary employee (Ex. food delivery driver and Uber drivers). Through PAY’s digital banking platform, it helps these workers get instant access to their money. Earnings are paid out instantly through a free digital bank account powered by PAY. This was a very strong value add where the traditional direct deposit system would take a few days for money to reach these workers accounts, and for many gig-employees that delay would be troublesome (Ex. Uber drivers needing to pay gas expenses after a day of rides). The business model made plenty of sense and PAY had contracts with blue-chip customers and the biggest employers of gig-workers including Uber, DoorDash, and Lyft.

Concerns For Investors:

1. Concentration Risk- PAY was evidently overly reliant on its DoorDash contract. This was actually a risk that had been identified in the company filings. In its second quarter MD&A filing under the Liquidity and Consumer Concentration risk section, PAY notes, “Customer concentration risk is the risk whereby the Company’s ongoing business is materially dependent on one or a small number of clients. At present, the Company is largely economically dependent on its payment services agreement with DoorDash. A loss or non-renewal of this payment service agreement would have a significant financial impact on the Company. The Company is mitigating the counterparty risk by initiating business diversification strategies and the implementation of new customer prefunded instant payment solution programs and services.”
2. Replicability- While Fintech can be an exciting space it has been highly penetrated as barriers to entry are quite low. We thought a plausible risk was some of PAY’s large customers developing their own solutions in house, or other competitors entering the space and saturating the market.

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Election of Donald Trump has turned the market on its head with a new paradigm. It'll be interesting to navigate over the next few months until the inauguration. Threats of tariffs -- what exactly will be enacted and what won't? Cabinet picks have been diverse from many different fields, sometimes from left field. Questions about what changes are going to be brought in and how they will impact different sectors.

At the end of the day, still sees a Fed that's easing, central banks globally reducing interest rates, money supply is still increasing. Inflation will come down further in 2025, employment picture still looks rosy. Still thinks it will be a good year in the equity markets.