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

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.

Unlock Premium - Try 5i Free  

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.

Definitely. He's looking for earnings to accelerate in 2025. Even for 2026, some Wall Street strategists are expecting double-digit earnings increases of 12-13%. A lot of it will come down to how much easing we get from the Fed, and how the new administration changes regulations and such. Expects the 2016 tax cuts to continue. But what additional tax cuts will be implemented?

All that has to be balanced against the risk of widespread tariffs that will upend the global economy. Tariffs are a concern, but who knows which ones get implemented. He's not avoiding companies with tariff risk, as he doesn't think tariffs will be as bad as feared.

Yes. In his global fund, about 20% is allocated to European companies. In general, European markets trade at a lower PE multiple, but that's mostly explained by the makeup of the companies. They don't have the Mag 7 type of technology companies; they have a lot more construction, materials, and heavy industry.

What he's seeing is a European consumer that has a very high savings rate, much elevated over historical levels. The inflation picture is improving, and the rate picture should improve. This will lead to a more robust economy and consumer. There should be some nice opportunities for companies in Europe as the economy picks up in 2025.

The sector sets up really nicely for 2025 with rates coming down. Will be a bit of messiness around the next quarter with slightly elevated loan-loss provisions. Investors are already looking through that to the back half of the year.

Definitely. Multiples are extremely high relative to historic norms. We've had a few stocks driving the markets the last few years. Great market last year where returns were quite high, and another one this year. People should really be looking for quality companies, ones with very good financials and businesses that can withstand a bit of backup in consumer spending and other spending.

Overall, people should be a bit wary. As well, threats of tariffs recently would be somewhat inflationary. That could really put a pause on interest rate declines. Consumer debt in Canada is at all-time highs.

He can't remember two years back to back like this. It's really been exceptional. We had the dotcom boom back in the 1990s, and the real estate boom, but they didn't drive markets anywhere near to what we're seeing today. 

Seeing stocks like TSLA with multiples around 170x, and NVDA at 54x or so. It's pretty extraordinary that people are willing to pay that many years forward to acquire an interest in a company.

On tariffs, Canada has an advantage because we provide a lot of oil and gas to the US, as well as electricity. This supply is critical to the US, so it's a good negotiating chip. Believes that, at the end of the day, our energy companies will be a bit more insulated than first feared when tariffs came up.

Tariffs would be extremely inflationary, and that's something Trump is trying to avoid. But slapping tariffs on everything doesn't seem to worry him too much. The threat of tariffs is a negotiating ploy.

Likes the banks right now, a good place to be in troubled times. Yes, we do have to worry a bit about credit quality with the possible resurgence of inflation. But the banks always seem to pull through.

Basic Investing Concept: Preferred Shares

For those who are unfamiliar, a preferred share is a class above a common share, with holders having a higher priority claim to dividends and assets in the event of liquidation. Preferred shares typically pay higher yields than common shares, where the dividend payment can be fixed or floating, tied to a benchmark rate. Preferred shares also do not have voting rights, which is a key feature of common shares. There are other differences and numerous types of preferred shares, but the key concept is higher rights to dividends and assets while still maintaining equity ownership.
Unlock Premium - Try 5i Free  

We're generally in a time of easing interest rates over the next little while. How fast they're going to do that is the question. There was a perspective that the Fed would be easing a lot faster, but they may have to step back a bit before they commit to more easing. With the new administration and talk of immigration policy, tariffs, and so on, the Fed doesn't know what the economic backdrop will look like.

It's easy to say we're going to oust or limit all these people, but that has an impact on a lot of sectors of the economy. Tariffs may have a benefit short term, but long term there's more impact on inflation, etc. Musk and his department are saying they're going to change the way they lay off people, but unemployment going up will have a big impact on the economy.

Canadian economy is in worse shape than the US. Rate cuts may slow down a bit, but they have to bring down rates another 100-150 basis points from where they are today to get the economy going. This has an impact on the CAD. 

Trump says something about 25% tariffs on Canada, and the loonie weakens considerably overnight. Though it has bounced back, reality is that there are a number of things going to be affecting the Canadian dollar in the next little while. The CAD is going to be weaker going forward.