May 18th Episode
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Welcome to Money Talks. My name is Mike Campbell, and I sincerely appreciate you taking the time to be with us, especially on a long weekend. I really appreciate when people tell others to join us for Money Talks, because for me, it shows a commitment to sort of elevate the level of discussion. I'm not saying about agreeing with anything I've got to say, but the more facts we have, I think considering other points of view is important. All of that, and it's a testimonial to you taking the time to listen. And we've got a great show to listen to.

You know, I've had a question about why in the States do they offer 30 year mortgages and we only have really usually it's a five. I know you can get a seven, et cetera. But the point is, why is that the case? Because they've been shielded from this sharp rate increase. Well, we're sitting there worried about what's going to happen at the end of this year and 25 and 26 when people renew. I'm going to talk to Kyle Green about that.

What's the deal with that? I've also got Joseph Schachter, arguably the hottest part of the market still. You've got NVIDIA, of course, and that tech. But on the other side, when the commodities, you've got oil. I'm going to get his long-term and short-term views about what the opportunities are there. Plus, we've got Victor Dare is going to join us. Mike Levy is going to join us. But first...

You know, there's a lot of talk about the proposed increase to capital gains taxes. And besides the fact that the implementation is only five weeks away and the government still hasn't published any details, I think a key point that most of us don't seem to realize is that the proposed changes aren't based on research. In fact, it runs contrary to a large body of research on what's the most effective way for governments to raise taxes with the least damage to the economy.

I would assume that should be the goal, not punishing success, hard work and entrepreneurship. But that is the fundamental question. Do you think major financial economic policy should be research-based? Now, I could talk about that with other policies, but I'm focusing on economics and finance.

Now, to be fair, and I think it's also noteworthy, no, the prime minister and the finance minister, have you noticed, haven't even pretended that the increase in capital gains is good for the economy or addresses Canada's urgent economic problems like declining productivity per capita and capital investment.

In fact, increasing capital gains is a big negative. As Chrystia Freeland's immediate predecessor, Finance Minister Bill Morneau, who rejected raising capital gains taxes, he states, in quotes, it's clearly a negative to our long-term goal, which is growth in the economy, productive growth and investments.

As University of Calgary economist Trevor Toom points out, among many, many others, I'm thinking Jack Mintz or Don Drummond, John Robson, the increase in capital gains is a disincentive to attract capital and improve productivity. I think that's all part of this, though, because I don't see the commentary understanding this. I think it's obvious that long-term productive growth of the economy, attracting investment capital, is not the goal of the federal liberal NDP government.

And I think that goes a long way to explain why Canada is in the midst of a long-term decline in productivity, growth, and capital investment. I mean, we've just gone through the worst eight years since records were being kept. And that's bad news, as the Bank of Canada points out, because it has severe negative implications for our standard of living, especially for younger generations.

Okay, but what about if you actually did want to raise capital with the least negative impact? As I say, the government doesn't seem too concerned, but I thought it's important. As I said, there's a large body of literature that talks about raising the funds, least negative impact on job creation, attracting capital, economic growth.

But the research is clear. Consumption taxes have the least negative impact. I think the reasons are very understandable. You know, unlike when you increase income taxes on individuals and corporations, consumption taxes don't discourage me from working or investing. Hence, comparatively speaking, they have the least negative impact. And corporate taxes, well, they're the most harmful, mainly because corporations are portable.

For example, StatsCan says, and it's been one of our problems, that between 2012-2021, 1 in 25 head offices actually left Canada. BC led the way, by the way, since 2018.

You might remember companies like Incana left altogether. You got others like Goldcorp who were taken over and now moved their head office to Denver. But you got others like Target, Nordstrom, Sears. They simply closed shop and went back to the U.S. I mean, in all those situations, it costs us tax revenue. I mean, there are a lot of variables involved, but the bottom line is it costs us tax revenue. And, you know, so yes, there are other factors, but the regular value cost and taxation plays an important part.

The point is, though, that they'll take their tax revenue with them. We got a lot like this past week. We had Canfor shut down some operations in B.C., which will decrease government tax revenues. But they still do all of their investments in the U.S. where they didn't do any cutbacks. Now, I appreciate government and supporters, you know, are interested in other things like wealth redistribution. But they don't seem to understand the importance of attracting capital and that we're in an international competition for capital.

So the bottom line is that the debate is over whether tax policy should be based on research with the goal of raising tax revenue with the least economic fallout, or alternatively, as is the case with the proposed increase in capital gains, you've got tax policy that's driven by an ideological focus on wealth redistribution to support bigger and more interventionist government. Well, that's the choice before Canadians today. That's the context for this. That should be the context, at least for this debate.

Hey, by the way, I want to remind you, May 28th, we released the big video on our update to the World Outlook Conference. So many good speakers are with us. And you look at some of the, Joseph Schachter, by the way, is going to be with me in a minute and looked at his review from what he recommended in the Outlook Conference, done great stuff. But we'll have Greg Weldon with us.

We're going to have James Thorne, who really made a nice call on Bitcoin there and other things, I should say. We've got Paul Beattie. Going to talk to him about that. Martin Straith from the Trend Letter. So what we're doing is just getting an update. Where are we at now? I know what you did for me. Thank you. But where are we at now? Where are we doing going forward? Now, if you were at the conference and you had a VIP ticket,

Well, you get that absolutely free. But even if you weren't and don't have that ticket or you didn't attend the conference, it's easy to get a hold of the copy of this. Mike's Money Talks.ca. Mike's Money Talks.ca. It's only $49. Available May 28th. So take advantage of that. So much more coming your way. As I say, stay with us here on Money Talks. ♪

I want to talk oil and gas now, obviously a huge subject, especially in case and in terms of your performance of your portfolio. I mean, you want to have been involved in these. And that's why I'm pleased to get Schachter Energy Reports. Of course, he's the author, Joseph Schachter. Joseph, thanks for taking time with us. And as usual, especially in this file, there's no shortage of things to talk about. So I'm going to start with just a real broad based question. Like,

I want to talk about the geopolitical impact on oil prices. Do you have a broader perspective on those prices?

Well, first thing, we've had a fabulous run in the sector. We were under $70 at the beginning of the year. We got up to $88, $87, $67 after the battles in Gaza with Hamas and Israel and the concern that Iran would get involved after the attacks there, shooting down all of their missiles and drones, which the Americans and others were involved in, and British and others were helping.

We're now about 79 and a half, and we've come down because inventories are building. It's normally at this time of the season, you know, after winter, you have a shoulder season and then things pick up again for the summer driving season. So if you have 102 million barrels for the year on average,

You'll have 103, 104 in winter. You'll have maybe 98, 99 in the shoulder season of the spring. Same in the fall. And then winter of 24, 25, we'll get back to 103, 104 and then grow in 2025. And the key thing people have to realize is the U.S. is showing some growth in demand, about

0.4%. So a couple hundred thousand barrels a day. The one we've got to be keeping an eye on is China and see when they get their economy together, but they're not. Exports have been a problem. Manufacturing has been a problem. Consumer issues have been a problem because of the real estate disaster in the country. Right now it's probably a $5 war premium still because of what's going on in Israel and Hamas.

So if you look at the pricing, we think we're going to go below 75 during the shoulder season. But once we get into the summer driving season, I think we're going to start seeing that price rise come again. We're very bullish on the sector longer term. I think we'll see $90 WTI during Q4. I think we're going to see in 2025, we'll peak through 100. So people could look at any time there's a pullback in the sector.

and buy because we have stocks that are up 50, 60% from the lows at the beginning of the year. Some of them have pulled back. There's great bargains in the energy service sector. The natural gas stocks are doing well. The surprise natural gas was trading at $1.50 in April, and we're $2.60 today, up a dime. So we're beginning to see that the storage is not building. U.S. LNG exports are picking up. And in the fourth quarter of this year, the coastal gas line is going to get bigger.

get filled with natural gas, and that's going to help the Canadian sector. So the bargains and the Canadian natural gas sector are very, very attractive for people. And we've been focusing on both the energy service because the drilling activity, fracking activity will pick up. Northeast BC will be humming in the fourth quarter and then 25, 26 on.

to fill LNG Canada, maybe LNG Canada 2. Cedars is moving forward with Pemina, a June decision for FID there. So there's a lot of potential on the West Coast. You and I were talking about this 10 years ago, and it's only finally now becoming a reality. But the Canadian natural gas sector has a lot going for it.

We've seen heavy oil do well and drilling in Canada has picked up for heavy oil to fill the TMX pipeline. The surprise, though, is there's an issue with fluids. There's an issue. Are there's enough tugs to move the boats in and out? And the most recent one is they can't bring big ships in. So they're taking smaller ships and then taking them offshore and then loading into large ships.

crude carriers to take it to Asia or down to California. So there's a little bit of growing pains with this and maybe a little bit of lack of planning to make this thing go. And of course, the government of Canada is going to have to write off quite a bit of TMX, just like we saw TransCanada write off a lot of Coastal before the First Nations and others will want to come in and be the buyers and owners of those projects.

In the meantime, there's several things you've said there. I want to come back just for a sec. Short term, long term, long term. You're still very bullish on it. And I'll reiterate what you said is that you take, you know, these dips as buying opportunities because but bottom line is oil prices. You know, the pressure is upwards. And I'm talking as we go out two years and three years and four years.

Yeah, I think that, you know, people need to take into account that commodities have not had a sufficient amount of investment. Look at copper prices. Copper prices were, you know, 360. They're over $5 a pound now. We're seeing nickel prices do hot, you know, move aluminum prices. We saw some even, you know, commodities that we consume. We saw cocoa go up. We saw coffee go up. They're backing off a little bit now, but they have fabulous runs. So I think the basic raw material inflation is there. Uh,

You saw today a report from the IEA saying that there's a shortage of critical minerals and that it was a major report saying we need to spend money on investing. If we want to have more solar, more renewable, more wind power, more EVs, a lot of money is going to have to be spent. And those countries are going to want a higher quality of life. They're going to want to have nice housing. They're going to want to have electronic appliances. They want to have their own cars.

They want to have electricity 24 hours a day if they want it. So that is going to require a lot of money to be spent. And all of these raw materials, you know, I'm not a mining person, but the argument of shortages in copper and aluminum, nickel are very clear. Just like I think when you realize we're not spending enough money replacing the decline rate in oil and natural gas and a major cycle is ahead of us as

We try to get China and India to not build as many coal-fired plants as they're doing for electricity and convert to natural gas as it becomes available. And of course, the big thing, everybody is data centers. The demand for electricity is

and also we put replacing and repairing and strengthening the grid is going to require a lot of copper and of course it's going to consume a lot of electricity and I think if we want to see EVs as the governments want in you know 2030 2035 the systems are not there in place and a massive capital investment in raw materials and then the building out is going to be important and that's why

You know, the natural, you know, natural gas to me is the two is the more favorite commodity for me, because I think you get to five, six dollar, you know, eco, you know, by the end of the decade. That's going to, you know, even if costs go up, which they will for drilling and fracking and pipelines and tariffs on lines will go up. The margin will be significant, as we saw, you know, during, you know,

in 2022, we saw some very high prices then and big cash flows for the industry. And I think people should look back to that and say, okay, we get back to $5, $6 gas. What's that going to mean to companies? And I think they'll be shocked how profitable the industry will be.

Let's talk about Canada versus the U.S. in terms of companies. Of course, you're looking at everything, but I would think that the TMX pipeline, for example, would be good news because finally our oil producers are getting a higher price. They don't have that big Canada Select discount anymore anymore.

And again, I'm not working in this the way you are, but it would seem to me that would be a positive. I think the number I saw were sending about 890,000 barrels a day down. You know, they get on average $9 more. Well, that's got to translate to the bottom line for some of our Canadian producers. Yeah, there's two things about this is the...

The TMX is moving more oil. It can handle 890,000. I don't think they're getting there every day because they're still concerned by the producers about what the tariffs are going to be. And there's some dialogue going on there.

And so I don't think we're getting the full use. And then the takeaway from the B.C. coast is an issue, as we talked about just a few minutes ago. But the key thing is we've gone from a $15, $16 differentials to $11, $12 differentials. All of that goes to the bottom line. But the big win for the industry is the Canadian dollar.

Instead of a par parity dollar, which we had a decade or so ago, we're now sitting at 73 cents. So you multiply 1.37 times that 79 and a half dollars, and that is Bitcoin for the industry. And that's why the cash flows for the oily focused companies

have been very, very strong, even though they're down from a year ago, but they're still quite strong. The natural gas companies, if they hedge properly, are having decent numbers. Those that didn't are showing weaker comparisons. But the key thing is by Q4, and if you look at the forward curve into next year, companies are hedging a 310 and 320 ACO per MCF. And if your input costs are $1.10, $1.20, that's a pretty good margin in anybody's business.

You know, and again, this is by nature, it's oversimplification. But, you know, so if somebody was coming in, they say, I want to get involved in this sector as an investor. You know, I want to make...

So you would, am I right in assuming that you would recommend looking at the Canadian companies before you'd look internationally or, you know, U.S. in particular because of that kind of a discount, you know, the 40% discount, you know, with that $0.73 for our operators? Yeah, and the Canadian companies are cheaper than the Americans because, you know, we're

they've not been attractive. The political side here, people are concerned about a little bit, but security of supply, the reserve basins and the quality of our base in the Montney, the Duvernay, you know, the oil sands. We have a fabulous asset here that if we had the right political attitude and approach to the industry, we could be a fabulous generator of wealth for the country, for the federal government, for the provincial governments, and for the people

working in the industry and the economies of where the, you know, like Alberta is all, even though oil sands are in Fort Mac and Montney is in Northwest Alberta, it's going to generate a tremendous amount of wealth because the G&G, the geology, geophysics, the finance, the heart of that is Calgary. The manufacturing ability to grow the oil sands and stuff is in Edmonton. The government's based in Edmonton. Red Deer is a big win. Grand Prairie is a big win. So we could see tremendous wealth effect

in Alberta. And then again, Northeast BC is going to be a juggernaut because that's where, you know, the companies are grabbing land and drilling, dealing with the First Nation issues, getting those resolved, getting them on side and getting them to have industries and have the staff trained so that they can work with the industry so they have a wealth effect

for the First Nations communities. And we're seeing that happen. And more and more companies are working with them. And remember, there was the blueberry issue for one of the First Nations in northeast BC. That's resolved land issues. Drilling licenses are being approved. And more and more activity is going there. And the industry is now putting in pipelines so that the natural gas can go to the West Coast

but the liquids, the natural gas liquids can be moved to the Fort Saskatchewan area where they're then mixed with the heavy crude so that you can move it through the pipelines.

Yeah. Let's talk about specific stocks for a second. Now, you know, you're at the World Outlook Conference, of course, and the portfolio you put forward there has done extremely well, you know, you know, with some real stars in it. But again, people always want to know what have you done for me lately? You know, and I might say, by the way, one of the measures I would use to the success here, not just of Schachter Energy Report, but I mean, I'm talking the industry, is that how your company is growing.

you know, that there's so many positions to look at. There's so much detail to review, et cetera. And I'm just, you know, I find that, you know, a great bellwether of, you know, that this is hot. Alberta's hot.

Schachter Energy reports hot, you know, more people working in that business. And let's talk a little bit about, you know, again, I don't want you to give away the barn here, but give me a couple of examples that sort of fit the narrative that you're sharing with us today. Yeah, we've been focusing on the natural gas side. So Paramount, Birchcliff,

There's a large number of names, Pinecliff, there's been a large number of names that we'd like that are covered. And we have a section now in our reports, which we call Top Picks Now, which we just started this year because all stocks rotate, some are bargains at other times, some get ahead of themselves.

And like right now, we don't really have any recommendations in pipeline and infrastructure because the stocks have done extremely well. Just for example, TransCanada or TRP, the stock low was $43.70 in the last 52 weeks. The high was $55.99. It's $53.06 today. So it's had a good move plus the nice dividend yield that you're getting there.

But the drillers are cheap. You can buy, you know, you can buy Ensign Drilling, Total Energy. Total has been at your conference, waving a flag. Dan Halleck, the CEO there. Then you could go to the frackers, Step and Trican. Those stocks are very cheap, very strong balance sheets. And again,

as we go and drill more wells in Northeast BC and in Montenay Duvernay, you're gonna need bigger fracks, more sand, more powerful equipment. And of course, everybody's moving to the DGV4 so that you're not using diesel fuel, you're using natural gas fired, which of course is better for the environment. So there's a lot of bargains right across the board. And every issue that we have now, when we do two a month,

pick out top picks within each of pipeline infrastructure, domestic natural gas, domestic oil, international E&P, and energy service. And last issue that we did, we had four of the five top picks where stocks had backed off. And some of the ones that we started with, like we recommended Paramount two months ago in March,

and it was $26, it's 32 today. So that plus a nice dividend, they're paying 15 cents a month, that's a pretty good attractive total return. And you've seen the same thing happen in many other stocks out there. So I think that people should be deciding, do they want to own

buy an ETF? Do they want to own a mutual fund? If they're more hands-on, which a lot of the people who are involved in MoneyTalks and come to the World Outlook, they want to talk to management. We have our conference, Catch the Energy, in October. And Victor this morning informed me that he'll be coming out again, which we're very pleased. He'll be hosting the MoneyTalks room. And so there's a lot of companies out there

that we think that people should be looking at. And we do that right up. Right now, we're spending a lot of time on the Q1 results that are coming out. And we've seen some disappointments, but we've seen a lot of companies that have done very, very well. For example, Step had a record revenues and record quarterly profits in Q1 for the company. That's what you want to do. And then own those companies because we are still cheap based on historically. There's three valuation metrics.

PDP, Proved Developed Producing, which is what the bank lends again, proven, which includes non-producing, and then probable. And right now companies are trading at the PDP or some are trading below PDP. And at the top of the market, they trade at 2P. So the difference in that gap,

is like three and four times. So there's triples and quadruples even at today's price point. But if you have the price of oil go to 120 or 130, natural gas to four or five dollars, that increases those reserve values, plus if they increase production. So we're looking at the opportunity in the sector between now and the end of the decade for five and ten baggers, which I know you've seen me say I've been cautious at times and rule on the sector.

I'm in the camp now that anytime there's a weakness, you buy because we're looking at five baggers plus in many, many names that we cover. And we cover 36 companies. We started in 2017 with 20 companies, and now the team has built it up to 36. And we have three or four names on the watch list, so we'll probably be adding names during the summer after I finish this, the quarter one cycle review of the companies.

Well, I also want to mention one other thing is that, of course, as you're expanding, you're putting a lot more people involved, all of that kind of stuff. But here's a beauty for the Money Talks audience, because as I say, you give specific recommendations, you know, every time. But for the Money Talks audience, I'll just make them aware because it reinforces one of my things about the cost of things going up. And you're finding that out as you hire more people, do more things, expand. So the cost of the Schachter Energy Report is also going up.

But this is what my point was. You can avoid that by if you subscribe to the report, $799 a year before the end of May,

Well, you're home free because you're locked into that price in subsequent years also, as opposed to paying $200 more, you know, going on. Also, you could do it by quarterly too. And we do have a discount and I'll let you know all that. But the quarterly discount is $50 off that. And I'll put the code out for everyone because you'll need to enter it to get that. But $75 off the annual fee. But I think, Joseph, again, you're just making my case about inflation, by the way.

And people have to take action to not be nailed by everything. But this is a great example. You're saying, look, seven years, seven years, we have not increased our prices. We're going to get killed. We're expanding. So prices go up. So your price of the subscription goes up. But

That's what I like. Take action. Avoid that. Do it by the end of the month. And we'll put all those details out for people. But I smiled when I saw that because, as I say, yeah, that's my inflation story. Protect yourself. Yeah, and we're seeing salaries are going up and the benefits go up. And if you add more personnel and we want to cover more companies because our clients, our subscribers,

ask us to cover more companies during our webinars. We have a quarterly webinar. We had one on May 9th and people keep on throwing ideas and say, and if you hear about this and it's worthwhile to spend the time with the research, developing a model, going to see management. And the benefit of it, of our team is we're based in Calgary. The companies are based in Calgary, having access to management, especially now when most companies,

annual general meetings or video meetings, you don't get that face time. So the coming to the world outlook and the eight or nine companies that you guys invite to come, you know, surge was there, total was there. A lot of great companies that we like are at your conference. And then at our conference, we have a bigger universe and we also have clean tech, you know, that we're doing. So, you know, this face time is really an extra value for,

which is not something that's available all the time. And I think you started it with your conference and that FaceTime is a very, very valuable access point that if you are involved in a company and you see that they're going to be at the conference, you definitely, as an owner of those shares, want to be able to talk to management.

Just very quickly, if somebody is again getting involved, I've always encouraged people, know what your timeframe is. Are you a short-termer like Victor O'Dare is, long-termer like I am? I know it's a broad question and we have to know individual circumstances, but generally speaking, if somebody said, okay, I'm going to buy in the next dip and I'm going to look at those recommendations you've got in the energy report and take

take some action. What would be a realistic timeframe though? I mean, would you say, look, be prepared to, there's ups and downs in this business, be prepared to own them for like two years or three years? Well, the energy cycles don't happen very often. We had one in 74 and 81, 99 to 2008, which I talked about at World Outlook when I've been on the stage. This cycle started in 2020. If you remember March, April, negative oil prices started

because the British hedge funds are shorting it out, shorting the contract, the nearby contract. I think this cycle goes to the end of the decade. So there's going to be ups and downs. And you can look at the price of oil between 99 and 08. It moved and there were 30, 40% swings. You look at any of the stocks that were around in those days, CNQ or Suncor, you're going to see that same kind of swings that occurred there. So we're saying when you see those swings getting to overvalued, you know,

stop buying more, hold off, maybe let the dividends accumulate, get some cash reserves. If you're a trader, maybe take some profits. But when those bargain windows come, you want to get to it. And we think the next bargain window could happen in the next couple of months. And when it does, we will be saying again, here's another low cost entry window, take advantage of that. And I think that anytime you have those bargain pullbacks,

You want to get to the position. So decide what you want to own. Are you a conservative investor and you want to own pipeline infrastructure, the big cap energy names with dividends? Or do you want to be somewhat more entrepreneurial? Do you want to own a middle middle sized firm which has a chance to be taken over by the bigger boys? Or do you want to be in the service sector or international?

but there's a lot of opportunities depending upon your risk profile, your risk tolerance, and your portfolio objectives. And that's why we've been asked by our clients to add more coverages of different names. And that's what the team is doing to provide, you know, going from 20 names at the start in April of 2017, we're now at 36. And I think sometime by the end of this year, we could be at 40, which I think is our maximum research capacity with the team we have.

And that's including an expanded team. So if we want to go up from there, we'd have to add more people. Well, and people can get more information at SchachterEnergyReport.ca, but I'm going to spell Schachter for people. S-C-H-A-C-H-T-E-R. S-C-H-A-C-H-T-E-R. SchachterEnergyReport.ca. And of course, we'll put that up all on our social media, our email list, all of that kind of stuff too. But in the meantime, Joseph, thanks for finding time for us. Oh, my pleasure as always, Mike. Time now for the quote of the week.

You know, it's now pretty much crystal clear that overwhelmingly there was a huge amount of media coverage that censored COVID, including on social media. I mean, the goal was never to inform the public. It was to manage us. I mean, the no questions allowed is so far from science as one could possibly get. But yet it was the norm. And I'll add, for many people, the credibility of the media is never going to recover from that.

But one of the most egregious examples was the effort to stop anybody questioning where the origin of COVID came from. Which brings me to the quote of the week by biologist Matt Ridley, author of the bestsellers. He did Genome, Rational Optimist and Viral, The Search for the Origins of COVID-19. In quotes, the Chinese government and its scientists have yet to admit they caused the pandemic.

But in exactly the right city, at exactly the right time, they were playing with exactly the right kind of genetic insertion into exactly the right part of exactly the right gene of exactly the right kind of virus in exactly the right way. And they showed exactly the wrong kind of openness about it afterwards. It would be a heck of a coincidence and awfully bad luck if somehow COVID broke out naturally right there and at the same time.

I'm going to bring Mike Levy in right now. Mike, it's interesting. Of course, everybody in the world looks at what the Federal Reserve is going to do, you know, and so they have their report this week and they sort of show tepid inflation growth. You know, at least I should put it that way. A lot of adjectives are thrown around, but it is slightly better at this point.

Oh, sure. It went from 3.5% in March to 3.4% in April. Mike, same thing with the employment numbers. Unemployment in the U.S. went from 3.8% in March to 3.9%. But they're figuring that's positive because the trajectory is right. This is the direction they want it to go. And the markets loved it. I mean, let's face it, the markets loved it.

They absolutely did. And Mike, today, the Dow Jones hit, today being Friday, Friday, the Dow Jones hit an all-time record high. Gold was up very, very significantly. And investors in the United States are feeling okay today.

And it's a different story here in Canada. Yeah, that's an important distinction we've made. But the economic situation is very, very different. And then, of course, that translates to the psychology that we're doing. But I mean, I find it fascinating. And I know you saw the Royal Bank kind of report talking about what they're looking for in interest rate declines.

Now, juxtapose that with the states where, you know, you've got a lot of people saying it isn't even going to happen this year, you know, a decline. Well, looking out in the next 12 months, Carrie Freestone, the economist at RBC, is looking at maybe 75 basis points in the U.S. in the next year, and she's looking for two full percentage point drop.

in the bank rate in Canada. Mike, that is so significant on one hand. Oh, good. They're coming down on the other hand. Crap. Why are they coming down so fast? And it's a dichotomy because the countries are different. Yeah. And the implications for investors, like I can be negative on government, which I am. I'm negative on government finances, government bonds. But that tells me if that is the scenario, then maybe you want to do a little lock-in at a one- and two- and three-year rate instead

because you'll actually get capital appreciation at the same time when rates drop. But what a difference though, eh? Up to 2% in Canada over a year and maybe three quarters. But this year alone in the US, maybe a quarter, maybe nothing. Yeah.

maybe nothing and jerome powell is saying that where the bank of canada is not exactly where carrie freestone is but you're getting that sort of feeling from the bank of canada that any given opportunity they want to lower rates and uh i i think they're going to do it mike one more thing just while we're talking before we go um you know u.s inflation is only only moved a tick

But people are unhappy because the prices they pay, even if the rates of increase have slowed, you tell people inflation is coming down and they think, I don't understand that. The price of all things that I buy hasn't come down. And I'm quoting.

Powell, the chair of the U.S. Federal Reserve, and even he's feeling that heat about if inflation is coming down, why aren't prices coming down? Yeah, and that's a big distinction. I know we've made it, but it's a big distinction. It's the rate of growth and inflation, but people don't care. I'm paying X at the grocery store. I'm paying Y for my car insurance, whatever it is. That's the biggest challenge is that we could go flat in inflation, but that means we're still at that

elevated level if you compare it to one, two, three years ago. And that's where the problem really lies. And I was happy to see Jerome Powell acknowledge that. And because that still gets to the heart of the matter, isn't what the rate of inflation is that I can't afford what's going on here. Well, you know, just to close our conversation, Friday was a feel good day.

The U.S. market at record highs, those who have put away that gold for the rainy day, those who have this little hedge in gold, well, gold was $2,431 in April. Friday's high, $2,416. We're talking U.S. funds, and that's a pretty significant move up. Yeah, especially in Canadian dollar terms. Mike, go out and have a great week. You too, Mike. Thanks.

Time now for the shocking stat of the week. You know, one of the fundamental ideological differences between the federal liberals and the NDP government versus a conservative one is the size and scope of government. You can decide which you prefer. But what's really noted, by the way, is that the current liberal government agenda of ever bigger government involved in more areas of society would also have been at odds with past liberal governments like Paul Martin and Jean Chrétien, who focused on reducing government spending and eliminating the deficit.

But the growth in the federal public service, the federal government itself, can be easily quantified. And that brings me to the shocking stat of the week.

Now, this is despite promising not to run deficits above $10 billion when Prime Minister Trudeau was elected, and then it would be eliminated. As the National Post's Tristan Hopper points out, that even after adjusting for inflation, federal government spending has increased from about $345 billion in fiscal 2014-15 to $535 billion this year. That's like a 50% jump.

You know, in public sector employment, well, not including the record number of consultants that have to be added on or the contracting out of services like they did with Arrive Can. Well, it's still risen from 257,000 when the Liberals took power to more than 350,000. And as Parliamentary Budget Officer Yves Giraud states, in quotes, there was no evidence Canadians benefited from service improvements that justified the extra hiring.

Interesting to note that departments met only about 54% of their goals, which they themselves got to set and were not ambitious. But keep in mind, Parliamentary Budget Office estimates that when you take the salaries and the benefits and the office space, etc., take that into account, it costs taxpayers an average of $125,000 per year to employ a civil servant.

Maybe the biggest story in finance, certainly for millions of Canadians, is they're going to be renewing their mortgage. We had a Bank of Canada with a big warning a week ago saying, hey, look out, especially, you know, as we go through 24, but more so in 25 and 26, you know, people got a great mortgage rate in 2020, five-year rate, five-year rate to 21. Well, they're getting renewed.

had me thinking about a lot of questions. And I thought, hey, I know who to go to. I'm going to go to Kyle Green of the Green Mortgage. Green Mortgages, of course, have been around for 1,000 years. Not Kyle. He doesn't look it at all. But my point being, Kyle, here's a question I've had. I look at the economic stats about what's going on in Canada.

What's going on in the U S one of the big differences though, is that their most popular mortgage is a 30 year mortgage. You know, like something like 90% of people have a 30 year. So yes, we've had the same kind of big jump in interest rates down there, not impacting people anywhere near the same as they are here. So I've been wondering why don't we have longer term mortgages? And I know they post a 10 year, usually not very attractive rate, but I'm just wondering what's behind that, that,

Again, a lot more stability would be into our system if we could have longer mortgages. Yeah, yeah. It's just a different system up here. So in general, down in the U.S., your term and amortization tend to be the same. It's a 30-year or 25-year term and amortization. One of the interesting things that you see then is in the U.S., it seems like the real estate market is slowing down more than in Canada because in the U.S.,

you can't port that mortgage and take it with you if you buy a new property. So you kind of are stuck in the same home. Whereas in Canada, we haven't seen as much of a slowdown in the real estate market because you can take your shorter term with you and move it to the new property. So that's why I think that we've seen a bigger slowdown in the US on that front. But on the flip side, we've seen a bigger slowdown in our economy because our costs are going up.

because of our shorter term nature mortgages. So, you know, a good percentage of people are in variable rate mortgages, probably about 35% or so of Canadians.

And of course, we've already seen that as those interest rates have risen, so then have the payments. But in addition to that, most people are taking a five-year term or even less than that. And I think that the issue, of course, is that a lot of those mortgages are coming up for renewal. You know, we're already seeing a lot of renewals coming up this year, but really 2025 and 2026 is where you're going to see a lot of those renewals. 2021 was the busiest year that most brokers have seen and

probably their entire career. And most of those terms are five-year terms.

I like your point, though, and I should have started with it is that, of course, it depends on the mortgage. As you say, people got variable rate, they got variable rate, but fixed, you know, so the amount they pay monthly stays the same, basically, you know, but less goes to interest or more goes to principal, whatever it is, you know, so that's an important distinction. Because again, on that Bank of Canada report, I mean, it was an eye popper should have been my shocking stat, because some people, you know, have watched like a 60% jump.

in their monthly payments coming out of one of the variable rates. And wow, and that's not affordable. I expect to see the fallout from that. As you say, look at 25, look at 26. We're not done yet. Yeah, yeah. And one of the reasons that it's different is just if you,

If you look at how banks fund mortgages, what they're doing is they're lending out money to people like you and me, bundling up those mortgages and then selling them out the back door. The reality is that when international investors are buying these bundles of mortgages, they're also making a decision to invest in that country too. So it's a lot easier for the US being the global currency to attract 30-year money because people can

can foresee and say, you know what, in 30 years time, I think that the US is still gonna be around and in a solid state. And Canada's a little bit harder to raise capital on such long terms. And so we get up to about 10 years and that's the maximum that you're typically looking at. When you go above that number, it's just the banks don't really have a funding source. It's hard to attract money into Canada for more than 10 years.

It's a great point in that I talked to EJ, your old parliamentary budget officer, a few times, but I remember specifically going back to November 220 and asking him, I mean, my goodness, the government's issuing so much paper, right, because we were having massive deficit spending. But I said, why aren't they going longer term? You know, I mean, hey, these are great rates. I was recommending to everyone who listened to me, you know, lock in, go long. It's more for me, it was over financial instability worries, you know, which I still have in some degree. But

But I said, and I said, so why aren't we selling them? And his answer, I'll never forget. He says, because there's no buyers. Yeah. Like there was nobody on the other end of that. They didn't want our 20 year paper, you know, so your point's very well taken that you can't match the loan with the security at this point. And, you know, as you say, that's a big difference between us and the States. You know, it is the currency that people stockpile.

still around the world go to. And so they can raise that 20 and 30 year money. But even on the 10 year, you know, I've heard from different bankers that it's just more expensive for them. One of the issues I heard was that, you know, let's say they take out 10 year security, lend out the 10 year money.

But then I break that mortgage. Now they're stuck with that security on the books that they don't necessarily want it. It was matched up. So they said that was getting more expensive for them. So things like that also play a part, it seems to me. Yeah, it does. And there's an interesting clause in the Bank Act, actually, in Canada, where if you fund a mortgage, if you've been in that mortgage for longer than five years, the maximum penalty is three months of interest.

And so they cannot charge the interest rate differential penalty. So if a couple of years ago people took a bunch of 10 year money and they're at, you know, two and a half percent or 3%, there, there gets me points where, um, uh, you can actually break those mortgages and nobody would break it if you took it at just a couple of years ago. Uh, because of course you're at a lower rate than where rates are at, but if the flip side happens, so people take 10 year money today and then rates drops considerably,

People could break that mortgage and just pay a three month interest penalty at the five year mark and get out of it and then redo it and get a new five year term. So it's very risky for the bank on the downturn because of the Bank Act in Canada.

No, that's such a wonderful point. And of course, if they're going to pass on that risk, that extra expense, that partially at least explains why the 10-year rate never looked that attractive. I mean, my five-year just looks way better. But that's a great explanation of why that is.

I guess then we heard this year that there are banks extending amortization periods and things like that. How prominent did you find it in your business? Your green mortgage is a very big broker. You do a lot of business. Did you find that all of a sudden a surge?

Yeah, so one of the things that happens is that's more so we would see it, but we don't deal with it and negotiate that a whole lot. So usually what would end up happening is if somebody is in financial distress, then we would usually encourage them to, if there's no other options, of course, encouraging them to go back to the bank.

and ask for some way to assist them. And usually that would be extending that amortization. And in fact, some cases they would extend the amortization past the 30 year mark. We saw some people in some banks that were extending it to 40 year amortizations almost automatically if you were asking for it. So at the end of the day, the bank doesn't want to have defaults and they want to accommodate this and try to find options and solutions for people to ensure that they can stay in their home and they can still pay them

And that's something that we saw a fair bit. Another thing we see too is with the renewals coming up,

If you bought a property five years ago, let's say, and you bought it with 25-year amortization, you're down to 20 years, a lot of people are finding that they can keep the payment the same as what they were at before by re-extending it to 30 years. And I know that sounds crazy to 10 years onto the life of your mortgage, but it keeps the payments the same. And so a shockingly large number of people have opted to re-amortize it, even though getting a 30-year amortization usually costs a bit more on the mortgage, but keeping the payment the same was their primary objective.

Yeah. As I say, it's quite an environment for people to be working in. Unprecedented jump in rates. First, the decline in rates was unprecedented. Now the jump in rates is unprecedented. So people are scrambling. And I go, this is such a broad question. Just sort of I don't expect a specific answer. But someone walks in the door right now and, you know, wants to initiate a mortgage.

Are you telling them five or do you say, here's what a 10 would cost? Here's what a seven would cost. Here's the best I can get you at a five. That kind of thing is what's that conversation look like?

Yeah, it really depends on the borrower, of course. But I would say that if I was to rank the terms in order of the number of people that are taking them, the three-year fixed is the most commonly chosen term by a large margin. And then the five-year fixed and the variable are about the same. And then probably a two-year fixed, etc. So the current situation is that short-term rates are more expensive than long-term rates until you get up to five years. So a one-year might be close to six.

six and a half, 7%, two year might be six, six and a quarter, three year drops to five of, you know, five and a quarter to five and a half, somewhere in there. And then the four and five year are only about 0.1% or 0.2% lower in most cases, other than insured mortgages. So you get diminishing returns to go longer than three. So the three year seems to be that good mix of not too short of a term where you're paying a high rate, not too long of a term where you're stuck in a rate that's fairly high, and especially with the expectations of rates will drop.

Technically, based on the Bank of Canada predictions in the swap markets where people are making predictions of where the Bank of Canada is going to go, if you get a deep discounted variable above prime minus one or so, a variable is showing that it will outperform a fixed. But those same people that are making the predictions also predicted years ago that rates would not have increased this much. And so people are very hesitant to place that bet right now.

I'm always so conservative on that. I think I've got lots of ways to play different things, including interest rates. You know, I can show people a lot of vehicles to play what they think interest rates are happening. My home hasn't been one of them, you know, on that. But I'm sure you're inundated and I appreciate you finding time for us today to share with us your expertise. Of course. Thanks for having me. Great, Kyle. Kyle Green, Green Mortgage.

Let's go live to the trading. Let's finish off the week because it's been quite a week on this long weekend. You know, Friday, explosive new highs in the Dow. Gosh, I looked at the gold price. Look at silver. You know, the list goes on. I mean, Victor, a heck of a way to finish the week.

Yeah, it was a terrific week, if you're long pretty much anything. I mean, we had the major stock indices in North America and Europe trading to new all-time highs. The Dow actually hit that magic 40,000 number. And I'll write this in my trading desk notes this week, but I went back and dug up when it was at 1,000, then it was at 10,000 and 20,000 and on and on.

And anyway, and the Dow actually is lagging, of course, the NASDAQ and the S&P. The markets, the stock markets are higher. There's a sense to me of real FOMO here in the stock market. Like it's kind of like I'm sure people are saying to one another, we got to get into this market. We can't get left behind. It kind of feels that way anyway. At the corporate level, we had all the quarterly reports. The thing here is the market is really,

besides the momentum is really been driven by expanding earnings expectations. So the price earnings ratios are at very, very high levels here. Corporations are expected to try to cut costs, which may show up in laying people off to maintain their profitability, but whatever the stock market is running your way to the upside. I,

I wanted to ask you about one of the other markets that, you know, certainly finally made the headlines. We talked about it a couple of weeks ago, but the move in silver, I mean, we pump over $5. You know, it's been one of our themes. You know, they're going to do the EV revolution, the renewable energy revolution. You're going to electrify, you know, this huge proportion of the world that doesn't have access to electricity. But I'm still looking at the actual trading, looked a little parabolic to me. And that's where we go back to some of the things you talk about, Vic, which is the internals of the market.

that maybe somebody was short the copper price at a certain price and then is forced to jump in and buy, and that creates some of the spike. But what was your take on the copper prices? Well, very much that. I mean, copper has gone parabolic. We've soared to new all-time highs in copper this week in June,

in the U.S. that's above $5 a pound. I mean, we're up 14%, I think, just in May so far. We're up about almost 40% from our lows back in February. The copper mining company ETF, CoreCore,

It's at a 13-year high. So copper is really, really strong here, and it is about the electrification. But there's something I've got to tell you. Copper is all the price going up because of this electrification idea.

But I see that thieves are now targeting the EV charging stations because the cables that they use to stick into your car are really full of copper and they can just slice them off. So it's kind of ironic, actually. I mean, you drive up in your electric car to the charging station and there's no cables. You can't plug in. Yeah.

But when you look at that, like somebody is a little confused by something I posted this week where I said, look, I'm a long-term bull on copper. We have been very clearly all the way along and now it's had its move. You know, it's the old Ernest Hemingway thing. How did you go slowly and then fast? Well, this is, you know, that's how I saw the markets. Once the move starts, it seems very abrupt. So you wanted to have a position.

but I'm nervous short-term. I can still be long-term bullish, but I just see the internals of the market have spiked it here. And I just, for me personally, that's sort of a little bit of a cautionary tale. Yeah, if you were going to buy this market right now, you would probably have to take what would be for me way too much risk. Like when I get into a market, I'm buying a market, I know where I'm going to get out before I get in. And I just think, how much money am I willing to risk on this position?

And for me, I couldn't buy copper here right now because I would have to risk more than I would be comfortable losing if I bought it here. And almost like as a matter of course, the market would just correct a little bit and then carry on higher, but I would get knocked out. So yeah, it's like that. We see the internals show us that the, the,

that net speculative position here is extremely long in copper, certainly also, by the way, in silver and gold, but not as dramatic. It's funny because I was just listening to you there and thinking you have a more disciplined approach. And my approach was, I just don't like it.

I'd go with Victor's approach on this one. But yeah, I had the same sort of sentiment that the higher you get in any price, the more risk is getting built into it. But I still love momentum trades too. You know, I mean, as you said right at the outset with the stock market, you know, new highs tend to produce new highs, at least to some degree as the FOMO kicks in, as people fear missing out, you know, and whether that's I'm going to

reorganize my portfolio because I have to publish it at the end of the quarter and tell people what I've been doing. They want to have a position. So, yeah, it's a very, you know, it's always interesting, but there's some risk being built in the higher we go here. But that doesn't mean you'll go higher. Absolutely. We can certainly go higher. You know, I put a quote in my trading desk notes this last week from our good friend Martin Mirrenbiel.

And Martin, just to make it short and sweet, was making the case that it's a new world out there right now. Some of the old ways, for instance, gold. We used to look at if the U.S. dollar was strong and interest rates were high, that was toxic for gold. Well, we've had that kind of an environment. Gold just doesn't care. It's just been running to the upside. And there...

I've always thought when trading, and one of the reasons, Mike, that if I buy something, I do put a stop in is because I know in my gut that there are people out there in the world that know a hell of a lot more than I do about whatever it is I'm trading. And they may have huge size and just any number of things could happen that I can't imagine. So I need to define my risk before I get into it.

Well, it's great advice. And that's why, as I say, you know, I encourage people to go to VictorAdair.ca, VictorAdair.ca. Look at the charts, Vic's commentary on that. It is a wild world out there, but lots of opportunity, Vic. Thanks for taking the time. You bet. Thanks, Mike. Time now for this week's Goofy Award. Well, actually, it's a bit of an update. Remember COP28? That was the latest climate gab fest in Doha.

They had an estimated 70,000 people attending, along with their massive carbon footprint. I mean, virtually everyone flew to Doha, including thousands in private jets, and they weren't eating at discount meals or staying in two-star hotels. I mean, that should have been a goofy under its own. I mean, it's always goofy, especially when you consider virtually none of the countries, and that includes Canada, are anywhere close to meeting their Paris Accord promises.

That's because in the battle between, what, ideology and fantasy and physics and reality, well, reality is undefeated. And part of that reality has been the relentlessly ignored cost of the whole thing, including how much did it cost to go to Doha? And that brings me to this week's goofy. We now know the cost of sending, are you ready, 182 people to Doha in the Canadian delegation. 182.

As I say, that in and out of itself is a goofy award. I mean, this is really a taxpayer-funded boondoggle. I mean, they fly halfway around the world creating a massive carbon footprint for what? Well, they won't bother to tell us or rationalize that expense. But we'll never know because as the Liberal-appointed Environment Commissioner has made very clear, we actually don't have any ideas of the cost-benefit analysis of any policy, any action, any regulation. The one thing that climate activists...

And that includes some politicians. One thing they don't do, practical analysis. But back to the cost of Doha and that trip for 182 people, which was originally pegged at $1.4 million tax dollars. Well, we now know it's actually north of $3 million. And as I said, what did we get in return? Nothing. Unless we can figure out how to monetize hot air.

As Instapundit and Tennessee law professor Glenn Reynolds famously stated, I'll believe it's a crisis when the people who keep telling me it's a crisis start acting like it's a crisis instead of just filling their pockets, their egos at the expense of others.

Hey, by the way, that's all the time we have. But I want to remind you once again that on May 28th, we're releasing the update to the World Outlook Conference. Lots of our great analysts there. And as I say, I think pretty much the consensus when we met in February was the kind of moves that Victor and I were talking about. You know, we're at 4000 now on the Dow, you know, but the major moves within the stocks themselves. Well, what do they think now, though?

You know, things are getting pricey where they think the activity is, where should they avoid? Well, that's what we're going to do. We're going to talk about money again. When we get the update to the world outlook conference, it gets released on May 28th, May 28th. And if you had one of the elite tickets, well, they're absolutely free. You know, you just get access to the, we'll send out access to you. But if you didn't,

If you didn't have a priority pass, then straightforward, just go to mikesmoneytalks.ca, mikesmoneytalks.ca, and just sign up. It's only $49, which is incredibly inexpensive, but $49. You get the full update. We'll send it to you. You'll get access that day. And by the way, you can also join us on Mike's Money Talks all the time because we do five minutes with Mike. Hope you sign up for that. We do it about three times a week. And of course, we've got

Money Talks tweets, and we got Michael Campbell's Money Talks on Facebook. I appreciate when you do all that. And it's a long weekend. Most of you listening on this long weekend, maybe after you've had a good weekend. I hope you do, though. I hope you go out, enjoy yourselves, and thank you for listening to Money Talks.