Hello and welcome to Download. I'm your host, Dave Richardson. And it is Stu's Days. It's a beautiful... Well, actually, it's not technically fall is it, Stu? I should be more precise.

Not yet. September 21st, Dave. We're still early. It's still summertime.

Yeah. See, I guess I'm paid to be vague and broad in my statements. You're paid to be precise and accurate and get it right every time.

And it's my anniversary, too.

What anniversary is that, Stu?

My wedding anniversary.

Oh, wow. The anniversary.

That's right. We're coming up on 23.

Wow. I'm coming up to 23, too, in December. That's pretty neat. Did you do anything special?

Yeah, we're going to Italy for a bike trip, Dave.

Oh, wow. And you're pretty good on the hills? You're ready to do that? Because I'm not sure people looking at you would be thinking that.

Well, we're going to find out. There's an advisor in Montreal who always says, don't let the old man in. So I'm going to try and do the real bike. We'll see how it goes.

The real bike. Wow. So before you go and potentially hurt yourself, as we were just talking before, you've got a lot on your mind. So we're going to go inside the mind of the Head of global equities at RBC Global Asset Management, Stu Kedwell. And we're going to go into the investment Stu. And we're going to talk about a lot of things. As we were talking, Stu, we were just observing—or you were observing because you're the smart one—that there's just some inconsistencies in a lot of things that are happening. We've got jobs disappearing in different jobs reports—we had Eric Lascelles on yesterday—and yet, stock markets are at all-time highs. If we look at Canada, the economy is not great—it doesn't feel great anyways—but maybe one of the key barometers if the economy is bad, because they're so big, you'd expect the banks to be having a rough time. And that's not the case. Are you having trouble putting everything together in terms of a way that it makes sense, or are you able to look at these different pieces and come up with an approach for how you want to position the portfolio?

Well, Dave, we talk about how companies and management make changes on your behalf. And the same thing happens when investors think about different economic backdrops, all sorts of things, they wonder if something can be done? So, in the case of US hiring, where it's been sluggish—and then they had a revision saying, in fact, there wasn't as many jobs generated as people maybe thought—the response to that is, well, interest rates can come down. And interest rates coming down can be a stimulus. So what tends to happen is investors make a series of lists of pros and cons. And when they have a con, is there a corresponding pro that could take place? And if there is, then that's often the deciding factor. In the case of the market as a whole, this belief that the Fed funds are currently above their normal level so that as they ease off what is restrictive monetary policy—obviously, we'll have to see what happens on the inflation front—but there is room for the Fed to lower interest rates. I think when it comes to Canadian banks and why are the share prices elevated when the economy seems to just be stumbling around a little bit, there's a couple of reasons for that. First, the banks have set aside a fair amount of loan loss provisions. We've talked about this in the past. They have performing loan losses and they have impaired losses. And they've put a lot of reserves away on the performing side. So by not having to do that to the same degree, it actually gives earnings a modest boost. Capital markets have been quite strong, between M&A activity, between strong trading results. So that's provided another source of revenue. Markets have been strong, so wealth management is strong. The yield curve has a positive slope. So there's been some more net interest margin. All these things come into play. And then, what is people worried about in the Canadian economy? They're worried about trade. And that file has gone quiet in terms of what we're learning about it. I think that there is some bubbling enthusiasm—quiet means still waters run deep—that it won't be as bad as people are fearing, and that, in fact, it may set the table for a bit of an economic recovery as we move into 2026. So it happens at the macro level when you ask about jobs and markets, it happens on a sector level when you think about what could be next. The stock market is always asking what could be next. Even on an individual company level. This morning we had Teck Resources potentially merging with Anglo American. Teck Resources’ share price has been pressured because one of their large mines—it's called QB2, in Chile—and often when a new mine comes on, it has teething. It takes time to ramp up to its full capacity. And they've certainly struggled getting this mine to its full capacity. And they announced last week that they were going to bring in a new expert at mine design. And then a week later, they announced they would merge with Anglo American. And the interesting thing about that is, one, perhaps it's Anglo American taking advantage of a depressed share price, but they also have mines right next to each other in Chile. So there would likely be some synergies to come from that. So whenever you're looking at a share price develop, you always want to be able to say to yourself, well, what's next? What's next? What's next? And how will that story unfold? And you have to be convinced that the «what's next» is negative for even a negative to be then more factored in to some degree.

Yeah, we were talking about earlier in the year, which again, seems prescient—as a lot of the stuff you share, which is why so many people are listening to you every week—the whole idea of, we were just right around the peak of the tariff fear, and then the news got slightly better. And this whole idea of, you hit a point where the news can't get any worse, even really awful news is better than the awful news you were getting before, and things move forward. And we've certainly moved beyond that. I'm heading out to Western Canada next week, and I'm looking forward to seeing on the ground what's going on out there with the oil price—which is down, but still okay for Canadian producers. And then what's going on with gold and silver and copper and all the metals, and uranium. And there's some signs of life out there. Things are okay out there. And then you throw in what the government might do under whatever circumstances they face with their next budget. Could Canada end up looking pretty good, Stu?

Well, do you want to dream the dream? After a fairly sustained period of worry about housing, too much of the economy invested in the housing market, there's no question the housing market is not buoyant, but it's stumbling around probably the level it might be at for a little while. So it may not be the same negative that it has been worried about in the last 12 or 18 months, say. And then could we have a little bit of a commercial or business-led recovery if we can get some confidence on trade, get some more fiscal stimulus, get some more bank lending on the back of it? A banking regulator spoke at a conference last week saying they were on board with the banks using their capital to grow the business. They weren't the ones holding it back. There's been some changes for Canadian pensions and Canadian insurance companies to lend some money in that environment, if there's new infrastructure and what have you. When there's these ingredients, you want to see how they might get pieced together, and it would be better than it is now. That doesn't get you a guarantee of it, but when you're sitting there watching, you could say, I can start to see how this could come together if everything falls in line.

I was talking with Eric Lascelles about this yesterday. If you look at the stock market at an all-time high, that says something. It's looking forward. As you say, the long nose of the stock market looking out ahead to next year. And so if we're at an all-time high, it's looking out to next year and saying things are probably better earnings-wise, and perhaps we even have lower interest rates. But the structure of the Canadian market makes it harder to make that judgment, doesn't it? Or am I wrong on that front?

The Canadian market has had a big benefit, so far anyways. The banks have been stronger. Gold has been very strong. When people worry about more fiscal deficits from governments and the yield curve is steepening, that has been good for gold and the stocks have responded. They too have had a big move, but you can go back through history and say, how do these valuations compare to the last probably great gold bull market, when I started my career. And there would still be room to go on that front. Pockets of technology have been better. Outside of that, there's been a bunch of businesses where we've seen some M&A. We've seen a domestic insurance company buy the operations of a US insurance company and seeing the share price pop. We've seen a domestic midstream company buy the Canadian operations of a US business, see their share price pop. We've seen a technology company announced that they thought their valuation was clouded by the variation of business that they have. So they're going to simplify and allow some of the faster growing businesses to surface, and maybe that will help. So we've seen these big pockets of strength from big sectors. But we've also seen a lot of individual movement where companies are doing just what you would expect them to do. They're trying to figure out ways to surface the value in the stock market. And that's usually a pretty good phase of the stock market when people are very focused on that. No one's building massive empires or doing destructive things with capital or things like that. We're in a not bad part of the cycle from that standpoint. Markets are high, and you never want to be outrightly 100 % bullish when things are high because they tend to ebb and flow as they naturally do. But it's a great response or a great reminder, when things aren't as good as that, there's always someone trying to figure out how to turn a not great situation into a better situation. And probably the area of the stock market that sits right there right now is energy. We'll see. But the interesting thing there is you have years of these companies improving their balance sheets, bringing their costs down, generating cash flows that are supportive of the dividend and what have you. And you don't have a great geopolitical or set-up backdrop in the crude price itself, but you've definitely got ingredients, should it ever take place. So I think that's the theme that we want to keep hampering on today. Asking yourself what's next? How could this unfold in different ways? That's something that's pretty important as an investor.

Yeah. You were mentioning, if we talk about oil, just one of those disconnects that I was talking about earlier was the whole idea of what's going on with OPEC and some of the OPEC countries in terms of where they're moving with production. And then your expectation of where the price would move was a different result.

Yeah, that's right. So the price had come down. They announced that they were going to pump some more barrels. It turned out that the number of extra barrels that they were going to pump was more in line with what people were expecting. Don't forget on any one of these issues, there'd be hundreds—on oil, probably thousands—of analysts trying to digest this. So often the actual arrival of the news is the culmination in the stock market rather than the start, unless it's a real true surprise. But that's harder to come by these days.

So one of the other things I wanted to talk about. We saw that proposed merger in the mining space. Is this what you would describe as a really good environment for mergers and acquisitions? Do you expect to see a lot of activity in the next several months in that space, or is it more industry to industry where you might see some of that consolidation happen? Or is it not a great environment at all? Is it just the circumstance?

We've seen it across industries. When you think about mergers and acquisitions, the first thing is financing available. Whether or not it's equity financing or debt financing. Last week, when we looked at some of the volumes in corporate credit markets, it was very high. So the financing is available. The strategic merit. There's always different phases and stages of an M&A cycle, but right now, people are focused on efficiency. I'm not just buying assets, not just for the sake of it, but I'm not necessarily starting new business lines. I'm really trying to consolidate and make my business worth more. So we've seen it across a variety of different sectors. And normally, when that is pervasive in one sector, it's often not alone. It gets in the drinking water a little bit.

Excellent. Let me tell you, the all-time peak for a great environment for mergers was 23 years ago. You're celebrating one of the great mergers of all time that happened 23 years ago, Stu Kedwell. So congratulations to you and your wife. When are you heading for your bike trip?

We're leaving tomorrow night.

Tomorrow night. Okay. So I'm glad we were able to get this important episode in. And you know, as you say, we're starting to see Canadian investors, as I'm looking at our books anyways, and it gives me a nice snapshot to see what Canadian investors are doing overall. And it seems like Canadians are warming up a little bit more towards moving into markets. And what I really like about what most Canadians are doing is they're doing it with the approach that we've talked about a lot on this podcast, which is a diversified portfolio and using a dollar cost averaging approach. So when you're playing around in 16 years into a long-term bull market and several months into a really big move coming out of the lows from the tariffs, it's hard to make that move with a big lump sum of money. But if you do it slowly, as you've often talked about, that's the way you can get in. And it's continued to be a market that's rewarded people who have taken that approach and move some money in and continue to move some money in.

Yeah, I think that's bang on. I don't know how many years we've been doing this podcast. We've had periods of highs, we've had periods of lows in the stock market. No highs or lows with you, obviously, Dave. Our relationship is as strong as ever. But just the consistency in that reminder about when things are bad, someone's trying to figure it out. I think that's a pretty good thing to remember when you're an investor.

Excellent. Stu, thanks again. Have a great trip and we'll catch up with you when you're back and find out whether you had enough gasoline in the tank to get you through those Italian hills.

Yeah. Thanks very much, Dave.