Hello and welcome to The Download. I'm your host, Dave Richardson, and it is Stu’s Day's on the farm. Stu, are you okay with that? I know you're in downtown Toronto, so it's not very farmy there.

No, not too farmy here, but since we like analogies, like for your long-term portfolio, you watch your crop grow.

Exactly. I've got a herd of Highland cattle just outside my back window here at the hotel. Because the hotel is actually a farm up in Charlevoix, Quebec. They look like yaks, but apparently, they're a Highland cattle. It's a pretty nice backdrop here for the podcast—not for anyone listening or watching, because I've got the back wall of a fairly dull hotel room—but I thought I'd mention that. But hey, we do have some excitement. I know you're excited about this, Stu, because a cherished colleague of yours, Sarah Neilson, who we have on as a guest all the time on the podcast, and we got to get her on again soon, was named TopGun. Well, you tell us, Stu.

Yeah, well, it's always a nice honor. If there's going to be a contest, it's nice to do well. The whole team did extremely well. These awards are called the TopGun Awards, which is a good reflection for long-term performance because it's not necessarily who did the best in a given point in time, but it's a rating from your peers. Who has good relationships with management? Who has thoughtful questions? Who has asked thought-provoking questions? I think all of the stuff lines up really well with investment process over the long term. The team as a whole did extremely well. Sarah Neilson was rated the best of the bunch, which is an exceptional honor, and we're really proud of her. Sarah and Irene took over some of our large mandates—Irene Fernando, last year—and are doing a great job. We're just going to keep at it, like water on stone. Everyone is superstitious around here, so we'd be knocking on wood and all sorts of things. It's like, don't touch the cup, since we're in the middle of the Stanley Cup playoffs. But this commitment to process and just the constant iterative thoughtful process has really paid off over time, and it's nice to see the team get rewarded.

Yeah, investment mind of the year. I see you've had the chance to shave your TopGun beard that you grow traditionally through the TopGun season. So, Stu, I got a good question for you here. What words would you describe my chances of winning the TopGun mind, my chances of winning the TopGun Investment Award or Investment Mind of the Year Award?

Well, it reminds me of that scene in Dumb & Dumber: so you're saying I got a chance?

No, you're missing. I'll give you a clue. Tom Cruise. Top Gun and Mission Impossible. You get it? There we go. Okay, well, enough amateur comedy hour here, but congratulations to Sarah. She's fantastic. We'll have her on. Don't worry, listeners. By the way, subscribe because then you won't miss any of the TopGuns that we have on here, including you’re TopGun Hall of Fame, I think, for your career. You got the big award, right?

Yeah. Well, knock on wood. And there's a handful of us here.

So we've got TopGun Investment Minds every week, several times a week here on the Download. So subscribe, like the videos, whatever. I'm going to have to learn how all this stuff works because I don't know how it does. But anyways, let's get into what's going on in investments because markets are doing pretty well. We talked last week. I think we were going to start with the Canadian banks because we can learn quite a bit about what's going on in Canadian markets once the Canadian banks start to report, and their global organizations too, to some extent. So it helps get a feel for what's going on all over. So who's reported so far and what did you take out of it that was fairly interesting?

TD Bank and Scotia Bank have reported so far. One thing that everyone was focused on was the Canadian economy still is stuck in neutral, and it's a little sluggish out there. With concerns over tariffs and unemployment and some things that might continue to degrade, people were looking for the banks to raise what they call their allowances on performing loans. This is like putting allowances away for future potential credit losses. That, in fact, was the case. Both banks did that. The one interesting thing for TD was some of their impaired loans came back to performing status, although those all weren't in Canada. But that was interesting. We expect this across the group, and that's just good housekeeping. As far as business goes, it's a little sluggish out there in terms of loan growth and what have you. TD Bank called out less travel from Canadians, so less using credit cards outside of the country and what have you. There is this malaise, which is fairly well understood. Then the other side was that the capital ratios were quite robust. That's something that does three things for you. When you have a good capital position, you know that you're going to get through a downturn in good shape. Both banks—Scotia Bank, today—put a small share buyback in, so you can use some of that capital to buy back your shares should you need to. And of course, what they would all like to use their capital the most for is growth. That's not immediately apparent, but there is a better tone, I would say, since the election, about the potential for some growth in Canada, maybe in the back half of the year. And Scotia Bank talked a little bit about that today. So the resource minister was out in Calgary and gave a speech. The Throne speech today. New government, hopefully, some of the discussed points around the urgency and the size and redoing the economy, that'll come into play, and that'll be a benefit to some domestic activity.

Other than the Highland cattle outside my back window here, we might actually see animal spirits revived in Canada from a market perspective?

Well, it's coming on two fronts. Hopefully, domestically, I think we're all in the soup, so we feel it. There's a lot of houses for sale. There's some issues that need to work through the pipeline, but nevertheless, there was great electoral turnout, and I think there is a bit more excitement around what could come on that side. And then globally, with the US dollar peaking and some of the big weights that people have in US stocks as they start to move those into other countries, we do see a little bit of that. You never know for sure until Stats Canada comes out, but the trading desks are very good at trying to pick up the crumbs and get an idea who it might be. I do think we're seeing some foreign appetite for Canadian stocks in the last couple of weeks as well. There are two fronts to this.

And so historically, Stu, because we've been through several periods, even working together over the years, where capital is flown away from Canada and then capital flows back in. When capital comes into Canada, what are foreign investors usually looking for in the Canadian market to get into?

It tends to go to the big domestic sectors, which are financial services and energy to some degree. I think that's not just for Canada. We're seeing that around the world. We've seen Japan, Europe, a variety of countries start to do better. I think we've discussed this, but the US was such a strong market for so long, and when you break that outperformance down, you have a chunk that was due to a stronger US dollar versus the rest of the world. Whether or not the US dollar weakens significantly is a good discussion. I know you've had Dagmara on and what have you to talk about that. But the idea that it strengthens to the same degree it did in the last 10 years is likely not to repeat. We know that one for sure. Valuations have expanded. That was another chunk of the outperformance. And earnings grew faster. So valuations are unlikely to expand to the same degree again. And then on the earnings growth standpoint, some of the things, we're seeing all these big numbers, those many billions into data center, this thing, that thing, that can help broaden what people think about. So it means some of the industrial stocks start to do better. Some of the companies involved with people taking their NATO allocations up on the military side. More energy. This more capital intensity, that can start to benefit some sectors elsewhere in the world. It means more loan growth. So financials represent a bigger chunk. We've gone through this long period where the US was the only game in town. Just because others might join the party, the end of US exceptionalism or whatever you want to call it, sounds very dire. It's really just that the party is more balanced rather than just having one band leading the show.

The DAX hit an all-time high today. I believe the German index. The Canadian market, its bounce back. It has been very strong. But it comes along with the US market, which the S&P 500 peaked, I think, 6,100 in change, fell down to 4,800 and change, and sitting around 5,900 today. That's still a pretty nice snapback in the US, but we're seeing other markets actually do a little bit better than the US. But as you say, it doesn't mean the US has to necessarily lose. It just may fall a little bit behind on a relative basis, and that does create some real nice opportunities for investors to diversify. Because we've just seen too many Canadian investors—first of all, I'd say the longer-term argument is Canadians tend to be a little bit too overweight in Canada to begin with, but then the place they go is just over the border. But there's lots of different places you can invest. And then again, for those who are more comfortable staying in Canada, Canada maybe picking up some of that slack on the performance side ends up being good for those investors. This is something we always like because we like investors winning. That's our favorite thing.

Yeah. Then we've done the tally of the pros and cons. The pros, as we think through them, valuations are better in some non-US markets. We've talked in the past, another positive is that the US Federal Reserve could lower interest rates if they need to stimulate the economy. And again, in the last week, we saw a little bit of the two-step on «I'm going to increase European tariff, I'm going to take them off». So here we sit, from last week's podcast, we're basically at the same level. We went down a little bit and then we came back up. So the three things that we think about positively in portfolios are starting valuations in the average stock. The US Federal Reserve could lower interest rates if they need to stimulate, and the do-si-do on the tariffs continues. The negatives are the do-si-do causes a bit of a hit to confidence. The other thing is that as fiscal deficits ratchet up around the world, the bond market hasn't taken it fully in stride. They've tried to express their dissatisfaction. We're seeing more volatility in interest rates. Just overnight, the Japanese 30-year bond had gone up and then dropped about 30- or 35-basis points. But nevertheless, it's just a form of volatility that we need to take note of.

Yeah, and you want to take note of it when those things are happening. Again, to put in perspectives, a 35-basis point move on a 30-year Japanese treasury, that is not something that happens every day. That is a very rare occurrence when you see that kind of a move. That just speaks that there's still some things going on in terms of uncertainty around the market that you've got to be conscious of as an investor in terms of the strategy that you're implementing as you go around to look for where there's opportunities, to get into assets that have better valuations and where capital around the world might be shifting to investing in those areas.

Yeah, I think that's a great way of framing it, Dave. We were talking about this before, we've been talking about dollar cost averaging for so long. When your list of pros and cons has a meaningful number on both sides, that leads you to conclude about dollar cost averaging. If everyone was a pro, you'd be like, let's do it. If everyone was a con, you'd be like, red light. The headline valuation is a little expensive, the average stock better. The economy is going through some consternation, but the Federal Reserve could lower interest rates if necessary. They'll probably be a little bit delayed because of wanting to really make sure inflation is in the bottle. Trade, we’ll see. Interest rates have been a little bit more volatile. So there's pros and cons. And pros and cons tend to lead you, if your financial plan was set, on dollar cost averaging. And if the pros and cons are good, then you carry on.

Yeah. We're still in that frame of mind. We've been locked here for a while. Then again, what's nice is you're adding to your portfolio. Just in terms of where it's being allocated, you're getting a little bit more of some different things than you maybe held over the last couple of years. There was a couple of things I wanted to bring up because we've talked about them on previous episodes, but I always like to bring them forward. We're always adding new listeners, and when things are important, we want to repeat them. One of the things that I thought was remarkable—I did a video for some advisors last week—when you look at the Trump announcement around the tariffs on the EU and the Apple tariff, the 25% tariff on the iPhone, if you don't make them in US instead of India, there was a bit of a market reaction initially, certainly around Apple stock, but more broadly on the European tariff. But it was more muted than what we've seen on previous occasions when an announcement came out. As you said, the market went, okay, here we go again. When is he going to relent? Oh, he relents, and we're just back exactly where we were. It's not having the same impact that it was having a month ago or certainly three months ago when all this started.

Yeah, we have an indicator that tries to put it in a graphical form, and peeked tariff happened on the same day as the low in the stock market, as was often the case. When you're in these environments, nothing's going to be perfect. But when you get into those types of extremes, you're trying to be a lot more active and trying to put money to work. Then when you get to here, you're back to a bit more of the balance. That's how we're doing.

I was out last week with a lot of investors and advisors up in Quebec, and even the investors were just, oh it's just another one. It doesn't mean that much. They're sluffing it off more and more. That'll be an interesting one to watch as we go forward. If that just continues to be the case, that we finally reach that law of diminishing returns, and you can only shock so many people so much, so many times. I think the actual one is, you can only cry wolf so many times before people stop listening to you.

I think there's some truth to that. I think the one thing that we're wary of is that it's one thing for investors to say that, it's another thing for businesses. Business is eventually where the earnings come from. That'll be the test, I think, as we move.

Well, once again, Stu, there's another one of your examples of the pros and cons. So the investor is not sluffing it off, but businesses can't. And so that's another reason for you to be on both sides of things and think about a more cautious strategy of the dollar cost averaging instead of just dumping stuff in. One more classic. So there's one example of classic Stu that you get on virtually every episode of Stu’s days—it just never stops with this guy—but we went back to January, Stu, and we were talking about the extremes in terms of negativity around Canadian markets versus the US, and the extreme in the Canadian dollar—low, versus the US dollar, high—and you introduced the idea that you get to a point where the news is so bad that even the next phase of news, even if it's bad, it's not as bad as the last set of really bad news. It's when you hit that point, that's when you know you're at some inflection point or extreme. I just think, when you called it that day in January, it was just so bang on. Now we can look back several months later and things evolve, obviously, but you feel pretty good that Canada, from a negativity standpoint, hit a bottom there. As we started the conversation today, a little bit more reasons for optimism as we're sitting here now at the end of May.

Yeah, I think that's bang on.

Well, there we go. If you're a TopGun, you don't miss your targets, Stu. So you were bang on on that one. When you're not a TopGun, you're missing all the time, which is why I'm going to stay away from those cattle. But I'm going to come back to see you next week, Stu, as I think everyone will. Stu, thanks as always for joining us on Stu’s Day. See you next week.

Great. Thanks, Dave.