Hello and welcome to The Download. I'm your host, Dave Richardson, and it is time for Captain Canada. How do you like that for a nickname, Scott Lysakowski? You probably like that.

Yeah, I'm a little bit more dialed down and reserved than that, but I'll go for Captain Canada. Maybe we need a captain right now, so I'll take the lead.

Well, since you're in Vancouver, we wouldn't want to call you Captain Canuck. Then you would be leading a ship that’d be sinking.

Oh my gosh. It has been trying. I've shared with you that I am still a long-suffering Leaf fan. So it has been a bit of a wild ride on the hockey front for me.

Then you're happy because the Leafs got the number one pick and the Canucks got the third.

Yeah, I guess so. Too much drama. Although I am going to be cheering for the real Captain Canada, when Canada goes overseas for the World Championship. So hopefully we can get a little redemption.

And you got the World Cup coming too, which is good.

Exciting times, that's for sure. Actually, I was in Toronto last week and I went to see the Toronto Tempo. I was present for the first win of the franchise. Exceptional experience. I highly recommend it for all the listeners. The stadium is great. Great vibe. Good fun. Exciting game. I highly recommend it.

The women's sports leagues are doing so well and it's a great thing. It's been overlooked for far too long and now getting the proper due. Just like the Canadian stock market. We've had you on a couple of times since the Canadian market, it's certainly been outperforming the US and doing very well by pretty much any measure. And that continues, right, Scott? And as you're going to point out to start here, it's not just gold or it's not just oil. This is a pretty good story across the board for Canada.

Well, we know that Canada had an exceptionally strong year last year. It was up 30-plus, almost 35%. So very strong results. This year, it's doing okay. This last little push that we've seen, aside from the red that we see on the screen today, the push we've seen off the March lows have been very dominated by the US and by US large and mega caps. So Canada on a year-to-date basis in Canadian dollars has actually slipped behind the S&P 500 as I look at my screen this morning. But still fairly strong returns across the board. And if you just look at the performance on a sector basis year to date, this is the type of market where you'd actually expect to see Canada do well in things like energy, financials, banks, leading the charge. That's the type of environment that you'd expect to see Canada do well in. Last year we had strength. Canada was a leading market, but it came from materials, but that was really gold and technology. So not exactly the sector makeup of a strong market for Canada. So this year, you've got a little bit more of a cyclical bend to the strength in equity markets. And of course, Canada's got lots of exposure to cyclical sectors. So it's a pretty good setup for Canada, even though it's lagged in those last 1 or 2 months.

Yeah. We're going to walk people through a presentation that I watched you deliver I guess it's already a couple of weeks ago. And then you've since gotten together with some of your colleagues in Toronto to discuss investment strategy and investment outlook. So, we'll get a little bit of an update. But we’ll walk through that presentation because I think one of the things that I walked away with—and I walk away quite often when I watch you speak with a sense of optimism—but a sense of optimism for Canada just in general, the Canadian economy, the position that Canada has in the world right now, given a set of circumstances that really were not created by Canada at all, but generally will shine the spotlight back on Canada. And if we take advantage of it, there's a really nice outcome from an economic perspective that you could see play out as we go over the next decade or two, if we can play it right.

Yeah, I'm glad that's what you took away. The main point that we wanted to impart with people as we were presenting is that there is a fairly large opportunity in Canada and for the future, the next 5 to 10 years, and hopefully beyond. And also highlighting that there has been what I call a normalization of earnings growth. I think when people think about Canada, they think highly cyclical resource, commodity, oil, gold, banks. Those are the major drivers. And to some extent, that is true. And then the other thing is the underperformance over the last 10 or 12 years. We have outperformed the last 2, so maybe we're into the next leg of Canada's relative outperformance. We've talked about it on this podcast. I use this slide of looking at the relative performance of the TSX versus the S&P 500 going back 50+ years. You could see that those relationships, the periods of relative outperformance and underperformance last more than a year. It's a decade, not a year thing. We have underperformed the US for 10 years and now we're starting to outperform, and I always say as a Canadian equity portfolio manager, I can only hope that we're on the precipice of 10 years of relative outperformance. But some of the big drivers of that relative outperformance is this normalization in earnings growth and that's not just something that happened this month with oil prices going up or last year with gold prices going up. Now, certainly those are helpful in terms of normalizing the earnings growth. But for this 10-year period Canada lagged the US in earnings growth. And so it's not surprising that it lagged the S&P 500 in price performance. But what's happened over the last 18 to 24 months, is that relative earnings growth has started to normalize and actually now both markets are generating a very similar rate of earnings growth. And in fact, if you looked at it today, Canada probably has a slight advantage for 2026. Some of this is the impact of the oil price. And so we think about this normalization of earnings growth, moving more in line with what the US market is delivering, should deliver a normalization in relative price performance. And we're starting to see that. Now, sometimes people say, okay, yeah, but that's all gold or that's all oil. And one of the points we're trying to make is that yes, gold and the rise in the oil price in the last month or couple of months, has certainly flipped the earnings contribution from the energy sector from slightly negative to reasonably positive. I think the analysts are forecasting for 20% earnings growth from that sector in 2026. And if you think about as a whole, the TSX forecasted earnings growth, like 20 or 22% for the entire market, which is fairly in line and maybe even slightly ahead of the US. I haven't looked at where the US is shaking out. Lots of things happening in the US earnings pool as well. But focusing on Canada, 8% of that 22% is coming from the gold sector. So if we wanted to worry about something, it would be a big correction in the gold price. What I do find is interesting is that the gold price had a big run-up to $5,000 earlier this year and then has chopped around, it hasn't really been going up, hasn't been making new highs. In the time that the gold price has been chopping around, the estimate revisions for the gold stocks have actually been positive. So we actually need the gold price to really dig into that 8% earnings growth, the 8% of the 22%. You really need gold to correct. Gold is hard to predict, so I won't try to take a stand there. But if we wanted to worry about something, that would be a bit of a headwind. The energy sector is contributing probably 3% of the 22 points. Banks about 9%. And then the thing I'd like the audience to focus on is everything else. And so when we think about earnings growth across the sectors—things like industrials, consumer discretionary, staples, financials, banks included in there, but technology—those sectors, they add up to a big chunk of the market. I know most of our market is energy and materials, financials. But if you take that middle of the market, you're looking at 10 to 12% forecast earnings growth, and the revisions are slightly positive. Not a lot has to happen. And you could make the argument in some of these sectors like industrials heavily weighed on by things like rails and they're still working through some of their more industry-specific issues. Or even banks are forecasted to grow earnings like in the 9 to 10% range, but the financial sector as a whole is closer to 15%. And so you have this big chunk of the market that's delivering 10 to 12% earnings growth. Not exactly 22%, but there's still some earnings growth in the tank, so to speak, just the things outside of energy and materials. So I think that's a really important story to share just on this normalization of earnings growth.

Yeah. Well, Scott, when I talk to European investment managers and we talk about earnings growth in Europe relative to the US and they say, well, geez, can Europe ever do what the US is doing in terms of earnings growth? And their answer is basically no. In normal times, it’s just not going to happen. So, for Canada to be right there running side by side. Again, some tailwinds in a couple of key areas, but nevertheless, that's pretty impressive. And then, coming off of a 14.5-year period where it dramatically underperformed the US. So, you're at different levels of valuation. And certainly, you're at different levels of valuation when you look across the Canadian market where you've got materials and financial services versus the technology stocks that are valued at crazy valuations on almost any metric. It really sets up a pretty favorable place for Canada. Then typically, these cycles last a long time as we've talked about previous times you've been on.

Yes, and that's where I think is the longer-term opportunity. The one I was joking at my presentation, it was the two-handed portfolio manager. While we're very constructive and excited about Canada over the long term, there's a bit of caution—the one I would be remiss if I did a podcast without quoting a stat—but if we think about the 12-month rolling periods. The 12-month rolling period that we've just had where I think the TSX has delivered like 34%, 35% over the last 12 months, and if we looked at all the 12-month rolling periods going back—I think the data set I have goes back into the '50s—the 12 months that we just delivered in the TSX is amongst the best, top decile, which is a fantastic result for those who were there and got exposure to that to participate in it. But the go forward, what's the forward 12 months look like? It's a little mixed. The next 3 to 6 can be fine, positive with decent returns. But if you look at 12 months, the forward 12 months from these top decile periods, you're less likely to get a positive result and I think the median return is around zero. I think if we saw some volatility in the next 6 to 12 months, of course, I think that'd be a great opportunity for dollar-cost averaging, your favorite activity, but also just to keep in mind this longer-term price that we see in the opportunity for Canadian economy, really. That's what I'll walk us through. I would hate if people say, Scott's really bullish on Canada, and then 6 months from now, the market corrects and they're like, well, that's the end of that. I knew I should have sold Canada after my 35% return.

I'm just going to jump in and say, so we're going to talk more about earnings and we're going to talk about the potential for the market. I had Eric Lascelles on about a week and a half ago—or actually not even a week and a half ago, a week ago; it was one of the most recent postings. If you subscribe, wherever you get your podcast, or if you subscribe on YouTube, because these are YouTube broadcasts as well. Again, warning, most people prefer just the audio, and that's not just me, that's many of our guests. Although you're looking pretty sharp today, Scott. But we'd love you to follow us wherever you like to listen or watch your podcast and give us a nice 5-star rating. We're climbing in the ratings, and we like that. But then you get the Eric Lascelles podcast, and we did dig into the idea of the opportunity that's created by what's going on in the world for Canada. And again, some of the choices we're going to have to make. By the way, we've generally erred on the side of, eh, it's not all about money. There are other things that are important too, which is what makes Canada special. But nevertheless, we've got an opportunity here. So, again, as you're talking about when you have a period of market returns like this—and it's not just the last year—so, the last year was a blowout year, but the two previous years from a market perspective were positive and good. So, we've really had 42 months of positive markets in Canada, the US, and all around the world. And so, it wouldn't be that surprising if you saw things calm down a little bit. But the big change from when I did see you speak—and we were just talking about this before we came on this morning—is yield. Bond yields have started this climb a creep higher. And if you look at the 10-year US Treasury, it's sitting just below 4.6%. When I saw you in Vancouver, 2 weeks ago, it was probably in around 4.25%. So that's a pretty significant move in a short period of time. And, as you said, it makes you think about where do I want to be? Do I want to be in these stocks where I've got really nice growth and good profit growth? If we talk about Canada, the dividend opportunities, we can probably get into that a bit. But would I rather own a high-yielding Canadian stock, or would I rather own a bond at this point in time? Those are the questions that investors ask. And I think for a lot of people—and this is not specific advice; always get advice from your own financial advisor—but for a lot of people, that choice is going to be stocks.

Yeah. And I just spent the week in Toronto with my colleagues having this very similar discussion. And exactly what we're seeing today with rising bond yields is what was the concern around the table. On the one hand, I think there's a lot of constructive views on equities, equity markets, valuations, earnings growth, all these sorts of things. Some of the thematics, the CapEx cycle theme—which I'm going to talk about—how Canada fits into this. But generally, that's positive for profits and earnings. The thing that we struggle with is just valuation and where we are today, which is a bit of a shorter-term thought. Even as a large firm in our balanced mandates and portfolios, we can actually be quite tactical and opportunistic around it. So I think there's just a healthy dose of caution of just where our starting point is from today but then marrying that in with a more constructive longer-term view. Typically, if you're sitting around the table going, I'm a little concerned about stocks here, you'd want to go buy bonds. But if you've got this bond yield construct facing you, it's a little less compelling. But I'll leave that to the fixed income experts when they come on the podcast. The thing that we were talking about, and it rhymes, but this longer-term CapEx cycle or CapEx opportunity in Canada or for Canada to participate in more of a reemergence of capital reinvestment in the energy industry. And one of the things that we have to think about is that these things tend to move in cycles, especially when you're dealing with capital cycles. Those are very long in duration. You just think about the money that has to go into the sector, the investments, you have to earn your capital back and then generate a return. And these things take 10-plus years. So these are very long cycle, long duration cycle thoughts. And then these narratives, these regimes are like, well, one cycle looks like this and then the next component of the cycle looks like that. So it's a little bit different. And the reason why I set it up is that there's a bit of a narrative shift taking place. Still fairly early days, but I think some of the events that we're seeing today are going to perhaps accelerate it. And so if we think about energy—let's just talk about oil for a second, but I think it's a similar construct for many commodities—but for the longest time, we've had a period in which the industry had not been reinvesting capital, and there's many things driving that conclusion. Some of it was market-driven, shareholder-driven, saying, hey, you're spending money. You're not earning a return on your capital. We want you to return that capital back to shareholders through dividends, share buybacks. We want you to get your balance sheets in better shape. And then also the commodity market was telling them that as well, saying, we don't need more of this stuff. We're good. The low price sends a signal to that. And so that takes hold. The market rewards companies for reinvesting less. There was an environmental aspect. The more you produce, the more emissions you generate, so let's do less of that as well. And as the market starts to reward these companies for this behavior, they start getting ingrained in this, like, ah, this is great. If we don't grow our production, our share prices go up. This is fantastic. We should keep doing this. And that's something that's taken place over the last 10 to almost 15 years. The energy CapEx, the amount of dollars spent on energy CapEx—and I say CapEx is capital expenditures, the amount of money you're spending on bringing on new production—that peaked in 2014 and has been declining ever since. That's fine. As a result, shareholders got a lot of their money back through dividends, share buybacks. The balance sheets are in good shape. The businesses are in very strong financial position. But maybe the unintended or negative outcome is that the reserves have been depleted. We have explained it, you take a barrel of oil out of the ground and you turn it into refined product—gasoline, jet fuel— you put it in your car, you put it in a plane, you fly home from Toronto, and it's gone. It's a depletable resource. And so we need to replace it. And for the last 10 to 15 years, we weren't replacing what we were using. And that presents itself in something the industry calls a reserve life index. How many years of production do you have in your reserve base? That's your reserve life. And that probably was in the 10-to-15-year range back in 2013-14 when CapEx was high. And that's down closer to the 10 range. Instead of being 13- or 15-year reserve life, now we're at 10 or 11. And so that got the market's attention. And when you marry it with some of the geopolitical activity that we're seeing today, I think the market's saying, whoa, okay, demand may be lessening—or the energy intensity of our economy is becoming less so, and we're using less of this—but we're still using it. And now we're realizing it's not so much are we using it or not and is there enough, it's where are we getting it from is what's important. And what's happening today where we have a significant amount of the world's energy supply being bottlenecked, I think the learnings from this episode will be we need to diversify our sources of supply, energy security, diversity of energy sources. Who are your counterparties? Where is it coming from? How does it get there? And the events we're seeing today are our second warning. The first warning came when Russia invades Ukraine. Europe wonders where are we going to get our natural gas from because we've just decided to get all of it from Russia? We should diversify our sources of supply. So it's a very long-winded way of setting up the opportunity for Canada is emerging. As we know, the market's very smart and capital flows to where it needs to go. That sounds fairly basic. But the market is looking for bottlenecks. Capital will flow to alleviate bottlenecks because where you have a bottleneck, you can charge an extra margin to do whatever activity is now being bottlenecked. And there's so many instances where this is happening across the market today and, and over history. And so what we're seeing today is that the market is realizing, okay, we need to start reinvesting in energy supply. CapEx needs to go up. And so for the last 10 years, the market has been rewarding low CapEx reinvestment. The reinvestment ratio is how much of your cash flow are you reinvesting. And so, for the last 10 years, it's the lower the better. So the less you reinvest in your business, the more you return to shareholders, the better off we are. And that's when your stock price would go up the most. It's a bit counterintuitive when you think about growth. Now, we're actually starting to see that narrative shift. And so companies are starting to get rewarded for reinvesting more of their cash flow. So the market is rewarding production growth because we're in an area where we need to grow some supply.

Yeah, I was going to say that was fairly long-winded, Scott.

Okay, let me bring it home.

Some of the listeners are going to appreciate the potential for wind power after that 5-minute diatribe, but you're going to finish it up.

Let me land the plane here. It's an interesting concept—certainly interesting to me, maybe not to others. So, okay, how does Canada fit into this? Well, I talked about our companies are in great financial shape. So they've spent the last 10-plus years spending less money on growing new supply, growing their production. They've been getting their balance sheets in great shape. They've been giving the capital back to shareholders. They've been focused on their cost structure. So we're dealing with high oil prices today, which is a luxurious problem for the oil companies because they're generating a lot of cash flow. Even in low commodity prices, they're in really good shape from a free cash flow generation, balance sheet, those sorts of things. The other thing that Canada has is we have reserves. The oil sands go through this period of great industry, horrible industry. And now I think the markets are going to start looking at this and saying, we've got these really long reserve lives. If you threw up on a chart the reserve life of the European super majors and the US integrated super majors, they've been falling. The reserve life for the Canadian oil producers has been relatively flat. And in fact, it's high and flat because the oil sands, the nature of those reserves is very long life. There's lots of it there, very low declines. You're just basically just pulling it out of the ground and converting it. It's capital intensive but once you've got the operations built it's pretty easy to maintain that level of production. So Canada has long reserve life. The other thing we have, which has been fairly contentious, but I think we're fairly happy we have it, is we have excess pipeline capacity. For the longest time we did not have that. And that was problematic. And that was certainly impacting the industry's ability to grow, among other things. But we've got companies with strong financial position. We've got long reserve life, so lots of reserves to produce, and we have excess pipeline capacity. So when we do produce those reserves, we can get them to market. And then the final piece, which is something that's more of a recent phenomenon, is that we have what appears to be a government who is willing to support the industry in its capital reinvestment. So to me, that makes an interesting combination of things that really have not been in place over the last 10 years. So I appreciate everyone following along because I think this actually could set the table for a shift in narrative and a structural change in the capital reinvestment opportunity in the energy sector in Canada to be a global player in providing fairly low-cost, hopefully lowering emission, safe and secure energy supply to the world. Canada's position in the world could rise to more of a prominent player. And that's going to be great for the energy sector, but it's going to be great for the economy and it's going to be, I think, great for the TSX earnings pools. Lots of places that will benefit from it. So a pretty compelling story for Canada to participate in providing secure, low-cost, low-emission reserves to the world.

Not far off from what we saw during the global financial crisis where the Canadian financial system was proven to be one of the most solid, most reliable, and that changed Canada's position from a financial perspective, a center of financial markets around the world and a critical part of global financial markets, which has already paid some dividends, but I think will continue to pay dividends as we move forward. But I think when we start to talk about energy, we've had a couple of examples just as you were talking, Shell coming in and buying ARC, and then the Prime Minister yesterday was talking about doubling our energy capacity over the next couple of decades. So again, like you say, you're starting to see an understanding and a movement in that direction of capital coming into Canada, hopefully, and taking advantage of that and policy understanding from an economic perspective. We need to do this.

Yeah. We want to see some more evidence, and I would say some of these trends that are emerging are relatively new. And if you read the press of what the large Canadian energy producers are saying, they're probably still a little hesitant to grow. And so that's something that may take some time. And I guess the other point I would say—we talk oil because that's the big topic of the day—but actually Canada has a very exciting opportunity and exciting role to play in terms of LNG, liquefied natural gas. And we have lots of natural gas in Western Canada as well. Very low cost, lots of low-cost reserves that can be exported to the world. And that is, I think, a little bit often overlooked even in today's environment as people are very focused on the oil price, but there are significant bottlenecks in liquefied natural gas. For the Russia-Ukraine, oil had an impact, but it was more of a gas-driven situation. And I think Canada plays an important role. You highlight Shell's purchase of ARC Resources. Shell is one of the main partners of LNG Canada, the export facility. You could make the argument that they're adding to their resource base here in Canada, which would support a future expansion of LNG Canada export. So there's just a long runway and a place for Canada to participate in this reemergence of an understanding that we need to reinvest in our energy supply and it needs to come from safe, reliable places that have access to market.

Not just oil and natural gas, though. Electricity too. Some of that's going to be generated by oil and gas, but we also have hydroelectric and nuclear here in Canada. We're a real leader in the nuclear space. And so, it's not just one story. As you say, we talk about oil and natural gas. We could talk about uranium. We could talk about copper, gold, silver. We could just talk across the whole commodity complex, which comes back to maybe one of my favorite presentations that you did—I think we were in Montreal in March of 2022—and you put up a chart of the supercycle that we could potentially be going into. And a few years later, it feels like you were on to something pretty early there.

Yeah they're hard to predict. And I think the thing to remind ourselves—the line I probably used in that presentation—was that every commodity cycle is a supercycle. They just take really long time to play out, so you might lose interest along the way, or it looks like, oh, this isn't a supercycle, but it's just we're in that phase that takes time to play out. There was one piece of good news—I would hate for someone to walk away from this podcast and go, oh man, we're ramping up our oil production? I thought we had gotten a lot further ahead. The one chart that I thought was really interesting, and actually, I saw Eric present this week as well, and I stole one of his charts, but the good news story, I think, with energy—and I'm looking at oil's $105 today, and that could be pushing up bond yields as well— is that the ability for the global economy to withstand higher oil prices has increased over the years. When we're thinking about high oil prices, I think some people say, oh, this is great for oil companies. I'm like, it's good for a bit, but spiking oil prices are terrible because they run the risk of inflation and just getting to the point where the economy can't handle it. You can measure that. We think about this concept as the demand destruction price. What sets the ceiling on the price? Where do we destroy demand? Typically, one would think that when your oil consumption as a percentage of GDP goes to that 4% or 5% range, that's when the market says or the economy says, we can't do it anymore. We need to actually stop consuming because the price is too painful. What's interesting is that if we looked at a line of that price, it's been going up and it's been going up even in the last 5 years since the Russia-Ukraine event. I think Eric Lascelles had it going back to the '70s. So the oil intensity, the amount of oil it requires to generate a dollar of GDP has effectively been cut in half since the '70s. And if anything, it's gone down even in the last 5 years, which is actually a good news story. So it tells me a couple things. The energy intensity of the economy as a whole has decreased. So that's great. We're being more efficient. And more importantly, the oil intensity of the economy has reduced. And that makes sense as well. We're electrifying things. We're trying to reduce our emissions, reduce our consumptions. Some things are just hard. You can't have a solar-powered airplane. It just doesn't necessarily work. So the good news is—and I don't know if you can think about it as good news, bad news—is that $105 oil is a risk to the economy, inflation, interest rates, potentially demand destruction, but the economy's ability to withstand $100 oil has gotten significantly greater, even in the last 5 years. I don't want to scare people, but the price would have to spike to something significantly higher than what we're seeing today to really shut things down. I don't know if that feels good or bad, but I think the point is that the economy is consuming less energy to generate a dollar of GDP and it's consuming a lot less oil. And so I think that's the good news story. But the reality is we've gotten to a place where the reserves are depleted by so much that we actually need to start replacing them. And then, of course, replacing them in places where we feel comfortable getting them either to market or who we're getting them from. So that's the key takeaway, an opportunity for Canada.

And again, we've got to be balanced. We're not going to get into politics here, but obviously, I think we're all concerned about the environmental impact of energy extraction and carbon use. So we're not forgetting that as we talk about this. We're talking about an investment opportunity and where it presents itself. And in Canada, I think in general, we try to do things the right way compared to the rest of the world. The rest of the world, we always say, needs more Canada. So that's probably a good thing overall because we'll likely do it better than anyone else. And I think that's an important sign. And we're going to do it in a lot of different ways as well. So great conversation on energy. And I know we'll come back to it again when you're back the next time because we always get into the whole world of energy and commodities when you're on. Let's just take a couple of quick runs on a couple of other topics. The one is financial services. So, steepening yield curve, higher long-term rates, short-term rates seem to be holding fairly steady. That tends to be pretty good for banks, financial services companies. So, those stocks are hitting in around all-time highs. Their valuations are stretched beyond normal levels, but again, given the backdrop, not unreasonable. You're still fairly positive on Canadian financial services?

Yeah, I'd say over the long term we would be. Banks in particular. The underlying fundamentals of a bank earnings pool are very strong. Valuation is a concern, but I think the valuation is reflecting some of that strength. And net interest margin, loan growth, those have been fairly supportive in the last little while. We've had strength in capital markets activity. The wealth businesses inside of banks have been very strong. And I think that the most important thing for banks that we're starting to see is an improvement in credit. And I think that the higher interest rates, which may be, given the movements in bond yields, that the market might get a little squeamish about some of these things in terms of baking in a full recovery. But we had higher interest rates over the last number of years that got the market concerned about credit, and we worked through a lot of that. And I think when you listen to bank conference calls—and we're going to get some results out of the banks later this month, so it'll be interesting to see how they're talking about credit because it could be a little bit more caution than what we've heard from them over the last couple quarters, but we'll wait and see. So the market was concerned about credit, and we started to see credit normalize. We always look at the provisions for credit losses as a key indicator of that. And as those were peaking and starting to roll over, I think the markets have said, okay, we like the things that are happening in the bank earnings. I'm a little nervous on credit, but once we got a little bit more visibility on credit normalizing and improving as we move through the back half of this year and into next that should be supportive for a more normalized and even accelerated earnings growth as those reserves make their way back through into the earnings pool. Now, the market is incredibly efficient, relentlessly forward-looking, as Stu says, and they bring that earnings growth forward through a higher multiple. So we've brought a lot of that forward. So the starting point today, you’d say, if you bought a bank today, what's your likelihood of making positive absolute returns over the next couple of years? I think you could be a bit challenged just given where valuations are. But that said, if you thought about the risks to banks is credit reaccelerating, that would not be good for banks but the good news is the banks are incredibly well-capitalized. That's where they've been giving the money back to shareholders and using this capital as a buffer to work through credit. And then they're going to be even more capitalized. So even if credit does get a bit of a wobble here, I do think that the banks will just churn through it. The biggest thing that people have been focusing on, or one of the biggest things, at least something that's been on my radar as it relates to credit, is mortgages and the housing market. I’ll try not to go too deep into the housing market here, but the big thing was the mortgage refinancing cycle that we are going through, and we're actually right in the middle of it. But this idea that basically, two-thirds of the bank's mortgages are going to get refinanced in '25, '26, '27. And a lot of those mortgages were underwritten or were written in a period where interest rates were really low, sub-2% or 2%. And now, they're getting refinanced at much higher mortgage rates. And there was a period when mortgage rates were with a 6 handle. That's a very scary event. Now mortgage rates are in the high 3s, low 4 handle, so it's a little less shocking. And we're also working through that. So there was a big cohort in 2025. If you think about 3- and 5-year mortgages back from 2025, those were very low rates. And now we're in 2026, you're looking at mortgages underwritten in 2021 on a 5-year basis, some of it in, in 2023 on a 3-year basis. And so there's a cohort of mortgage borrowers who are going to renew their mortgages this year who are going to face a 20 to 25% increase in their mortgage payment. I don't want to say that's not a big deal because for most Canadians, it's the biggest single monthly expense. They're going to have to sort that out. They've had some time to plan, and that's probably around 20% to 25% of the mortgage borrowers who are going to face a 20% to 25% mortgage payment increase. But what I think is actually more interesting is that 50% of mortgage borrowers who are refinancing in 2026, they're actually going to experience either no change to their monthly payment or a minus 10% change. And I remember when I first saw that table, I'm like, that can't be right. But not everybody did it locked in 5 years ago. A lot of people wish they did, but not everybody did. And so some people are coming on variable that their mortgage rate is actually getting lower, so they're quite happy. Or you did a 3-year fixed 3 years ago, which would have been at a much higher rate. So some of the people are dealing with a rate payment increase, but a large chunk of the people are actually getting some relief. So this headwind, it could have been a problem, or it still can be a problem for Canadian banks. It could be a problem for Canadian consumer discretionary items, things like Canadian Tire or Aritzia. But it's becoming less of a problem. And at some point, as we move through this year and into next year, this headwind is now becoming a tailwind. I don't know if that's the one thing that got people less concerned about the banks, but as you move through it and you say, okay, I was worried about credit and now, I'm a little less worried on credit. If you start thinking about, what does that mean? You start releasing those reserves that you set aside for the loans you thought you might get paid back on. Those come back into the earnings pool. They come back into the capital equation. I think the market is recognizing that and placing a pretty high valuation on banks. I think we just got to be mindful of the valuation, maybe take some wobbly periods over the next 6 to 12 months. But if we tie back to how's a Canadian bank going to perform in a period where Canada is coming back on the scene from a global capital reinvestment cycle—trying not to get too idyllic or of nirvana—but you'd have a strong Canadian economy, which translates into strong loan growth and business activity for Canadian banks. Not to get everyone so fired up on a Friday, but with the red on the screen, I think we probably all need a little bit of a boost as we head into our long weekend here.

Yeah, and the housing market as well. Everything that you're talking about should ultimately be positive for the Canadian housing market. Canadian housing has struggled since the big spike you had in prices when interest rates went down to virtually zero during COVID and have struggled to come back. And you're in Vancouver, I'm in Toronto. Those markets are down 15%, I think, overall from the peak. And depending on the neighborhood you're in, it can be more than that. Where you are within the metro region around these two big cities, you can be down 30% on house prices. And activity still really hasn't picked up. But you'd think that what you've spelled out here is a move to better affordability. And if that is the case, with growth in the economy, growth in income, you can look out and see a revival in the Canadian housing market, or at least some normalization. We got a little bit too frothy in 2022. But right now, a little bit too negative given that we still don't have enough houses for everyone in this country, and that's not likely going to change anytime soon.

If you look back at previous cycles, which was always our go-to—we can't predict the future, so we need to prepare, think in scenarios, think about what's happened in the past, what do these things look like—I've used a line on here that history doesn't repeat, but it often rhymes. We look back at previous cycles, and I think sometimes we have to look at more than one cycle and we can't just look at the last cycle. The risk in Canadian housing is we have the recency bias of what did housing do in '08, '09 global financial crisis. It just downtick, V-bottom, right back up. I think we're all in agreement that that's not something that's going to happen because I think across the nation, we're down 20 from peak, which would rhyme with the magnitude of the drawdown in price index activity. So we've done the damage in price. But if we look at some of the longer drawn-out cycles, like something in the late '80s, '90s, they went down 20% in price, but it could take several years. Close to a decade to emerging out of that. And that's perhaps what we're going to work through here where the damage is done on price, but where it's going to take time to churn through inventory, supply, demand. These things I think will take time to play out. But there's a good news story here, that the downside price damage appears to be in line with previous cycles. This time it could always be different, But the price damage is done and we just need time to work our way through. That's actually a positive story because I think if you really want to get scared about Canada, just the speculative nature and who's in over their head in terms of their housing costs and affordability and things like this. That's something that we're paying close attention. That's a big part of the Canadian economy. It's a big part of Canadians' balance sheets. A lot of their wealth is tied up in their home, and it affects their behavior and their spending. So it's something we pay close attention to.

Well, let me tell you something, Scott, just to finish off, the most positive part of the podcast: 50 minutes in. We almost made an hour. We're going to get Joe Roganesque at some point and get you on and do 3- or 4-hour conversation with you and get deep into the mind of Scott Lysakowski. But what's great in Canada right this minute, we're going to get off here and we are heading into the May long weekend in Canada. I don't know what's it like out in Vancouver, but we're about to have great weather here in Toronto. We're about to go into the summer, and that is the best time of the year in this country, the greatest country in the world. We'll have fireworks to celebrate on Monday. And it feels great to be a Canadian when you get into the spring and everything turns, and I think you've given some optimism and reasons why the next decade or so could be just a fantastic period to be Canadian. So get out there, celebrate, get together. Enjoy your home. Maybe it's a little bit more expensive to carry, so hang around and enjoy it. That's what I'm going to do.

Go sit out on your deck now that it sounds like spring is officially hitting the weather in Ontario. We've had a lovely spring here, but yes, looking forward to a nice long weekend. I came back from Toronto seeing that my grass needed to get cut, so I'm going to celebrate the long weekend by cutting my grass.

That's where I'm headed, Scott. It'll look great while I'm sitting on the deck this weekend. Anyway, Scott, thanks. Always great to catch up with what you're thinking about. We had a little bit of a gap between your appearances. Scott was worried that I wasn't inviting him back.

Was it something I said?

But we had a double episode. We caught up. But we won't leave the same gap. We'll get you on more frequently. Have a great weekend with the family, and we'll talk to you soon.

Thanks, Dave.