Andrew Auerbach (00:01) Well, hello there. Happy to provide a market update. Today is August 27th and as always lots to talk about. So let's first dig in and just take a look at a macro view. Overall, the markets remain very healthily strong. S &P 500 is up 18 % year to date. The TSX is up 10%. NASDAQ is up 18%. However, there has been a fair bit of volatility over the past few weeks.

It's been sort of a bit of a roller coaster of narratives. It started with concerns about a slowing consumer, a slower recovery heading into a recession. And the markets had a pretty big sell off moving to defensive names. Now though, the market has rallied very strongly. It's roughly back to where it was at the start of the month. And it's really supported by a broad recovery narrative with a number of good news metrics that came in. Inflation in particular came in

roughly in line at 2 .9 % CPI. This is the first time since March, 2021 that it came in below 3%. As well, the PPI moderated, which is good news on the inflation and good news on consumption. Retail sales came in stronger than expected. And so as you would expect, supportive data created a pretty buoyant market environment. The markets though really shifted based on

the Fed meeting at Jackson Hole where Chairman Powell really guided to an easing cycle. And so the expectation, you'll remember earlier in the year, we were down to maybe one rate cut as priced in. We're now moving to an expectation of a hundred basis points by the end of the year. And so given there's three more meetings, that's signaling that one of the meetings would have a 50 basis point move.

So the markets are really shifting expectation to an easing cycle, which of course has created a buoyancy in the equity markets. However, it's a good time for us to pause and take a step back and just consider, first of all, recessions that through a number of historical data points, if you look the year before a recession, you're going to see a lot of talk about soft landings.

I think it's our inherent optimism. I went through a number of archives looking at a number of different periods and there were dozens of articles calling for a soft landing or no landing. the year ahead of what turned into be a harder landing with a recession. Here's a couple of examples. The 2004 to 2006 fed tightening cycle, led to the great recession, which ran from December, 2007 to

June 2009. Now at that time, the fed was raising rates to counter the housing price momentum and the concern about the inflation pressures that resulted in a housing market collapse. Another good example is the tech bubble. The tech bubble in 99 and 2000, the fed started tightening, led to a recession, which was March to November, 2001. And this was a result of the tech bubble.

bursting both times though you would see soft landing consensus pretty well across all the mainstream media. Shifting gears a little bit, a couple of points I wanted to point to. I've talked about gold a number of times. I think it's important to really pay attention to gold. It continues to reach all time highs. It's now comfortably over 2 ,500 an ounce.

And it has been very, very strong. We have a strong weighting of gold in our portfolios. It started with the view that the central banks have just been accumulating massive amounts of gold globally. Now though, we're starting to see momentum in North America for gold stocks, something to pay attention to. Certainly in recessionary or harder times for equity markets, gold tends to be viewed as a safe haven.

want to shift and talk a little bit about bank earnings. This is also a theme that we've talked about in the past that in the event of a recession or a slowing consumer, the Canadian banks are particularly levered given how strong the market share is across the lending categories. Really the five banks have virtually all of the of the of the lending market. And there has been

really significant variability in the markets this year. It's interesting that the banks have really not moved in lockstep. As of this update, BMO released this morning and the stock has really been hammered today with an increase in their provisions for credit losses. There is growing concern that BMO, given the acquisition of Bank of the West, is particularly levered.

to a bad credit cycle. And so there's been a number of downgrades on that stock. BMO has negative 15 % year to date compared with RBC, which is positive 17 % year to date. So a real massive stratification across the banks. However, the three banks that have reported, we continue to see an uptick in provisions for credit losses. you know, TD had some unique challenges as well. Their challenges relate

to a massive provision about $2 .6 billion related to AML issues in the US. If we look at their provisions for credit losses, their provisions are up significantly as well as Scotiab and BMO have significant upticks in provisions for credit losses. Interestingly for TD, they did as a result of that large provision for AML issues,

posted their first quarterly loss in 21 years. So that is also a very interesting thing to point to. Couple of other things to highlight. What does all of this buoyancy about the easing of rates mean to the US? Well, one thing to keep an eye on is the US dollar, which we are watching pretty closely. Don't forget the US has a massive national debt of $35 trillion.

that debt requires servicing costs of about a trillion dollars a year and continues to grow. And so that is something to watch in terms of the effect of that level of indebtedness on the exchange rate relative to other countries. know, Canada is not much better with our household debt to GDP over 100 % and being the highest amongst the G7. That is really a harbinger for really more

negative outcomes in the event of an economic slowdown given how much stress there is with household debt in Canada. A couple of other things to watch. Certainly tomorrow, Nvidia reports. All eyes will be on Nvidia as the AI craze continues and really looking for indications that that momentum will continue based on their reporting.

One piece to highlight, if you're interested, the TD chief economist last week put out a piece that I really enjoyed and it was calling for more structural changes to address the weak productivity picture in Canada. That's a theme that we have been harping on a fair bit, something that people need to understand more of how poor the productivity is in Canada and what that means in terms of our overall economy.

One area we call for is certainly more diversification, more entrepreneurial activity across broader sectors is definitely needed. I'll close out here with just a quick summary of our view, our positioning. We are continuing with our positioning of being underweight equities presently. We are more favoring defensive names. We are underweight banks. We are overweight gold.

and we continue to pay close attention to an interesting market. I hope this has been helpful and I will look forward to talking soon.