AGF Management Limited (AGFB) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to our latest market update webcast. With me as always is Kevin McCreadie, AGF's CEO and Chief Investment Officer. And we've got John Christofilos, AGF's Investment's Chief Trading Officer with us again today as well. I'm David Pett, editor of AGF Prospectus vlog and moderator for today's discussion. So before we begin, I need to cover a few administrative items as I always do that are related to our virtual event platform. Today's presentation will last no longer than 60 minutes. [Operator Instructions] Questions will be addressed near the end of the webcast. Additional resources for this session can be accessed in your attendee hub at the top of the page under the Resources tab. And finally, please note, CE credits may be available for members of our Canadian audience. Okay. Kevin, John, we're all mic-ed up. We got our headsets on, ready to go. I've got 4 topics that I want to get through with you today. The first is Central Bank policy, the second is meme stocks, the third is AI versus Internet and the fourth is the U.S. election.

So let's start with Central Bank policy. Obviously, it's an ongoing topic for investors. My Central question on this topic is there's been a couple of central banks that have started cutting rates over the last couple of weeks. What's next for them and then others that are still on hold? So Kevin, I'll start with you and then John, you can weigh in as you see fit.

Yes. Thanks, David, and thanks, everyone, for joining us this morning. Maybe David, I'll just remind people where we started the year and what's transpired over maybe this last month to get us to this finally -- this long-awaited rate-cutting cycle. So if we started the year, market had gone from the fall of when the Fed basically in every other Central Bank in November paused and said, "We're kind of done." And you've had this massive rally in equities, you had a drop in bond yields, almost a full percent on a 10-year in the U.S. And you got to January and the market participants when you look at futures and other things, we're saying, "Hey, you need to start cutting now in March and you need to start getting 7x." The market should be applauded for navigating basically a repricing of 7 has gone to 1, in the case of the U.S. and not March, but well into the end of the year, if at all. And the market has basically climbing that wall of worry of are we going to make a mistake here by hanging on to these higher rates for much longer. Now we've talked on this call that hire for longer was not going to be bad for equities. But it does increase the risk of a policy to say, i.e., you leave rates too high, too restrictive and you push the economies over. Having said that, we sit here now over the last 30 days since you started cutting rates both in Canada and the EU, with an equity market year-to-date, that's up 15%. And in the trailing 30 days, not using the S&P -- at trailing 30 days, that's up 2.5%. And so I'd say we've navigated it pretty well on the headline index. We're going to come back to maybe some of the other divergences in the market right now that you're sending some different signals. Maybe some of this distortion of the cap weighted versus equal weight, which we can have a discussion on it. So 30 days later, now we're here. Bank of Canada was up first, and they predictively moved to cut rates. But with a cautious tone. Clearly, they are going to be data-dependent. Now they're going to go meeting to meeting. They like to cut more, but they are very cautious about too much too, fast could really start inflation. Probably in the back of their minds is a restart of a housing bubble here in Canada. And so I think you're going to be meeting to meeting. My guess is they skip the July meeting and bring forward September. It looks to us as you got 2 to 3 more cuts coming in Canada. Again, if inflation stays tame, and we don't see this big housing lift. In the case of the EU, which was next up, predictably cut [ 2 ], inflation had been moving to their target. And growth is obviously an issue as well. It looks very much like Canada, sub-1% kind of growth. But now, we have a new problem with the bank -- with the ECB. And this is the snap election caused in France. So think about what happened when the Euro weakened. If you keep cutting in, the U.S. holds firm for a while, the Euro could weaken further. And if you think about using a weak currency to buy things like oil that are priced in dollars, you could restart inflation. So now, the EU has to be a little careful around the situation in France, which we could talk about when we get to the election piece. And then lastly, let's bring in the U.S. The U.S. met last week, 1.5 weeks ago or so. And what you got out of the U.S. was what we just said: "Hey, we're not ready to cut rates. We think we're not going to talk about raising rates, even though inflation is not where we want it to be." It's trending to where we want, but we want to be patient. And that's been backed up by pretty much every Fed speaker we've heard. The Fed has told you, we think it's one now. They gained a new [ dot ] plot or projections of when and it's probably not until after the election into December. The market is disagreeing a bit now. Some of the data since that Fed meeting, CPI, which came out that morning of the meeting. But other data that we've seen over the last week has caused some weakness or this view that things are weakening. And the market is now pricing and saying, "Hey, you know what, maybe 2, maybe the Fed is wrong. Maybe they have to go earlier." In fact, if the data comes in softer, September looks to be in play. So the U.S. now looks to be later in the fall and maybe 1 to 2, whereas Canada and EU, obviously, have started Bank of England, probably with their data this morning, inflation tracking in the right place is probably early fall as well. So you've seen these now Central Banks move at different speeds. Long wind away, David. We're on our way to cutting rates. The U.S. obviously, not there yet.

John, let's get you into the conversation. You come at this from a very unique perspective. You're looking at markets sort of minute by minute, almost as a trader. So what have you seen over the last couple of weeks since the Bank of Canada cut and the ECB cut? Like what's been the reaction from investors from your perspective?

Yes. Thanks, David, and thank you for the opportunity, and welcome, everybody. Let me start by saying that you can argue that the Fed -- and we'll start with the Fed, took too long to start raising rates way back when. Now it feels like a century ago, but kept using the word transitory. So the big fear from the market's perspective is they wait too long to start to cut. It's happened in the history. It's happened before. It can happen again, but it's a fear. Right now to Kevin's point, and he made the point earlier as well, the market is disagreeing with what the Fed is saying at this point in time. I believe, and I've been on the side of 2 rate cuts this year, one in September and one in December. The data is weakening. For whatever reason as the data weakens, the market likes it more and more because they're anticipating a rate cut here, coming sooner than what the Fed is signaling at this point. So data is weakening, market is continuing to rally in the U.S. for the most part. So that's the Fed. So the watch out there is if they wait too long to start to cut. And the other thing I'll say really quickly is what they don't want to do is cut once, and then go on hold again. Once you start a rate cut cycle, you want to continue with that rate cut cycle for as long as it takes to get to your mandate that you want to try to reach. So they don't want to cut once, and then have to wait and then watch, and things pick back up again. So they need to be overly sure. But the balancing act between being overly sure and waiting too long, is quite tenuous. So the market is watching that very, very carefully. Canada, I think -- and Kevin made the point they started the rate cutting cycle, and I think they will continue on that rate cutting cycle over the next several meetings. And we know inflation is where they'd like it to be. Employment is we're pretty close to where they want it to be. So that's occurring, too. But generally speaking, Canada has been out of favor from an investor's perspective, and the bank in Canada hasn't helped that cause very much over the last couple of weeks since they've cut.

One more maybe quick question on this topic, and then we can move to some of the others. But maybe Kevin, I'll start with you and John, you can weigh in. But when you think of the Bank of Canada in particular, are they influenced by what the Fed might do? Or is this a singular sort of vision that they have, and they'll do what they need to do, and they're not worried about what other central banks around the world are doing?

Yes, David, it's a great question. If you actually listened to the press conference after the Bank of Canada decision, they were asked pretty directly. How far away from the U.S. can you get with this? They clearly are cognizant of it. They don't want to weaken the Canadian dollar dramatically because then you have the same problem. A weaker currency buying things priced in dollars is inflationary. If you have to pay up for something, you're going to pass on that price and push it through. So they're clearly aware of it, same as the European Central Bank. Will they move a couple more times without the U.S.? Probably. Will they move 5 or 6? No. So I think you're in the 2% to 3% before and they look at the same trajectory. Remember, there are also policy differences here. The Bank of Canada has only one mandate, which is inflation. The U.S. has two, full employment and inflation. And so they take that into consideration. Inflation is trending down. Part of the CPI calculation in Canada is mortgage rates or mortgage payments. So every time they racked up rates over the last 2 years, they -- in fact, it was a circular calculation. You pushed up inflation. When you subtract out that housing component or mortgage component, inflation is actually trending to. And with growth as slow as it is here, I do think that they can move a couple more times, without this worry about weakening the dollar, but it's something they've had to watch. You remember the day they announced that cut. The CAD dollar weakened for a little bit in the morning, but it came back. So the first couple of cuts may be priced in here, but again, 5 or 6. No. They can't get that far away.

And David, just one quick comment. I heard a great quote from one of our traders down in the U.S. the other day. He basically said they're not coordinated, but they are coordinated. So to Kevin's point, we can't get too far away. They'll watch what the U.S. does, they'll watch what the ECB does. And they'll never say they're coordinated but in essence, they kind of are.

Sure. And a lot of that comes down to FX, right? I'm guessing, just the impact that potentially has on currencies?

And the dollar is still obviously -- people forget -- when people are talking about the dedollarization of the world, that's going to take decades. But dollar is still the dominant currency here. And obviously, if you have higher interest rates, people want to buy your bonds, then that drives up your currency. If I have to translate my CAD to USD, I sell CAD by dollars. You get the effect, right? So money will flow to where the highest return is in terms of interest rates potentially.

Okay. Let's move on to our next topic. I'm going to go a little out of order because I think there's some connection here. So let's talk about artificial intelligence, the boom that we're seeing versus what we saw during the Internet boom a couple of decades ago. And maybe the first question is to talk a little bit about the concentration that we've seen in the market. So Kevin or John, you can just maybe articulate that, I think people are well aware that it's a very narrow market in many instances. But maybe we can just go through just how narrow it's been and how the AI theme is driving that to a certain extent.

So maybe I'll start. When people fear that they don't know what's going on and things get uncertain, they will crowd into things that they know. And in some ways, tech, large quality names, names with big cash flows, names that people understand, have become the new staples when things get uncertain. So we have to put that in here, too. It's not just about AI. You asked the average person, "If I pulled out a mid-cap tech name that no one ever heard of versus Google or Apple," everyone say, "I know what they do." I know what Apple makes. So when we fear things, we crowd into certain things. And those happen to be, and this has happened in the history before. This time, it happens to be many of the large cap tech names. So we talked about them as the Mag 7 last year. I think the probably the Mag. Tesla is falling away and Facebook's had some issues, right? But you're concentrating into 10 names, not all tech. 7 or so or tech that are about 36% of the weight of the index. And it's not just the U.S. phenom. You see this around the world in Europe. You're seeing it in other places, too. And this is about at the first level. When I'm uncertain, and I know -- I don't know what's going on, I will go to the thing that I understand. In the '90s, it would have been early '90s, it would have been Coke and Pepsi or other things. So in some ways, this has become the new staples. That's part 1. Part 2 of this is, this first started when we had the first real uncertainty in the market post-COVID, which was the Silicon Valley Bank shake out last spring. Fear was we were going to have another 2008 banking crisis, and you saw everything else get thrown out. Everybody ran to these things. And at the same time, this AI boom started. Put it in perspective. November of '22, so kind of 1.5 years or so ago, NVIDIA's market cap was $300 billion, okay? It was less than 1% of the S&P. Today, John, it's $3.3 trillion in 18 months. It's added $2 trillion of market cap since the beginning of the year. So part of this is AI, part of it is crowding because of uncertainty. But you're in a place now interesting. I referenced the stat about the S&P being up 15% now year-to-date. Just over the last 30 days as I said, up 2.5%, the same 30 days, the equal way to take this S&P and cut it and give it the same weight, it is down 2.5%. The year-to-date number, 15% compares to an equal weighted [ out ] of 5 -- the versus only up 5%. If you take the NASDAQ 100, mostly tech in there, biggest 100 names in the NASDAQ, right? Year-to-date, up 18%, and you compare that to the Russell 2000 Index of small cap stocks, it's actually flat on the year. Great. So we're having everything else, but I don't want right now -- but of these fewer and fewer names. And so I'll come back to it. I'll let John talk, but I want to make a few more points but where we go with this. We've seen this in the past before we talk about AI and internet, okay? So maybe John, your thoughts on this?

Just really quickly. I totally agree that the concentration is a risk but I want to push back a little bit on -- and I get asked this question a lot, is this '99, 2000 all over again. And I don't think it's anywhere close to what we saw, '99, 2000 from my perspective. And I said on the trading desk, and watched a lot of dot-com companies that had no revenue, no profitability, no nothing. Get shot to the sky by day traders and the like. This feels a little bit different, right? This is not the day trading community buying stock in these 5, 6 or 7 names because one, they're too expensive and they're probably out playing in that space. So comparing it to '99, 2000 from a company-to-company perspective is not fair because these are real companies that are actually making real money, and real products that are being actually put in the market where the internet boom or bust, or whatever you want to call it, was a bunch of dot-coms that had nothing other than a name that had dot-com at the end of it. So I think we need to all level set that, that this is not '99, 2000, but the fear and the risk is still the same. These names have grown so quickly. They are getting to a valuation that is going to start to scare a lot of people out of the names or, at least, to shave some of the profitability and some of their positioning going forward. If that perpetuates itself, David, then we may have a bigger problem. If it doesn't, then these names, unfortunately or fortunately, depending if you own them or don't own them, will continue to run higher. But the risk is there. that we see some of these names start to, at least, stall out and not continue that massive ascent that we've seen in these names over the last 12 months or 16 months, whatever it happens to be. So not the same as '99, 2000 but the risk is still there that we could see a pullback in these names.

Yes. And let me clarify, John, I wasn't comparing it, I was saying these are high-quality names. They're now starting to stretch in evaluations. And I do think at the margin, the marginal buyer is still some retail people in here. We can talk about 0 date options, which now, half the options in a given day now for 1 day. of all options trading, that it feels to me like it's some retail trade in there. So -- but I do agree with you. I would say the following, David, before we go to the comparison because John is right, there is not this -- a lot of -- these are profitable companies with big cash flows. You now have a problem though of a crowd of trade though. And this could go on for a while. That is the problem. These are not cheap names. And when you look at the -- just the valuation of the S&P, even if you assume that earnings go up 10% next year, which is the driver of stocks. It's probably going to trade, if the S&P earnings would go from 250 to I'm going to call it, $2.75. You're looking at a market multiple that's in the 23x, 24x. So to John's point, we're now no longer in a cheap world, and we're at much higher levels of interest rates, too. So if you discount those cash flows back, not worth so much, when rates are higher. And so this could go on for a while. So what happens, right? Let me now compare back to the Internet, right? What broke it, right? And think about -- forget the dot-coms that didn't make anything, Pets.com or whatever the [ dejour ] and we put billions of market cap on it because they created an e-link from an Oracle database, in place to B2B or B2C that a consumer buy their stuff. What happened was, if you think about the Internet buildout was going to be the next thing. It was the next thing. It had probably the greatest amount of productivity for all of us. But the hype came so much earlier, and the productivity came so much later. And if you can remember, the fiber companies, John. I ran a large growth fund in the U.S. So I'm very aware of these names, that we're digging fiber, bearing fiber everywhere around the world and every construction side along the highway was building and digging fiber. And every time you had all that fiber, you had to have a data center, and therefore, you had switches that came from Cisco. The data center was built on the back of Intel chips. And one day, the telecoms basically said, "Hey, wait a minute. We're bearing all this fiber and the traffic hasn't come. And all of a sudden, the guys building the data center say, "I don't need any more data centers. I don't have the traffic running through them. I'm not buying any more servers and chips." And you go back to Cisco and it says, "Well, wait a minute, all of a sudden, my switches and routers aren't selling as much." So you back up the whole system, it's on CapEx, okay? That's how that ended. And the marginal buyer would own these names. Cisco has never gotten back to that level, right? It took Microsoft, I think, 14 years, John, from 2000. I think Oracle got there somewhere in 15, 16 years later, too. So again, I don't know that history repeats, David. But you do have to worry that what happens is everybody who is saying, "I can't keep up with the market, I capitulate and buy these names and I sell the other stuff," it just makes them bigger every day. And so they do start to drag the indexes and the headline around. And the day that one we call them the hyperscalers, the guys like Microsoft, Google, Facebook, right? The day that those guys, one of them says, "Hey, the next version of generative AI isn't any isn't that much better than the last version." This thing will slow. Some of those big guys were doing all the spending. They're going to say, "Hey, maybe I'm not going to spend as much because I don't see the increase incremental impact for the spend." And you'll start to slow the whole chain down at some point. I don't know when that is, right? This is truly going to be one of the greatest productivity drivers. But I do compare it to the fact that the productivity will come a lot later. The hype will come first. And this will go -- this could and will probably go on for a while. And we own some of these names. Would we own them in the same weight today that we owned them a while ago? Probably not. But what happens is when the marginal buyer stops and somebody says, "I'm not spending that much," and one of these names had a soft patch because of the weight in the Index, the Index will look very, very difficult. Meaning to John's point, the average may hold in, and you may drag -- but the headline bill dragged down by some of these names. So that's where the worry comes in. And that sort of the last piece and back to where we started. Seasonally, we're going to start to get into a tougher patch here for the summer. And the moves that we're seeing in some of these names, and I just gave you a Friday as an example, last comment on this. We saw the NASDAQ up 42 basis points. We saw the Russell 2000, which is that Small Cap Index, down 1.6%. So you had a headline market. The headline looks great. The average stock inside the market is not doing well. When we look at something called relative strength, right? That's a sign of momentum. When relative strength gets above 80%, it's oversold. when it -- overbought. When it gets below 50, it's oversold. The headline on the S&P, NASDAQ are all in that overbought. And when you look at the equal weighted they're in the oversold, we just don't see those conditions. We've seen them a couple of times in the '90s. So again, I think my point is these are different. Internet versus AI are different. And to John's point, the backdrop is clearly different. We don't have unprofitable companies, but we have a phenom that has been bid up and not cheap that may have legs to run, but there are caution flags here for me.

Anything you want to add on that, John? Or...

No, there's a lot I could add on that. I agree with 90% of what Kevin says, obviously, but I was actually having an interesting discussion this morning with a [ bear ] who was talking to me about these names. And his argument was everybody owns these names now. What happens if they all start to sell these names? What happens to the market? And my pushback was: one, they don't all sell at the same time; and two, on a positive mindset, if everybody owns these names, everybody is looking for an opportunity to potentially buy more. So if we do get a pullback in these names, you can see them not doubling down, but you can see them buying more stock. So at this point in time, momentum is in their favor, and I can see them continuing to grind higher here, but nowhere near at the pace where we've seen over the last 18 months. It's almost historical, in terms of some of the market caps that we've seen in some of these names and how quickly they've gotten to $2 trillion or $3 trillion or whatever, and people are starting to get a little bit stretched in their valuation perspective, and that is a watch-out.

One of the other things I'd add to, David, on this is -- and John, maybe you and I can talk about this one ETF that gives us a little gas that we watch the XLK. One of the other things that I did, David, and again, I'm just putting up a cautious fight. These are good companies. It's just was stretched out here. But the day someone does stop spending, there's been a $50 billion spent in CapEx on the big guys, on these chips and chipsets and the follow-through. There's been about a $3 billion of revenue generated, right? The level of spending may not keep pace, if the revenues don't show up. We have to figure how to monetize this. And if you look at what OpenAI did with Apple last week, Apple is going to create a mini -- everyone's going to have their own version of basically think about machine learning on your phone about you. But nobody got paid. Apple didn't pay for it and open item paid them for it. So at some point, we got to make money off this, right? So that becomes maybe the place where -- and again, that's why I say this could go on a long time, at least, 18 months. There is going to be an event risk. And John, maybe you want to touch on it, I can start at XLK. A lot of these sector indices out there, XLK is a technology index. It does not mirror the tech weights in the market. So people see these divergences. But one of the rules in these is the 2 names can't be more than 5% of the index. And we've got a couple or 2 or 3 in that one, and that's about a $70 billion ETF, John?

Correct.

That are going to flip flop here to the tune of $10 billion to $12 billion of sales by the end of the week, whichever one that I think NVIDIA is winning now. So this thing will have to rebalance and buy $12 billion of -- $10 million to $12 million of NVIDIA and sell $10 million to $12 million of Apple if these market caps hold the way they are today. So the sizing of these things is creating volatility inside of instruments that people may not be aware of as well. You had -- I think people are pricing this in that NVIDIA is going to be the balanced winner. We look at the S&P, which was flat yesterday, roughly John, and NVIDIA was up 4%. So people are gaming the stuff already. If in Friday comes all that has happened, you may see some of the stuff come back out of the market because they play by the room or sell the news kind of event. But you're going to have these kind of distortions when these capsizes get that big inside of certain vehicles that you're going to have to pay attention to as well.

Yes, David. Kevin makes a great point, and people should be aware that a lot of the volume that we see today, and we've talked about this over the last number of years is arbitrageurs. Its algorithms, it's not fundamental buying and selling. And typically, when those cohorts get on the wrong side, there's no discretion. When they need to get out, they get out and they get out in a big way. And when they need to buy stock, and we see this on rebalanced days all the time. When you need to buy stock, you go in and buy stock because you need to get to the ETF or the Index weight as quickly as you possibly can. So to Kevin's point, if things don't go the way that the XLK or other indices think it's going to go, then you'll get a big unwind very, very quickly because they have no discretion. They need to get out almost immediately.

Okay. Just a reminder to those that are listening and watching. Please send in your questions any time, and we'll get to those in a few minutes from now. Speaking of gaming, let's talk a little bit about meme stocks before we get into the election stuff. So meme stocks, just for everybody's sake, I'll just -- my quick definition, these are stocks that are being driven by social media to a large extent, right? So people posting either blogs or tweets or whatever, and it's driving the price up on certain stocks. I guess my big question on here is even if you're not involved in this meme world guys, what's the implication to everyone as investors, whether you're -- those long-term investors are those people that are on the call that, again, might not be involved, but they're seeing it in daily headlines. That's my broad question, but we can go from there. So John, maybe I'll start with you just on your thoughts.

Yes. Sure. So I've got good news and bad news when it comes to meme stock. Let me start with the good news. The meme stocks, the good news is meme stocks are actually bringing more investors to our ecosystem, okay? So more and more people, my son, other people's sons and daughters who have never invested all of a sudden catch the bug and they go get themselves an online brokerage account and start to trade. That's the good news because ultimately, we should all be trying to invest our money as early as we possibly can to have an outcome at the end that's beneficial for us all. So the more people in our ecosystem, the better it is. The problem or the bad news is, many of these individuals are trading with money they probably can't afford to lose. And some of them are playing some really exotic instrument types like this single-day option world and the like. And they don't fully understand what they're getting themselves into. And when that herd starts to go the wrong way, they just jump on that bandwagon and unfortunately, lose a heck of a lot of money. And it's very common for people to be in and then be out, and not come back for a long, long time, which hurts the ecosystem. That's the bad news. So we have to look at this thing with a little bit of hindsight here, but the good news is that people are coming into the market more frequently. In fact, I will tell you that I think in the U.S. now, 56% of all households own single stocks in their portfolios, in their 401(k)s or whatever the case may be. That is an all-time high, by the way. Even though it doesn't sound all that high, "I had 56%." Think about that. It's at an all-time high. So more and more people are investing their money. I would rather than invest in trying to trade some of these meme stocks. A lot of these meme stocks -- hey, let's compare it to '99, 2000. A lot of these meme stocks today, David, are the dot-coms of the past. They're companies but they have nothing other than a ticker, maybe a little bit of revenue and probably don't make a heck of a lot of money, and they get bid up to numbers that are just extreme that in the end, will probably not end up the way that people want them to end up. So good news, bad news. I hope there's more good news and people learn from their experiences and staying in the market and continue to invest for their futures.

Yes. And my perspective, David. It's also -- this is also creating -- to John's point, we want participants, but we don't want to just straight on gambling. When you're seeing names like GameStop move up 40% on a day because the Roaring Kitty comes back, right, it has unintended consequences. GameStop, it's fundamentally probably not worth where it's been traded. The company has used these spikes to issue stock in the marketplace. It's raised capital, which one would argue is dilutive. But it has unintended consequence of the fact that some of these names are in short baskets that people use to hedge. So we look at -- we keep an eye on the most shorter names in the market, right? And so when stuff like this spikes 40% and GameStop is like a 4.5% weight to that, it creates disparities with some of the hedges people thought they had on. And so again, there's unintended consequence of it. But I just think that there is -- I think the -- well, it may not be the extent that we saw in the midst of COVID when people had a lot of free time. It's still there maybe to a lesser degree, but it's definitely still there.

David, one further point on this. I know it's a little dark secret but I'll reveal it to the group. Meme stocks are not only traded by individual investors. There is documentation out there. There's proof out there that hedge funds, fast money funds are actually trying to capitalize on the meme stock craze, whether that's to the upside or the downside. And they've actually hired individuals now that watch the Reddit boards and watch online boards to see what the trend is and they try to jump and capitalize on that as well. So it's just not the retail investor. You are getting some fast money funds/hedge funds that are actually participating as well.

On that front, and maybe just the last question on this topic. But is there -- are you guys seeing -- do you worry a little bit about this infiltrating the rest of the market for lack of a better term, in terms of distorting what you guys are trying to do on a day-to-day basis? What the team is trying to do? Or is it a fairly concentrated kind of pool of money that sort of is going after itself, right? Does that make sense, what I'm trying to say?

Yes. Go ahead, Kevin.

No. We don't play in these names, David, right? It's more of a sideshow for us at this point. Where it would impact is it if it dragged down a bunch of other names or a sector, right? But where it impacts is if you spike, we have a hedge product that we use call, it's an anti-beta product that's been short, some of these names for the right reasons. And it messes with our hedges when someone pushes GameStop 40%. But that's the basic -- the small extent to it. I mean it's mostly a sideshow.

I totally agree, David. It's not going to affect what we do all day every day at all.

Okay. Let's get to our last topic and then we'll get to some questions are starting to roll in. And this probably connects back to my first question about monetary policy, if anything. But we've, obviously, got the big U.S. election. Kevin, you mentioned there's political turmoil in Europe going on. Let's maybe just start with the U.S. election. And we've talked about this over the last couple of months. But at this point in time, how do you see it potentially impacting markets as we draw closer to the November date of the election?

Thanks, David. I mean for those who don't get great value as morning piece capital insight, I would highly recommend you subscribe to it probably as we go through these next 6 months, going to be the most valuable thing. Greg -- and we share the same view or a bunch of us, to the extent that this election stays a virtual tie. Today, it favors Trump by a little bit, it could favor Biden by a little bit. And as you creep toward November with that tie staying in place, if there's no real divergence starting to show up. Now the market is going to have a lot of indigestion over the fact that we may wake up the day after the election and not know who. May not know who is the President for a week, it could be days, it could be weeks. You'll have people in this scenario, if it's that tight. Finger-pointing on both sides about something was wrong with integrity of balloting, you name it. But that's not going to be good for the market. So the risk one, regardless of who it is, if some gap would have emerged that looked like a favorite, that would help the market navigate through the fall. The extent it stays closer, it's going to create volatility. There are 2 near-term events to pay attention to. June 27 is going to be -- first time that we've had not even declared candidates yet. They are the presumptive candidates, will be in a debate. The conventions actually follow this. Clearly, if one of them slips up badly, that may tip these polls. There's a lot of other speculation that obviously, if -- and the one that is at risk, more so is Joe Biden. Obviously, if he stumbles broadly in this, there will be a lot of push, maybe on the Democratic side before the convention to do something different. Low probability that, that happens, but that will be [ assumptive ], be market moving. You have also July 11, which is the President will be his sentencing. Former President Trump will be sentenced in New York. As you saw the last time, it became a moneymaking event for them. I think you raised $40 million and he's polling one up. So again, 2 things to watch, and then you get to the 2 conventions that will be in July and August and see who the VP is because you're essentially going to be voting for either of these guys to make sure that the VP, given their ages, is somewhat credible as well. So a lot of volatility. I think of it this way. There are -- I don't know, 380 million people in the U.S., David. Probably 180 million of them are eligible to vote on that. This will come down to 3 to 5 states, maybe tens of thousands of votes to determine who is going to -- the policies are very different with who will win to the rest of the world. And then if you look at winners, do they bring a majority to any of the other 2 houses? So this will get complicated. It will get volatile and especially if it stays this close as we grind through the fall. But a bunch of events coming up, June, July and August between these conventions, the sentencing and the debate. We can talk about -- if you want, I can go winners and losers of post-Election, if we want to go there for a minute.

John, did you want to weigh in before -- because I would like to hear what this winners and losers a little bit, but if there's something you have...

No, I think the point that Kevin made is absolutely correct. The market does not want uncertainty. If we have uncertainty after the November Election, we will have [indiscernible] in this market for a period of time. We want a certain election with a certain winner regardless of who that happens to be, and the market will absorb and do what it needs to do. It's when it doesn't know or there's uncertainty that's going to cause a lot of grief in this market.

John and I were both awake at 4 in the morning, 3 in the morning in the 2016 election. You have to go back to this. This was the Trump Election, market when it became apparent that he was leading after mid or so. The market sold off hard. I mean we were lumid down everywhere in the world. And then something happened between there and about 7 in the morning, which people realized, he was going to be a deregulatory pro-business agenda. And you saw a rapid snap back in the market. So tax policies were going to change. Corporate taxes were cut. You saw a small business optimism jump. We are a strong market in '17, back of '16 into '17 on that deck. If Trump wins and he wins the majority of both these houses, which right now, he looks like the Senate will go with Republicans, a little bit closer in the house. Let's assume he's governing with both houses. Regardless of what you think of some of the policies, they will be deregulatory. There are executive orders probably being drafted right now to deregulate many of the things that the Biden agenda put in. That will be pro-business. There's talk of the corporate tax rate. He met with senior business leaders in the U.S. last week dropping even further to 15%. They will make a move to extend the -- many of the tax cuts that were put in, in '16, '17 that are expiring in '25. So this will be, again, if it's wide and not close, will be probably a market positive event. If -- as John and I've just said, so long as there is a winner, the following day. Losers will be China, regardless of which candidate. There's no backing off of China. If Trump wins, the tariff rates are going to skyrocket. That may be perceived by the market as inflationary. If half the goods that we import get 100% tariff fund go into other goods that we make in this country, that means potential inflation. So that's something to be wary. The bond market may not like it because if we're going to extend these tax cuts and keep driving these deficits higher, both of these guys want to spend. You may see some indigestion in the bond market about higher interest rates cause a higher inflation for some of this. Country-wise, Mexico. Obviously, if it's Trump, maybe a larger loser. He is threatened basically not just border issue. But frankly, taken on the Chinese, we're going through Mexico to make auto parts, import them back in the U.S. cars under NAFTA. The old NAFTA or the U.S. MCA, the new U.S. MCA will be renegotiated, regardless of who comes into 2026. So Mexico, obviously, not a big winner if it's Trump. And obviously, if it's Trump, China is the loser. India is a probably a big winner because of the fact that people will move supply chains to India. So a lot of other winners and losers by sector, but those are the broad ways to think versus Biden, which would be more of the same.

Okay. We should probably move on to questions from the audience, but maybe if we've got a little bit of time, Kevin, I wouldn't mind asking you just generally about the election climate broadly outside of the U.S., but let's do get to some questions. First one here is on commercial real estate, the health of commercial real estate and credit card delinquencies and the importance that, that has in assessing the future stock market movement. So Kevin, I know you've talked a little bit about these 2 issues. Just some thoughts on that.

Yes, we'll start with commercial real estate. It remains a problem. It's going to be a problem in the U.S. more broadly than it will be here. And I'll explain those differences in a minute. Most of that problem is going to be felt by the regional banks. To a lesser extent, the insurance companies that have them in their portfolios. And it's a simple, "I've got a refinance a loan that I put on a mortgage that is going to be at a much higher rate." And you combine that with many of these B class buildings in B class cities potentially, who with work from home, occupancies have gone from 85% to 65%. So not only do I have to pay more for the interest rate. The rent that I get has gone down because there are fewer tenants because of work from home. So the combination of those is going to cause some stress. Pay careful attention. Janet Yellen has talked about it. The Fed is keeping an eye on it. It won't be up in the big banks like it was in '08. They have very little exposure and most of that, they've been managing through. It's going to be in the more regionals of those 4,500 banks in the U.S. So Canada, very different. This will be about the consumer, I believe, more so than commercial real estate. A lot of commercial real estate, just take downtown Toronto, it was owned by the pension funds. So it will show up later. And the fact that the returns on our pensions may not be what they are or should be versus having the big banks take massive write-downs. There will be some here, but that won't be as -- not to the magnitude as you will see on the U.S. side. The banks here are going to struggle with the consumer side of real estate, which is home mortgages, right? We're in this peak of the wave now, people starting to refi. And what you've got is a lot of people who are in a variable rate, fixed payment product. So the payment hasn't gone up. They go to the bank to reset, but they haven't been paying any principal now. Every time the Bank of Canada raised rates, they paid less in principle, more in interest to the extent that some are just attacking on the interest payment to the back. Somebody shows up to refi and they're going to own the bank more than they borrowed and maybe the house that they bought or the condo isn't worth as much. That's going to cause a lot of stress, not just in the payment but coming up with that extra money. So you're seeing a concern in the Bank of Canada is that the consumer here is really being impacted. It's very different than the consumer in the U.S., and this is where we go to credit cards. At the low end of the U.S. economy, they don't own homes. They're sensitive to rent, gasoline prices and food prices. The latter two are still pretty elevated from where we were pre-COVID. Food price is up 30%. So the level of things is pension people in the U.S. But if you're someone in the middle class and upper middle class in the U.S. you have a 30-year mortgage that you've refi-ed and [indiscernible] 2.5%. You don't have to move for 30 years, if you don't like where interest rates are going. So it's not like Canada where they amortize over 30 or 25, but they're only 3 or 5-year mortgages. In the U.S., you could stand in your house 30 years. So that part of the income spectrum, middle-class, upper middle class to the uber-wealthy is less sensitive to rates right now. Very different in Canada. And so you're seeing credit card delinquencies at the low end in both countries start to pick up. Delinquencies in terms of frequency, 90 days, 30 days and we're at high balance levels, meaning people are starting to spend to support their lifestyles on cards. So you're going to see a bifurcated consumer that will [indiscernible] when you aggregate in the U.S. looks okay. When you look at Canada, the stresses are going to be probably more real and you're going to see potential. Again, why the Bank of Canada has to stay a little easier than the U.S. right now?

David, just one comment on commercial real estate because I'm not going to touch the credit card comment. Kevin did a great job on their other than to say that people should pay down their credit card. Just quickly as you possibly can pay them down. Commercial real estate is a buyer beware story. And what do I mean by that? I mean that if you are looking to invest in some sort of commercial real estate product, if that product is in the warehouse business or data center business, they are doing exceptionally well. And those are good investments that look like we'll continue to pay out handsomely for their unitholders. It's when you start to look inside -- and this goes back to '07, '08 when things are being packaged together and really people didn't know what was in the product and they were just buying the product. If you own Class B and Class C buildings in a lot of metropolis cities, you're in trouble. People are not all the way back to work yet companies are not coming back 100% of the time. They are giving up space. And so they either need to be retrofitted, which cost a heck of a lot of money or they'll stay vacant for a long, long time. And the holders of those properties will either walk away from those properties or have to pay a heck of a lot of money for us. So buyer beware, look inside the products, see what's in there. If it's data warehousing and/or data centers in that sort of investment, pretty good. Class B, Class C buildings, not so good.

Okay. We probably have time for, at least, one more, if not two. Here's a question for both of you. But John, maybe you want to answer it a little differently. So how would John and Kevin deploy fresh capital now? Maybe for you, John, it's maybe more about where you're seeing fresh capital being deployed because I know that's not really -- that's not the essence of what you do day-to-day. And then Kevin, I don't know how you want to answer that question, but just maybe a thought on this idea of fresh capital and where to put it to work going forward.

I could joke and say bitcoin, David, in terms of your fresh capital, but I won't say that. Here's an interesting stat that I saw the other day that was really eye opening. Prior to COVID, about 18% of new fresh capital, global fresh capital would be going into the U.S. market, okay? Largest, most liquid, most stable capital market in the world, 18%. Post-COVID, that number has shot up to 33%. So the U.S. at 18% was the largest. At 33% is almost double to where it was. So I don't think that trend is going to slow down anytime soon. If I'm putting new capital to work, I am putting it in the U.S. because it is the largest and most liquid market in the world, and it looks like the rest of the world is doing the same thing. So that would be my answer in terms of where I would see money, and that's where we are seeing money, number one. Number two, we are seeing money flow into the Far East ex-China, right? So Japan, Taiwan and countries of that sort in the Far East. Europe, up until about -- I don't know, call it a month ago, 6 weeks ago, we were seeing some pretty good returns and pretty good money flows into Europe. That has abated in a big way, since what's happened in many countries, especially France over that lasted a while. And then last, unfortunately, is Canada. That's been a story of mine for now a couple of years. We are not seeing any foreign flows coming to Canada of any significance. So I would probably stay away from -- as a Canadian, I would probably stay away from Canada at this point, and that's a sad story to tell.

Kevin, any thoughts?

Yes. I mean for our institutional investors who hire us, we put it all in. I mean they don't want -- they allocate their own cash. For retail investors, I get the sensitivity. Take the U.S. alone. I don't even want to talk to the Canadian numbers but there's $6 trillion in money market funds that are people watching this market go up, and they're waiting on the side to get back in. I think you got to be a little disciplined. John, I've talked many times on these calls and other places about the fact that if you try to time this market and you miss certain days, your turn sets are going to be really different. So -- but I get where we are at these levels, I would be cautious. I would use a very disciplined approach, but slicing an amount of money in each time, each month. Don't try to look for an event. You'll just get pulled off sides. We take an approach, it says, but I want to take this in 5 chunks, just be disciplined to do 1/5 each month and close your eyes. If it's long-term money, you're going to get rewarded. If you try to time it, it's just going to be really, really difficult. I don't know anyone who could do that really well. Asset allocation is probably the thing that saves you, which is tip yourself more into fixed income rather than other things that give you some defensiveness as you start to allocate it. Maybe build your defensive position first.

Okay. One last question. It's about the U.S. dollar and this idea of Russia, Putin, China, BRICs. Getting together to maybe create their own currency and what that might do to the U.S. dollar. Any thoughts on legitimacy of this happening short term, long term, any time?

So one of the things that's happened with the Ukraine-Russia War, trading partners have changed hands. Russian oil goes to India, that gets routed back to Europe at a discount. China has become Russia's largest trading partner. In the south, as we call it. So think about the emerging markets and or the former BRICs, places like India, Latin America have actually sided with Russia in this situation. So that's where the narrative comes in that there's going to be this dedollarization. It will happen, but it's going to take decades to happen. The dollar is still the reserve currency. And you can see it. A lot of chatter about it, but I think it's going to take a while. This is not a 2-year, 5-year, 10-year thing. This is decades of changing banking habits. You have to also remember, Russia is basically still cut out of most of the Western banking systems until you get to some agreement. So I think it's -- the threat is there, but it's still a long way out. I would not -- it's not what moves currencies today.

David, I think this is correct, but the Russian economy is the size of New York state's economy. So North Korea's economy is -- I don't even know what to decide. Maybe Rhode Island, I'm not even sure. So to Kevin's point, China matters. Without a doubt, they are a massive economy, but some of the other guys are French players at best, and it will take decades to counter-version, if at all.

Okay. John, one last question for you. You talked about having a conversation with a bear earlier this week. Just wondering what kind of conversations you have with the tiger that's behind you?

That's my compliance department, David. I thought I'd bring compliance in to make sure that I wasn't saying something that's going to get me in trouble.

Okay. There you go. All right. Let's end it there. Great food for thought, guys, as always. I appreciate your time. And that brings our discussion to a close. And we would just want to thank as always, to everyone tuning in today. On behalf of Kevin and John, we appreciate your time and support, and look forward to sharing our insights with you again next month. Before you go, please make sure to click the ad session button in your attendee hub to register for our upcoming market update events, including our next installment that will take place on July 17 of this year. To complete your CE credits today, please complete the survey available to the right of your screen or at the top of the home page in your attendee hub. And note, you may only submit answers for your survey once. However, you may have the opportunity to go back and edit responses, if needed. Thanks again, everybody. Have a great day. Have a great week, and we'll see you next time.