Deep Dive
Shownotes Transcript
Hello, and welcome to the TLDR Podcast. You may know it as a show about the culture, gossip, and business of money. And this week, the C.E. Pope.
My name is Devin Friedman. I am here with my co-host, Matt Keres, is the director of product for Wealthsimple. Our sponsor, Matthew. How are you feeling? I'm doing great. I like when markets go up. It makes me feel good. Are we back? Oh, yeah. We're above Liberation Day levels, baby. I don't know how much longer it's going to last, but the good times are rolling again.
Sarah Rieger is the business and markets correspondent for the TLDR newsletter. Has spring sprung in your neck of the woods? Absolutely. It's gorgeous outside. I saw a bear recently. That was exciting. How close? On the other side of a river from where I was, so maybe 100 feet away. Yeah, perfect distance. Okay, we have a very exciting show today. We're going to talk about the Pope's business portfolio, which is actually sort of consequential and pretty curious.
And we're going to be talking about the real estate market because when should we not be talking about the real estate market? But there's actually some weird stuff happening there. And we're going to be talking to John McKenzie, who you may know as the CEO of TMX, the parent company of the TSX, about what it's like to run the stock market. And to get to those fascinating stories, which are going to help us understand the business gossip and culture of money, we're going to start with a very simple question.
Sarah Rieger, who is making or losing money that is interesting to you right now? Okay, so everyone is talking about the search for a new pope right now, which is a story about a lot of stuff, right? Like religion, institutions. But it's also kind of a story about money. I'm not surprised. I've read a Dan Brown book.
Tell me what you mean when you say it's about money. So in addition to doing like Pope stuff, you know, talking to world leaders, spiritual messages, all that kind of thing, the Pope is a head of state, right, for the Holy See, which is the central governing body of the Catholic Church, which means the new Pope is actually going to be in charge of this empire that is worth billions of dollars. And according to this recent article in Forbes, those resources have not been managed super well over the years. What?
Let's talk a little bit about the specifics of the Holy See and how big of an enterprise it is, because it is one of those things that's like the fodder of internet conspiracy theories. I think everyone kind of knows that it's more powerful than you think and richer than you think. But like, can we quantify it? Yeah. So it's true that is like this vast thing. It manages the country of Vatican City, the Vatican Bank, the entire Catholic Church, the
The Vatican owns more than 5,000 properties around the world from, you know, churches to various investment properties. And those are full of a totally unknown to the public number of assets like art, historic relics. And they are probably priceless, but they're not really bringing in profits, right? Right. Something going up in value only really matters if you're going to sell it.
Exactly. So that's why they also do have stuff that they sell as well. So there's the Vatican Bank, and it manages about $6 billion U.S. dollars in assets. Matt, big number or small number? $6 billion in assets? Small. Very small. Like a small regional bank? You would not know the names of any banks that only have $6 billion in assets. Who has their money in the Vatican Bank? Basically, anyone tied to the Vatican. So it's doing stuff like
pension payouts or money transfers for people doing Vatican business. If you think about it, the Holy See really is a business that's trying to maintain its operations. Like I visited the Vatican a few years ago to go to a mass that Pope Francis was at, and it was just like hundreds of Swiss guards, tens of thousands of tourists going through every building. And they're operating like this massive tourism empire, essentially, but also like the broader Catholic Church, which is the biggest non-government provider of healthcare and education for the world.
So if we want to recast the way we're thinking about this, it's kind of a financial obligation to be able to make enough money to provide the services that the Catholic Church provides more than a titan of industry hanging out and trying to make as much money as possible. Totally. And it hasn't always been a well-run corporation. So back in 2012, an anti-money laundering watchdog in Europe dropped a report about its audit of the Vatican Bank.
At the same time, there was a number of documents leaked to the press, and the picture it painted suggested the bank wasn't being transparent and it was being used to launder money and as a tax haven. It's like the Bahamas of Italy. Exactly. So the year after this report drops, Pope Francis becomes Pope.
Pope. And he chooses his name, Francis, which is referring to a saint who cared for people living in poverty. And it seemed that's kind of the energy he was coming in with, is he wanted to kind of do right with the money that was coming into the church and really clean stuff up. And
He really did institute some significant reforms. So he slashed salaries and cut back on pensions. He wiped out the bank's old leadership, bringing in people who actually had real Wall Street investment experience. But he also created these new oversight bodies in order to ensure that the Vatican and Vatican Bank were more transparent and also more compliant with financial conditions.
And the reforms he instituted really turned the bank into this trusted financial institution. The last report from the money laundering watchdog into their activities basically said they're on track, they're doing a great job, and they've had really steady profits that have been able to be reinvested into charitable initiatives. So as fate would have it, this episode will be dropping on the day the conclave begins. What's at stake here?
as far as, like, the future of the Vatican as a business. It's so interesting, right? Because, like, the Vatican Bank faces the same challenges as any other bank. Like, it needs to bulk up its pension fund to support this, like, increasing and aging workforce. But it also has, like...
religious challenges too. Like it needs to make sure investments it's making are faith consistent. Like for example, they won't invest in some AI companies in case the tech is used for weapons or companies that support certain types of reproductive care. So that's another tricky thing it needs to look at too. When they're in the conclave trying to pick their new pope, how much are they thinking about like how good of a CEO this guy is going to be? All of these cardinals say that their choice is meant to come directly from God. But they are factoring in
stuff like financial leadership or business leadership because it's a part of the job. Matt, I do not know who the odds-on favorites are for NextPope. What do the betting markets say? The fact that the betting markets exist for this is just, it makes me so happy. So Pietro Perolin is in the lead at 28% odds. The
Luis Antonio Tagli is 18.9%. Peter Turkson, I don't know who that guy is, is 14.4%. And my friend, Matteo Zuppi, is in fourth place at 11.3%. In the neighborhood, we used to call Matteo Zuppi, Matty Soups. Yeah, exactly. In the most unholy turn that the podcast has ever taken, should we make a bet on who the next pope is going to be?
I just say I've I've a great relationship with my partner's very Catholic mom who listens to this podcast, and I would love to maintain that as long as possible. So you should like on principle be like, absolutely not. And then you'll look great. Yeah. You're disrupting the mass. Who made you the pope? Okay, Matt Karras, you are up. Who is making or losing money that's interesting to you at the moment?
The Toronto housing market is losing money, and that caught my eye. Yeah, that's not really the story that you hear very much. Yeah, and you see, you know, news like condo sales slumping down like 23% from the year before. Developers, you know, having trouble paying off the debt they took on to build new units.
And even home prices are down. Home prices across the board in Toronto are down 20% from their February 2022 peak. But it seems like there's a specific and acute narrative to be told about the condo market. Is that right? Yeah. So of all of the types of housing in Toronto, the condo market, condo prices have fallen the most.
They had seen the biggest rally and then the biggest fall. Can we quantify in any way, when did the condo boom start? And can we quantify how big it was? The condo boom really started in the 90s and really accelerated in the early 2000s. For context, back in the 1970s, only 12,000 new units were built. In the 80s, you had about 30,000 new units added.
But then in the 2000s and the 2010s, the new flow of condos doubled such that like the total number of condos more than doubled by 2020 versus, you know, before what it was in the 2000s. And what why was that happening? Is it was there a financial incentive there or was it just like everyone's moving to Toronto?
I mean, there's definitely a financial incentive there. If you look at home prices in all of Canada, obviously, they skyrocketed starting in the early 2000s. But Toronto's home prices were up by the most. So on average, home prices in all of Canada were up by about 250 percent, and Toronto's were up by about 350 percent. So if you were a developer, if you were in the real estate business and you wanted to make a bunch of money,
It was pretty smart in the 2000s, 2010s to go to Toronto, build a giant condo building. By the time that you were selling them, the prices would have gone up a lot and you would make a bunch of money from the transaction. What changed? Why is that not the dynamic anymore? Well, in order to keep...
making all of this new supply of housing worthwhile to build, you need an ever-increasing flow of money into the housing market. And for several years, that flow of money was supported by falling rates.
In addition to that, you know, as the housing boom went on, you'd hear more and more stories about people, you know, making generational wealth by investing in housing. And so there became to be this like religion around it. And that reached like a fever pitch in the pandemic where I would talk to my colleagues and like, they'd be like, I got to leave early today to go see these houses. Like, if I don't get a house today, like I'm never going to be able to get a house in Toronto. Like there was this feeling like if you don't act now, you're never going to get it.
And so that led to a huge final run up in prices and then interest rates rose, stock market collapsed, and, you know, housing prices had to go with it. And that turn led to a turn in psychology for everyone.
You know, add to that, there's, you know, obviously some some other structural factors, you know, the years and years of immigration had pushed up prices and and that started to slow. But the real big thing and the thing that turned really, really fast in 2022 was this quasi religious belief that housing prices only went up. And that was like the sure way to make wealth to one where, oh, no, oh, they did just go down. And that has has sort of plagued the market ever since.
What is the dynamic that's being played out now? Is the condo market crashing more because everything's going to crash more? Or is it just like this one went up higher because of all the speculation and it goes down faster because it was all the speculation? Yeah, so far, you know, my read is that Toronto is just
the most extreme reflection of the broader dynamic in Canada. It was the most extreme reflection on the way up, where prices surged by the most, you know, over the last 20 years, and then they fell by the most, you know, over the last two and a half. It does raise a question, I think, like a fear of like, okay, like now that housing prices have started to go down, like...
will it ever be a good investment again? And also, like, are we headed for like a 2008 style, like housing led recession? Like that's the other main fear. Right, right. Because so many people have so much of their net worth in housing. You know, you could have people with their mortgages underwater, you
people who have materially less in retirement than they were expecting, et cetera. Yeah, so it's not great to have a housing market where the prices are going down. It sounds like quasi-Ponsai scheme-esque, but it has historically been better for most people in the country to live in a world where housing prices...
go up. The people that own the houses feel richer. The people that borrow to develop the houses feel richer. The renters are upset, but eventually they'll own a house and then they'll feel richer. It is like, you know, historically not been great for it to work in the other way because then the people that are owning the house feel poorer and they cut back and
You know, the developers are poor and then the renters like, you know, typically are, you know, employed by or working with the people that are in the houses and they get screwed as well. So that dynamic is definitely something to be fearful of. Sarah, what are you seeing in terms of the difference in housing markets across Canada? You know, obviously not everything is the Toronto condo market.
The thing I've really been noticing in some of, I don't know, the smaller Canadian cities like Calgary, Saskatoon, Halifax, is there was this like massive price boom during the pandemic as people were moving out of major centers like Toronto and Vancouver. But now that's flatlined a little bit. Prices are still up. It's not that they're coming down, but a lot of
buyers and sellers have kind of been on the sidelines in the last little while as they wait to see what's going to happen with tariffs. There was like a little boom in activity when rates were cut, but not a lot. So it really seems like people are just kind of like frozen, like doesn't even make sense to buy a house right now when I have no idea what's going to happen. I guess the last question is, this is not financial advice, but age-old question.
What's the argument for buying a house as the best thing to do with your money versus investing as the best thing to do with your money? The question of renting versus buying is really just a question of what else are you going to do with your money?
And how much confidence do you have in that? But beyond that, I think maybe the advice that I always have is like, what do you want to do with your money? If you have a place that you're like perfectly happy renting, then maybe you just do that. But like, if you want to buy a house, like that's what you want in your life. Go buy the house. I mean, you bought a house, Sarah. Yeah. And it's and it's great. Like, honestly, even if it wasn't the better financial decision, I feel like and it might not be like, who knows? I think I would consider it because I love I don't know.
hammering holes in walls as I attempt to poorly do DIY things. Like, it's very satisfying to have a place of your own. So I feel like it depends. It's so personal. Yeah, I think that's probably the takeaway. I prefer to spend my hard-earned income on, you know, $5 coffees. How's about investing in condominiums? It's safe. Condominiums? Yeah, condominiums.
Okay, for our next segment, we are going to have a guest on the show. John McKenzie is the CEO of the TMX Group. If you think you don't know what the TMX Group is, you might be right, but you're also probably wrong. It's the company that operates the major stock exchanges in Canada, the TSX, the Montreal Exchange. It's essentially a for-profit company that operates the biggest markets in the country. And we figured that John
John, in his role, would have a pretty good point of view on how business leaders are feeling, what the market's like, what we can expect from companies given the changes that are going to come from the recent election. John, help me out. Does that all sound right? That sounds great, and thanks so much for having me. I am going to start with a really basic question. I did not know really until a few years ago that stock exchanges operate as businesses.
How does that work exactly? Yeah. And I've been in the organization long enough for when that wasn't true. Because I actually joined the organization in 2000, just when it became for profit. So the, I mean, the way we make money, it used to be more about transactions. But over time, that's really transitioned to be much more of a data and information company.
So now almost half of our business is data and information. And then we've got multiple marketplaces from small cap junior companies to the large cap on the Toronto Stock Exchange to options and derivatives on the Montreal Exchange. So trading, you take a piece of the trading, it's listing new companies. And then we also have all the clearing and settlement, like all the pipelines. Yeah. I mean, it's like if Bloomberg had a stock exchange.
Exactly. It very much looks like a Bloomberg. What if most people get wrong about the TSX? How is it different from, say, one of the American stock exchanges? Well, I'd like to say, firstly, because we're so much better at actually taking care of the clients. But beyond that...
The biggest difference for us is the fact that we actually have two market system in Canada. So we have the TSX venture and the TSX, and that's unique in the world. The venture is a small or even micro cap exchange where we list approximately 1500 companies that would be too small to be on New York, on NASDAQ or any other large global market. The company can come on and raise say $10 million. Yeah.
And then grow with the exchange over time. So when they come back to do their next rounds of funding, they can raise more money and expand. And when they're large enough, we graduate them up to the senior market. Kind of like going from middle school up to high school.
And about 20 to 25% of the big TSX index is actually from companies that started as these microcaps and grew up with us. I think one misconception a lot of people have about the stock exchange is it's like a 1980s movie with a bunch of people on like landline phones, like streaming.
at each other, but like the TSX doesn't even have a trading floor, right? Like what would an average day look like there? I love this question because it was actually, when I actually went down to start to work at the stock exchange, I thought there still was a floor and I couldn't find it. So Toronto actually closed their floor in 1997. It was the first exchange to do that. The first exchange to go all electronic anywhere in the world. There's so much innovation for capital markets.
that happened here that got invented in Canada. Like the ETF, the ETF is the, you know, it's the biggest instrument for retail trading today that was invented on the Toronto stock exchange 35 years ago. And now everything runs on very high throughput digital systems. And in fact, this just this week, we actually just replatformed all of the clearing and settlement systems for the country. So it's a constant reinvestment. Otherwise you just get left behind.
Well, speaking of technology being pioneered in Canada and then
being taken advantage of in other markets. A question on everyone's mind right now is, what's wrong with Canada? Is there something wrong? And what is it? Oh, there is so much right with Canada, but there's so much also untapped potential. But candidly, for the last 10 years, you can look at this in the stats. We used to track with the US pretty closely on productivity and kind of household income, those types of measures. 10 years ago, that diverged.
And Canada's fallen behind. And there's different reasons for it. We've had multiple increases in the tax base that make it harder to invest. And we've had both kind of federal policy and regulatory regimes that become more burdensome, not less over time. I know that, you know, Canada not being productive is a big complaint and a big worry. We've talked about that on this show a bunch of times. You know, I think Matt talked about the fact that
There are some different ways to interpret the data. If you take away the big, giant, high-performing American tech companies, have Canada and the U.S. really diverged very much? Yeah, when you actually take out those big tech giants in the U.S., the Canadian markets performed extremely well. Right. But what we're seeing over time is fewer companies that are bigger. Right. And we're not seeing the same growth. The stats would say that companies are investing less than they used to.
And the household income, the actual income to the people has not kept up. And that's the piece that we're talking about when we talk about, you know, how do you get investing going, you know, giving the kind of the grease for companies to invest and expand their operations and the impetus for shareholders to put money into these companies to expand. That's where we're trying to get changes happening.
I guess the other big thing that's on people's minds, of course, are the tariffs that are happening. And, you know, from your viewpoint, you know, you get to see into the finances of a lot of companies. What's the real effect been so far? I mean, so far, the real effect has been more noise than real impact. A lot of companies, you've seen it in kind of the values of Canadian companies, actually held up pretty well. There's been a lot of resilience through it.
but a lot of volatility. So when we see it from an exchange standpoint, I have kind of two impacts. One is a lot of volatility means a lot of trading activity. That's actually great for marketplaces. In marketplaces, we're doing double-digit growth in trading activity. I think our derivatives market's up 30%, 40%. Our equities are up 30%, 40%. But when you've got that much volatility, it makes it even harder for a company to decide, I'm going to raise money.
You know, that's what we kind of like an investment chill, because if you're a board of directors of a company thinking I'm going to raise money to expand, and you're looking at this uncertainty, if I don't know what tariff happens next or how long it lasts, it's easy to say, I'm just going to wait. I'm going to wait and see. Now, when we were in the last quarter of last year, I would have had a couple of dozen private companies in discussion with us thinking about going public.
And now there's really none that are kind of ready to go. So they've kind of all pulled back. I've been talking to multiple places about the IPO market in North America essentially being closed right now. It's kind of funny. I was mentioning this to Devin earlier. Like at the time of this recording, the TSX is up on the year. Yeah. At least flat. But it definitely doesn't feel that way.
No, normally if you've got great valuations and lots of liquidity and you've got interest rates coming down, that's the Cinderella time for raising money. But what we don't have is confidence. I guess the other question for you, and we're going to hold you to it, is are we having a recession? Is it going to happen? Do you think it's already happening?
It almost feels like we might cause it ourselves because again, those indicators around the markets, they're all actually pretty good, but the consumer confidence, the business confidence because of all this uncertainty is leading companies and people to pull back. So that could have the potential to lead us into that recession. Now, that being said on a per capita basis, Canada, we've been there for two years already. We've been talking about all these items for years and
Because we were trying to get investment going in the country. Yeah, I guess the question also is like, how much of this is Donald Trump's fault? And how much of it is Donald Trump sort of shining a light on something that was already there? I heard a really good economist talk about this in the sense that it's what happens when you get a cold, but your immune system was already way down.
Right. And so what this has exposed that the Canadian immune system wasn't resilient and maybe because we'd taken our peacetime dividend for granted for so long that we hadn't been investing in the areas that were going to give us trade diversification opportunities for long-term growth. You know, Canada has got phenomenal reserves on natural gas, but we've missed some of the opportunities to pipe it, to liquefy it and to send it to other marketplaces around the world that are asking for it.
There was some complacency over time that things were going to stay good. Our health system wasn't ready for the shock. This is a moment of great anxiety in Canada. People are freaked out, questioning the future. And we just had an election. So change should be in the air. Practically speaking, what are three changes you see happening as a result of this election that people can understand on a concrete level?
I come into this time period with a, with a feeling of hope and optimism, you know, despite the anxiety, because one of the things that was clear in this election is, you know, you had two parties with different platforms, but largely about economic growth and actually really spurring innovation in Canada. And they saw over 80% of the vote. So there's a real alignment that we need to do things to get the Canadian economy moving, making it more resilient, sovereign, independent from the U S.
So what am I expecting? I'm actually expecting to see some real tax changes come from the government that make it easier for companies to invest, allowing companies to deduct capital investments for tax purposes. So that's number one. We got to have that kind of change. Number two is we got to get big projects done in Canada again.
So I heard Carney's team talk about having a project approvals that were faster. I would love to see the government either repeal or reform the impact assessment act. That's the one for major projects getting approved. Anyone in the industry and energy and resources would say that's a barrier to getting things executed. And the last thing that we're working on is here's a chance where Canada's thinking about knocking down interprovincial trade barriers and
We only need to have a couple of provinces come on side and we can actually have essentially a national regulatory model in Canada. If all the provinces sign on, it would mean that if you raised money anywhere in the country, it would be recognized anywhere else. And I'm starting to see a lot of momentum to that, but there hasn't been in probably a decade. So it seems like for a while people have known what's wrong, but now there's motivation to actually fix it.
Absolutely. Okay, this is my last question. You're someone who like has access to the best information in the world. We do not provide investing advice here on the TLDR podcast, but like how do you invest your money? So I do do it all myself and it's because I've been in the industry so long. I know I simply just don't trust anyone more than me. I'm very much a big ETF investor.
I look for sectors that are interesting. I look for different balance in terms of the things I'm going to own. Now that we are an index business as well, I've made sure I buy the ETFs that use the indexes we sell. This I learned right back before I came to the exchange. I worked at Procter & Gamble. I worked on things like, you know, CoverGirl and Pantene and Bar Soap. You know, always buy the stuff that pays you at the end of the day. Now invest in yourself. But I'm a long holder.
And my investments need to pay dividends because if they don't believe in themselves enough to pay the dividend to me, then I'm not going to invest in it. Are you a crypto guy? Do you own any crypto? I am not. Do you own any gold? I do not. A thing I've heard from a ton of people is basically, I don't want to invest in the TSX. It's just a bunch of resource companies and banks. What would you say to someone who said that?
Well, I'm going to send them straight to TMX money. That's our portal of all the companies that we list and everything on there. There is so much more there than that. There is something for every interested investor. That's why I love markets. There's, there's something for everyone. There's something for everyone. I'm going to use that over and over again now.
That is it for this week. Sarah Rieger, tell everyone what we learned. We learned that the new Pope will probably not be doing earnings calls, but he does need to act like a manager. We learned that Matthew is probably not considering buying a condo in Toronto. And we learned that John McKenzie thinks that there's a lot more than just three oil companies and a few banks in the trench coat that encompasses all of Canada's market.
Thanks for listening. The show is sponsored by Wealthsimple. It is made by me, Devin Friedman, Matt Keres, Sarah Rieger, with Matilde Erfolino, Leah Fetter, and Jared Sullivan. Help from Eva Cruz, Juanita Leon, and Allison Hopkins. Fact-checking and research by Brennan Doherty. Theme music by Andy Huckvale. And engineering by Emma Munger. Special thanks this week to John McKenzie.
The TLDR podcast is offered by Wealthsimple Media Incorporated and is for informational purposes only. The content in the TLDR podcast is not investment advice, a recommendation to buy or sell assets or securities, and does not represent the views of Wealthsimple Financial Corporation or any of its other subsidiaries or affiliates. Wealthsimple Media Incorporated does not endorse any third-party views referencing this content. More information at wealthsimple.com slash TLDR.