Discover Jonathan Wellum’s insights on how to safeguard your wealth ahead of looming economic challenges and the unavoidable banking crisis.
Join host James Connor on Wealthion as he sits down with Jonathan Wellum, CEO of Rocklinc Investment Partners and a Wealthion-endorsed financial advisor for Canadian investors. In this episode, Jonathan discusses the current state of the banking sector, the implications of recent market volatility, and strategic moves to protect your wealth. From insights on US and Canadian banks to the impact of political changes, Jonathan provides actionable advice for navigating these uncertain times.
Jonathan Wellum 0:00 The Canadian economy is so highly indebted and the consumer is so highly indebted. So the basic assets of the banks are the liabilities of Canadians. And so our view is very simple. It's not that it's not that we're not saying the Canadian banks are gonna blow up or there's gonna be a, you know, a real a real problem. We're just simply saying that the way forward for them is going to be tough and we can find better growth opportunities in other businesses, other industries, and therefore why would we sit in the bank just because they're a significant part of the index people don't evaluate us based upon how we're doing against the you know, the s&p TSX they evaluate us in absolute number of terms and what we're doing in terms of against a risk or volatility. James Connor 0:45 Hi, and welcome to wealthion. I am James Connor. Well, here we are in q3 in the s&p and the Nasdaq continue to make new highs every other day. The US banks, JP Morgan, Citi, Goldman Sachs have all reported q2 numbers in the past week. And how did the banks do and what does this mean for the performance of the markets going forward? To help answer these questions? My guest today is Jonathan Willem of rock link. Investment Partners and rock link is a wealthy and endorsed financial advisor for Canadian investors. Jonathan, thank you very much for joining us today. How are things in Toronto? Jonathan Wellum 1:24 Things are good other than a little bit of excess rain last couple of days, which seemed to flood out the City of Toronto. But since we're outside of Toronto, we weren't impacted too much. But other than that, things are going well. James Connor 1:36 Well, that's good to hear. So let's dive right into it and talk about the markets. The last time we spoke the s&p was at 5400. It's now at 5600. Give or take. It's up 18%. On the year the NASDAQ was at 17,600. The last time we spoke, it's now at 18. Five, it's up about 20% on the year. And I've I want to ask you, when we speak again in two weeks, where do you think the markets are going to be higher or lower? Jonathan Wellum 2:02 Well, given the last couple of days here, we're seeing a big rotation. So maybe I would put my money on a little bit lower, I think things are just being tamped down a little bit. And some of the enthusiasm is seems to be waning. And so I would say maybe just a little bit lower. But again, we're always trying to look at the longer term and look at individual businesses rather than just the indexes. But it's an interesting interest interesting time with record highs, but feeling some of the pressure now. James Connor 2:29 Well, why don't we talk about the US banks because as I mentioned, they they've all reported here in the past week, JP Morgan, Citi, Goldman Sachs, Morgan Stanley, and for the most part, they all did, okay, both Goldman and Morgan Stanley said they saw improvements in capital markets, you have had a negative view on Canadian banks. And I'm curious, what are your thoughts on these US banks? Jonathan Wellum 2:52 I mean, the large, US banks are powerful banks are almost like utilities. And so they just continue to chug along fairly well. And clearly, as you pointed out, the investment side of their business, the market making and the different investment side, right, versus the actual banking spread, businesses were doing quite well. And Goldman's numbers were exceptional. But I think if you look under the hood, you are seeing some weakness in the lending side of the business, some write write offs in slowly increasing, and people are not borrowing at the same rate, clearly, it's going to be very difficult and more with that a high rate if you're a retail or retail borrower, because you've already got a large amount of debt and interest rates are quite a bit higher. So you are seeing some of the trending in the US working against, I think, increased profitability in the future and some of the banks in terms of the core business. We've already seen that in Canada, as you know, in Canada, other than Royal Bank, and National Bank, one of our smaller banks, most of the banks are actually down year to date, and are not performing that well, because we're a little bit ahead of the US in terms of just the consumer indebtedness, and then the impact of the large increase in interest rates on consumer borrowing and some of the charge offs that are going to inevitably result in terms of the banks. James Connor 4:13 I do want to have a deeper discussion on Canadian banks. But before we go there, I want to still talk about the US banks. And JP Morgan is up 25% In the year cities up over 30% on the year. So they're both a lot of the big caps are outperforming the s&p, and even the regional banks are coming in live here in the last couple of weeks. And this is in spite of the fact that we've the troubles we had with New York Community Bank earlier in the year last year was Silicon Valley Bank. But do you think this move that we're seeing in the financials overall and now into the regional banks is because the market is discounting a September rate cut? Jonathan Wellum 4:52 It certainly appears that that would be the case. I mean, the Fed even today I was just listening to some of the chat And there seems they seem to be signaling a September rate cut. And so that that's certainly factoring into it in the short run. The other thing is that the banks really, if you go back and look at the five year numbers, and most of these banks, you're lucky if you've got low single digit returns over five years, if you're just looking at the stocks, not the dividend dividends that they've paid, so they haven't done much, they've been going sideways and not making much progress. And so you're getting a bit of rotation of balance back because of that in some, in some enthusiasm with the fact that the Fed might drop rates a little bit in the fall. So from our perspective, we look at that, and we're still looking at the longer term opportunities and other areas to invest, especially non bank financials, where we see a lot more growth and a lot more predictability and a lot less credit risk. James Connor 5:47 So you made mention of the fact there that there could be a rotation going on in the markets. And we're seeing a bit of a pull. Jonathan Wellum 5:53 In the last couple of days, it was interesting, I was just looking at the Russell 2000 was writing our second quarter report for our investors. And just noting that the Russell 2000 had gone nowhere this year, basically, it was up half a percent. And now as we're talking, it's up double, low double digits in just a matter of a few days. And so, yeah, there's certainly the last couple of days, there's been a rotation and people are looking for cheaper valuations. I think there's also enthusiasm with the with the potential of a Trump presidency, and the fact that you might actually get a government that's going to step back on regulations, and encourage the business, you know, capital accumulation and money back into the US. And that that's, I think, being factored into the market. Also, we're seeing that, that a rotation and energy in some of the areas that may be more favorably disposed of by a Trump presidency, although I find the energy one interesting, because clearly, Trump is very pro energy. And I agree with his policies, you know, drill, baby drill, and get the price down. But as we saw before, if the price goes down, actually, the oil companies don't make quite as much money. And that's sort of the paradox, and a bit of the irony there in terms of that, but that's what I think is going on in the market. James Connor 7:08 And I guess the other issue I want to ask you about, too, is this whole AI thing in, we all know it's a bubble, you can't deny that. But I don't know if you saw the piece that came out of Goldman Sachs earlier this week, suggesting that AI is a massive bubble, and it's not going to reach the productivity levels that many people are suggesting. It also went on to say the companies have just been spending over a trillion dollars on infrastructure, but there's little hope of ever seeing payback on that trillion dollars anytime soon. And what are your thoughts? Do you think this AI is a massive bubble that's getting ready to pop? Jonathan Wellum 7:43 Yeah, let me make a couple of points. First of all, let me say that we have not profited, you know, a great deal from the run up in AI. I mean, we've owned some apple, we've had Amazon for many years. And some of those companies have benefited. We also have exposure to some data center, construction oriented companies like Schneider Electric, and so forth. So we have some exposure, but the direct play, we have not owned a Vidya missed it up 155% year to date, it's crazy. But no, I would go back and say, look, we've seen these trends before AI is important, it's going to have a significant impact over time. But that's the key thing over time as it gets integrated into businesses in on many different levels. But this kept spending and this enthusiasm where you just extrapolate, you know, the last year and just say that's going to happen for the next 15 years. That's just insanity. And we've seen this before, we've seen it in tooth, you know, 1999, 2000, that huge capital spent on the internet, that was wonderful develop internet, but then it fell off a cliff for quite a few years. And those companies came tumbling down. And you know, many of them have rebounded, some of them disappeared. But I think it's just that, you know, the way the market works as everybody wants a trend is developed, people run that trend, and they just go Go, go go, I had to chuckle when I heard, you know, the numbers for nividia. I mean, there's people coming out and saying it's gonna be worth $10 trillion $20 trillion. They're just throwing out numbers that that are absolutely insane. I mean, our global economy is only is less than $100 trillion. To think that a company would be 20 or 30 trillion in a matter of, you know, 10 or 15 years. seems absolutely absurd. But it is typical of this kind of excess and enthusiasm. And the market just gets way ahead of itself. So we're very, very cautious, very, very careful what we get. We have not owned a video. It's it is an amazing company. It's fantastic, what they've done, no question about that. It's not taking anything away from them. But when you have companies that are worth 3 trillion and more, they have to make a lot of money and they have to do that on a long term basis for years and years and years into the future to justify those kinds of valuations. James Connor 9:54 So you brought or you touched on Trump earlier and it's looking November still About a few months away, but right now as it stands is looking like a Trump victory. And he's made numerous comments recently about letting the dollar fall and using the dollar as a weapon. And he's also talked about onshoring. And I'm curious to hear your thoughts on what this will do to the US economy and also to inflation. And I'm kind of wondering if this is what's happening right now, the markets looking ahead. They're looking for a devaluation of the US dollar lower interest rates. And maybe this is one of the reasons why gold is catching a bid like it has been in the last couple of weeks. Jonathan Wellum 10:34 Yeah, I mean, I think those are all factors. I mean, if you look at the situation in the United States, and you look who Trump is up against, I mean, if you look at President Biden, and you looked at that last debate, if you want to call it a debate, I mean, it's pretty obvious. I mean, anyone who's been following this, it really even back in, in 2019, let alone 2021, Biden actually ran, that this is an individual who was not fully engaged intellectually, he's got, you know, some kind of, you know, dementia, and so forth onset, you add four more years, and you see just the devastating impact from a health perspective. I mean, people are seeing that they're also responding to policies that have been tremendously detrimental to the health of the US economy. So you know, you've got open borders, you've got increasing taxation and regulations, you've got, you know, energy costs going up, because they're not allowing drilling and so forth, then you got inflation, all of those things have basically come together to create a an economy similar to what we have in Canada, under the leadership of Justin Trudeau. This is not a pretty situation. It's a deteriorating situation. And so, I think that if there are fair and free elections in the US that yeah, that Donald Trump will win substantially, and much more than you did previously, in 2016. And that's simply because people are hurting people are feeling the pain, they do not, you know, the inflation is killing people. And, and if you think about Biden, similar to what Trudeau is doing in Canada, there's no solutions from these folks. I mean, they're not offering any change of policy, it's basically just continue to double down. So I think when people look at that, and they also look at his response to the assassination attempt, which really, I think emphasize his strength of character. I mean, I mean, how much can you throw at this guy? I mean, I mean, it's unbelievable. What what he's taken the the incoming, I think they see him as quite the leader. And if he comes out of this, this week, the National Convention in Wisconsin, if he comes out of that as a unifier, I think, yeah, I think you'll have a strong, strong probability of winning, and people are looking ahead, they're saying, you know, don't, Trump is a businessman, it's America first, is going to be brutally competitive. He will do what it takes to advance the United States economy, and make sure that money is flowing into that economy, and that capital is cheaper, energy costs are lower. And that's going to have I think, dramatic implications for the US economy. And for those other economies that have to compete with them like Canada, where we're, it's going to be a little tougher for us in that kind of environment. James Connor 13:11 Yes, it definitely looks like the pendulum is starting to swing in the other direction when it comes to both the US and Canada, which is good to see. Jonathan Wellum 13:19 Yes, absolutely. No, I mean, a strong US economy is always beneficial for Canada. And I mean, our trading with the US, as you as you know, as actually looks like it's almost falling down and falling behind Mexico, the Mexico's stepped up a little bit. And that's unfortunate, I think if we can unleash and get better government in Canada and leash a lot of our commodities, and sell to the US and be more competitive and you know, make more parts and do more manufacturing up in Canada that we can sell them to the US, we would be much further ahead also. And so I think there's opportunities for Canada, with a stronger US economy that's open for business, and much more productive and less regulations. James Connor 13:59 Now you raise a lot of good points in for our American friends who might not be familiar with what's happening in Canada. The Canadian economy has been in a decline for a number of years. And that's in spite of what's happening in the US. But our GDP per capita, I believe it's been declining for five years now. While at the same time it's increasing in the US very unusual circumstances. Also, Canadian labor productivity has been in decline for 10 years, real incomes have been in decline. So change is definitely need it. Jonathan Wellum 14:32 Yeah. And we're feeling that I think if you if you go across this country, people are really want to change. I think it's similar to what they are experienced in states. We've just had it a little worse up here. We just don't have the depth and breadth of economy. And so I think if you throttle the commodity sector, you throttle the western Canada, you make it you know, our tax levels are just really quite a bit higher than the US overall, it's really strength put a stranglehold on our economy in a much larger way. We've also had As you know, James, we've also had about almost two and a half to 3% addition to our population each year through just massive immigration. And it's almost impossible for an economy to assimilate that level of people with without, you know, building an infrastructure. So our infrastructure in Canada is under huge, huge pressure and a real shortage of housing that's even worse than the shortage in some of the states. So, you know, those are all factors, too, that will take time for us to work through. James Connor 15:33 And you mentioned earlier about the policy mistakes that the Liberal government and also the NDP is because there is a coalition government here, but you made mention of the fact of the polling mistakes that both of these parties have made. And the other big one is, in addition to immigration, the other big one is taxes. They were they impose new taxes on the Canadian populace at the worst possible time, we have a carbon tax and also a new capital gains tax. Jonathan Wellum 16:00 Yeah, and we're just going to see, we're just going to begin to see the implications of that, because we have a shortage of capital investment in Canada. And we need capital because we are resource oriented economy, regardless of what the liberals and NDP think. And so if you don't have that capital coming in and staying and being reinvested back in our country, it has very long term, detrimental impacts, so they then put a tax increase on capital is just outrageous. I mean, it's it could not could not have done, it could not have been, you know, a tax more at a worst time in terms of our country. So when we think of that situation, it's also very, very dangerous. So what we need is lower taxation, lower energy costs, unleash our the the entrepreneurship of Canadians bring in foreign money to develop some of our resources up here in Canada, and start to sell, sell, sell and export. You can't build an economy just on new immigrants coming in and building homes. I mean, we have to build other things in just homes, we have to produce things, we have to have services. And that's only takes place if you've got a strong productive economy. James Connor 17:08 So I mentioned at the onset, that rock link is a wealthion endorsed financial advisor for Canadian clients. And for those viewers who might not be familiar with rock link, why don't you just give us a brief overview of rock link? And maybe you can also touch on your investment style? Jonathan Wellum 17:25 Sure, yeah. I mean, we're, we, I would, I would consider ourselves basically disciplined long term value investors, what does that mean? We try to build positions in a limited number of companies. So we're not index investors, we're not all over the place, we tried to buy a handful of companies 2025 companies that we believe are exceptionally well run, very attractively priced, and that we can own for three, five years type of thing so that we can compound on a tax deferred basis. So it's a very hands on intense research oriented process. We create individualized portfolios for our clients. So if anyone wants to come in and talk with us, there's no pressure free, free service, who will talk to anyone that wants to come in and talk with us. And we'll walk them through how we invest, look at their existing portfolio, give them some comments in terms of that ways we can sharpen it up and improve it. So really, in a nutshell, just a real sort of a warren buffett approach to investing. And we don't doesn't matter to us what the indexes are doing. For example, yesterday, we just sold the remainder of all of our Canadian bank stocks, we had about 1% in our whole portfolio, we moved them all out yesterday. And we started to build a new position in some other non bank financials that we think are much, much better priced and have a much higher growth rate. So we're very focused, very specialized in what we do. And clients like it, because they understand what we're buying, we explain what we're buying, they know, they understand the companies that we're buying. And then we can customize that and have an asset allocation that fits the client's individual needs and also risk tolerances. Because of course, every client is, you know, has different risk tolerances and what they're comfortable with in terms of the market exposure. James Connor 19:06 Now, you mentioned that you only have 20 to 25 names within the portfolio. And the I also want to ask you, what is the breakdown of those 20 to 25 days between Canada and the US? Jonathan Wellum 19:21 Yeah, good question. So I would say about 35% of the names would be Canadian based companies, and the remainder would be us or a couple that would be European. And so we'll, we'll look at some of the European companies. But in Canada, only one or two of our companies would be 100% Canadian. So even though they're a Canadian based companies, like for example, if you take Brookfield which is well well known companies, we've owned a number of Brookfield companies. Well, those are Canadian based companies, but they're global powerhouses in terms of infrastructure, and other you know, investing investing areas. So we try to find as many come pieces possible that are that have multiple country exposure so that we're getting exposure to a variety of different countries and currency exposure with so you builds up a natural currency hedging them. So, you know, we love some of our Canadian based companies, but we don't have a huge market up here. So it's very important for us to look outside of Canada and find great opportunities, especially in the US and also in Europe. James Connor 20:24 I was surprised when you said you're waiting in Canadian banks was only 1%. Because the Canadian banks represent a large part of the Toronto Stock Exchange. Why was it only 1%? And now you're at zero if I understood you correctly? Jonathan Wellum 20:38 Yeah, basically, we're at zero, we have the odd client who has a large capital gain and wants to maintain a position. So we again, customize based upon that, but in terms of our holdings, yeah, we've we've eliminated it, where we have full discretion. We're intimate where it makes sense. And the only reason for that is that the Canadian economy is so highly indebted, and the consumer is so highly indebted. So the basic assets of the banks are the liabilities of Canadians. And so our view is very simple. It's not that it's not that we're not saying the Canadian banks are gonna blow up, or there's gonna be a, you know, a real a real problem, we're just simply saying that the way forward for them is going to be tough. And we can find better growth opportunities in other businesses, other industries, and therefore, why would we sit in the bank, just because they're a significant part of the index, people don't evaluate us based upon how we're doing against the, you know, the s&p TSX. They evaluate us in absolute number terms, and what we're doing, you know, in terms of against a risk or volatility, and so that's, that's the really reason, we just think that the banks have just gonna have a hard time selling more credit into the Canadian marketplace, and that the mortgage market in Canada, the housing markets under a lot of pressure, and that's going to mute the profitability of the banks and the growth in their profitability for some time. James Connor 21:55 It's a one, we look at that a little bit deeper, because every quarter when the banks do report, their loan loss provisions go up. And it's almost as if they're forecasting trouble in the horizon. What are your thoughts on that? And you made mention the fact that you don't think Canadians can take up take on any more debt? But do you foresee some sort of problem with the Canadian housing market? Or even the condo market? Jonathan Wellum 22:19 Yeah, I mean, well, yeah, it's gonna be real estate, of course, it is. Location, location, location. And so you are seeing we have clients that we're talking with that actually have condos in Toronto from investment, you know, for investment purposes, and, you know, is severe pressure on them severe pressure values, under a lot of pressure, they're losing money every month, they can't, you know, the payment now, that, that they have to make in terms of covering the mortgage, depending on your indebtedness, of course, is not, the rental rental payment is falling far short of the mortgage payment. And so there's a lot of pressure on that market, a lot of people got way over their skis, they bought too many of these condos, it was easy money for too long. And you've also got construction ongoing, as you know, that problem is that the construction industry, you know, they they they start, you know, building and building and building, and it takes a few years to shut that down, even when, even when they should probably should not be adding more capacity to the marketplace. So no, I think that the condo market will be under pressure. The housing market, we've already seen is under a lot of pressure we we follow a number of regions, and certainly the markets down at least 20% More in some areas. And homes are staying on the market longer. And it's a tougher, it's a tougher slog. So I think that again, we have a lot of mortgages coming due that still are on cheap rates. And that's what the banks are concerned about. We've seen some of the banks increase the amortization periods up to 35 years. It varies by bank, Royal Bank was a little more careful, it didn't do that as much, but some of the other banks have increased amortizations. That's a horrible sign, if you're just increasing amortizations, in order to keep people in home. So yeah, so we just look at it. And again, we're not forecasting a blow up. But just a lot of pressure and tension on the banks where it's just, they're just not going to be rewarding investment. From our perspective. The other area, as has been talked about, it's nothing new is the whole commercial land a commercial commercial space, I should say, especially if it's office space, tier one space, we talked to the real estate people in our area, and many of the buildings are 40 and 50%. Empty. And that's because a large, large scale class a rental space, those those companies have a lot more people working from home or they've reduced staff and so forth. And so that also is something is going to have to run through the system at some point. And again, we just sit we just sit back and we say if we don't have to be in that space, why go there, we can just we can avoid it go somewhere else where there's more profitability. James Connor 24:48 And when you said many of the Canadian banks increase their amortization from... Well, where was it in what is it now? Jonathan Wellum 24:57 Well, typically the the duration would go up to about 25 years, that's the typical sort of amortization period. And what we saw was that in the, over the last year and a half, last two years, some of the banks, TD Bank was one of them. It was Bank of Montreal. I believe CIBC also, we saw, if they were reporting this on their numbers, you look at their quarterly reports, their amortizations, they mentioned that about that, at some point, it was about 15 18%, just under 20% of the mortgages, were sitting with amortization periods of up to 35 years. And so that's, that's what we're talking about that gets a little concerning 25 years is enough. I think if you're trying to extend people, 35 years, basically, the the probability of them even owning the home ever becomes it's more of a rental property, and the bank owns it. And that's not what we want to see. And I think that's just jeopardizes the ownership opportunities, and also just the financial where financial stability of the banks, and they're very concerned, they don't want to take over the homes, they'd obviously don't want to be trying to sell these places. And so we just look at that, and we say, You know what, we don't have to be there. This is just going to put more pressure on the banks, it's gonna be hard to grow their earnings. And so we just go to the sidelines and go somewhere else we just looked, we just look elsewhere. You see, we're not driven by the index. Jas, I mean, most people, you know, if their investment managers, they say, Okay, if the banks are 25% of the index, then we'll overweight or underweight. So if we go underweight, we'll go maybe 15%. And then we're way underweight, our view is if we don't need to be there, and it doesn't make sense, and we can find better opportunities, we just get rid of it, we don't need any exposure. And that's just the way we operate in terms of our investing philosophy. James Connor 26:38 And once again, going back to the amortization, your point is, if it goes up to 30 or 35 years, most of your monthly payments or interest payments, and therefore you never actually take ownership of your home. Jonathan Wellum 26:50 Exactly, he's just keeping the loan alive. That's all but the consumer is really struggling. So yes, the vast preponderance of the payment is just interest, just to keep it on the books and keep it current from the bank perspective. And I understand that it makes sense from the bank perspective, rather than writing them down quickly, or kicking people out of their homes, they do not want to do that. But what it's showing us is a lot of stress in the system. James Connor 27:17 Here's an interesting stat for you, Canada, or Toronto, and the Greater Toronto Area has more cranes in operation right now than any other city in North America. And in q2 was 220 cranes, the next highest city in North America is LA with 50 cranes. So that gives you an idea of the development going on within the Greater Toronto Area, and the number of condos being built. Jonathan Wellum 27:41 Yeah, as I say, if you talk to people who actually own condos in Toronto, they're not happy campers, because there isn't much of a market to sell them. And, and what it's done is it's kept the rents much lower than the mortgage payments that they have to pay. And so from an investment perspective, that's just going to put more downward pressure on these condos is going to take a number of years to burn through that. So again, these are just crazy excesses that we've seen, I don't have to tell you, if you were talking to people say four or five years ago, prior to COVID. I mean, the easiest way to make money was to buy a Toronto condo, and this hold it for a few years and flip it when that happens, you know, you should not be doing it, you should be looking elsewhere, because you're gonna get close to the top. And it's not a wise thing to do. I think it was Warren Buffett, at one of the meetings, he said, What a wise person does at the beginning of fool does at the end. And I think that's always something to bear in mind. If if people have made a lot a lot of money in an area and you're jumping in, really do your due diligence be very, very careful. It doesn't mean you can't make more money. But it means that the probability of more making a lot more money is lower, and the probability of losing money is a lot higher. So be very, very careful and cautious. James Connor 28:51 So you may mention to the fact that you've gone 08 Canadian banks, what other sectors are you allocating your funds toward for investors? Jonathan Wellum 28:59 Yeah, I mean, some of the major areas, we do have precious metals. We've talked about this before, we probably have about 18%, 20% of our portfolios exposed to businesses that are in gold, silver, something copper, also, some of these key areas. We like the gold trade because of the just the monetary instability, and of course, the global indebtedness. And also the fact that the US has irritated a lot of people around the world, a lot of countries around the world, and they're trying to do their best to avoid trading in US dollars. And a lot of the net settlement is being done increasingly in gold. So we like that silver is a very important commodity also for the whole electrification. It's also a monetary substitute and copper, getting some exposure to copper, because again, if we're going to continue to try to electrify everything and plug everything into the utility grids, we're going to need some more copper. So a big a big waiting in that space. And that's done well we think that it will continue to do well we generally own the Royalty companies, although we do have a large position in Agnico Eagle, which we think is an exceptionally well run miner, and one that is diversified in a safer place. But we have, you know, the Franco Nevada's and the Cisco royalty and wheaton, precious metals and so forth, those would be companies that we would love. We have a number of companies in the infrastructure space, but particularly in this space where they're non regulated utilities, we don't really like the regulated utility space, it's a tough one. Of course, interest rates going up is really hurt this space, including some of the ones that some of the companies we own. So we do own Brookfield Scorpio and Brookfield renewable Brookfield infrastructure. We like those companies, they continue to grow their earnings despite volatilities in the stock, they've got great dividends, think they're well capitalized, great balance sheets really well structured to, to weather, the, you know, the ups and downs of the fixed income markets and so forth. So that's another space. And then we have a number of non bank financials. One company that we added recently, which is we thought quite intriguing is, is Burford capital, which is in litigation finance. And that's a fascinating business model. And we that's very predictable business, in the longer term, but quarter by quarter earnings can be all over the place. But that doesn't bother us. As long as they are making investments with returns on equity, and returns on capital that are in excess of 20%. on a consistent basis, you're gonna make money over time. So that's a great non bank, sort of financial. And you have a few consumer staple businesses, technology, I mean, you can't avoid technology. So we've had positions in technology, and some manufacturing like Schneider Electric and Lindy Corporation, in helping companies with specialized energy needs and so forth. So yeah, those those type of really hardcore businesses that we'd like, you know, what's what we try to look for at the end of the day is free cash flow. If we can find companies that generate free cash flow, three, four, or 5%. Cash Flow yields if not higher, we have a number of energy stocks where the free cash flow yields are low double digits. And what we want is free cash flow compounding free cash flow, and consistently compounding growing free cash flow based upon a business with a strong moat around it. A strong business model is not going to disappear anytime soon. James Connor 32:24 And I'm curious what you, you have a very large weighting toward goals. And you're also a big believer in Warren Buffett and his style of investment investing, but he's never been a big proponent of investing in gold. How do you explain it? Jonathan Wellum 32:40 Yeah, he calls it a barbarous relic at least. So I think his partner, Charlie Munger, and I've heard him at his different meetings. And typically, you know, we wouldn't be large gold buyers, if we if we believed in fiat currency if we actually trusted the monetary system. And so I think if you're in a really healthy economy, and you have balanced budgets, and you have governments being responsible, and so on, and interest rates that are really set by the market and not artificially influenced by by specific central banks, then the need for gold just becomes almost nil, you don't need it. I think for our from our perspective, the concern is that we have a $340 trillion global debt, it continues to grow at record rates. We've gotten, you know, central banks around the world interfering in economies and causing misallocation of capital. And especially over the last 12 years, it's just outrageous, the low rates have caused a massive misallocation of capital, which we're going to have to pay up for at some point. And so then you also have the US dollar reserve status, which isn't going to go away tomorrow, that's for sure. But under pressure, and so you've got people wanting to collateralize currency in order to have greater trust in their currency. So you've got India, China, Russia, you've got a lot of the Arabic countries and so forth buying a lot of gold. And that's because I think they are concerned about fiat currency. So that's why we're there. But when we go into the space change, we want to buy companies that at that can generate high high, high margins and lots of free cash flow. And that's why we typically go into the royalty companies because they're basically finance companies. And so they're non bank financials, basically, to the mining businesses. And so we like that from an investment perspective. We're not trying to pick junior mining companies and sticking your head down holes and pretending that we're geologists we're not and that's a different business and there's some really good people that know what they're doing in that space. But we try to be good business people look for the cashflow businesses like like the Franco's in the you know, the weakness and so forth. And that's the way we approach it. Yeah. James Connor 34:49 And gold is still in physical gold is doing very well this year. It's up 20% on the year, give or take. But one of the things that really stands out to me is the divergence with the large cap producers and And if you look at Newmont, the world's largest gold producer, it's up about 15% on the year, but a lot of that move just came in the last month. There was a time this year where it was down in the year. Barrack is second largest producer. It's only up 5% Agnico, the third largest producer in the world, it's up 40%. So big outperformance there. Why do you think there's such a large divergence in performance with these large cap gold producers? Jonathan Wellum 35:25 Yeah, and that's because they, you know, with the price and the price goes up, and they don't deliver the earnings. And so the disappointment, I think and frustration on the part of investors over many years is that the price of gold has been going up, but it's not reflected in growth in earnings, and in free cash flow. And so that's why I think the barracks and the Newmont have had such a difficult time because of capital allocation problems. There's also some political risk in some of those businesses also. So you know, barrack is in a number of countries, which are fairly high risks, I think people are concerned about that also. But in ethnic legal issue in which you mentioned, which we have a large position in, in terms of a direct minor, Sean, Boy, those guys have done an amazing job. I mean, they really run the business effectively, and and profitably. And so mining is a brutally difficult business, it is not an easy business, you've got to you know, you've got to, you got energy costs go up. But you know, 20, they say about 25 to 20% of the costs of mining is energy. So if you know, oil prices are up a lot that takes away margin, you've got to constantly be spending a lot of capital and finding replacement resources for the resources that you produce every year. That is tricky. That is difficult. And so it's a difficult business. And I think a lot of the companies in the past have just not produced the numbers. So the gold price goes up. But I mean, gold wasn't that long ago, it was 1415 $1,600. Now it's almost 2500. Well, the earnings technically shouldn't be skyrocketing on these companies. But that's not really what you see, you see the earnings going up. But not as much as you would think giving given them a lot more operating leverage. And so that's why I think investors, the sidelines, they go, you know, really come on, guys, I mean, you've got to do a better job than that. So hopefully, the price is gone up so much now that we will see a large uptick in profitability and money, we'll move into the sector. It's a very small sector, as you know, all of these companies, you add them all together, they're just a fraction of Apple. And so if people do get excited, and they are concerned, and money starts to move in, they can move like rockets, and really go up an awful lot. And so I think, once you get that trend going, Yeah, who knows what you'll see. But up until now, it's I think, it's just basically a wait and see. I mean, they have not seen the numbers produce that the that you would expect, given the price increases. James Connor 37:49 I want to end our conversation by getting your opinion on Canadian politics. And we talked a little bit about it earlier, and how many policy mistakes have been made here in the last few years by the Liberal government. But there was a by election recently in Toronto, and it was a liberal stronghold since 1993. That Conservatives won the seat in a by election. Do you think this is the big beginning of the end for the Trudeau coalition government? Jonathan Wellum 38:17 I hope so. I'll let my bias out. But I do think it is I was in Ottawa, actually about a week and a half prior to that by election. And I was speaking with a number of folks in government, including some MPs, couple senators and some diplomats in Ottawa, just by by by virtue of the venue I was at. And they were all watching that by election. And the liberals were very, very concerned. They said, It is not nice to be an incumbent in this in this environment. And so I know, I think that the decisions that have been made by the NDP Liberal government have been disastrous on many, many levels. And we're feeling the effects of it, dramatically feeling the effects of it. And so and I think that the the government in Canada also, they just have not, their manner of their behavior is one where there does seem to be no sympathy for the difficulty people are experiencing. And I think that's been picked up and people are very, very upset with them. And that is demonstrated, I mean, our Prime Minister Trudeau can hardly go anywhere in the country without all sorts of things being hurled at him in terms of, you know, verbal abuse, if you will. And that's that's because I think people's frustration levels are so, so high. And so I do think that we will see a sea change. There's nothing in the Trudeau agenda that indicates to me that they want to change at all, they keep doubling down and more taxes, more regulations, justifying all of their past decisions. And therefore I think if Pierre Polly of the Conservative leader can continue to articulate his message of freedom, less regulation, less government, lower taxation, stimulating the economy through the business sector, I think ad is resonating, and he's doing an excellent job at communicating that message. So I think that that should lead to a significant change in government in Canada. James Connor 40:08 Well, that was a great discussion, Jonathan. And I always enjoy discussing Canadian politics with a fellow Canadian. And as we wrap up, if someone would like to learn more about you and your firm rock link, where can they go? Jonathan Wellum 40:21 Well, our website is just rocklinc. ROCKLINC, so link with a c dot com. And you can get all the information there, you can email us at info at Rocklinc.com. And that's probably the best way to track us down and we will respond right away and get back to you. And we'd love to speak with you love to have people come in and visit and and help help any anyone that's interested in for some financial advice. That's why we're here. We love our business. We've got a wonderful client base, and we'd love to meet some new clients. James Connor 40:55 That's great. Once again, Jonathan, thank you. Jonathan Wellum 40:58 Thank you very much, James. James Connor 41:01 Well, I hope you enjoyed that discussion with Jonathan Wellum and in providing you with some insights on what to expect in the coming weeks. We all need help when it comes to planning and preparing for our financial future. And if you have a financial advisor and you're happy with them, then great stick with them. But if you don't have a financial advisor, or maybe you want a difference of opinion, consider having a discussion with wealthion endorsed financial advisor, wealthion.com. There's no obligation whatsoever to work with any of these advisors. It's a free service that wealthion offers to all of its viewers. Don't forget to subscribe to our channel, wealthion.com and hit that notification button to be kept up to date on upcoming events. Once again, I want to thank you very much for spending time with us today and I look forward to seeing you again soon.
