Don't Let Me Be Misunderstood

Market participants have decided to go on summer holiday already; how else can the market be so calm while there is a possible greater conflict with Iran brewing? Perhaps everyone’s volatility budget for the year was already exhausted and this will be the new norm for the rest of 2025? Equity market calmness aside, we still have some stories to look into:

US-Israel-Iran

Last week, Israel began its bombardment of Iran’s nuclear facilities under the pretext that the country was close to manufacturing nuclear weapons. Since then, we’ve seen both countries trade attacks but we have been spared any spillover into other territories, with the Strait of Hormuz, an important energy shipping lane, currently operating as normal. There have been casualties and any loss of life is tragic, we are simply framing this from an investment perspective. Iran’s military capabilities have been degraded and its closest allies, Russia and China, have no interest in supporting them in this conflict which brings Iran closer to the negotiating table, especially if the US is willing to play dealmaker.

While it seemed unlikely at first, Iran has opened up to the possibility of abandoning its pursuit of nuclear armament with foreign minister Abbas Araghchi meeting counterparts from the UK, Germany and France today. President Donald Trump has postponed a decision regarding whether or not to strike Iran, opening a two week window for diplomacy to work while Iranian President Masoud Pezeshkian stated that they will not negotiate with the US while the Israeli assault continues. Nothing is straightforward when assessing conflicts; Russia’s invasion of Ukraine was supposed to last weeks, afterall. The market may be displaying confidence for a quick resolution and while we would be happy to see that play out, we are aware of how quickly things can change.

C-5

Earlier in June, Canada tabled Bill C-5, An Act to enact the Free Trade and Labour Mobility in Canada Act and Building Canada Act. The bill has already passed its first reading and may be passed into law as early as today. The bill is designed to fast-track approvals for projects that touch upon the national interest. There is a wide range of opinions on the topic, I strongly recommend doing some further reading in order to form your own complete opinions. I’ll take a moment to share mine: what we are doing today is not working. We may be a ‘wealthy country’ but we are funding today's needs by borrowing into the future. We are borrowing because we are also struggling to create new means of wealth for the more than 40 million people who call Canada home. On the subject of ‘home’, many Canadians cannot afford a home without having to make considerable sacrifices elsewhere. Our closest trading partner, which represents more than half of our exports and imports, is telling us that they no longer wish to keep the status quo. Many young Canadians no longer possess the belief that hard work will earn you a comfortable quality of life; they are more willing to support ideas that we are a failing project rather than adopt ideas to help relaunch the country.

We are not in this position by design as much as we are here because leaders have failed (been afraid?) to take bold decisions that would upset the status quo. I often say that inaction is very much an action and after many years of half-hearted efforts at addressing our economic shortfalls, we find ourselves in our current position. I’ve read about some of the dangers of this bill, an example being it will fast-track projects at the expense of duty to consult and environmental protections. This is a fair concern, yet we cannot let our attitude towards risk prevent us from creating better opportunities for Canadians. We need to strike a better balance between worrying and doing or our quality of life as Canadians, risks deteriorating further (the greatest risk the often ignore). Our country is based on the principles of freedom of the individual; freedom to worship whom you choose, freedom to love whom you choose and freedom to express yourself in the way that you choose to. What about the freedom to achieve your goals? The freedom to move out and start a family? The freedom to find purpose and fulfillment? You might be able to say what you want online but if you can’t build your life the way you want to, after you’ve studied, worked and paid taxes your whole life, are you really free?

What does this have to do with your portfolio? Everything. Last year the federal government flirted with an increase on the capital gains inclusion rate. While this was eventually repealed, the idea was to raise additional tax revenues to offset our worsening financial picture. Again, our inability to make difficult decisions regarding our federal spending would have come at the cost of our economic competitiveness and would have been paid by many of you. The geographic allocation of our portfolio is also impacted by how we manage our country; why is the United States our largest allocation when they’re making jokes about our sovereignty and mulling over ‘revenge taxes’ on foreign investors? It is still the economic project which garners the most confidence and likely will continue to be very competitive on that front for the foreseeable future, but it does not have to be the only good idea out there. Canada can become competitive on multiple fronts; we can innovate in tech, we can supply the world with critical minerals and energy, and we can export our culture through media, arts and consumer brands. If you want people to take risks with their careers and with their capital, you as the government, need to embrace some element of risk yourself. While C-5 is not the answer to all our problems, I am of the opinion that it is a good start.

Invitation to Chat

We have begun reaching out to our clients with the intent to recap our trades, performance and current positioning but we want to encourage our clients to reflect on needs beyond the management of their portfolios. Are you reviewing your will but want to prepare before you meet your notary? Are you preparing to sell your business in five years but have difficulty identifying where to begin? Do you want to buy a property for your child but aren’t sure how much you should give? Please, bring us these concerns and questions; too often we are implicated after the fact and it happens that we had better solutions to offer but are now too late to act on.

Remember that with us, a phone call is free and that we always use the entirety of our networks to find you solutions; whether we can introduce a partner from BMO’s commercial lending unit or refer a contact who is looking to buy small businesses. Looking forward to speaking with you all!

Healthy Distraction

For the second year in a row, the Florida Panthers have defeated the Edmonton Oilers in the Stanley Cup finals. Congratulations to the victors, as much as I was not rooting for you to win, you've earned it.

Another year, another heartbreak for Connor McDavid and co. What will it take for the greatest player in the NHL to win a cup? Perhaps an offseason move to another city? Montreal is building an interesting project but I also hear that Sidney Crosby is being dreamed of by GM Kent Hughes.

Other sports have seen franchise names move more frequently than the NHL in recent times; Tom Brady left the Pats to win a Superbowl with the Buccs, Leo Messi went to PSG after Barca could no longer afford his services and Lewis Hamilton has traded Mercedes for Ferrari.

It is true that these recent moves involve aging GOATs and the NHL’s salary cap structure may narrow the possibility of a McDavid-blockbuster deal but maybe there’s some truth to the Crosby rumors.

The offseason is long and a fan can dream!

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of BMO Nesbitt Burns Inc. (“BMO NBI”). Every effort has been made to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions that are accurate and complete. Information may be available to BMO Nesbitt Burns or its affiliates that is not reflected herein. However, neither the author nor BMO NBI makes any representation or warranty, express or implied, in respect thereof, takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. This report is not to be construed as an offer to sell or a solicitation for or an offer to buy any securities. BMO NBI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. BMO Nesbitt Burns Inc. and BMO Nesbitt Burns Ltee/Ltd. ("BMO Nesbitt Burns") will buy from or sell to customers securities of issuers mentioned herein on a principal basis. BMO Nesbitt Burns, its affiliates, officers, directors or employees may have a long or short position in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. BMO Nesbitt Burns or its affiliates may act as financial advisor and/or underwriter for the issuers mentioned herein and may receive remuneration for same. A significant lending relationship may exist between Bank of Montreal, or its affiliates, and certain of the issuers mentioned herein. BMO NBI is a wholly owned subsidiary of BMO Nesbitt Burns Corporation Limited which is an indirect wholly-owned subsidiary of Bank of Montreal. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Nesbitt Burns Corp. and/or BMO Nesbitt Burns Securities Ltd.