[ad_1] Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, shares the financial headlines of the week and offers context for Canadian investors. Profit margins set to “fill” for Couche-Tard, and some banking news It was good news, bad news for Canada’s favourite gas retailer, Alimentation Couche Tard (ATD/TSX). The good news this past Tuesday: Net earnings were up 14% from last year and the company continues to enjoy record profit margins and revenues on its gasoline sales. ATD’s acquisition of Maritimes-based Wilsons Gas Stops was also approved by the Canadian Competition Bureau, further cementing the economies of scale advantage that the fuel giant enjoys. (All values in this section are in Canadian dollars.) That said, adjusted earnings per share are $0.85 for the retailer, and while that was a large increase over last year, it was still substantially lower than the $0.94 that analysts had predicted. ATD announced it would continue to use its cash hoard to buy back shares and to look for appropriately-valued acquisitions. Shares finished slightly down on Tuesday. In other Canadian earnings news, the Bank of Montreal and Laurentian Bank completed our profit picture for Canadian financials for the quarter. Bank of Montreal (BMO/TSX): The big bank missed expectations as adjusted earnings per share came in at $3.09 (versus$3.14 predicted) and it was down 2.6% on Wednesday. Laurentian Bank (LB/TSX): Laurentian also released some mixed news, as adjusted earnings per share came in at $1.24 (versus $1.25 predicted) as net income was down on a year-over-year basis. Overall, Canadian bank stocks as a group are down nearly 4% over the last five trading days. To reiterate what I wrote last week, I think this dip is an overreaction to quarterly profit numbers coming in slightly below expectations due to higher bank reserves—not because of underlying weakness in the business model. Pain for U.S. households and HP shareholders, and more earning news When the central bankers emerged from their fishing retreat Economic Symposium late last week, U.S. Federal Chair Jerome Powell made headlines by predicting, “some pain” for American consumers. Source: memegenerator.net Powell says, in regard to central bank efforts, it “requires using our tools forcefully to bring demand and supply into better balance,” and called price stability, “the bedrock of our economy.” Leaving no doubt as to the bank’s direction, Powell says, “Our responsibility to deliver price stability is unconditional.” However, Powell did not state in plain terms whether the Fed would next be raising key interest rates by 50 basis points or 75 basis points. Given that many economists suspect emotion and expectations play key roles in determining inflation outcomes, I wonder to what degree the Fed is trying to use strong language in place of actual rate hikes in order to accelerate disinflationary momentum. It’s probably worth a try, and it’s unlikely to go worse than the last time the Fed was super confident about making predictions. In any case, Powell’s comments were enough to bring the late summer bear market rally to a close. The U.S. markets fell in the last four days of August, and the big U.S. indexes were down 4% on the month. However, as the calendar changed to September, things stabilized somewhat. In U.S. earnings news, it was a relatively slow week. But two tech retailers announced mostly mixed earnings reports. (Values in this section are in U.S. dollars.) Best Buy (BBY/NYSE): Adjusted earnings per share were reported at $1.54 (versus a predicted$1.27), and revenues topped $10.3 billion, slightly beating projected revenues of $10.24 billion. Hewlett-Packard (HPQ/NYSE): Score one for the analysts, who correctly predicted HP’s adjusted earnings per share of $1.04. Revenues came in slightly below expectations, and investors reacted quite negatively to the news, sending the stock down more than 7% by the end of Wednesday. Once again we see that, while retailers aren’t exactly running up the score, profits aren’t indicating a crisis either. A sovereign debt avalanche: IMF or bitcoin to the rescue? One of the more underrated risks in the markets right now, in my opinion, is the risk of the sovereign debt market collapsing. As with many global market-based issues, the main worry for Canadian investors isn’t the direct exposure to bonds in places like Ghana or Egypt, but the contagion effect that could substantially depress global growth for years. Source: Visual Capitalist You might recall, back in May 2022, that Sri Lanka failed to repay its debt for the first time. Essentially, its government was unable to come up with the cash to make the USD$78 million interest-only payment—and consequently the label applied is “default.” And, chaos ensued. Not only are these economies reeling from the pandemic and new recession risks, but also because these debts are often priced in U.S. dollars. And their ability to repay them is tied to current exchange rates. With the U.S. dollar being so strong, the monthly bill keeps going up for these countries. And we’re not necessarily talking “small potatoes” when it comes to how much money is invested in these strained countries. Brazil’s economy is nearly as big as Canada’s, at about USD$1.7 trillion. If you add up the GDPs of Argentina, Pakistan, Kenya and South Africa, you also start getting pretty close to Canada’s GDP. If these countries are unable to pay creditors, it could start a negative debt spiral that will dramatically shake investors’ faith in the markets. And that could drive up interest rates, killing any hope of growth in these countries. The International Money Fund (IMF) is monitoring the situation closely and looking to help several countries that might soon be desperate. You’ll also notice that El Salvador, known as “Bitcoin Bro Utopia,” is considered to be the riskiest. That probably has something to do with the fact that its national currency is bitcoin. President Nayib Bukele has proven it is in fact possible to get frostbite in Central America. Permanent financial damage from “crypto winter” = financial frostbite Given El Salvador’s government debt is
