“If I knew I was going to live this long, I'd have taken better care of myself.” - Mickey Mantle

Good morning,

I hope the weekend was an eventful one! It’s been quite the flurry of exciting new recently, and the weekend was no exception…. with Saudi Arabia announcing cuts oil production by 1M bpd. On the investment front, investors have been predictably preoccupied with the U.S. debt ceiling. Fortunately, a deal has been agreed upon with a bill being passed by Congress that buys the U.S. some time before it is likely to resurface yet again (in 2025). We’ve been watching interest rates with keen eyes, as central banks make some interest rate decisions over the next few weeks, and the action around foreign exchange, gold and equities across the board have been excitement enough to make you lose sleep.

“Early to bed and early to rise makes a man healthy, wealthy, and wise.” Benjamin Franklin

I was revisiting a book over the weekend that I thought appropriate to pick back up as we cruise into the beautiful longer days of the summer months. Matthew Walker is the author of Why We Sleep: The New Science of Sleep and Dreams. Matthew reminds us that sleep is THE revolutionary treatment that makes you live longer. It enhances your memory and makes you more creative. It protects you from cancer and dementia. It wards off colds and the flu. It lowers your risk of heart attacks and stroke, not to mention diabetes. You’ll even feel happier, less depressed, and less anxious. Through his pages he shares the following insights into the importance of sleep and he notes some important understandings for us to be aware of…….the recycle rate of a human being is around sixteen hours. After sixteen hours of being awake, the brain begins to fail. Humans need more than seven hours of sleep each night to maintain cognitive performance. After ten days of just seven hours of sleep, the brain is as dysfunctional as it would be after going without sleep for twenty-four hours.

Are you getting seven hours of sleep?

Dr. Gina Poe, a professor in the Department of Integrative Biology & Physiology at UCLA suggested in a pod cast I was listing to on the weekend. She notes "There have been studies to show that the more volatile your sleep onset time, the worse the cognitive outcomes, particularly as we age. So it hasn’t really been studied as much in younger people. But if you have a regular bedtime, in older people, it’s predictive of better cognitive outcomes.

Two things control our sleep. [One is our] homeostatic need, which is the longer you’re awake, the more you need sleep. And the other is the circadian clock timing of it. So one thing that helps you to have a good, solid, even circadian clock is in the morning when you wake up, expose yourself to bright light. Because bright light, especially in the blue frequency, is the strongest resetter of our daily clock. And that starts the clock at the right time of day so that you’re ready to go to sleep at night. The circadian clock is one of the things that… Its drive for wakefulness starts relaxing at night, at the same time that the homeostatic need for sleep builds. And so that allows you to go to sleep at the right time. If you expose yourself to really bright light in the evening, for example, with [an] electronic device with lots of blue in the frequency of light, you are setting your clock to say, “It’s time to wake up.” And so then your homeostatic need for sleep and your circadian rhythm are fighting one another. So there are lots of things that set your circadian clock besides light. Timing of meals, timing of exercise. All of that can help you know what time it is so you know what time … to go to sleep." For us all, sleep can enhance all of the four foundational elements we focus on at Henderson Wealth – wisdom, wealth, wellness and well-being. What better time than the start of a new day, a new week, a new month, to take a step back and see how we can improve one of the most important areas of our lives.

“Sleep is the golden chain that ties health and our bodies together.”

Thomas Dekker

And now, to the markets

As Canadian money managers, we have a great understanding of our banking system, our banks remain, by far, the largest weight in the domestic stock market. In many ways, it’s hard to have a view on Canadian equities without having thoughts on the banking sector. More importantly, the banks act as the primary lender to consumers, households, and businesses across the country. As a result, their operating results and commentary from management teams can offer us a glimpse into the health of the economy.

As always, there were puts and takes with each bank’s earnings results in recent weeks. But, overall, they were underwhelming. Credit trends remain the biggest concern amongst investors. When banks anticipate that clients may have more difficulties repaying loans in the future, they tend to set aside some capital (often referred to as “provisions”) to absorb those expected loan losses. Most investors expect the Canadian banks to steadily increase their provisioning to reflect an increasingly challenging backdrop. While the banks on average have indeed seen their provisions trend higher, the increases to date have been well within the range of expectations. Moreover, management teams have yet to issue any significant warning signs related to potential losses in areas like mortgages or commercial loans for example. In a nutshell, the actions and comments to date suggest the Canadian banks are preparing for but have yet to see meaningful and broadbased deterioration in credit trends.

Despite credit issues being manageable thus far, the banks are currently dealing with their fair share of challenges. First, revenue growth is proving to be difficult. The banks generate revenue in a variety of ways, but two important sources are loan growth and net interest margins. The former is slowing as demand for loans has declined. That’s not surprising given interest rates have increased, making it more costly for consumers and businesses to borrow. Meanwhile, net interest margins had benefitted over the past year from rising rates as banks were able to reprice their loans at a faster rate than what they were paying on customer deposits. That tailwind has faded with the Bank of Canada now on pause. The second challenge facing the banks is on the expense front. Banks have been spending heavily on a range of things, from hiring new talent, to technology investments, acquisitions, and other discretionary outlays. But, this is coming under scrutiny from investors and management teams have acknowledged they have an opportunity to better manage expenses in the face of weak revenue growth.

Overall, the results and comments from the banks suggest the environment is gradually becoming more challenging, but the credit issues that investors are concerned about have yet to materialize. Nevertheless, we expect it’s just a matter of time before the cycle turns and presents broader challenges to the economy and the equity market. Meanwhile, with respect to the banks themselves, we believe they are well capitalized and continue to prepare for what lies ahead. Investors need to remain patient with the sector but can continue to depend on them as very reliable sources of income.

“The shorter your sleep, the shorter your life. The leading causes of disease and death in developed nations—diseases that are crippling health-care systems, such as heart disease, obesity, dementia, diabetes, and cancer—all have recognized causal links to a lack of sleep.” Matthew Walker

As we head into the week, give some thought on your sleeping routine and if your sleep habits, sometimes referred to as “sleep hygiene”, can improve. A few quick tips, some habits that can improve your sleep health:

• Be consistent. Go to bed at the same time each night and get up at the same time each morning, including on the weekends
• Make sure your bedroom is quiet, dark, relaxing, and at a comfortable temperature
• Remove electronic devices, such as TVs, computers, and smart phones, from the bedroom
• Avoid large meals, caffeine, and alcohol before bedtime
• Get some exercise. Being physically active during the day can help you fall asleep more easily at night

“Sleep is the single most effective thing we can do to reset our brain and body health each day -- Mother Nature's best effort yet at contra-death.” Matthew Walker

Be well & enjoy the moments Derek