Morning & Happy Monday,

I had the pleasure of seeing Eric Clapton in Toronto last night, who, in my humble opinion, is one of THE greatest musicians of all time and at 78 he is still playing at his peak.

For those that have followed Clapton’s career, his life has been defined by a series of tragedies and oddities. He was raised by his grandparents, under the illusion that they were his parents; he never met his father and, until the age of 9, believed that his mother was actually his older sister. He suffered through a lengthy, epic battle with alcoholism and drug addiction. In 1991, Mr. Clapton’s 4-year-old son, Conor, died after falling out of a hotel room window (inspiring one of his most popular songs, “Tears in Heaven”).

Clapton say he finds his stability in the blues, the music that he first loved and that he continues to regard as a kind of beacon. “There’s a matter-of-factness, a sense of acceptance about the blues,” he said. “Acceptance is a great state of being. It steps aside of hysteria, drama, extreme emotions.”

Clapton understands the power of self-awareness. His quote around identity is in line with the teachings of my friend, Dr. Kristijana Rakic, ND a Naturopathic Doctor & Functional Medicine Practitioner. Dr K mentions that “The secret to finding more ease in habit change lies in the importance of aligning your self-identity with your goals.” The Dr explains that “your self-identity is the mental image you have of yourself. It's your beliefs, values, and the way you perceive yourself in various roles in life. This self-concept plays a crucial role in your daily decisions and actions”.

Self-awareness & Wealth-awareness

At Henderson Wealth, we believe that enhancing your self-awareness will lead to, what we refer to as wealth-awareness, enabling you align your values and your vision to actions that can enhance and propel growth across all elements of wealth.

Understanding self can motive change, change that nurtures actions towards outcomes.

There is power in reflecting on your identity, how you perceive yourself, understanding your beliefs, your values, and the way you perceive yourself in various roles in life.

“Remember, you have been criticizing yourself for years and it hasn’t worked. Try approving of yourself and see what happens.” - Louise L. Hay

In her recent article in HBR titled What Self-Awareness Really Is (and How to Cultivate It) Dr Tasha Eurich gives us insight, for leaders who focus on building both internal and external self-awareness, we need to ask what instead of why…..

Here’s an example…….”Paul recently learned that the business he’d recently purchased was no longer profitable. At first, all he could ask himself was “Why wasn’t I able to turn things around?” But he quickly realized that he didn’t have the time or energy to beat himself up — he had to figure out what to do next. He started asking, “What do I need to do to move forward in a way that minimizes the impact to our customers and employees?” He created a plan and was able to find creative ways to do as much good for others as possible while winding down the business. When all that was over, he challenged himself to articulate what he learned from the experience — his answer both helped him avoid similar mistakes in the future and helped others learn from them, too”

The “What” question help us stay objective, future-focused, and empowered to act on our new insights. This simple mindset shift can help us learn to see ourselves more clearly and we can “reap the many rewards that increased self-knowledge delivers”

In his bestselling book Atomic Habits, James Clear discussed how we all want to become better people — stronger and healthier, more creative and more skilled, a better friend or family member. Clear says the key to building lasting change towards the growth that we are straving for, is focusing on creating a new identity first.

To change your behavior for good, you need to start believing new things about yourself. You need to build identity-based habits. To understand what he means, James asks us to consider that there are three levels at which change can occur. You can imagine them like the layers of an onion.

• The first layer is changing your outcomes. This level is concerned with changing your results: losing weight, publishing a book, winning a championship. Most of the goals you set are associated with this level of change.
• The second layer is changing your process. This level is concerned with changing your habits and systems: implementing a new routine at the gym, de-cluttering your desk for better workflow, developing a meditation practice. Most of the habits you build are associated with this level.
• The third and deepest layer is changing your identity. This level is concerned with changing your beliefs: your worldview, your self-image, your judgments about yourself and others. Most of the beliefs, assumptions, and biases you hold are associated with this level.

Give some time to reflect on what your vision and what changes you need to create to live a more fulfilled life. Your current behaviors are simply a reflection of your current identity. What you do now is a mirror image of the type of person you believe that you are (either consciously or subconsciously).

And now, to the markets

Speaking of identity, it’s become ever clear that Canada and the USA are struggling to find out who they really are as Nations, and it’s becoming ever apparent that the two countries are starting to look very different.

Recent signs of a cooling Canadian economy led the Bank of Canada to hold interest rates steady this week, as anticipated. Canada's GDP for the second quarter fell short of forecasts, though factors such as the port strike and wildfires were partly to blame. Nevertheless, some softening in the labour market and slowing consumer spending were also meaningful drivers. Below, we discuss some takeaways from the recently reported third quarter results of the Canadian banks, with a particular focus on their implications for the Canadian economy.

The bank results for this past quarter (ending in July) largely underwhelmed, reflecting a challenging operating and macroeconomic environment. Not surprisingly, most of the banks expect the backdrop to remain difficult, with projections pointing to weak economic growth and a modest uptick in unemployment this year. However, banks now assume positive growth in home prices over the next twelve months, a revision from their earlier estimates of a decline.

The narrowing profit margins reported by most banks can be attributed to two key forces. First, net interest margin – the difference between interest revenue and interest expense – is showing signs of strain, suggesting that banks’ lending activities are less profitable. Coupled with this, higher interest rates have tempered the demand for loans, creating a general drag on bank revenues. Operational costs, notably those tied to staffing and technology investments, continue to present a challenge.

Nearly all banks continue to prudently add to their provisions for credit losses — a sign that they’re preparing for more of their customers to have difficulty repaying their loans. These provisions also contributed to the underwhelming results as they get deducted from earnings. However, the provisions do not suggest that there has been a meaningful acceleration in credit losses. Delinquencies remain well below pre-pandemic levels; the uptick to date reflects more of a return to normalcy rather than a major shift in trend. In other words, the banks are preparing for loan losses to accumulate, but have yet to see a major upturn.

A big headwind facing Canadian households is on the mortgage front. With the prospect of a prolonged period of elevated interest rates, households may have to grapple with rising mortgage-related payments in the months and years to come. Data from the Bank of Canada reveals that since the onset of rate hikes in early 2022, only about a third of mortgage holders have seen their monthly payments increase – a number that will continue to rise. By the end of 2026, nearly all mortgage holders will have refinanced at potentially higher rates. This, in turn, has implications for consumer spending. First, homeowners with higher payments have less disposable income to support other areas of the economy. Second, those who stretched to buy a home at peak prices could run into broader credit issues, given limited flexibility in leveraging existing equity or extending amortization periods.

In summary, both the Canadian economy and its banks may be starting to show some of the lagged effects of tight monetary policy. We expect weaker loan demand to continue and for credit losses to eventually build as more households and firms struggle with servicing their debts. This may take time to play out rather than occur in one fell swoop. Even though this poses a risk for banks, we believe it is a manageable one given the banks’ mounting reserves that continue to build for such a scenario. As a result, we see these pressures as posing a bigger hindrance to the overall economy than for the banks themselves. We continue to manage portfolios with this expectation in mind.

Awareness lead growth

For us to focus on change, it must begin with awareness. Many people begin the process of changing their habits by focusing on what they want to achieve. This leads us to outcome-based habits. The alternative is to build identity-based habits. With this approach, we start by focusing on who we wish to become. Clear suggests that if you’re looking to make a change, stop worrying about results and start worrying about your identity. Become the type of person who can achieve the things you want to achieve and build your identity-based habits, the results will follow……

• Outcomes are about what you get
• Processes are about what you do
• Identity is about what you believe

As you head into the week, give some though to the importance of your self-awareness and identity, in your personal journey in continuous self-improvement, your pursuit of your goals and your quest in living a life of purpose, on purpose.

Be well & enjoy the moments,

Derek