The past few weeks have come as a relief to investors as bond and equity market volatility has subsided to some extent. Positively, the recent turmoil witnessed in the banking sector appears to have been contained. That should leave investors feeling more confident around the stability of the banking system. Nevertheless, credit challenges still lie ahead, as they often do through economic cycles. A week ago, traders were positioning for a crisis in the banking system. There was an obvious and rather urgent flight to quality in most markets. Fast forward to the middle of this week and analysts now believe the Fed/Gov't backstops put in place coupled with the quick sale of troubled banks provide a roadmap forward to prevent a widespread problem. Those in the bear camp are quick to remind us that commercial real estate may be the next shoe to drop. I'll argue that the troubles in the CRE space aren't exactly new and have been in place since COVID and the Work-From-Home movement. I am somewhat skeptical of that bearish view. But at the same time, this is something to keep an eye on going forward because the root causes of crises are rarely obvious. We certainly have the “kindling” for a recession call, but the catalytic “spark” is still not entirely obvious to equity markets. With the S&P 500 breaking above 4,000, it appears the markets are telling us things are looking brighter. Spring is in the air.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Cameco (CCO-T) announced that the Canada Revenue Agency (CRA) has issued revised reassessments for the tax years 2007 through 2013 that will result in the company being refunded $300 million. The refund will consist of $89 million in cash and $211 million in letters of credit. The timing of the refund is yet to be determined. We expect Cameco will be successful in recovering the full amount for the remaining tax years in question. Owned in Core and Opportunity Portfolios.

(new) Cool Company Ltd (CLCO-US) The Ukraine war has put a spotlight on the danger of Europe's dependence on Russian energy supplies. Pipeline can only move gas from one source, and Russia's political instability makes dependence on Russian gas unacceptable. LNG terminals make an ideal alternative. An LNG terminal can receive gas from anywhere, avoiding the problem of being tied to a single supplier. CoolCo is one of the only publicly traded pure-play LNG carriers. It operates a modern fleet that will benefit from its competitors being forced to retire vessels due to new stringent pollution regulations. CoolCo filed for a direct listing on the NYSE on February 14, 2023. New position in the Opportunity Portfolio.

(+) Constellation Software (CSU-T) Excellent results reported this week. Q4 Revenue grew 34% (negative 1% organic growth, positive 4% after adjusting for changes in foreign exchange rates) to $1,847 million compared to $1,383 million in Q4 2021. Net income attributable to common shareholders increased 23% to $152 million ($7.19 on a diluted per share basis) from $124 million ($5.86 on a diluted per share basis) in Q4 2021. Owned in Core Portfolio.

(+) Restaurant Brands International (QSR-T) TH International Limited (Tims China) closed a milestone transaction on March 30, 2023 to become the exclusive operator and developer of the world-famous Popeyes® brand in mainland China. With this transaction, Tims China gains a tremendous additional pathway for growth in the world's most compelling consumer market. Tim Hortons has 600 stores in China and will leverage what they've built to launch and grow the Popeyes business. Popeyes' 50-year history has made it one of the world's leading chicken quick-service restaurant (QSR) brands with over 4,100 locations globally. Owned in Core Portfolio.

(new) Southwest Gas Holdings (SWX-US) is a utility company primarily engaged in the purchasing, distributing, and transporting of natural gas in the American Southwest. And legendary billionaire investor has been aggressively buying shares at recent lows. This week, Icahn Partners Master Fund LP acquired an additional 307,530 shares an average price of $60.30 at a cost of around $18.54 million to own 10,520,600 shares for a value of $660 million or over 10% of the company. This week natural gas sunk to a 30-month low as did the shares. Oversold conditions, coupled with seasonal positives, suggest lows are growing near. New position in the Opportunity Portfolio.

Weekend Reading

Being RBC MacroMemo - March 28 – April 11, 2023 Banking stress / China’s recovery / Resilient economy / Stubborn inflation / Central bank priorities RBC GAM

Budget 2023: The Red Green Show Canada’s 2023 federal budget focused on healthcare, green investment and affordability. The spending will lead to a $43 billion deficit—with no balanced budget in sight. RBC

Canada’s recreational property market euphoria fades amid return to office. The pandemic-fueled surge in cottage-country properties is set to reverse with a 4.5% decline in 2023, as workers spend more time at their office desk than on their deck chairs, according to a Royal LePage forecast. ROYAL LEPAGE

The first social media bank run? A newsletter popular with VCs may have been the domino that started the Silicon Valley Bank implosion YAHOO FINANCE

Full of Surprises For centuries, humans have tried to predict what was going to happen next. They sought out oracles and mystics, fortune tellers and psychics, and forecasters and models. People crave certainty. We want to know what we’re going to get — what happens next. We don’t like surprises. NOVEL INVESTOR

Robots Have Been About to Take All the Jobs for 100 Years A project exploring the history of unfounded fears about technology. PESSIMIST ARCHIVE

What is Gen Z? Generation Z comprises people born between 1996 and 2010. This generation’s identity has been shaped by the digital age, climate anxiety, a shifting financial landscape, and COVID-19. MCKINSEY

Can a billionaire die without anyone noticing? The US Treasury’s daily reports of government financial transactions turned up a surprising data point on Feb. 28, 2023: The deposit of $7 billion in the category of “estate and gift” taxes. It was the highest collection of that kind of tax since at least 2005. QUARTZ