On the Money Podcast with Roger Rouleau, March 26, 2026

ACT ONE
Michael Hainsworth (00:01.07)

So right out of the gate. Roger, over the last few weeks, it seemed like things have been really volatile, unusually so for fixed income. Commodities are spiking, equities are wobbling. What's actually happening beneath the surface?

Roger (00:18.664)

Well, the name of the game, Michael has been the war in Iran and what that's meant for energy prices, right? So the flow has been war in Iran, obviously, the closing of the Hormuz Strait spikes oil spikes natural gas. This has brought sort of a recurrence of the PTSD from 2022, right with the Ukraine Russia war. Everyone's worried about what these higher prices mean for inflation.

And that's really injected a lot of volatility into the fixed income market because investors are worried about what central banks are going to do. Will they hike to try to cool this inflation or not? And so we've seen a lot of volatility come in because of that.

Michael Hainsworth (00:59.455)

Is this the new normal?

Roger (01:01.448)

Listen we like talking about it like like It's you know, we just have to deal with this one issue and then it's done But if you look at the last five years Fixed income it's been issue after issue, right? We had the pandemic then we had the inflation that came after the pandemic We had the impact of the Russia-Ukraine war the beginning of it because let's face it still on We had recession fears and now we've got another war on our hands So it feels like the sleepy bond market that perhaps we all got used to after the great financial crisis is maybe a thing of the past and this volatility is something we have to deal with for the future.

Michael Hainsworth (01:40.576)

Okay, so if bonds are now more reactive and less stable as a result, do we normalize for these ultra low rates? Because we're also entering a regime where volatility is structurally higher. Do we throw out this 60-40 split that our parents had taught us was the best way to invest?

Roger (01:59.848)

Well, I think, I don't think you have to throw it out, but I think you have to reconsider it, right? Because the 60-40 worked because, know, if you think of this in hockey terms, right? The 60 % of equity is playing your offense, the 40 % of bonds is playing defense. That worked for 30 years as interest rates were coming lower. And let's face it, we're not all that volatile. Now what we're seeing is rates also can go up as well as go down, right? We learned that lesson in spades in 2022.

We're getting another taste of it today. So rates can go up as well as down and they can also be very volatile. So do bonds still have a place in your portfolio? For sure. But can you just blindly rely on them to be the, you know, the defense in your portfolio? Well, perhaps not in the way we could before. You'd have to think about it a little bit more and really dig into what you own on the fixed income side. Not all the same anymore.

Michael Hainsworth (02:58.156)

Yeah, I appreciate your analogy to hockey, although I'm a little concerned, particularly if one is a Toronto Maple Leafs fan.

Roger (03:03.969)

Hahaha!

I'm a Habs fan. So this year, this year, we're feeling pretty good.

ACT TWO

Michael Hainsworth (03:14.318)

So then let's start with rates. Everyone wants a forecast. Central banks have in the past gone to great lengths to telegraph what's coming next, but that's really not the case anymore. So stick your neck out. What's your forecast?

Roger (03:33.512)

Well, listen, to be honest, the central banks would love to give us more forward guidance, but they don't know either. Think of Tiff Macklin's job, right? So he's trying to set interest rates such that we're not going to overheat the economy, but we're not going to throttle it too, we're not going to choke it too much. He's trying to walk that fine line. This year, we're going to have a potential renegotiation of KUSMA, right? The free trade agreement with Mexico and the United States. How's that going to go?

Anybody's guess we've got a war in the Middle East which depending on the last on which tweet you read is either gonna last for weeks or for minutes and so it's very hard for them to Give us any kind of Forward guidance because quite frankly, they don't know either You know, I look at the rates market and I and I asked myself, okay, we know that it's gonna be volatile

We know that there's a lot of cases where rates could go higher, a lot of cases where they could go lower. If we can see through these nearer term events, what's the likely outcome? How's the economy doing if we try to take out all that noise and just focus on the signal? And what I see is that the Canadian economy is not firing on all cylinders, right? Obviously right now with what's happening with energy prices, fantastic in Alberta, parts of Western Canada. harder here in Quebec and in Ontario, right? Because we're net importers of oil, don't produce it. But what I see from coast to coast very much is a housing market that's struggling to get going. And I think that, you know, when you look at how important housing is for the Canadian economy and Canadians, I struggle to see, despite the move higher in oil and gas, and despite what that would mean for inflation, I struggle to see rates move meaningfully higher at the Bank of Canada. know, as of right now, I think that the coming months are gonna be very volatile, but if I look at that signal and try to block out the noise, I think that it'd be very hard for rates to move higher here.

Michael Hainsworth (05:44.43)

So with that said and done in the impact on the fixed income markets, how should we be thinking about managing, let me ask that again. So then how should we be thinking about managing duration risk?

Roger (06:02.568)

Well, I think you need to stick to what you have line of sight on. So if you think of duration of interest rate risk, there's two big moving parts. So the first one is what's the Bank of Canada going to be doing? Are they fighting inflation? Are they trying to stimulate the economy? What's on their mind? I think, as I just mentioned, think that when you look at the housing markets, that's going to temper their enthusiasm for hiking rates.

But the Bank of Canada really just controls the front end of the curve. Right? So think one, two, three, four, five year rates, right? Because they really take their cue from what the Bank of Canada setting as the overnight rates. Further out the curve, right? 10, 20, 30 year bonds, we're talking what's your forecast for inflation? What do deficits look like? What does debt load look like? Demographics. It's that longer term picture. And that's a lot harder to figure out.

If you just look at the last five years in Canada, we've gone from no inflation to way too much inflation, back down to medium inflation, back up to too much inflation. Very hard. And that's in three years. What is the next 30 going to look like? It's very difficult to figure that out. so I think what investors have to do is have to say, OK, well, which of these two am I able to get comfortable with?

If you are able to get comfortable with the outlook at the Bank of Canada, I think that you're safe in the shorter end part of the curve, which, you know, given what's happened with energy prices has cheapened up, it's nice and cheap right now. think you have to be cautious about taking risk in the longer end of the curve, you know. 10, 20, 30-year bonds, very volatile, and it's really hard to handicap what comes next there. So if I'm putting together a fixed income portfolio, I'm thinking, shorter bonds all else equal, not really giving up much in the way of yield because the curve is quite flat. But I'm taking out a lot of this unwanted excitement from what my returns are gonna look like over the next few months, years.

Michael Hainsworth (08:10.222)

Tell me about that unwanted excitement. I'm seeing stress emerging in leveraged areas like private credit, bank loans. Where are you seeing stress? And perhaps more importantly, where are you seeing opportunity?

Roger (08:16.904)

Yeah.

Roger (08:24.392)

So the way higher rates impact the economy is as a break. So this move higher that we've had on the back of higher energy prices will all else equal slow economic growth, it'll weigh unemployment. This is how it's always been, right? And as a Canadian, this will strike very close to home. you took out a mortgage in 2021 where rates were super low,

Well, you're renewing at some point in 2026, most likely if it was a five year mortgage, and this move higher in rates, all else equal is increased what you're gonna pay on that renewal. So that's taking money out of your pocket. know, if rates are 30 basis points higher, you know, you're renewing at four instead of 3.7, well, that's money right out your pocket, that's a break on the economy. This will feed through into the credit market, it'll feed through into the equity market, right?

The big question right now on everybody's mind is, well, how long does this, as the volatility lasts in the Middle East? If it's a very long period of time, we're have higher rates for a longer time and you're see more problems. So where are we starting to see problems? Well, we're not seeing it in the high quality segment of the market. If you're a Canadian bank, big insurance company, pipeline company, everything's fine, right? Sure, maybe your growth will be a little lower, but absolutely no problems. Where we're starting to see stress,

is in private credit. We're starting to see it in bank loans. These are highly levered corporations, typically smaller. We're starting to see it in private credit. These are bespoke loans made to small medium enterprises. They're really struggling with the slow economic growth backdrop and with these higher rates. that's where we've seen some cracks. No outright panic just yet, but that's where we're starting to see some signs of worry. Opportunities wise, I think it's early to step in there. There's a lot of uncertainty. There's a lot of complex structures, really hard to figure out how much risk is being taken and what you're getting paid for that risk. So we prefer sticking to the more credit worthy larger issuers and we're seeing some good opportunities there.

Michael Hainsworth (10:41.078)

I sort of intimated on this and I was hoping you could expand on it for me. When you talk about the idea that you wanna be in the larger organizations, my concern is that the larger organizations have put a ton of bread behind artificial intelligence. Is this a credit risk factor, regardless of the size of the organization? Walk me through the concern.

Roger (11:02.216)

Listen, think I think these are you put your finger on it, right? These are very very large strong corporations that are investing in the future and When we look at every single time we've had this kind of You know a paradigm shift in the technology backdrop. So think you know the invention of cars Think.com the internet, you know, we've had

We've had successes and we've had failures. So I look at the amount of capital that's been put to work there. And I know some of this money is going to be, you know, as being very well invested, there will be winners. Some of it is not being well invested. There will be losers. This is what we saw. You know, the advent of the automobiles, I think is a great example. tons of car companies were started. Most of them didn't make it. The ones that did.

you know, did very well for themselves, know, GM, Chrysler, they were all started back then, but a lot of them didn't work out. So we look at this and we think, okay, there will be losers here, but the organizations that are putting this capital in, for the large part, are very, very, very credit worthy, right? So you think Meta, you think Google, okay, billions of dollars is a lot of money, but for them, it's not really that much money. So we don't really see tons of risk there. We see some risk on the edges of that, more speculative investments, some build it they will come type endeavors that we think there's quite a bit of risk. And I think there's also an appetite risk here for the bond market because if you're Google and you're like, we're gonna put a trillion dollars to work building data centers, investing in AI, well, and we're just borrow that money and say, okay, well maybe you can pay the interest bill on that, but someone still has to buy a trillion dollars worth of bonds. And so there's the question about, these good investments? But then there's also, what's the impact on the market? And we're already starting to see that. You know, we saw it a little bit with Oracle more specifically. They've had lots of plans to invest money. And at one point, the bond market's like, hey, I don't think we're gonna lend this to you. And there was a moment where they had to sort of,

Roger (13:24.376)

Take a step back and say, okay. Well, we're gonna we're gonna think about this a little bit more careful carefully how we're gonna finance this and then and then with a you know, there's smaller dreams Then everything was fine and and they went back to investing So I think there's there's gonna be a lot of drama that comes from that space I don't know that it really results in much default risk per se for these corporations But this is something that we've been looking at because there's a lot of bonds to come to

Michael Hainsworth (13:54.29)

You mentioned the automotive industry as an example of this. it's perfect because not only did we go from hundreds of different automobile manufacturers down to maybe five or six in the world, but we not only got rid of the buggy manufacturer with the introduction of the horseless carriage, but it had knock-on effects as well. We lost the need for the buggy whips to go with the buggies that we didn't need anymore.

Roger (14:21.352)

Exactly.

Michael Hainsworth (14:23.882)

And if AI is challenging business models in the software space, do we have to also be concerned about companies like Oracle or others who want to borrow a ton of money to shore up against the onslaught of AI that will largely replace a lot of the kind of product that these companies make?

Roger (14:45.594)

Yeah, listen, there's going to be there's there's definitely some business models that five years ago you would think are unassailable. You know, in the words of Warren Buffett, you had very deep moats around these businesses. No one can break into the space. They own this this space, you know, and software, I think, is an excellent example. You know, with the advent of AI, suddenly some of these businesses are very easily assailable. And I think there's going to be some there's definitely going to be some some some disappointed investors in there. Software, I think, is one aspect. If you think there's entire swaths of industries that will stop existing, you have to ask yourself questions also about office space. If we're going to let a lot of software engineers go, well, then I guess we don't need all that real estate space, too. So there's definitely going to be a lot of winners and losers in this. And there will be knock-on effects, for sure. And we spend a lot of time trying to figure out: 

Okay, are you a survivor? you not a survivor in the software space? But also what this means for other issuers that we have. If you think, if you're a bank and you're a large lender to some of these businesses, this could be also very traumatic for you as well.

ACT THREE
Michael Hainsworth (16:01.71)

In our past conversations, you framed fixed income across three dimensions. We kind of touched on two of them, rates, credit, but then there's that other bucket you call other. Let's unpack that. What do mean by that?

Roger (16:17.308)

Yes.

So, you know, typically the two risks that matter for fixed income over the long run are our rates and credit, right? So our rates moving higher, they're moving lower. Is, you know, have I lent the money to the wrong people or not, right? So have I made the right credit decisions? The other category shows up every now and again, but I would argue that's the one that investors most frequently miss. So in the other category, I would put stuff like complexity, right?

Transparency do I you know, is it easy for me to know what's in my fixed income fund? liquidity liquidity is Super super important, you know, you have to remember when you're buying a bond you're lending money to that issuer and I really like the the old saying about banking You know a banker will happy to is happy to lend you an umbrella when it's sunny outside But the second it starts raining they want the umbrella back and so, you know

Oftentimes, think investors forget about that liquidity side of things and when they want their money, it's hard to get. And we were talking about private credit before, private credit in my mind has a place in investors' portfolios, but with that credit risk and that interest risk profile that it has, a lot of complexity, comes a lack of transparency, and comes a lack of liquidity.

In Canada, there's $80 billion worth of private investment vehicles, 30 billion of that. So, you know, 40 something percent is gated, meaning you can't get your money. Money's there, they're managing for you, you can't get money out. So if you need the money because, you know, you want to buy a house, you've been saving up for a house, you know, or your retirement, it's time to access some of that liquidity, or you've just got an even better investment option in front of you, you can't get it. And that's a problem.

Roger (18:17.256)

that I think people often forget. we've seen this creep back into the fixed income markets. I mentioned those private investment vehicles, but it's in more places than you would like to think. And so that's the dimension investors have to keep their eye on.

Michael Hainsworth (18:29.312)

Okay, so that's it.

All right, so that's liquidity. Let's back up and talk about complexity. There's a growing number of strategies that kind of feel opaque, for lack of a better word. How do we avoid black box credit opportunities?

Roger (18:46.386)

Well, black box doesn't necessarily mean that it's bad, right? You just don't know. Yeah, but it could be, but it's like a birthday present. You could open the box, we're gonna find out what's in there. Could be great, could be horrible. You will only find out afterwards. So as an investor, it's very difficult. Well, I don't think you can build transparency, quite frankly.

Michael Hainsworth (18:51.138)

You just don't know what's in it.

Michael Hainsworth (19:07.672)

How do we build transparency? Yeah.

Roger (19:15.592)

You know, there was a private credit fund, TCPC, which is owned by BlackRock. They reported Q3. Q3 was fine. Everything's fine. Three months later, they reported Q4 and they took a 19 % write down on the investments. So from one day to the next, on Monday, you thought everything is fine. My portfolio, you know, this part of my portfolio is worth X. And then on the Tuesday, they're like, hey, bad news. It's 19 % less than what you thought it was. And here's why.

And, you know, we looked at that and we said, okay, well, what were their precursor signs? Could we have seen this coming? And the reality is, don't, know, even though you can see to whom they've lent the money, these are small, smaller companies, they're private companies. You can't access their financials. You and you look at a mutual fund, an exchange trader fund, the ones we manage, for example, you can see the holdings and you can say, my, top holding is X.

Am I comfortable with X? Perhaps I'm not, I am, perhaps I'm not, but you can see them and you know what these companies do because they're larger, they're corporations that are in your everyday life. So some of this complexity, quite frankly, will never really get through. I think that what can, what your first line of defense in that case is valuation and that's to say, okay, how cheap is this stuff? I know there will be some bad surprises is valuation on my side. 

If I'm buying it at a 10 % discount, well, now I've got a 10 % margin of safety. Do I need it? I don't know. But if I have it, I'm obviously happier than if I don't. And I think that's the way you have to approach it. And if that sounds like it's maybe not what you would want your fixed income portfolio to be like, then I completely understand. It has its place in your portfolio, potentially, but it could be a source of excitement and maybe not in the way you want.

Michael Hainsworth (21:12.418)

Well, let's find some source of excitement in a way that we do want because most portfolios are generally built for stability, not opportunism, but it's volatility that creates opportunity. How do we take advantage of it?

Roger (21:26.716)

I got one word or two words for you and that's active management. So, you if you think of the bond market, right? The bond market's made up of lots of different players, right? Many, many, many of these are rules-based, meaning that they are insurance companies trying to hedge out some life insurance liabilities. It's pension funds that are trying to hedge out some pension payment liabilities they have.

It's passive investors that will do whatever the rating agencies tell the benchmark to do. So there's a lot of capital that's there to replicate something, to hedge something. And that leaves a lot of room for active managers to add value.

If you look at the numbers, on the equity side, after fees, two thirds of equity PMs cannot beat the benchmark after fees, because it's a tough game. Everyone there is trying to make money. On the fixed income side, it's the other way around. Active management will beat two thirds of the time versus passive, and that's after fees. And that's because, as I mentioned, there's a lot of players at the table that aren't really there for investment, for return purposes. So what I think you really have to focus on is, okay, I'm gonna give my capital to an active manager.

They're gonna go out and they're gonna find the right places to allocate this capital. They're gonna do the work. Not many people are doing the work in fixed income. And then I'm gonna try to remove as many restrictions on this manager as I can. Pick the right manager and then you give them as much flexibility as you can. If rates are super low and they're gonna be moving higher, you don't want a lot of interest rate risk. If rates are super high and they're gonna be coming down, well, maybe now you want the interest rate risk.

You don't want to be tied to some benchmark. You want someone making that call. And with the volatility we've had in the bond market just in the last three weeks, I think you can really see the value of that, that active management aspect. So I think, you know, if I'm looking to deploy capital on fixed income, know, yes, you look at the fees attached with approach X, Y, and Z, but I think you also have to look at what the value that they bring.

Roger (23:47.516)

And what you'll find oftentimes is that the return profile more than justifies the fees. So active management all the way.

Michael Hainsworth (24:00.302)

Okay, so here is the hero question I'm gonna ask you. This is your chance to knock it out of the park. And because it's a social media oriented question, we're hoping for a shorter, not longer answer. You're good to go? All right, here we go.

Roger (24:11.453)

Yeah.

Michael Hainsworth (25:08.334)

So what's the signal biggest mistake investors are making right now?

Roger (25:16.936)

If the market's moving quickly, you have to build the capacity to respond to those movements quickly into your portfolio. And so I think the biggest mistake is investors look at fixed income options. They say, I want this amount of interest rate risk, this amount of credit risk, and then they set it and they forget it.

Meanwhile, the world's moving quickly around you and there's all these opportunities to buy low, sell high, buy low and sell high that are not being exploited. so I think that investors too frequently don't build that opportunism into their portfolio.

In my mind, it's a little bit like picking your footwear in the summer and wearing the same thing in winter, right? The weather in Canada moves quickly. Flip-flops make tons of sense in July. They make no sense in January. The market moves quickly on the fixed income side of things. You have to build in that capacity to have flip-flops when it makes sense and that capacity to have a winter jacket when it makes sense.

So I think that that's the single biggest mistake that I see investors make.

Michael Hainsworth (26:16.512)

And to extend your seasonal metaphor, it's just like a barbecue. You got to keep an eye on it.

Roger (26:21.798)

Yeah, 100%.