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Commodities, Wages, and Inflation
The basic inputs to a lot of things we can drive inflation.  Looking at broad commodity indexes back to 1991, we see that most commodity prices actually have not grown after taking into account the cost of money. So how is this causing inflation? The six o'clock news keeps making that connection.

Most people think about the $$ they put in the gas tank and what they just spent at the grocery store. And they feel inflation.

The real inflation, though, that drives costs longer term comes from wages. It's the biggest cost of input to most industries. In the service economy of NA (70% services), wages matter a lot. Agricultural, corn, wheat prices have been pretty stable over history. Technology is creating a lot of disinflation, as costs are driven lower by technology doing the work of farm workers.

He brought along a chart of wages in the US. Note the bottoming in 2011. What happened then? The average baby boomer turned 65. The dynamics in the labor force is changing. More and more people are retiring, we have less immigration, and the average family is having less than 2 children. Demographics are bad for sources of labour. The future of supply/demand in the labour market is really going to tell us where inflation will be. The new base for inflation is unlikely to be 2%.

AI can be a big part of driving labour productivity. Can AI cut your grass? It actually can now! AI will take a lot of jobs, while others will be created. As we go through earnings season, he's looking for what companies tell us about wages.

The U.S. banks report tomorrow. He expects earnings to be the same as Q1's. Unless something bad happened in the economy in Q1, then the earnings follow trend. Overall, the US economy is strong with AI spending while poorer Americans have seen wage gains. Expectations are high though. If the oil price spikes again, it won't effect US companies that much, because the US market is largely tech driven. US small caps have seen a huge rally as money flows out of semis. We might be in an extended cycle for semis.

He sold all his Micron last Monday and made a good profit. He bought it at $350. Do I want to be piggish and keep holding or take a profit? He took profits.

Trades at 20x PE, but has gone from huge free cash flow to low. But they have $200 billion revenue from their social media business, which is growing at 28%. It will probably return to free cash flow positive. The CEO will prove that he's focused on efficiency. It's the only Mag 7 stock she will buy.

Blackwell continues to outpace; demand is unbelievable and are now approaching $100 billion per quarter.

They execute. Their PE hasn't been this low since late 2022/early 2023. 

It's been a big train wreck of a year with conflicts on and conflicts off. If peace breaks out, funds that flowed into energy will exit amid profit-taking and flow to other sectors of the economy.

The under-appreciated risks include potentially higher interest rates in the US. That would put the Canadian dollar under pressure. Will the BOC have to defend that? There's a limit to how far we can allow our dollar to fall.

There are some issues with regard to the US labour market. Starting to see a bit of weakness in job creation. Participation rate is down. Average growth in hourly wages is marginally in the black. That could be a harbinger. Usually when the labour market rolls over it tends to be a bad signal.

By and large, US market's going with the theme that AI's going to take over the world. There's a lot of opportunity now, especially with cash reserves that people have from taking profits.