Opinions
Jon Case A Comment -- General Comments From an Expert A Commentary N/A Mar 04, 2019
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Fundamentals in Canada are starting to look a little bit brighter than we had thought 3 months ago when we were heading into the tariff maelstrom. Also seeing definite signs of a rotation out of USD-domiciled assets into other currencies and asset classes. Canada is benefiting from that and, being a relatively small share of the global equity space, it doesn't take a lot to move the needle.
Absolutely. Coming into 2025, his team figured that Trump 2.0 would be a different playbook. They really wanted to look outside the US, and even outside North America. They started putting money to work in Europe, developed Asia, and also emerging markets. All this is an effort to mitigate some of the US-centred risk coming into this year.
We don't want to get caught in a head fake. All the tariff drama really doesn't inject a lot of confidence amongst businesses or investors. He's going to maintain the course to look for opportunities outside the States.
Doesn't mean he's getting out of the US wholesale. Just look at the number of analysts today who are on the same ship in terms of the USD heading lower, but who weren't on that ship 6 months ago. That tells you the story, that we're going to be in for some troubling times for US-domiciled securities. Need to be careful in the US, and look for opportunities outside it.
Still likes tech. Now we're looking at the monetization phase of AI in terms of companies and users. We're getting NVDA earnings later today. It's not that NVDA won't be a driving force in this market, but the breadth is spreading out and that's where the opportunities will be. E-commerce and other areas will benefit from the implementation of AI for the end user.
Still likes energy. Canadian energy patch has a shot in the arm from pipeline development and diversifying energy export markets. He's sticking with the larger-cap names that have the balance sheet and the ability to weather any type of storm.
This is the next phase. We've been in this AI growth patch for a while now, which won't end, but quantum is the next level. It answers a lot of the problems that we deal with in the world such as medical issues and cybersecurity.
Problem is, not a lot of developed companies in the space. The industry is quite immature, but sometimes (if you have a longer time horizon) that's where you find opportunities for decent, long-term growth. Unlike AI, quantum needs a lot of space (perhaps it could solve office realty issues). IBM is starting to look more prominent in that space.
The long end of the bond market in many countries has really pushed beyond where we thought we'd be at this time. We're looking at a credible fiscal threat coming out of the US, which is impacting bonds. But we're also seeing increased deficit spending globally.
Investors should be mindful of this. You need to be looking more at the short-to-medium term. The long end is delivering fantastic yields right now, but you need to be cautious. Hopefully we cap out soon, but we're getting close to some dangerous tentacle levels on US long bonds.
At the end of the day, the bond market has more clout in response to policy than the equity market. The bond market's not in the mood for countries to be running reckless fiscal policies, and it's prepared to respond.
Investing 101: The Rule of 72 (and 144)
Compounding allows money to grow at an exponential rate, which is often a concept that we as humans have difficulty grasping. For example, $100 growing at 10% gets to $1,700 at the end of a 30-year period, but naturally, our brains couldn’t calculate this exponential amount. A good method to get around this is through the ‘Rule of 72’. The Rule of 72 states that the number of years it takes for invested money to double is 72 divided by the interest rate. For example, money growing at 10% annually will require 7 years to double (72 / 10 = ~7 years). The Rule of 72 can also be expanded to 144 – this would provide us with the time it takes to quadruple invested capital. For example, it would take 14.4 years to quadruple invested money growing at 10% annually (144 / 10 = 14.4 years).
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We thought this might happen in terms of pushback against the tariffs, and we'll see where this goes. The over-arching view, though, is more uncertainty, which isn't great. It's been a very tricky year, and that will probably continue.
So far, you get one thing happening and then it's reversed. You get another thing happening, and then that gets reversed. There's still stuff that needs to happen for more clarity. Unfortunately in investing, you don't always get the full clarity that you want.
It's challenging thinking about the industry-specific tariffs that we still don't have a clear picture on -- semiconductors and pharma, for example. Lots still up in the air. The initial knee-jerk reaction was positive on the news today, but now the market's questioning "What's next?"
It's nascent. He doesn't own any of the usual small-cap suspects. Technology could have some promise, but right now it's not clear that there are commercial applications yet.
He'd lean more into what companies like IBM and GOOG are saying about this. When those companies say that there are no commercial applications at this point, it's better to wait. Seems like an end-of-decade type of story.