Larry Berman CFA, CMT, CTA A Comment -- General Comments From an Expert A Commentary COMMENT Oct 21, 2024

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.

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?"

Not sure how countries are going to react. Might be the other way, in that the best course at this point might be to just do nothing. He wouldn't want to be managing a global business right now.

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.

This rally has been one that everyone's hated because it didn't make a whole lot of sense. We still have all this tariff noise, though there has been some de-escalation. A lot of hedge funds sold near the bottom. People are scrambling to try to keep up and chase this market higher. 

Tariffs are hard for people to deal with. There's an acronym going around -- TACO (Trump Always Chickens Out). And it's what the market is starting to believe. By and large, what market participants got wrong in April was that earnings in the US and Canada actually held up better than people thought. Forward guidance held up better. There is some de-escalation, maybe 2 steps forward and 1 step back (as today with China). 

You have to ask yourself some questions. Does Trump want to be unpopular? No. Does he want to lose the midterms, which are not too far off? No, but he probably will if he puts the economy into recession. Softer inflation data came out in the States today. But it's sell in May and go away, and we still have this opaqueness.

We end up with the next 18 months looking pretty good, with a big beautiful bill coming in with deregulation, tax cuts, spending, etc. And all that will be good for the economy. But the short term will see tough markets.

What they're saying is that this number captured the front-running of trying to get ahead of tariffs, and that we'll still see the negative effects. But there is all this optimism with this new government being much more stimulative for Canada. Getting more projects off the table and boosting inter-provincial trade. 

It's nice to see this better-than-expected number. What does that mean for the BOC next week? Probably will be on hold and not lower rates. Our currency is going up, which isn't as much a secular Canada call as it is a weak greenback.

Investors can take comfort in that he thinks we've seen the big moves down. But we're still going to have trading ranges. Markets are back near highs, so you don't need to go full-in. And it is May.

Still cheaper than the banks, and with better growth and lower payout ratios. Great place, plus it's fairly down the line exempt from tariffs.

New money always has to be put to work. So you have to ask yourself:  what should I own, and how much of it? Where should I be on asset allocation -- at, over, or under? And it all depends on the economic outlook, which is hazy. Prices are expensive here.

So he's trying to find places that are going to work regardless of the cycle.

You still have to own US stocks, especially if they're cheaper and more compelling. 

He might be naive, but we have Team Carney in place. You have to be considered a "bad country" to be punished with taxes to such a large degree. He believes we'll be able to avoid the worst. It might mean going against the OECD. But Canada has to do what it has to do.

Consistent Compounder & Lessons Learned: Apple Inc.

Market cap: US$3.1 trillion. YTD return: about -17 per cent. One-year: eight per cent. Five-year: 161 per cent. Twenty-year: 15,325 per cent.

In 1986, lots of investors bought Apple shares at less than 10 cents a share (price adjusted for splits). If you bought then and still own shares your return would have been — wait for it — 240,609 per cent. Apple succeeded for many reasons but essentially it revolutionized technology with the iPhone, iPad and services, achieving massive sales and recurring revenue. But it also had huge success simply branding its products. Often its products were not much better than competitors’, such as the iPod versus an MP3 player. But the company’s marketing convinced consumers that its brand has status. With product success the company then shifted to higher-margin services, which investors value more highly.

Lessons learned: Create products that people love and invest in your brand as much as you invest in technology.
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