Eric Bushell A Comment -- General Comments From an Expert A Commentary DON'T BUY Jan 06, 2005

The unemployment rate remains the same. But the job-loss number isn't too surprising given that we are expecting a bit of softness in the Canadian economy in the middle 2 quarters of the year. Jobs market will continue to be a bit choppy, especially with the push and pull between part-time and full-time.

That Canadian manufacturing posted gains is surprising, but is probably just a result of the ebbs and flows of the economy. And there's the tariff issue affecting everything. 

In the US, technology makes sense. Financials also make a lot of sense in this environment. Likes industrials, they've been right at the top of the 11 sectors so far this year in terms of performance. Among the very diverse healthcare industries, you have to be selective; some names have been beaten up, others have held up quite well. 

He's being very selective in the Canadian market and somewhat cautious.

When you look at the US market, we're seeing about 8.5-9% YOY Q2 growth. That's more than expected. Good news. Technology continues to lead -- great reports from MSFT, NVDA, GOOG over the last month or so. About 81-82% of US companies so far this quarter have beaten earnings expectations. 

The word he'd use right now would be "resilient". 

Depends where you look. Yes in some places, not so much in others. It'll be covered more in-depth in today's Educational Segment.

This week we get CPI, PPI, and retail sales. If we think about how the intersection of growth and inflation affect the world and the consumer, this is the big week for markets. We should start to see the beginning of the tariff impact. 

Right now, given the weak employment situation, the tilt is moving toward a rate cut in September. But we'll see. Current makeup of the Fed Reserve Board is on pause. Jackson Hole is coming up in a couple of weeks where, if they're going to think about cutting, they'll almost certainly give that indication.

The worst economic outlook, bar none, is stagflation -- when prices are rising and growth is slowing. That, to him, is the biggest risk of a lot of these policy choices by the US administration. We have to get through this period. If he had a crystal ball he could tell you exactly what to do, but he doesn't. That's a big challenge.

If you look at the polymarkets and some of the betting pools, the expectation is that we get a slightly better than expected CPI number. So we could see equity markets continue to perk up. The YOY report for CPI is expected at 2.8%, and that's tomorrow. The betting markets have it coming in at 2.6-2.7%, and that would be flat to last month. If we get that, markets will grind higher.

You can't not like them, except for the breadth. Many companies are doing well, but the concentration of earnings growth remains very narrow in the big tech areas. That's not robust. President Trump is trying to change that, but it'll be a couple of years before we see the benefits of less regulation and a broadening of the US economy. 

He's not a crypto expert. Exposure at his firm is done very conservatively. He's long bitcoin, which is the generic way to play, with an options strategy embedded. This mitigates the risk on the downside during periods of high volatility, while capping the upside. 

Blockchain is very real, the technology is very real. But when you buy a coin, you don't own the cashflow and that's they problem he has with the sector. Could bitcoin to to $1M? Absolutely. Limited supply and lots of demand. It's all about whether you can handle the volatility along the way.

He doesn't recommend this for everyone. Thinks a lot of these products turn out to be Ponzi schemes. 

For the HISA ETFs that came out, the regulations were changed. So there's no real benefit in the public versions of these. There are, however, still some benefits with the private ones. So you have to look at what the additional yield is.

He loves ZST.

Inflation

White House is pretty adamant that their tariff policies aren't inflationary. Last week, we saw President Trump nominate Stephen Miren for the Fed Reserve Board. If you go to Larry's post from today on BNN, there's a link to a paper by Miren. Go read it. It gives you the vision of why they're doing what they're doing. One of the reasons is the hollowing out of the US middle class in terms of jobs.

Larry brought a chart titled "Inflation pressures intensifying". Looking at the ISM prices paid survey, the prices paid component has a direct correlation to CPI. Prices are going up. Questions are:  by how much and when will it start? You may see it start this week, but prices are going up over the next couple of quarters.

The Fed will want to know if this is transitory. Last time prices went up, the Fed was late. Now they're on pause. Maybe they're making a similar mistake in the other direction. 

Miren believes that the way Trump is doing this is not going to be inflationary, based on how currencies adjust around the world. Lots of debate here. 

Why are they doing all these things? They're trying to improve growth, trying to make jobs better in the US. The chart titled "Manufacturing employment" is part of Miren's paper. Looks at the total number of manufacturing jobs in the US post-WW2, and as a percentage of employment overall. Globalization has led to the gutting of the US manufacturing sector, and this is nothing new. Trump's policies using tariffs is to change that whole picture.

Wall Street appears to believe the proposed outcome depicted in the chart, and that inflation will either not come to pass or will be transitory. We'll see. For the next few quarters prices are going up, and we'll see what the policy response is from the Fed. Suspects they'll be on hold unless the US employment picture continues to weaken, and that's the right move.