Mason GrangerA Comment -- General Comments From an ExpertA CommentaryN/ADec 06, 2016

Returns on AI investments are so high because chips can command any price they ask, and the build is both huge and inflationary. The effects of Trump's tariff policies. War in Iran. Ukraine destroying Russia's refineries. All these things have led to higher inflationary prices for the consumer.

It's been quite disruptive, and consumer confidence has dropped along with that. While that's depressing the economy, AI is pushing it forward. We're probably at a bit of a peak for inflation. It appears that the Americans have been able to open up the Strait of Hormuz for everything except Iranian oil. So the oil situation is improving.

A lot of damage has been done to oil infrastructure around the world, which needs to be rebuilt. Oil will come down, but it's not going back down to where it was.

Yes. We'll talk about a stock later that's put AI into its processes and it's recovered its investment. It's the same thing when we invented the car, the buggy people were all scared. It's that sort of situation. It's a massive change to how the world's going to work, and people are scared.

Fear in the markets has largely been digested in this pullback we've seen. All of a sudden today, the chip stocks are rallying again. Still a lot of moving parts to keep an eye on in the world, just like driving on the highway. But the long-term outlook is very good.

His firm assesses each one individually. They tend not to play unless they think it's a really good idea. Anthropic, for example, they'll let mature in the market before they consider getting involved.

Profitability collapsed once government allowed smaller players in to use their networks. RCI.B, with its sports business, is probably the one that will be successful. BCE and Telus both cut dividends -- companies have lost credibility in the market. Decent investments to pick up the dividend.

Starlink might annihilate them all. Lots of changes in technology.

Most people's definition includes utilities, pipelines, and airports. They can describe what type of businesses involve infrastructure, but not overarchingly what it is.

His firm's definition of infrastructure is really simple. It provides an essential service, in a supply-constrained manner, to a large portion of the population. It's the businesses that allow other businesses to operate.

Here's an example. It would be a challenge to name a business or household that doesn't use electricity, water, waste disposal services, or high-speed internet. Even stock exchanges. Infrastructure provides the services that allow the global economy to function.

Because it provides such an essential service, the great thing about infrastructure is that the demand is relatively inelastic. Whether GDP growth is +2 or +4, or -2 or -4, we're all going to continue to use roughly the same amount of water, electricity, and so on. (In fact, if GDP growth is negative, we actually might spend more time on the internet.)

You want to be a long-term investor, but you want to be very strategic when you enter. These businesses tend to have long-term, contractual cashflows. The outlook is very predictable. Pick your entry point very tactically so you can maximize the compounding of total returns.

If infrastructure stocks sell off because interest rates and oil prices are going up, that's the time to pounce.

His definition of a super-cycle is when you have multi-trillions of dollars of investment happening over multiple decades. His team identified 5 global themes that will drive performance and cashflow in a portfolio.

Digital infrastructure and financial networks -- captures AI, plus innovation in financial networks. Cell towers, data centres, stock exchanges, payment networks. 

Power generation and power demand -- AI, electrification, battery storage.

Energy transition -- mainly about the planet needing more energy from all sources.

Transportation, logistics, and trade -- US trade policy has forced companies to relocate plants away from China, which increases demand for infrastructure to support that manufacturing. Ports, roads, bridges, power plants, logistics real estate.

Infrastructure renewal -- bridges, ports, and airports need to be refreshed and upgraded. US infrastructure earned an average grade of C+ this year, with some assets earning a D. That super-cycle alone is $94T between now and 2050.

None today.

With Starlink, you'd have to buy a special phone that allows you to connect to the satellite network. Actively competing in US, with plans to come into Canada.

Challenge is that high-speed fibre and the land-based cell tower network will always be superior to satellite due to line-of-sight and distance issues. The lag differential is about 10:1. Cost of launching satellites is pretty expensive compared to building cell towers.

It's nice to have competition, but this won't be robust competition. Elon Musk himself says satellites will never be able to replace the terrestrial tower network.

For his team to initiate a position, they're looking for ~20% total return. So even a great business has to be purchased at the right price. Waiting to enter is not a knock on the business. You need to get enough return for the risk you're exposed to.

The public markets have underwritten that higher rates are going to have negative ramifications on commercial real estate. His team says that's not the case. Yes, we've had a big rise in rates recently. But there are a couple of silver linings in the commercial real estate market, which the public market isn't fully appreciating.

The first one is falling new supply. It's cheaper to buy than to build today, due to those increased interest rates. Publicly traded companies have access to capital, with credit markets wide open. We've seen resilient cashflows across commercial real estate companies. During recent US earnings season 70% of REITs beat consensus, and 86% increased full-year guidance.

The last thing we're seeing is M&A. We've seen 21 takeovers of REITs in the past 2 years. The private market's looking at the public market and asking if it's on sale.

All that combines to present a big opportunity.

In Canada, we have an interesting setup. Rates have moved higher, though not nearly to the same level as in the US. In certain sectors, we're seeing growth and strength. Think about seniors housing, retirement homes, grocery-anchored shopping centre REITs.

The offset to the headwind of higher rates has been higher income growth, especially in more recession-resistant sectors and those that are tariff-resilient.

A historically volatile month, September this time has been more choppy than volatile. There's been an orderly decline, moderate weakness, in the TSX, while the U.S. has gone sideways. Causing this is sector rotation, from weakness in mining, strength in energy while the banks go along in Canada; in the U.S. there's back and forth between AI semis and software battling it out. Looking ahead, he's focused on the US Midterms, the 4 weeks before then after those elections, which are usually volatile. On top of that, we have earnings season. Politics, such as tariffs have had such an impact on markets. Meanwhile, treasury yields and rates are impacting companies, including AI ones.