Chris BlumasA Comment -- General Comments From an ExpertA CommentaryCOMMENTAug 12, 2026

Duration bonds are a great way to grow core safely. They haven't kept up with inflation though. For cash flow, long-duration bonds have been horrific for investors. But use covered calls--gives you equity exposure and create a 7-9% annual yield--if you seek cash.

A few factors are really contributing to inflation. The first is energy prices and what's going on with Iran and the Strait of Hormuz. The second thing is the AI infrastructure buildout in the US. Both those things are creating price spikes in certain commodities and pushing inflation up. 

This puts the US Fed in an awkward position. Recent employment numbers weren't as strong as anticipated. There's speculation in the market as to how hawkish the Fed will be. If you look at the Fed's stated goal of 2% inflation, they've been above that for more than 5 years. So there's some pressure on them and the new chairman to curtail that. 

The market's sitting on edge on whether rates will be held steady or be reduced. The translates into a lot of volatility.

The argument for lowering them is really tough, as that will stoke inflation. US unemployment for last month missed by a huge amount. If the trend of weakening employment continues, that makes the case for the potential to lower rates. Makes sense to hold off and wait and see, which is exactly what the Fed did.

Time will tell, but it is an awkward environment.

The US intervened in the yen currency market for the first time in 30 years, with the goal to keep a lid on long-term rates. The US central bank has a little more control over the shorter end of the yield curve, but less so on the longer end. The US 30-year yield is now above 5%, which is a key threshold. Not really a red flag, but more of an orange one to keep an eye on.

There are a whole bunch of companies with dual Canada-US listings. And lots of companies earn a whole bunch of money in the US, but you can buy them on the Canadian exchange. So you don't always have to shift your money, especially as the CAD is fairly weak right now.

Here's one idea. Take a look at your income names -- banks, utilities, pipelines. A lot of those tend to be fairly richly valued right now. This might be a good opportunity to reduce exposure to some of your income names and move into what's fairly inexpensive right now, and that's some of the growth names. You can access US companies within Canada, without the need to shift your money.

See his Top Picks for names that feed into that strategy.

In a balanced portfolio, there is an opportunity here. He tends to stay shorter on the curve. Bonds for utilities, pipelines, and financials have really attractive bond yields. A good time to lock in, especially in Canada because the odds of an interest rate cut are significantly higher over the short term.

Investors are climbing a wall of worry: the US-Iran war, and trade tensions with the US. Markets are hitting all-time highs though as earnings growth is delivering. Q2 earnings growth on the S&P rose 50% in a year, primarily driven by AI. The semis did very well in Q2, though a July pullback was healthy to broaden the rally. Consensus thinks EPS will grow over 30% this year and 15% next. Nobody is calling for a recession, which would cause a sharp pullback. Most importantly, if the economy  continues to grow, so will share prices. Canada has 2 quarters of negative GDP, but doesn't see a recession; things have rebounded since Q1. Many policies are spurring trade with other countries and Canada is building infrastructure, which all benefits the Canadian economy.

Going back 2 weeks ago, Chairman Warsh talked about a more laissez-faire approach to how the Fed is going to handle interest rates. That is, let's stop intervening in the markets and see what happens. Following that press conference, it would appear there's been a loss of confidence in the Fed's ability to manage inflation. They've been putting out small fires along the way, with Scott Bessent on the weekend talking about keeping the cost of the US deficit under control and interest rates down. It's all linked to inflation expectations.

When we look at what the market's pricing on inflation, the long-term outlooks are very benign. We have what's going on in the Middle East impacting oil prices -- spiking one day and down the next, war on/war off. It's causing a lot of anxiety. Equities don't care whatsoever about that, as they're high on earnings and AI. But at some point they might, and then we'll see multiple compression.

If we look at where long-term interest rates were coming out of the dot-com bubble, and before we got into the era of 0% Fed policy and negative interest rates all over the world, the US 30-year traded between a low of 4-4.25% and a high of around 6%. That's probably the trading range for 30-year yields, slightly less for 10-year yields, and we need to get used to it for decades to come. Unless there's some kind of revelation in the US Congress as to how to balance the budget ;)

He understands very well Israel's message to the world:  We are not going back to a world where Hamas and Hezbollah are threatening Israel. Until that happens, the IRGC has to stop funding them and Iran has to recognize Israel's right to exist. Under the current regime, that's impossible. So the war will keep going.

For political reasons, Trump doesn't want too much noise between now and the midterm elections. He'll downplay it and talk about peace and deals. Once the midterms are over (one way or the other), the conflict will escalate.

He gets asked this a lot. Not a whole lot, is the answer ;)

One of his favourite areas right now is medical marijuana. Very cheap, with very high potential of banking reform in the US (that's been an ongoing narrative for a couple of years now). Good for a trade, don't put a lot of $$ in (1-2% position at most). Very speculative.

When you think of rising interest rates, long bonds are cheap. But you need to have the view that the economy's going to fall off a cliff. If it does, $$ will come out of equities and go into long bonds. Duration is a great asset class when the economy is unstable and weak. Could be a 2027 story, and that would be one of his favourite asset classes right now.

If you asked him whether there's the potential in the next year for a strong rally in energy names again, he'd be onboard with that for a trade.

But if you're looking at 5- or 10-year holds, you have to be insane. Oil prices are going lower. Once this issue in the Middle East is cleaned up (and he thinks it will be), we have a lot more friendly oil coming to the world and OPEC is starting to break apart. There will be very little pricing power. With the recent correction, the war trade is a good one on the bullish side. If you're playing a long-term hold, you have to be a seller on strength.

Bubble?
Everyone's asking him whether the current market's in a bubble. There are elements of a bubble -- you can see it in some of the sentiment readings. Some recent readings are at all-time highs in terms of institutional excitement over equities. Other surveys show not so much. There's no definitive tell for when it's a bubble.

Let's look at margin. The first chart he brought shows how much leverage people are using in their trading accounts. (Banks have to keep these stats and report them to the government.) Margin debt is at all-time highs. Traders are using more options than ever before. Some ETFs have 2x exposure. These are all bubble-like characteristics of euphoria.

But to say that this is the top, or this is the day before it all falls apart, nobody can tell you that. A topping process takes forever.

The thing that's different now from the past, is that earnings are really driving things. Earnings for the S&P for this last quarter were expected to be around $83. As earnings have come in, that number's going to be $100. Now, a large concentration of that is in just a handful of stocks. Earnings expectations for the next couple of quarters keep rising. As long as earnings expectations keep rising, and as reporting comes in as good or better, markets will keep going higher (regardless of all the other things that we're worried about). Whether geopolitics or inflation or rising interest rates, the market just doesn't care at the moment.

Where have earnings surprises come from? This quarter, we had a 30% upside surprise. AMZN and GOOG, for the most part, made up a huge part of the earnings surprise. Compared to previous quarters, these numbers cross almost all sectors. So the trend is broadening. The catalyst has been the "one, big, beautiful bill" and tax incentives.

Come 2027, we may have a new (Democratic) Congress and potential gridlock. It might be time to worry at some point. But for the next couple of quarters, we can keep going higher.

We could be in the worst energy crisis in our lifetime. Because the Strait of Hormuz is mostly closed we have lost 1.3 billion barrels of oil exports forfeited by the Middle East. Very few vessels are going back into the Strait to empty full storage tanks, which are backed up. The world is down about 7 million barrels per day. The premise he sees is less oil being pulled out damaging the long term integrity of the storage of oil. Inshore inventories have fallen and lost about 400 million barrels since the beginning of the crisis. This would be the greatest pace in history. The safety buffers are all used up including China's role which has helped up to now.  The U.S. has lost the war and Iran will just wait Trump out. 

He sees a floor price for oil at $10 higher than before the war began and therefore a very meaningful upside to oil stocks. Regarding alternative strategies to diverting oil in the Middle East, they are working on it but you can't ship it all through alternate pipelines. The importance of the Strait remains.

He thinks the US will have to give control of the Strait to Iran but this is not a tenable situation for the Middle East producers.

The question was on the current price of oil. The supply is down 7 million barrels a day and there have been environmental catastrophes. China had stepped out of the market but imports are now way up so it can convert to refined products for export. There must be physical shortages but the US can prop up oil prices and talk it down. This is becoming less and less effective. Prices will go up but he and others haven't figured out the timing.