Ian R. CampbellA Comment -- General Comments From an ExpertA CommentaryCOMMENTSep 17, 2008

Stocks, both tech and non, are moving on the same headlines: new AI models, data centre construction or law or AI debates. If you're invested in AI, you're AI. If you're invested in non-AI, the narrative is whether you will be disrupted. PM Carney is making the right moves to diversify the economy (i.e. signing trading deals with Europe) and introducing tax incentives. The backdrop is the US trade conflict, housing remains weak as is the consumer. He sees great value in old-school compounders (strong market share, heavy cash flow, but companies, trading at multi-year low PEs).

No new show. Repeat of September 14, 2026.

Oil will stay elevated until the end of the year because of damage to infrastructure and it will take time to get it back on. Also there are declining strategic oil reserves around the world. The physical world market is trading at a significant premium to the financial world - the financial market is being manipulated by the US administration. He doesn't see the end of the war with Iran in sight. 
Natural gas is different - it is primarily a heating fuel and we are heading into an El Nino winter. However Europe is short of natural gas. 
Besides Iran, outside catalysts for stocks might be production increases, announced joint ventures, acquisitions, or cheap valuations.

Every industrial revolution spends capital before it creates productivity, and the AI revolution is no different. 

The next phase is what needs to be built, who finances it at what price, and who gets to bear the risk? There's a 3C framework. Capability: what have we invented? Capacity: can we physically build and deploy it? Capital: how do we finance it, at what price, and where does the risk end up?

Investors should ask not only which technologies will win, but who gets paid to finance the buildout, whether the price they're paying is sensible, and who owns the infrastructure everyone needs.

Lots of talk about yields and inflation. For him, it's not simply whether rates go up or down. It's why the market's demanding that price for long-term capital. A 5% yield can tell you different things. It can mean that an economy has great projects for capital. It can mean that there are more projects than the economy has the capacity to build, and higher rates are a means to ration that capital. Or, investors want more compensation for inflation deficits and policy uncertainty.

Today, AI investment is competing for capital at the same time that governments have very large financing needs. Also has significant portfolio implications. Canadian bond market's yielding about 4%, US is around 5%. For a long time stocks didn't have much competition from bonds, but now they do.

This puts a premium on 3 things: income, valuation discipline, and scarce productive capacity.

Some of it was funded internally, because the hyperscalers had huge cash reserves. But they've also tapped bond markets and private equity players. At the same time, we have these huge financing obligations from government. So it's evolving.

The price of that financing could be telling you that there are concerns around fiscal and monetary uncertainty. It also could be telling you there are just really good projects to be done and they need to be financed.

The hyperscalers are replacing copper with fiber-optics cable. Also, rising interest rates hurt commodities, though the impact could take time.  Comparing the valuation of copper vs. the dollar index, we now see overvalued levels, which tends to trigger a copper sell-off. Lately, small speculators have become heavy buyers of copper, and the last few times that happen, it triggered serious declines. Meanwhile, the commercial hedgers have the largest net short positions in years, because they're betting copper prices will decline--and past history says they're right.

Equities are starting to see competition from other asset classes, given the yield you can get on "risk-free" assets. A lot of the focus is short-term -- oil, inflation, etc. But the US government has a lot of debt. At the same time, demand seems to be weakening structurally for bonds.

We've had a weaponization of the US dollar. Whether it be sanctions on Russia, China, etc. Then there are all the tariff issues we've had with (supposed) allies of the US.

Central banks are wondering if they want to have that much tied up in US treasuries. They're still buying, but not at previous levels. At the same time, supply is booming with all the hyperscalers raising money. Demand/supply doesn't look great.

It's something that's been grown, rather than crafted, so we don't know quite what it will look like in the end. In a conflict with two intelligent things, the one of far superior intelligence will win. 

At the beginning of the week, a number of prominent investors came out and said that we need to have guardrails to slow things down. If that leads to slightly lower growth and demand, it might end up not being a bubble that pops, but that growth gets normalized. And that could affect profitability across the whole sector.

They're long-term investors. Whenever we talk about metals, it always seems to focus on the demand. For copper, demand seems fairly robust. The supply side is what makes him positive. Some institutions are talking about a major undersupply by 2035. It takes about 20 years to get a mine going.

Likes it over the long term. You could buy FCX, the heavyweight player. Also LUN or HBM in Canada, which are smaller and faster-growing. You might also consider an iShares ETF -- diversified, you don't have to worry about jurisdiction risk or individual mine risk.

WTI pricing can be all over the place, with lots of trading. Whereas WCS is based on long-term contracts. The differential does seem excessive, but so many short-term factors (futures, location) are at play. It wouldn't surprise him if it settled back to a normal range in 6 months.

Some clients have asked him the very same question. He answers: Are you trying to avoid the US economy? Trying to avoid the US stock market? Or trying to avoid the US dollar? Even with a typical international portfolio, you're exposed to the USD and the US economy.

Looking back at history, the competence or incompetence of the administration doesn't matter to the stock market. It goes on through thick and thin. Yes, some issues might affect things in the short term. But, ultimately, it's hard to pinpoint any incompetence on a long-term chart of the S&P 500. The two aren't as closely linked as you might think.

He understands the thinking. If you have very strong views that the US economy will implode to some extent, and you have concerns over the debt levels, then you probably want to avoid all stocks and go to bonds. But he's not sure you want to do that either.

If you're looking to build wealth over the next 5-10-20 years, stocks are really the best place to be. US stocks have shown themselves to be better stewards of capital than most others. So many US stocks (think MSFT, AMZN) are not really domestic plays at all.

In the short term, there's opposition to data centres (NIMBY). They also need skilled labour; you can't just build one overnight. 

Longer term, he worries that "compute" is going to become a commodity. If things normalize (due to fears about AI, or cheaper/more efficient models), the whole jamboree we're seeing today ends up slowing.

The act is unlikely to pass, He has yet to see a realistic use to cryptos, which will remain purely a trading vehicle. Some will question why they support Trump through cryptos; Trump has made a lot off cryptos.