A Comment -- General Comments From an Expert (A Commentary)

Absolutely. He's getting more cautious, especially lately. There's just been too much bullishness, and he's looking at sentiment, valuation, and other things. 

People are underestimating economic risks from the tariff regime. Suddenly 15% is the new level instead of 10%. Trump is feeling somewhat empowered after the Iran-Israel thing, the big budget bill, and some of these trade deals (even though it wasn't 90 deals in 90 days). Trump's going to stick to the tariff story. He likes the revenue coming in from tariffs, and they need it from a deficit basis. 

The market hasn't adjusted to what the impact of tariffs is going to be. Starting to see it in some corporate earnings reports, such as GM, CNR and TXN. More importantly, we're moving from an average tariff rate of 1.5-2% to 14-15% (not sure what the number is, as it's constantly changing). This will change corporate behaviour. Companies need some type of surety going forward, some consistency as to what the environment's going to be like. Until they have that, they're not going to do capital spending or hire people to the same degree.

He has economic concerns and valuation concerns. The market's now 26x trailing earnings (pretty high historically), right back to the high. And that's for earnings that are only growing at a 5% rate.

Sentiment got really beat up into the April lows, which was a  great buying opportunity. All the surveys, such as AAII and Bank of America's, are right back to lowest cash and highest bullish indicators. Valuation and sentiment alone do not create market tops, but they can accelerate the downside once you do get a move in that direction. That's what we saw in April.

We're starting to see weakness in consumer spending, housing, and employment numbers. He's increased his bond weighting. Between inflation and growth, what's the bigger risk from tariffs? He thinks it's to growth. Ultimately, Trump will get his way and rates will go lower but for the wrong reason (economic data will be slowing significantly).

So in that environment, you have to get defensive. He's taking the beta out of the portfolio. The only thing he's sticking with is tech. That sector's proven itself. AI spend will continue, as you saw with GOOG's numbers last night. 

He'd play the commodity directly in this case. Somewhat undervalued relative to gold. Has more of a commercial use than gold. Still likes precious metals.

Sometimes it's better to play the commodity, but sometimes stocks are the cheaper play.

The TSX has quietly been delivering an impressive run, passing 27,000 and outpacing the S&P 500 so far in 2025. It's seen strength in energy, materials, and financials. Combined with expectations for lower interest rates, it's really given the index a fresh tailwind.

With the all-time highs, she is a little cautious. Big question is whether upcoming earnings can justify these levels, especially with treasury yields creeping higher again. Nearly half of the S&P 500 is set to report earnings in the next 10 days, and it includes some big tech names. Even if you don't own those names directly, their concentration risk means their results will dictate the path of the market headed into the fall. 

Both the S&P 500 and the QQQ have closed above their 20-day MA for 60 days in a row, which is the longest streak going back to the late 1990s. So those remain in overbought territory if looking from a technical or RSI point of view. Going back to 1975, this has happened only 4 times; the average return 1 year later is in double digits around 22%.

Though she is still bullish on the next 9-12 months, investors should be cautious and selective, taking some profits off the table. Markets at these levels tend to go sideways or perhaps even sell off. August and September are typically weak months, so she wouldn't be surprised to see a 7-8% selloff from stretched valuations.

Among ETFs, equity ones remain the most popular with 1,800 in Canada. The newest ones are on the 0 day to expiry; we'll see how they do over time. The latter hold indices and sell puts to make short-term profits; are not for everybody, but this is the cutting edge in ETFs. Options volumes continue to grow. If you buy USD ETFs, make sure they are hedged. The market has been complacent. No matter the headline, the market rallies or dips have been very shallow. He expects a dip in the near future, but remains constructive long term.

It's really a risk/reward assessment, not a market-timing tool to buy "now" or sell "now". It tells you your relative tradeoff. He looks at 11 factors, some are trend and some are value, such as sentiment and breadth. Each factor gets a score and the Bear-o-meter registers from 0-8. 

0 means run for the hills, very risky on a relative basis. And 8 means back up the truck. We're at about 3 right now, which is OK but not wonderful. It's been pretty much there all year so far.

Note that this tool looks at the S&P 500, not at the TSX. All 11 factors are based on US markets.

S&P is up ~7% so far this year, rather a mediocre year. Really good for the TSX.

The Bear-o-meter hasn't been saying run for the hills, but it has been choppy. There's certainly the potential for continued volatility. We'll have to keep an eye on it.

August, September, and October typically show higher VIX levels (higher volatility) than at any other time of the year. So you want stocks with lower beta.

There's something called smart money/dumb money, which is data on stuff like insider or institutional buys/sells and commercial hedging. Big institutions hedge if they feel there's more risk. He gets data on all that.

If smart money (the more sophisticated investor) is less bullish and retail money is more bullish, that's generally a bad sign. If the Warren Buffetts of the world are selling, and Joe Schmoe is buying, that usually indicates not as good a risk/reward.

His big theory in the market is that hard assets are coming into a big cycle. Likes natural gas more than oil. Government in Canada is very encouraging on nat gas. European markets are very strong for nat gas. 

Nat gas is making a nice bottom; higher highs and higher lows, has broken out from the base. Quite bullish on nat gas as a longer-term theme, and it should translate to the producers over time (with some lag). If you hold gas over the next year or so, it should play into that longer-term cycle.

Typically the commodity will lead the producer, because the market wants to see if the commodity move will add to profitability for the producers.

They're fascinating. You look at some of the reports that have come out, and from an analysts' perspective they're good. But the stocks aren't necessarily behaving that way. Are earnings going to continue the upward momentum? We've already seen Q2 numbers almost halved in terms of growth from what they were at the beginning of the quarter. Now the question is what will 2025 look like and, more importantly, 2026?

We have a little more clarity on tariffs, but the clouds haven't cleared yet. We don't know what those numbers are going to be, and neither do the companies. So he's watching for indications that companies are giving on how they're dealing with the tariffs they think are coming down the road. Those are the numbers that are going to be the most important.

He and his team spend a lot of time talking to companies. What he's hearing is that there's a better sense that the painful, original, "liberation day" tariffs won't be there. They've had a better chance to respond in terms of diversifying supply chains as well as adjusting prices. The market wants to have it all done in the snap of your fingers, but it all takes time. 

It's really a general discomfort with the US. It has been king, with the king dollar, and the US market has been 75% of global markets. Everyone talks about NVDA. Well, NVDA is bigger than most markets around the world with the exception of Japan.

If the bloom comes off the rose, the money will rotate. It's not that the US will be abandoned in total, but money will continue to flow to Europe on one side of the pond and Japan on the other. The notion of the US being the only place to be is falling off.

Size makes a difference. It's tough as you go down in market cap because different well experiences can have different implications. The most important thing to him is what do you like in terms of oil vs. gas vs. drillers. He likes gas. He owns VET, PEY, and TOU. He also looks for value, getting these names at a reasonable price.

Long term, he thinks gas prices are going up, particularly in Canada. The opening up of the pipeline to the West Coast brings next year's forecast for the differential down quite a bit. Canadian producers now have a second market in addition to the US. That's a catalyst to the Canadian gas names that you aren't going to find in other NA or global names.

Hallelujah! It's taken way too long. It's our best asset in addition to water. Best part about getting gas to market is that these pipelines will open up Asia, and maybe even Europe. The last prime minister rejected us selling our gas, but this is what we do well. We have to support this. The revenues that come from it support it. Great time to be in the gas patch, and it's good for Canada.

Five Signs Of A Good Financing:

Investors should generally dislike companies that issue stock because it's better if they are self-financing and don't need to dilute their shareholder base.

However, companies do need to grow, and financing is one of the prime reasons the stock market exists in the first place. Rather than dismiss all financings, here are five points to consider in determining whether one is good or bad.

A new share issue should be priced higher than the prior one

This seems so basic, but stocks are supposed to go up. When a company issues stock at a lower price than its previous issues, it just makes us mad.

No increase in the deal size

Companies should take what they need in a financing and nothing more. Enterprise thought it wanted to raise $12-million. What suddenly changed to dictate that it now needed $24-million?

Insider participation

We like to see insiders buy new shares alongside other investors. If we are going to recommend a stock, we want management committing their personal funds as well.

No sweeteners

We just cringe whenever we see warrants or other sweeteners attached to a financing. Issuing such attachments is, to us, akin to a bribe to potential shareholders. “You don’t want just common shares of our company? How about we throw in half a warrant as well?”

Warrants bring out a different type of buyer, typically hedge funds that short the stock against the warrant, or shorter-term players looking for a leveraged pop from the warrant.

We also don’t like most convertible debentures, because they include the obligation to pay interest. We prefer that a company issue regular, plain old vanilla common shares. Nothing fancy: straight equity with no commitments.

A clearly defined use of cash

It always makes us wonder when a company raises money for ‘general corporate purposes,’ and not in a good way. We know that the line is often just thrown out as a tag in a press release, but a company should know exactly what it wants to do with its new cash.

Many companies raise cash as a cushion, which is fine, but too much cash can be a drag on the returns a company makes.

It's preferable if a company issues stock for something specific, say, bridging an acquisition with debt. Shareholders then know where the proceeds of the issue are going, and do not have to hope that the company does something smart with their money.
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