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

The market is unwinding the premium valuation of recent years as confidence grew and FOMO. Now, we have uncertainty around Trump 2.0 with valuations falling from the low-20s to the high-teens, more of the historic norm. So, he's not worried, but don't expect is to bounce back to that premium. It takes a while to build confidence, and it's healthy to see the air come out of slightly inflated valuations. A year ago, he started to sell his Mag 7; by year's end he held 24% exposure vs. 35% in the S&P. Though great businesses, nothing grows to the sky. US profit margins a year and a half ago peaked at 13.1% and now aren't far off; historically, they've been far less. Corporations have learned to adapt and perform well. Tariffs: will they be that punishing and will be Washington be so tone deaf to the US economy and push it into recession? He thinks not. We know Trump's playbook by now: bully, scare tactics and threats. The market sees this and is pulling back. Still, it's a tail risk.

There's no expectation at all for any rate cuts. We've seen a marketplace that went from completely pricing out rate cuts, to the equity market weakness we've seen in the past few weeks and now pricing in 3 rate cuts over the next year. Treasury Secretary Scott Bessent said over the weekend that market volatility was not bothering the US administration at all in terms of policy.

We're facing a bumpy couple of months. Lots of policy uncertainty. Market's primed for a bit of an oversold rally, which started late last week and is continuing today. He expects it to continue through options expiry this week. But he doesn't see us going a whole lot higher, maybe another 1-2%.

No, because if they get overly easy right now, and inflation becomes a problem, that's going to be very difficult to roll back. The Fed's on hold, and he doesn't expect a move in either direction. The equity market would need to fall another 10% or so from here before consumer savings would be impacted and the Fed motivated to cut.

Still a lot of inflationary risks to the economy in front of us that the Fed just can't ignore -- tariffs, and tax cuts that Trump wants to put through.

Seeing a big rotation. Money coming out of big, overvalued names and into the broader stock market. A very positive development, but it's very early in that too. Not clear that the next bull market is here by any stretch of the imagination. 

There will be a better opportunity later this year or early in 2026.

Not tempted at the moment, because one of the things we're concerned about is weaker economic growth. And that just would not be good for the financials. That risk isn't priced into the market at the moment.

In the last week, a gaggle of street economists have downgraded the growth and earnings outlooks for the US. We're in that part of the cycle right now where the street is chasing the market. If a rally were able to get going, they'd all upgrade their targets. But he doesn't see that happening.

There probably is one but, as he doesn't use it, he can't recall the ticker. There are a couple of plain consumer staple ETFs, and the question is whether to go with US or Canadian market. You get more breadth in the US, but the US market typically doesn't have a lot of covered call strategies. 

Covered calls typically get a premium yield based on volatility. Consumer staples stocks don't carry a lot of volatility in general, due to their nature. So covered calls on consumer staples doesn't sound like a good idea, and perhaps that's why he can't think of any ETFs.

Looking at crude oil overall, best-case scenario is that we're range bound. Oil's now at the bottom end of the range, and he likes it down here. He's accumulating a lot of oil & gas names, but we're range bound. Very unlikely to go into an environment where these stocks can start trending longer-term higher.

Lots of ways to play -- bullion, equities, junior names. Bullion has outperformed equities over the past couple of decades by a wide margin. Gold equities will have their day in the sun, but that hasn't materialized yet. Longer term, he's bullish on gold. But at an approximately $3000 all-time high, he's more cautious and more of a seller. 

Trim some of your exposure on strength, rather than thinking it will break out and rally from here.

What's Coming Next

He's at a cool conference in Florida. In the US, they're way ahead of Canada in terms of building portfolios with different asset classes. 

About a year ago, he was talking about moving his own personal portfolio into private equity and private credit. Take a look at VBAL, VGRO, VCNS. On a chart of the last year, you can see the ups and downs and swings in volatility. But today he had a meeting with Cliffwater Corporate Lending Fund, a fund provider that's much more steady-eddy, less volatile, but available only in the US. He's working on changing this access for Canadians.

He really likes the private market exposure, and how it lets you combine with public market exposure to ultimately smooth out the ride for investors. As society ages, more and more people won't be in their working years anymore but living off savings. Having a smoother ride in your portfolio, as a CPP would do, is really resonating with more and more investors.

If you want liquidity every day in your portfolio, then public markets will work for you. Typically, you won't see private credit and private equity with daily liquidity in an ETF format, though he has developed this type of investment at his own firm.

This will be the focus of the next 10 years of his career.

Before Covid, Trump presided over a fantastic economy and job growth with no inflation. But this term, Trump gets angry, lashing out and is so inconsistent that it frightens business owners until they don't know what to do; business thought they had a friend in the White House, but they have an enemy who seems upset with them. Trump expresses fury even at workers from various industries, many of whom voted for him and are worried about their jobs. Any sense that we see the Trump of term 1 will send stocks higher (last Friday), but the Trump creating uncertainty and it willing to let the market roll over sends stocks down (last Thursday). There doesn't need to be a transition period full of pain, but rather certainty in the process. If the market knows what Trump is planning, it will make investing a lot easier for businesses and investors. Without it, the market will have a hard time staying positive until the next beat down.

On his outlook for growth he feels that part of the problem is that so many things are up in the air. The stock market as well as business and consumer sentiment are being swayed by one individual and this a pretty unusual situation. Trump has co-authored ten books and from this we know that he likes to anchor high and therefore starts with the maximum amount of demand. Then if he has to compromise he can consider himself having a win. The take-away from another book is that he likes to keep people guessing - knowledge is power so keep as much of that to yourself as possible. This is all part of his playbook. The guest thinks he is pretty serious about trade issues since he has been critical of international trade for 40 years.

The Advantage of Time

Time is a valuable asset in the realm of investing. Starting to save for retirement at a young age provides a significant advantage due to the power of compounding. Intuitively, most individuals tend to treat $1 as $1, however, the idea of consumption deferral (rather than immediate consumption, investing and delaying consumption) suggests that the value of $1 depends on how it is allocated. For example, $1 spent on a good or service that one can immediately use or consume has value to an individual, but even with a modest return of 7% per year, investing that $1 at age 20 can yield approximately 18 times the initial investment by the age of 65. In a sense, that $1 gets transformed into having a present-day value of $18.

This exponential growth is attributed to the reinvestment of earnings, where each year's gains generate additional returns in subsequent years. By starting early, individuals harness the full potential of compounding, allowing their money to work harder and grow significantly over time. In the below chart, we have visualized the leverage that is at one’s disposal by beginning their investment journey early. One dollar invested at the age of 20, growing at 7% per year becomes ~$21 by the age 65. As this individual ages, the future return of $1 invested shrinks – ie. at the age of 45 $1 invested for the next 20 years is ~$4. While most individuals’ incomes rise as they progress in age, this chart demonstrates that a lot of the foundation of retirement savings can be built in the early years.
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In his experience, gold's done well when people are concerned about maintaining their purchasing power in fiat-currency-denominated instruments. 

Clearly, the world's reserve currency (USD) is challenged by a few things. Nervousness about impending trade wars from the US with virtually everybody. Also, ongoing concerns about debt and deficits. Many people focus on the on-balance sheet government liabilities of $36T. But you also need to pay attention to off-balance sheet obligations like Medicare, Medicaid, Social Security -- those numbers exceed $100T. Funding those nominal obligations suggests that, over time, the US government's going to have to resort to printing. This would not be good for the USD, but would be very good for gold.

People who own it, and people who are traders, can wait to increase the size of their position. It's hard for him to understand why anybody wouldn't own physical gold as insurance. Given the USD, debt, deficits, and political dysfunction in the US, all that suggests that anyone who's prudent and understands gold's traditional role as insurance would want to own gold.

It sounds perverse, but it's almost as though you want to buy in but pray it doesn't go up.

His suspicion is that Asian retail buyers, and the Chinese central banks, are inclined to support their own markets. He doesn't believe there's any long-term effort to suppress the price of gold. In the near term, though, all markets are manipulated.

He'd generally look at price disparities among markets and explain them away by the relative attractiveness of the commodity in various cultures. Asians have been the predominant buyers of gold for the past 3 years, so makes perfect sense that the Shanghai exchange has more buyers than sellers; whereas the NA exchange is much more evenly balanced.