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

It's part of the process of digesting big numbers of capex spend on something, like AI, that doesn't guarantee an adequate return. People were nervous.

Now starting to see the beginnings of the effects of AI. As a percentage of GDP, corporate profits are at record levels. A new productivity is beginning. Implementation of AI is just starting to take hold. It'll have an enormous effect on ability of companies to generate profits and be productive.

It'll have some ancillary issues, which won't all be good, and we'll have to deal with them. But good things happening on the surface. As an investor, we want to defend against the bad and embrace the good.

Some sectors of North America will be affected. This is an ideal time for corporations to take cover. If they have any bad news or are feeling a bit skittish about their own operations, it's the perfect time to say, "Oh, it's the war. It's not our fault." We haven't seen a lot of that.

We've seen a lot of beat and raise. Contrary to what we think might happen, companies are confident. 

Volatility has been present, but the market continues to go up. First of all, it's very important to stay invested. Don't try to time when to get out and when to step back in -- a mistake that retail investors make over and over again, and that's why they tend to underperform the market by a significant margin.

The AI data centre buildout has been a major theme. As well, the shortage of power infrastructure and electrical capacity constraints. 

In Canada, Build Canada is a massive investment theme.

And defense. For obvious reasons, budgets are increasing.

As for SaaS companies, it feels to him as though we're in the bottoming process. The market's getting smarter about who will benefit from AI and who will be disrupted. He notices governments being extremely cautious on AI with respect to access to sensitive data.

How difficult is it to implement the software solution? How mission-critical is it? How sensitive is the data it has access to? How much of the product offering is purely software? Is it easy to disrupt?

The type of business itself is also a factor.

He's not a subject matter expert in this area, but he took the question to challenge himself and think out loud :)

Still some work to be done in the area. But once it does become real, it doesn't have a very broad application across the tech stack. Very narrow, niche applications -- but in those, it will have tremendous impact.

It will apply to anything related to security and cybersecurity. Any of those protective layers can be easily broken if you have quantum computing. Those companies will have to adapt to change, though he's not sure how they'll do that. It's a big risk for those types of businesses.

On the positive side, it will enable major drug discoveries. So a big company with 1 blockbuster drug will be at risk from smaller companies. Big disruption there. SaaS companies, though, will not be at risk.

Thinks so, but let's take a step back. This tends to be the case in most situations -- from the European debt crisis all the way back to the 2010s. The first shock is the greatest, and then markets act more like a shock absorber.

It is a bit binary, however. The next stage of this is not status quo, but an escalation from where we are today. We're 24 hours before a pretty binary data point.

A few weeks ago, he would have been a lot more optimistic. At this point, he's more balanced. We've seen quite a recovery in the market, and valuations aren't as cheap as they were a few weeks ago.

Earnings so far have been pretty good. Expectations are higher, but in most cases they're being met and making stocks cheaper on a PE basis.

Technology has its own different drivers right now. Healthcare tends to move to the beat of its own drum.

Generally when you think about big macro sectors, think of financials, industrials, energy, and materials. Sectors that are left out include utilities, healthcare, and technology -- they move to their own idiosyncrasies, whether oil or inflation is up or down.

When you buy an ETF, understand that there are lots of moving parts in the sector. Global defense budgets are significantly rising, and this should continue. Where it gets murky is which part of the military chain do you want to invest in? What's also changing is how wars are fought.

There will be winners and losers, and with an ETF you're along for the whole ride. He's bullish overall, but he'd be particular as to where you put your $$.

Pretty well priced for perfection. 25-year highs on valuation of ~15x PE, and that implies very calm seas ahead. Implies no housing or credit issues, with growth from benign to strong. Doesn't leave a lot of room for error. Investors should focus on growth, credit, and CUSMA. He's more cautious than what the market's pricing in.

Unequivocally, he'd trim.

It's really been to look through the noise. What he means by that is you can't get caught up in the day-to-day rollercoaster. 

When we look at the price of oil, the real price is the price at the pumps in both the US and Canada. Thinks that will dictate a lot of the geopolitical strategy. Mr. Trump cannot afford to have a bad economy going into a midterm election. A lot of his reactions to events in the Strait are based more on what can happen to the US economy.

Market likes certainty (and there's never certainty), but it's much less certain now. On renegotiations, they've come out and said that some things are "pillars". He doesn't think everything will just be scrapped. 

It would be nice to see more clarity, so businesses can actually plan for the next 2 years. If we get that clarity, it'll be good for our economy.

Look at Kentucky. He didn't realize that we drank that much bourbon in Ontario, but they lost a distillery over it. So Americans are hurting a bit with tariffs.

Path of rates depends on what's going to happen with inflation. If inflation's caused just by higher gas prices (we saw today that gas prices are up 20% in a month), is this temporary? Does it really mandate a rate raise? He doesn't think so.

On the other hand, does this affect our economy? If the spill-through to the economy continues, and we go into a recession, rates will have to be adjusted lower.

The last of the 5-year mortgages at very low interest rates are coming off this year. So mortgage inflation won't be as big. If you really want to see housing and real estate get back on their feet, you do need rates to stay here or lower.

Best-owned oligopoly you can get. No one else makes 20-40% ROE. Though the valuation changes, he never considers them overvalued. Perpetual cash machines. 

If you sell, where are you going to put the money? If you've made a lot in capital gains, you'll pay a lot in tax. They could go up another 30% before they correct 20%, we just don't know. Good long-term hold. Actually doing pretty well right now.

There are great companies, but it's all about the price you pay. Patience can be your best ally in this market today.

His team is sector-agnostic. There are spaces they avoid, such as gold. They're looking at info tech companies, as some names have fallen off quite a bit.

They look for companies that, regardless of industry, can deliver returns. If they don't like an industry, they'd rather hold cash than try to force an investment in a sector.

One area they've probably been overweight in is financial services. Think banks, insurance companies, Brookfield, TMX Group. These types of names tend to do very well over the long term, and never get too expensive. Not a bad area to be in.