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

There are ways to buy a US security that gives you exposure to other parts of the world. US money market or HISA would get you a 4.5% yield. There are USD instruments that trade in Canada.

He'd ask how fundamentally opposed are you to getting a better return on your money compared to your anti-US sentiment based on politics?

US economy.

As we get desensitized from tariffs, though those are still real and still matter, we're starting to see decay in the US labour situation developing over recent months.

He's brought in a graph of the JOLTS survey on job openings / losses / turnover going back a couple of years. Number of job openings is continuing to fall. The need for workers is falling. 

Last week saw another uptick in initial jobless claims data. It's very cyclical. Generally speaking, in the post-Covid normalization we've hovered in a range. We're now back up to the top end of the range, and we're worried it will break to the upside. We just heard that DIS is laying off people. That's a big part of what the market's going to start to care about, as it means the Fed will be off the sidelines and maybe start to cut rates.

That's initial claims. What worries him a bit more are the continuing claims. The graph is at a multi-year high for those numbers. Since Covid, it's taking people who have lost their job longer and longer to find a new job.

So you have less demand for labour from business (fewer job openings). You have an uptick (though modest) in initial jobless claims. And then you have the extended continuing claims. Those things are combining, and this Friday we get non-farm payrolls. There's some expectation that we get job growth, not negative, but less than 100k. If we start to see the US labour market weakening, it's going to matter a lot because the market (at 22x forward PE) is priced for 8% earnings growth this year.

If we start to lose jobs, and recession risk becomes real, then equity markets are not priced for that risk.

Finally, we have the big beautiful bill. A gentleman on social media at Piper Sandler took all the components of the bill, and calculated that we'd get an economic bump into 2026. But the growth rate for GDP following that is going to decline. It won't be the economic boost they hope. Larry's not sure the markets are correctly priced for what's coming.

Bottom line:  if you want to participate in the US market, use buffer ETFs. ZJAN is his recommendation. Gives you about 10% upside, and about 15% a year downside protection. Keeps you invested, in case he's wrong and the market goes higher.

What is a Real Estate Investment Trust (REIT)?

A REIT is defined as a company that owns, operates, or finances income-generating real estate. REITs trade like stocks on major exchanges and offer investors a way to gain exposure to the real estate sector with much lower capital requirements than traditional forms of real estate investing and a steady income stream. A REIT company purchases income-producing properties, leases them, collects rents on the properties, and then redistributes that income to shareholders. REITs usually purchase properties with debt, earn cash flows to service that debt, and over time use the equity in those properties to increase their financial leverage and acquire more properties.

There are many different types of REITs that exist, and many specialize in various industries, such as the apartment building, cell tower, data center, hotels, healthcare, offices, retail centers, and warehouses industries. REITs are great for real estate exposure and stable cash flows, but they are also usually associated with low growth and are subject to interest rate and market risks.
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He never liked this. Looking at the S&P's summer performance: 5 of 10 summers between 2000-2009 where down and the average summer performance was -1%, though the median was +0.5%. 2002 was the worst summer at -14.2%. 2001 and 2008 were also negative years. So, sell in May didn't give you an edge at all. Consider 2010-2019: the summer was positive 7 of 10 times, with an average 1.2% rise and 3% median. 2011 was the worst summer at -9.4%. From 2020-2024: the S&P rose 4 of 5 summer at a 6.6% average or 7.6% median. Over the past 25 summers: up 16 of 25 summers, 1.4% average and 2.7% median. So, selling in May and going away is a loser this century.

This rally has been one that everyone's hated because it didn't make a whole lot of sense. We still have all this tariff noise, though there has been some de-escalation. A lot of hedge funds sold near the bottom. People are scrambling to try to keep up and chase this market higher. 

Tariffs are hard for people to deal with. There's an acronym going around -- TACO (Trump Always Chickens Out). And it's what the market is starting to believe. By and large, what market participants got wrong in April was that earnings in the US and Canada actually held up better than people thought. Forward guidance held up better. There is some de-escalation, maybe 2 steps forward and 1 step back (as today with China). 

You have to ask yourself some questions. Does Trump want to be unpopular? No. Does he want to lose the midterms, which are not too far off? No, but he probably will if he puts the economy into recession. Softer inflation data came out in the States today. But it's sell in May and go away, and we still have this opaqueness.

We end up with the next 18 months looking pretty good, with a big beautiful bill coming in with deregulation, tax cuts, spending, etc. And all that will be good for the economy. But the short term will see tough markets.

What they're saying is that this number captured the front-running of trying to get ahead of tariffs, and that we'll still see the negative effects. But there is all this optimism with this new government being much more stimulative for Canada. Getting more projects off the table and boosting inter-provincial trade. 

It's nice to see this better-than-expected number. What does that mean for the BOC next week? Probably will be on hold and not lower rates. Our currency is going up, which isn't as much a secular Canada call as it is a weak greenback.

Investors can take comfort in that he thinks we've seen the big moves down. But we're still going to have trading ranges. Markets are back near highs, so you don't need to go full-in. And it is May.

Still cheaper than the banks, and with better growth and lower payout ratios. Great place, plus it's fairly down the line exempt from tariffs.

New money always has to be put to work. So you have to ask yourself:  what should I own, and how much of it? Where should I be on asset allocation -- at, over, or under? And it all depends on the economic outlook, which is hazy. Prices are expensive here.

So he's trying to find places that are going to work regardless of the cycle.

You still have to own US stocks, especially if they're cheaper and more compelling. 

He might be naive, but we have Team Carney in place. You have to be considered a "bad country" to be punished with taxes to such a large degree. He believes we'll be able to avoid the worst. It might mean going against the OECD. But Canada has to do what it has to do.

Consistent Compounder & Lessons Learned: Apple Inc.

Market cap: US$3.1 trillion. YTD return: about -17 per cent. One-year: eight per cent. Five-year: 161 per cent. Twenty-year: 15,325 per cent.

In 1986, lots of investors bought Apple shares at less than 10 cents a share (price adjusted for splits). If you bought then and still own shares your return would have been — wait for it — 240,609 per cent. Apple succeeded for many reasons but essentially it revolutionized technology with the iPhone, iPad and services, achieving massive sales and recurring revenue. But it also had huge success simply branding its products. Often its products were not much better than competitors’, such as the iPod versus an MP3 player. But the company’s marketing convinced consumers that its brand has status. With product success the company then shifted to higher-margin services, which investors value more highly.

Lessons learned: Create products that people love and invest in your brand as much as you invest in technology.
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What was President Trump thinking when he raised tariffs on the entire world at once? Did he believe that energy would come to make everything fine and dandy? Or retailers would say their lot in life is to make less money? For certain, he knows inflation will go higher, because prices are rising in every aspect of your life. Why would retailers eat the cost of tariffs when they have such thin margins? Retailers have all said that higher prices are coming. He wants higher tariffs to punish China.

We thought this might happen in terms of pushback against the tariffs, and we'll see where this goes. The over-arching view, though, is more uncertainty, which isn't great. It's been a very tricky year, and that will probably continue.

So far, you get one thing happening and then it's reversed. You get another thing happening, and then that gets reversed. There's still stuff that needs to happen for more clarity. Unfortunately in investing, you don't always get the full clarity that you want.

It's challenging thinking about the industry-specific tariffs that we still don't have a clear picture on -- semiconductors and pharma, for example. Lots still up in the air. The initial knee-jerk reaction was positive on the news today, but now the market's questioning "What's next?"

Not sure how countries are going to react. Might be the other way, in that the best course at this point might be to just do nothing. He wouldn't want to be managing a global business right now.

It's nascent. He doesn't own any of the usual small-cap suspects. Technology could have some promise, but right now it's not clear that there are commercial applications yet. 

He'd lean more into what companies like IBM and GOOG are saying about this. When those companies say that there are no commercial applications at this point, it's better to wait. Seems like an end-of-decade type of story.

Fundamentals in Canada are starting to look a little bit brighter than we had thought 3 months ago when we were heading into the tariff maelstrom. Also seeing definite signs of a rotation out of USD-domiciled assets into other currencies and asset classes. Canada is benefiting from that and, being a relatively small share of the global equity space, it doesn't take a lot to move the needle.