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

Last time he owned gold was perhaps 15 years ago. If you look at a stock like ABX, it had a 30-year negative return before it took off last year (even though the price of gold was up 8-9x). Stocks don't necessarily follow the gold price.

What often happens is the price of gold spikes, they make a lot more cash, CEO pays themselves a lot more, and they find some country they've never been to before and throw $$ in the ground. It never works out.

It has its uses, but there are a lot of animal spirts in the sector today. But that's just him ;)

It's absolutely valid to focus on geopolitics, but it depends on your timeframe. He and his team are very tactical, so events that cause dislocation in markets matter a lot. 

In the long run, markets are driven by earnings and global economic growth. When a geopolitical event disrupts earnings momentum and global growth, it matters a lot. Should most people be trading that? No. If you're the type of investor who looks at statements once a month, you shouldn't be overly worried about it. Your portfolios should be set to deliver returns over the next 5-10 years, not the next 5-10 hours.

But if you sit on the screens and that's all you do, then absolutely. There are opportunities that develop.

Yes. The S&P 500 made a new all-time high last week. The NASDAQ was up 13 days in a row, which hasn't been seen in many years. Clearly, we're back into a risk-on environment.

We're entering the meat of earnings season, where the next couple of weeks will see 50% of the S&P 500 companies report. Very soon, it'll be most of the Mag 7 stocks -- it'll matter a lot what these stocks have to say about AI, capex, inflation pressures, costs, etc.

Always, always, always, earnings matter. The Mag 7 have been driving growth. Earnings growth is still very much concentrated in technology and healthcare over the next year. Still a bifurcated market, but a lot of those Mag 7 got fully priced. Market just had to catch up to those lofty earnings expectations. We will, but a lot of those stocks can go sideways for a year or two.

Likes the idea in general. Thinks gold will pull back to $4000 before it goes to $6000. Peaked for now, but will continue to rise in the world we live in today. Makes more sense to add on a correction than now.

You could look at gold equity ETFs with a covered call in Canada.

Generally speaking, reinvesting and compounding puts you further ahead in the long run. Usually, a distribution is taxed in the year it's paid. So you're better off not taking the distribution and deferring it for some sort of long-term capital gain.

Oil & Gas -- Long-term bull, or tactical trader?

He was stopped on the street last week for his thoughts on oil and gas. That's the catalyst for today's segment.

So he did a deep dive on the weekend and created a chart looking out 10 years. The price of the futures curve is headed downward. In 2037, the price of oil is ~$53 per barrel. When Trump was first elected to the tune of "drill, baby, drill", prices went up just a bit and flattened out at that level. The futures curve one year ago after "drill, baby, drill" was down a bit and then flat (Venezuela hadn't had regime change, Iran hadn't been attacked). A month and a half ago (before the war in Iran), futures said that there was going to be more friendly supply to the world based on Venezuela's reserves. 

Currently with the war, prices are elevated. But not materially when we look past the next year or so. Have to focus on what December oil does -- if it breaks below $70, then we're past this. If it breaks above $80, then we start to worry about long-term inflation and equities will care a lot more. Everything else is noise at this point.

It's a relief rally, for sure. Especially in European and Asian markets, because they're the largest importers of oil. We're also seeing a surge in bond prices as well. If this truce goes through, then the bulls will be on target with better performance in the stock market. This on the expectation that interest rates may be on the way down in the US.

It's also why we saw the USA dollar fall today and gold go higher.

There's some hesitation going on among clear heads, given where markets are right now. But, really, we'll find out in May whether the Federal Reserve actively starts to cut interest rates.

Scott Bessent said recently that inflation is fairly muted, and that the Fed can continue to cut rates. If Mr. Warsh gets in as Fed chair, we'll see cuts in interest rates. When interest rates go down, stock prices always go up.

The only cautionary tales would be:  1) Oil prices aren't back to where they were at the beginning of the year, and 2) If the USD goes down, then you'll see the US start to import inflation. In those cases we'd see continued growth in the commodity sector, which could continue a bull market there.

Last year the US dollar was down 7%, and it started to fall again this year too.

It's very important in this kind of environment not to take anything for granted. Don't think that markets move up linearly. Always best to take some profits off the table, especially with high-flying, flavour-of-the-day stocks or those with high betas.

Examples include semiconductors, chip manufacturers, anything with extended valuations such as data centre involvement.

His firm goes by this rule:  Build a portfolio of 30 stocks, at 3% weighting each, and when a position gets to 6% they automatically pare back. For instance, last April/May they bought FIX for $300 or so. It's now up over $1600. Prudent thing to do is to rebalance the position back to neutral. This action prevents them from getting caught in a market selloff if we do get higher inflation.

Tailwinds for all Canadian banks last year -- net interest margins expanded, better wealth management performance due to stock market rising, M&A's starting to pick up again, higher trading volumes.

All are hitting new highs because not a lot has changed, other than mortgage volumes not being as strong because home prices continue to fall. Could be a red flag for 2026. It'll depend on interest rates and the economy.

He's noticed they've been buying back a lot of shares, and this helps the bottom line. As well, lots of ETFs out there have covered call strategies (they have to keep buying shares so they can write the call options). 

Unless we really get higher inflation and interest rates rising, he imagines banks in Canada will continue to grow, though not at the pace of last year. Expect a few hiccups along the way.

The benchmark you're looking for is the MSCI Emerging Banking Index (MXEF). You can look for ETFs that focus just on the banks.

As USD has fallen, EM currencies have gotten stronger. Last year the MXEF had the best return, up over 30%. You get both stock prices rising, as well as tailwinds relative to the CAD/US dollar.

For his firm, they own 3 banks. RY covers them in North America, SVNLY takes care of Continental Europe, and HDB (really cheap right now) on the thesis that India's population could make it the next superpower in the next 50 years.

Think about it like this ....

1) Energy security. Canada's pretty much at the front of the line, especially what we've seen recently with the Strait of Hormuz. 

2) Trans Mountain is starting to open up wider, potential for Keystone to increase capacity or build all the way down to the Gulf of Mexico. 

3) Canadian federal government is focused on infrastructure, and looking for trading paths with countries not called the United States because of tariffs.

He wouldn't be overly concerned about any selloff in pipelines right now. Especially since India, Europe, and China are massive importers of oil, and Canada has the goods. Dividend yields are fairly attractive. Opportunities for more infrastructure building going on. Could be a very good time for pipelines over the next 5 years.

See his Top Picks.

It feels very 2007-y to him. Stories you're starting to hear out of the private market space, this fund's having trouble, this fund's gating redemptions. He'd have said that a week ago, even before this giant rally back to all-time highs (one of the fastest in history).

To him, it still feels pretty fragile. When you look at commodity markets and supply chains with the closure of the Strait of Hormuz, that stress is only beginning to show up and will only get worse almost exponentially as the weeks wear on.

He agrees. We've had a lot of bureaucratic boy-who-cried-wolf scenarios since the financial crisis. Even the pandemic was a predicted abyss, but then we sailed through that on a buy-the-dip mentality.

But for his team, where the rubber meets the road is in the physical world. The digital world can run on its narratives, but the physical world runs on real commodities and that's where things are getting constrained. You just can't take 10% of oil demand out of the global market for months on end and not have some impact.

So far we've been able to get through it with some strategic reserve releases and such. It's shoulder season, so the gas supply side isn't showing up yet. But we're heading into a high demand period for oil, and high demand for gas for cooling. There are going to be shortages, and we're going to start to see some pain.

He is, perhaps, hopeful. At this point it's a show-me story for him as an investor. At least the talk is not as antagonistic as it was before. We actually need to see some action.

However, the stability is good. Canada is looking very attractive on a global stage. Big problems in Europe, political polarization in the US where we'll have to see what happens with the midterms.

In Canada we're all starting to come around to having the political will to get some things done on the energy supply side, especially as it relates to LNG. That could be very positive for Canada over the next decade+. We're looking like a more stable place to put capital than a lot of other places.