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

Since the 1980s, inflation expectations went lower all the way to the financial crisis in 2008. Then there was a Goldilocks environment up to the pandemic -- amazing environment for tech stocks, low interest rates, low inflation, 1 global superpower, supply chains working really well. 

Now inflation expectations are starting to tick up. Given the higher dividend yields on a lot of the energy stocks, energy names might be the next utilities. Interest rates going higher is going to put pressure on the normal bond proxies like telcos and REITs.

He thought there would be more of a consolidation around $2600, but it's broken out to new highs above that. Quite positive. Trend is up and to the right, and it's pointing him in the direction of something like AEM.

Week in Review

This week started off with the unexpected news over the weekend that DeepSeek, a Chinese start up, developed an artificial intelligence (AI) model rivalling ChatGPT with just US$6 million in capital. It was built with a smart workaround of technology because the export to China of the best GPU computer chips was restricted by U.S. administrators. DeepSeek engineers needed to make the less-robust chips work better. It looks like they succeeded, using a fraction of the computing power of their American rivals, and the whole world freaked out. The megabillions of dollars being thrown at AI data centres was suddenly called into question. Many stocks plunged on Monday. We can’t tell you how all this will play out. Certainly, it may change the direction of future AI spending. It may make AI devices faster, cheaper and more efficient. Your in-home robot butler just got a little closer to being delivered.
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Broadly speaking, yes, it does increase borrowing costs. But at the other end of the spectrum, you have to think about what's happening in credit spreads. Since 2023, credit spreads have contracted about 50%. So he thinks it's actually a pretty conducive market for financing costs right now, for both private and public markets.

He thinks transactions will pick up in 2025, which would be a great catalyst for publicly traded companies.

Broadly speaking, a sustained commercial real estate recovery is underway. Likes sectors that can act defensively, as well as those that offer growth. In the office space, he's looking for companies with trophy buildings, compelling supply/demand fundamentals, trading at discounts, growing cashflows.

The data centre sector is one he really likes, with really compelling demand factors and supply trying to keep up. Industrial warehouses are also a favourite, and the biggest sector allocation in his fund. Some slowing rent stats, but the gap between in-place rents and market rents is still very wide. Many positive secular demand forces on industrial fundamentals. Pockets of residential that he's positive on, such as manufactured housing communities. Grocery-anchored shopping centres have very defensive cashflows, with the most compelling supply/demand characteristics we've seen in many years.

#1 risk has always been oversupply. New supply inhibits the ability to raise rents and attract new tenants. Today, given where interest rates have moved to, it's been prohibitive for new construction. 

In the senior living space, both CSH.UN and SIA.UN have taken advantage of this environment, because they already have land where they can develop at a lower cost than competitors.

It's great for the space. Shows you how fast this AI revolution is happening, and how many are participating in it on both hardware and software. Think back to1995-98, when the internet revolution was going on, it took a long time.

The AI revolution is now just over 2 years old, and you can actually see some of the end-users out there on the software side using it. It's impacting their businesses, making things faster and cheaper.

You have to take it with a bit of a grain of salt when it comes out of China, and people are digging into it. It cost $5-6M, but it already had 50k chips from NVDA and the cost of those was $2B. So you have to get the full story.

He's been very busy buying this week. Took some profits at the end of 2024 and beginning of 2025, so he'd built up some cash.

Imagine 3 rings, set out like a dartboard. For enterprises around the world, the ecosystem protects sensitive information, manages user access, ensures compliance, provides comprehensive data security and governance.

The bullseye in the middle is all about data protection. The second ring is all about identity and access management (IAM), so the right individuals have access to the right data. Outer circle is compliance and data governance, which provides the framework for ethical and lawful data management.

It's a big, big space. May be a little bit boring, but it's so important.

When it comes to data security, he'd pick Octave, FTNT, and maybe SAP. This is probably an unexpected answer from him, but these names are just a bit cheaper and just as good.

The value of contrarian investing:

This is not our forte, not by a long shot, but it can work for many investors. The plan: Find a stock that everyone hates. Often, of course, said stock will be down, perhaps a lot. This increases investors’ anger with the company. Many will sell out of frustration, and give up on the stock. Institutional investors may sell because the stock has declined so much it is too small for them. Or, funds just do not want investors to see that they owned this loser when they report year-end holdings to investors. Such declining scenarios often see employees leave the company and also sell their stock. It can come to a point where sentiment is so bad that no one ever expects the company to do well again. Then, something good happens, and all the sellers are gone. At times, a beaten-up stock can soar just on some simple good news. It happened last week to Walgreens Boots Alliance Inc., a stock that has been in the doghouse for years. The stock had its biggest move in four decades on a sign that its turnaround is making even the slightest bit of progress.
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Prior to the weekend, he'd never heard of DeepSeek. As much as AI is front and centre, there are always the "unknown knowns". That is, you know there's going to be something to upset the market from time to time, but you can't predict exactly when or what it's going to be.

The market's a bit frothy, as we've seen recently, and a lot of the bulls will dismiss that. But something comes along, and people start asking a lot of questions. So there's the DeepSeek noise today. Then there's the Trump administration, where one day there's less tariff risk, the next day there's more, then less. 

A lot of uncertainty in front of us. For him, it's an environment where you want to be a bit more cautious than aggressive. A bit of de-leveraging in the next few weeks or months would not be at all a surprise to him.

We learned during Trump's first administration about his style. He can be belligerent in how he approaches the market, but it's a negotiating tool and it does get people to the table. He was pretty effective last time using that as a tool, which tells you that he's likely going to double down this time around to get what he wants.

Covid accelerated a lot of his bearish concerns about debt in the world. The US debt situation isn't getting any better, and there's no scope for it to, given demographics and government promises over the years. 

The idea of a DOGE and getting more efficient is great, but if you look at the numbers, they aren't going to be able to move the needle too much. All the spending that he wants to do because of tax cuts just adds more debt to the system. Eventually, the market cares; you just can't time it, and that's the problem.