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

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.

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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.

People are bored with it, and the sector's down. That's why he loves it. People had overblown expectations about 3 years ago. The narrative hasn't changed, but sometimes things take 5-6 years to play out. Many investors have the right 5-6 year narrative, but they have 2-3 month strategies. The time required to realize $$ on their strategies often exhausts their patience.

Clues on undervalued stocks: No analyst coverage

Look for companies that have absolutely no analyst research coverage. At times, this can be a red flag: maybe there is something at the company that analysts don’t like, so do not bother covering the company at all. But no coverage can also create opportunities. Owning a stock with no brokerage talking about it can often work out very well when they do start talking and promoting the company. It is surprising sometimes how little attention some companies get from the Street. IES Holdings Inc., for example, is a US$5 billion company in the electrical contracting business. Despite its stock being up 200 per cent in the past year and more than 20 per cent this year already, it has not a single analyst covering the stock. Zoomd Technologies Ltd. in Canada is much smaller, with its market cap at publication at about $85 million, but you would think that its more than 1,000 per cent gain in the past year might attract at least some attention. But no, not a single analyst.
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We have to take some cues from history. When you look at the 2018 trade war between the US and China, the S&P 500 did drop nearly 20% in Q4. But it rebounded with a 31.5% return in 2019. The other thing is that when he looks at the last 6 corrections of 10% or more (which is what we're facing now with the S&P 500), going back to 2009, the 1-year return was 40%. 

That's the past; doesn't mean history will repeat, buy it often rhymes. The fundamentals are still solid in the US. GDP was fairly solid in the last quarter. Inflation ticked down. Consumer remains pretty solid. Unemployment is hovering near multi-decade lows at 4.1%.

He wonders how much is posturing and how much is negotiation. Premature to say we're looking at a recession down the road. 

In 2018-19, inflation was around 1.9-2%. So even with tariffs coming on a much bigger economy (China is 20% of world GDP), markets still came out OK.

Choppiness will continue as long as this rhetoric is there. But we also need to look at some of the political considerations coming up. US mid-term elections are next year. Will the US administration stem some of ?the talk and put policies in place that will help the economy, such as deregulation and tax cuts? Such moves would help the economy and the stock market.

This is an opportunity for investors to take advantage of some of the names that are down 15-20% or more. He's using cash to add to high-quality names he likes for the next 3-5 years.

Looking 6-12 months out, and assuming we don't fall into recession, look at financials (soft landing, relatively low inflation and unemployment, increasing business activity). Financials will be big beneficiaries of deregulation and tax cuts from Trump administration.

Industrial sector should also do well. He's focusing on the US, though it can tie into the Canadian sectors as well. In the US, there will be more of a focus on domestic manufacturing. Names like CAT and OTIS.

Selectively, be in the tech and communications sector. Mag 7's are back to 2017-18 levels on valuation. Growth rates of 15% or more are still there.

No, it's actually easier when you get signals that are either extremely bearish or extremely bullish. Last year, we had an over-the-top bullish market. So we were very overdue a strong correction. He's been raising cash.

He's been saying since January that we were going to fall off a cliff a bit, not only for the Trump tariff thing. The market is like a balloon. You blow up the balloon, and then the balloon gets too tight. The market just looks for an excuse to deflate.

Tariffs come on, and markets sell off. Look at Covid, the 2008 sub-prime bubble, the 2000 tech bubble. Even in 2022, the market was overdone on both technical and fundamental factors.

He's seeing sector trends. He's been trying to rotate into commodities that aren't related to financial assets like the stock market. Not all commodities look great. 

He bought tons of gold and still likes it, though it's really had a run and probably a little overbought. A couple of months ago he said to buy nat gas on its breakout, it's done quite well, and he still likes nat gas and its producers. He bought some US bonds, as it's likely that their economy's going to be a bit tighter with tariffs and stuff. They've done OK.

There's always stuff you can buy that makes money. "Money doesn't sleep" as they say; it always goes somewhere. He's holding cash, bonds, and non-correlated assets. He does own some stocks that have suffered, but it's counter-balanced by the things that are doing well. You have to be really mobile.

He uses money flow, and volume is a component of that -- it takes whether the market went up or down, and then attaches whether the volume went up or down. The resulting line tells you whether money was flowing into or out of the market. Then he looks at the momentum of that money flow, using an indicator such as MFI (money flow index).

For a while now, money flow has been falling. Volume's been going up, so it can fool you! The money flow was telling him that volumes were up because people were getting out. If the market keeps moving down, he's looking to raise more cash.

Technical analysis is the main tool you want in markets like this.