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

Investors are disappointed at $70 oil, and they should be. He had more bullish expectations coming into this year, with biggest disappointment being Chinese demand. Very few people would have forecast Chinese demand to be negative YOY for a couple of months. Thankfully, there are signs that it's now inflecting. One big energy trader believes that Chinese demand will be up 700k barrels per day next year.

It's kind of a moral victory. His call is that global oil inventories (his measurement of the balance between supply & demand) would hit all-time lows. And we're there today, which is great. Global inventories are at their lowest since at least 2017, US inventories are at the lowest since 2016.

In the olden days, used to be a very strong relationship between inventories and the oil price. As inventories fell, the price would go up. Today, looking at where oil "should" be, it should be about $81 WTI. But it's trading just under $70. There's a disconnect.

Why the disconnect? Market's concerned about 2025 and peak demand being right around the corner, demand weakness continuing, US shale surging, other countries like Brazil coming online, and OPEC ramping up to maintain market share. He feels that the market's a little too bearish on demand, US shale production is flat (Trump will see peak production over the next couple of years, a huge event). Plus, Trump will be ultra-hawkish on Iran exports, giving OPEC the chance to add barrels eventually, which will be the beginning of normalization of OPEC's spare capacity (not as high as people think). 

Demand is fine. Just look at the US economy, which is going like gangbusters. Supply expectations are too high. Market is tighter. Between $70-80 is reasonable over the next 12-18 months. You need Saudi to bring some of those barrels back to market.

He remains very bullish on the outlook. There can't be an energy transition when the demand for oil, nat gas, and coal continues to make all-time highs. Governments and organizations basing their constant negativity on ignorance warps sentiment about investing in energy, which translates into the valuations we see today.

Almost no interconnection. Main uses for oil are not for power generation. Natural gas and, long-term, nuclear tie into AI. The buildout of AI and data centres is real.

In the US, power demand was flat for 14 years; this is the first year with an incline. If demand in the US is expected to grow by 25% by 2040, where will the power come from? What about nuclear? Well, it makes a lot of sense, but you'd have to build 126 reactors, and that will be over decades. Wind and solar sources are not practical. That leaves natural gas.

Many people see nat gas as a bridge. But we're not bridging to anything; natural gas is going to carry the baseload for many years to come. That's why people are getting more bullish on it.

What the investor is really asking is whether anyone will ever care again about small-cap energy stocks? It sounds defeatist, but he's going to say no. Too many barriers to the small caps being relevant to the large institutions. They'll be feedstock for mid- or large-caps.

He owns a company that's getting 300-400% returns on its wells, yet no one cares. Stock's down 15-20%. His funds' relative performance this year has been less than he wanted because he had too much in even mid-cap exposure. When sentiment is challenged, all the focus remains on the large caps. Ongoing apathy.

We've spent 46 weeks getting to where we are for the year, and you don't want to let it all whittle away going into the last 6 weeks. He's being a little conservative here.

Tech stock valuations are rich. Right now, he wouldn't say it's overbought, but it isn't cheap either.

In the technology arena, lots of people focus on the semiconductor stocks and so on. For him, it's all about the data, and you need rich, reliable data. His analysts have always said that it's about the integrity of the data.

Take a look at a chart that's set up like a dartboard. The bullseye is all about the data infrastructure, which provides the foundation. The second ring represents data processing and analytics, which unlocks the value from the data. Outer ring focuses on protecting the data from unauthorized access and ensuring compliance with regulatory standards.

This all has to work together to allow people to have faith in the data -- stored properly, best analytics, and protection of sensitive information.

His fund is an investment vehicle, but a lot of investors also own a stock from the fund in a trading account. In that case, they can sell calls against a position, or they sell some puts if they don't have a position. In other words, if you're going to own it outside a fund, treat it as a trade rather than an investment.

Corners of the Market:

2024 has been a very solid year for the equity markets due to a favourable macro backdrop of declining interest rates, a slowdown in inflation, and especially after the election results, where the markets expect Trump’s policies of putting America first can help corporate earnings over the next few years. As a result, not only broad market indices but risky asset classes, such as small-cap, high-growth stocks, cryptocurrencies, etc., have performed strongly and hit new record highs.

That being said, despite a record year where both the S&P 500 and TSX achieved double-digit returns, not all sectors performed well, and there are some corners of the market that have been under pressure. These are where investors can take advantage of their temporary “losers” by claiming capital losses for tax-loss selling, which could offset capital gains.

This strategy can be accomplished by simply selling a temporary losing name in a non-registered account, which could then be used to offset the net capital gains tax investors have on their investments. The unused amount of capital losses can be used from up to three years in the past or carried forward indefinitely. After 30 days of the sale, these holdings can be bought back if investors believe in the long-term fundamentals of these companies.

Although writing off good companies based on one year of bad performance could become a regret for many investors, some of these names that have been under pressure may continue to see underperformance over the long-term. During a bull market cycle, we think investors should respect the wisdom of the crowd. Therefore, investors need to evaluate these names for future reinvestment on a case-by-case basis.
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A lot of people were surprised with the outcome, especially that they took both sides of the house. According to history, a republican sweep has been better than average for the markets. It is a pro-growth, pro-individual agenda with lower individual and corporate taxes. This is leading the market to recalculate estimates on earnings and expectations. 

We saw a weaker week following a very strong week, so the honeymoon period did not last too long. It will probably persist into the new year, for some technical reasons as well as people won't be too quick to sell with hopes of favourable changes to capital gains legislation. It's seasonally a good time of the year. There is a certain degree of stealing from the future. Valuations are on the higher ranges of normalized ranges. This is demanding on the market, needs stronger corporate earnings, favourable inflation and other economic trends. 

He would like to see a tempered market with average returns. Doesn't think that there is any reason, outside of a shock eg geopolitical shock, that there is a reason for the markets to be negative. However, he does not like runaway momentum markets. Wants a quiet, normal year next year.

Though he doesn't believe in it, cryptos are one of the safest areas to invest in under Trump, because he's so positive about it. He has his own crypto business. 

Thought this would be one of the first named to establish a degree of confidence in the marketplace. Now it will be one of the last chosen. Market is still very troubled by the deficit outlook, and there's still a lot of pressure on interest rates. Until we get some clarity on who's running Treasury, that will likely persist. Funding the deficit is going to be a really big thing. Is Trump going to have his thumb on the scale in terms of doing things in a way that's better for capital markets, and not necessarily for the greater good? Yet to be determined.

Looks as though Trump's really trying to shake things up with some of his appointments. The guy who's been appointed to run the Department of Energy is a climate-change skeptic. The Department of Government Efficiency that Musk is involved with seriously intends to clean things up this time. Last time, Trump didn't do any of that.

Trump seems to be appointing yes-men and yes-women. Anyone who's not going to do that hasn't got a chance.

Yes, though not all. There was a gap in the surprise we got on election night. Last week, markets came back and tested the upper range of the gap up. If it doesn't hold, we're going to go back and wipe out all the gains. From the series of higher highs and lows that we've seen for months and months, these November lows are pretty key.

By the time Trump's in the White House if these levels don't hold, particularly the November lows, look out below. He's not predicting, just saying we need to watch. If you're concerned, the early November lows would be the levels to manage your risk against.

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It's a problem. Today, with over $37T of outstanding federal debt, at an average rate of a little over 3%, that's about $1T. The longer interest rates stay high, and the more inflation that's in the system to keep interest rates higher, the higher the cost of debt is going to be. The only way to get rid of it is to balance the budget and stop spending. That's not on the agenda at all.

Elon Musk is going to try to wipe out a few trillion dollars with his Department of Government Efficiencies, and Larry wishes him well. But what Larry learned when he did his due diligence on the government in Ottawa is that you can't take things away from people, because they get mad at you. That will be the biggest challenge. It will move the needle a little bit, but not enough, and certainly not enough to support all the tax cuts Trump wants.