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

The market faces many risks. First, the situation in the US-Iran changes day to day, often based on a tweet. Secondly, the reopening of the Strait of Hormuz will not happen quickly or cleanly. Thirdly, there's a disconnect between the bond and stock markets; the former is pricing in higher inflation. Canadian inflation is below American, given weak rents, but we have food and gasoline inflation. Fourth, central banks are in a tough spot, given weak employment projections and rising inflation--will banks raise or cut? She doesn't know why investors are looking past the inflation risk; she is being cautious to preserve capitals, and she won't speculate. Also, there's concentration risk in U.S. tech, nearly half the S&P being tech, specifically chips.

Market's looking through where we stand today, thinking that the Strait will open up tomorrow and we'll go back to normal. That apathy is creating the most attractive opportunity for energy stocks that he's seen in his career since the lows of Covid.

We're down 13-14M barrels per day of Middle Eastern production. All told, inventories have fallen by roughly 7-8M barrels per day. Even if the Strait opens up next month, his math says we've lost 1.8B barrels of production. You can't lose that massive number without impacting the oil price. 

By July 1, the world will have lost enough inventory globally that the global refining system will start to crack. We're already starting to see shortages, and it's those shortages that will jolt the market out of this catatonic state. All the safety buffers will be gone. And we're entering the demand pickup of driving season. A price spike is the only mechanism to rebalance supply and demand.

His advisers tell him that Iran's figured out that having the Strait closed actually gives it more levers than having a nuclear weapon.

Thinks we'll be fine from an oil perspective, and we'll skate by with refined products. But we'll pay for it. If the Iran situation is not fixed certainly by Christmas, you may want to reevaluate any travel plans.

The cost of everything is going to go up -- feedstocks, transportation, gasoline, jet fuel. The inflationary shock coming will be absolutely massive.

He's excited that oil/energy stocks are discounting the oil price at roughly $65-70. His team thinks the floor price for next year is about $80 (actual price will be meaningfully higher).

Oil at $65 is an extremely ignorant view, and offers a wildly compelling entry point on energy stocks.

Depends on why the oil price is going up. Typically, geopolitical events cause a spike, get resolved, and then the price drops. That thesis is a misunderstanding this time around.

Don't buy an energy stock today on the basis that Nuttall on BNN said oil was going to $200. The investment thesis is for "the day after", when things eventually normalize. What does the world look like then? It'll take 3-4 years for inventories to restock.

He's deploying client capital today with the expectation to gain 50% in 1-2 years.

A lot of it is earnings. A few months ago, earnings estimates weren't quite as high as they are today. In March we were worried about geopolitical events around the world, but right now markets are trading through that.

It really underscores that geopolitical shocks tend to be short-term. It's earnings and fundamentals that drive markets.

Combination of the two. It's a story about a new capex spending cycle, electrification, near-shoring, and manufacturing trends. Capital spending has accelerated into the physical economy. 

We're a bit overbought technically, so could be due for a pause at some point. If oil remains above $100 for a sustained period, that could cause inflation to ratchet up. Geopolitical events can cause new concerns, along with US midterms in November.

That said, the third year of a presidential cycle (next year) is typically the best of the four for markets.

Inflation has ticked up a bit, but it's hard to say. When you look at futures markets, oil is forecast to be ~$70-80 by the end of this year. If those futures markets are correct, oil prices will ease and that should continue to help markets.

The semiconductor space is absolutely on fire, with the SOXX index up ~75% YTD. We're still structurally underbuilt on AI infrastructure. Earnings added a lot of fuel to the fire. We're too low on capex numbers, and hardware has all the pricing power (and that's showing up in a big way on margins).

The supply chain is very interesting. Seeing a massive supply/demand imbalance, largely due to the spike in increased demand around AI. Each evolution of AI is driving usage higher and higher, and each stage is growing exponentially.

Everybody's been investing in the hyperscalers, and why not? For the past few decades they've been absolutely dominant in terms of performance, earnings, and so on.

But what we're seeing now is that free cashflow is moving from the hyperscalers to semiconductors and the infrastructure layer. It's the semi and infra players who are cashing the cheques that the hyperscalers write. The market missed more than an extra half a trillion dollars in capex spend by hyperscalers for 2026. And all that extra $$ is going to the semi and infra spaces.

Definitely in the penalty box. No silver bullet. Workflows are being very much disrupted. Software is abundant, while hardware components are scarce. Invest in scarcity, and avoid abundance.

Stay long semiconductors, stay long infrastructure, and stay away from software.

Not only do we need to power these data centres on a grid basis, but we also need to worry about how the power is distributed within the data centre itself. 

It's also a geopolitical issue. China, for example, has abundant energy and it's cheap. In the US, it's much more expensive -- so it has to optimize power much more effectively.

Is the US-Iran war carries on, then gas and oil prices will remain high and translate into inflation. We already see higher prices at the gas pumps. US unemployment remains low at 4.3%, but employment growth is slowing, while unemployment in Canada is high. This all puts central banks in a tough spot; in Canada, rate cutting is done, but not in the US before the Iran war erupted. Central banks are waiting and seeing, but if inflation continues to climb, then central banks may be forced to raise interest rates. Slow growth and high rates could lead to stagflation which is not good. Manufacturing in the US has been expanding while services has been healthy, though. Earnings growth is coming through, largely driven by technology. Growth is projected at 23% this year and 15% in 2027. Analysts are not projecting a significant slowdown. The AI data centre build is a long-term secular growth theme, but the lack of power would slow that build. A pullback in that build is possible.