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

Fairly broadly. Technology is one of his largest exposures. He has industrials and some energy, as well as some special picks to round out the portfolio.

Brought metals down a fair bit. January was dominated by metals names. As earnings have increased in other areas, metals fell back in his rankings. For example, January had 17-18% precious metals exposure; he's now down to ~7%.

His firm runs a top-down process, which leads to picks in offense, neutral, or defense. Certain indicators are applied to the choices. They went to neutral back in March, and then moved to offense in April.

He watches the indicators closely. When they change, he adjusts the asset allocation by reducing equity exposure and increasing his cash position.

This is the first year where we've seen publicly traded real estate really outperform the broader markets. The question is why?

There are some tailwinds to property fundamentals. Falling new supply, as new construction has really fallen off a cliff ever since interest rates spiked. They have access to capital, which is in stark contrast to the liquidity crunch in private credit markets. Offer resilient cashflows, meant to be beneficiaries of inflation. M&A is alive and well.

Finally, we came into the year with the widest historic earnings multiple spread between US REITs and the S&P 500. That setup was last seen after the dot-com bust. REITs then went on a 7-year run, outpacing the S&P. 

Tech is easy to own, and we're in one of the most exciting times with prospective growth in AI. It's easy to look at the real estate market and paint it as not exciting.

But we're definitely seeing a rotation from growth to value today. Not only do the US names present value, but they have a growth element as well. Think of the data centre space in REITs, poised to take advantage of growth in AI. Grocery-anchored shopping centres -- very defensive, but operating at record occupancy levels and record rental rate levels.

The REIT sector is made up of 16 different asset classes. Lots to choose from.

Rates are an important determinant for the path of real estate. That said, whether rates go up or down doesn't typically move real estate. It's rapid moves that affect it. The focus is much more on rents, and rents are predicated on supply/demand fundamentals.

Believes rates will be relatively stable, within a band of 50 bps, over the next year.

Stocks hitting another record high today is one thing. But this week we get a huge percentage of S&P 500 market cap reporting, including 4 of the big 7 tech names. 

For him, it's all about what they say on capital expenditures regarding AI. Recent weeks have seen a massive runup in semiconductors. The market is, he believes, overly enthusiastic about peace in the Middle East. 

Central banks have meetings, and this will be Powell's last for the Fed. We're also getting a mid-year, financial update in Canada. The Carney government has a plan to attract international interest and investment in Canada.

Lots of things are moving markets right now, and all of them are important. But earnings matter the most.

When ORCL announced its plans, market was alarmed because it was unexpected. First, the market said "Yay", but then questioned how it was going to be financed. 

So the capex spend doesn't matter for the big names throwing off bags of cash and with deep balance sheets. We need to build. The AI agents provide incredible productivity.

While he's a supporter and advocate of Israel, he hates to say it but his lens on the world is that this is Israel's 9/11 moment. It's an opportunity to take out a state sponsor of terror. If not now, then when?

That's the unofficial agenda. Everything else is just posturing.

Last week's educational segment covered what the futures markets are telling us. Short term for this year -- if oil starts trading below $70 then we're past the worst. If we start getting above $80, then we really need to worry. Since the initial attack on Iran the oil price has bounced around, meaning that the market's unclear which way this is going.

Semiconductor Rally

Semiconductors have been ripping last couple of weeks. Relative to the S&P, they've been a head-and-shoulders multiplier above it. The tendency is for the market to get excited about something, huge money runs in for a while, and then it goes sideways for quite a while.

Looking at a chart for SOX, it doubled in a relatively short period of time. Each rally was more intense on magnitude, but less in terms of time. That's matters behaviourally for markets, from the perspective of semis being the leader.

What's coming from hyperscalers this week, all the way through to NVDA's results a month from now, will matter for a continuation of this rally. We could, potentially, get a peak in markets.

The traders out there can try to play it. But we're very close to a peak trading top, and we could consolidate sideways for the next 6-12 months.

A lot of good news has been priced in. We need to get even better news than the expectations already built in.

He holds stocks for the long term and is not overly concerned about short term developments in the world caused by Trump, war, etc. This includes changes in the economy. Every five years we will go through a bear market. He just holds through it. When asked about the indicators of a technical recession, he sees it as two consecutive quarters of negative economic growth. We have had five years of negative GDP growth per capita and that is what matters to people. We have to get the economy back kicking. The US accounts for 20% of our GDP growth so the fighting and competition with them means we're going backwards.

The choice of Kevin Warsh is significant. He's going to embark on an experiment to shrink the US balance sheet. 

People have different opinions about that balance sheet, but Greg was around in 2008 when it was a very scary world. We were fighting deflation -- if you get that wrong, you can end up in the 1930s. So you don't want to get it wrong. The balance sheet sort of rescued us from that.

Warsh believes that the path to lower interest rates is a smaller balance sheet. He also believes that the great productivity gains that we're seeing through AI are deflationary. Greg thinks he's going to be right on both of those.

However, the wild card right now is what is the price of oil going to be over the next 3 or 6 or 12 months? If oil prices are too high, then he won't lower rates (even though Trump wants him to). It's very important for the Federal Reserve and the integrity of the US to maintain some independence. The checks and balances are there to ensure that.

Markets are seeing this great run on earnings, even though there's uncertainty about both oil and the interest rate outlook.

Investors aren't ignoring the fallout from longer-lasting high energy prices, but are looking through that. Strait of Hormuz might not be what it was 3 months ago, but investors are betting that it will improve. As long as you can move some traffic, and strategic reserves and other drilling can keep oil around these levels, then that should be OK enough for the economy.

We've been in this situation before, and we've seen higher prices. If oil goes to $170, that's a totally different matter. That would have a slower-growth, recessionary impact. But investors are saying right now that that's probably not going to happen.

Markets are seeing a lot of AI productivity in many companies, and it's one of the bullish theses to explain why markets are defying expectations and going higher.

Do you own this in a non-registered account? Or will you be paying tax on it?

The banks are totally a different game than they were 2 years ago. Used to be stuck around 12.5x forward PE, now hovering ~14.5x. Despite some troubles with the housing market, fundamentals and balance sheets continue to improve. Macro's looking pretty good.

Even at these levels, he's buying more.

Certainly they can take advantage of hedging the market right now. There's a lot of common sense to doing that. 

As to buying into the oil complex right now, it depends. If the thesis is that oil's going to drop to $60 right away, then he probably wouldn't buy now. If you already have oils in your portfolio, don't buy.

But if you share his thesis that the Strait will be challenged with only some traffic going through, then we're probably looking at $80-90 oil. Canadian oil companies are at a massive advantage because we're really trying to expand our markets.

For a 5-year horizon, CNQ looks really good. On the nat gas side, he likes TOU and PEY.