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

With the invasion of Israel by Hamas, we saw the risk premium come into oil. That's dissipated completely, as now oil's below $80.  Strength in fundamentals has gotten sidetracked by sentiment and general concern about where the demand will be in 2024 if the economy does slow down.

He's constructive. History over 40 years shows gold performs very well after significant rate hikes move into easing, averaging 34%. He's looking for that in 2024, where headwinds of USD strength and rapid rate hikes will have dissipated. They'll be taken over by geopolitical risks and strength on the demand side for gold.

It's up from 3-4 years ago, but relatively flat since mid-2021/beginning of 2022.

He's very encouraged that gold has remained resilient around $1800 and, more recently, around $1900. All this, despite headwinds of a strong USD and rapidly rising real rates. Setup's quite good for gold. Once those things start to disappear into the rearview mirror, it opens the door for gold to break through $2000 and find a floor there, a very important psychological level.

Nat gas has become a transition fuel. Sentiment toward security of fuel has changed, brought on by the Russian invasion of Ukraine, and we can't turn back the clock. 

US and Canada are uniquely positioned to satisfy that gap through LNG. Weather is a short-term wild card, so it comes down to the world needs more natural gas. His estimates show that Canadian nat gas production will have to increase 30-50% by 2030 to satisfy LNG demand.

There comes a downside point when you have to decide whether to sell it all or, if your conviction is still there, to double up. No sense sitting around if your viewpoint's changed or if you have a higher conviction. 

A company can control technical, operational issues, but it can't control social, political, or judicial outcomes. Why fight an uphill battle? Move on to something with more visibility that lets you sleep at night. 

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

This quote is attributed to Ben Graham, a value investor best known as the author of The Intelligent Investor. We love this quote as it perfectly describes the market.

Short-term investors focus on what’s happening now. They vote on trends, momentum, speculation and quarterly earnings reports.

Long-term investors know that the fundamentals will matter much, much more, over time. Things such as cash flow, dividends and earnings are massively more important than momentum, bubbles, euphoria and sector swings. Short-term investors forget this simple basic fact, and tend to read headlines rather than annual financial statements.
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We might have recession in Canada, not the US. The Bank of Canada has gone too far. Canadians are too indebted and too many have variable rate mortgages. So consumers will spend less. It will be a mild recession. Canada imports so much food and doesn't control energy costs, so we can't control that much inflation. But savers will do well, given these high rates. Seniors, who rely on fixed income, will collect 5% interest. The US will pull off a soft landing.

That's the problem. There's not just one thing. Data is coming at us like a firehose. It's not clear what's positive and what's negative, there are mixed signals from everywhere. 

With interest rates, it's like going for a stress test. You hop on the treadmill, and at first it's not that bad. But then it picks up again. And again and again. By the time you get to the last stage the speed is higher, you're on an incline, and the doctors just keep it there. 

That's a lot like what's going on with interest rates. We don't know for certain, but it's looking as though interest rates aren't going any, or much, higher. We're in that higher for longer phase. The question is how long are we going to be going at this speed and up this hill, and how long can the economy withstand that?

Rates could go a bit higher. But if you're building a balanced portfolio and you can lock in 6% for the next 3-7 years, it's a good component to have in your portfolio.

We're seeing now from Q3 earnings that organic revenue growth is not there. It's only 1-3%. But companies are trying to maintain earnings and grow them over time. 

If you can't grow revenue, you have to cut costs. So we're hearing talk of layoffs. For example, CTC.A just laid off a chunk of its workforce. If people are losing their jobs, that filters into consumers' psyche and they're more reluctant to spend, or they defer big-ticket items, and that starts a potentially bad cycle. ZZZ has also run into a bit of trouble. 

There are things for an investor to be aware of. Understand the yield (what interest rate is it paying right now)? What is the makeup of the interest-generating instruments (corporate or government bonds)? What are the fees? Getting a 5% yield but paying 1.5% in fees doesn't put you that much further ahead.

It's become a bit like the Wild West in money market funds. It's worth your while to spend some time researching.

Believes economy is due for a hard landing. Large retail earnings(Home Depot) will be instructive on state of economy this upcoming week. Believes consumers are getting more defensive, as higher interest rates take their toll. Expecting inflation to remain above 4%. US Federal Reserve ability to manage inflation is not very good. Does not think chances of US Fed interest rate cut are very high. Trend towards less Globalization will also add to inflation and consumer costs. China invasion of Taiwan will be most salient point in upcoming US/China meeting. 

Energy Investing Overview: Expecting $70-$90 oil prices. Believes ESG faltering due to poor returns. Focus on traditional energy return of capital is resulting in shortage of supply. Short term, outlook for energy investing looks good. Long term, outlook for energy investing not as good. Vague on timing, and unable to give timelines.

Moody's rating of US Treasuries downgraded means mounting concern on uncontrollable debt levels in USA. Does not see any scenario where US debt levels improve. Rising interest rates will make it very difficult for US government to pay interest payments on debt. Every dollar spent on interest payments is a dollar not spend on social services. Believes tough economic times ahead as a result of rising debt levels. 

Power of the Magnificent Seven:

2023 was such a volatile and challenging year for the equities market with geopolitical tensions, high energy prices, persistent inflation, weak consumer spending, etc. As for large indexes such as the Nasdaq or the S&P 500, the heavy lifting was done mainly by the “Magnificent Seven”, which referred to the mega-cap tech names. Excluding these names, the index was largely flat or even slightly down. The point of this post is to highlight the influence large tech names have on indexes, and their ability to skew readings on the economy. 
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