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

A re-rating has been justified. But for the last 3 years it seems as though everyone heads to one side of the ship, and then they all head to the other side. Selling seems a bit overblown.

People worry about AI making things more competitive, but software's always been competitive. A low-moat business, easy for startups. Which has made it important for software companies to grow quickly and build scale.

It's more than just creating software. You need a business model, sales pipeline, deals, contracts, accounting support.

Software has experienced a baby-out-with-the-bathwater scenario. Things are bottoming, and people are sorting the wheat from the chaff.

He'd be reluctant to get involved in consumer-facing software products. They're easier to spin up quickly, compete, and buyers are less loyal. 

But commercial-grade, large company software needs security, regulatory conformity, access to other systems. When something breaks, you need someone you can call and yell at to get it fixed. So focus more on the institutional-style software names.

A big theme in the near-ish future. It'll happen sooner than people think, as AI will enable the process. Something will come out to blow people's minds and kickstart a new investment cycle.

Doesn't necessarily mean a humanoid will be doing your dishes, but perhaps a lawnmower bot or a snow shovel bot will be engaged by hitting a button on your phone.

Globally, we're in a low-growth economy. Doesn't think there's an overly compelling case for sustained higher oil price outside of political-type shocks. These names aren't moving a lot on the Iran news. A higher price needs to be sustained for it to trickle down to the fundamentals of a company.

He's underweight gold after the recent run, but still has a pretty decent position. Gold has about a 15% weight in the index, and he certainly wouldn't be that high (more in the high single digits). 

On energy, he has about a market weight. He did a bit of selling yesterday. These events don't seem to last for long. It's been a good trade over the last 2 months.

Still underweight, but looking to get back in. We had the AI scare, capex worries, and then the SaaS apocalypse. Those might be legitimate long-term worries, but investors tend to take a narrative and expand it to the end, which creates a lot of selling. 

Bigger problem for the sector right now is that it was a very crowded trade. Lots of new $$ kept flowing in, without paying that much attention to the fundamentals. Valuations exceed on the upside, and now that trade is unwinding.

The good long-term story hasn't gone away. These companies contribute to economic growth and corporate profits. He's looking to add.

Now, history teaches you things. One of the biggest mistakes he made in 2021 was buying into the pullback too early. When things were down 30-35%, his team started buying back into the names they'd sold. Then they continued to go down by 70-80%. Doesn't think that'll happen this time, as fundamentals and cashflow are better.

Pulled out of financials generally. Lots of optimism around them, but he's concerned about incursions into growth from fintech and valuations are at the high end. Earnings growth not as robust going forward, plus economic sensitivity.

Don't have to rush out and sell, but he's not buying any of the Canadian banks -- problem is valuation. Capital markets and underwriting have been strong, loan losses haven't blown up, economy's not tanked.

Other areas of the market are more beaten up. He just can't pay these sorts of valuations. Not even great income stories anymore compared to, say, telcos and pipelines.

Given the Iran war, the market was looking for a reason to sell off. He was holding 20% cash, because sooner or later something would happen. Sentiment was too bullish. Also, during a US midterm year, the returns are soft in the summer. A pullback is healthy--we needed corrective action to put things back in line.

Most people are discounting that energy prices a year out will be significantly lower than spot prices today. No major interest rate changes today, no major shifts in currency. Gold has reacted to some extent, and bitcoin as well.

Most people are looking at the results and saying that the US has tremendous superiority in the air, and they don't want to go on the ground. Whether they can effect regime change or not is unknown. 

Constructive to note that, even with energy prices up 6% today, that's lower than they were last June with the first attack. Markets tend to adjust to geopolitical situations pretty quickly.

Most people think that this is likely a pretty short occurrence, and things should return to normal.

Most people think that the war in Iran will be relatively short, and let's hope it is.

Bank stocks were down 6% last week, and private credit stocks are down 30-50%. They've been trying to sell these specialty funds to the individual investor network, thinking that buyers don't care about liquidity. There was a lot of lending going on, especially when interest rates were significantly lower than they are today. 

The question is:  Have people lent money to solvent businesses? Will they be able to pay those loans back? When investors do need liquidity, there are no easy buyers for these assets.

Seeing an AI temper tantrum. People are worried about mass job losses. They're worried that job losses will cause the economy to tank. Hysteria that software is going to go away, when there's going to be even more software with more software engineers needed to write code, manage it, and integrate it into people's lives. 

But we're seeing the exact opposite. Increased number of software engineers. Very robust economy, corporate profits, and employment statistics right across America. Lower interest rates, despite the spike from energy prices (which aren't expected to last a long time).

A great deal of value has been created in markets because of panic.

There's lots of talk on the loss of American exceptionalism, and he thinks a lot of that is by people who are angry at America. Those comments are less about businesses and the entrepreneurial spirit. Still seeing pretty dynamic operations in the US.

Revenues for the S&P 500 are about 6% international. He's been in this business for over 40 years, and people are always saying to go international. That might be the investment community just wanting you to do something, since they make a living when you do transactions.

He's somewhat skeptical. Europe is heavily regulated, and America is deregulating. Banks in the States are very well capitalized. You don't necessarily need to go international because someone's telling you to. There have been a lot of false starts.

He said today that it might be a good opportunity to take profits in both gold and oil, because this is probably the peak of uncertainty in supply.

You need oil prices at $75-80 over the long term for energy companies to make significant profits. A very difficult business, expensive, not getting any easier. Global oil market is somewhat over-supplied and, despite today's surge, prices won't be high for an extended period.

Sadly, he predicted regime change in Iran. It's surprising how markets snapped back today and market response will be temporary.