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

Zooming out to the 10,000-foot view of portfolio construction, they have very well-diversified portfolios that are built to be resilient in all weather conditions (including wars). This gives them room to not react in a knee-jerk fashion to headline risk.

All year long they've been, more or less, fully invested in equity portfolios. Business as usual has involved "culling weeds from the garden", where things haven't worked or the original thesis has been negated. Also partially trimming winners. Selectively introducing new ideas, including some dip-buying.

His team gets that the world has its hair on fire, and understandably. But their practice is not to let it rattle them, while still being nimble and open to opportunities. When it comes to investing, you should always do it from a place that's calm, cool, and collected, with ice in your veins.

Still likes it. Has a double-digit weight in both of his firm's equity mandates (Momentum and Dividend). Diversified basket between the miners and royalty companies. In a strong, multi-year, secular uptrend. It's really the only non-fiat currency.

The younger generation would call him a dinosaur and say that bitcoin is digital gold. Yeah, not so much the last 4-5 months ;) Gold is doing what it's always done -- serving as a store of value, an inflation and geopolitical hedge. Lots of the move underpinned by central banks buying it hand over fist. The bloom has come off US treasuries.

They've been buying on dips in the last month.

Today is a fast-moving day with a lot of moving pieces. Pullback in oil is due to "TACO Tuesday". Have to see if the ceasefire holds. (One piece of non-investment advice is to fill up your gas tank while the getting's good, as we don't know how lasting this truce is going to be ;)

He owns no telcos, though doesn't think they're in secular decline. The serve a need, not a want. Won't be technologically obsolete anytime soon. 

However, revenue is driven by price and volume. Volume headwind is that Canada is restricting immigration. Which leads to a price headwind of lowering prices to compete for market share.

The next 24 hours are significant that will effect the direction of the market. Since the US-Israel-Iran war started, we've seen violent moves in the market, but also rangebound up and down, from hour to hour. Seeing a lot of big swings. Once we hit Trump's deadline to Iran, then what? In a few weeks, earnings season could also effect--we'll see what companies say about how the war is effecting the economy. Sectors he likes: energy, steel, chemicals, utilities. These are defensive. With more confidence, metals and industrials will bounce back. 

He uses relative strength (RSI) to analyze, primarily. SIlver broke out at $35 and peaked at $95. But we're seeing a retracement approaching 50%.

Reality is that the market analysts, from a company-specific basis, are looking at everything that's happening geopolitically as "temporary". That is, companies are not guiding yet towards lower outcomes. Until that happens, the analysts will stay the line. Very few of them are bold enough to say, "Hey, this conflict will have long-term consequences."

No one really knows how this is all going to play out. He thinks it's going to be an issue. Question is how long will it last? There are things you can do about it from an investment perspective. But, typically, that will involve far more sophisticated strategies than the DIY, at-home investor can execute.

He'll unpack this a bit more in the Educational Segment.

In the history of the world, these things are always relatively short-lived (measured in weeks to months). But if there's a clear disruption to the supply of materials through the Strait of Hormuz that turns into years, that would be extremely problematic.

The world can handle a number of months' disruption, but we're already starting to see rolling blackouts and supply rebalancing. The biggest thing that comes to mind is fertilizer for food production.

From an uncertainty standpoint, investors are looking at markets and wondering what to do. We should be prepared for several more months of this. Boots on the ground are not politically palatable at the moment, but inevitable if the US is really going to claim victory.

Trump's current claims are certainly not founded.

Central banks, no matter if they raise or cut rates here, can't move the needle. Rates don't impact, in any remote way, what's happening in the Middle East.

We need a resolution in the war. Because of the uncertainty around added inflation, it makes sense to pause any additional rate cuts. If the conflict lasts longer, central banks may have to get more aggressive at cutting rates because the economy is weakening in other ways. Rate cuts are not the cure for this kind of market disruption.

Excellent question. His answer is that there aren't too many. Most of them are differentiated in the style of how they write. Some are more aggressive and focus on more yield, while some give you much more in capital gains potential because they write on only part of the portfolio.

Great income-enhancing strategies for income seekers. Bring 'em on. What's needed is more education in this area for the individual investor.

He remembers back in 2008-2009 at the time of the GFC, these ETFs were launched as leveraged ways to play commodity markets. 

The danger is the promise of 2:1 daily exposure in terms of leverage. Because of that daily exposure to rebalancing (buying higher and selling lower), they're a bad long-term hold.

An MIC is backed by the value of a person's home. Typically, the loan-to-value is in the 50-70% range. So you have a lot of equity coverage. Whereas when you're lending to a business, you're typically lending off cashflows. 

So the headlines you're hearing about problems in mortgages, they're of the construction type -- where you take business risk. Those types of mortgages will typically generate much higher returns than residential mortgage investment corporations. Only a handful of residential mortgages will default, there's plenty of equity, and the mortgagee will get their $$ out.

Loves them. Great fixed-income alternatives. You'll do far better than with public-market short-term bonds.

So many to choose from. If you believe we're going to come out of this geopolitical crisis/war with bullish global growth, then he doesn't care which banks you buy. They're all going up in every jurisdiction.

But if you believe (as he does) that the job market and the real economy are slowing, regardless of the current geopolitical headwinds, then banks will underperform.

Especially in Canada, banks have run up significantly. Adding new $$ to Canadian banks is something he'd shy away from at the moment. Though you can buy on dips after some period of weakness.

US Earnings Outlook

Outlook clearly driven by capital investment in AI. When you look much beyond that driving force, you don't see a lot of broad-based earnings growth.

He's brought along a chart that looks at the expectations of analysts. For the next four quarters, expectations have started to go up and up. 

The next chart details growth expectations for the 11 sectors that make up the overall index of the S&P 500. Growth estimated to be 16.47% for the index overall. It's mainly coming from the InfoTech sector at roughly 32% of the index. Healthcare (and aging demographics) is the next driver -- the only sector in the US that's really seen job growth in the last 2 years. Together, those 2 sectors are driving about 90% of earnings growth for the market overall. (The energy sector was down near zero until the war started, and then it shot up.)

Every other sector is either flat or down.

This is not a broad, robust economic expansion in terms of earnings. It's really thematic based on aging demographics, AI, and (temporarily) what's going on in the energy market.

Finally, let's look at the total return of the Sector SPDR ETFs, which are linked to the underlying economic indexes. They give you a very different picture. Though earnings were falling, investors were buying into energy and utilities. All the other sectors are in decline. These dislocations provide opportunities.