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

Market likes certainty (and there's never certainty), but it's much less certain now. On renegotiations, they've come out and said that some things are "pillars". He doesn't think everything will just be scrapped. 

It would be nice to see more clarity, so businesses can actually plan for the next 2 years. If we get that clarity, it'll be good for our economy.

Look at Kentucky. He didn't realize that we drank that much bourbon in Ontario, but they lost a distillery over it. So Americans are hurting a bit with tariffs.

Path of rates depends on what's going to happen with inflation. If inflation's caused just by higher gas prices (we saw today that gas prices are up 20% in a month), is this temporary? Does it really mandate a rate raise? He doesn't think so.

On the other hand, does this affect our economy? If the spill-through to the economy continues, and we go into a recession, rates will have to be adjusted lower.

The last of the 5-year mortgages at very low interest rates are coming off this year. So mortgage inflation won't be as big. If you really want to see housing and real estate get back on their feet, you do need rates to stay here or lower.

Best-owned oligopoly you can get. No one else makes 20-40% ROE. Though the valuation changes, he never considers them overvalued. Perpetual cash machines. 

If you sell, where are you going to put the money? If you've made a lot in capital gains, you'll pay a lot in tax. They could go up another 30% before they correct 20%, we just don't know. Good long-term hold. Actually doing pretty well right now.

There are great companies, but it's all about the price you pay. Patience can be your best ally in this market today.

His team is sector-agnostic. There are spaces they avoid, such as gold. They're looking at info tech companies, as some names have fallen off quite a bit.

They look for companies that, regardless of industry, can deliver returns. If they don't like an industry, they'd rather hold cash than try to force an investment in a sector.

One area they've probably been overweight in is financial services. Think banks, insurance companies, Brookfield, TMX Group. These types of names tend to do very well over the long term, and never get too expensive. Not a bad area to be in.

Last time he owned gold was perhaps 15 years ago. If you look at a stock like ABX, it had a 30-year negative return before it took off last year (even though the price of gold was up 8-9x). Stocks don't necessarily follow the gold price.

What often happens is the price of gold spikes, they make a lot more cash, CEO pays themselves a lot more, and they find some country they've never been to before and throw $$ in the ground. It never works out.

It has its uses, but there are a lot of animal spirts in the sector today. But that's just him ;)

It's absolutely valid to focus on geopolitics, but it depends on your timeframe. He and his team are very tactical, so events that cause dislocation in markets matter a lot. 

In the long run, markets are driven by earnings and global economic growth. When a geopolitical event disrupts earnings momentum and global growth, it matters a lot. Should most people be trading that? No. If you're the type of investor who looks at statements once a month, you shouldn't be overly worried about it. Your portfolios should be set to deliver returns over the next 5-10 years, not the next 5-10 hours.

But if you sit on the screens and that's all you do, then absolutely. There are opportunities that develop.

Yes. The S&P 500 made a new all-time high last week. The NASDAQ was up 13 days in a row, which hasn't been seen in many years. Clearly, we're back into a risk-on environment.

We're entering the meat of earnings season, where the next couple of weeks will see 50% of the S&P 500 companies report. Very soon, it'll be most of the Mag 7 stocks -- it'll matter a lot what these stocks have to say about AI, capex, inflation pressures, costs, etc.

Always, always, always, earnings matter. The Mag 7 have been driving growth. Earnings growth is still very much concentrated in technology and healthcare over the next year. Still a bifurcated market, but a lot of those Mag 7 got fully priced. Market just had to catch up to those lofty earnings expectations. We will, but a lot of those stocks can go sideways for a year or two.

Likes the idea in general. Thinks gold will pull back to $4000 before it goes to $6000. Peaked for now, but will continue to rise in the world we live in today. Makes more sense to add on a correction than now.

You could look at gold equity ETFs with a covered call in Canada.

Generally speaking, reinvesting and compounding puts you further ahead in the long run. Usually, a distribution is taxed in the year it's paid. So you're better off not taking the distribution and deferring it for some sort of long-term capital gain.

Oil & Gas -- Long-term bull, or tactical trader?

He was stopped on the street last week for his thoughts on oil and gas. That's the catalyst for today's segment.

So he did a deep dive on the weekend and created a chart looking out 10 years. The price of the futures curve is headed downward. In 2037, the price of oil is ~$53 per barrel. When Trump was first elected to the tune of "drill, baby, drill", prices went up just a bit and flattened out at that level. The futures curve one year ago after "drill, baby, drill" was down a bit and then flat (Venezuela hadn't had regime change, Iran hadn't been attacked). A month and a half ago (before the war in Iran), futures said that there was going to be more friendly supply to the world based on Venezuela's reserves. 

Currently with the war, prices are elevated. But not materially when we look past the next year or so. Have to focus on what December oil does -- if it breaks below $70, then we're past this. If it breaks above $80, then we start to worry about long-term inflation and equities will care a lot more. Everything else is noise at this point.

It's a relief rally, for sure. Especially in European and Asian markets, because they're the largest importers of oil. We're also seeing a surge in bond prices as well. If this truce goes through, then the bulls will be on target with better performance in the stock market. This on the expectation that interest rates may be on the way down in the US.

It's also why we saw the USA dollar fall today and gold go higher.

There's some hesitation going on among clear heads, given where markets are right now. But, really, we'll find out in May whether the Federal Reserve actively starts to cut interest rates.

Scott Bessent said recently that inflation is fairly muted, and that the Fed can continue to cut rates. If Mr. Warsh gets in as Fed chair, we'll see cuts in interest rates. When interest rates go down, stock prices always go up.

The only cautionary tales would be:  1) Oil prices aren't back to where they were at the beginning of the year, and 2) If the USD goes down, then you'll see the US start to import inflation. In those cases we'd see continued growth in the commodity sector, which could continue a bull market there.

Last year the US dollar was down 7%, and it started to fall again this year too.

It's very important in this kind of environment not to take anything for granted. Don't think that markets move up linearly. Always best to take some profits off the table, especially with high-flying, flavour-of-the-day stocks or those with high betas.

Examples include semiconductors, chip manufacturers, anything with extended valuations such as data centre involvement.

His firm goes by this rule:  Build a portfolio of 30 stocks, at 3% weighting each, and when a position gets to 6% they automatically pare back. For instance, last April/May they bought FIX for $300 or so. It's now up over $1600. Prudent thing to do is to rebalance the position back to neutral. This action prevents them from getting caught in a market selloff if we do get higher inflation.

Tailwinds for all Canadian banks last year -- net interest margins expanded, better wealth management performance due to stock market rising, M&A's starting to pick up again, higher trading volumes.

All are hitting new highs because not a lot has changed, other than mortgage volumes not being as strong because home prices continue to fall. Could be a red flag for 2026. It'll depend on interest rates and the economy.

He's noticed they've been buying back a lot of shares, and this helps the bottom line. As well, lots of ETFs out there have covered call strategies (they have to keep buying shares so they can write the call options). 

Unless we really get higher inflation and interest rates rising, he imagines banks in Canada will continue to grow, though not at the pace of last year. Expect a few hiccups along the way.

The benchmark you're looking for is the MSCI Emerging Banking Index (MXEF). You can look for ETFs that focus just on the banks.

As USD has fallen, EM currencies have gotten stronger. Last year the MXEF had the best return, up over 30%. You get both stock prices rising, as well as tailwinds relative to the CAD/US dollar.

For his firm, they own 3 banks. RY covers them in North America, SVNLY takes care of Continental Europe, and HDB (really cheap right now) on the thesis that India's population could make it the next superpower in the next 50 years.