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

Look at input costs for the things we buy as the cause of inflation. Wheat peaked last year and then declined. Even though prices to the consumer are not going to be reduced too much, it's nice to see the trend. We see this trend with lumber as well. 

These are indicators of what could happen. World shipping peaked, and activity and prices are now coming down. Things are getting back to normal, inflation is coming down. See his Top Picks for trading ideas on this theme.

He's moderately bullish on the markets, "cautiously optimistic". No matter how optimistic you might be, you have to have exit strategies. Now, you don't want to be selling everything if it drops 5%, or else you'll be buying and selling at a loss. Things are a little more normal now, so you can be a little tighter with the stops.

People get gold as an inflation hedge or to go against the USD, but that correlation is not strong. Sometimes you have a matching of price movements, but over the long term, the price matching doesn't hold. People's perception of gold and the reality are very different.

To set your levels, look at the past and try to imagine where a lot of people have lost money and are going to start taking their losses, which means more motivated sellers. Looking at a chart that's peaked, a lot of people buy on the way up and, if they're still holding, they've lost half their profits on the downside.

The fundamentals play into it, as well as the type of industry sometimes. But in general, you have big enthusiasm followed by reality setting in.

It's critically important to appreciate the will and the intent behind the cut by Saudi Arabia. Why did Saudi cut in addition to the OPEC and Russia cuts? 

Saudi says they need to have a fair price for oil that lets them be a going concern as a government. In addition, they have a young Crown Prince, and a young population, with an incredibly ambitious growth program called Vision 2030. 80%+ of state revenue comes from oil sales, and it's needed to fund that Vision.

US and global oil inventories will fall between now and the end of the year. We have two markets for oil, the financial and the physical. The fundamentals of the physical market are very bullish. The financial is subject to the worry of the day. This additional cut will collapse the chasm between the physical and financial markets for oil. 

The price cap notion is a complete joke. The US government tried to not have Russia's revenue increase to fund its war in Ukraine, but not impede the physical flow of barrels. The prime concern within the White House is inflation, and energy prices are one of the biggest inputs to inflation. Plus, there's another election coming up.

Whether the US turns a blind eye to sanction enforcement from Iran, or the price cap, every action from the White House in the last year has been about trying to get the oil price down.

His fund does have the ability to short, if he chooses. Shorting is very challenging at times, because people can disagree with you. You can get the fundamentals right, but the stock just goes against you. So he's not in favour. In particular, he's very bullish on oil from here.

It comes down to what's your goal. Pair trades work if you're trying to limit volatility and earn the spread between the two. But he's trying to create generational wealth for his clients, and pair trades don't help him with this.

As a fund manager, all decisions are relative. If you give him $1 today, he has to make a decision about where to invest that for the most upside relative to the risk he's taking on.

A lot of production has come on. The biggest one this year is Iran, where the US government has turned a willful blind eye because if the price of oil goes up, gasoline goes up, inflation goes up, interest rates go up, and then they're voted out of office.

Focus on what matters. Inventories are going to end the year at an 8+ year low, and that will put upwards pressure on oil prices.

He's a global energy investor, but his main fund is 100% Canada right now. Canadian oil is the only place he wants to be. Outside of Venezuela and Saudi Arabia, Canada has the longest reserve life. Canadian companies also have lowest declines, strongest balance sheets in their history, most free cashflow, plus commitment to return 75-100% of free cashflow to shareholders once debt-free.

Inflation and the Consumer Price Index (CPI).

The inflation rate is based on the CPI, or Consumer Price Index, which is a weighted average index of consumer goods and services. Therefore, the CPI is an index denominated in dollars, whereas often when we hear the words ‘inflation’ it is referring to the one-year percentage change in the CPI. As a result, if one year ago the CPI was very low because consumer goods and services were in a recessionary period, the one-year rate of inflation today would be quite high. This is the current economic backdrop that we find ourselves in today, but it is also a bit more nuanced than that and involves a few global economic forces at play.
Unlock Premium - Try 5i Free

Stock price changes are directly linked to money supply (liquidity), the rate it increases or decreases. Since 1960, at least, every time the money supply expanded, the DOW rallied for multi-years; this happened 19 of 21 times (2000's crash was an exception). The money supply has been shrinking, BUT it's shrinking much more slowly for two straight months. We could the start of another multi-year rally soon. Right now, be patient as the market declines in August.

He feels that central banks are close to finishing their rate hikes, but it's misplaced to believe that the banks will cut rates next year. Cutting would be a mistake, because history (1970s) tells us that inflation will climb again if the banks cut. Be cautious. Don't sell everything and run for the hills. Clearly, the economy is slowing down.

He is lightening his bank holdings given the shape of the yield curve; he expects loan-loss provisions to rise; doesn't see loan growth; and capital markets can be risky. Collect the dividend in the coming year, but not much more. Likes TD and BMO. He is massively underweight banks now.

Upcoming US Fed meeting in Jackson Hole will be illustrative of upcoming Fed policy.
US market very strong - unclear on what source of pessimism is for August. 
Rising interest rates - one source of pressure on markets.
Recent market pullback a buying opportunity for investors.
Higher interest rates not necessarily a bad thing for economy.
Focusing time on fundamentals of quality companies - not too focused on macro issues.