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

No. There isn't really much benefit to individual taxpayers. Most benefits are to big corporations. 

The US balance sheet is weak. The problem is now that it will result in a huge increase in the deficit. That tends to push down the USD and increase inflation.

Let's go back 26 years to 2000, when we had the last big-tech explosion. It's not that the companies weren't all needed. The problem is that in the short-term, if you way overbuild AI server farms, utilizing all that capacity is in jeopardy and so is the profitability.

You can even go back to railways in the 1800s. It's happening all over again. Vast overbuilding, and then you get a big correction in stocks. And he means a BIG correction, like 85%. This isn't trivial. 

In 2000, even great companies like CSCO had huge setbacks, though that company came through OK. We're facing very much the same kind of issues. There's the initial euphoria, and then a big setback.

Everybody's talking about AI. But who's really using it, and who's using it to make money in a substantive way? We may well get there, but it's going to take a while.

But in those big setbacks, you get some marvelous trading opportunities. That's what you need to watch for.

He looks at gold in the context of the US balance sheet, which is brutal (and potentially getting a lot worse). In that environment, tend to get currency weakness and renewed inflation. 

How do you protect yourself? Historically it's been precious metals, high-quality industrial stocks, and unlevered real estate. Perhaps gold got a bit ahead of itself. But does he see any improvement in the US balance sheet? No, certainly not with Donald Trump in charge.

We always have to be on the lookout for change. After 18 months of great performance from anything that was economically sensitive or an inflation hedge, the nature of the market has been going through a shift in the last few weeks. 

So far this year, defensive assets have done better. That's a bit of a tell. Energy was doing well leading up to the conflict in Iran, and has been doing well since. Consumer staples and energy doing well coupled with weakness in technology and financials is not a great combination.

The percent of stocks that are in long-term uptrends has deteriorated over the last 6-7 weeks, in Canada and the US and internationally. 

Markets are assessing a higher degree of risk. The longer the disruption in Iran and the Strait of Hormuz goes on, the longer you have to take that into account in your calculations.

His firm is sitting on a bit over 20% cash. His biggest weight would be energy. In general, they're being a bit more cautious.

As we're going through this correction, he'd encourage you to be building your "farm team" -- a list of companies you'd like to own. As things start to show some improvement, then you have names you can start entering.

Economic data showed that earnings were great in Q4. Revisions were generally better looking out through the course of the year. Near-term PMI economic data has been improving. That's great.

However, when you have events in the Strait and oil prices moving up so sharply, that has a knock-on effect in a whole bunch of different industries. Has the potential to add to inflation, which is already sticky. Recent inflation data came in higher than expected.

Concern that all this could slow economic growth at a time when inflation is higher. Not a great combination. So investors have been thinking about their positioning.

We came into this during a time when people were exceptionally bullish and over their skis. Investors have been hedging and reducing exposure. Technically, the markets are looking a little weaker.

In financials, his positioning is down to 13% from 28%. Fintech has been weak, as have companies like MA, V, and PYPL. The P&C insurance group has been weak. 

Canadian banks have been pretty resilient, and he has some good exposure there. He's watching the real estate market closely. Thankfully, mortgages make up a lot less of earnings than they used to because the banks have diversified.

Coming into February, the whole rail sector across NA was in the process of breaking out from a very large base. Transports also woke up.

Now we're going through some stuff with oil plus some weakness in the market. And these concerns are washing through transportation. They've pulled back to their breakout point. 

Rails are particularly attractive if you think the price of fuel is going to be elevated. Biggest impact so far from rising oil price has been rising diesel prices. Diesel likely to work its way higher the longer the Strait is constricted. Rails are way more competitive in an elevated fuel-cost world.

He likes the rails. See his Top Picks.

Part of the job of money managers is to generate returns. When that's not a high probability, the most important job becomes to play defense. In a sloppy market, it's OK to hold some cash, play defense, and be a disciplined seller. 

One reason people invested in the Mag 7 is that they were capital light -- great cashflow, and not a lot to spend it on. That's completely changed. 

These companies are now major investors in data centres. Remains to be seen what kind of economic value they get out of it. He has no doubt that AI will be a major productivity opportunity, with lots of $$ made. 

From a technical perspective, the MAGS ETF topped in October, making lower highs since then. Now trading below the 200-day MA, with relative RSI weakening. This group is less attractive, and still over-owned.

This private credit sell-off will play itself out. Sure, there will be losses, but the firms that did good underwriting will survive. This will pass. During Covid, BDC was down 30%, didn't see many defaults, then a year and a half later were at a premium to NAV.

It's been encouraging for the price of oil that some vessels that are not American and from friendlier nations are allowed through the Strait of Hormuz. This may dampen the oil price is the war lasts for a long time. The US has more firepower than Iran, but Trump is must be aware of his voters because gas prices have jumped, his popularity rating has plunged and he must consider the November midterm elections. He may be thinking of pulling out sooner than later, but everyone is speculating. Oil and fertilizer prices have risen which will inflate grocery prices. She doesn't own oil producers, but holds pipelines.

When the war began, the US dollar strengthened, which is often negative for gold. Also, gold has had a huge run, so there could be profit taking. She doesn't invest in commodities and wouldn't buy gold now.

The private markets are ideal with people with a 20-30-year objective. He blames the media for blowing things up.  If you read the fine print within these private equity stocks, they explain they're illiquid and a process to redeem your assets, and there will be gating when demand to redeem exceeds supply. None of this is a surprise, and yet the media reports it as the end of the world. These stocks are now trading at a steep discount to NAV. Everyone should own these stocks in their portfolios.

All the banks have ETFs and fine to place short-term money. As for floating rate notes, they work in interest rates rise, but not so well when they fall compared to a short-term bond fund.