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

Seeing jitteriness on the US markets. Whether the TSX or the S&P, you see this nice, smooth upward trajectory on the charts. We have a breakout to all-time highs on the TSX. Then around the beginning of October, we've had a lot of volatility and not much progress.

What we're seeing is some brittle behaviour with respect to what's going on in the AI world. Investors are wondering if the AI capex will be rewarded. The capex is real, with $350B spent this year. Global AI spend is $1.5T by year end. So it's not hype, it's real money. But what we have is 1.5B users engaging with consumer tools around AI, but only 3% are paying for the premium services. That's the gap between adoption (which is explosive) and monetization (which is lagging). That's driving the week-to-week volatility.

We really don't know, but he thinks the concern is unnecessary. It could take time for this to roll out. We had 81% of the S&P companies beat earnings expectations. So the tech-led beat is real. It's not the eventual effect of AI that's uncertain, but the timeline in which it will manifest.

Some parts of the market are showing "bubblicious" action. PLTR, for example, is a pretty expensive stock with lots of high hopes. But at the same time, you have Warren Buffett taking a position in GOOG. 

So this is not a bubble by normal standards. Looking back to the tech bubble, it was up 800% by the time the bubble popped. Today we're up 100%. Not a bubble today, but we're working through a natural progression where it's a bit uncertain as to what the adoption's going to be.

Plus, we've talked in the past about the J-curve of resource production to build the AI centres and the power generation required. This is also adding uncertainty.

Stocks are discounting mechanisms. They're trying to discount the future of pretty massive growth -- very small changes to that will have larger impacts today.

Make sure you stick with quality growth companies that have some pricing power. You want commodity and natural resource exposure to get to the picks and shovels that will go into this AI buildout and grid expansion.

For the uncertainty, make sure you have some gold and some high-quality bonds in your portfolio.

Canada is really well-positioned here. Huge cross-border flows coming into Canada, in both bonds and stocks. The TSX and the TSX mid-caps (XMD is the ticker) are doing really well because of industrials, energy, and materials. Those areas will all have an impact in the rollout of AI. So there are places to go.

Digital assets have high volatility, but payoff is potentially large. So you need to make sure your position size is correct. Some small exposure in a portfolio has the opportunity to add diversification and significant asymmetric upside. A little bit of salt makes the dish much better.

Bitcoin is like digital gold. Base layer of infrastructure of having a scarce asset. Scarce assets are great because they can't be printed out of thin air. You have to buy them from someone who already owns. This is a wonderful holding.

Ethereum is more like copper or oil. Smart contract at the layer 1 level. Real-world asset tokenization. Stablecoins. Regulations have added clarity to outstanding issues.

Ethereum and Solana represent transactions that will happen on the blockchain to make things easier. If you want to transfer $$ on a Saturday, it can't be done except with these 2 networks.

As we tokenize assets (and we will, because it's a better, cheaper and faster way to settle transactions) we'll see extreme growth in this area.

Feels like a tug of war. We've been talking about this AI narrative for over 2 years now, and perhaps investors are getting tired of that. On the other hand, we've still had good earnings and growth in the States. Here in Canada, we have a lot of good underlying fundamentals with the banks and gold stocks.

But it feels as though there's a lot of optimism baked into investor expectations, perhaps too much.

He's worried about return on capital on the whole AI side; a number of these entities aren't making any money. Valuation-wise here in Canada, we used to be at a big discount to the US. That gap has closed quite markedly, though our market is still less expensive. On a number of metrics, the S&P 500 is still quite expensive.

Whatever you believe -- bubble, not a bubble, middle of a bubble -- you can find evidence to support that theory.

His firm's strategy is to look at what other investors are not looking at. He likes the middle ground of apathy -- what is it that no one's talking about.

There are a number of businesses that haven't really changed. They still continue to do what they do, but no one talks about them. They get mired in apathy, valuations get depressed, and they provide attractive opportunities to buy for a multi-year view. 

Ignore the noise, look long term, and try to take advantage of the market.

Going back the last century, November and December have traditionally been the best-performing months. While September and October tend to be the worst months, but we had some good performance this year. The averages are always there to misguide you to some extent.

We came into the end of the year with a lot of good expectations baked into valuations. There's a point at which investors just get too enthusiastic, and he suspects that's what we're seeing in markets in the last little while.

A number of bodies such as IEA are pointing to a glut for next year. Track record of predicting is not particularly good, so take it with a grain of salt. But there is a lot of potential supply coming on next year, which is concerning the markets to some extent.

As discussed at the beginning of the show, there's apathy in the oil patch and that makes for attractive opportunities.

A number of them give you exposure to the US, not sure about Canadian equities. 

First, go with a reputable provider. BMO, for example, has a number of offerings. Second, what are you paying for the exposure? Shouldn't be more than 30-40 bps. Would be a mistake to pay for active management.

Good way to diversify down from the mega-caps, and the valuations are at a discount too.

REITs are starting to pick up after a slump. Now is an opportunity because RE stocks are trading at a wide discount to NAV and earnings growth is 7% in the US in Q3. Supply has been limited by a lack of construction and immigration and high inflation of recent years. Also, interest rates are stabilizing. Lots of capital on the sidelines could see a lot more M&A. Industrial REITs are in the sweet spot because manufacturing will return to North America and that will require warehouse demand. Residential REITs, though, see an oversupply. Also, he likes grocery REITs and seniors housing.

Canada offers government funding long-term care for seniors, a sector he really likes. He avoids the same sector in the US, which is seeing pressure from Medicare and Medicaid.

Though Nvidia's stock fell after the reported, the reported eased anxiety over capex spending from all the big players, who all reported good numbers. Before Friday, there was a feeling the US would not drop rates, but sentiment was since swung to a likely drop. Also, the headline jobless number was positive--the US economy isn't collapsing and fears of a recession are fading. Next earnings will answer whether tariffs are effecting US consumers.

Despite a change in sentiment with more optimism that the US Fed will cut rates and with this market upturn, his doesn't see a new upleg for the market. Given valuations, now's the time to take some money off the table, and rebalance to buy more defence. Volatilty will stay for a long while. Look at risk assets like Bitcoin and AI stocks.

All the gains that happened when Trump was elected have been wiped out. Is volatile. When markets go risk-off, Bitcoin will go down. Should be seen as an indicator. Bitcoin broke down weeks ago, before stocks did.