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

The data that we are getting continues to be weak. Whether IFM data, some of the corporate data, or ADP data from the other day. All of this shows that employment is not deteriorating dramatically, but it's not getting better either at this point.

As well, he's listening to commentary from some of the CEOs of the more cyclical companies. Transportation, rails, and some delivery companies are good barometers for the overall strength of the economy. Low-end consumers, and consumers in general, are getting hit. Fast-food restaurant chains like CMG are missing numbers, and that tells you there's weakness in the consumer.

For the longest time, all that mattered for the consumer was that they were employed. When he looks at the employment numbers, they're deteriorating a bit. The wealth effect (such as gains from the stock market) can keep the consumer strong for a while, but that's like the last leg to stand on. The pegs that have kept everything moving higher keep getting knocked out.

He and his team now have a much more cautious view.

He's taking money out of cyclical sectors, away from the consumer. Certainly taking the tech bet down in a large way, though he's not out of tech. Got out of all the semiconductors.

Increased his long-bond exposure, which is a nice hedge to economic weakness. The long end of the bond curve should do a bit better in both Canada and the US. He's taken financials down, as they're too tied to what's going on economically and there's some risk there.

Infrastructure names in Canada look pretty good, as that area was highlighted for capital spending in the federal budget the other day. As well as the energy sector.

He's in town to do this show, and wandering around downtown last night he's really hearing a buzz around investing in Canada. People are getting more positive than they've been in decades about a reversal of the flow of money out of Canada that we've seen for the longest time. The biggest indicator was OVV coming up to buy NVA -- when's the last time you saw $$ moving back to Canada in the energy sector?

What worries him about investors today is the amount of passive investing, similar to the late 1990s when people don't understand what they're buying. As much as you can overshoot on the upside, you can overshoot to the downside. A move, when it comes, could come quickly and sharply for all these companies.

We currently have the highest level of equity exposure in the US, over 70% of financial assets are in stocks right now. A level that's almost unheard of. The market has some risk.

Especially on the Canadian side. Weather has been an issue. With the state of relations with the US, we have to strengthen east-west strategy and move toward making LNG the better way to export. Especially when you look at how much Europe depends on nat gas from Russia.

There's a market for Canadian gas, but it's a long-term story that needs pipelines and the ability to deliver. Still a better growth commodity than oil.

Thought it would break below $60 and go down further. So it's held in relatively well. But then excess production starts to come back on, and there are so many geopolitical risks. Have to shake your head and wonder what's the US doing with Venezuela? Lots of balls in the air, excess supply, demand not necessarily growing.

Still looks a little tough short term. He's started picking away at some of the names.

There has to be some belief that what's happening with global trade will ultimately get settled to some degree. Globalization is what drove the economy for 4 decades and benefited everyone. Just because a guy in the White House wants to turn that off for a period of time for his own reasons, it won't stick.

At the end, globalization is a positive for all involved and we'll return to some sort of semblance of that. 

Maybe in the short term, as they have to digest recent moves. Since April, some of these stocks are up 60-80%. At best, we consolidate in the short term (which is weeks, not months) before we can get another leg up. The long-term trend is still playing out with this whole AI revolution.

There's going to be a rotation within the market. For the past 3 years (since November 2022 and OpenAI), we've been getting picks, shovels, and infrastructure in place. 

He thinks that going into 2026 it'll be the year of the engines -- how companies actually integrate the whole AI infrastructure to make them more effective and efficient in whatever business they're involved in. It started with some of the big guys -- banks, BA, AMZN. You can sort of tell where it's happening because, unfortunately, it's usually related to layoffs. 

In 2026, it'll start being more mainstream.

After yesterday's selloff, it was probably a good time to buy. There are a lot of options around these big tech names. Especially for selling puts and calls, they're laddered on either side of the "spot price" of these stocks, and volatility gets exaggerated. 

Bottleneck in hyperscalers and data centres.

No issues getting chips and GPUs. But one issue is connectivity. Apparently 30-40% of GPUs around the world are sitting idle because they're waiting for ANET and CSCO to bring in their connections

Last year, the market has healthilly rational about the amount of money companies were spending on AI. This year, the market is more enthusiastic about the AI trade, but that is supported by real demand. Microsoft, Apple, Meta and Alphabet are still growing revenues by 10-30%, and their valuations reflect that. The rest of the economy is struggling with high interest rates and weak consumer demand, including home-builders and autos. These companies are not growing at all. Next year as interest rates decline and uncertainty over tariffs fades, these sectors could hopefully catch up with big tech.

Two things really stick out. The first is the general resilience of the US economy as a whole. It was a pretty good earnings season when you put it all together. AI-related companies seeing the most outsized growth, and the outsized demand pull.

The more negative end of the conversation is that the low-end consumer is seeing some struggles.

So earnings across the board are fine, though indexes are composed so that the big companies play an outsized role. But when you peel away a few onion layers deeper, you see the low- to mid-end consumer having a tougher time (restaurants are seeing less traffic, there's some down-trading, etc.).

It's somewhat of a 2-stage economy, but a lot more positive than expected.

Thinks it will. His team thinks globally, but likes to have a local perspective. It's important to look at the US market in this case.

Some viewers may be surprised to know that the US market is almost half technology at this point. So when it comes to the gap, that gap has been going on for 20 years. He doesn't see a convergence in the future. Instead, he sees further expansion between the haves and the have-nots.

Taking a step further back, the conversations on coal are beginning. But there's a longer-term story here. In the short-medium term when there are bottlenecks, he sees upward pressure on prices. OPEC has been running a low oil price policy for a while now -- they've added more supply to the market as demand has continued to grow. That being said, it's a short- to medium-term conversation.

Look out 10 years, and it's very clear that the role of oil in the mass utilization era that we've seen in the last 100 years is moving more to renewables. He doesn't mean to evangelize the green conversation. From a brass-tacks perspective, both solar and battery deployments are going to rise exponentially.

So the role of oil in the future economy of 20 years from now will be significantly different than it is today. There will always be a role for oil, and when there are shortages people are willing to tap into it. But those bottlenecks only last for so long.

Because energy demand is going to grow, oil will have a role to play, albeit a less important one. Oil's not going away. If Europe and NA don't find uses for it, India and Africa will. Commodities have a way of balancing themselves out globally.

Across the board, it's important to be careful. In a market that's only gone up for the last decade, it's very easy to think that if you just doubled your equity holdings using borrowed money, then you're twice as smart. Equity investing should generally be unleveraged, even if there are tax strategies available. For peace of mind and a good night's sleep, stay away.

For example, between 2019 and 2022 the most important thing was to stay invested. Margin and leverage does not allow you that optionality.