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

The focus has shifted from tariffs to rate cuts. The Canadian and US central banks have delivered cuts that kicked off a new cycle. Initial reaction was mixed, but that's not unusual as investors recalibrate the path and pace of future cuts. We could see a bigger pullback from all-time highs, but not a break from this uptrend, led by the tech giants, consumer discretionary and utilities. On the TSX, materials and financials continue to lead. Bank stocks are climbing (she's bullish). Industrials lag, waiting for a clear outlook.

There's a lot of focus on interest rates. In his business, he finds that it's more about the stability of rates than about the direction. The past 6 months have seen greater stability in interest rates, which lets transaction activity pick up. That should lead to price discovery in the sector, and makes him bullish on some key themes.

REITs have come off. If you look at a chart of real estate stocks in the S&P 500, valuations are at their lowest levels relative to the rest of the S&P. This group has really been unloved, with the big chase in tech. 

As a result, you have great businesses, a great store of value, with growth that's being completely overlooked. Public real estate is trading at a very wide discount to the NAV of the private market. Should be a lot of opportunity heading into 2026. It's a typical environment where you can imagine M&A activity picking up. Great time to look at the space.

Dividends in the sector are growing because the property fundamentals are so strong. It's a very bullish sign. Great sign to see cashflow increasing and, with it, the ability to pass it on to unitholders. 

Online markets are betting on the odds of a US government shutdown. Around noon today there was a 75% chance and now 79%. The longest shutdown was a couple of weeks and makes no impact on the long-term US economy or stock market.  At most, the market corrects 3%, then snaps back. So, a correction happening now would be caused by something now. You will see fear in the options market where people take bets strategically, mostly putting on hedges. 

September is the weakest month, but markets are up. When this happens, usually you don't get the seasonal rebound. Markets are richly valued and there could be a correction. Be ready: have your favourite picks ready to go. He loves long-term cybersecurity, AI and uranium, whether companies or ETFs at your time horizon (i.e. 2 years). Warren Buffett would say buy an S&P ETF.

He likes collar strategies to manage market volatility. Find a high dividend stock or ETF and periodically put a cashless collar on it to buy protection to pay for it. It the market corrects, your collar is profitable and benefits capital gains. However, watch the emotion side of executing these in volatile markets. Not for investors who don't watch markets every day.

Oil prices have been low. Trump has said, "Drill, baby, drill," but the rig count is falling, because the producer don;'t pump when prices are low or falling. Oil has chopped from low-60s to mid-70s. Trump now wants to keep oil prices down to tame inflation. We're rangebound so buy weakness. Strategic reserves in the US has started to be replenished, but still a huge ways to previous levels; is rising slowly to avoid depressing prices and triggering inflation ahead of the US Midterm Elections. Forecast prices for the next decade are flat. The E&P companies are worth investing in during dips. Look at ZWBN, EMAX and ENCC, options covered call energy ETFs if we remain rangebound.

Investing 101: The Rule of 72 (and 144)

Compounding allows money to grow at an exponential rate, which is often a concept that we as humans have difficulty grasping. For example, $100 growing at 10% gets to $1,700 at the end of a 30-year period, but naturally, our brains couldn’t calculate this exponential amount. A good method to get around this is through the ‘Rule of 72’. The Rule of 72 states that the number of years it takes for invested money to double is 72 divided by the interest rate. For example, money growing at 10% annually will require 7 years to double (72 / 10 = ~7 years). The Rule of 72 can also be expanded to 144 – this would provide us with the time it takes to quadruple invested capital. For example, it would take 14.4 years to quadruple invested money growing at 10% annually (144 / 10 = 14.4 years). 
Unlock Premium - Try 5i Free  

He harkens back to "irrational exuberance" of the internet bubble from Alan Greenspan in 1996. The bubble didn't pop until 4 years later.

Look back to how Fed chairs have fared when they talk about some sort of overvaluation in markets. Turns out that markets are higher 3-, 6-, 9-, and 12-months later. So their observations are not good timing indicators. Not to say that this time couldn't be different.

Look back to 2000 and the darling that was CSCO, trading at 120x forward PE. Compare that to today's darling NVDA, which has grown a lot and could be called expensive. Yet it's trading at ~35x forward PE, a pretty significant difference.

Looking at the chart from a technical perspective, how extended are we above the 200-day MA? Because that gives you a sense of how bubblicious or extreme the recent market move has been. At its peak in 2000, the NASDAQ was 54% above its 200-day MA. The NASDAQ today is 14% above. 

So during the dot-com era, the darling stock was 4x more expensive and the market was 4x further away from its 200-day MA.

AI and the AI adoption curve have been followed by earnings. So today it's an earnings story, and the growth is actually there. Investors might miss out by sitting on the sidelines.

Part of diversification is recognizing that you don't always know the future. You want different things in your portfolio that are going to respond differently to economic factors. 

He thinks that we're going to run a little hotter and have a bit more inflation and growth. But at some point in the future, in the next couple of years, that's going to meet the deflationary force of AI. So yields could end up lower in the long term as well. 

We don't have one pervasive trend the way we did from 1982-2022, with 40 years of persistently falling interest rates. We're in an environment of inflation and interest rate volatility, so it won't be higher all the time or lower all the time. The average will probably be higher than people expect.

He has positions in gold/silver/platinum/palladium, and they change regularly through active management. He's both long and short, but generally long in the precious metals area. Scarce assets are something that most portfolios are underexposed to. 

We're at a moment in time of higher inflation and monetary debasement. We're printing a lot of money, monetizing debt at probably 8% a year over the last few years. When that happens, you want something in your portfolio that's not printable, but scarce. 

Scarce assets are things like gold and, to some degree, silver, bitcoin, platinum, and palladium. These can't be reproduced easily. If we need more oil, prices will skyrocket and more wells will be drilled. If we need more copper, more mines will be dug. For gold, the amount of gold that can be produced (even at all-out rates) is only ~2% of overall supply. 

A scarce asset serves a different role in portfolios. It responds to macroeconomic factors like monetary policy and geopolitical situations. Globally, sovereign nations are stockpiling gold as they look for alternatives to US treasuries as reserve assets.

Brookfield Entities: Brookfield Asset Management (BAM)

BAM operates as an asset management business that went public in December 2022 after being spun out of Brookfield Corporation (BN), following the steep discount investors used to apply to the old Brookfield parent on a sum-of-the-parts basis. Since becoming a separately traded entity, BAM has delivered an annualized return of around 30% (including dividends).

Fundamentally, BAM is a royalty on an asset management franchise. It offers investors strong earnings growth and a highly recurring, fee-based revenue stream. The company targets earnings growth of 15%–20% while paying out ~90% of earnings as dividends. Going forward, we think BAM could continue to provide investors with annualized total returns of ~15%–18%.
Unlock Premium - Try 5i Free