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

Oil is usually a bit weaker at this time coming into the shoulder season. February to May is a much stronger seasonal period as we ramp up for the driving season. Sometimes it can start earlier, so it might start in December this year. But it generally tends to be weaker right about now.

That really goes back to natural gas. Nat gas has to fill in during the short term, and there's no way around that. Nuclear can then be there for the longer term, but nat gas will fill the gap for the next 10 years. We've seen it with PPL and META signing a deal just outside Edmonton. We'll see more of those setups as well.

AI is a demand for that whole cycle. We're coming into the colder season, and investors want to front-run that so they tend to move into natural gas positions ahead of that colder season. This move tends to drive up the price of both nat gas and nat gas stocks.

One reason that healthcare and other defensive sectors have been beaten down is because everybody's chasing tech. There's also a lot of policy uncertainty with the new US administration. Also pipeline concerns about drugs reaching the end of their patents over the next couple of years.

The sector's recently looked attractive from a value perspective. Starting to see hedge funds get into the sector itself, seeing a bit of a bounce. Could see the sector do well.

All these companies are investing in each other, which creates a circular relationship. Sometimes he thinks it might be a symptom of so much money, they don't know what to do with it. Capex is huge, $400B last year for the Mag 7 alone. These aren't straight-up, third-party, objective transactions. You can't really tell what's happening behind the scenes.

Take-or-pay structure, totally different from the exploration side. Seasonality can actually start before the energy sector. So if you want to get into energy, not a bad time to look at the pipes. Right now, stay away from the major oil companies, and look to the pipelines.

Natural gas actually does well at this time coming into the colder months of the year (before the cold actually hits). Companies can actually do well ahead of that.

Doesn't expect any substantial agreement before meeting in Korea. Instead, he expects it to take years and years to play out. During Trump 1.0 they had a bunch of handshake agreements, yet China didn't really deliver on anything in the coming years.

Trump is mindful of that experience. But his ego demands that he gets the big handshake and can say that he got something done. Then he'll let the team work it out in the background.

Both sides will claim some sort of victory, but the important thing the market likes today is any plans to curtail rare earths minerals being deferred for at least a year. That tells us that there's at least a year before we have something material in terms of a signed deal.

One thing he likes that Mark Carney said recently was that Canada should expand trade with the rest of the world. One of the best ways we can do that is through our natural resources, including more pipeline capacity to both the East and West Coasts. If that's what the PM has in mind, then he gets a handclap from Larry. But if it's something different, good luck with that. Most of our trade does go to the US, and a huge part of that is still oil & gas.

Foreign business investment in Canada is important too. It's so hard to get stuff done here. Interprovincial trade barriers, regulations, and on and on. We really need that dynamic to change. Carney understands that, but whether he can deliver on it is the question.

In this earnings cycle he's specifically looking for the investment in AI and what the capex is for a lot of the companies, not just in cloud development, but throughout their enterprises. 

In a correction phase. Could pull back to somewhere near $3400-3600. That's where he'd want to put fresh money in. Violent move up and correction in the last few weeks tells him that we've likely hit some sort of speculative peak above $4000. He wouldn't be interested in any gold companies, whether junior or senior, until we get more of a correction.

How sustainable and long-term is this play in gold? It could be years. But we've also seen historically where you get these speculative things, they ramp up, and then it's dead money for a decade. That's a real risk to think about for this sector. It's not a no-brainer. 

He missed this last runup, thinking it wasn't sustainable. (So don't listen to him, he was wrong on that ;)  But he is bullish long term, and would buy this type of correction. There are a number of ETFs to play this, and they're all basically the same.

Portfolio Buffers

It's a monster week. FOMC rate decision, Trump and the APEC conference, all these trade deals. But the Fed meeting is this week with another rate cut and, possibly, discussions about the end of their balance sheet rundown. That's a very important liquidity catalyst for the market.

To think that we're not in a speculative bubble here, a lot of the events this week including earnings could boost that bubble. We get $27T worth of reporting in terms of market cap this week on the S&P. Huge week.

The first chart he's brought (courtesy of the Federal Reserve-St. Louis database) shows the outstanding margin debt in the broker-dealer community. We're at a peak that we saw prior to what happened in 2022. Lots of speculative froth in the market right now. We don't have a really bearish catalyst, except extreme valuation. Extreme valuation is never a good reason to sell.

But we do have some bullish tailwinds. One of the newest is depicted in his next chart, which is the size of the Fed balance sheet. For the past couple of years, the Fed's been doing quantitative tightening (running down their balance sheet). The chart shows the Fed balance sheet as a percentage of the economy, with red-shaded areas being previous recessions. Every time there was a recession, the balance sheet expanded as a percentage of GDP. Now the Fed uses the balance sheet as a standard tool.

If they're going to stop selling down their balance sheet, they're going to end up net-neutral or net-slightly-buying assets because of the way the runoff is working. That's really a liquidity boost to the markets. He expects them to talk about this at the upcoming meeting, and give some ideas about when they might end quantitative tightening. A very bullish catalyst.

Next graph supports how it's way too early to call a top, even though the speculative froth and sentiment are both there. The point on the graph marks December 1996 of Greenspan's famous "irrational exuberance" speech. The S&P doubled from that point. So even though Greenspan felt that markets were irrational, he was 3 years early. No one can call a market top.

Though he's extremely cautious on valuation, there are enough catalysts to keep squeezing markets higher.

What you ultimately want to own are these buffer ETFs. When you're concerned about valuation, they still let you participate on the upside. But if markets correct as they did in April, you're going to go down a lot less because of the buffered protection. But if markets go up, you're still participating in the upside rather than going to cash and trying to time the markets (which he doesn't recommend).

Look at ZOCT or ZAPR.

What is Proof-of-Stake?

So, what is Proof-of-Stake? To first understand what Proof-of-Stake means, we must first understand what a consensus algorithm is. No, one does not need to have a Ph.D. in Computer Science to understand what this means as this is simply a voting process used by blockchains (cryptocurrencies) to reach an agreement that transactions on the blockchain have been fair and accurate. Many have heard of the importance of ‘blockchains’ in future technology but are left scratching their heads at the importance of ‘cryptocurrencies’. Blockchain technology is what underpins all cryptocurrencies, but the cryptocurrency token associated with each of these blockchains is what makes it secure and ‘trustless’. A blockchain without a crypto token attached to it is essentially no different from the databases that are used in everyday technology today, but by requiring individuals (miners) to validate the blockchain transactions and giving them crypto tokens as a reward for their efforts, the blockchain becomes secure and trustless (no trust is required as miners are incentivized to be truthful).

Ethereum previously used the same consensus mechanism that Bitcoin uses today, Proof-of-Work (PoW), which requires individuals (miners) to purchase specific computer mining equipment and run the software 24/7. Many of us have heard of ‘bitcoin mining’ before and have seen images of thousands of computer mining rigs operating in large warehouses - this is a Proof-of-Work mechanism. The mining equipment itself is expensive, energy-intensive, and requires a lot of space and infrastructure. Proof-of-Stake, on the other hand, requires a consumer-grade laptop at most, and a financial commitment of ETH (Ethereum crypto tokens). These miners on a Proof-of-Stake consensus algorithm are therefore using significantly less energy and physical space than on a Proof-of-Work mechanism.
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There are several big tech companies reporting this week and he is seeing a Disneyland for investors. Earnings growth is really good - the bar is high and set to go higher. Qualcomm and AMD blew away numbers. The Fed meets this week and a rate cut is expected, but listen to the commentary especially to forward guidance since markets are priced very richly. It looks like a thaw in US/China relations regarding rare earths. Tariffs are maybe not a big concern because they keep getting dialed back. 93% of goods are coming in under the free trade agreement. A rate cut is expected from the Bank of Canada and the forward commentary is dovish. CPI is still 3%.

The question as on the Canadian market. He doesn't think the TSX is overvalued. The growth of earnings per share is still rising for the TSX. As for gold its themes are overall instability, central bank buying and the US dollar. It is not related to supply and demand. At what point is the price of gold overdone - nobody knows. He wouldn't buy gold but would invest in the stocks. Maybe not now though since he thinks they are getting over-valued.

We know that the president is a petulant infant, and there's a long-established fact pattern that supports this. Today it's the Doug Ford/Ronald Reagan ad campaign. Next week it's the World Series. And you can bet dollars to doughnuts that there'll be something else the following week.

As investors, what we want to do is tune in to the signals that the market's giving us and tune out the noise. All this Trumpian sound and fury signifying nothing ... just turn it down or turn it off. Investors are learning that lesson, and markets are trading accordingly.