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

Precious metals bull markets tend to go on for 8-10 years -- they happen in phases, with 2 or 3 good-sized corrections along the way. The correction in early fall was shallower and lasted less time than he expected. He's fully positioned in precious metals.

Once a bull market starts to really mature, silver has a tendency to outperform. It's now doing that. It's famously volatile. Always stay with the best-in-class operators and the best assets. Take a look at PAAS.

Classic inflation hedge if you think one of the biggest risks to portfolios is inflation.

The actual definition of a Santa Claus rally applies to the last 5 trading days of the year. We're there, and he thinks we're into it now. General breadth has been improving since late November in US, Canada, and internationally. So the conditions are pretty good. There's some pretty clear leadership.

Today, after some pause, looks like some strength is resuming. So we're probably in the Santa Claus rally.

No. He'd characterize what's going on as kind of a tug-of-war. You have your dyed-in-the-wool, true believers, "AI to infinity" crowd, and then the skeptics or pragmatists who are coming out of the woodwork. That's causing a bit of churn and rotation in both sector and style in the marketplace. 

It's been very much an AI theme-driven rally since ChatGPT was born just over 3 years ago, but with fits and starts. Over the last 3-4 weeks, it's been in one of those "fits" with a bit of resurgence today. The probable cause is that MU reported better-than-expected earnings yesterday after the close.

We also got a little bit more rocket fuel to pour on the fire of the Santa Clause rally with the CPI numbers coming in a bit lower in the US. So we have a pretty strong tape out there today.

His firm are fervent believers in the transformative potential of AI. It's a generational event in technology. So they've been invested in it and remain invested throughout the value chain. That chain spans foundries that make the chips to designers to switches/routers. And upstream of those they're positioned in power producers. And even above that, natural gas and uranium producers.

They have partially trimmed some exposure in the last month or so, but only very lightly. Proceeds have been invested in more mundane businesses -- not hyperscalers per se, but companies that are realizing major efficiency gains for the end user.

Absolutely. Stay tuned for today's Top Picks for names that are poster children for realizing commercial benefits from their use of AI. They're not Johnny-come-latelies to the AI game either.

Yes. The one thing they alluded to in their commentary was the risk to the job market. With the government shutdown, a lot of the data was lagging and not available. We found out yesterday that the unemployment picture has worsened pretty significantly. That gives them some justification for what they did.

He's not exactly sure. With all of these monthly data points, what they typically do is release them and then adjust them over time. We need more of the points in sequence and then more robustness in different types of data.

Really, it was the federal government layoffs and early packages taken that spiked the number. If that's more of a one-off event, then things will tick back down. If there are more things in the pipeline, or more things happen in the private sector, then we'll see that number tick up.

One clear effect is that government spending and debt will increase significantly. This sort of plays into what the Fed is doing.

One thing that wasn't really highlighted was the quantitative tightening/easing cycle. They stopped tightening on December 1, it hasn't even been a month, and they're already easing. If you look at the magnitude of that easing ($25-30B a month) and where that gets you to over the next 24-36 months, it's a pretty significant injection of liquidity into the markets.

It will essentially help finance a portion of the government debt. Even if they maintain their same ratio of debt to total assets, they still need to be doing some easing just to maintain that ratio. If they don't, they are actually tightening (albeit indirectly). There's a huge mindset that they don't want to indirectly tighten, so what you could look for at a minimum is that they'll maintain a similar ratio of debt to total assets. 

That should bode well for liquidity in the markets. If there are hiccups along the way, you can expect that injections of liquidity would be turbo-charged.

Weighting is always a difficult thing. When you have a high-weight position and it works, it's great. Not so much when it doesn't work. Tough for him to comment without knowing an investor's particular situation, but this particular investor seemed to know a lot about the company. That knowledge and insight help mitigate the risk when having a concentrated position. You have to know your stock well, otherwise you get hit by something.

For investment success in any stock, you really need to get earnings growth and multiple expansion. Those are the twin engines of your compounding. If you get earnings growth but it's less than expected, the multiple can contract and your gain is zero. 

Mixed American job numbers today would have made no difference to the US Fed's decision last week. The numbers are benign. The US is on a jobs strike--managers won't make hiring or firing decision until they see greater clarity of the economy, sectors, and industries. We're not in stagflation; the economy is still growing, but inflation is a risk. We got a rate cut, but the market was surprised by the dovish tone--and the market didn't react well, which is telling. The market is supposed to like a dovish Fed. If rates go down for the wrong reason, it could create other problems, namely higher inflation.

The thing to focus on is something Chairman Powell said last week in his press conference when asked about the state of the labour market in the US. He said while the US economy has been generating an average of 40k jobs in the last 6 months, the FOMC believes that this number is being overstated by up to 60k jobs a month. That would imply that for the last 6 months, on average, the US economy has been losing 20k jobs per month.

Some market participants are looking at that and saying that the Fed needs to be more aggressive in cutting rates. Yet others say, wow, if we're starting to lose jobs that means weak economic performance and it isn't good for equity multiples. 

For him, that's the debate going forward. Can we muddle through in a Goldilocks fashion? The US administration wants to run the US economy hotter to keep the stock market more robust in a midterm election year. So 2026 is shaping up to be a very interesting dynamic.

When we look at what's priced into the market, we're essentially looking at one more rate cut, maybe two, between now and the end of next year. Markets are already starting to price in rate hikes based on that. 
 
What that tells him is that they're really worried about inflation. The Fed really has to be very delicate in its assessment and balancing those 2 risks of jobs and inflation in 2026. Larry wishes he had a crystal ball that made it clear, but that's where his focus will be.

It started with the supply-side shock from Covid, which is now largely over. But we're entering a world of less globalization, which means fewer efficiencies, and higher costs.

The question is whether the new dynamic of AI is going to raise productivity enough to completely offset any of the inflationary pressures? History tells us that technology and innovation are very disinflationary. So there's the camp that believes we shouldn't worry about inflation, and the camp that believes we should. That second camp is looking at the massive amount of government debt in the world that's going to get very expensive if inflation comes unanchored.