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

You take the market capitalization of the entire US equity market, and then you compare it to the GDP. The market cap is $58T, and GDP in the US is $29T. So it's 2:1. Buffett says that when that ratio gets high, it's a bad time to invest. Remember, he's a value investor. 

If you look at this ratio going back decades, you'll see that timing markets on valuation is a bad idea. Markets can stay irrational far longer than you can stay solvent. BRK.B has the most cash it's ever had, but the individual investor can't think that way. We don't have the same timeline to infinity that he operates on.

GDP

Last week, he talked about the cost of funding all the debt in the US. What we heard last week from President Trump is very disturbing; he said that any of the new debt needed to issue to pay for the "big, beautiful bill" should be 9 months and less. So he wants to finance all the new debt with bills. That's literally like printing money, which is inflationary.

Scott Bessent spoke this morning. He could have walked back what President Trump said, but did not. Looks like the Treasury is going to manipulate the way it's financing the debt, so that it can lower the cost of interest rates.

US total debt today sits at $36.2T; that's the debt ceiling, can't issue any more. That will change in July, and the debt's going to go up. The dot-com boom was the last time they had a surplus, and it's been deficit financing ever since. The GFC and Covid both added to the deficit, with the rate of overall debt going up. Now at the point where it's choking off natural economic growth.

So, what does the administration want to do? Manipulate the market, spend more money, get re-elected. 
 
Historic US economic growth was 2.4%. Today, the number is 2.2% and they've racked up a lot of debt. And the cost of that debt is sucking away from future potential growth. The system's broken, and there's no political will to fix it. A few brave souls are standing up to speak out, but they'll be coerced into voting with the team.

Government bonds in your portfolio, that historically have been thought of as safe, are riskier now more than ever. The Fed will only lower rates when the economy starts to slip; remember that the debt:GDP ratio will increase, because deficits go up when an economy's weaker.

The S&P fell 20% in the first half of this year and is back up 25%. Sentiment is improving along with more constructive trade talks, but things change every time Trump tweets. Be diversified. Tech remains a huge theme, seen in big ETF inflows. Also, investors are looking beyond the US and are using more covered calls. Last year was a record year for ETFs and this year is even better.

The Benefits of Long Term Investing: Better historical performance & success rate

Historically, long-term investing in diversified portfolios (such as index funds) has provided average annual returns of eight to 10 per cent over decades. While day traders can theoretically achieve high returns, the vast majority (80 to 90 per cent) actually lose money due to lack of experience, overtrading, and emotional decision-making. Long-term investors, by comparison, have a much higher probability of building wealth steadily over time.

So, to sum up, you can spend eight hours a day glued to your screen, pay high trading costs, pay taxes, get stressed out, overtrade and have less money to compound, or, you can buy a high-quality stock and let its own growth compound over decades, while you head out to the beach. Doesn’t sound like much of a contest to us.
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Not surprising, given the tariffs. We also saw a lot of pre-buying before tariffs took place. Expectations for May and June are also negative. So we'll probably have negative GDP growth for the quarter as a whole.

A softening, but not necessarily a recession, which is defined as 2 consecutive quarters of negative GDP growth. BOC has been on hold for the last 2 meetings. Arguably, if it were not for the potential impact that tariffs will have on inflation, they may have continued to cut. But they're on hold now so they can see the impact of tariffs.

Despite the negative number, stock markets have actually been quite healthy. TSX at all-time highs, and now US markets are hitting them too. That tells her that expectations are that trade deals will be announced, and they'll be manageable. Corporations will either adjust their supply chains or absorb some of the costs. Potentially not as inflationary as some expected. If so, and especially in Canada with its slowing economic growth and rising unemployment, that gives central banks more leeway to continue cutting interest rates.

Kind of moot. Trump administration has conveyed that if they're talking to the various trading partners, and they can't get a deal signed by that date, there will likely be extensions. Prime Minister Carney announced that Canada hopes to have a trade deal of some kind within 90 days, which would take us beyond July 9. She has the feeling that we'll see extensions.

Hopes they get dealt with, as the US is our major trading partner. It's nice that we're trying to develop other trading partners, but that will take time. Hopefully, the new trade deal will address those issues.

In her client portfolios, it would be anywhere from 2-4% of the overall portfolio.

The Benefits of Long Term Investing: Less time and emotional stress

One of the issues with day traders and their lack of success is that most, after a while, get the feeling that they ‘need’ to be trading. But not every day provides good trading opportunities. Like a gambler in Vegas, staying at the table (or trading) longer than you should is a pretty-much guaranteed way to lose money. Day traders have difficulty stepping away from the game, as they fear missed opportunity. Long-term investing requires much less daily involvement. You do not need to monitor the market constantly or make split-second decisions. This makes it ideal for individuals with full-time jobs or other commitments, and it also reduces the emotional stress associated with reacting to every market movement. Day trading, on the other hand, is highly time-intensive and emotionally demanding, often leading to burnout and impulsive decisions.
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Equity risk premium compares earnings yield on the S&P 500 with bond yields, and the bond yields have been a bit lower in the past 3-4 weeks. Effectively, equities are yielding as much as bonds. Historically, over the last 3 decades, that's been a harbinger of fairly pedestrian returns over the next 12 months. 

We can debate the economy and tariffs, but the starting point is that valuations for equities (particularly those south of the border) are expensive.

Absolutely. Valuations are a terrible indicator of short-term returns, but a very good indicator of long-term returns. In the short term, the market's a popularity contest. That contest can go on for a very long time.

If we go back to the tech bubble in the 1990s, Greenspan talked about "rational exuberance" in 1996 and the market didn't peak until almost 2000.

We're less than 2 weeks away from July 9, which is the 90-day reprieve from "liberation day". Who knows what will happen then? He has no idea how you strike trade deals in 2 weeks. There will be continued noise and friction within the whole system. We're seeing things slowing down. 

He's not one for using what the economy does to predict what the stock market's going to do. It typically works the other way around. But here we are pretty much where we started the year for the S&P. The TSX is up nicely. Starting to feel as though a lot of the good news is baked in, so perhaps we might just pause for breath.

Initial reactions by markets to tariffs were very spiky. But we've gotten used to them now. Yes, some businesses will be impacted. But investors tend to think longer term. At some point we'll come through this and get on with our lives.

We have the classic situation with the market climbing a wall of worry, and there's no shortage of things to worry about. Middle East rocket fire, suspension (but not cancellation) of tariffs, US budget bill. Nevertheless, the market trudges higher, buoyed with some support from corporate earnings but mostly by improving sentiment (waning fear and panic from April).

Over time markets make higher highs, punctuated by short and sharp drawdowns that test the mettle of investors.

There was a lot of frenetic trading activity late Q1 and early Q2. That's been to the benefit of some businesses such as owners of stock exchanges, investment banks, brokerages. You're right though, it does wear out investors, especially when they keep getting head fakes and kneejerk reactions that are frequently misinformation.

Investors would do well do learn the lesson of focusing on the fundamentals and owning good businesses. Don't bury your head in the sand on geopolitics, but don't be ruled by them. Shifting sands shift often. Easier to build robust portfolios that can weather macro headwinds.