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

S&P right now is 5600-5700. The gold bulls have always been painting this "gold's going to $5000" story. Gold falls into the category of base metals -- at times the performance will be great (like now), and then the performance will be terrible (possibly for years).

Right now, the trend is higher and momentum's up. On the short term, he's more of a seller here. But he's been saying this since it hit $3100-3200, so he's been wrong for the last 400-500 points or so.

So you won't see them cross anytime soon. He'd be buying dips in precious metals because of the dynamics in the world today. Don't chase strength, but buy into corrections.

Portfolio Style

Warren Buffett's retiring at 94 years old. Larry's in his 39th year as an investment professional right now, and he's jotted down some things he's learned.

Market timing is very hard. Buffett always makes fun of technical analysis and charts, but he does market timing through more sophisticated metrics.

Diversification is critical. Concentrated portfolios are much higher risk.

Periodic rebalancing is prudent. Buy when there's blood in the streets. When the economy's in a recession, he's looking to put cash to work. In 1998-2002, Buffett was putting money to work, but in value stocks and not what was leading the S&P. After the dot-com bubble burst and interest rates went to zero, Buffett started using a lot more leverage to invest. Only in the last decade or so did Buffett buy into AAPL and growthier names.

Long-term focus is needed, but hard to execute.

Most important is your portfolio construction.

In the current Buffett portfolio, we can draw these lessons:  leverage is relatively low (costs more to borrow now); cash is very high; seems to be waiting for some blood in the streets (saw a bit of that in April); better value internationally using strong USD to buy cheaper assets globally (bought a lot in Japan). He's being cautious. Over 20 years he hasn't outperformed the S&P 500, but he's done great compared to balanced funds.

The Difference Between Trailing P/E and Forward P/E

Both Forward and Trailing P/E involve the same two components: price per share and EPS. While both Forward and Trailing P/E use the current price per share of the stock, the timeframe for the EPS differs.

• Trailing P/E is calculated as: price per share / trailing 12-month EPS
• Forward P/E is calculated as: price per share / expected forward 12-month EPS

Let’s break down what the differences are between the trailing 12-month EPS used in the Trailing P/E calculation, and the expected forward 12-month EPS used in the Forward P/E calculation. The trailing 12-month EPS is simply the EPS of the stock over the most recent 12 months. On the other hand, the expected forward 12-month EPS is driven by analyst expectations of the company’s earnings over the next 12 months.

Since the Trailing P/E uses the EPS from the past 12 months, this metric tells the investor how expensive the shares are for every $1 of earnings as of today. Whereas the Forward P/E uses the EPS of the next 12 months, this metric tells the investor how expensive the shares will be one year from today. As a rule of thumb, if the Forward P/E ratio is less than the Trailing P/E ratio, this implies that the company’s earnings are expected to grow, and vice versa if the Forward P/E ratio is higher than the Trailing P/E.
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The "liberation day" global tariff regime kicking off bilateral tariffs would have been a surprise to anyone. The whittling down of the tariff regime incrementally over time is the other surprise. 

If we take a step back, what's interesting is that we've gone from speculation of a really tough tariff regime being fully priced in to the other direction, where a benign outcome is fully priced in. The truth is probably somewhere in the middle, where you have to have an eye towards caution but also towards opportunity.

Reading the tea leaves and listening to the rumour mill, it seems that China's let a few imports be exempt from tariffs and the same with the US. Think of it as a "Swiss-cheesing" effect on the effect of tariffs. This is either the way it will be, or just green shoots in the entire conversation.

The market's interpreting it as green shoots, whereas it might be building up domestic resilience for the longer haul.

The best way to think of it is in stages: initial euphoria, experimentation, and then implementation. In the midst of earnings season, the hyperscalers have spoken to strong demand for AI-related workloads. They've also stood behind their capex forecasts. 

So this earnings season, one of the big stories has been the big sigh of relief for those selling equipment to the big cloud companies. There is AI demand, but we don't know if we're at the stage of experimentation or implementation. As with any technology, it will permeate our lives to a greater extent with time. You have to know that you're buying companies that are relevant to that at the right valuation. Understand that profit pools in tech can be fleeting, just as in every other sector.

Seeing a major reorienting of global trade flows. Data on container shipments is already quite choppy. But over time, there was already a "China +1" strategy happening in global trade. For example, AAPL last night was talking about how they're building more of their iPhones in India. 

In general, this makes you less sensitive to one bilateral trade corridor. 

He's far less constructive on defense stocks than he was a few months ago. Europe is by far the best place to be in the grand scheme of things. European defense budgets are rising significantly, in a way we haven't seen in a generation or even two.

For example, Germany used to spend less than 2% of GDP on defense. Now moving closer to 3% and greater. He's chosen to play the space through RHM.

Regret Aversion: Buying Too High & Selling Too Low

The fear of buying too high when the markets are plummeting and selling too early when the markets are reason can both be attributed to what is called the regret aversion bias. When markets are rising, investors may become hesitant to sell some of their positions out of fear of regretting this decision later on, in the event that markets continue to rise. Conversely, when the markets are declining, investors can have a fear of buying too soon and regretting not purchasing at a lower price point. While both forms of regret (not selling at the highs and not buying at the lows) can be painful for an investor, there is a common belief that higher emotions are associated with financial loss than financial gains. To demonstrate this, a behavioural finance study concluded that investors prefer to avoid a loss more than acquiring an equivalent gain. The study used the example that when given the choice of receiving $900 or taking a 90% chance of gaining $1,000 (a 10% chance of gaining nothing), most investors would opt out of risking the higher gain of $1,000 and would take the guaranteed $900. Both outcomes are virtually the same ($900 vs. 90% X $1,000 = $900). On the other hand, when those same people were given the choice between losing $900 or taking a 90% chance of losing $1,000, most investors opted to take the 90% risk and attempt to avoid the loss.
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Here's his contrarian view...there is no trade war. It's just Trump mouthing off. He's said he's going to do some things, various people have responded, not much has happened, just a lot of talk. All this has seriously impacted the GDP numbers. 

The business and consumer sectors are OK in the US, but the import sector was terrible. Consequently, there was a slight decline in the GDP number. While bad, it was mostly because people were pre-buying and importing prior to tariffs. Trump kills the tariffs, makes deals, all that stuff goes away.

The big thing is that the response to his "trade war" has been universally bad -- to the MAGA people, to consumers, to businesses, to investors. (If there's any other group that he missed, it's universally bad to them too.) So the expectation is that he's going to have to correct it. Trump's people have announced that the next 100 days will be about trade deals and tax breaks. No matter what happens, Trump will declare he made the best deal ever.

For some reason, Trump hated Trudeau and, apparently, likes Carney. If you look at per capita GDP for the US vs. Canada, from 1990 to 2015, the lines are right on top of each other. Absolutely identical. From 2015, they start to diverge. 

Increase in per capita GDP for Canada since then has been 1.1%, not per year but total. In the US it's 52%. The difference is due to Canadian policy. This is not lost on anybody, including the new prime minister. Richard expects that economic policy and economic growth will be his #1 agenda item and that they will fix this. He's really positive on Canada because he thinks that's going to happen.

Real estate business has been horrible for the last couple of years. Only area that's been good has been industrial mostly pushed by BX, which has been buying everything in sight. Condo business in Toronto is dead. People are moving back into offices, thinks it will catch up in Toronto (which has been slow up till now).

Most REITs in Canada exist because they pay a dividend, their businesses aren't really growing or developing. He'd stay away from most.

Tariffs will hurt the US consumer. Canada has decided not to let the US consumer suffer alone, so has put tariffs on too. His training is in economics, trained by very smart people who believe in free trade. This is all ridiculous. Peter Navarro sounds like the dumbest person he's ever heard; everything he says is crazy. Trump's making a big mistake.

Everybody says that these are negotiating ploys. The stock market and individuals have shown that it's not been a positive response to Trump's tariffs. Richard feels that Trump will start announcing deals, and it's all going to go away.

For the last 75 years, since WW2, manufacturing in every industrial nation in the world has declined as a percentage of GDP, while services have increased. The US economy has been the envy of the world for the last 5 years, and Trump just turned a great economy into one with lower GDP for the first time in 7 years.

It's all backwards. Manufacturing isn't coming back to the US, because US workers get $25/hour while Chinese workers get $2-4. You don't need to be a genius to decide where to buy stuff from.

The market will come back. He likes Canada, though we have some things to do. He likes the US too. It was a manufactured slowdown, and they can manufacture an upswing. Stock markets will follow.

The Canadian story is that our economy is running a bit slow. That's to be expected with the impact of tariffs and the trade war that's developing. Our economy is fragile, and interest rates have been high. It's all weighed on GDP.

Sets the stage for additional interest rate cuts as the BOC assesses the economy and what's best for it going forward.