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

Hold 7-8 sectors out of 11, diverse industries and roughly 20-25 companies (in his standard portfolio). Watch for overweighting by a single stock, no more than 8%.

A broad topic. Defensive means predictability: utilities, consumer staples. Stocks that pay dividends and/or buyback shares. Also, telcos. Utilities are super defensive, because they basically issue a yield. Also, do you want that income stream coming from Canada or the U.S., considering taxes.

He expects an agreement to agree on something at some point down the road, and the markets to be OK with that. Historically, these things are measured in years to fully play out. He does expect something of that order between now and that July 9 expiration date, though that date could be extended in view of Trump's volatility.

It's going to be President TACO going forward. Look at the "deal" they got from China last week. All of a sudden, it's still 55% tariff rates. Most importantly, the market seems OK with the tariff thing at the moment. The next moment could change that. 

It's still a risk to the markets, but tariffs in the current package are inflationary. Trump needs tariffs to offset the costs of the "big, beautiful bill" that he wants and needs to pass. Still lots of uncertainties in front of us, but there's always stuff in front of us in terms of the market.

In an update to the dot plot, there's no expectation at all for a rate change. The question is will they choose to tilt a little bit at this meeting? Do they have enough information to say that they're leaning more towards an ease? Tightening is out of the picture. Even if inflation upticks for the next 6-12 months, extremely unlikely and difficult for the Fed (given the upcoming change in leadership, etc.) to want to raise rates.

The next move will be a rate cut, timing is uncertain. A lot will depend on the unfolding situation in the US labour market. Over the last month or so, we're starting to see weakness in the initial and continuing claims. These aren't worrisome by any stretch, but should be on the front burner now.

Prices are going up. In soft surveys of companies, 40% of companies said they're going to pass through some degree of pricing. Inventories that were built up in advance have, perhaps, already gone through the books for cost of good sold. There's more to come. To think there isn't, is a naive assumption.

It won't be a dramatic jump from 2.8% to 6%. But it'll creep into the mid-3% range. What happens now with oil prices is a real front-burner risk. When you have to spend an extra $20 a week to put gas in the tank, it really matters to the marginal consumer.

This isn't going to end until there's regime change in Iran, or Iran believes that Israel has the right to exist and doesn't further its ambition to erase Israel from the world. Unless that changes, which he can't see under any conditions, this is going to get worse before it gets better. He hates saying that, but it's his view.

Typically, it's a bankruptcy, though not always. Sometimes a company will go private. Sometimes an ETF will get delisted, redeems the shares, and you get your money back.

Geopolitical Events

The question is should you play these things? If you a oriented to being a short-term trader, days to weeks, he has no issue on speculating around these geopolitical events. When there's a major event, you shouldn't ever really do anything radical to your portfolio like sell everything and go to cash. In the long run, that would really hurt you.

This current Iran-Israel conflict is a little bit different. He's brought in a graph of the US budget. At its peak in the 1980s (the Reagan years), military defense expense was 28% of GDP. During the Clinton years, a lot of money came out. The biggest line item in the US right now is social security. 

Trump says the US is done policing the world, and other nations are going to have to pay a bit more. Congress pushed back a bit on support for Ukraine, and he suspects they'll push back a bit more on more money for supporting Israel.

During the pandemic, defense spending dropped to its lowest share of federal spending. Since then, it's started to go up again. Could be a trend. Seeing a lot of this around the world, even here in Canada. Relative to the US, most countries' spending levels are pretty benign. 

The biggest thing here is the US deficit of $37T, and it's choking them. This "big, beautiful bill" is going to add to that. Money has to come out of the budget, and one of the areas could be military spending.

Look around the world at countries that spend the most in terms of military. North Korea is up at the top. What's interesting is that the Middle East and parts of Northern Africa are ramping up. He thinks this is for the protection of energy infrastructure in those parts of the world, and that's costing a lot more money.

When the Russia-Ukraine war started, all the excess oil that was going to Europe rebalanced over to Southeast Asia and Australia. So that part of the world doesn't want to see oil prices go up either.

If you want to make a trade and play the geopolitics of what's going on in the Middle East right now, and if oil prices are going to go up and persist, overweight oil drillers and energy names. XOP is an ETF that plays a broad number of oil drillers. Gold might be another one to tilt towards. We're not seeing a flight to safety in either the USD or US treasuries.

Don't sell everything and go to cash. Rebalance your portfolio or make some trades.

We are navigating short-term political shock. Oil is going up due to possible shortages and there are possible supply change issues. The Nasdaq is up this year with with cooling inflation and momentum in the U.S. markets. The TSX continues to outperform with strength in the gold and materials sector along with energy and industrials. The market is pricing in further rate cuts and she is cautious for some volatility, She is maintaining exposure to secular growth themes such as AI and Health. The stock market and economy can move in different directions.

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Geopolitical risk is always there under the surface. The thing is, Iran doesn't have many friends. Both Assad and Hussein are gone, Hezbollah has been smashed, and Hamas is under ongoing attack. So geopolitically, doesn't think there's a huge risk here. The US is pretty dominant in this area.