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Counter arguments to a rising stock market: U.S. fiscal imbalances and government debt

There has been worry about government debt for decades, but the recent budget bill in the U.S. has taken this worry to peak levels. The U.S. federal budget deficit is now projected at US$1.9 trillion in 2025 (about six per cent of GDP), far above historic norms. Excessive government spending, without clear plans for reduction, could force higher Treasury yields, increase the cost of borrowing for the government and corporations and threaten confidence in U.S. financial markets. Higher fixed-income rates could see money flow from the market to savings accounts and GICs. Higher rates could lower corporate earnings. Yes, government spending can also provide a stimulus, but at some point, the piper needs to be paid. Countries cannot simply borrow trillions for all eternity.
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AI should continue to dominate for the next few years. There is a need for a huge amount of power to run these big models. He is seeing efficiency across many different types of industries pick up with AI and this should continue to improve. While some industries have tariffs, inflation and interest rates take a bite out of earnings and profits, the AI economy is moving full force ahead and doing really well. Large companies have the resources to hire in-house developers but it will take a while for small and medium companies to build these tools into their business.

It rolls up individual dental practices and is the largest provider in Canada. He is starting to accumulate shares in their Canadian funds. It is a safe, conservative and low growth industry. He is hoping to see cash flow grow 10 to 15% annually. It declared a recent dividend of 1 to 1 1/2% and is getting leverage down. Dental practices that sell to Dentalcorp receive shares and become employees of the company. It is a good model of efficiency.

LNG projects are growing and it will be one of the companies that benefits from the increased volume of natural gas. It made a big acquisition and has stable cash flow as a mid-stream company. Has a great future with another decade of growth.

He likes the brokers more in the insurance business.  There has a bit of softness in pricing but this is a short-term struggle. It is one of the top companies in the insurance industry so you could accumulate when the price dips down.

The question was on his favourites of the Magnificent 7. He likes Amazon, Microsoft, Meta and Alphabet. Amazon and Alphabet had recent strong reports. Amazon would be his top pick of all of them today. It has long tailwinds.

It has had issues and it has been a tough year facing several challenges. Owns it in the global equity fund. He is waiting for the conference call tomorrow which should talk about how the issues are being dealt with. They have pulled their guidance on EPS and the new CEO could be putting out a new guidance level. Wait for the base line to grow but there is long term upside.

It is dealing with a medium consumer and sluggish environment. he wants to see them continue acquisitions. It is buying back shares.

The lumber industry in Canada has been in the line of sight for tariffs for the past decade. Housing prices have depressed the price of lumber for the past 2 to 3 years. One he likes in this sector is Doman Building Materials which is more of a processor of lumber. It has a good yield and offers stability.

He sold in December/24 since it got to their price faster than expected. There is some tariff noise around it. Same store sales in the U.S. haven't really grown in 2 years so it's best to wait.

There is an insatiable demand globally for new aircraft so there is a huge backlog. The big hold back is engines. Airbus has 50 to 60 planes waiting for engines. Boeing has had issues. He still owns but is trimming.

It is caught up in the interest rate environment. Pays a 7 1/2% dividend and is in the defensive healthcare space. Has long term leases with rent escalators built in. Debt is down and cash flow up. The payment ratio is very sustainable. This will be the first earnings call for the new CEO.

He is adding because of the 5 1/2% yield. The toll dispute was resolved on the weekend and it is ready for a new leg higher. Buy and wait for the market to recognize some of its value.

The results were a bit weak on the growth margin side and the backlog decreased a bit. There is huge demand for new data centres and this is good for Hammond Power. He started accumulating it this year. There is a new plant opening up which will be very efficient for electrification demands.

Holds it in the dividend income fund. Has a safe dividend of 6 to 6 1/2% with cash flow. Has a large pipeline of new drugs but it is difficult to predict how many or which ones will take.