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

The price cap notion is a complete joke. The US government tried to not have Russia's revenue increase to fund its war in Ukraine, but not impede the physical flow of barrels. The prime concern within the White House is inflation, and energy prices are one of the biggest inputs to inflation. Plus, there's another election coming up.

Whether the US turns a blind eye to sanction enforcement from Iran, or the price cap, every action from the White House in the last year has been about trying to get the oil price down.

His fund does have the ability to short, if he chooses. Shorting is very challenging at times, because people can disagree with you. You can get the fundamentals right, but the stock just goes against you. So he's not in favour. In particular, he's very bullish on oil from here.

It comes down to what's your goal. Pair trades work if you're trying to limit volatility and earn the spread between the two. But he's trying to create generational wealth for his clients, and pair trades don't help him with this.

As a fund manager, all decisions are relative. If you give him $1 today, he has to make a decision about where to invest that for the most upside relative to the risk he's taking on.

A lot of production has come on. The biggest one this year is Iran, where the US government has turned a willful blind eye because if the price of oil goes up, gasoline goes up, inflation goes up, interest rates go up, and then they're voted out of office.

Focus on what matters. Inventories are going to end the year at an 8+ year low, and that will put upwards pressure on oil prices.

He's a global energy investor, but his main fund is 100% Canada right now. Canadian oil is the only place he wants to be. Outside of Venezuela and Saudi Arabia, Canada has the longest reserve life. Canadian companies also have lowest declines, strongest balance sheets in their history, most free cashflow, plus commitment to return 75-100% of free cashflow to shareholders once debt-free.

Inflation and the Consumer Price Index (CPI).

The inflation rate is based on the CPI, or Consumer Price Index, which is a weighted average index of consumer goods and services. Therefore, the CPI is an index denominated in dollars, whereas often when we hear the words ‘inflation’ it is referring to the one-year percentage change in the CPI. As a result, if one year ago the CPI was very low because consumer goods and services were in a recessionary period, the one-year rate of inflation today would be quite high. This is the current economic backdrop that we find ourselves in today, but it is also a bit more nuanced than that and involves a few global economic forces at play.
Unlock Premium - Try 5i Free

Stock price changes are directly linked to money supply (liquidity), the rate it increases or decreases. Since 1960, at least, every time the money supply expanded, the DOW rallied for multi-years; this happened 19 of 21 times (2000's crash was an exception). The money supply has been shrinking, BUT it's shrinking much more slowly for two straight months. We could the start of another multi-year rally soon. Right now, be patient as the market declines in August.

He feels that central banks are close to finishing their rate hikes, but it's misplaced to believe that the banks will cut rates next year. Cutting would be a mistake, because history (1970s) tells us that inflation will climb again if the banks cut. Be cautious. Don't sell everything and run for the hills. Clearly, the economy is slowing down.

He is lightening his bank holdings given the shape of the yield curve; he expects loan-loss provisions to rise; doesn't see loan growth; and capital markets can be risky. Collect the dividend in the coming year, but not much more. Likes TD and BMO. He is massively underweight banks now.

Upcoming US Fed meeting in Jackson Hole will be illustrative of upcoming Fed policy.
US market very strong - unclear on what source of pessimism is for August. 
Rising interest rates - one source of pressure on markets.
Recent market pullback a buying opportunity for investors.
Higher interest rates not necessarily a bad thing for economy.
Focusing time on fundamentals of quality companies - not too focused on macro issues. 

CN Rail vs. Canadian Pacific/Kansas City.
Generally speaking - weather negatively affecting railroad industry in Canada.
Freight continues to remain strong.
CP trading at higher valuation. 
Long term - is a stable business.
Has been stated that double digit growth is expected.
 

Canadian Banks earnings not growing. 
Waiting for growth to resume before investing.
Higher interest rates putting pressure on business performance.
Waiting for environment to change before investing. 
Will be a good long term (10-20 years) investment. 

U.S. Federal Reserve meeting at Jackson Hole will be important to watch this week.
Interest rates will be major point of discussion.
Long bonds selling off, with "higher for longer" interest rates expected.
Tech earnings remain strong against narrative of high interest rate pressure. 
A.I. boom is reminiscent of 1999 dot com boom.
Unsure on whether tech valuations (Nvidia etc.) justified. 
Re-financing of Canadian mortgages will be interesting to watch as old rates re-set. 

If history is a guide - tech stocks like Nvidia are overvalued and hard to justify. 
1999 offers lessons on investing when valuation are too high (pain ahead for investors).
If markets crash, will take a long time to earn investment back.
Investors should be careful when there are periods of 200x earnings etc. 

Basic Investment Terms: Return on Equity (ROE).

Some investors believe this is the single most important financial ratio, and some hedge funds are run entirely on that principal. We do see it as very important, but we don’t think any ratio should be looked at in isolation. ROE, essentially, tells investors what the company’s return has been on the total amount of capital invested or retained within the company.

A figure above 20 per cent is generally considered very good. Companies such as Constellation Software screen well on this metric. High ROE typically — but not always — results in strong stock returns.
Unlock Premium - Try 5i Free