Don’t Get Caught In The Stock Trap – Do This Instead! Cole Smead
Summary
Market Outlook: Bearish on the S&P 500’s long-term returns despite a resilient economy, citing passive concentration, leverage, and inflated earnings versus free cash flow.
Oil & Gas Thesis: Bullish on oil and gas due to a multi-year underinvestment cycle, tight supply, resilient demand, and potential for prices to trend toward $100 over time.
Canada: Positive on Canadian equities and the loonie, with a focus on Canadian E&Ps benefiting from commodity tailwinds and improving momentum.
Energy M&A: Expects ongoing consolidation in Canadian energy as scale drives efficiency and returns, creating shareholder value through cost synergies and better capital allocation.
Key Deal: Cenovus (CVE) acquiring MEG Energy (MEG) after Strathcona Resources (SCR) initiated a hostile bid; estimated synergies of ~$400M EBITDA annually translate into multi-billion dollar value creation.
Holdings Highlight: The guest owns CVE, MEG, and SCR, viewing the transaction as emblematic of broader value creation via consolidation in Canadian E&Ps.
Policy Setup: Expects lower short-term rates and a steeper yield curve to boost bank lending and housing, implying stronger real-economy activity but more inflation.
Risks & Preferences: Skeptical of AI-driven capex booms and elevated tech valuations; avoids gold miners due to poor capital allocation, preferring oil equities at this stage.
Transcript
Gold and silver are taking a beating. The S&P 500 is rallying and I've invited a guest who is a value investor. So, are gold and silver value investments again? And where does my guest see opportunity in this market? What are some sectors or uh niches uh that we've completely forgotten about? I think you'll be surprised about the one we'll be touch or we'll be talking about here in a few short minutes. But uh before I switch over to my guest, hit that like and subscribe button. helps us out tremendously and we much much appreciate the support. Now Cole, it is great pleasure to welcome you on the program. Really appreciate you coming on. >> Hey, thanks for having me. This is great. >> Yeah, really looking forward to this Cole. We got about 30 minutes to discuss where you see value, but before we get to some of your ideas and what you're looking at these days, um let's set the scene a little bit on the macro side. Like let's let's frame it. Um how do you interpret the market action right now and and the economy in general? Yeah, it's a it's a great question and I've had to do a lot of rethinking particularly on the economy um for trying to really have a framework of moving forward. So high level S&P isn't going to make money over the next decade in our opinion. Um household of ownership of stocks which is historically a negative ind contrary indicator negative indicator um argues that this is the highest ownership ever. It's a pretty good harbinger of what's to come. Okay. Now that's the stock market. I think where people are misguiding, you know, like most value people I run to, they'll be like, "Oh, you know, the market's going to do terrible and the economy is going to roll over. It's going to be terrible." And it's kind of like this doomsday. I don't agree with that. I don't think we agree with that. So, let me give you a picture. Um, you know, the Trump administration really wants to bring short-term rates down. That's one of their goals. Now, why? Because ultimately, they want a steepened yield curve. That causes two things. one, bank lending would pick up naturally with spreads, but then secondly, that's a great thing for housing. When they talk about we want Main Street to win, I think they really want two things. Labor inflation and housing inflation. Now, the question is, will that help the stock market? I think, like I said earlier, history argues that there's not really anything that can help the stock market. But I say that because if they get labor inflation, housing inflation to the detriment of the stock market, I think they're fine with that risk. And I think people are really just not being matterof fact in that that is their intentions. And I'm just a pragmist. We're pragmatists. And that's just where we see things things are likely to go in the economy, which is good for the economy, but not good for long-term risk assets. >> Yeah. No, abs. Absolutely. It's it's an interesting it's a two-edged sword. Like what do we really want? Do we do we need the stock market to go higher over 6,800 in the S&P as we speak here, Cole? Um maybe a question I've asked other guests on this program as well. How important is the S&P 500 to the uh to the US as a um in regard perhaps to systemic risk? meaning a lot of people are using the stock market to save for retirement. >> Yeah, it it is it is one of the most interesting maybe paradoxical questions um of our age, I would say. So um to the average wealthy person, it's terribly terribly important, particularly if they are broadly diversified investors. And by the way, I just explained most misky world investors, whether you're a Thai insurance company, you're a pension fund in the UK, or you're a pensioner in Canada, for example. Okay. Now, um that's a risk for those folks. The question is, does that stop the arc of human history and progress and capitalism? No. This is very normal and this is not something new. So I think the difference is how owned the US equity market is as noted by the S&P or its constituents and how concentrated that is among these diversified investors. That is the real aberration compared to history. Um but the old saying holds true. What the wise man does the beginning the fool does in the end. And I think we're seeing a lot of degenerate gambling even on the sides of some of those discussions. I mean, yes, we have the these, you know, AI hyperscalers, but at the same time, I mean, there's every lunacy and degenerate form of gambling going on in the stock market. And I think the real question, and we'll get to this in our some of our discussion on the commodities, but if you waste capital in capex, regardless of what you're seeking to do, and you cannot generate returns, I don't care whether you're producing a commodity or you're prod producing the next great technology, if you don't produce good cash returns, investors won't want you in the long run. So, we're going to find out if that's true in tech like we have seen in some cases. It's also been a bad idea in commodities. >> Yeah, we're just going through the reporting cycle for Q3 here. And what are you seeing? What are what are you picking up? Um when does or when do valuations become relevant again? And uh how do we compare what is going on to history given the fact that there's uh so much debt now? people have been bombarded with free capital, somewhat low interest rates still. Um, so how do you put that into context historically as well? >> Yeah, there's been a chart that's been passed around X the last few days and you can find this out there, but it comparing uh the pees of today versus the dot bubble versus the Nifty50 as an example. Okay. Now, as I look at those, you have to ask yourself, okay, well, what what happened in each of those scenarios? So for example in 1999 outside of uh say like a Nortell in in Canada or like a Lucent in the S&P 500 sense um that was an asset light phenomena among Microsoft and the big companies uh of that era. Okay. Um the nifty50 was not uh anything more than asset light. It was the great brands of American you know or Americana in some respects. What's really different about comparing these businesses today is when you show PE ratios, it doesn't really tell you what's going on because when they make these big capex commitments, like so when Meta or Oracle or these business make these commitments, um they're putting out capex right now and the inherent issue is when you do earnings, you only use your quarterly cost of your depreciation charge. There's a big spread between those numbers because ultimately one quarter of four and a half years of depreciation is very different than the cash that went out that day. So I think if you compared free cash or what we call owner earnings um to earnings, you'll find out that these are trading for astronomical uh uh you know call it price to free cash flow or price to owner earnings multiples. But the pees aren't telling you that. Why is is that uncommon in the sense of you know what goes on in manas? No. I mean let's go back to 09. What happened to the banks? It's the E that dropped out. Okay. And ultimately they found out that they were underwriting bad loans and therefore the earnings weren't real. And I think that's probably what we're going to learn this cycle is the earnings aren't the right picture. They aren't as real as people think. The ultimate cash returns are going to wake up in two years much lower. And the question is as they raise the book value of these businesses because these are investments. Will those returns on capital in the future really sustain what people want? I don't think so. But I just say that because it's just like what the oil companies did in 2014. Big capback cycle drill baby drill. You know what? It became pumpkins and mice and there was no Cinderella. >> Yeah. It is an interesting time because uh pardon pardon the my French here but it is a bit of a circle jerk that is going on as well. Companies just investing into each other um and everybody's seemingly happy about it. And then the US government steps in as well say hey we'll take a 10% stake in this company because we we deem it relevant. Um what do you make of the government intervention here and how much is that distorting reality? Yeah, I you know I am I am your classic uh Freriedman free markets kind of person. I mean you know I I look at it as like in a euphoria it's just going to get more bizarre every day. I would also say that you know it's like every day we go into a headline where there's a press cycle tied to something going on politically. Um and and the question is that is that valuable? Um I I I don't think so. I you know economics are not created by buyers and sellers. Economics are created by good underlying businesses. And so I just don't think that is a positive net net. Um but to your point, I mean that's going on every day. I think grift is very profitable. And so I think you're seeing grift uh every day. I think you're the lines of what's real and and and false are just being blended. To quote um to quote John Kenneth Galbreth, he talks about this idea of one of his books of bezel. Bezel is what goes on all the time where people are doing grift or graft in some form and then what happens is these euphoria end and it's exposed and sunlight's put on it and we call it embezzlement. and and and that stuff is happening, you know, from time to time and it tends to come all at a head at one time. And I think we'll see some of that come out in the wash. But again, even among what's considered safe, right? These big cap tech stocks are considered safe. If they're not so safe from the perspective of what's going on underlying, that can be very damaging. I I you know, again, to these poor returns, I I wouldn't be shocked to see the S&P wake up at 14 times earnings or less when investor confidence goes out. >> Yeah. It's like safe um is a is an interesting term because the question is like what does it relate to? Like why is it safe? Are are is it only safe because there's liquidity because you can get out if you want. >> Well, that's that's a that's an idea, right? But again, even if you look at the imbalance is like, okay, you have an you know, these stocks are heavily passively owned. So, let's just call it 50%. So, you have a 50% passive owner who's been adding every day. You have the insiders and and insiders can you know be anywhere from maybe low end of you know 3% up to maybe with a company like Amazon insiders going to be a much bigger part called 15% of the business and so in between those numbers is this you know active owner the problem is that active owner has been the natural seller into this imbalance because obviously the the the insiders generally don't sell and so that's when that when things go well passive buying not as many active sellers and you get a virtuous cycle the problem is when the passive passive uh buyer becomes a passive seller. There's not enough active people out there to suck up those shares. And so, you know, the old old saying is don't confuse brains to the bull market. I think a lot of the safety is just the stocks have gone up and therefore that's safe. Um but I've seen a lot of periods in my career where what was safe three years later looked super dangerous and and that's that's the nature of this game and and and that's not uncommon. That's a very normal part of capitalism. >> Yeah, it is it is interesting like and you you keep using interesting quotes. One is only idiots chase bubbles and then it reminds me a lot on the of the crypto wipeout um that we've seen about two weeks ago here where investors completely got destroyed because they were 20 and even more leveraged into those cryptocurrencies. Are you seeing similar um let's call them uh what do you call it like similar or similarities uh to the main markets now in the S&P 500 or even in gold and silver if you wanted to stretch it further? Yeah, I mean I saw a stat uh yesterday where um margin debt tied to stock trading is higher than auto loan debt or credit credit card debt. I think it was the number I saw. Credit card debt currently. Um pardon me for the the error there. But so I I say that because if someone says, "Well, what's the real risk of the economy?" Okay, the real risk is that if there's enough consumption going off of the wealth being generated in the stock market that when that, you know, es and goes the other way that that could cause a detriment to the economy. I think of 2000 to 2003 as a picture. It took about two years for the wealth effect to finally, you know, spill over into the economy back then. I think we're going to see something similar to that, but there'll be big disparities. Back then, the worst housing market in America by the time you got to 01 02 was San Francisco or PaloAlto. So, I think you're going to see regional dispersions in this. But, you know, from a Canadian perspective, I think this is quite a great setup. It's not like commodities have been very popular the last 5 years. We're coming off of metals being low in 16, oil in 20. I think this sets up really well for the Canadian stock market in the looney, but that's a very different game than what's being played in US stock markets right now. >> One needs to find the confidence in Canada first and uh maybe the politics as well to before investing in people like people like momentum though. Like once you get momentum, everyone's like, "Oh, I love Canada now." But it'll take time to do that and that's the natural order of things. I was going to say I think the momentum is of the Blue Jays right now and not the uh the Canadian oil stocks. >> Anybody can root for beating LA though. It doesn't take much of a brain to do that. >> Absolutely. No, no, that's that's a >> I'm camp by the way. [laughter] >> No, it's like I'm I've know nothing about baseball, but of course I find myself rooting for the Blue Jays here as well, which is which is awesome. >> Um now, um maybe looking looking for cracks here on the channel, like cing looking for cracks in the system, the markets. Um, we touched on it before hitting the record button, but the auto loan sector is an interesting one. $1.7 trillion dollars worth of debt that nobody really understands. Um, now we got the first u insolveny here with Color. Um, what what do you make of this market? Because I see it as one of the harbbringers of doom. >> Sure. The the subprime lending business in general. Let's just go through the quick history of it. It's a terrible business in general. >> Great. We summed up the history of subprime lending. Um, and I don't think people recognize that it's a it's a bad history. A lot of business have done really bad things in subprime lending. And so should we be shocked that in very normal eras over cycles the subprime lending in any form homes, autos, credit cards, etc. have troubled? No. That's that's the history of that business. Okay. Um, I think this comes down to who are the issuers and therefore who is going to go away or have trouble because again it's a very poor history in this business. Now, does that go out and say, "Well, this tells us something about the economy." No. Because, like I said earlier, if short-term rates are going to end up at 2% and you're going to have, you know, the 10-year Treasury float around somewhere where it's at and you're going to have mortgage lending come down, um, you're going to see a very strong economy continue to pick up. If anything, with all the panic and fears that have been put into the the stock market and and really the economy, oh, tariffs, we're going to scare the daylights out of people on a subject that didn't need to come to a head in April. And yet, what happened to the economy? I mean, we we really haven't had a bad economy. It hasn't been killer, but it hasn't been bad. What no one has said is with with what's going on plus the spending in our government, which has been running 6 to 7% of our GDP in deficit, history argues you might not be able to get a recession. And I think that's something that people are missing. There's this massive buffer in the US economy. And so, I think it's really popular to be mentally negative on the US economy and not to be negative on the stock market. I have the opposite take. I am more optimistic on the economy. Um I am less optimistic on the stock market. And that's the inverse of how most people have been dealing with this. >> What makes you optim Oh, what makes you optimistic though? Uh Cole, real real quick before we uh you know jump down a couple other rabbit holes here. >> Yeah, I just mentioned the deficit spending that we're doing. Um we have never done that outside of war periods and sustained it for periods of time like this in US history. I'll add one other thing. um you know they job own oil prices lower. Well, what does that who does that help? Well, that helps actually the lowest incomes the most because ultimately, you know, gas spending would be a bigger part of their discretionary income. So, I say that because low oil prices are terribly stimulative to the global economy, but the US economy and I don't think people are understanding why is demand staying so strong for oil despite the fact that a lot of oil is coming to market and ultimately because price regulates price. Low prices cause demand to go up and we're seeing continued strength globally off the back of low inputs and I think that's a terribly good thing economically speaking beyond the deficits. >> Yeah, I've been calling the low prices a QE for the people. Um >> it is it is and but really mostly non US I mean the emerging markets have got to just be having victory parades every week because that is a big determinant especially with a stronger dollar era and oil being high. That'd be a nightmare. But dollar's been weakening and oil's been weakening. Great for the global economy. >> Yeah, absolutely. No, u I think that's the one thing that keeps the world turning uh right now is the low oil price and Saudi Arabia keeping output high as well. Um Cole, we we need to talk about the Fed real quick before we get on. Uh I know you want to talk about oil and some some of the valuations that you see and some value opportunities, but we need to talk about the Fed. Um what do you expect them to do? What should they be doing? Um, we we got the decision coming up here in about 48 hours as we record this. What do you think is going to happen? >> It'll I mean 25 base point cut is kind of baked in. The question is, could they go bigger at 50? Who knows? Nor do I necessarily care. Okay. And here's why. Their goal is to get it down in the twos. They've made that very obvious from, you know, uh, Worsh commenting, Kevin Hasset, Scott Basent, and so just take that at face value. I would I always just say, you know, take what's going on at face value. Um, and again, I I I look at that as like if would I be doing that if I was the Fed chair? That's not my really that's not my question to ask. I'm here to make money picking stocks, trying to figure out where we can take advantage of markets, not try and figure out Fed policy. And I think it's a big mistake to try and think that you're smarter than the Fed because you they they set the bounds and you deal with the problems. So, um, you know, I I just look at at at they want they want an economy of pickup and lending. That's their main goal in this. That's why you'd want spread for banks. That's something we've been talking about with some of the banks that we own, for example, is, hey, aren't you looking forward to an environment where you can borrow at 250 or 275 and lend at mortgages that are now in many cases outside a 30-year fixed or in the fives? Um, collecting two to 300 basis points in bank lending always makes you want to lend. And so, I think that argues the economy is likely to speed up, not slow down, because again, we're not cutting our deficit and we're about to add liquidity to to the economy. And this idea that we're late cycle and about to tip off a cliff. That math ain't math in in our mind. So, um, you know, would I be looking at this? No. Um, you know, inflation's probably going to go higher. It just argues for higher inflation, but that's not really their care. That's not their game. And and that could be bad for long-term assets like we talked about earlier. But again, I'm not here to write the wrongs. I am not J. Pal. I'm not the next Fed chair. I'm trying to figure out how to make money in the stock market. And those things look obvious to us. >> No, it it is interesting um because I'm trying to figure out what the Fed's mandate is. they've been shifting lately to more towards the unemployment side. Uh they want to make sure that people are, you know, fully employed. They say they don't really care about inflation at this point. Um I'm paraphrasing obviously. >> I agree. Oh, no. I'll add something. I'll recommend a book to your listeners. Um there's a brand new book out by Mark Ble and Nico Frolini. It's called Inflation: A Guide for Users and Losers. So the question investors should be asking is, okay, if they're going to do this and they don't care about inflation, who is the winner and who is the loser? And what kind of assets win off this and what kind of assets lose off that? And I think that's a really good question. It's like physics, Newton's third law. For every action, there's an equal and an opposite reaction. It call follows very, you know, a physics framework. And I think most people aren't paying attention to not everyone will win the question, who are the losers? >> Give give us the cliff notes. Who's going to win and who's going to lose? Well, like I talked about in housing inflation, I look at this as an era where the government's willing to spend, keep rates subdued in such a way that is not long-term good for asset owners, long-term asset owners. But again, I think it's good for households, and I think it's good for work. So, if someone's like, Cole, labor versus capital, who's going to win? I'd say labor. It looks very obvious that labor is going to win. Why would I say that? Are we having a lot of babies in the West? No. That means labor labor is becoming more scarce and we're running these big economies. So I think all those things are at at at play here. But again in inflationary times. Um what is really interesting is if there's demand for your product. So we talked about oil. Is there demand for oil? Yes. We continue to find more and more demand. Well in an inflationary time I want to know that. Um if housing does well, guess what? That that's a benefit to the the people that build houses. There's things like that that I think are very much sitting out there for investors. But at the same time, the idea being like, oh, you know, we're all going to end up wealthy in the stock market and we're all going to become, you know, wealth management firms and everyone's going to get rich and that's just the way this game's played, that seems very spurious. If you go back and look at periods of elevated inflation, which is what we're begging on and, you know, say elevated B 4% or higher, um, it's not good for long-term assets. You'll find bond yields struggle in those environments. You'll find stocks historically struggle in those environments. So I think that is like the the general framework that I would work off to your point about the cliff notes but that doesn't tell you what stock to own that doesn't tell you which business is going to allocate capital well all those things that's for investors aside but I think that's a good framework to think about the forward picture. Yeah, we can't give away the whole secret sauce here, right? Our audience has to do a little bit of homework as well. Um, >> well, I wish it was that easy, too. [laughter] >> No, there's a reason why it's called hunting as well, right? So, it's uh it's it's uh you got to put a little effort in and uh time time you got to learn. Um, let's talk about some of the value ideas that you're looking at and you hinted at oil and gas. Why is that sector of interest to you right now? Why has it been so forgotten? >> Yeah, I I like thinking a lot about the capital cycle. So you don't want to go into industries where capital is readily available. So think like we talked about the AI hyperscalers. They're throwing money at this problem historically. That means the diluted returns are coming because more capital and the same amount of money that was going to come anyway. It means the revenue relative to that capital or the profits are going down. Okay? Those aren't the kind of things that historically attract us. We like to find tight supply and what we want to find is ultimately at some point demand stays strong or goes up because if you have tight supply and you have those factors running across it, it's always historically great. So think of the capex that went into the oil and gas space both in Canada and say the United States during the early 2010s, particularly years like 2014, massive increase of capital and the outcome was terrible. We woke up with, you know, negative oil prices in 2020 and ultimately a lot of egg on everyone's face on either side of the border. Um, it is what it is. Now, since then, what have we seen? Lack of capex, underinvestment really is a dominant theme. I I could make that case across the general commodities market. You'll see a lack of investment that's come really from the high of 2011 to the low, you know, really in the late 2010s or early 2020 in the case of like we talked about oil and gas. And why that's interesting to us because it's just competition always ruins competence. But if you have an underinvestment cycle like we're seeing, what it means is at some point the only way to rectify the underinvestment is price of the underlying goods got to go up in such a way that it incentivizes investment to finally show up years later. So you know in commodity businesses, low prices are what cause high prices is like the big, you know, earthshattering idea. So am I saying that we're going to end up with $60 oil and that's going to cause demand to go way up? No, no, no. That's not what I'm saying. I'm saying that ultimately demand just continues to grow at these prices because if you think about this in, you know, inflation adjusted terms compared to $147 a barrel in '08. I mean, these are really cheap prices historically speaking. So, what's going to go on is the lack of investment will cause supply not to meet demand. And when demand continues to grow like it does, you're going to run into an environment where for demand to meet its supply, you're going to need higher prices for people to invest. So, do I think 60 is sustainable? No. what I think is more likely long-term sustainable. Um, especially with inflation, we're going to have to wake up at $100 again at some point. And the difference with these businesses, there's very little marginal capbacks needed to make way more money at $100. And this might argue don't to not grow production ever because ultimately if you can get rich and you don't have to grow production, that's a pretty easy life. >> Sounds pretty sweet. Absolutely. Um, Cole, we're we're seeing a merger taking place right now or a takeover offer by Senovas to buy a Mech Energy in Canada for their sense projects. Um, put some context around it for us and to maybe run us through the highlights of the deal real quick as well before you give us your opinion on it. >> Yeah, so I mean me had been a talked about buyout candidate for 20 years is the long and the short of the story. Um, you know, most people remember back that uh, you know, Husky had taken a run at them unsuccessfully. Um and and strategically speaking, you know, Senovas had a long time been a very easy tieup because of what they have in common at Christina Lake, which is an asset that's meg's sole producing asset that was right next door to Sonovas. Well, um what caused this to happen was Strathona, another publicly traded ENTP that that is Alberta based and is recently public over the last few years, um effectively took them in play by making a hostile offer for them. Just so you know, we own Strathona, we own Senovas, and we own MAG. And we'd owned um those stocks for a while. And so I say that because this all made sense to us. Um I'll give you some cliffnotes to the deal. Um you don't need a board and you don't need a management if you put these businesses together. So that's a savings and cost. A lot of your corporate office structure, a lot of those costs come out. So, you know, using Senova's numbers, when they came out with their deal proposal to make their first friendly offer, um they said $400 million of synergies or EBITDA savings, pre-tax income would be saved out of this deal per year. Um, in my world, if you can save pre that much money pre-tax, people usually throw a seven or eight handle on that. So, we're talking about 2.4 to 3.2 billion or 2.8 to 3.2 billion of savings. And then there's other things like net operating losses that could be captured in the deal. So it's like someone walking and saying by owing you I can recognize three and a half to four billion dollars of Canadian value long term by being your owner in lie of your current owners. And that is the paradigm to think about the oil and gas business in scale. The new owner makes more money than the old owner even if the owners at large are combined in all stock mergers. And I think we're going to see this come up time and time again over the next 5 to 10 years. I think we're going to see more deal pickups because those numbers all math and really what it is for every barrel of oil or barrel of gas that's coming out of the ground and the revenants coming in, how does it most efficiently drop to the bottom line ultimately to get the shareholders and get the best allocation of capital. Um, here's what I've learned so far. Um, you know, boards might not be the best allocation of capital, but share buybacks might be. And that's what a new owner can do. Save costs on one thing. Um, things like vendors, other things like that are where natural synergies come from. And this does not go off under the heading of like deals at the top. This is deals like like we said on the price of oil. This is deals closer to the bottom. >> So sounds like you're absolutely in favor of it as well. Just to put a positive spin on it, Cole, and maybe summarize it, you're all in favor for this deal. >> Not only would I like I So now as of this morning's news, you know, as probably seen, Strath Kona has agreed to allow Senovas to take over Meg. They've agreed to the price and terms at $30 a share, half stock, half cash, just so your listeners know. But I say that because Strathona did get some assets in that process. But to your point, we're going to see this again. Um, you know, next time you have me back on, we'll be talking about another merger. I'm sure we'll end up owning the company. We don't own many businesses in the space, just so you know. So, these were three of our uh, call it five Canadian ENPs that we own. And so, this was a big deal to our investors, but I just say that because this is going to be a common thing. And I totally expect that we'll talk about this next time, too, with another issuer who bought someone next door. and and that's really but it it should cause people to be more focused and interested in the Canadian ENTP business because there's powerful returns that can be sought from these mergers. >> Fantastic. No, Cole, really appreciate those insights. And maybe as a follow-up now, do you own any gold mining stocks? >> Uh we don't. Um simple answer is not because gold is a bad idea relative to cash or people always ask me like you know why why don't you own any gold or whatnot. uh I am in the can's camp of it's a barbaric relic that's better than a dollar or a looney for example but at the same time it it's not as good as owning a company. The other issue I've historically seen is that like gold has outperformed a lot of the miners and that's a problem. So it's like what if you could find a circumstance for gold to go way up and the companies that historically should benefit from that aren't good at allocating capital. That's a big problem in my mind because it shows you the allocation of capital is a very important determinant in long-term stock returns regardless of the underlying commodity going up. So I think that's been the real disconnect in my mind. If you've made much bunch of money on gold recently, I tip my cap to you. God bless you. Um that being said, I'm at closer to the bottom of pricing cycle and oil and and we think there's powerful economics that come off of that and I don't have to wonder if there's been a massive rally or there's, you know, any kind of oddities like that. I think everyone and their brother just got really aware of gold again. Not dissimilar to what we saw in 2011 when it was $1,800. I mean, everyone knew that gold was at $1,800 in 2011. And probably near-term, you know, all the uncles that decided that, you know, they wanted to finally go out and, you know, play that game again like they did 14 years ago. They probably just marginally bought and you got to you got to run out of your buyers and that's what usually markets tap out on. >> Absolutely. No, I think that's what we're seeing right now. Gold and silver being decimated right now and the mining stocks of course following suit. Um, Cole, really appreciate your insights. That, that was fantastic. Really appreciate you having, you know, having you come on the program here. Um, where can we send our audience to learn more about you and your work? >> Yeah. Well, thanks for having me. Uh, smecap.com is our website. Um, as you can probably see in the background here, uh, I'm the host of our podcast, The Book with Legs. You can find on Apple and Spotify. Um, so, uh, you know, you're you're sitting in Vancouver. I'm sitting in Phoenix, Arizona. There's a lot of kucks that come down, uh, to the desert uh during the winter time. But the other thing I'd mention is, you know, we love we love doing business in Canada and and we love interacting with these issuers and and we think there's a real fun process there that we've learned out of talking with, you know, various folks there. And so we're our plans are actually to come to Canada. We're going to register as an IFM and a PM um in Ontario. And uh God willing, we we'll launch a fund early next year in Canada. And uh so that's kind of coming attractions for Canadian investors with our firm. >> Fantastic. Awesome, Cole. Really appreciate your time. Thanks so much for coming on and uh yeah, good luck out there. We'll definitely catch up very soon. I'd love to get your outlook for for next year and maybe what your hottest idea or the most undervalued sector is um for for 2026. So, really appreciate it, Cole. Thank you so much. Everybody else, thank you so much for watching. Really appreciate you tuning in. What do you think of the oil and gas sector being out of either out of the US or Canada here? Um is it really that undervalued in your opinion? Uh it is in your backyard. So, let us know what you think. And if you haven't done so, hit that like and subscribe button. Helps us out tremendously and we much much appreciate. Thank you so much and take care out there. [music]
Don’t Get Caught In The Stock Trap – Do This Instead! Cole Smead
Summary
Transcript
Gold and silver are taking a beating. The S&P 500 is rallying and I've invited a guest who is a value investor. So, are gold and silver value investments again? And where does my guest see opportunity in this market? What are some sectors or uh niches uh that we've completely forgotten about? I think you'll be surprised about the one we'll be touch or we'll be talking about here in a few short minutes. But uh before I switch over to my guest, hit that like and subscribe button. helps us out tremendously and we much much appreciate the support. Now Cole, it is great pleasure to welcome you on the program. Really appreciate you coming on. >> Hey, thanks for having me. This is great. >> Yeah, really looking forward to this Cole. We got about 30 minutes to discuss where you see value, but before we get to some of your ideas and what you're looking at these days, um let's set the scene a little bit on the macro side. Like let's let's frame it. Um how do you interpret the market action right now and and the economy in general? Yeah, it's a it's a great question and I've had to do a lot of rethinking particularly on the economy um for trying to really have a framework of moving forward. So high level S&P isn't going to make money over the next decade in our opinion. Um household of ownership of stocks which is historically a negative ind contrary indicator negative indicator um argues that this is the highest ownership ever. It's a pretty good harbinger of what's to come. Okay. Now that's the stock market. I think where people are misguiding, you know, like most value people I run to, they'll be like, "Oh, you know, the market's going to do terrible and the economy is going to roll over. It's going to be terrible." And it's kind of like this doomsday. I don't agree with that. I don't think we agree with that. So, let me give you a picture. Um, you know, the Trump administration really wants to bring short-term rates down. That's one of their goals. Now, why? Because ultimately, they want a steepened yield curve. That causes two things. one, bank lending would pick up naturally with spreads, but then secondly, that's a great thing for housing. When they talk about we want Main Street to win, I think they really want two things. Labor inflation and housing inflation. Now, the question is, will that help the stock market? I think, like I said earlier, history argues that there's not really anything that can help the stock market. But I say that because if they get labor inflation, housing inflation to the detriment of the stock market, I think they're fine with that risk. And I think people are really just not being matterof fact in that that is their intentions. And I'm just a pragmist. We're pragmatists. And that's just where we see things things are likely to go in the economy, which is good for the economy, but not good for long-term risk assets. >> Yeah. No, abs. Absolutely. It's it's an interesting it's a two-edged sword. Like what do we really want? Do we do we need the stock market to go higher over 6,800 in the S&P as we speak here, Cole? Um maybe a question I've asked other guests on this program as well. How important is the S&P 500 to the uh to the US as a um in regard perhaps to systemic risk? meaning a lot of people are using the stock market to save for retirement. >> Yeah, it it is it is one of the most interesting maybe paradoxical questions um of our age, I would say. So um to the average wealthy person, it's terribly terribly important, particularly if they are broadly diversified investors. And by the way, I just explained most misky world investors, whether you're a Thai insurance company, you're a pension fund in the UK, or you're a pensioner in Canada, for example. Okay. Now, um that's a risk for those folks. The question is, does that stop the arc of human history and progress and capitalism? No. This is very normal and this is not something new. So I think the difference is how owned the US equity market is as noted by the S&P or its constituents and how concentrated that is among these diversified investors. That is the real aberration compared to history. Um but the old saying holds true. What the wise man does the beginning the fool does in the end. And I think we're seeing a lot of degenerate gambling even on the sides of some of those discussions. I mean, yes, we have the these, you know, AI hyperscalers, but at the same time, I mean, there's every lunacy and degenerate form of gambling going on in the stock market. And I think the real question, and we'll get to this in our some of our discussion on the commodities, but if you waste capital in capex, regardless of what you're seeking to do, and you cannot generate returns, I don't care whether you're producing a commodity or you're prod producing the next great technology, if you don't produce good cash returns, investors won't want you in the long run. So, we're going to find out if that's true in tech like we have seen in some cases. It's also been a bad idea in commodities. >> Yeah, we're just going through the reporting cycle for Q3 here. And what are you seeing? What are what are you picking up? Um when does or when do valuations become relevant again? And uh how do we compare what is going on to history given the fact that there's uh so much debt now? people have been bombarded with free capital, somewhat low interest rates still. Um, so how do you put that into context historically as well? >> Yeah, there's been a chart that's been passed around X the last few days and you can find this out there, but it comparing uh the pees of today versus the dot bubble versus the Nifty50 as an example. Okay. Now, as I look at those, you have to ask yourself, okay, well, what what happened in each of those scenarios? So for example in 1999 outside of uh say like a Nortell in in Canada or like a Lucent in the S&P 500 sense um that was an asset light phenomena among Microsoft and the big companies uh of that era. Okay. Um the nifty50 was not uh anything more than asset light. It was the great brands of American you know or Americana in some respects. What's really different about comparing these businesses today is when you show PE ratios, it doesn't really tell you what's going on because when they make these big capex commitments, like so when Meta or Oracle or these business make these commitments, um they're putting out capex right now and the inherent issue is when you do earnings, you only use your quarterly cost of your depreciation charge. There's a big spread between those numbers because ultimately one quarter of four and a half years of depreciation is very different than the cash that went out that day. So I think if you compared free cash or what we call owner earnings um to earnings, you'll find out that these are trading for astronomical uh uh you know call it price to free cash flow or price to owner earnings multiples. But the pees aren't telling you that. Why is is that uncommon in the sense of you know what goes on in manas? No. I mean let's go back to 09. What happened to the banks? It's the E that dropped out. Okay. And ultimately they found out that they were underwriting bad loans and therefore the earnings weren't real. And I think that's probably what we're going to learn this cycle is the earnings aren't the right picture. They aren't as real as people think. The ultimate cash returns are going to wake up in two years much lower. And the question is as they raise the book value of these businesses because these are investments. Will those returns on capital in the future really sustain what people want? I don't think so. But I just say that because it's just like what the oil companies did in 2014. Big capback cycle drill baby drill. You know what? It became pumpkins and mice and there was no Cinderella. >> Yeah. It is an interesting time because uh pardon pardon the my French here but it is a bit of a circle jerk that is going on as well. Companies just investing into each other um and everybody's seemingly happy about it. And then the US government steps in as well say hey we'll take a 10% stake in this company because we we deem it relevant. Um what do you make of the government intervention here and how much is that distorting reality? Yeah, I you know I am I am your classic uh Freriedman free markets kind of person. I mean you know I I look at it as like in a euphoria it's just going to get more bizarre every day. I would also say that you know it's like every day we go into a headline where there's a press cycle tied to something going on politically. Um and and the question is that is that valuable? Um I I I don't think so. I you know economics are not created by buyers and sellers. Economics are created by good underlying businesses. And so I just don't think that is a positive net net. Um but to your point, I mean that's going on every day. I think grift is very profitable. And so I think you're seeing grift uh every day. I think you're the lines of what's real and and and false are just being blended. To quote um to quote John Kenneth Galbreth, he talks about this idea of one of his books of bezel. Bezel is what goes on all the time where people are doing grift or graft in some form and then what happens is these euphoria end and it's exposed and sunlight's put on it and we call it embezzlement. and and and that stuff is happening, you know, from time to time and it tends to come all at a head at one time. And I think we'll see some of that come out in the wash. But again, even among what's considered safe, right? These big cap tech stocks are considered safe. If they're not so safe from the perspective of what's going on underlying, that can be very damaging. I I you know, again, to these poor returns, I I wouldn't be shocked to see the S&P wake up at 14 times earnings or less when investor confidence goes out. >> Yeah. It's like safe um is a is an interesting term because the question is like what does it relate to? Like why is it safe? Are are is it only safe because there's liquidity because you can get out if you want. >> Well, that's that's a that's an idea, right? But again, even if you look at the imbalance is like, okay, you have an you know, these stocks are heavily passively owned. So, let's just call it 50%. So, you have a 50% passive owner who's been adding every day. You have the insiders and and insiders can you know be anywhere from maybe low end of you know 3% up to maybe with a company like Amazon insiders going to be a much bigger part called 15% of the business and so in between those numbers is this you know active owner the problem is that active owner has been the natural seller into this imbalance because obviously the the the insiders generally don't sell and so that's when that when things go well passive buying not as many active sellers and you get a virtuous cycle the problem is when the passive passive uh buyer becomes a passive seller. There's not enough active people out there to suck up those shares. And so, you know, the old old saying is don't confuse brains to the bull market. I think a lot of the safety is just the stocks have gone up and therefore that's safe. Um but I've seen a lot of periods in my career where what was safe three years later looked super dangerous and and that's that's the nature of this game and and and that's not uncommon. That's a very normal part of capitalism. >> Yeah, it is it is interesting like and you you keep using interesting quotes. One is only idiots chase bubbles and then it reminds me a lot on the of the crypto wipeout um that we've seen about two weeks ago here where investors completely got destroyed because they were 20 and even more leveraged into those cryptocurrencies. Are you seeing similar um let's call them uh what do you call it like similar or similarities uh to the main markets now in the S&P 500 or even in gold and silver if you wanted to stretch it further? Yeah, I mean I saw a stat uh yesterday where um margin debt tied to stock trading is higher than auto loan debt or credit credit card debt. I think it was the number I saw. Credit card debt currently. Um pardon me for the the error there. But so I I say that because if someone says, "Well, what's the real risk of the economy?" Okay, the real risk is that if there's enough consumption going off of the wealth being generated in the stock market that when that, you know, es and goes the other way that that could cause a detriment to the economy. I think of 2000 to 2003 as a picture. It took about two years for the wealth effect to finally, you know, spill over into the economy back then. I think we're going to see something similar to that, but there'll be big disparities. Back then, the worst housing market in America by the time you got to 01 02 was San Francisco or PaloAlto. So, I think you're going to see regional dispersions in this. But, you know, from a Canadian perspective, I think this is quite a great setup. It's not like commodities have been very popular the last 5 years. We're coming off of metals being low in 16, oil in 20. I think this sets up really well for the Canadian stock market in the looney, but that's a very different game than what's being played in US stock markets right now. >> One needs to find the confidence in Canada first and uh maybe the politics as well to before investing in people like people like momentum though. Like once you get momentum, everyone's like, "Oh, I love Canada now." But it'll take time to do that and that's the natural order of things. I was going to say I think the momentum is of the Blue Jays right now and not the uh the Canadian oil stocks. >> Anybody can root for beating LA though. It doesn't take much of a brain to do that. >> Absolutely. No, no, that's that's a >> I'm camp by the way. [laughter] >> No, it's like I'm I've know nothing about baseball, but of course I find myself rooting for the Blue Jays here as well, which is which is awesome. >> Um now, um maybe looking looking for cracks here on the channel, like cing looking for cracks in the system, the markets. Um, we touched on it before hitting the record button, but the auto loan sector is an interesting one. $1.7 trillion dollars worth of debt that nobody really understands. Um, now we got the first u insolveny here with Color. Um, what what do you make of this market? Because I see it as one of the harbbringers of doom. >> Sure. The the subprime lending business in general. Let's just go through the quick history of it. It's a terrible business in general. >> Great. We summed up the history of subprime lending. Um, and I don't think people recognize that it's a it's a bad history. A lot of business have done really bad things in subprime lending. And so should we be shocked that in very normal eras over cycles the subprime lending in any form homes, autos, credit cards, etc. have troubled? No. That's that's the history of that business. Okay. Um, I think this comes down to who are the issuers and therefore who is going to go away or have trouble because again it's a very poor history in this business. Now, does that go out and say, "Well, this tells us something about the economy." No. Because, like I said earlier, if short-term rates are going to end up at 2% and you're going to have, you know, the 10-year Treasury float around somewhere where it's at and you're going to have mortgage lending come down, um, you're going to see a very strong economy continue to pick up. If anything, with all the panic and fears that have been put into the the stock market and and really the economy, oh, tariffs, we're going to scare the daylights out of people on a subject that didn't need to come to a head in April. And yet, what happened to the economy? I mean, we we really haven't had a bad economy. It hasn't been killer, but it hasn't been bad. What no one has said is with with what's going on plus the spending in our government, which has been running 6 to 7% of our GDP in deficit, history argues you might not be able to get a recession. And I think that's something that people are missing. There's this massive buffer in the US economy. And so, I think it's really popular to be mentally negative on the US economy and not to be negative on the stock market. I have the opposite take. I am more optimistic on the economy. Um I am less optimistic on the stock market. And that's the inverse of how most people have been dealing with this. >> What makes you optim Oh, what makes you optimistic though? Uh Cole, real real quick before we uh you know jump down a couple other rabbit holes here. >> Yeah, I just mentioned the deficit spending that we're doing. Um we have never done that outside of war periods and sustained it for periods of time like this in US history. I'll add one other thing. um you know they job own oil prices lower. Well, what does that who does that help? Well, that helps actually the lowest incomes the most because ultimately, you know, gas spending would be a bigger part of their discretionary income. So, I say that because low oil prices are terribly stimulative to the global economy, but the US economy and I don't think people are understanding why is demand staying so strong for oil despite the fact that a lot of oil is coming to market and ultimately because price regulates price. Low prices cause demand to go up and we're seeing continued strength globally off the back of low inputs and I think that's a terribly good thing economically speaking beyond the deficits. >> Yeah, I've been calling the low prices a QE for the people. Um >> it is it is and but really mostly non US I mean the emerging markets have got to just be having victory parades every week because that is a big determinant especially with a stronger dollar era and oil being high. That'd be a nightmare. But dollar's been weakening and oil's been weakening. Great for the global economy. >> Yeah, absolutely. No, u I think that's the one thing that keeps the world turning uh right now is the low oil price and Saudi Arabia keeping output high as well. Um Cole, we we need to talk about the Fed real quick before we get on. Uh I know you want to talk about oil and some some of the valuations that you see and some value opportunities, but we need to talk about the Fed. Um what do you expect them to do? What should they be doing? Um, we we got the decision coming up here in about 48 hours as we record this. What do you think is going to happen? >> It'll I mean 25 base point cut is kind of baked in. The question is, could they go bigger at 50? Who knows? Nor do I necessarily care. Okay. And here's why. Their goal is to get it down in the twos. They've made that very obvious from, you know, uh, Worsh commenting, Kevin Hasset, Scott Basent, and so just take that at face value. I would I always just say, you know, take what's going on at face value. Um, and again, I I I look at that as like if would I be doing that if I was the Fed chair? That's not my really that's not my question to ask. I'm here to make money picking stocks, trying to figure out where we can take advantage of markets, not try and figure out Fed policy. And I think it's a big mistake to try and think that you're smarter than the Fed because you they they set the bounds and you deal with the problems. So, um, you know, I I just look at at at they want they want an economy of pickup and lending. That's their main goal in this. That's why you'd want spread for banks. That's something we've been talking about with some of the banks that we own, for example, is, hey, aren't you looking forward to an environment where you can borrow at 250 or 275 and lend at mortgages that are now in many cases outside a 30-year fixed or in the fives? Um, collecting two to 300 basis points in bank lending always makes you want to lend. And so, I think that argues the economy is likely to speed up, not slow down, because again, we're not cutting our deficit and we're about to add liquidity to to the economy. And this idea that we're late cycle and about to tip off a cliff. That math ain't math in in our mind. So, um, you know, would I be looking at this? No. Um, you know, inflation's probably going to go higher. It just argues for higher inflation, but that's not really their care. That's not their game. And and that could be bad for long-term assets like we talked about earlier. But again, I'm not here to write the wrongs. I am not J. Pal. I'm not the next Fed chair. I'm trying to figure out how to make money in the stock market. And those things look obvious to us. >> No, it it is interesting um because I'm trying to figure out what the Fed's mandate is. they've been shifting lately to more towards the unemployment side. Uh they want to make sure that people are, you know, fully employed. They say they don't really care about inflation at this point. Um I'm paraphrasing obviously. >> I agree. Oh, no. I'll add something. I'll recommend a book to your listeners. Um there's a brand new book out by Mark Ble and Nico Frolini. It's called Inflation: A Guide for Users and Losers. So the question investors should be asking is, okay, if they're going to do this and they don't care about inflation, who is the winner and who is the loser? And what kind of assets win off this and what kind of assets lose off that? And I think that's a really good question. It's like physics, Newton's third law. For every action, there's an equal and an opposite reaction. It call follows very, you know, a physics framework. And I think most people aren't paying attention to not everyone will win the question, who are the losers? >> Give give us the cliff notes. Who's going to win and who's going to lose? Well, like I talked about in housing inflation, I look at this as an era where the government's willing to spend, keep rates subdued in such a way that is not long-term good for asset owners, long-term asset owners. But again, I think it's good for households, and I think it's good for work. So, if someone's like, Cole, labor versus capital, who's going to win? I'd say labor. It looks very obvious that labor is going to win. Why would I say that? Are we having a lot of babies in the West? No. That means labor labor is becoming more scarce and we're running these big economies. So I think all those things are at at at play here. But again in inflationary times. Um what is really interesting is if there's demand for your product. So we talked about oil. Is there demand for oil? Yes. We continue to find more and more demand. Well in an inflationary time I want to know that. Um if housing does well, guess what? That that's a benefit to the the people that build houses. There's things like that that I think are very much sitting out there for investors. But at the same time, the idea being like, oh, you know, we're all going to end up wealthy in the stock market and we're all going to become, you know, wealth management firms and everyone's going to get rich and that's just the way this game's played, that seems very spurious. If you go back and look at periods of elevated inflation, which is what we're begging on and, you know, say elevated B 4% or higher, um, it's not good for long-term assets. You'll find bond yields struggle in those environments. You'll find stocks historically struggle in those environments. So I think that is like the the general framework that I would work off to your point about the cliff notes but that doesn't tell you what stock to own that doesn't tell you which business is going to allocate capital well all those things that's for investors aside but I think that's a good framework to think about the forward picture. Yeah, we can't give away the whole secret sauce here, right? Our audience has to do a little bit of homework as well. Um, >> well, I wish it was that easy, too. [laughter] >> No, there's a reason why it's called hunting as well, right? So, it's uh it's it's uh you got to put a little effort in and uh time time you got to learn. Um, let's talk about some of the value ideas that you're looking at and you hinted at oil and gas. Why is that sector of interest to you right now? Why has it been so forgotten? >> Yeah, I I like thinking a lot about the capital cycle. So you don't want to go into industries where capital is readily available. So think like we talked about the AI hyperscalers. They're throwing money at this problem historically. That means the diluted returns are coming because more capital and the same amount of money that was going to come anyway. It means the revenue relative to that capital or the profits are going down. Okay? Those aren't the kind of things that historically attract us. We like to find tight supply and what we want to find is ultimately at some point demand stays strong or goes up because if you have tight supply and you have those factors running across it, it's always historically great. So think of the capex that went into the oil and gas space both in Canada and say the United States during the early 2010s, particularly years like 2014, massive increase of capital and the outcome was terrible. We woke up with, you know, negative oil prices in 2020 and ultimately a lot of egg on everyone's face on either side of the border. Um, it is what it is. Now, since then, what have we seen? Lack of capex, underinvestment really is a dominant theme. I I could make that case across the general commodities market. You'll see a lack of investment that's come really from the high of 2011 to the low, you know, really in the late 2010s or early 2020 in the case of like we talked about oil and gas. And why that's interesting to us because it's just competition always ruins competence. But if you have an underinvestment cycle like we're seeing, what it means is at some point the only way to rectify the underinvestment is price of the underlying goods got to go up in such a way that it incentivizes investment to finally show up years later. So you know in commodity businesses, low prices are what cause high prices is like the big, you know, earthshattering idea. So am I saying that we're going to end up with $60 oil and that's going to cause demand to go way up? No, no, no. That's not what I'm saying. I'm saying that ultimately demand just continues to grow at these prices because if you think about this in, you know, inflation adjusted terms compared to $147 a barrel in '08. I mean, these are really cheap prices historically speaking. So, what's going to go on is the lack of investment will cause supply not to meet demand. And when demand continues to grow like it does, you're going to run into an environment where for demand to meet its supply, you're going to need higher prices for people to invest. So, do I think 60 is sustainable? No. what I think is more likely long-term sustainable. Um, especially with inflation, we're going to have to wake up at $100 again at some point. And the difference with these businesses, there's very little marginal capbacks needed to make way more money at $100. And this might argue don't to not grow production ever because ultimately if you can get rich and you don't have to grow production, that's a pretty easy life. >> Sounds pretty sweet. Absolutely. Um, Cole, we're we're seeing a merger taking place right now or a takeover offer by Senovas to buy a Mech Energy in Canada for their sense projects. Um, put some context around it for us and to maybe run us through the highlights of the deal real quick as well before you give us your opinion on it. >> Yeah, so I mean me had been a talked about buyout candidate for 20 years is the long and the short of the story. Um, you know, most people remember back that uh, you know, Husky had taken a run at them unsuccessfully. Um and and strategically speaking, you know, Senovas had a long time been a very easy tieup because of what they have in common at Christina Lake, which is an asset that's meg's sole producing asset that was right next door to Sonovas. Well, um what caused this to happen was Strathona, another publicly traded ENTP that that is Alberta based and is recently public over the last few years, um effectively took them in play by making a hostile offer for them. Just so you know, we own Strathona, we own Senovas, and we own MAG. And we'd owned um those stocks for a while. And so I say that because this all made sense to us. Um I'll give you some cliffnotes to the deal. Um you don't need a board and you don't need a management if you put these businesses together. So that's a savings and cost. A lot of your corporate office structure, a lot of those costs come out. So, you know, using Senova's numbers, when they came out with their deal proposal to make their first friendly offer, um they said $400 million of synergies or EBITDA savings, pre-tax income would be saved out of this deal per year. Um, in my world, if you can save pre that much money pre-tax, people usually throw a seven or eight handle on that. So, we're talking about 2.4 to 3.2 billion or 2.8 to 3.2 billion of savings. And then there's other things like net operating losses that could be captured in the deal. So it's like someone walking and saying by owing you I can recognize three and a half to four billion dollars of Canadian value long term by being your owner in lie of your current owners. And that is the paradigm to think about the oil and gas business in scale. The new owner makes more money than the old owner even if the owners at large are combined in all stock mergers. And I think we're going to see this come up time and time again over the next 5 to 10 years. I think we're going to see more deal pickups because those numbers all math and really what it is for every barrel of oil or barrel of gas that's coming out of the ground and the revenants coming in, how does it most efficiently drop to the bottom line ultimately to get the shareholders and get the best allocation of capital. Um, here's what I've learned so far. Um, you know, boards might not be the best allocation of capital, but share buybacks might be. And that's what a new owner can do. Save costs on one thing. Um, things like vendors, other things like that are where natural synergies come from. And this does not go off under the heading of like deals at the top. This is deals like like we said on the price of oil. This is deals closer to the bottom. >> So sounds like you're absolutely in favor of it as well. Just to put a positive spin on it, Cole, and maybe summarize it, you're all in favor for this deal. >> Not only would I like I So now as of this morning's news, you know, as probably seen, Strath Kona has agreed to allow Senovas to take over Meg. They've agreed to the price and terms at $30 a share, half stock, half cash, just so your listeners know. But I say that because Strathona did get some assets in that process. But to your point, we're going to see this again. Um, you know, next time you have me back on, we'll be talking about another merger. I'm sure we'll end up owning the company. We don't own many businesses in the space, just so you know. So, these were three of our uh, call it five Canadian ENPs that we own. And so, this was a big deal to our investors, but I just say that because this is going to be a common thing. And I totally expect that we'll talk about this next time, too, with another issuer who bought someone next door. and and that's really but it it should cause people to be more focused and interested in the Canadian ENTP business because there's powerful returns that can be sought from these mergers. >> Fantastic. No, Cole, really appreciate those insights. And maybe as a follow-up now, do you own any gold mining stocks? >> Uh we don't. Um simple answer is not because gold is a bad idea relative to cash or people always ask me like you know why why don't you own any gold or whatnot. uh I am in the can's camp of it's a barbaric relic that's better than a dollar or a looney for example but at the same time it it's not as good as owning a company. The other issue I've historically seen is that like gold has outperformed a lot of the miners and that's a problem. So it's like what if you could find a circumstance for gold to go way up and the companies that historically should benefit from that aren't good at allocating capital. That's a big problem in my mind because it shows you the allocation of capital is a very important determinant in long-term stock returns regardless of the underlying commodity going up. So I think that's been the real disconnect in my mind. If you've made much bunch of money on gold recently, I tip my cap to you. God bless you. Um that being said, I'm at closer to the bottom of pricing cycle and oil and and we think there's powerful economics that come off of that and I don't have to wonder if there's been a massive rally or there's, you know, any kind of oddities like that. I think everyone and their brother just got really aware of gold again. Not dissimilar to what we saw in 2011 when it was $1,800. I mean, everyone knew that gold was at $1,800 in 2011. And probably near-term, you know, all the uncles that decided that, you know, they wanted to finally go out and, you know, play that game again like they did 14 years ago. They probably just marginally bought and you got to you got to run out of your buyers and that's what usually markets tap out on. >> Absolutely. No, I think that's what we're seeing right now. Gold and silver being decimated right now and the mining stocks of course following suit. Um, Cole, really appreciate your insights. That, that was fantastic. Really appreciate you having, you know, having you come on the program here. Um, where can we send our audience to learn more about you and your work? >> Yeah. Well, thanks for having me. Uh, smecap.com is our website. Um, as you can probably see in the background here, uh, I'm the host of our podcast, The Book with Legs. You can find on Apple and Spotify. Um, so, uh, you know, you're you're sitting in Vancouver. I'm sitting in Phoenix, Arizona. There's a lot of kucks that come down, uh, to the desert uh during the winter time. But the other thing I'd mention is, you know, we love we love doing business in Canada and and we love interacting with these issuers and and we think there's a real fun process there that we've learned out of talking with, you know, various folks there. And so we're our plans are actually to come to Canada. We're going to register as an IFM and a PM um in Ontario. And uh God willing, we we'll launch a fund early next year in Canada. And uh so that's kind of coming attractions for Canadian investors with our firm. >> Fantastic. Awesome, Cole. Really appreciate your time. Thanks so much for coming on and uh yeah, good luck out there. We'll definitely catch up very soon. I'd love to get your outlook for for next year and maybe what your hottest idea or the most undervalued sector is um for for 2026. So, really appreciate it, Cole. Thank you so much. Everybody else, thank you so much for watching. Really appreciate you tuning in. What do you think of the oil and gas sector being out of either out of the US or Canada here? Um is it really that undervalued in your opinion? Uh it is in your backyard. So, let us know what you think. And if you haven't done so, hit that like and subscribe button. Helps us out tremendously and we much much appreciate. Thank you so much and take care out there. [music]