Jonathan Wellum: Stocks Could Crash 40% as Economy Stalling
Summary
Market Outlook: Jonathan Wellum suggests that the US economy is at "stall speed" and could face a recession, potentially leading to a 30-40% reduction in stock prices due to stretched valuations and economic pressures.
Investment Strategy: Wellum emphasizes a conservative approach by maintaining cash reserves and being selective with stock investments, focusing on companies with strong fundamentals and reasonable valuations.
Economic Policies: The podcast discusses the impact of political changes, including tax cuts and trade policies, on the economy, suggesting that while these may be beneficial long-term, they will cause short-term adjustments and slowdowns.
Debt Concerns: The growing national debt is highlighted as a significant issue, with the suggestion that inflation and currency devaluation are likely outcomes, reinforcing the importance of investing in hard assets like gold and silver.
Sector Opportunities: Opportunities in commodities, particularly gold, silver, and energy, are discussed as potential hedges against economic instability and currency devaluation, with a focus on the importance of careful stock selection in these areas.
AI and Technology: While acknowledging the transformative potential of AI, Wellum warns against overvaluation in tech stocks, suggesting that the current enthusiasm may lead to a market correction.
Global Economic Context: The podcast notes global economic challenges, including slow growth in Europe, Japan, and China, which could impact the US economy's ability to grow independently.
Investment Themes: Wellum highlights the importance of investing in infrastructure, technology, and specialized finance companies, while being cautious of overvalued sectors and maintaining a diversified portfolio.
Transcript
there's a lot more tension, a lot more pressure um in the US economy. So, I do think it's uh it is getting back really stall speed. If we go into a recession and interest rates, you know, have to go go up a little bit on the longer end um you know, because of all the debt, we could easily take those that PE ratio down into the teens, high teens. And that's not unreasonable. That is very reasonable. So, you you could be talking a 30 to 40% reduction in stock prices. Throughout September, we're shining the spotlight on gold with a lineup of expert conversations, sharp market analysis, and practical investment guidance. To dive deeper, make sure to grab our complimentary gold investing report using the link in the description below. Hello and welcome to Wealthon. I'm Maggie Lake. Joining us today to talk about the outlook for the US economy and opportunities in the market is Jonathan Wellm, founder and CEO of Rocklink Investment. Hi Jonathan, it's great to see you again. Good to see you again, Maggie, and talk with you and also the uh the viewers. Yeah. And just a reminder to all those viewers before we jump in, if you have any questions or you want to revisit your allocations at the end of this conversation, you can get a free review, a free portfolio review. Just click the link uh in the description or head over to wealthon.com/free. Uh so Jonathan really is interesting string of data that's come out recently that seems to be raising a lot of concerns about the prospect of a recession here in the US. notably the big downward revision to the jobs number almost a million less than were originally reported. We also saw softer than expected inflation data. Is the US economy in trouble? Well, I definitely think it's uh it's obviously like growing a lot slower than uh people have have thought and uh there's a lot more tension, a lot more pressure um in the US economy. So, I do think it's uh it is getting back really to stall speed if you will. In some ways, it's not really a surprise. I mean, I think the job numbers, uh, when when conservative folks looked at them, like myself and others, we've been talking about this for really the last two years, you had such a rapid rise in interest rates and, uh, a lot of adjustments going on, it didn't really make a lot of sense and uh, you could see the slowdown up here in Canada. We've we've we've really seen a slowdown and of course different issues and some other challenges up here. And uh, so when we look down in the States, it a lot of it didn't really add up. And so that's why we have been over the last year and a half, two years more conservative and carried some more cash around in our portfolios and telling our clients, be careful. Valuations are stretched. Economies are not growing that quickly and um and so be be alert now with with with Donald Trump in power. I mean, I like a lot of his policies, his economic policies. I I like them. I wish we had some of those up here in Canada. You know, cut taxes, cut regulations, bring capital back, um lower your cost of capital, and so forth. Those are things that I think are going to be great in the long term, but you are going through a detox situation. I mean, he's making a lot of changes and those changes are clearly going to be somewhat unsettling to the market and there's going to be adjustments. I think healthy adjustments 3 five years from now, but um when you're cutting back employment in the federal government, you know, 91,000 close to 100,000 people are are stepping out. Um you know, the money that they're receiving as they leave is going to run out pretty soon. So that's that's going to impact the unemployment numbers and so forth. So when you're doing that and um making these adjustments with tariffs and trade policies, yeah, you we're going to feel it. So I think people need to uh tighten their belt, be careful, and really watch the kind of companies they're buying and the valuations they're prepared to pay. I mean, there's a lot of hype still in the marketplace. And I mean, I'm hope I'm hoping some of that hype uh materializes into great earnings and prospects. But um there's just I I think a lot of optimism that uh is maybe a little bit too large. Yeah, you bring up an interesting point because so first of all on the on the sort of political changes, I think we've forgotten because we've all become a little bit uh sort of, you know, used to these headlines or the the the the amount of declarations and change. We've all got a little bit numb to it. I think it doesn't feel like all of that has hit the economy yet. I mean, aside from these revisions, does have we actually seen the impact of tariffs, of the shrinking of the government, of some of these other changes, of immigration, uh, you know, the the sort of freezing of of that immigration part of the workforce. Have we actually seen that take root yet? No, I think that is now in slow slowly in slow mo taking place and we're going to you're going to feel it ultimately in the economy. Again, the problem that you have is that of course you've got to tighten up the borders. Of course, you don't want all the illegal immigrants in my view coming into your country. You have to know who's coming into your country. You have to have the rule of law. But when you're making those changes and you're having people leave the country now and so forth, that will have an economic impact and it will slow things down. Um, it is good to see I'm looking I'm looking at the numbers in in Canada. We're faced with some real challenges and I'm looking down at the US and I'm thinking it's great to see Americans actually going back on the payroll and some of the uh foreign uh folks that have come in and some of the aliens that shouldn't be in the country losing jobs or leaving. I mean, that that is what's healthy. I mean, you should be protecting your own people, your own population. In Canada, we're doing the exact opposite. So, those are all great things, but there will be pain and there will be adjustments and I think that in in of itself will cause more slowdown. Um, I think it's necessary. I think you cannot make all of these changes that the Trump administration's making, which I think are better long-term and they're the right decisions in in most part. Um, but they will cause a slowdown. They will cause a readjustment. Um, it will take time for capital to come back in the country. It's coming. People have made all these promises and I think that's wonderful. um manufacturing will come back but it it's not going to come it can't it can't come overnight and uh so there will be these adjustments and so I think the next uh the next year or so it will be tough slugging the other thing to bear in mind is Europe is a mess I mean there's really no growth over there uh Japan has got problems China's got problems so you're also surrounded in a world where there's not a lot of economic growth going on outside of the United States and in Canada we're we're shrinking on a per capita basis when we look at GDP So um that's not going to be a lot of help to the US economy. So the US has to you know basically go on its own and as it's making these changes I think it will mean slowdown. It will mean potentially a recession. Um not I'm not talking about a major huge recession. We're not you know economists I don't make all these you know pronoxifications. Having said that it's just impossible to have a rip roaring economy when all of these things are changing very dramatically around you. Um, but I do think it sets up the US looking forward um, in a very strong way if you go out a couple of years. Um, and I think it will re reinvigorate the economic base in the US and hopefully we'll get some spin-off of that in Canada. As part of our gold interview series this month, Trey Reich will be hosting a gold investing webinar on Wednesday, September 17th. Send your questions for Trey about gold or gold's miners to info@wealthon.com. And Wealthon together with SCP Resource Finance will be hosting a global silver conference this October in Toronto. Eric Sprat will be delivering the keynote and it promises to be a landmark gathering for silver investors. You can find out more in the details in the description below. Yeah, I it it's interesting. That is the hope I think. But we have this issue of the one thing that is still growing is debt, right? I mean, we're spending like we are economically growing. So, you talked about that sort of pay now for gain later, but are we actually taking the pain now? It seems like we're just continuing to spend. How does a recession and some of these changes, how does that affect that other big headwind which is this just enormous deficit that we're trying to grapple with? Yeah. And I think you've had on the on the wealthy on channel some excellent people that can speak to the sort of the macroeconomics and they've looked at the you know the big beautiful bill and so forth and they've pointed out that it's actually not as stimulative as you think because it's a lot of these tax cuts. I mean it was assuming that taxes would actually actually go back up again. I mean this is just keeping the taxes where they were and so forth. So, it's not as stimulative and I think that's good because you don't want more fiscal spending, but the spending is still too high. And so, um, there's no question that has to be reigned in. Now, Scott Bent, your, uh, secretary treasurer, uh, he's made it clear, and I think Trump is they're trying to do this. We're going to try to grow the denominator. We're going to try to grow the economy, uh, faster than the debt. And we want to get the interest costs down. That's why all the pressure on the Fed to cut the uh, cut the interest rates. So, as you're refinancing a lot of the debt that's out there, it's at lower rates, but it is a balancing act and it's going to be a tough one. Um, the governments have been out of control throughout throughout the world and especially in the Western world. Um, the debt buildup over the last 20 years, the last couple of decades is outrageous. And so, GDP to debt is well over 100% in almost every country. Um, and and we see the problems in France now. Um, the problems they're having. The UK has got a real debt problem. um and uh not to mention some of the other southern European countries and Japan's right off the charts. So, um yeah, no, the debt is an issue and I think the Trump administration from what I can see, I mean, these are smart people. Um they want to get the midterms behind them, so they don't want to be really cutting too much, right? And they want to make sure that the Republicans control all three houses. Um and uh so, uh that's what they're doing. But they're they're really trying to grow the economy, get the tariff revenue, but you're quite right, Maggie. um the debt is out of control and that's why we own silver and gold and precious metals and harder assets. That really translates into our investment approach because I think it's almost impossible not to see further erosion of our fiat currency. Um it's uh it's inconceivable to me the debts are just too high and we're not growing the economies fast enough uh to to get out of it. I mean Trump is trying and they're trying to bring that capital back so you can grow the economy but um yeah it's tough. um as you know it's almost intractable uh the debt situation. Yeah, certainly certainly trying to move, you know, an aircraft carrier, it's it's hard to be nimble when you're trying to do that. Where where do you think and we're going to talk about about markets um because as we're we're talking despite everything that you say, we have stocks just marching from record high to record high, which is sort of extraordinary. But before we get there, where do you think where does this leave the Fed? because you have the economic situation you pointed out and yet you have this exuberance still in the stock market. You have political pressure coming from DC. It's always a tricky time to be a Fed official, but I can't imagine it's it's it has been much more difficult than right now. What do you see them doing? Well, I I I agree with Trump and in regards to the Fed being too late. Um and so uh I think with the with the job revisions that we've seen, it really shows that there's been very little job creation for almost a year. I mean, it's been quite some time. And so if that does not spur the Fed on to drop rates next week on the 17th, I would be very surprised and also given the pressure that's been put upon them. So I would expect um up to a 50 basis point move. And again, we're not pronosticators on Fed moves and things like that, but I think the pressure is there and and Trump has exerted a lot of pressure also. But now you've got numbers backing it up. Um, I mean, you look at Europe and you look at Canada, you look at the UK, our rates are all 150 to 200 basis points lower. And so, it's really you're talking about an adjustment back to what's really taking place in the rest of the world. And I think again, um, there will be the pressure. I I I would be surprised if they didn't drop rates up to 50 basis points. And in some ways, uh, stock investors seem to be sort of eagerly anticipating that, seeing that as good news. Um but if the Fed has to be that aggressive, surely we should all be a little bit worried. Um how how much do you think stocks are overvalued here? Are you worried that with a recession we will get a correction or do you think that we're really far out over our skis and that this thing could start to spiral if if people do start to actually see negative growth, negative corporate earnings, a decline? What's the mismatch between where the market's priced and what you think is reality? Yeah, well, a couple of things. I mean, the market, I think, is mispriced for a couple of reasons. We have a lot of index investing as people have talked about. I think that's well known. Uh, we've got the mag seven or, you know, a few other stocks. There's it is dominated by some companies that are 2, three, 4 trillion in value, which swings the market averages. If you look below that, it's not as healthy. And again, people have pointed this out. So, you have to be careful just looking at the indexes. But I think to answer your question, I mean there's no question that uh we have uh PE ratios in the high 20s and if we go into a recession and interest rates um uh you know have to go go up a little bit on the longer end um you know because of all the debt we could easily take those that PE ratio down into the teens high teens and that's not unreasonable. That is very reasonable. So you you could be talking a 30 to 40% reduction in stock prices and that should not surprise people. I mean it no one should be in the stock market if they can't take a a 40 40 to 50% haircut on the stocks for for a period of time. That's just that's just what you have in the stock market unfortunately. So I think you know we we could be setting ourselves up yeah for a reduction in stock prices. Having said that um that I think some stocks would be impacted more. Those are some of the high flyers and some of the expectations I think are really aggressive. Um, we all love AI and we think it's going to make major changes in the world, but do you pay 40 50 times revenue for AI? Um, we saw some of the projections even last night on um, just looking at Oracle. Um, and their their numbers really weren't very good. I mean, their revenue numbers weren't great. Their earnings were below expectations, but they came up with these expectations in the future that were are just off the charts. And so, the stock has just jumped a lot today. I haven't I haven't seen it in the last uh hour or so, but it was up, you know, like 30% or more. But based on projections that you wonder, you know, who came up with these things? Um they might come true, but uh it requires the most positive cheery consensus that I've ever seen. Um and so, you know, as long as you've got that priced in the market, I think, yeah, there's a lot of risk of uh stocks coming down. We're trying to hunt out stocks that'll be a little less vulnerable. They haven't gone up as much. They're in bor boring areas but they continue continue to grow and find opportunities but no investors should need to be careful. Um we have not seen a big reduction in stocks and that's what happens every certain number of years and we certainly have enough conditions to put that pressure on stocks on the downside. Yeah, we we you know it's a great point because we forget that I I know a lot of uh sort of seasoned investors like to see those pullbacks from time to time because it sort of allows for price discovery, right? It feels like you're flushing out some of the froth in the market. You It's interesting Jonathan because when you say that so much of that makes sense to so many of us and yet we have seen these AI stocks deliver. I mean I the projections are crazy but then they come with these huge revenue. I think Nvidia last times 50% revenue increase. So one one wonders sometimes that is that true about the economy everywhere. But is AI sort of in this very special crazy cycle of this buildout of this next big big revolution and not kind of bound to economic laws. I know we always say it's not different this time but is there something different going on in AI that is going to defy gravity for a bit longer? Well for that's the key issue. for a bit longer it it might because the growth numbers are so large but the growth rates have to come down so you can't defy gravity forever and as much as AI is important and as much as it's going to change the world as we saw with the internet going back 20 odd years ago um eventually you put so much capital into it you have to generate a return on that capital so if you looked at that remember just last week Donald Trump had a lot of the tech leaders uh sitting around the table at the at the white house and they were all talking about how much money they were going to spend, right? I thought I found it quite interesting. They're throwing out 600 billion from Tim from Tim Cook and you know 100 billion from Microsoft and so forth. And then he he looked over at Mark Zuckerberg. He said, "How much uh Mark are you going to be spending?" And he goes, "Well, you know, 600 billion in the next, you know, by 2028 or something domestically," he said. And then later on they had him on a hot mic and he said, "Was that a good number?" you sort of looking over at Donald Trump and like so look they're throwing out these numbers and they are spending a lot of money but at some point it has to slow down in a major way because you have to ultimately justify return on invested capital and AI will cause you know more productivity and enhancements but when you're throwing a trillion dollars here and there at it year after year um it you're just not going to generate the returns to justify that kind of spending continuing and so it will it will slow down significantly at some point and companies will take some write-offs on some of their investments. That is without doubt. When that happens, I don't know. But we investors should be prepared for that. And um that's not necessarily a bad thing. It just means that uh it's excite the way that capitalism works. And this is beautiful in the free market is that people do get excited and ch and capital runs into an area like the internet, like AI, but it will overshoot. It's impossible not to overshoot because the enthusiasm will take it up and then we're going to get our our our you know cut off at the knees for a little while and we will feel a little bit of pain but that's the way the capital gets in and that's the way we make these major transformations in our economy in our society. Um but it won't be without pain at some point. So people need to know that and be careful not to get too carried away with this um and to be disciplined. It's it's inevitable. We again we see this all the time with these mania. Yeah, really important advice. Does the same thing apply to gold? Because we've seen uh it have a terrific record run. There's a lot of capital moving into it. People are jumping on the momentum. Does that the same rules apply there right now? Do you worry about the price action? I I worry a little bit um that it it has moved an awful lot. And believe me, when I get calls literally, and I'm not exaggerating, I get calls from some of my dentist clients, they go, "Jonathan, I need to buy more gold. You know, we need to buy some physical. How can I buy more?" I I get worried. Um, I I joke a little bit because back in 2015, um, I bought personalized license plates in Ontario here where I live in Canada and it says buy gold. Okay. I thought I'd put it on my car just for fun. Um, and because I I wasn't a believer in the uh, fiat currency for a long time and uh, but now I actually have people yelling at me. It's it's on a sports car. They'll they'll yell over me, how much should I buy, you know, how much I'm buying the gold. And so I've never had that until this year. And so I think you know it has you are getting more and more attention. So it worries me it worries me from this perspective Maggie that it has gone up a lot and I think it can easily come down 10 15%. We could see it drop down to you know 3,000 or something like that. That would actually be healthy and whenever you have a bull run in a commodity you can um have a retrenchment and that should not surprise people. Where I still remain quite bullish on gold again it goes back to your debt issue. The debt situation is intractable. they're going to have to inflate some of this stuff away. Um, there's no way. And I think fiat currencies are going to continue to drop in value relative to hard assets. And gold is probably the best barometer of what real money is. And so, um, that's where I continue to, you know, just be careful. Uh, but stocks have gone up a lot. It I think it is prudent just to be careful. Um, nibble away. We've gone from some of the large royalty companies, which we have big positions in, Franco, Nevada, wheat, and precious metals. And then we went downstream. We started buying some of the smaller royalty companies which are very well-run and have some great properties great counterparties but they were trading instead of two two and a half times net asset value maybe one and a half one some were actually trading at less than one and so we've been able to again just look for value even within that space and be very careful uh I think silver also could have uh some legs to it so trying to find some businesses that maybe have a bit more silver exposure but just because gold might come off 10 15% doesn't mean we're aren't on a longer on look at the debt, look at the fiscal situations um around the world and I think you should be very concerned and you need to you need to be hedged. So are you uh if you have if someone is listening to this and has not diversified into into gold and silver which might be a lot of us because it the the holdings or as a portion of our portfolios is very low going into this period. Would you hold off now or I because there's so much uncertainty, is it better to just sort of dollar cost average into this to try to to try to increase your exposure market time or take it slow and know that some of it you're going to buy at the top and it's just too hard to time. How are you thinking about this? Yeah, great question. I think you the way we would go about is dollar cost average. We you we're just not smart enough. I'm not smart enough to jump on here and say here's where gold's going to go in the next six months. We don't know. But we do know what what what I feel very comfortable saying is given the economic situation, given the debt crisis and given these problems, uh over the long term, gold is going to go a lot higher. And so I would dollar cost average and um so again because it has gone up quite a bit and you could it could come off a little bit and uh just be a a a continually picking away at some of the very best positions. We we generally tell our clients have a little bit of have some physical I mean you can't help hurt having some physical gold um and some silver um and uh at the same time we try to buy some really leading companies in that space. We're very careful about junior speculative mining companies. I mean that is sometimes for people's personals accounts and you know they want a small little bit but please please you warn people um I think it's you know if you if you took 90% of the companies gold companies and silver companies that trade on a on the you know the Canadian venture exchange or something like that um you know 90% of them are worth nothing I mean they're worth negative probably and so you have to be very careful there's another 5 10% that are worth a lot more and can really go up but unless you're really an expert at at at fairing these companies out it's really tough. So that's where we suggest um an ETF even if you're going to buy a number of companies, a basket of companies. SPAT has a really good ETF where they buy they do some analysis and look at balance sheets and assets and they try to buy the best sort of 20 U junior companies. Um diversify and be careful there otherwise you can buy the wrong one. This the gold could go to 10,000 and you make no money and that's your worst nightmare, right? So be very careful and buy quality and a mix of physical and some stocks. Yeah, really really sage advice. This is an area where expertise matters. Not that it doesn't everywhere else, but in particular, I think it's very important in this space. Are you looking at other opportunities across the commodity uh sector? Do you think that there that this is a sort of um I don't want to say commodity super cycle, but do you see other areas also moving higher as some of these sort of equities might struggle? Yes. Um well the way we look at it is that uh you talk about AI and you think of the data centers and again people have talked about this but the data centers are really prompting a large increase in energy demand and so we're seeing energy demand going by three four 5% which is unthinkable really when you over the last number of years energy really hasn't gone up that much because we come we become increasing efficients especially electric and then you've add electric vehicles and um you know all the other digitization robotics so that requires a lot more mining. And I think people really don't appreciate that. Uh this whole technological revolution we're going through requires a massive amount of digging holes around the world. You know, the green agenda, they don't like to hear that. But no, we need a lot more copper. We need a lot more nickel. Of course, lithium is large supplied. The the um the rare earth and things like that. Um again, we all know they're not rare, but we're not mining any of them in North America in some of our our countries. A lot of that comes from China. So, I do think there's opportunities there. So, we do have exposure uh to some nickel to copper. Um not not as large as the gold and silver. Um but that's a space where uh we're going to have shortages as best as we can tell. Even if you even if the projections are you only you only believe in 50% of the size of the projections going forward in terms of AI centers and data centers that they're building. Um we're going to need a lot more copper and uh we're going to need a lot more nickel and uh and so uh the rebuilding of our energy grids are going to have to continue. In fact, they need to be rebuilt anyway because most of them were built in the 60s7s and you know they're you know peace meal fixing them over the last number of years and all of a sudden you're adding all this you know this this demand and so we own companies like Eaton or Snyder Electric um and they provide a lot of components and um and parts and uh they do a lot of a lot of work uh in terms of automation and building of the uh data center. So that's another way you can play it through uh some of the some of the manufacturing companies that are profiting from this large expenditure which we need uh because of electrification. So yeah there are other commodities I think we could see a large commodity super cycle and the benefit there Maggie is that those prices are going to you have to go up because we need to find more of these you know find more nickel find more copper and that requires a lot of capital and there's not enough in the market. The other benefit is if you're concerned about fiat money and all this debt that can act as a bit of a hedge to you know deval devaluing of our currency. So I think you can get it on two fronts and that's where we are you know we have some of our portfolios in those those places because of that. Yeah. Um yeah it's it's such an important uh narrative that the the intersection of AI and just technology and energy. I'm I'm obsessed with it. It always makes me think of the scenes from the Matrix though where just it's like a web of wires all over the world. I don't know if that's a good thing or not, but um what about uranium? I don't think you when you when you were talking about the the energy, is that also part of part of what you see as attractive in this uh demand story? Yes, we have we have some we have some positions in uranium. We've owned Kamico uh which again in Canada and uh I mean around it's one of the world's leaders in terms of uranium uh production. We're very blessed in uh Saskatchewan, one of our provinces in Canada with massive amount of uh uranium and uranium royalty, which is another smaller royalty company. And uh we haven't had as much in hindsight as we we probably should have. Um because I do believe nuclear is making a uh you know a rebirth. It's it's people are I mean I don't have to I don't have to tell you. I mean you hear it all all around the world. people are now engaging with nuclear again and it's become safer and this greater technology and the small modular reactors and the micro modular reactors these things are taking form it who the winners are on that is a bit more tricky um but uh but buying the actual underlying uranium I think uh over long term is very prudent and we own some infrastructure companies I mean we own some of the Brookfield companies and they are um they've got exposure to Westinghouse and they're doing some investments in uranium and nuclear also as as well as the data the centers. So again, getting exposure that way, but I do think yeah, nuclear is going to be very important. Um it's going to be hard to to to create the energy that we need without um nuclear and you need that as a base load. I mean, I think some people are waking up to the reality. Yeah. I mean, depending on just solar or uh or wind. I mean uh your president has really gone after the wind industry in a major way. And I think a lot of his arguments are very legitimate. I think they're very good arguments. It it's been hyped a lot. Um when you have LG uh liquid n liqufied natural gas and you have uranium and nuclear energy as your base loads those are far better far better energy sources and less expensive and uh and that that's a big issue going forward too because you know we need the energy growth but we have to do it cost effectively otherwise we will create more inflation and we've seen what happens in in Europe and in Canada where we're so rich with natural resources we've tried to go this green agenda and it's very expensive and it's crazy in a country which has more you know fossil fuels and and energy um you know natural gas and uranium and so the keeping the cost of energy low is going to be essential to our economic growth and productivity going forward. Yeah. Well, when I talk to folks in the energy space too eventually everything will be needed, right? That's how big the demand is. But um a lot of changes and a lot more nuanced conversations about how you get there. I think that's that's the big change. So one one thing that's interesting well let and Megan let the and let the market dictate this let the technology do it when governments step in mandate that you have to do this by a certain period of time it will not work effectively and efficiently and it will ratchet up costs and it will cause inflation and will hurt it will hurt the uh most vulnerable people in our society the most and the technology will take care of itself. We human beings are so amazing and resourceful and you got so much capital especially in the US so much capital running into these industries um that you know I I think we're sitting here today 5 10 years from now we'll we'll probably be surprised by what actually did evolve if we let the markets go and it'll be more efficient more effective and we'll have more more more more energy than we know what to do with. Yeah. Uh let's hope so. But there are there are a lot of really amazing innovations right find the world's biggest problem you're going to have a fantastic business opportunity. um as someone once told me and it is absolutely true. Uh I I I'm noticing when we're talking about this and I think it's important because we started out broadly saying um that you know stocks feel very overvalued here there the sort of so much momentum given the some of the underlying economic challenges but you're right we were talking broadly the indexes um that doesn't mean that you you want to or tell me um that we're not talking about getting out of equities altogether or underweing or we just talking about being very uh specific about what sectors you lean into because it sounds like you like the equities in the energy area. Uh so we shouldn't sort of broadbrush equities all together. Absolutely. Absolutely. Yeah. So for example, the way we've approached it and we've talked about this on the uh the wealthy on channel so over the last two years so people can go back and listen and uh hopefully I'm being consistent. Um is yeah, we're concerned about valuations and uh so we we've kept some powder dry. So, we've been running 25, it depends on the account. We're dealing with maybe 25 even up to 30% in short-term in interest bearing securities. We're not making big yield curve bets. Um, get that betting the yield curve is not not our game at Rocklink. Um, because there's I you know, there's arguments for being long or being short um and so forth, but we we buy high quality shorter term and then we go into the equity markets and some people say, "Oh, you're not going to perform very well." We've beaten all the indexes this year by a long shot. Um, so you can find businesses um that are underneath the index um like the big names and and start to unearth opportunities and that's what we do because we only want to own 20 to 25 stocks like so we're not you know we we just have to find a handful of great businesses run by smart people in industries that generally have a rising tide lifts all boats it's makes it's easier if you're in an industry that's expanding and uh and then look below the surface. So, we stay away from the indexes. We do own one of our largest companies we own. We own Amazon. So, that's one of the, you know, the Magnificent Seven, but we think that it's a great business and, um, it continues to grow and it's not ridiculously valued. Um, so, uh, that's the way we approach. I think that's the way most people should be approaching. If you look at the smaller cap indexes, they haven't done that well. Um, and so you look at the Russell 2000, um, and, uh, and so forth, you can find opportunities. So, that's that's what we do. And so we go underneath the surface, find smaller companies and uh and and and make sure they're, you know, reasonably valued and you can grow and find opportunities. There's always opportunities. It's difficult just to step right out of the market. It's very difficult. I know some people make these big announcements. Um I find that difficult. Um we're not good stock, we're not good market timers in that sense. We want time in the market, but in good businesses at reasonable valuations. that's much easier for us to control and and communicate to our clients. Any uh any investment themes or trends that you are positioning for as we sort of look toward the second the remainder of this year into next year? Yeah, good question. U I mean our heavier weightings in terms of sectors would be say the precious metals and some of the commodities for the reasons that we've discussed. We definitely have waitings in technology. I think it's impossible not to be in in the technology space. It's just so important. It to me it's basic infrastructure. So we do own um companies like Roper which Roper Technologies which is a software business. It's a it's like a Warren Buffett type company where they buy software companies they roll they roll them into one company um they dominate in different different um market um sectors and they just free cash flow and they take the free cash flow and buy more more companies and so it just continues to grow. It's like a virtuous uh cycle that that is relatively um um good value relatively very strong value. Autodesk um you know CAD um engineering they're doing a lot of design and AI centers and so forth. That's again another great business. So so technology you can't really avoid. And then we have some some infrastructure companies. We like again hard assets, long-term contracts, great cash flows, consistency. Um often we use those for dividend payers. Um and uh and then specialized finance companies. I mean, we love finance businesses because again, you can make high returns on invested capital if you're good with your money. So, again, the the Brookfield Corporations or Burford Capital, we've owned uh and continue to own litigation finance. So, it's really a hedge fund just doing litigation finance and so try to find specialized uh finance companies. We haven't been big on banks. Um I was gonna ask you that. Yep. Yeah. And and you know, the banks banks have, you know, plotted along and done very well. Um but we again look again you talk about some of the challenges in the US market also in Canada I think the mortgage market um the housing market's under a lot of pressure as we know and um so we haven't been big thrilled you know thrilled with the with the banks but we find other you know non-bank financials we love uh again love those industries so that that's where we have a fair bit of weight and then we'll cherrypick a few other industries um insurance brokerage we own um a number of insurance companies uh Markell insurance which is like a mini Birkshshire pathway really prudently run great investment portfolio buying other businesses and roping them in putting them in within their um within their overall business. Um so again yeah companies like that really specialized focused businesses that also think like us. We try to find managers who are also sort of like value investors and share similar values. That's really important to us as we talk to the companies. You know they just don't go buy back stock um uh just because they've got excess cash. I mean, they they they they buy it back because they really love, you know, it's a good value and they're always thinking about value. They're always thinking about return on equity. How are we going to maximize shareholders value, you know, they're very careful with options, things like that. There's another little company that we've been buying um out of Australia and uh they now are expanding in the United States and the UK and it's called Kelly Partners and they're consolidating CPA firms, accounting firms and it's a really it's a really neat company and the fellow running it is very bright. He's got uh you know Constellation Software guys on the board along with Markel Insurance on the board. So very disciplined guys and that's a really big area to consolidate because again a lot of these CPA firms that are $25 million revenue per year are owned by individuals who are looking for retirement or um you know exiting the business in in in the next number of years. So again just really niche finding good companies run by smart people who are in good industries who know how to run their business and reinvest back in the in the in in the business. Listen, that's how it's done, right? I mean, we've gotten away from that with passive, but I think uh you you make a really good argument for the need for um not only actively paying attention to your portfolio, but really doing that due diligence or relying on someone to do that that due diligence um that is going to, you know, provide something that you can't just look at if you're, you know, um doing it passively. So, fantastic stuff, Jonathan. What a pleasure. It's a fantastic conversation. Thank you so much for that. Thank you very much Maggie and for the information that uh you provide for uh viewers and it's it's wonderful uh it's uh it's it's amazing all the information that is on the net and wealthy on continues to do a wonderful job. Well, thanks for that. Um we we all need to upskill right and make sure we stay on top of it uh in these crazy times. Um so if you want to get a free portfolio review as we mentioned at the top click the link click the link in the description or head over to wealthon.comfree. Thanks so much for joining us. We'll see you again next time. [Music]
Jonathan Wellum: Stocks Could Crash 40% as Economy Stalling
Summary
Transcript
there's a lot more tension, a lot more pressure um in the US economy. So, I do think it's uh it is getting back really stall speed. If we go into a recession and interest rates, you know, have to go go up a little bit on the longer end um you know, because of all the debt, we could easily take those that PE ratio down into the teens, high teens. And that's not unreasonable. That is very reasonable. So, you you could be talking a 30 to 40% reduction in stock prices. Throughout September, we're shining the spotlight on gold with a lineup of expert conversations, sharp market analysis, and practical investment guidance. To dive deeper, make sure to grab our complimentary gold investing report using the link in the description below. Hello and welcome to Wealthon. I'm Maggie Lake. Joining us today to talk about the outlook for the US economy and opportunities in the market is Jonathan Wellm, founder and CEO of Rocklink Investment. Hi Jonathan, it's great to see you again. Good to see you again, Maggie, and talk with you and also the uh the viewers. Yeah. And just a reminder to all those viewers before we jump in, if you have any questions or you want to revisit your allocations at the end of this conversation, you can get a free review, a free portfolio review. Just click the link uh in the description or head over to wealthon.com/free. Uh so Jonathan really is interesting string of data that's come out recently that seems to be raising a lot of concerns about the prospect of a recession here in the US. notably the big downward revision to the jobs number almost a million less than were originally reported. We also saw softer than expected inflation data. Is the US economy in trouble? Well, I definitely think it's uh it's obviously like growing a lot slower than uh people have have thought and uh there's a lot more tension, a lot more pressure um in the US economy. So, I do think it's uh it is getting back really to stall speed if you will. In some ways, it's not really a surprise. I mean, I think the job numbers, uh, when when conservative folks looked at them, like myself and others, we've been talking about this for really the last two years, you had such a rapid rise in interest rates and, uh, a lot of adjustments going on, it didn't really make a lot of sense and uh, you could see the slowdown up here in Canada. We've we've we've really seen a slowdown and of course different issues and some other challenges up here. And uh, so when we look down in the States, it a lot of it didn't really add up. And so that's why we have been over the last year and a half, two years more conservative and carried some more cash around in our portfolios and telling our clients, be careful. Valuations are stretched. Economies are not growing that quickly and um and so be be alert now with with with Donald Trump in power. I mean, I like a lot of his policies, his economic policies. I I like them. I wish we had some of those up here in Canada. You know, cut taxes, cut regulations, bring capital back, um lower your cost of capital, and so forth. Those are things that I think are going to be great in the long term, but you are going through a detox situation. I mean, he's making a lot of changes and those changes are clearly going to be somewhat unsettling to the market and there's going to be adjustments. I think healthy adjustments 3 five years from now, but um when you're cutting back employment in the federal government, you know, 91,000 close to 100,000 people are are stepping out. Um you know, the money that they're receiving as they leave is going to run out pretty soon. So that's that's going to impact the unemployment numbers and so forth. So when you're doing that and um making these adjustments with tariffs and trade policies, yeah, you we're going to feel it. So I think people need to uh tighten their belt, be careful, and really watch the kind of companies they're buying and the valuations they're prepared to pay. I mean, there's a lot of hype still in the marketplace. And I mean, I'm hope I'm hoping some of that hype uh materializes into great earnings and prospects. But um there's just I I think a lot of optimism that uh is maybe a little bit too large. Yeah, you bring up an interesting point because so first of all on the on the sort of political changes, I think we've forgotten because we've all become a little bit uh sort of, you know, used to these headlines or the the the the amount of declarations and change. We've all got a little bit numb to it. I think it doesn't feel like all of that has hit the economy yet. I mean, aside from these revisions, does have we actually seen the impact of tariffs, of the shrinking of the government, of some of these other changes, of immigration, uh, you know, the the sort of freezing of of that immigration part of the workforce. Have we actually seen that take root yet? No, I think that is now in slow slowly in slow mo taking place and we're going to you're going to feel it ultimately in the economy. Again, the problem that you have is that of course you've got to tighten up the borders. Of course, you don't want all the illegal immigrants in my view coming into your country. You have to know who's coming into your country. You have to have the rule of law. But when you're making those changes and you're having people leave the country now and so forth, that will have an economic impact and it will slow things down. Um, it is good to see I'm looking I'm looking at the numbers in in Canada. We're faced with some real challenges and I'm looking down at the US and I'm thinking it's great to see Americans actually going back on the payroll and some of the uh foreign uh folks that have come in and some of the aliens that shouldn't be in the country losing jobs or leaving. I mean, that that is what's healthy. I mean, you should be protecting your own people, your own population. In Canada, we're doing the exact opposite. So, those are all great things, but there will be pain and there will be adjustments and I think that in in of itself will cause more slowdown. Um, I think it's necessary. I think you cannot make all of these changes that the Trump administration's making, which I think are better long-term and they're the right decisions in in most part. Um, but they will cause a slowdown. They will cause a readjustment. Um, it will take time for capital to come back in the country. It's coming. People have made all these promises and I think that's wonderful. um manufacturing will come back but it it's not going to come it can't it can't come overnight and uh so there will be these adjustments and so I think the next uh the next year or so it will be tough slugging the other thing to bear in mind is Europe is a mess I mean there's really no growth over there uh Japan has got problems China's got problems so you're also surrounded in a world where there's not a lot of economic growth going on outside of the United States and in Canada we're we're shrinking on a per capita basis when we look at GDP So um that's not going to be a lot of help to the US economy. So the US has to you know basically go on its own and as it's making these changes I think it will mean slowdown. It will mean potentially a recession. Um not I'm not talking about a major huge recession. We're not you know economists I don't make all these you know pronoxifications. Having said that it's just impossible to have a rip roaring economy when all of these things are changing very dramatically around you. Um, but I do think it sets up the US looking forward um, in a very strong way if you go out a couple of years. Um, and I think it will re reinvigorate the economic base in the US and hopefully we'll get some spin-off of that in Canada. As part of our gold interview series this month, Trey Reich will be hosting a gold investing webinar on Wednesday, September 17th. Send your questions for Trey about gold or gold's miners to info@wealthon.com. And Wealthon together with SCP Resource Finance will be hosting a global silver conference this October in Toronto. Eric Sprat will be delivering the keynote and it promises to be a landmark gathering for silver investors. You can find out more in the details in the description below. Yeah, I it it's interesting. That is the hope I think. But we have this issue of the one thing that is still growing is debt, right? I mean, we're spending like we are economically growing. So, you talked about that sort of pay now for gain later, but are we actually taking the pain now? It seems like we're just continuing to spend. How does a recession and some of these changes, how does that affect that other big headwind which is this just enormous deficit that we're trying to grapple with? Yeah. And I think you've had on the on the wealthy on channel some excellent people that can speak to the sort of the macroeconomics and they've looked at the you know the big beautiful bill and so forth and they've pointed out that it's actually not as stimulative as you think because it's a lot of these tax cuts. I mean it was assuming that taxes would actually actually go back up again. I mean this is just keeping the taxes where they were and so forth. So, it's not as stimulative and I think that's good because you don't want more fiscal spending, but the spending is still too high. And so, um, there's no question that has to be reigned in. Now, Scott Bent, your, uh, secretary treasurer, uh, he's made it clear, and I think Trump is they're trying to do this. We're going to try to grow the denominator. We're going to try to grow the economy, uh, faster than the debt. And we want to get the interest costs down. That's why all the pressure on the Fed to cut the uh, cut the interest rates. So, as you're refinancing a lot of the debt that's out there, it's at lower rates, but it is a balancing act and it's going to be a tough one. Um, the governments have been out of control throughout throughout the world and especially in the Western world. Um, the debt buildup over the last 20 years, the last couple of decades is outrageous. And so, GDP to debt is well over 100% in almost every country. Um, and and we see the problems in France now. Um, the problems they're having. The UK has got a real debt problem. um and uh not to mention some of the other southern European countries and Japan's right off the charts. So, um yeah, no, the debt is an issue and I think the Trump administration from what I can see, I mean, these are smart people. Um they want to get the midterms behind them, so they don't want to be really cutting too much, right? And they want to make sure that the Republicans control all three houses. Um and uh so, uh that's what they're doing. But they're they're really trying to grow the economy, get the tariff revenue, but you're quite right, Maggie. um the debt is out of control and that's why we own silver and gold and precious metals and harder assets. That really translates into our investment approach because I think it's almost impossible not to see further erosion of our fiat currency. Um it's uh it's inconceivable to me the debts are just too high and we're not growing the economies fast enough uh to to get out of it. I mean Trump is trying and they're trying to bring that capital back so you can grow the economy but um yeah it's tough. um as you know it's almost intractable uh the debt situation. Yeah, certainly certainly trying to move, you know, an aircraft carrier, it's it's hard to be nimble when you're trying to do that. Where where do you think and we're going to talk about about markets um because as we're we're talking despite everything that you say, we have stocks just marching from record high to record high, which is sort of extraordinary. But before we get there, where do you think where does this leave the Fed? because you have the economic situation you pointed out and yet you have this exuberance still in the stock market. You have political pressure coming from DC. It's always a tricky time to be a Fed official, but I can't imagine it's it's it has been much more difficult than right now. What do you see them doing? Well, I I I agree with Trump and in regards to the Fed being too late. Um and so uh I think with the with the job revisions that we've seen, it really shows that there's been very little job creation for almost a year. I mean, it's been quite some time. And so if that does not spur the Fed on to drop rates next week on the 17th, I would be very surprised and also given the pressure that's been put upon them. So I would expect um up to a 50 basis point move. And again, we're not pronosticators on Fed moves and things like that, but I think the pressure is there and and Trump has exerted a lot of pressure also. But now you've got numbers backing it up. Um, I mean, you look at Europe and you look at Canada, you look at the UK, our rates are all 150 to 200 basis points lower. And so, it's really you're talking about an adjustment back to what's really taking place in the rest of the world. And I think again, um, there will be the pressure. I I I would be surprised if they didn't drop rates up to 50 basis points. And in some ways, uh, stock investors seem to be sort of eagerly anticipating that, seeing that as good news. Um but if the Fed has to be that aggressive, surely we should all be a little bit worried. Um how how much do you think stocks are overvalued here? Are you worried that with a recession we will get a correction or do you think that we're really far out over our skis and that this thing could start to spiral if if people do start to actually see negative growth, negative corporate earnings, a decline? What's the mismatch between where the market's priced and what you think is reality? Yeah, well, a couple of things. I mean, the market, I think, is mispriced for a couple of reasons. We have a lot of index investing as people have talked about. I think that's well known. Uh, we've got the mag seven or, you know, a few other stocks. There's it is dominated by some companies that are 2, three, 4 trillion in value, which swings the market averages. If you look below that, it's not as healthy. And again, people have pointed this out. So, you have to be careful just looking at the indexes. But I think to answer your question, I mean there's no question that uh we have uh PE ratios in the high 20s and if we go into a recession and interest rates um uh you know have to go go up a little bit on the longer end um you know because of all the debt we could easily take those that PE ratio down into the teens high teens and that's not unreasonable. That is very reasonable. So you you could be talking a 30 to 40% reduction in stock prices and that should not surprise people. I mean it no one should be in the stock market if they can't take a a 40 40 to 50% haircut on the stocks for for a period of time. That's just that's just what you have in the stock market unfortunately. So I think you know we we could be setting ourselves up yeah for a reduction in stock prices. Having said that um that I think some stocks would be impacted more. Those are some of the high flyers and some of the expectations I think are really aggressive. Um, we all love AI and we think it's going to make major changes in the world, but do you pay 40 50 times revenue for AI? Um, we saw some of the projections even last night on um, just looking at Oracle. Um, and their their numbers really weren't very good. I mean, their revenue numbers weren't great. Their earnings were below expectations, but they came up with these expectations in the future that were are just off the charts. And so, the stock has just jumped a lot today. I haven't I haven't seen it in the last uh hour or so, but it was up, you know, like 30% or more. But based on projections that you wonder, you know, who came up with these things? Um they might come true, but uh it requires the most positive cheery consensus that I've ever seen. Um and so, you know, as long as you've got that priced in the market, I think, yeah, there's a lot of risk of uh stocks coming down. We're trying to hunt out stocks that'll be a little less vulnerable. They haven't gone up as much. They're in bor boring areas but they continue continue to grow and find opportunities but no investors should need to be careful. Um we have not seen a big reduction in stocks and that's what happens every certain number of years and we certainly have enough conditions to put that pressure on stocks on the downside. Yeah, we we you know it's a great point because we forget that I I know a lot of uh sort of seasoned investors like to see those pullbacks from time to time because it sort of allows for price discovery, right? It feels like you're flushing out some of the froth in the market. You It's interesting Jonathan because when you say that so much of that makes sense to so many of us and yet we have seen these AI stocks deliver. I mean I the projections are crazy but then they come with these huge revenue. I think Nvidia last times 50% revenue increase. So one one wonders sometimes that is that true about the economy everywhere. But is AI sort of in this very special crazy cycle of this buildout of this next big big revolution and not kind of bound to economic laws. I know we always say it's not different this time but is there something different going on in AI that is going to defy gravity for a bit longer? Well for that's the key issue. for a bit longer it it might because the growth numbers are so large but the growth rates have to come down so you can't defy gravity forever and as much as AI is important and as much as it's going to change the world as we saw with the internet going back 20 odd years ago um eventually you put so much capital into it you have to generate a return on that capital so if you looked at that remember just last week Donald Trump had a lot of the tech leaders uh sitting around the table at the at the white house and they were all talking about how much money they were going to spend, right? I thought I found it quite interesting. They're throwing out 600 billion from Tim from Tim Cook and you know 100 billion from Microsoft and so forth. And then he he looked over at Mark Zuckerberg. He said, "How much uh Mark are you going to be spending?" And he goes, "Well, you know, 600 billion in the next, you know, by 2028 or something domestically," he said. And then later on they had him on a hot mic and he said, "Was that a good number?" you sort of looking over at Donald Trump and like so look they're throwing out these numbers and they are spending a lot of money but at some point it has to slow down in a major way because you have to ultimately justify return on invested capital and AI will cause you know more productivity and enhancements but when you're throwing a trillion dollars here and there at it year after year um it you're just not going to generate the returns to justify that kind of spending continuing and so it will it will slow down significantly at some point and companies will take some write-offs on some of their investments. That is without doubt. When that happens, I don't know. But we investors should be prepared for that. And um that's not necessarily a bad thing. It just means that uh it's excite the way that capitalism works. And this is beautiful in the free market is that people do get excited and ch and capital runs into an area like the internet, like AI, but it will overshoot. It's impossible not to overshoot because the enthusiasm will take it up and then we're going to get our our our you know cut off at the knees for a little while and we will feel a little bit of pain but that's the way the capital gets in and that's the way we make these major transformations in our economy in our society. Um but it won't be without pain at some point. So people need to know that and be careful not to get too carried away with this um and to be disciplined. It's it's inevitable. We again we see this all the time with these mania. Yeah, really important advice. Does the same thing apply to gold? Because we've seen uh it have a terrific record run. There's a lot of capital moving into it. People are jumping on the momentum. Does that the same rules apply there right now? Do you worry about the price action? I I worry a little bit um that it it has moved an awful lot. And believe me, when I get calls literally, and I'm not exaggerating, I get calls from some of my dentist clients, they go, "Jonathan, I need to buy more gold. You know, we need to buy some physical. How can I buy more?" I I get worried. Um, I I joke a little bit because back in 2015, um, I bought personalized license plates in Ontario here where I live in Canada and it says buy gold. Okay. I thought I'd put it on my car just for fun. Um, and because I I wasn't a believer in the uh, fiat currency for a long time and uh, but now I actually have people yelling at me. It's it's on a sports car. They'll they'll yell over me, how much should I buy, you know, how much I'm buying the gold. And so I've never had that until this year. And so I think you know it has you are getting more and more attention. So it worries me it worries me from this perspective Maggie that it has gone up a lot and I think it can easily come down 10 15%. We could see it drop down to you know 3,000 or something like that. That would actually be healthy and whenever you have a bull run in a commodity you can um have a retrenchment and that should not surprise people. Where I still remain quite bullish on gold again it goes back to your debt issue. The debt situation is intractable. they're going to have to inflate some of this stuff away. Um, there's no way. And I think fiat currencies are going to continue to drop in value relative to hard assets. And gold is probably the best barometer of what real money is. And so, um, that's where I continue to, you know, just be careful. Uh, but stocks have gone up a lot. It I think it is prudent just to be careful. Um, nibble away. We've gone from some of the large royalty companies, which we have big positions in, Franco, Nevada, wheat, and precious metals. And then we went downstream. We started buying some of the smaller royalty companies which are very well-run and have some great properties great counterparties but they were trading instead of two two and a half times net asset value maybe one and a half one some were actually trading at less than one and so we've been able to again just look for value even within that space and be very careful uh I think silver also could have uh some legs to it so trying to find some businesses that maybe have a bit more silver exposure but just because gold might come off 10 15% doesn't mean we're aren't on a longer on look at the debt, look at the fiscal situations um around the world and I think you should be very concerned and you need to you need to be hedged. So are you uh if you have if someone is listening to this and has not diversified into into gold and silver which might be a lot of us because it the the holdings or as a portion of our portfolios is very low going into this period. Would you hold off now or I because there's so much uncertainty, is it better to just sort of dollar cost average into this to try to to try to increase your exposure market time or take it slow and know that some of it you're going to buy at the top and it's just too hard to time. How are you thinking about this? Yeah, great question. I think you the way we would go about is dollar cost average. We you we're just not smart enough. I'm not smart enough to jump on here and say here's where gold's going to go in the next six months. We don't know. But we do know what what what I feel very comfortable saying is given the economic situation, given the debt crisis and given these problems, uh over the long term, gold is going to go a lot higher. And so I would dollar cost average and um so again because it has gone up quite a bit and you could it could come off a little bit and uh just be a a a continually picking away at some of the very best positions. We we generally tell our clients have a little bit of have some physical I mean you can't help hurt having some physical gold um and some silver um and uh at the same time we try to buy some really leading companies in that space. We're very careful about junior speculative mining companies. I mean that is sometimes for people's personals accounts and you know they want a small little bit but please please you warn people um I think it's you know if you if you took 90% of the companies gold companies and silver companies that trade on a on the you know the Canadian venture exchange or something like that um you know 90% of them are worth nothing I mean they're worth negative probably and so you have to be very careful there's another 5 10% that are worth a lot more and can really go up but unless you're really an expert at at at fairing these companies out it's really tough. So that's where we suggest um an ETF even if you're going to buy a number of companies, a basket of companies. SPAT has a really good ETF where they buy they do some analysis and look at balance sheets and assets and they try to buy the best sort of 20 U junior companies. Um diversify and be careful there otherwise you can buy the wrong one. This the gold could go to 10,000 and you make no money and that's your worst nightmare, right? So be very careful and buy quality and a mix of physical and some stocks. Yeah, really really sage advice. This is an area where expertise matters. Not that it doesn't everywhere else, but in particular, I think it's very important in this space. Are you looking at other opportunities across the commodity uh sector? Do you think that there that this is a sort of um I don't want to say commodity super cycle, but do you see other areas also moving higher as some of these sort of equities might struggle? Yes. Um well the way we look at it is that uh you talk about AI and you think of the data centers and again people have talked about this but the data centers are really prompting a large increase in energy demand and so we're seeing energy demand going by three four 5% which is unthinkable really when you over the last number of years energy really hasn't gone up that much because we come we become increasing efficients especially electric and then you've add electric vehicles and um you know all the other digitization robotics so that requires a lot more mining. And I think people really don't appreciate that. Uh this whole technological revolution we're going through requires a massive amount of digging holes around the world. You know, the green agenda, they don't like to hear that. But no, we need a lot more copper. We need a lot more nickel. Of course, lithium is large supplied. The the um the rare earth and things like that. Um again, we all know they're not rare, but we're not mining any of them in North America in some of our our countries. A lot of that comes from China. So, I do think there's opportunities there. So, we do have exposure uh to some nickel to copper. Um not not as large as the gold and silver. Um but that's a space where uh we're going to have shortages as best as we can tell. Even if you even if the projections are you only you only believe in 50% of the size of the projections going forward in terms of AI centers and data centers that they're building. Um we're going to need a lot more copper and uh we're going to need a lot more nickel and uh and so uh the rebuilding of our energy grids are going to have to continue. In fact, they need to be rebuilt anyway because most of them were built in the 60s7s and you know they're you know peace meal fixing them over the last number of years and all of a sudden you're adding all this you know this this demand and so we own companies like Eaton or Snyder Electric um and they provide a lot of components and um and parts and uh they do a lot of a lot of work uh in terms of automation and building of the uh data center. So that's another way you can play it through uh some of the some of the manufacturing companies that are profiting from this large expenditure which we need uh because of electrification. So yeah there are other commodities I think we could see a large commodity super cycle and the benefit there Maggie is that those prices are going to you have to go up because we need to find more of these you know find more nickel find more copper and that requires a lot of capital and there's not enough in the market. The other benefit is if you're concerned about fiat money and all this debt that can act as a bit of a hedge to you know deval devaluing of our currency. So I think you can get it on two fronts and that's where we are you know we have some of our portfolios in those those places because of that. Yeah. Um yeah it's it's such an important uh narrative that the the intersection of AI and just technology and energy. I'm I'm obsessed with it. It always makes me think of the scenes from the Matrix though where just it's like a web of wires all over the world. I don't know if that's a good thing or not, but um what about uranium? I don't think you when you when you were talking about the the energy, is that also part of part of what you see as attractive in this uh demand story? Yes, we have we have some we have some positions in uranium. We've owned Kamico uh which again in Canada and uh I mean around it's one of the world's leaders in terms of uranium uh production. We're very blessed in uh Saskatchewan, one of our provinces in Canada with massive amount of uh uranium and uranium royalty, which is another smaller royalty company. And uh we haven't had as much in hindsight as we we probably should have. Um because I do believe nuclear is making a uh you know a rebirth. It's it's people are I mean I don't have to I don't have to tell you. I mean you hear it all all around the world. people are now engaging with nuclear again and it's become safer and this greater technology and the small modular reactors and the micro modular reactors these things are taking form it who the winners are on that is a bit more tricky um but uh but buying the actual underlying uranium I think uh over long term is very prudent and we own some infrastructure companies I mean we own some of the Brookfield companies and they are um they've got exposure to Westinghouse and they're doing some investments in uranium and nuclear also as as well as the data the centers. So again, getting exposure that way, but I do think yeah, nuclear is going to be very important. Um it's going to be hard to to to create the energy that we need without um nuclear and you need that as a base load. I mean, I think some people are waking up to the reality. Yeah. I mean, depending on just solar or uh or wind. I mean uh your president has really gone after the wind industry in a major way. And I think a lot of his arguments are very legitimate. I think they're very good arguments. It it's been hyped a lot. Um when you have LG uh liquid n liqufied natural gas and you have uranium and nuclear energy as your base loads those are far better far better energy sources and less expensive and uh and that that's a big issue going forward too because you know we need the energy growth but we have to do it cost effectively otherwise we will create more inflation and we've seen what happens in in Europe and in Canada where we're so rich with natural resources we've tried to go this green agenda and it's very expensive and it's crazy in a country which has more you know fossil fuels and and energy um you know natural gas and uranium and so the keeping the cost of energy low is going to be essential to our economic growth and productivity going forward. Yeah. Well, when I talk to folks in the energy space too eventually everything will be needed, right? That's how big the demand is. But um a lot of changes and a lot more nuanced conversations about how you get there. I think that's that's the big change. So one one thing that's interesting well let and Megan let the and let the market dictate this let the technology do it when governments step in mandate that you have to do this by a certain period of time it will not work effectively and efficiently and it will ratchet up costs and it will cause inflation and will hurt it will hurt the uh most vulnerable people in our society the most and the technology will take care of itself. We human beings are so amazing and resourceful and you got so much capital especially in the US so much capital running into these industries um that you know I I think we're sitting here today 5 10 years from now we'll we'll probably be surprised by what actually did evolve if we let the markets go and it'll be more efficient more effective and we'll have more more more more energy than we know what to do with. Yeah. Uh let's hope so. But there are there are a lot of really amazing innovations right find the world's biggest problem you're going to have a fantastic business opportunity. um as someone once told me and it is absolutely true. Uh I I I'm noticing when we're talking about this and I think it's important because we started out broadly saying um that you know stocks feel very overvalued here there the sort of so much momentum given the some of the underlying economic challenges but you're right we were talking broadly the indexes um that doesn't mean that you you want to or tell me um that we're not talking about getting out of equities altogether or underweing or we just talking about being very uh specific about what sectors you lean into because it sounds like you like the equities in the energy area. Uh so we shouldn't sort of broadbrush equities all together. Absolutely. Absolutely. Yeah. So for example, the way we've approached it and we've talked about this on the uh the wealthy on channel so over the last two years so people can go back and listen and uh hopefully I'm being consistent. Um is yeah, we're concerned about valuations and uh so we we've kept some powder dry. So, we've been running 25, it depends on the account. We're dealing with maybe 25 even up to 30% in short-term in interest bearing securities. We're not making big yield curve bets. Um, get that betting the yield curve is not not our game at Rocklink. Um, because there's I you know, there's arguments for being long or being short um and so forth, but we we buy high quality shorter term and then we go into the equity markets and some people say, "Oh, you're not going to perform very well." We've beaten all the indexes this year by a long shot. Um, so you can find businesses um that are underneath the index um like the big names and and start to unearth opportunities and that's what we do because we only want to own 20 to 25 stocks like so we're not you know we we just have to find a handful of great businesses run by smart people in industries that generally have a rising tide lifts all boats it's makes it's easier if you're in an industry that's expanding and uh and then look below the surface. So, we stay away from the indexes. We do own one of our largest companies we own. We own Amazon. So, that's one of the, you know, the Magnificent Seven, but we think that it's a great business and, um, it continues to grow and it's not ridiculously valued. Um, so, uh, that's the way we approach. I think that's the way most people should be approaching. If you look at the smaller cap indexes, they haven't done that well. Um, and so you look at the Russell 2000, um, and, uh, and so forth, you can find opportunities. So, that's that's what we do. And so we go underneath the surface, find smaller companies and uh and and and make sure they're, you know, reasonably valued and you can grow and find opportunities. There's always opportunities. It's difficult just to step right out of the market. It's very difficult. I know some people make these big announcements. Um I find that difficult. Um we're not good stock, we're not good market timers in that sense. We want time in the market, but in good businesses at reasonable valuations. that's much easier for us to control and and communicate to our clients. Any uh any investment themes or trends that you are positioning for as we sort of look toward the second the remainder of this year into next year? Yeah, good question. U I mean our heavier weightings in terms of sectors would be say the precious metals and some of the commodities for the reasons that we've discussed. We definitely have waitings in technology. I think it's impossible not to be in in the technology space. It's just so important. It to me it's basic infrastructure. So we do own um companies like Roper which Roper Technologies which is a software business. It's a it's like a Warren Buffett type company where they buy software companies they roll they roll them into one company um they dominate in different different um market um sectors and they just free cash flow and they take the free cash flow and buy more more companies and so it just continues to grow. It's like a virtuous uh cycle that that is relatively um um good value relatively very strong value. Autodesk um you know CAD um engineering they're doing a lot of design and AI centers and so forth. That's again another great business. So so technology you can't really avoid. And then we have some some infrastructure companies. We like again hard assets, long-term contracts, great cash flows, consistency. Um often we use those for dividend payers. Um and uh and then specialized finance companies. I mean, we love finance businesses because again, you can make high returns on invested capital if you're good with your money. So, again, the the Brookfield Corporations or Burford Capital, we've owned uh and continue to own litigation finance. So, it's really a hedge fund just doing litigation finance and so try to find specialized uh finance companies. We haven't been big on banks. Um I was gonna ask you that. Yep. Yeah. And and you know, the banks banks have, you know, plotted along and done very well. Um but we again look again you talk about some of the challenges in the US market also in Canada I think the mortgage market um the housing market's under a lot of pressure as we know and um so we haven't been big thrilled you know thrilled with the with the banks but we find other you know non-bank financials we love uh again love those industries so that that's where we have a fair bit of weight and then we'll cherrypick a few other industries um insurance brokerage we own um a number of insurance companies uh Markell insurance which is like a mini Birkshshire pathway really prudently run great investment portfolio buying other businesses and roping them in putting them in within their um within their overall business. Um so again yeah companies like that really specialized focused businesses that also think like us. We try to find managers who are also sort of like value investors and share similar values. That's really important to us as we talk to the companies. You know they just don't go buy back stock um uh just because they've got excess cash. I mean, they they they they buy it back because they really love, you know, it's a good value and they're always thinking about value. They're always thinking about return on equity. How are we going to maximize shareholders value, you know, they're very careful with options, things like that. There's another little company that we've been buying um out of Australia and uh they now are expanding in the United States and the UK and it's called Kelly Partners and they're consolidating CPA firms, accounting firms and it's a really it's a really neat company and the fellow running it is very bright. He's got uh you know Constellation Software guys on the board along with Markel Insurance on the board. So very disciplined guys and that's a really big area to consolidate because again a lot of these CPA firms that are $25 million revenue per year are owned by individuals who are looking for retirement or um you know exiting the business in in in the next number of years. So again just really niche finding good companies run by smart people who are in good industries who know how to run their business and reinvest back in the in the in in the business. Listen, that's how it's done, right? I mean, we've gotten away from that with passive, but I think uh you you make a really good argument for the need for um not only actively paying attention to your portfolio, but really doing that due diligence or relying on someone to do that that due diligence um that is going to, you know, provide something that you can't just look at if you're, you know, um doing it passively. So, fantastic stuff, Jonathan. What a pleasure. It's a fantastic conversation. Thank you so much for that. Thank you very much Maggie and for the information that uh you provide for uh viewers and it's it's wonderful uh it's uh it's it's amazing all the information that is on the net and wealthy on continues to do a wonderful job. Well, thanks for that. Um we we all need to upskill right and make sure we stay on top of it uh in these crazy times. Um so if you want to get a free portfolio review as we mentioned at the top click the link click the link in the description or head over to wealthon.comfree. Thanks so much for joining us. We'll see you again next time. [Music]