Hello and welcome to The Download. I'm your host Dave Richardson, and it is a special St. Patrick's Day edition of Stu's Days. Stu, you flew over to Ireland to attend St. Patrick's Day in person, but somehow you ended up in London. Did you not realize that it's not the same place?

Yeah, I wish I was in Ireland. I've heard it's just phenomenal.

Yeah, that would be the place to be at some point. But unfortunately, when you're the global chief investment officer of a massive asset management company and you've got as much going on as there's going on right now, there is no time to imbibe in the St. Paddy's Day festivities. I guess if St. Patrick's Day was all about oil in the Middle East, then you'd be right in there milling about with the folks. But it's not, and that's what's on everybody's mind. I was with you in London a couple of weeks ago, and we had a chance to talk with a number of people who were there about what was going on, but I don't think we've had a chance to really get your perspective on what we've been seeing since the war in Iran broke out on February 28th. What are your general thoughts and how are you approaching this?

Well, I think you have to think about where you were before the events took place to begin with. Markets have had some debates so far this year. There's been the concern over software. There's been some concern over private credit loans and will there be some delinquencies and what are the marks. And there's been some concern over how will all the AI CapEx be funded. And I think in each one of those topics you had pros and cons, but they were a debate. We had seen a little bit more volatility into the events than might be the case going into some type of geopolitical events. Normally, people are of the mindset to buy when there's geopolitical weakness, and the interesting thing about this one was people's mindsets were so focused on that that the first couple of days actually saw very little price change as people were kind of mulling about and thinking about that. So that's why I say I think you have to pay just as much respect to what was on people's minds before the actual events, because I think that continues to be on people's minds. And then you've added in the length of unrest and what would be the impact on oil prices? What will be the impact on fertilizer prices? What will be the impact on a variety of chemical prices? And what will be the duration of that? And that has not made it, from a stock market standpoint, as straightforward to say, oh, we get all this weakness, let's step in and take the other side of it. We're definitely on the lookout. When there's weakness, and we have the S&P rallied yesterday but maybe 4% off its highs. Anytime you get weakness off the top level, you sit there and say, do I think the stock market's going to hit another high again, whenever that might be, I am getting it 4% cheaper. But all that said, it's not as clean as some historical responses might be. And nothing ever feels easy when you're in the midst of volatility to take the other side. But you've brought some tention to the table that is harder to dissipate, whether or not it's how long will the Strait of Hormuz stay closed. Geopolitically, will there be allies who will participate down the road, and how long will it last? So you have that kind of stew on one side, and then you also have this notion of some markdowns in private debt. I think we should take a step back on some of those things because they're containable. The private debt market might have some challenges, but it's like $2 trillion of a very large lending market. So it's not something that we have an immediate exposure to. So you're trying to definitely monitor it and be aware. On the AI side, yesterday NVIDIA had their big conference where they lay out the future, and it's hard not to be impressed by it. When you see OpenClaw and you see robotics and you see self-driving and you see the level of compute that will be available and likely consumed, but you also aren't seeing the momentum recharging itself on those stocks either. We talked about that when NVIDIA reported their earnings, and it's still been stuck in this kind of range-bound trade. So all of this is a long way to say that normally when you get geopolitical events, you want to be thinking about, how do I take advantage of them? But there were some crosscurrents before, and there continues to be a few crosscurrents after. These things, for longer-term investors, they resolve themselves and onwards we go. But these crosscurrents have presented themselves when markets had been really strong, and that type of digestion, unfortunately, can be quite natural.

Yeah, I was doing my internal video for advisors yesterday and showing that negative 90% correlation of oil price to markets. So basically, if oil's up, markets are down, and vice versa. So yesterday, we saw oil prices down, markets up. Today, the kind of price is somewhat stable. It's a little bit up but not too much and down from where it was earlier. So, markets are kind of treading water as well. But as you said, you're thinking about opportunities. And again, these types of situations generally present opportunities. And I know you like to lay out the different scenarios. The scenario that everyone seems to have bought into, if I look at forward futures contracts on oil. So this is what somebody will pay for oil somewhere down the road. Right now, the cost of a barrel is around $95 as we're taping this. By the time you get to August, $83. By the time you get to the end of the year, back to $76. So it really seems like in terms of what the market is doing is it's pricing in that this is going to get resolved quickly, that everything goes back to the way it was, oil prices drift lower. And that's great, except that we had markets at or near all-time highs. They're still not far off that. And there still is the chance that that's not the way it plays out. And oil is that one thing. We talked with Eric Lascelles a lot about how the general trend is, interest rates is down, but that's under the assumption that the general trend in inflation is down. And there's not a whole lot that affects the price of everything more than the price of oil. So that stays higher for longer, it kind of throws out a whole lot of what you thought was going to happen. It seems like everyone's making a lot of assumptions, and I think where I got with you and what I've said to advisors is, maybe this is when you want to sit back and watch a bit, stay diversified, and that's really the best way to play it out.

Yeah, you've had strong markets, part of it is the starting point in terms of when you get information like this. Does it impact a longer-term plan? Not really. But normally you say, well, markets don't like uncertainty. Normally during periods of uncertainty, you want to try and put money to work. But as volatile as it's been, as we say, we're just 3 or 4% from the highs. It's certainly not that way on every stock. But there hasn't quite been the resulting volatility that the headlines might suggest there could have been.

Is there anything that you're looking at as an investment manager for signs that one scenario is going to play out over the other? Is there a timeframe that you're thinking about when it comes to that?

Well, you mentioned crude oil, so you're definitely looking at some longer term. There hasn't been as much movement in longer-dated crude oil. So, trying to figure out, well, how could the timing of this come off the boil. You're always looking for how could the genie get back in the bottle. What would be required. Say, tomorrow, people back down, there's a type of resolution that's arrived at in a hurry. So there's that component. Then there's a longer-term component. Everyone's very focused on the disarray. Even if there is some more shorter-term pain, could a more stable situation also emerge? If signs of a stable solution emerge, even better than what was in place before, the stock market will jump to it. Markets will sniff it out and see it right away. So you're always trying to run all those scenarios. I think, going back to the very original point, though, is that, you have geopolitical events, but you also had a few other discussion points that are separate. Even in Canada, we had a subprime lender go through some hard times on loans on recreational vehicles, loans written after COVID. Again, it's the type of thing where it just gives people a little bit of a pause on how strong or how healthy are things. On private credit, there's been some fraud, but then there's been businesses that consolidated a bunch of Amazon resellers. That was hit by tariffs. There's been some concern about software. There's been some concern around some auto lending in the United States on recreational products. The other thing you don't want to do in this is you're making a list of things that are a little bit different. And you can draw a circle around each one and say, not a big deal. And then say, oh, but hold on a second, there's a bunch of things on this list. That has to be weighed against the valuation of the market. And we also know, in any given year, it's very reasonable to expect some type of corrective activity. Even in very strong markets, you'll often see a 5 or 10% headline correction. So we're just trying to stay open-minded and weigh all this stuff together. And that's what I mean, be open-minded, be willing to change your mind, acknowledge in advance that it's not going to be perfect. We've talked about that before, how you might put money to work through this piece. You want to evaluate it afterwards and just say, generally, was it good? You're never going to find just the right pathway.

Well, I guess what you're saying is, it’s not necessarily an environment. Because of what was happening before, you layer this on top, there's still a wide range of possible scenarios. So not a time to be a hero.

Yeah, unfortunately, like many things we do, cross the river while touching the stones. There's not a bunch of statistics that say, this is a no-brainer. But there's also a bunch of statistics that say, this could resolve itself as well. So you always go back to the fundamentals, the foundations of a well-capitalized banking systems and generally healthy consumers and blah, blah, blah. Those things are all still in place.

Yeah, as you mentioned earlier, one of the things that you always want to keep an eye on—and

Well, you're giving me the cue again for dollar-cost averaging. And when you think about the good times, the bad times, it just seems to be a very good roadmap for finding our way. You can look back at when markets were at highs and you can say, I put some money to work there, but I've got more to go. So I'm just continuing on with my path. And other times there'll be very attractive situations, and you might wish you'd put more to work. But again, it's just gives you this roadmap that lines up with your financial plan, takes the emotion out of it. It ends up being just an excellent tool in this type of environment.

Yeah. And Stu, on that, say we did get a bad scenario play out and you go down 20%. Is that where you'd take your dollar cost averaging program and maybe accelerate it?

No question. You want to try and accelerate it into that type of weakness for sure.

Excellent. Well, Stu, I know how busy you are. I saw you in London two weeks ago. I know you were just in Hong Kong. You're in London again. I used to know where you were, not in a creepy way, but I used to know where you were roughly, because we work together. But it just seems like you're truly the global guru here now, the Chief Investment Officer on a global level. So, thanks for checking in with us. I know you don't have a ton of time, but we really appreciate it because it's always great to hear from you, especially in times like this.

Okay, thanks so much, Dave.

Okay, take care.