Hello and welcome to The Download. I'm your host, Dave Richardson, and it is a super snowy Stu's days. A record-breaking snowfall in Toronto for January, Stu. Did you see that stat?

I did. I felt that stat being outside. It was nice and light, fluffy snow, though, at least. There's a silver lining.

That was the silver lining. Going back to some of the previous conversations that we've had, because we've talked about snow and your meticulous yard care, which carries from summer through fall with the leaves and into winter. What was the deepest the snow got on your driveway between your shovelings?

Well, I do the walkways. I have to admit, I do have some help on the driveway because I got a long, narrow driveway. But I did make sure to get out there and tip my cap to the snowplow guy, because that’s a hell of a January. I think 100 centimeters of snow in January. In my walkways, especially where the wind was blowing, it was pushing five or six feet. No problem. It was well over my head in some cases. So it was something else. But again, nice and light and fluffy. So you always have to find the silver lining.

One of our dogs ran out, did a jump and up into the snow pile and just disappeared. It was that light and fluffy, and there was enough of it that that medium-sized dog just disappeared in the snow. But it's been something else. The craziest thing about that was, they've only been keeping official snow records in Toronto since the late 1930s. So it's not even the worst in a hundred years, but it was a lot.

Yeah. Well, someone was reminding me, I guess it was almost 20 years ago when Toronto called in the army or something like that.

But what people don't understand outside of Toronto is there's nowhere to put the snow.

Yes, that's right. That is the problem.

So again, record-breaking snowfall in January and probably record-breaking craziness in January in markets. We've been away for a couple of weeks. So we'll maybe do an investment stew here. As much snow as we got in Toronto, I think they got more snow in Greenland this month. So we've once again been through and continue to go through—I just don't think it's going to change—an incredible news cycle that has proven to move markets. Now, it seemed to be moving markets a lot more last winter and spring than it did this time. But nevertheless, the noise around that discussion with Greenland and the World Economic Forum and other things that are going on around the world did move the market. But then, lo and behold, after all the tough talk, we pull back, calm down, just as if nothing happened, and then on to the next subject. I don't know how a typical investor or just an average investor like myself does it. I know it's tough, but we talked about this before, how do you get through this? I mean, you're managing billions of dollars of people's money. Stu Kedwell, who, by the way, is the global head of equity, of investment management for RBC Global Asset Management. So you've got a lot of pressure, a lot of money that you're managing. How do you do it?

When you see the headline, which many of us see that are like, wow, that's different or that's unique, and then often there'll be more information when you scratch the surface and get beneath things. So even on Greenland, the President was saying one thing, and then you would read from some of the joint chiefs and things like this that there really wasn't any plans to do anything like that. On the weekend, they brought up the idea of more tariffs on Canada. Should we sign a free trade agreement? Then in one of the side conversations, the agreement that was signed with China a couple of weeks ago didn't count as a full free trade agreement. It was like a shot across the bow, but the bow had nothing in it. It wasn't a main event. There's no question to your point that the market has shown an extreme willingness to dismiss or believe that the volatility that could be created by these announcements doesn't really find its way. I think that's really been because underlying economic growth has been ratcheted upwards. Earnings have been pretty good and a fair amount of positive commentary from a fair number of CEOs. So it's this ongoing balance of exactly what the market is going to focus on. The one thing that you always do want to try and pay a little bit of attention to through periods of noise—and it seems like the period of noise has been lengthy—so sometimes you see a stock go up, you see a stock go down, or an asset go up, an asset go down, around some of this activity, but you're looking for higher highs and lower lows and for a little bit of a tell. And one thing that has resumed in all of this is the US dollar weakening a little bit again. Currency moves can be very long term in nature. So this is maybe the resumption of something that has been taking place for 12 or 18 months. It's modestly against some of the developed nation currencies, but more so against EM currencies. That's where we've seen a more significant move. And then from an equity market standpoint, again, the emerging markets have been quite strong. And so those are some long-term trends where the US has really been the dominant equity market. When you have these long-term trends, you have a downtrend, and then you often have a period where it might be more flattish, and then it starts to reverse. And on some of those long-term trends, EM markets, along with some other—Japan and a few others—have been the first to outperform the US markets. And we've talked about this in the past, whether or not this is the end of American exceptionalism. I think it's too early to tell on that front. But that lengthy period of American markets outperforming their global peers was roughly a double over 10 years, which is significant. And a chunk of that was due to earnings growth, a chunk of that was due to American valuation expansion, and a chunk of it was due to the strength of the US dollar. So seeing one of the tailwinds maybe become a bit of a headwind on the dollar front and then from markets themselves starting to see a bit of outperformance from emerging markets and a few others. We'll just have to continue to watch that. But if you looked at a stock-specific move around some of this news, maybe they went up, maybe they went down. There wasn't really any material change. Throughout all of this, some of the changes in the dollar and market leadership have been a bit more persistent. That's at the macro level. Within the markets, it's interesting. Consumers' staple stocks had a spectacular early part of January. But that was coming off a very depressed level. You might be a bit less willing to say that's the beginning of a new trend. Those earlier events we’re talking about, the beginnings on a monthly basis, things starting to make new highs, and it doesn't all happen at once, and then they consolidate and they make a new high, and you begin to see new leadership emerge. But even in the last month, we saw a lot of volatile activity that I don't know if we'd be quite willing to say, well, that's a new trend.

Yeah. I think for people who have listened regularly over the last five years to Stu's days, they know that we've been talking for a while, a couple of years now, about the idea that at some point the US outperformance would run out of steam and the weakness everywhere else would create an opportunity that would ultimately become compelling and that people would move in that direction. We've seen for the last 18 months that play out—which is one of the reasons you should subscribe and watch us on YouTube—but the continuation of that. So we saw the US dollar come off from its high. I think the US dollar index peaked around 114 and then fell down in the mid 90s, rallied back above 100, and is now sitting around 96 today. So as you say, you had that level off and pop back a bit. But now the longer-term concern around the US dollar has picked back up again. And that has an impact for the appetite that people have for US investments around the world. And so then you look somewhere else, and you found lots of opportunities, including Canada. That's, of course, getting a big lift out of a couple of areas that I think everybody likes really all over the world, which is financials and then base materials.

Yeah. Definitely, banks have been strong all around the world. Copper has been strong. And then where we get into gold and silver, those have been very strong in relation to the US dollar. Gold, as strong as it's been, is like the distant cousin to silver in the last three or four months. And these areas on the market are a bit tougher. Gold has had a strong bid for all sorts of reasons. Maybe the US dollar is weakening, geopolitical concerns, central banks buying, a laundry list of reasons. What we know about gold when it moves is it tends to have dramatic periods of movement in a short period of time and then a long period of very little movement. The funds have participated in the move so far, but when you get this overbought, you're always trying to figure out, are we due for some consolidation or corrective activity? The stats in silver are even more stunning in terms of distance above a 200-day moving average. The case for silver is also interesting because it has industrial usage in addition to participating in the goldish store of value. But technicians like to look at moving averages. So the 200-day moving average would be the average price over the last 200 days. And when you get north of 100% above that 200-day moving average, that's a number of standard deviations above the history. It's not the highest it's ever been, which was with the Hunt Brothers. That was almost 50 years ago, and there was this big squeeze in silver, which shot it up. But I think many market participants also look at that activity and say, at some point, there likely would be a correction. It's hard to sustain itself at those levels, whether or not it goes sideways or it actually corrects downwards. Time would tell, but it wouldn't be something where we would be rushing to put new money into something that far above its moving average. And I think, unfortunately, that's been a bit of a rolling—some might call it a bubble—maybe just rolling enthusiasm for different markets. It's like love them and leave them. We've seen that a little bit in the last 12 to 18 months. And when you own them, it's great. You get this tremendous performance, and you have to ask yourself if you're going to sit tight and stay. And if you don't own them, when it gets to a certain period of extreme, you just have to say, well, I missed that one, and I'll find the next.

Yeah. So when you say you look at that 200-day moving average and you get to 100% of that, so you get basically double that in pricing, and you start to look at risk-reward or upside-downside, right? And so how much more upside am I going to get for this risk that if it just drops back down to the average of the last 200 days—which is significant in and of itself, because everybody's bought it over almost the last year—your upside-downside, it starts to suggest, hey, that's not where I want to go. But what you often see is the momentum and the enthusiasm carries people in instead of making them look, say, hey, I should be taking some caution here.

The analogy I would draw is, I like cookies. So in the summertime, it might be like a cookie a day. And then September rolls around and maybe it becomes two cookies a day. And then I get to Thanksgiving, and maybe it's three cookies a day. And by Christmas Eve, I might be at maybe not quite this high, but maybe 8, 10 cookies a day. Would I go that high? I'm not sure. But then what happens is I stop eating cookies. So that's what happens around the momentum in a market. It feeds on itself to a point, so to say. And then it hits a point where you're just like, no, I'm not interested. And the last days of the move can be very significant. And then when it peters out, that can be quite dramatic as well. I think that's why I use this analogy of eating cookies on December 24. You would not want to assume that the same number of cookies will be eaten on December 26 because New Year's resolutions come along and what have you. That's the same thing that happens in momentum markets. There's this enthusiasm to be involved, and then when the last person is involved, the price action can be pretty volatile.

Yeah, or that you're going to start to eat 10 cookies early in the new year, and then Valentine's Day, 12 cookies. And then you just project it out, and you're not going to get to a point you're eating 100 cookies a day. We do have some YouTube of a higher cookie eating Stu Kedwell, if you go back and look at the archives on this podcast.

Well, a guy can dream. 100 cookies a day. You don't get cheeks like this not eating cookies, let me tell you. But we've seen that a little bit. We got off topic here, but we've seen that a little bit in some of the markets.

No, well, it's exactly right. And we've raised Warren Buffett on this podcast. People, again, watching on YouTube, they can see your wall with lots of quotes, and there's a few Buffettisms in there. But one of Buffett's things on gold is gold is worth what someone's willing to pay for it because it doesn't do a whole lot for you. I mean, you can make some jewelry out of it. And I guess I've got a couple of teeth in here that I'm going to pull out if it goes any higher. But really it doesn't do anything. You don't earn interest on it. It doesn't produce something. So it's really worth what you're going to pay for it. And at some point, just like your cookies, you just can't eat anymore. You're not going to pay anymore. And that's when you typically see, as you say, it moves in fits and starts. The analogy I always draw for gold is—we're in Canada, so we can talk hockey—you got a hockey player who scores. He comes out and dances around. He's a really great skater and very offensively oriented. And he comes out the first game and pots three goals and you win and everyone's happy. It's like, wow, that guy's great. And then for the next 10 games, he's out, skating around, but he just disappears. The other team is scoring a bunch of goals, he doesn't take his defensive responsibilities very seriously. And then, lo and behold, 10 games later, he pots five goals, and he's dancing around. Everyone's, wow, that guy's got talent. And then he disappears for another 10 games. That's gold, right? A shiny hockey player is like the shiny metal, really good for short bursts and then really nothing for long periods of time. And again, you do take advantage of that in the portfolios you manage. And there's certain circumstances that you know are going to favor gold, which can draw you to when you might want to have some extra gold in your portfolio. But you've got to realize that that's a pretty strong pattern that's been established historically. It's not for everybody.

Yeah, and it lends itself to different comparisons as well. When you see enthusiasm in one area, then you maybe go look for some areas where there's very little enthusiasm. And you can sit there and dream the dream and say, wow, could there ever be enthusiasm in this area? And maybe I should plant some seeds today. The energy sector has continued to do reasonably well this month. But at the turn of the year, I looked at one of Canada's biggest gold companies, and I compared it to one of the largest energy companies. And the free cash that the two businesses generated was the same in dollars. Yet one's market cap was 50% higher than the other. And the gold cash flow is based on $4,500 to $5,000, and the energy cash flow is based on $60 oil. Could you ever imagine $75 oil? Could you imagine the same free cash yield as the gold company currently trades at. The interesting thing in that case is you don't have to bet on either two to get a reasonable return. And if either of those two take place, you get a very good return. Any time we talk about some of these rapid market movements, what we're always trying to do is look at those and compare them to other areas of the market. You mentioned Buffett. I can't remember exactly what the analogy was, but when gold was very strong, he said, if you took all the gold in the world, you could have all the farmland in the United States, you could have a number of Exxon Mobil, you could have this collection of assets that would produce all this cash flow over time. And that was his way, the weighing machine, of saying, well, just when you see it over here, what does that compare to somewhere else? So when we get these rapid movements, we want to respect them and be aware of them. But we also want to sit there and say, is this a chance to compare it somehow to another asset that seemingly might be at this juncture left behind?

Yeah, and certainly not to say this is not an anti-gold discussion. I mean, you've managed large portfolios of just Canadian equities, and you have gold exposure because there are some really good gold companies in Canada, and there's times where you want to be overweight or underweight gold. So you're not averse to gold. There's a reason why you'd have a little bit of gold in your portfolio. What we like to do is we're having these discussions for listeners is to just point out when things start to get to extremes and you want to just start to think about whether that's where you want to put your next dollar. Or as you say, look at some of the other alternatives. The opportunity cost, I guess, would be that if I put the money in gold, this is what I get. But if I put the money over here, I get all of this. And can I see a scenario where this could move? So now I can take advantage of that.

Maybe to wrap it up, I was buying salt on the weekend, and I sat there and said to myself, I wish I bought this salt in the summertime because I'm paying full freight in the middle of a snowstorm for this salt, which unfortunately I really need at this juncture. So when it gets to the market, there's what's in the focus right here and now. And then there's some things over here and say, are the valuations interesting and will they become in focus? So you always want to simultaneously review this and think about the other things that might be available.

Great way to wrap it up, Stu. Another good investment stew. You need to get the right amount of salt in an investment stew. It's important for the taste. I'm glad you did focus on that. We're five years into this. You're older than you were when we started. So I'm glad you've hired someone to plow the driveway. We don't want you hurting yourself now that you're getting older.

Well, thanks, Dave. Always good.

Thanks, Stu. We'll see you next week—or in two weeks, actually—we're going to miss you next week, but in a couple of weeks. Take care.