Report Card

Back in January, which seems like a lifetime ago now, I made some 'stick your neck out' predictions for the year ahead. Some were better than others, and some were a bit of a layup. Auston Mathews - I'm looking at you.

This exercise shows the folly of predicting the future. The random walk aspect of financial markets remains undefeated as a model for risk assets. But despite that, we try anyway. Let's look at the results on my half-year report card:

Samsung is a better phone/stock than Apple. A

Foreign stocks, including Canada, will outperform U.S. equity markets. C-

Copper is a better hard asset than Bitcoin or Gold. A+

The Fed is done, but long rates will rise. B+

NVDA won't beat the market - FCX will. C+

The Canadian dollar is headed to 85 cents. D

Trump will soon be a lame duck. Et tu, Rubio? F

The Leafs aren't gonna win the Cup. A+

First up was the Samsung call. Although it was predicated on the prospects for phone sales, it actually reflected the momentum of the semiconductor boom. Apple lagged badly, as it was perceived as behind the AI technology transformation. But no matter, Samsung was up triple digits, and Apple lagged the broader averages, rising a paltry 9%. I also called the top for the semi trade in my May 12th post, "Hair Trigger," using the lack of volume confirmation as a 'tell'.

Samsung Electronics

Foreign stocks were my second out of consensus call. It didn't pan out. Eurozone equities suffered disproportionately from the surprise oil shock in Iran. The known unknown in the form of a flare-up in Middle East tensions is a wild card that, when played, makes economic contraction the default condition. Now that the US is a net exporter of light sweet crude, it doesn't affect its economy as much as Europe. Investors shunned the UK and Continental markets in favour of Asian and North American alternatives. The AI bubble was a siren call for many foreign investors, extending the S&P dominance. Canada eked out a marginal win over the US despite giving back most of the oil-related performance gains in late May.

You may be tired of me droning on about the Copper trade, but it is nice to be right about this critical relationship. Gold peaked in February and then entered a mini bear market, declining by 20+%. Bitcoin crashed, with a collapse of more than 50%. Copper has more than held its January level and looks poised to maintain the key $6 level, but seasonality, AI sentiment swings and US tariff policies will challenge the bull case. Choppy action is likely until the fall.

The Fed rate expectations have shifted dramatically, as I correctly called. The consensus was fooled by the falling inflation rate late last year. My view was based on the secular rise in inflation driven by fiscal excess and monetary accommodation. I stand by the call despite the oil shock effects of the past few months. The Fed under Kevin Warsh has proven (despite my concerns) that they are not beholden to Trump's call for low rates. The modest rise in the 10yr bond yield is what keeps me from grading this call higher, but the chart below is worrisome. Despite oil's complete collapse to prewar levels, yields remain higher than they were before the conflict. With a potential breakout to the upside, this is the one chart that still worries me.

US 10 Yr Yields

Both NVDA and FCX are struggling to beat the market - the jury is still out on that call.

My Canadian dollar call is completely offside after a flight-to-quality rally in the US Greenback has swamped any Loonie bullishness. The speed bump created by oil at $120 chilled the growth story for cyclical currencies like the Cdollar. The CUSMA negotiations are weighing heavily now, after Trump has shown no urgency to reach a resolution. Trump's use of the tariff weapon for a Midterm election plank precludes any resolution until later this year. Recent hawkish Fed commentary is a hurdle as well. The global growth outlook needs to reaccelerate and broaden to give the Canuck buck a bid. On the bright side, bearish speculative positioning is at an extreme. I'm not giving up on my long-term 85-cent call.

Leaving the Leaf call aside, my last serious call was based on the demise of Trump and the MAGA cult. Although not definitively out of the realm of possibilities, it continues to confound logic that there has been no concerted effort to replace Trump at the head of the GOP. With every decision, he has weakened the party's chances of retaining control of Congress and, ultimately, the Presidency. I admit to a bit of wishful thinking, but surely either Vance or Rubio could have led a revolt after the Iran debacle. I guess GOP stands for Gutless Old Politicians.

So sorry to be right about the Leafs, but with 70 years of data, the prediction of this team's failure is as sure a bet as there has ever been. I hear some of the team are now considering a switch to professional golf, given the amount they get to play. But fear not, there should be plenty of spots available for your lawn chair on the parade route next year, as many fans have given up.

Other good calls this year have been Air Canada at $18 and the recovery in small-cap stocks. I was correct about the transitory nature of the oil shock. So, all told, I will be mostly happy with my report card so far this year. It's a lot better than my school marks, where I had difficulty even graduating. I came perilously close to my 1973 high school yearbook prediction of future plans: "lifeguard at a car wash"!

Risk Model: 2/5 - Risk Off

An internal correction is ongoing as the momentum trade unwinds. May's narrow advance, led by semiconductor stocks, abruptly reversed just as the "good news" of Trump's Iranian capitulation agreement coincided with the SpaceX-hyped IPO orgy. Talk about "sell on the sound of trumpets" !!

Individual stock volatility is surging, all while the index level has remained chill (chart). This is stock pickers' heaven. As momentum stocks get killed, funds are being recycled into laggards and safe-haven plays. leaving the averages in a choppy trading range.  Expemplifying this conflicting interpretation, AAII Sentiment has dropped dramatically, while the $VXV index shows no signs of macro fear. All the while, Copper/Gold is bullish as the economy recovers from the Q2 oil shock.

Time to go to the beach, I guess.

Spread of Single Stock Vol to Index Vol