Jonathan Wellum of Rocklinc Investment Partners shares crucial insights into navigating an unpredictable 2024 financial landscape. In this episode of Wealthion, James Connor speaks with Jonathan Wellum, CEO of Rocklinc Investment Partners. Wellum provides his analysis of the current economy, markets and calls out the potential risks and opportunities for investors as we navigate an uncertain economic future. From the stability of the banking sector to the threats of inflation and recession, Wellum offers practical strategies for protecting and growing your wealth in 2024. Don’t miss this critical discussion filled with actionable advice and expert predictions.
Jonathan Wellum 0:00 I think what what governs a lot of our investment decisions other than being longer term and trying to buy businesses that we think can compound for reasonable periods of time, and companies that have a good moat around them and all the things that you know, your wish list, if you're going to be a long term investor, we are concerned about the debt. And so, you know, this this proverbial debt issue, which is not gone, you know, hasn't gone away and continues to get worse, which is quite interesting. And we've talked about this before in a previous show. I mean, there's just so much global debt out there. So what does that mean, for us, it means we want to buy businesses that are really essential, very critical to the global economy. If there is a debt problem, or you know, we get into a lot of volatility, they shouldn't be able to least weather it on a relative basis a lot better than other companies, harder assets. And so that keeps us away from tell you where it keeps us away from they'll say where it's great where we gravitate towards. It keeps us away from a lot of leverage financials. James Connor 0:55 Hi, and welcome to wealthion I'm James Conner. Well, the first half of the year in the financial markets was nothing short of exceptional with the s&p Up 15% on the year but as we enter the second half of the year, there's a lot of potential landmines the economy is slowing. But does the economy go negative? disinflation keep growing? Is stagflation a possibility? Does the Fed cut rates this year? To help answer these questions, my guest today is Jonathan Wellum of rocklinc investment partners. And rocklin is a wealthion endorsed, financial advisor for Canadian investors. Jonathan, thank you for joining us today. How are things in Toronto? Jonathan Wellum 1:40 Very well. James, good to see you. Good to speak with you all. So yeah, we're just chugging along here and interested in the final results tonight there in the Stanley Cup. James Connor 1:47 Jonathan, I want to begin our discussion with an overview of your firm rock link. And why don't we just start with a little history of the firm and, and also, maybe you can tell us about your investment style. Jonathan Wellum 2:00 Sure. I got involved the investment business back in 1990, in the mutual fund industry, and was fortunate to be in the industry at a fantastic time. And I got started working with Michael Lee chin. So we built AIC funds, which was quite well known in the Canadian marketplace. And we sold that business in 2009, to Manulife. And so in 2010, I thought, you know, let's just set up something that I can control 100%, I can look after some my own money and friends and relatives and just sort of build a business around. So set up rock link 2010. So we're in our 15th year, and private wealth management, we're registered as portfolio managers investment fund dealer. And we also the exempt market dealer. So we're all licensed discretionary money managers. And we just wanted to again, apply a discipline value approach to investing. So you know, people come in, we have family of about 300, plus families now come in, and we just, you know, customized portfolios for them by individual stocks, bonds, securities, and so forth, that are going to meet their objectives. But it's a very disciplined, what we would consider a longer term approach, trying to find businesses that we think are reasonable value and can compound for extended periods of time. So you get that power of deferred taxation. And compounding, we do have two funds, we have a pool that we use just for efficiency, and effectiveness. So we have a rock link partners fund that we started in 2017. And that's we use that more and more actually, in people's accounts, because it's very, very efficient. And we have one offshore fund, that again, it mirrors what we're doing in our overall assets with our clients. And that's an that's based in the Cayman Islands. And that's for investors who just want to have some money outside of the country. So basically, discipline focused investing, you know, 2025 stocks, we'd like to do our work on the businesses and then take reasonable position. So we can do well over time. We don't care about, you know, market indexes and things like that we're way off index, we're not trying to, you know, mirror the index or copy it, we're just trying to be as different as possible, but finding a handful of great companies that we believe are going to do well over a three to five year period, and hopefully even longer. James Connor 4:14 And you mentioned that you have 20 to 25 companies within your portfolios. Is there a minimum market cap? And also what would be the breakdown between Canadian versus us names? Jonathan Wellum 4:27 Yeah, good question. So um, we don't have a stated minimum. But, you know, the market cap generally is going to be north of $5 billion $10 billion. In most cases. Now, we do have a couple of companies that are smaller that are a couple 100 million. And we just believe that these companies are unique. We've come across them, because their assets aren't that massive. We can take reasonable positions in these companies. So a company like gold royalty, GROY is the stock code. That's a unique company in our view. It's a welcome position in the precious metals, it's small, but it's got great management, some great assets. And we think it's way undervalued. So we'll, we'll build a position in a company like that. But generally speaking, we're looking for companies that have pretty pretty long established track records. And therefore, they're going to be typically more than $10 billion in market and market size. In terms of geographic exposure, we will invest anywhere in the world, but let me just pull that I can say make that statement and pull it back quickly and say, Okay, we want to be in markets where, you know, we can, you know, read your annual reports, understand the company's, you know, phone companies talk to the talk to the management of the company, and are in markets that we understand. So that really keeps us to Europe, we could go into Japan, but we're gonna buy a global company, like a diode or something like that, which, you know, we could own, but most of the money would be North American based, but with global exposure, and the mix, typically at this point would be probably about 40% 35 40%, Canadian based companies. And the remainder would be outside of Canada with a preponderance in the US. But I think in our portfolios, we only have maybe two companies that are 100%. Canadian. And those again, would be like, like a REIT. You know, we own some smart centers or something like that. And, you know, people want to get high dividend. That's a Canadian company. And But largely, our Canadian based companies are very global and have, you know, they've got assets in several continents, these are companies that are doing doing very well building great businesses around the world. James Connor 6:34 And what would be the breakdown between equity versus fixed income? And also, what's your cash position right now? Jonathan Wellum 6:41 Yes, yeah, good questions. And because we customize the portfolios, I'll give you our overall asset allocation. But then, again, I'll just explain a little bit more. So right now, we'd be about 65%, equities, 35% short term interest securities, we don't we have not played, you know, the long market on the long term market, on bonds and things like that, we just don't see the returns being justified. So in terms of interest bearing securities, we've kept it quite short, high quality, we're not adding value as equity guys, by playing the yield curve. And there's people that can do that. And, you know, we respect that. But from our perspective, we can clip 5%. And it's pretty well guaranteed short term that we'll use that to buffer, the equity volatility, and also just to build some cash flow for clients that want that so 65, 35 At this point in time, but, you know, we've got some clients where, you know, they're 90% 95% invested, these are younger clients that are aggressively investing every month, and they want to have larger exposure. And then we've got, you know, individuals who are literally, you know, widows who are very close to the wire. And so we're going to keep them maybe, you know, 40, or 50%, equity exposure, they're very nervous about market volatility, and so forth. So, because we've got such a range of clients, I think the point there would be customization will govern a lot of our asset allocation, I would just say this, that if someone comes in and we have full discretion, and they have a long term view, I would basically be looking at about 70%, I think equities and holding back about 30%, given market valuations and the fact that I want to have some powder dry, so that if the market gets a little crazy, then we can step in and buy some of our favorite companies at better prices. So I think that's that's probably where we sit right now, we, we like to, we have a number of companies that we like, but the market is not cheap. There's a lot of obstacles out there, that could derail the marketplace. And we, you know, we like Warren Buffett and I think Buffett's pretty sharp keep a little cash. And if you can grab 5%, while you're sitting there waiting for it, you know, we're quite happy to clip the coupon right now. And then pick off businesses that we think are cheap, or could become cheap. If there's a problem, or something happens in the world that jolts the market. James Connor 8:59 And you already threw in a few names. But maybe you can give us some more detail on what sectors you like right now. And maybe mentioned some more of your favorite names and where you see value. Jonathan Wellum 9:10 Yeah, so overall, I think what what governs a lot of our investment decisions other than being longer term and trying to buy businesses that we think can compound for reasonable periods of time. And companies that have a good moat around them and all the things that you know, your wish list, if you're going to be a long term investor, we are concerned about the debt. And so, you know, this this proverbial debt issue, which is not gone, you know, hasn't gone away and continues to get worse, which is quite interesting. And we've talked about this before in a previous show. I mean, there's just so much global debt out there. So what does that mean for us? It means we want to buy businesses that are really essential, very critical to the global economy. If there is a debt problem, or you know, we get into a lot of volatility, they shouldn't be able to least weather it on a relative basis a lot better than other companies, harder assets. And so that keeps us away from tell you where it keeps us away from they'll say where it's at where we gravitate towards, it keeps us away from a lot of leverage financials. So we have, you know, as Canadians, I mean Canadians, when they build a portfolio, they usually have half of it in banks, and you can't go wrong by owning your bank. While our view is well, you know, we're not all that thrilled about the banks, we probably have about 2% of our client assets, actually, in banks, and maybe one and a half percent and in the Canadian banks, that doesn't mean they're going to blow up tomorrow, but just means that they've got a lot of debt, they're leveraged into Canadian market that is very leveraged right through the whole system, from the government to personal leverage, and Canada's is one of the worst in the world. And so mortgages and all those things, we look at that and say, You know what, we'll stay, we'll stay clear that we don't need to be in that space, we'd rather have fee based financials, which are much more predictable. So asset managers, or private equity companies, or even the royalty companies in the precious metals companies, which really are investment bankers to minors, so we'd much rather be in that space. The other area that we would go go into then is we're going to look for companies that are harder assets. So infrastructure assets, companies with long term contracts in areas that control long term cash flow streams, inflation adjusted. So, you know, we own some of the Brookfield assets, we think that they're well positioned or well run, they're not in highly regulated utilities, which we'd be more concerned about. If we own some of the precious metals, which is certainly space that you know exceptionally well, and we like that space, because we think, you know, the debt crisis, the continual erosion of our currencies, just it's, they can't stop it. I mean, it's impossible, one way or another, we're in this sort of catch 22 situation where we've got way too much debt. And either we're going to have inflation, and that'll chip away, or if we have, if the if they don't take if the rates don't come down, we're gonna have financial problems if the rates do come down, and they'll continue to stimulate. Either way, we think you're going to lose purchasing power. And so we want to be in some of the precious metals. In that space. We do own mostly royalty companies. So we do have some Franco Nevada, Royal Gold, we have some Wheaton precious metals, sandstorm, oh, Sisqo gold royalty I already mentioned, we do own some Agnico Eagle, we think that they're one of the best miners and, you know, for us buying some of the juniors that's not what our clients are in for. We have we respect people that do that. But we we have to know our circle of competence. And that's not looking down holes in the ground and trying to find the next great mine. And we own a couple other small mines, we have, you know, guess a little bit of Equinox for people who want a little bit more juice, we have some clients that will come in. So you know, I do want to own a few smaller miners. And again, that's run by Ross Beatty is exceptionally you know, good managers who will go after the companies that are in that space that are run by great managers have tremendous track records and disciplined in in what they're doing. So we have some also some SilverCrest and for people so that gives a pretty good smattering that space. We do love software companies also. So you get into technology, we you know, we think of the software business itself. It's a great business, if you can develop a software that people purchase an integrated into their company. There, you got them for life unless you really screw up. And they'll just keep buying that software and they'll keep renewing their contract, you got pricing power, you don't have a lot of fixed costs a lot of cabinet capex. So we own companies in that space, like our like a roper, which is a well run software businesses, sort of a conglomerate of software enterprises. We've had some Microsoft is still with some Microsoft on our books, we've done well in that we're little little more hesitant and adding it these values and some of the ai ai hype, I think is just a little bit too much hype for us right now. So we're just being careful in that space. And then we have some some industrial businesses that are we think are essential to the continual transition, the green transition, so companies like Lindy, which helps businesses be more effective in the energy, their energy consumption and industrial gases and things like that boring but just continue to chug along. Schneider Electric we bought recently. They are Schneider along with Eaton and Hubble are major players in the rebuild of the utilities which has to be rebuilt. And they also are building data centers. And so that that's going to be something that again with the you know, with AI and you know EVs and all of these sorts of things. Again, what we're trying to do is find longer term trends, and then find great companies that are perched on some of these trends. And they don't have to knock the lights out but as long as they just continue to chug along 567 8% organic growth they're going to make some good money there good free cash flow generators. Company is an Autodesk Adobe, we've also got some exposure to, again, great long term businesses. I have tremendous entrenchment in companies, it's hard to get rid of these guys. And they you know, so they become real cashflow machines. So those are sort of give you a, you know a smattering of businesses. I mean, we're, I think at the end of the day, we're looking for companies that are really great balance sheets, your note, you know, either no debt or debt that's very manageable and very controlled. And companies are essential. And they have scarcity in the sense that they're usually in oligopolies. You know, they're not going to, they're not going to disappear tomorrow, and they're perched in good industries. James Connor 15:37 So I'm curious about the comments you made about the Canadian banks, and why you have such a low weighting in them. And I guess you're, you're really concerned about the leverage that they they currently have. And I want to dive deeper into that. And when you look at the Canadian banks, it's a huge range in terms of performance this year, Royal Bank is up 5% on the year, but TD Bank is down I believe, 12 to 15% on the year, but maybe you can give us some more detail on on why you're so concerned and and what's happening within their loan portfolios. And do you see the risk coming from the residential side or commercial? Or both? Jonathan Wellum 16:10 Yeah, I think it both. And it's interesting to see the divergence, no question Royal Bank is well, bank has been much more disciplined and they didn't when, you know, back about a year ago, two years ago, I guess we started looking at the average amortization period of mortgages, and it started to really start stretching out. And you've I'm sure, you know, talk to people who have talked about this already. And so what the banks were doing is basically negotiating with clients and allowing them to extend them the amortization period in order to deal with increasing interest rates. And we look at that, and we go, You know what, that's not a good thing, when you've got, you know, 18 20% of the mortgage is amortized over 35 years now, that's more renting than it is ownership. And, and so you started to get a little worried about that. So from our perspective, given the the housing bubble, or certainly very high prices of housing, and then the fact that you've had so many people topping up and buying homes at high valuations and low interest rates, and then you've got this revaluation of interest rates that makes the the personal or the retail side of the business very vulnerable. And we think that again, even if it doesn't blow up, and I'm not, you know, we're not, they're not looking at this as Armageddon, I mean, Armageddon could hit, you know, at any time for a whole bunch of other reasons. But it's just going to be just going to be more and more loan losses and write downs and there's not going to be growth, it's going to be really hard to come by. And so there's going to be under pressure. And when you're leveraged, you know, 12 to one that's that just puts pressure on the commercial side. Also, we talked to, you know, we're you know, we have a commercial, we rent here in Burlington, we talk to a number of the large real estate agents in this area. And boy, it is abysmal when it comes to top tier office space, and running around here in Burlington all through the area. And a lot of these big buildings are like half full, people are working from home, the larger companies have, you know, changed work patterns for their employees. And there's a lot of stress. So the industrials, pretty solid, tier two offices, so So but there's just pockets where there's problems and the banks are walking, you know, they're making it very difficult for two renegotiations are walking for mortgages, I was just talking to a real estate agent a couple of days ago. And she says, it's amazing people will line up a mortgage with it with a bank in the next scene over for the enclosed will back out, they're really watching other loans book very carefully. So that's good in one sense. I mean, they're Trump banks trying to protect themselves. But I think in terms of looking for asset appreciation and growth, we just look at it as dead money, it's just going to be very difficult. Now, that's a general statement, we've seen that there are differences Royal Bank did not get into the extending and larger amortization periods as much as as Bank of Montreal and CIBC, TD did a little bit more of that. So the banks have, you know, a little bit different allocations there. The other thing is that you know, TD, of course, got caught in the, the money laundering situation United States, which is probably what's taken them down a little bit more than that. So you always get something that can, you know, an exogenous sort of factor that can hit one bank over another one, but I think just overall retail situation is just gonna be under pressure, and then the commercial doesn't help it at all. And so that softness, I think will make it makes them unattractive. At best in fact, in Canada, some of the best best performing up until they announced the Canadian, Canadian western bank purchasing the National Bank was doing very well and continues to plod along and it's interesting because, you know, they're sort of more of a basic fee base kind of business they're not involved in a lot of the heavy extensive lending and international operations like the other the other bank so and that's a new blow up I just looking at them as leverage is you know, whenever you're leveraged a lot and if things don't work out, well, mortgages certainly are underwater. slump for Canadians underwater housing prices have easily dropped 20% all around the area where I am, and I'm looking at, you know, people who bought, you know, two, three years ago or down in some cases 25% from the peak if they bought right at the wrong time, that's just as that's going to have to run through the system. And part of the part of that also James is looking at, you know, 15 years of almost negative in zero to negative interest rates. And, you know, we're going to pay up for that. And so we just don't want to be in businesses that could be more vulnerable to that, that payment problem. And, and going back to more of an equilibrium in the marketplace. James Connor 20:39 yes, this whole work from home thing is having a significant impact on so many aspects of the economy. And I spoke to somebody recently, he works for Oxford. And they owe many of the large class A buildings in downtown Toronto, and they sit on a typical Monday, only five to 10% of people are coming into the office. Jonathan Wellum 20:59 I was in Ottawa. I don't do all that too much, usually a couple times a year, but for two weeks in a row there I was in Ottawa and for meetings and, and he talked to all the people in Ottawa, I mean, you know, the fights going on there, they can't even get the federal employees back in three days a week, no one wants to go back. And the traffic flow is just so much different when you're in Ottawa. Now, it used to be all the roads roll backed up in the morning and so forth. And no, it makes a big difference. So what does that mean? I mean, we've seen the extremes in extreme situations, like in the US. And while we be, you know, just concerned about some of the regional banks down there who had more exposure to some of the commercial property. I mean, you got properties that, that were going for high high valuations just 678 years ago, then they end up in Los Angeles, or Chicago, or even New York, in these democratic run states, and also cities. And the next thing, you know, you've got a homeless problem right next to your building, and no one wants the building. And so there's one building name escapes me right now, just reading in NLA, that was going for quite the price. And basically, no one wants it. I mean, no one literally wants this building, it's in the wrong place at the wrong time. And there isn't a demand to fill it. And what's that worth zero. In fact, it's probably worth negative value. So that's, that's the sort of thing we want to just be careful. And I think that's just gonna have to, you know, go through the system. At some point, there'll be various companies that have exposure, it's going to vary. And I know right now, the banks are just watching their loan books really, really, really carefully. James Connor 22:29 Yeah, I had a conversation with somebody recently who's investing in numerous condos in downtown Toronto. And she, I think, she said she has a portfolio of six condos. And she's losing money on six of them, because her rent is $3,000 a month, but her expenses are over $4,000 a month. And, and then of course, there's the big reset associated with the the valuation of the condo, right. So maybe it was worth $1,000,000 3 years ago. And now it's down to 750. So that's another big problem that's coming in. As you know, there's dozens and dozens of condos being built in downtown Toronto, or in the Greater Toronto Area. And that's, that's going to be another major issue in two or three years from now, when people take over these condos, right, when they first bought them, they were worth a million bucks, let's just say and now they're going to be worth 750. So they're taking a big hit Jonathan Wellum 23:23 Well, in many of these cities, they're not governed well. So the cities aren't governed well, who wants to live downtown? I mean, this is this, there's a big shift going on. And so that's another factor that the safety and the cleanliness, and you do you want to be living in these downtown facilities. So if you just start to move that market, just a certain percentage out, it really moves the value of these properties in a significant way. And so, yeah, we're, again, those are all the reasons why we're just looking at it and saying, You know what, it's just, it's easier to go somewhere else. You know, you can spend hours and hours and days and running all your spreadsheets and Excel spreadsheets and so forth. And I'm not sure it really gets to, it adds a lot more value. And so we just say, Hey, let's go somewhere else. And it's like Warren Buffett, I think and when Charlie Munger used to say they have that pile, that little that inbox on their desk, no, too hard. And so we look at some of these banks, we go, you know, is, are they really going to make much money in the next few years? Are they going to go sideways investor, maybe have some some challenges? Let's go somewhere else where we don't have to think about it. And we're quite happy to do that. In terms of what we're what we're we're investing anyway. That's the that's the benefit of being way off the index. And just looking for a handful of companies that you like, we don't have to be in one sector, we can just stay clear of everyone. James Connor 24:39 And when you look at the Canadian banks, it's really a reflection of what's happening in the economy, right. You're looking at you have you're dealing with businesses, and you're also dealing with the consumer and the Bank of Canada recently cut rates. And of course, they did so before the US did and that's very unusual. But do you think the Bank of Canada is foreseeing a problem Coming a year or two years down the road, is this why they're got so aggressive? Jonathan Wellum 25:03 Yeah, I think I mean, we saw the EU also cut and we saw the Bank of Canada cut and the US has not cut yet, as you say that's unusual in the course, the concern would be weakness in our dollar that the gap between us rates and Canadian rates actually quite large as you get out to the 10 years is fairly substantial. So you're saying is I won't? Why do I want on Canadian dollars? And so I mean, the Bank of Canada is very concerned about the dropping rates before the US, but I think it does give us an indication, yeah, we're in a soft economy. Now, the Canadian situation is, as you know, I mean, we've had Trump, you know, we're not that the politics in the US is much better. But we've had very, very poor decision making at the federal level, that has really devastated the Canadian economy. And, and we could be so much better off if we'd had much of what, you know, why is your decision. So we've got regulations running out of control, we've got taxation going up, we've got them stymieing projects, you know, capital projects in the resource sector. You know, we've got a government that, you know, is passing laws and making it difficult, you know, to do business and to maneuver and so forth. So the all of those things at the same time, are really hitting our economy, we've got immigration levels that are just completely ridiculous, because you just can't integrate that many people in within the existing infrastructure. And so that's stressing all of that infrastructure, schools, hospitals, our roads, our buildings, our real estate, and so forth. So yeah, so I think the Bank of Canada is very concerned about that the Canadian government also has piled up a tremendous amount of debts and financing, that's going to be very difficult. So yeah, so we're in a much softer situation. And really, we require interest rates to actually be lower. But the the risk there is that, you know, we can't be that much divergent from the US or we'll definitely be in the 60s 60 cent darling, we can see a 65 cent dollar pretty quickly if we were to drop rates again. So that's, I think, the concern, but it does tell us that the Bank of Canada is very concerned about growth in Canada. I think it also, I think it also means that probably the Fed will least cut once, if not twice this year. And again, I'm not we take longer term investors, investments, we don't spend a lot of time trying to guess what the Fed is going to do. But I think that they don't, they're obviously concerned with what's going on in the US also. And if they do cut, and keep continue spending the money, that's why we want to be in some of these assets are going to protect us from purchasing power, because we could continue to see inflation, and we want to protect purchasing power. James Connor 27:33 So let's talk about the US economy now. Because really, one of the only things that's really saving the Canadian economy is still the strength of the US economy. But it appears to be slowing also q1 GDP was recently revised to 1.3%, down from 1.6%. And then there's a number of companies that are coming out and saying the consumers and spending money like they used to Starbucks, for example, came out with weak quarterly numbers, saying the consumer in both the US and China were spending a lot less they're not getting as much traffic into their stores. McDonald's also came out with and said the same thing. And I'm sure you heard about McDonald's implementing the new $5 meal program. They're trying to get people back into their stores. And then when you look at the price of oil, in spite of what's happening in the Middle East, the tang and in between 70 and $80 a barrel, maybe that's a reflection of a weakening, weakening economy. I read recently about lumber being down 30% In the last three months, what's your sense of the US economy here? Do you think there's reason for concern? Jonathan Wellum 28:37 Yeah, I mean, it's it's under a lot of pressure. I mean, I think that when we look at the US economy with again, we look at the businesses and how they're reporting. And as you've pointed out, you've you've, you've given us a number of companies, and we said the same thing where it's discretionary spending, it is down, it's under a lot of pressure. And in certain states, it's even worse. So if you actually look at the states that are, you know, higher taxation levels, higher regulation, so those those areas are even even doing worse. And so no, I think the US is definitely slowing. And that would be expected, you've gone from almost zero interest rates up to 5%. And so that's being priced in the only thing that's really helped the US is just these massive deficits, and they're spending a lot of money, a lot of stimulation immigrants, these people flood flooding across the borders, money being spent at the municipal level state level to support those initiatives and so forth. And, and then you've got a couple of words, which obviously stimulate, you know, more and more deficit spending. With if it wasn't for that, I think no, the US would be much worse off and the numbers would be, would be worse, and you know, it'd be in recession. And also, I think, you know, from our perspective, we look to individuals, we have a lot of respect for David Rosenberg looks under the hood on these things and look, you know, you start looking at the employment numbers and you realize they're not really as healthy as they're saying, and even the CPI numbers, we don't really take those as the ultimate judge of inflation. inflation is definitely running higher than that, and so forth. So we put all of that together, and we go, You know what, it's tougher, the companies are having a tougher time growing their earnings, unless you're in certain areas that are that are favored, the stock market is being driven by fewer and fewer companies, small cap companies have not done well, this year. They're under a lot of pressure. And so it's a very split market. And I think that that's the Fed is seeing some of that, and that will, that will give them some incentives to see if they can, you know, sort of knock rates down a little bit in the debt. And, you know, again, we talked about this, other people talk about it, it's just not sustainable, and what's not sustainable will not be sustained. The fact that they've continued to be able to pull this forward and get away with this does not mean that they can continue to get away with it in the future. And so with a 35, almost one point $36 trillion deficit, you know, what, three 4%, that's over a trillion dollars a year in interest now. And so these things are just really putting a lot of pressure on the on the US economy also. And I think a lot will depend on the election. Also in the fall, I mean, clearly, you've got quite a different worldview going on between Biden and Trump. And in Trump clearly is much more growth oriented cutting regulations, cutting taxation. But if, you know, if, God forbid, the Democrats were elected again, in that country, I mean, they've got taxation going up automatically, the Trump gods from previously they get these all of a sudden will kick in. And Biden seems convinced that taxation should go up. And that would be, I think, devastating to the growth prospects of the US. So we're just watching that, and just, that's why we're being very careful. That's why we're in companies that we think can weather you know, more pressure, and very poor decision making on the part of the politicians and, and also have global franchise, and so they can make money in not just one country or two countries, but make money around the world, and are sort of perched on long term trends. So you know, I think the US is, is going to be increasing under more and more pressure, economically. And we've already seen I mean, we've seen that already. James Connor 32:02 And there's an ongoing debate on whether or not the US is already in recession or going into a recession. What are your thoughts on that? Jonathan Wellum 32:09 Well, I think they're going into a recession, we don't get too caught up. In sort of the, you know, the specifics, it's soft, there's not a lot of growth, it's almost like there's a stagflation. Yeah, even if there's one or 2%, that's very, very anemic, it's weak. And when you consider the inflation rate is actually higher, I think, than what they're actually reporting, that tells you the girls probably even worse, because of course, you're looking at real growth, that you're adjusting real growth by what you're what you think the inflation is. So if inflation is running higher, then I think the growth is even lower. The same thing in Canada, I mean, I think over the last number of years in Canada, we come back to our own context. If if the inflation is two 3%, higher than what they're reporting, I mean, real inflation, you know, food, you know, you're talking about actually going on buying food and clothes and home costs, insurance costs, all of that, and you're not adjusting with all their head, onyx, and all of their fancy econometric models and so forth. That tells you that growth has been less. And I think that's what we're, that's why we're experiencing, you know, the collapse in standards of living in our country. And the same things happening in many of the states. In the US also, I mean, the young people, they'll tell you what their standard of living is, like, you tried to come out and try to buy a home income levels have not kept up, people are a lot poor now than they were 5, 10, 20 years ago. It's a substantial difference. And the the massive expansion of the state has just crowded out so much wealth, and in taking the capital and taking the the prosperity within the economy and just shaking it because you know, the government now controls too much of the economy. And the growth level, when you have almost 50% of the economy controlled by the public sector. You know, it's almost impossible to grow, the economy is just too large and too overwhelming from a taxation regulation perspective. And so we're just getting swamped in most of our western countries. So again, this is why we need to have a real resizing of the state and people getting back to basics again. James Connor 34:09 So let's talk about the US stock market. Now the last time we spoke, the s&p was at 5200. Now it's over 5400. It's up 15% on the year, and in spite of all the potential landmines that we already discussed, are you concerned about the valuations in the s&p? Jonathan Wellum 34:24 I mean, overall, we are in as you know, quite well that even the last couple 100 points that probably been probably 50% of this new video, I guess some apple in there now recently, anything that's got AI or any any CEO that comes out and says they're expanding an AI that stocks gone up. And so it's not broad based. And so it increasingly becomes narrow, which again, gets us concern. So when we look at the marketplace, yeah, we want to look at individual businesses and companies that are not going to be you know, we can make money in the next number of years that are reasonably valued. So we want to be here Apple, for example, let me just do something tangible. Apple comes out, we own Apple, we've had Apple in our portfolios for quite a few years. And it's not an insignificant position, it's probably about, you know, top, maybe it's the fifth largest in our, in our overall portfolio. But when they came out and said, you know, we're gonna do AI, this stock jumps, I don't know, if it's five with $500 billion or something, anyway, you know, four or $500 billion in market cap. We're looking at that now. And, and we love apple, and we think it's, you know, it's a great company, and so forth, but it's expensive. So we actually are, you know, are deciding to take take a few take a few percentage points off of our position. So we have clients that have maybe six or 7% percent percent an apple, we might, we're looking at paring it down to five, four and a half 5%. And then we'll roll that into, in some cases, we might actually add to our Amazon position, we think is much better, much more attractively priced, cash flow oriented from cash flow perspective, growth perspective, it's growing, its business, AWS, all the different areas that they're involved in. And so we'll look at that and we say, Okay, we're going to move, we'll make a sideways move, we'll get out of one that we think has just gotten a little bit ahead of itself. And we're a little bit more nervous about the valuation, and we'll go into something that we think clearly is better and more attractively valued. So it's all about those sort of movements, you know, moving from one business to another. So yeah, the s&p has gone up. And it's been forced, pushed by just a limited number of companies. If we do have exposure to some of those, let's just pare it back a little bit. And let's return to reorient that and put it into other companies. And so we're constantly now we're really been tweaking the portfolios more, more recently, than we've ever done in certainly in the last four or five years, as we're kind of fine tuning things, moving things around in the portfolio, to take advantage of relative valuations and what we think will help protect our capital. But yeah, so the market Yeah, it could continue to go up, I just read some reports from some people that I have a great deal respect for, they say, look, we'll see 6000 in the s&p before, before, it might get a blow off on the top and then back down again. So we'll see what happens. But we're looking at companies names, and we really look at the businesses and valuations and not as much at the at the index level. James Connor 37:10 6000 would be a significant move. And the second half of the year is going to be quite fascinating to say the least. And Jonathan, I want to thank you very much for spending time with us today. And sharing your thoughts on what you think about the economy in the markets. But if somebody would like to learn more about your firm rock link, where can they go? Jonathan Wellum 37:28 Sure, on the internet. It's just rocklinc.com. And it's important rocklinc that's with a C at the end for link. So R O C K L I N C rocklinc.com. And you can email us at info@rocklinc.com. And our phone number 905-631-5462. That's link 5462 at the end. And yeah, contact us. We'd love to love to talk to you. We've got a number of listeners are wealthy on our clients now. And fantastic people. We love working with the different folks. And as you point out, if you just wanted to come in, there's no pressure and we'll we'll give him do an analysis. We'll tell you what we do. We'll give you an opinion on your portfolio for free. And give us a call. We'd love to do that and look forward to speaking to some of the clients. James Connor 38:17 Once again, thank you and we'll make sure we include a link to your website in the show notes below. Thank you. Jonathan Wellum 38:23 Thank you very much, James. James Connor 38:25 Well, I hope you enjoyed that discussion with Jonathan Wellem and it gives you some insights on what to expect in the coming months. We all need help when it comes to planning and preparing for our financial future. And if you need help consider having a discussion with a wealthy on endorsed financial advisor wealthion.com There's no obligation to work with any of these advisors is a free service that wealthion offers to anyone who has an interest. Don't forget to subscribe to our channel, wealthion.com and also hit that notification button to be kept up to date on upcoming events. We have some amazing interviews coming out here in the coming days and weeks, all of which will help you be a better investor. I want to thank you once again for spending time with us today and I look forward to seeing you again soon.
