April 7, 2026
Welcome back. Stock markets have held up remarkably well in the face of the Iran conflict, which began just after we published last month’s issue. Volatility has increased, and the biggest price changes have been gains for energy and gold stocks over the past several weeks. These two groups have meant the Canadian market continues to enjoy its outperformance vs US and most other global markets.
I hesitate to draw firm conclusions to all this just yet as the news changes daily, and wars are one of the most unpredictable human experiences. I have also seen an uptick in very credible looking ‘fake’ news, some of which is AI generated and difficult to distinguish from the real thing. The big swings in stock markets confirm that no-one can know the outcomes of this conflict, especially in the near term, as things hopefully draw to an end soon.
Longer term there are some discernable consequences however, including the following short list which I’ll cover briefly. First the need for security of energy supplies is now front and center again. For countries which import most or all their energy needs, leaning on Middle Eastern providers is now much less desirable. Most impacted are Japan, Korea, China, and similar nations without much domestic supply.
Secondly, should the conflict drag on or if the Middle East’s ability to export energy is downgraded for some time, higher energy prices in North America and higher inflation will result. This development would mean the next move to interest rates would be up, instead of the previously expected cuts which were forecast to occur.
Lastly and for us here in Canada, this latest war in the Middle East once again highlights our energy endowment as the best in the world from a security perspective. In addition, we have one of the best environmental records and are head of the pack by any ‘social’ yardstick as well. We could be the first choice for global energy buyers if we choose that future.
Turning back to markets, I’m watching many things recently and we are in very good shape with strong cash reserves, gold stocks, and a high-quality energy position. Should something even more unexpected produce a stock market decline in the weeks ahead, we will find buys.
Have a great month, take care.
Philip
April’s Articles
The war in Iran has and will have many implications which will ripple around the world more quickly than ever before. As investors have learned, a surprising quantity of the world’s natural resources flow daily through the Strait of Hormuz – or did until about a month ago.
While the strait may be reopened, or at least open to a degree by the time you read this, the message is clear: energy buyers have been too complacent about the security of their suppliers.
Adding to this rude lesson will be the after affects on energy infrastructure in the region. Both sides have been destroying pipelines, ports, refineries, desalination plants, etc. Some of this damage has been factored in, but unfortunately it continues and the eventual rebuild grows steadily as the war continues. This reality will reduce energy exports out of the Middle East for months or longer, potentially holding prices higher than they were.
This possibility would directly influence inflation to the upside, meaning any proposed interest rates cuts have vanished, and a slower growth/higher inflation world becomes more likely. While there is much to play out between now and this stagflationary outcome, investors are adjusting to the new reality, and should be brushing up on the playbooks of the 1970’s.
As you’ll read in the article linked below by Carlyle, a large US investment firm, things have suddenly changed, and we’ve all been pushed in a new and unexpected direction by the events of the past several weeks.
https://www.carlyle.com/global-insights/a-crude-awakening
While America is far from alone in attaining ever-higher levels of government spending, thanks to its number one status US debts are now so large as to be nearly beyond comprehension.
Over the past 25 years, Democrat and Republican administrations have ramped up spending and abandoned any thoughts of restraint or planning to repay debt. Economic theory originally prescribed running deficits during tough times, then using the increased tax revenues of boom times to repay the earlier debts incurred. Today this concept is forgotten and even feels naïve.
In the article linked below by John D. McKearn, writing in the Citizen’s Indictment, we find the latest scary US numbers. However, when I look at government debt, perspective matters and isn’t often provided. Analyzing balance sheets for stock ideas means considering debts and assets, which is where government debt reporting usually fails. Nations have huge assets beyond their ability to tax citizens and the private sector. Although it is very unlikely a country will sell a meaningful asset to pay off its debt, in theory this could occur. That said, the seriousness of government debt continues to be underestimated almost everywhere. With BC just receiving another credit rating downgrade after our latest budget, this trend is clear. Investors (taxpayers) should be concerned, and we keep a close eye on this reality.