FidelityConnects: Jurrien Timmer – The global macro view January 12, 2026

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Hello, and welcome to Fidelity Connects. I'm Pamela Ritchie.

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Markets are sort of lukewarm and have been selling off a little bit earlier

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today from all-time highs as they digest the multipolar

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world that appears to unfold further each day of this new year.

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With such massive upheavals  can we get clear signals to further opportunities

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abroad now or will an interregnum create a

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desire to run for defensive stocks?

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Is the US  equity market the bastion of safety as it houses the hyperscalers

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and the S&P 500 companies being transformed by AI?

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Which asset classes win from this emerging playing field?

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It appears gold certainly will power forward but what else and where

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else geographically?

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Joining us to discuss the macro landscape for investors is Fidelity Director of

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Global Macro, Jurrien Timmer.

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Warm welcome to you, Jurrien, how are you today?

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I'm well. Good morning.

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Good morning, and it looks like you are joining us from California today.

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Yes, I finally made it here after three months of being diverted

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to the other continent so I'm happy to be here in some sunshine.

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Oh, good. I'm glad you're getting some sunshine.

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Just before we begin our conversation I'll just quickly mention that with

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everything that is happening overseas, on the oil front particularly,

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we will be dedicating the last 10 minutes or so of the webcast today to

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the topic of oil and where Canada stands in the bigger picture.

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Equity research analyst, Jin Hwang, will be joining us then so it's for the

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final few minutes of this broadcast.

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Just to let you know that today's webcast is featuring live French audio

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interpretation. There you go.

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You've got lots of options and things coming up.

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Jurrien, let's please begin and talk a little bit about what is

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going on ultimately in these markets.

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I mean, we really need you to guide us through a little bit of

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the developments and how we should be thinking about them.

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I mean, do we we run for the hills?

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Do we watch markets that have powered through many, many, many

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geographical geopolitical upheavals lately?

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Do we stand pat?

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What do we do with this information?

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It is amazing to see the markets be

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so calm and resilient despite all

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the craziness that is happening around us, the incursion in

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Venezuela and what that means for the global world order, even

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the news about the Fed and the Department of Justice.

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Last night the S&Ps were down 30 points but they're basically

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unchanged so the market just shrugs it off, as

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I guess they should to a degree because the markets

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come down to earnings and interest rates and, of course, the Fed is interest

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rates. I think what is happening is we're seeing cross-currents

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of developments. We have the things I just mentioned but we

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also have this AI boom, AI revolution, I guess you could say,

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and there's always been sort of the glass half full view

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that the AI revolution starts with the hyperscalers, the Mag-7,

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and then, hopefully, eventually leads to a productivity boom that

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allows the US and maybe the rest of the world to grow out of the debt and

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to allow the market to broaden in the most benign

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way possible. Of course, we have to be skeptical because we have to

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think critically and the question always on my mind was, is the concentration

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risk too big to allow a friendly broadening.

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We only are one week into the year but so far it looks

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that that's happening. If we go to slide 1 just to set this up,

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this is the MSCI All Country World Index so this is the global

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stock market. The global stock market is making new highs,

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basically, on a daily basis out of this nice triangle there that you

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could see on the top of the screen.

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I'm sorry, how much of that is US?

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Well, the US is about 65% of ACWI so it

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is the US but this new high actually is

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in large part also global.

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What we see here, 67% of the global stock market is

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above its 50-day moving average, 71% is above its

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200-day average so we're in a world where

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71% of basically all the stocks in the world

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are in uptrends. That's a pretty nice tailwind to have.

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Now, if we go to slide 2,

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I show the S&P cap-weighted index, which is the one on top, and

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the equal-weighted index, which is the one with the purple line, on a similar

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scale so that you can compare the magnitude of the rallies.

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What we're seeing right now is that the SPW,

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the equal-weighted index, really accelerated last week and

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it did not come at the expense of the cap-weighted index.

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To kind of take that one step forward, if we go to slide 3,

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we can see the Mag-7, of course, those

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stocks that have been at the forefront of the AI boom, the

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Mag-7 are basically doing nothing while the market

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is broadening out. If you look at the bottom panel, so that's

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just a month or so ago, only 32% of

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the stocks in the S&P were above their moving average and now it's 71%.

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The market is broadening, the SPW is accelerating higher

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but it's not coming at the expense of the mega-cap

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growers going down. They're just kind of treading water which, really,

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you may not like them treading the water if you're invested in them, as we

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probably all are, but it's still a nice thing to see that you can have a

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rotation that is not a zero sum game.

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We don't know if it's just sort of beginning of year stuff or whether there's

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a larger theme that the AI boom is paying

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a dividend, basically, downstream into the broader economy.

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It's too early to know but just from the first week of the year

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it's a very constructive thing to see.

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And as you say, on top of it, which you started off with, the rest of

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the world is seeing growth as well

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across equity markets so there's a number of things that are being held

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up even if there is a bit of a range bound situation for the so-called

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hyperscalers.

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I'll show you slide 7 which is the MSCI

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EM index, that finally bested its

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high from 2021 just last week.

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Ex China it's been doing that for a while now  but even including China now

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the emerging market index is very, very strong.

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You can see in the blue bars in the bottom is a Z-score

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of the index and that's very strong.

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The CRB Raw Industrials, which is a commodity

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index that tends to be seen as a gauge of

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global growth, is advancing nicely as well.

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Just to put another point on that, if we go to slide 6

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we can see that earnings growth for the

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rest of the world, so ex US, is accelerating quite

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rapidly now at a 17% year-over-year gain,

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even more so than the US which is at 13%, and

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that has led to a 15 percentage point year-over-year

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outperformance now of non-US stocks relative to US stocks.

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This is not a US story, this is a global story.

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If anything, the global markets have even more momentum than the US Market.

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Again, as global investors as, of course, you all in Canada

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somewhat have to be given that that's where most of the market cap is, it's

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a very nice thing to see.

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It's very interesting to see how this idea

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of .... something else that is very global has been the gold trade and

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we've seen that literally across the globe but also

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various commodities catching up as well, sort of catching wind in their

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sails.

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If those that are bullish in this regard will say that there's a new commodity

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super cycle on its way, I don't know if you go that far, but tell us what

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you do see.

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My sense is, and I wrote this up on Sunday and it'll be on LinkedIn probably

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later today, clearly the

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post-war world order from World War II where the

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US was this benign dominant influence doing

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the right thing and the benefits accrued to the US as well as the rest of

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the world, clearly that seems to be over and it's so much more

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transactional, mercantilist type of setup.

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The news in Venezuela kind of put a point on that.

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If anything, we're kind of back to 19th century sort of imperialism

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or a world order that is multipolar where

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there are different spheres of influence, if you will.

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The US Western Hemisphere, at least that seems to be the Monroe or

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the Donroe doctrine, and then you have Russia and China, in

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that environment that is the opposite of globalization, of course, it's

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fractionalization I guess you can call it, that should be more

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inflationary. I would say that the commodity markets become

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less fungible in that sense because commodities will be a

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strategic asset for every sphere of influence.

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I would say that that makes the commodity market less efficient from a price

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point of view and more demand driven.

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That should be good for commodities.

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In a way, I would say maybe what gold has been doing the last

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three years has been kind of this message that it's been

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putting us in our face saying like, this is why this is happening.

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If we go to slide 8 and you look at the Bloomberg Commodity

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Spot Index and you'll look at the performance of commodity sensitive

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equities, that is a beautiful chart, a technician's

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dream. You have this base and then a breakout, the stocks,

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the confirming in asset is confirming that move.

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I think commodities, and we're seeing this with copper very strong, we're

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seeing this with nickel even, with silver, there's a lot of

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stuff going on here. If you look at slide 10 from a

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secular point of view, instead of a short term chart a very long

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term chart, you can see as we navigate

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the stock market into what I think are maybe the later innings

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of a secular bull market, which you can see at the top there, if

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we look at the long term rate of change for commodities,

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which is the grey line in the bottom panel,

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that trade, that asset, as well as the relative performance of,

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let's say, international versus US and value versus growth have

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been sort of lining up to make a secular low and

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commodities are sort of front and centre in moving there.

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We might very well be in a new secular uptrend for

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commodities as well as cyclically.

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Obviously, that's going to be music to the

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Canadian ears.

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The nice thing

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about commodities, over the very, very long term if you

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put commodities on an efficient frontier chart they're not a

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good strategic asset. They're very volatile and

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over the very long term, like 50 years, they produce the inflation rate.

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It's not a great risk-reward on a secular timeframe.

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If you look at slide 9 I show a bunch of Sharpe ratios

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for all the assets that I track.

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You can see commodities are kind of uncorrelated.

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As an uncorrelated asset to both stocks and bonds

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you have to be choosy as to when you want to own them but when they do work

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they work really well.

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I think as a diversifier in a portfolio they make a lot of sense

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right now.

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Let me just press you on that, uncorrelated to both equities

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and bonds.

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Do we need that right now?

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I mean, is there any concern that there's a slide of the two of them being

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correlated more than we'd like them to be?

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Certainly 2025 was a great year for both stocks and bonds.

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They were still positively correlated but in the good

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direction, not in a 2022 type of direction.

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The Barclays Ag, the Bloomberg Ag delivered a 7% return,

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the S&P an 18% return so from that perspective

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you did not need any diversifiers. But it's always good to

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have diversifiers in and again, we've talked about this extensively in

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the past that for me I want to diversify more against bonds than stocks.

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At a 4.17% yield on the

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10-year I don't see a lot of value there, which doesn't

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mean we shouldn't own any bonds because they do generate a positive

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real yield. But you look at the shenanigans now with the Department

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of Justice and Jay Powell, poor guy.

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Yeah, is he gonna be okay? I mean, is Jay Powell gonna be okay?

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We need to ask this question.

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Yeah, I think he's going to be okay but it's just sad to see.

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I've met him, we know him well at Fidelity and

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he's a well-meaning civil servant. You need to have pretty thick skin to

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do that when Mr. Trump is in the White House.

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He's seen that movie before and he

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will be fine. Actually, it's interesting that a

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Republican Senator, Thom Tillis of North Carolina, came out and say

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he's not gonna approve any Trump nominations until this

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matter is settled.

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I met with Senator Tillis a few months ago and he said that in private

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to us saying the Stephen Miran nomination, he approved

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that but he's not gonna do it again if there's these crazy

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games going on. I think Powell will be okay but it's

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just unfortunate to see. It does highlight

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the risk of a bear steepener in the bond market

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that if the Fed's credibility really

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is jeopardized and you get this fragmented

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Fed where the leadership does things that make no sense because they

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are Trump loyalists, the yield curve could steepen in a bearish way.

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The term premium could go up and at 4% on the 10-year

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you don't really get a lot of protection there.

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That's why I think diversifiers against the

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40 remain a good idea.

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Okay, fascinating. It's really great to sort of get your calm voice

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on that one because it's a challenging

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news headline to see and you just wonder how that all...

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Every time you think you've seen the craziest headline there's another one

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lurking in the background.

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Don't ever say that out loud.

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Hello, investors. We'll be back to the show in just a moment.

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I wanted to share that here at Fidelity, we value your opinion.

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And don't forget to listen to Fidelity Connects, the Upside, and French

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DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

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else you get your podcasts. Now back to today's show.

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Let's talk a little bit about earnings.

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Around the corner, this is Q4 coming in.

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There are a lot of indications that show that they should be right where

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everyone wants them to be, which is not far off earlier in

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the year. Q3 was pretty healthy.

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Are we coming off some strange comparatives?

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What do you think of Q4 so far in terms of the estimate?

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Let's pull up slide 4.

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Earning season starts this week, the banks will start reporting in a few days.

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Like the chart shows, this is my progression chart going into

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the quarter which is the vertical line there.

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What Q3 showed was very

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similar to what Q4 is showing right now, you came in at

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about an 8% estimated growth rate, year-over-year growth rate.

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Then you had the typical bounce that generally happens, and the bounce was very

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strong and we went from 8% to 15%. That

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was a 700 basis points bounce.

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I would imagine we could very well see something similar to that.

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If we go to the next slide, 5, if

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you convert that into an annual growth estimate you can see the

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round trip that you just mentioned. We started 2025 at

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a 12% growth estimate, we fell to 7 during the tariff

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tantrum as analysts were pricing in the cost of tariffs, and

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now we're back to 12%.

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If Q4 delivers another bump we could very well

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end up at maybe 13% or even 14%.

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2026 is starting roughly in that same

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area. I think the earnings story continues to be

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very good.

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If we can skip to slide 18 for a second,

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one of the bigger questions has been, not to derail the conversation

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here, if you look at the bottom panel, the blue bars,

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that's the 5-year earnings growth, the annualized growth rate in

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earnings, the 5-year CAGR, that's now at 14%

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which is obviously very good but it's about as high as it ever gets.

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In 1997 we were at 14, in the '70s we were

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at 14 so it does raise the question of are we

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at peak earnings while we're also at very high

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valuation. That is a legitimate question.

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If we go to slide 19 you can see that if

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you put the 5-year earnings growth rate on a bell curve distribution

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you get the chart on the left.

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If you put the P/E ratio on a distribution you get to chart on right.

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We're kind of near peak earnings and near peak valuations.

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That sounds kind of scary because if you're at peak everything then there's

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only one way to go.

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It actually isn't as scary as it sounds because I looked

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into it. If we go to slide 21 you can see

19:22.494 --> 19:26.498
all the earnings growth cycles over time, over the past

19:26.498 --> 19:30.502
75 years or so, and you can see we're at the highest point that

19:30.502 --> 19:34.740
we tend to go. We've seen some exceptions to that back in the '20s

19:34.740 --> 19:37.776
and '30s but those were sort of outliers.

19:37.776 --> 19:42.381
It does seem that earnings growth on a 5-year perspective will moderate

19:42.381 --> 19:45.417
but then the question is what happens to the stock market.

19:45.417 --> 19:49.421
If we go to slide 23 you can see that

19:49.421 --> 19:53.492
it's certainly not an easy conclusion to say, okay, that means the market goes

19:53.492 --> 19:57.729
down or not. It really depends on whether the earnings growth rate

19:57.729 --> 20:01.133
just decelerates to a more sustainable rate.

20:01.133 --> 20:05.504
Right now the expectations are that we go from 14% to 9%

20:05.504 --> 20:08.273
which is still fairly good.

20:08.273 --> 20:12.211
If earnings were to actually contract like they did in 2008, which is the pink

20:12.211 --> 20:16.281
line, obviously it's a different story. This picture

20:16.281 --> 20:21.086
even though we're at the right tails is sustainable story

20:21.086 --> 20:23.789
as long as those earnings come through.

20:23.789 --> 20:27.993
For some time, all of last year, you sort of said, yeah, the multiples are

20:27.993 --> 20:31.997
there, we really need earnings to grow into the multiples.

20:31.997 --> 20:36.101
They've done that so yes, it does kind of beg the question what's

20:36.101 --> 20:42.774
next? But you've kind of said it's sustainable so long as.

20:42.774 --> 20:46.812
When you take a look at the labour picture, which is what the

20:46.812 --> 20:51.049
Fed has been looking at for some time, what are the nuances that

20:51.049 --> 20:54.753
you're looking at, the demand ultimately for labour?

20:54.753 --> 20:58.190
Is there concern? How much of this is tied up in the rate story?

20:58.190 --> 21:01.994
We know there's a political overlay for the rate store but just in terms of

21:01.994 --> 21:07.199
straight labour concerns that the Fed is tackling.

21:07.199 --> 21:11.336
If we go to the slide 14, clearly, the labour market is

21:11.336 --> 21:15.274
soft. We saw that again with the jobs report last week,

21:15.274 --> 21:18.110
although the unemployment rate actually ticked down.

21:18.110 --> 21:22.180
We're kind of in a detente, if you will, where companies aren't

21:22.180 --> 21:24.516
hiring but they're not really firing.

21:24.516 --> 21:28.553
The labour force isn't really growing because

21:28.553 --> 21:32.691
baby boomers are retiring, immigration has

21:32.691 --> 21:36.895
slowed. We are kind of in this holding period where

21:36.895 --> 21:43.769
the labour market is in rough balance but it's certainly not growing.

21:43.769 --> 21:48.040
By the way, that's the grey line, what I call excess

21:48.040 --> 21:50.309
labour demand.

21:50.309 --> 21:55.113
During COVID it plummeted as the economy was locked down and then it

21:55.113 --> 21:59.184
rose sharply as businesses reopened but the labour force

21:59.184 --> 22:02.988
wasn't quite there yet and it's been moderating ever since.

22:02.988 --> 22:06.725
It's now actually contracting ever so slightly.

22:06.725 --> 22:11.129
It's an interesting juxtaposition to see the labour market being

22:11.129 --> 22:15.200
soft, I wouldn't say weak but soft, while earnings growth is

22:15.200 --> 22:19.338
accelerating. If we go to slide 13 you can

22:19.338 --> 22:23.475
see that the GDP estimates for the US are accelerating

22:23.475 --> 22:27.579
as well. Again, it comes back to what we discussed earlier in the

22:27.579 --> 22:30.015
show, is this the AI dividend.

22:30.015 --> 22:34.052
Is it leading

22:34.052 --> 22:38.423
to more growth, more productivity, higher earnings

22:38.423 --> 22:41.093
but without an increase in labour?

22:41.093 --> 22:45.897
The point of AI is you can do more with less.

22:45.897 --> 22:50.001
It's anecdotal but it's certainly a plausible explanation.

22:50.001 --> 22:53.972
If you can increase productivity and growth, even if it

22:53.972 --> 22:58.243
doesn't come with more labour demand, as long as it doesn't

22:58.243 --> 23:02.647
lead to less labour demand maybe that's still a win-win.

23:02.647 --> 23:05.917
It's really interesting. How else would you set us up for this week on sort of

23:05.917 --> 23:08.920
the macro front in terms of ... the earnings, there's something to look out to,

23:08.920 --> 23:12.924
we've got some inflation data coming in, what else do

23:12.924 --> 23:16.027
you think investors need to know? It is a topsy-turvy time.

23:16.027 --> 23:19.965
We'd love to just sort of get your thoughts, set us straight here for

23:19.965 --> 23:23.668
the week at least until we see you next week.

23:23.668 --> 23:25.370
Obviously, earnings will be important.

23:25.370 --> 23:31.410
The banks are always a good bellwether on that.

23:31.410 --> 23:35.447
The stuff about the DOJ, I'm going to ignore it

23:35.447 --> 23:40.051
to some degree because it's their strategy

23:40.051 --> 23:41.787
to have a lot of bluster and a lot of attacks.

23:41.787 --> 23:45.924
I think that's sort of part of the art of the deal, to

23:45.924 --> 23:49.928
put people on notice, but hearing that from Senator Tillis

23:49.928 --> 23:53.231
was certainly comforting to some degree.

23:53.231 --> 23:57.369
It's a strange new world and the market

23:57.369 --> 24:01.440
has done, I think, a good job kind of deep

24:01.440 --> 24:05.744
compartmentalizing the headlines from the actual things that matter,

24:05.744 --> 24:07.646
which are earnings and interest rates.

24:07.646 --> 24:11.683
So far I hope the broadening continues without it being

24:11.683 --> 24:15.787
at the expense of the leaders because the leaders will

24:15.787 --> 24:18.523
drive the index progress.

24:18.523 --> 24:21.193
Yes, and so far they still are.

24:21.193 --> 24:25.163
Jurrien Timmer, we want to thank you very, very much for setting us straight.

24:25.163 --> 24:29.301
I think we always look forward to a little bit of calm after a weekend

24:29.301 --> 24:33.338
such as this, or at least the last several days of the beginning of this

24:33.338 --> 24:37.909
year. Appreciate your help in framing this for investors.

24:37.909 --> 24:40.979
We'll see you next week. Enjoy California.

24:40.979 --> 24:42.147
Thank you. See you next week.

24:42.147 --> 24:46.651
See you next week. That's Jurrien Timmer joining us today on Fidelity Connect.

24:46.651 --> 24:50.922
We're just going to take a few minutes now and bring in the

24:50.922 --> 24:55.060
man here in Toronto, Fidelity analyst Jin Hwang, who takes a

24:55.060 --> 25:00.398
look at the oil services across the boards for

25:00.398 --> 25:04.402
the oil story and how it is developed over the course of

25:04.402 --> 25:06.738
the last few days. Welcome, Jin.

25:06.738 --> 25:10.809
You're in the hot seat on a Monday because I imagine you haven't done

25:10.809 --> 25:13.945
a whole lot except for stare at your screen and look at oil prices over the

25:13.945 --> 25:15.680
course of the last little bit.

25:15.680 --> 25:17.682
Welcome, though. Good to see you.

25:17.682 --> 25:21.052
Thank you. Never a dull moment in an energy world.

25:21.052 --> 25:23.822
Never a dull and, actually, sometimes there are dull moments but this has not

25:23.822 --> 25:25.957
been one of them.

25:25.957 --> 25:29.995
Can we begin with ... as we watch these headlines around Venezuela

25:29.995 --> 25:34.065
take place, the country essentially has been taken over at this point

25:34.065 --> 25:36.268
by the US, all about the oil.

25:36.268 --> 25:39.271
That's the reason for it, apparently.

25:39.271 --> 25:43.475
What does it mean sort of shorter term for the oil industry?

25:43.475 --> 25:47.546
Should we start at the global level what this particular

25:47.546 --> 25:50.248
puncture means?

25:50.248 --> 25:52.817
It's probably worth just setting the table on what the Venezuela opportunity

25:52.817 --> 25:56.922
actually looks like. Just for some context here, Venezuela has the largest

25:56.922 --> 26:00.892
oil reserves on paper, even surpassing Saudi Arabia, yet oil

26:00.892 --> 26:05.397
production barely even cracks the top 25 because of years of underinvestment,

26:05.397 --> 26:07.599
political uncertainty, all sorts of things.

26:07.599 --> 26:11.670
Today they produce around 800,000 barrels a day of crude,

26:11.670 --> 26:15.974
about 1% of total global oil supply but 10 years ago that was

26:15.974 --> 26:18.043
2 1/2 million barrels a day and 30 years ago that was close to 4 million

26:18.043 --> 26:18.410
barrels.

26:18.410 --> 26:21.613
And the reserves are all there, as you mentioned, so they can do that again.

26:21.613 --> 26:25.216
They can hypothetically do it again but that just ultimately goes to the

26:25.216 --> 26:27.953
question, when you hear the amount of reserves they have relative to how little

26:27.953 --> 26:31.756
they produce today it naturally begs the question, can they actually reignite

26:31.756 --> 26:34.926
the energy industry, grow back to their prior peaks and actually flood the

26:34.926 --> 26:38.496
market with a lot of cheap barrels that we didn't really anticipate before.

26:38.496 --> 26:41.666
That has massive implications to the oil markets more broadly, both to your

26:41.666 --> 26:45.136
point in the short term which you've heard me describe as being kind of heavily

26:45.136 --> 26:48.340
oversupplied, at least for the foreseeable future, but also even for the medium

26:48.340 --> 26:51.242
and longer term which you've heard me talk about as actually looking pretty

26:51.242 --> 26:54.613
bright, pretty undersupplied and potentially even harkening to those resource

26:54.613 --> 26:58.950
scarce structural undersupply days of the early to mid-2000s.

26:58.950 --> 27:03.054
In the longer term and you've been telling us about that for well over

27:03.054 --> 27:06.992
a year at this point. Short term for Venezuelan oil, getting it out of

27:06.992 --> 27:11.029
the ground, getting it where it needs to go, some

27:11.029 --> 27:15.233
deliveries, what will change structurally

27:15.233 --> 27:19.304
for them? I mean, it sounds like they're kind of mothballed, a lot of these

27:19.304 --> 27:19.938
operations.

27:19.938 --> 27:23.908
It goes to the heart of the question that everyone's asking, can Venezuelan

27:23.908 --> 27:28.046
production actually grow back to the highs it was at 20, 30

27:28.046 --> 27:32.083
years ago? In the short term the answer is yes, there is opportunities to grow.

27:32.083 --> 27:35.920
We heard the US Energy Secretary, Chris Wright, speak not that long ago and he

27:35.920 --> 27:38.523
described it as an opportunity of a couple hundred thousand barrels a day in

27:38.523 --> 27:40.325
the short term from small investments.

27:40.325 --> 27:43.728
That comes from really two things. The first is Venezuelan crude has been

27:43.728 --> 27:46.498
sanctioned for a long time and very recently has actually been blockaded.

27:46.498 --> 27:49.134
You hear it in the news, there are ships actually stopping the tankers from

27:49.134 --> 27:49.367
leaving Venezuela.

27:49.367 --> 27:50.368
Can't get it out.

27:50.368 --> 27:54.105
Exactly. So removing that is actually a pretty big benefit right off the bat.

27:54.105 --> 27:56.541
The second piece of that is the sanctions go both ways.

27:56.541 --> 27:59.978
One is Venezuelan production couldn't leave the country but a lot of the

27:59.978 --> 28:03.615
necessary inputs to production couldn't come into the country, things like

28:03.615 --> 28:06.918
lighter crude to actually make the really viscous heavy crude actually

28:06.918 --> 28:10.755
deliverable. Once you remove those two barriers then you could actually see a

28:10.755 --> 28:14.192
couple hundred thousand improvement right off of the bat and that's sort of

28:14.192 --> 28:16.194
what the target is right now.

28:16.194 --> 28:20.665
Longer term there's a much more challenging question to be had there.

28:20.665 --> 28:23.868
This is infrastructure that's kind of aged and has become decrepit over the

28:23.868 --> 28:28.106
last 10, 20 years. Can you really restart investment at a time when

28:28.106 --> 28:32.177
most oil companies, and they've said this publicly, aren't willing to invest

28:32.177 --> 28:34.479
really a dollar so long as there's political uncertainty.

28:34.479 --> 28:36.915
I mean, this was the Friday meeting at the White House, right?

28:36.915 --> 28:41.219
This was the Washington meeting that you were watching everyone roll up to.

28:41.219 --> 28:45.190
It was very public and the public consensus

28:45.190 --> 28:49.227
seemed to be too risky, we're not doing it

28:49.227 --> 28:50.929
broadly speaking.

28:50.929 --> 28:55.166
It really comes down to two things. One is these are multi-decade

28:55.166 --> 28:58.803
type investments that these companies have been burned on in the past.

28:58.803 --> 29:02.073
You saw it with a couple of the companies who were at this meeting who said our

29:02.073 --> 29:06.077
assets were seized by the prior administration in 2007 and

29:06.077 --> 29:09.247
we are out anywhere from $10 to $20 billion on those investments.

29:09.247 --> 29:12.584
We need to recoup that before seeing any incremental dollars come back to

29:12.584 --> 29:14.953
Venezuela. The second piece is we need absolute...

29:14.953 --> 29:17.555
Wasn't that, sorry to interrupt you, wasn't that sort of the carrot from the

29:17.555 --> 29:21.726
Trump administration like, look, you guys are out a lot of money,

29:21.726 --> 29:22.494
let's get your money back.

29:22.494 --> 29:25.964
Exactly. That may hold for some companies.

29:25.964 --> 29:29.400
For others I think the burns of 2007 might be too high.

29:29.400 --> 29:33.772
The bigger issue is we need absolute security and political

29:33.772 --> 29:37.041
certainty sort of guarantees. I think that works fine under a Trump

29:37.041 --> 29:39.310
administration that has been willing to backstop that.

29:39.310 --> 29:42.547
What happens for the next administration, the administration after that?

29:42.547 --> 29:45.350
These companies drill oil not for five year projects, they drill them on

29:45.350 --> 29:49.521
multi-decade cycles and the risk of losing that after this

29:49.521 --> 29:52.590
presidential term is up is actually too great for a lot of companies.

29:52.590 --> 29:57.028
I mean, you would imagine in most countries, you tell us,

29:57.028 --> 30:01.099
oil operations, the oil fields themselves are probably protected

30:01.099 --> 30:04.602
by the company's own security forces to an extent.

30:04.602 --> 30:08.072
I guess that's under the umbrella of the country's security forces.

30:08.072 --> 30:11.943
That's correct. Again, it just goes down to the best risk-reward.

30:11.943 --> 30:14.813
We talked about a lot of these interesting opportunities globally, Canada being

30:14.813 --> 30:17.982
one as an interesting resource opportunity, but you hear about the things going

30:17.982 --> 30:21.953
on in Argentina, Guyana, Brazil, there's a lot

30:21.953 --> 30:24.088
of resource out there for companies to go after.

30:24.088 --> 30:27.458
They don't necessarily need to be taking this incremental risk which is why a

30:27.458 --> 30:30.628
lot of people do discount the opportunity around the medium, long term

30:30.628 --> 30:33.932
production growth and really just focus on the short term for now.

30:33.932 --> 30:37.302
The feasibility of the longer term is a question mark?

30:37.302 --> 30:38.636
Would you go that far?

30:38.636 --> 30:39.537
Correct.

30:39.537 --> 30:41.239
Interesting.

30:41.239 --> 30:45.376
So challenging longer term. For Canada specifically

30:45.376 --> 30:47.045
it was a shock to hear this, right?

30:47.045 --> 30:51.883
I mean, basically a competitor of enormous reserves

30:51.883 --> 30:56.521
ability. Just break that down for us because I think it was bit of

30:56.521 --> 30:58.022
a shocker.

30:58.022 --> 31:01.359
It's definitely going to be the most topical as this Venezuela situation kind

31:01.359 --> 31:05.396
of unfolds. To take a step back it's important to remember that not all crude

31:05.430 --> 31:09.567
is created equal. Canada happens to produce a heavier grade of crude that

31:09.567 --> 31:13.404
US refineries really like and availability of that specific type of crude is

31:13.404 --> 31:15.340
really scarce these days.

31:15.340 --> 31:18.076
It effectively comes from Mexico who's not really growing production.

31:18.076 --> 31:21.179
It comes from a lot of Middle Eastern countries that are under sanctions.

31:21.179 --> 31:23.648
Historically, it did come from Venezuela.

31:23.648 --> 31:27.752
The concern now is what happens if you take that 800,000 barrels a day,

31:27.752 --> 31:31.155
the majority of which was going to China, and let it flood back into the US

31:31.155 --> 31:34.459
markets and push away a lot of those WCS barrels that we have.

31:34.459 --> 31:35.226
Into the Gulf.

31:35.226 --> 31:39.264
Exactly, and shorter term there is no doubting that this is actually quite

31:39.264 --> 31:43.368
problematic from a reserves perspective for us and kind of the differentials

31:43.368 --> 31:47.538
but longer term, again, I will go back to that resource

31:47.538 --> 31:51.276
scarce argument that I've talked about in the past where '26 still looks

31:51.276 --> 31:54.712
oversupplied, '27 looks a little better, '28, '29 actually look really good

31:54.712 --> 31:57.882
What we're talking about with respect to the heavy crude availability from

31:57.882 --> 32:01.920
Venezuela, maybe you lose $5 a barrel off of your differential

32:01.920 --> 32:05.957
but if we truly are in this resource scarce world in '27, '28, '29

32:05.957 --> 32:09.694
because, again, sounds like Venezuela can't actually grow production, we're not

32:09.694 --> 32:12.297
talking $55 a barrel oil anymore.

32:12.297 --> 32:16.034
In those types of environments we have seen $80, $90, $100 type oil.

32:16.034 --> 32:19.604
Maybe you lose $5 on a differential but the overall oil price, the global

32:19.604 --> 32:21.873
benchmarks do rise in those types of environments.

32:21.873 --> 32:22.674
Because the demand is there.

32:22.674 --> 32:25.310
Exactly. We're being nimble around this opportunity.

32:25.310 --> 32:29.314
We understand that this is disproportionately bad for Canada

32:29.314 --> 32:32.083
but we are not losing sight of that bigger picture and when there are major

32:32.083 --> 32:33.952
dislocations within Canada we will be prepared.

32:33.952 --> 32:35.186
There have been some over the course of the last week.

32:35.186 --> 32:37.622
Exactly, and we will be prepared to take advantage of those, understanding the

32:37.622 --> 32:37.889
picture.

32:37.889 --> 32:41.993
So Canadian producers drop, their equity prices drop, you can

32:41.993 --> 32:44.896
take advantage of that because you see a longer story.

32:44.896 --> 32:47.231
Correct, yeah. It's all about just being nimble.

32:47.231 --> 32:51.336
We've seen this market change basically on a tweets notice so understanding,

32:51.336 --> 32:55.273
not losing sight of that medium to long term picture, taking advantage of what

32:55.273 --> 32:59.110
is really risked as a $5 loss in your differential relative to potentially tens

32:59.110 --> 33:03.114
of dollars of gain in the actual global benchmark price, is kind of the

33:03.114 --> 33:05.183
prize and the calculus that we're looking at right now.

33:05.183 --> 33:08.086
For some time, though, we've been talking about the medium, longer term in

33:08.086 --> 33:12.190
Canada which is to find new clients, which is to get

33:12.190 --> 33:14.525
oil to tidewater in different ways.

33:14.525 --> 33:18.763
There are plans. I mean, the prime minister, we think, is shoring up

33:18.763 --> 33:23.401
clients potentially in China right today.

33:23.401 --> 33:26.471
I guess it just adds an extra urgency, though.

33:26.471 --> 33:29.207
It certainly adds an extra urgency.

33:29.207 --> 33:32.510
A lot of the expansions you've heard me talk about, even before talking about a

33:32.510 --> 33:37.348
net new pipeline, ultimately do just end up in the US Gulf Coast in the Mid-Con

33:37.348 --> 33:40.818
so it does still continue with the issue of the Venezuelan barrels.

33:40.818 --> 33:43.388
We do need to look just beyond the US market.

33:43.388 --> 33:46.557
We do need to build pipelines to the West Coast and see those opportunities

33:46.557 --> 33:50.495
through. As of today it still is

33:50.495 --> 33:52.730
fairly kind of long term, it's a little further out.

33:52.730 --> 33:56.667
We're kind of hoping to see over the next couple of months as a lot of those

33:56.667 --> 34:00.638
pipeline developments happen and when those deadlines come through maybe we

34:00.638 --> 34:03.541
could see a bit more progress on that front.

34:03.541 --> 34:07.979
In terms of the slide in prices for the Canadian producers

34:07.979 --> 34:11.182
some of that's come back a bit.

34:11.182 --> 34:14.552
Just tell us a bit about what it's coming back on.

34:14.552 --> 34:18.589
Part of it is the broader kind of dynamics happening in Iran

34:18.589 --> 34:21.092
right now which is lifted again. There's a difference you have to think about

34:21.092 --> 34:23.995
with the global benchmark and then the WCS prices.

34:23.995 --> 34:27.765
We have benchmarks minus some differential equals your WCS prices so when one

34:27.765 --> 34:30.001
of those moves it's going to move the Canadian equities.

34:30.001 --> 34:34.038
The differentials have widened. We're at $15 per barrel today, we were at $12

34:34.038 --> 34:37.542
not that long ago, but all the prices have rallied this year from $55 to $60

34:37.542 --> 34:40.211
and that's mainly on kind of the Iran uncertainty.

34:40.211 --> 34:44.315
So it's partly that but it could also partly be that everyone understands the

34:44.315 --> 34:47.351
medium picture. If everyone's discounting Venezuela's ability to grow

34:47.351 --> 34:51.122
meaningfully maybe that medium term picture still looks intact and you're

34:51.122 --> 34:53.758
willing to look past that kind of near term sloppiness.

34:53.758 --> 34:56.394
For some of the Canadian producers.

34:56.394 --> 35:00.598
Well, what was almost a sleepy story last year is wide awake and

35:00.598 --> 35:02.500
fully caffeinated.

35:02.500 --> 35:05.536
We're very glad to have you here today. Thanks for joining us.

35:05.570 --> 35:09.507
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35:09.507 --> 35:13.644
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35:43.174 --> 35:47.011
The views and opinions expressed on this podcast are those of the participants,

35:47.011 --> 35:50.948
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its affiliates. This podcast is for informational purposes only, and should not

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Or an endorsement, recommendation, or sponsorship of any entity or securities

36:04.128 --> 36:08.933
cited. Read a fund's prospectus before investing, funds are not guaranteed.

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Their values change frequently, and past performance may not be repeated.

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Fees, expenses, and commissions are all associated with fund investments.

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Thanks again. We'll see you next time.