'Gold prices can continue to soar going forward': Ciero on investors reaction to geopolitical risks

Key Concepts

• Net Interest Margin (NIM): A key metric for bank profitability, representing the difference between interest earned on loans and interest paid on deposits, expressed as a percentage.
• Yield Curve: A graphical representation of the relationship between interest rates and the time to maturity for debt securities. A steepening yield curve (short-term rates lower than long-term rates) is generally positive for banks.
• Cloud Computing: Delivering computing services—servers, storage, databases, networking, software, analytics, and intelligence—over the Internet (“the cloud”) to offer faster innovation, flexible resources, and economies of scale.
• AWS (Amazon Web Services): Amazon’s comprehensive and broadly adopted cloud platform, offering over 200 fully featured services from data centers globally.
• Azure: Microsoft’s cloud computing service, offering a range of services including computing, storage, networking, and analytics.
• Geopolitical Risk: Risks stemming from political instability, conflicts, or tensions between countries that can impact financial markets.

Canadian Banks & US Equities: Sticking with Winners in 2025

The discussion centers around investment strategies for the new year, advocating for continuing to invest in 2024’s winners rather than chasing “dogs” (poorly performing stocks). Tony Sierro, President and Chief Investment Officer at Caldwell Asset Management, highlights Canadian banks, US equities, and gold as promising investment opportunities.

Canadian Banks – A Positive Outlook

Sierro explains that Canadian banks experienced a roughly 30% increase in value in the past year, with Royal Bank leading the gains and TD Bank showing a strong rebound. He attributes this positive performance to several factors:

• Falling Interest Rates: Anticipated cuts in Canadian interest rates will reduce banks’ loan loss provisions. Previously, higher rates necessitated larger reserves for potential bad loans, impacting profitability.
• Steepening Yield Curve: Lower short-term rates relative to long-term rates (a steepening yield curve) will positively impact banks’ net interest margin (NIM) ratios. Banks profit from the spread between the rates they charge on long-term loans (like mortgages) and the rates they pay on short-term deposits (like GICs).
• Strong Wealth Management Performance: The wealth management divisions of major Canadian banks performed well in the previous year, benefiting from a 10-20% increase in investment assets and generating higher fee income.

US Equities – Continued Growth Potential

Sierro believes the US economy remains conducive to growth, citing low interest rates, tax cuts, and increased business spending as key drivers. He specifically points to the ongoing investment in AI infrastructure as a significant contributor to overall economic expansion.

Gold – A Safe Haven Asset

Gold experienced a 60% increase in value last year and Sierro anticipates continued growth, driven by a weakening US dollar and heightened geopolitical risks. Investors often turn to gold as a safe haven asset during times of global uncertainty.

AI & Amazon: Identifying Lagging Opportunities

While advocating for investing in winners, Sierro identifies Amazon as a potential opportunity for those seeking stocks that underperformed in the previous year.

• Amazon’s AWS: He emphasizes the importance of Amazon Web Services (AWS), Amazon’s cloud computing platform. He explains cloud computing as a shift from physical servers within companies (described as “massive servers behind double doors of blinking lights and wire connections”) to offloading data storage and processing to remote platforms like AWS. This transition is expected to benefit AWS significantly.
• E-commerce Recovery: Amazon’s e-commerce platform was negatively impacted by the threat of tariffs in the previous year, increasing prices for consumers. With the easing of this rhetoric, Sierro suggests a potential recovery in online retail sales.
• Microsoft Azure: He also mentions Microsoft’s Azure as another prominent cloud computing platform.

Trump & Geopolitical Risks: Assessing Potential Impacts on Canada

The conversation addresses concerns about potential risks to Canada stemming from Donald Trump’s political rhetoric and policies.

• Trump’s Venezuela Intervention: Sierro offers a nuanced perspective on Trump’s actions in Venezuela, arguing that ousting the dictator benefited the country and freed up oil supplies, positively impacting markets.
• Sovereignty Concerns: He acknowledges concerns about Trump’s potential threats to Canada’s sovereignty, referencing speculation about a possible pattern of intervention similar to Venezuela, potentially extending to Greenland and Canada due to their resource wealth. However, he expresses hope that these concerns will not escalate.
• Open Economy Vulnerability: The discussion highlights Canada’s vulnerability due to its open economy and reliance on trade.

Notable Quotes

• “You stick with the winners…you did quite well.” – Tony Sierro, emphasizing the strategy of continuing to invest in successful stocks.
• “Cloud computing takes away from those servers. You don't need these servers anymore because you offload it to the cloud computing platform.” – Tony Sierro, explaining the fundamental shift in data storage and processing with cloud computing.

Synthesis & Conclusion

Tony Sierro’s analysis suggests a cautiously optimistic outlook for the new year. He advocates for a strategy of continuing to invest in strong performers, specifically highlighting Canadian banks, US equities, and gold. He identifies Amazon as a potential opportunity for those seeking undervalued stocks, particularly due to the growth potential of its AWS cloud computing platform. While acknowledging geopolitical risks, particularly those associated with Donald Trump’s policies, he offers a measured perspective, suggesting that the market has historically reacted positively to Trump’s interventions. The core takeaway is to focus on fundamentally sound investments with strong growth prospects, while remaining aware of and prepared for potential geopolitical uncertainties.