Good afternoon,
A bumpy week, ending with a strong bounce on Friday. Despite all the headlines of price carnage (carnage is always headlineable) the Dow is solidly up this week, with the Nasdaq down overall, but unremarkably (in Nasdaq terms). So maybe a… “live cat bounce?” It’s just that a 2% change is a still a big number when it’s 2% of a gabigiillion.
A leathery smile: I sat next to an old hand-logger on an 8-hour bus ride 20 years ago. He had a withered eye, several scars on his face, and a soft, genuine smile. Like anything made with good leather, the years had somehow improved him. I love these old callous-skinned warriors, hunched over with the weight of their stories about coming to this area 75 years ago when the trees were bigger, the fish more plentiful and the moose wondered into your meat locker looking for an empty hook to stand next to. He and a buddy, with a modest initial investment, made thousands every week lumping around in the bush logging the biggest trees, and cutting cants for the big mills. Yet his biggest take-aways were that he should have kept an eye on actual profits and spent more time at home, helping his wife raise the kids. “We were just out in the bush having a blast, grubbing for money, but she really had her hands full at home. And once we added up our logging and living expenses, we didn’t have much to show for it in the end.”
One of RBC’s wise old dogs, reiterates (below) what we used to say when evaluating commercial loan proposals: “Ignore cash flow at your peril.” It’s not the only thing, but it can wipe out lots of weak spots in an enterprise. For investors, cash flow’s absence was the biggest problem with the dotcom bust 25 years ago – the ideas were broadly good, but still too air-fairy to have hit cash flow streams meaningfully yet. And the dotcom prices were wildly anticipatory and thus needed correction. They corrected.
But cream rises. And in a functional economic system, good ideas, if executed with skill, are literally more valuable than gold. In today’s AI-driven markets, these lessons loom large, and all eyes are on near-term cash earnings, as noted by our analysist below.
Jim Allworth: Earnings and the economy will tell the tale
More along this theme, Joseph Wu details the ins and outs of the AI in 2026.
Jo Wu: Big Tech's AI expansion: From investment to scalable returns
All that government ink: And although they might behave otherwise, cash flow matters to governments too. This is implicit in every major financial crisis, and discussed in this piece, by our analyst – with specific focus on Japanese bonds in the news recently.
Tom Garretson: The year of the 'bond vigilante'?
Here is this week’s RBC Wealth Management's latest newsletter.
Trump Warshes his hands of Powell (And our mandatory weekly pun is thus completed)
President Donald Trump’s year-long campaign to rid himself of Fed Chair Jerome Powell culminated in what was always the most likely outcome—simply nominating a replacement. With Kevin Warsh on track to become just the 17th chair of the Fed, we offer thoughts on potential economic and market impacts.
Regional developments: The AI and Software trade weighs down the S&P/TSX Composite; Equity uncertainty underpinned by precious metals, software sell-offs; Bank of England and European Central Bank keep rates on hold; The yen extends declines ahead of Japan’s snap election
More here: Global Insight Weekly.
Feel free to contact me with any questions and/or to discuss investment ideas.
Enjoy your weekend!
Mark