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Dealing with the new administration in Washington won’t be easy, but it may offer opportunities for Canada and for investors. So says Darren Coleman’s guest Dennis Mitchell [pictured left] on the latest episode of the podcast, Two Way Traffic.
Mitchell is CEO and CIO of Starlight Capital, which is a wholly-owned subsidiary of Starlight Investments, a global real estate investment and asset management firm based in Toronto.
Mitchell advises investors to take President Donald Trump “seriously, but not literally.” In lieu of the on-again-off-again tariffs, he singled out an industry like auto manufacturing. “It would take decades for the U.S. to replicate Southern Ontario auto manufacturing,” Mitchell said, implying this won’t happen anytime soon. He also said Canada’s biggest challenge right now involves inter-provincial trade barriers and that Trump presents an opportunity to get this right and diversify our domestic economy. With an eye to prudent investing, the discussion with Coleman and Mitchell explored the following …
- Investors should take a hard look at technology because the Trump administration will give the sector carte blanche over the next four years.
- Don’t forget Canada has what the world needs in terms of energy, valuable minerals, water, etc.
- Investing in the right sector but with the wrong company is a mistake which is why it’s best to seek professional advice.
Here’s a link to the full podcast …
https://podcasts.apple.com/ca/podcast/two-way-traffic-with-darren-coleman/id1494816908
Darren Coleman
Today I’m joined by my friend, Dennis Mitchell, CEO and Chief Investment Officer for Starlight Capital in Etobicoke, Ontario. He’s been a fixture of the Canadian investment and U.S. investment landscape for a long time. He’s regularly on BNN and CNBC and has been a successful investor in North America. We’re going to talk about Canada and what we do. We’re dealing with the Trump tariff tantrum and we have a lot of concern, not just in Canada, but globally. Is President Trump using tariffs as a bit of a stick to get his policy decisions implemented? So I want to talk about your impression as a very successful investment manager. How much should we be worrying about this? What action are you taking, or should investors be thinking about? I’ll open it there and get your thoughts and comments and what should we be focused on.
Dennis Mitchell
With Trump, a number of people have said you have to take him seriously, but not literally. And I think that’s great advice for markets as well. Two ways to evaluate Trump’s impact on markets. The first is longer term: what can you expect versus the trajectory we were on before. So longer term, what you can expect is less regulation and more growth. You can expect a focus on manufacturing domestically, driving more foreign investment into the United States. And a focus more on fossil fuels and less on renewable energy. So that’s sort of a longer-term playbook.
As for an investment strategy, to the extent that you need to tweak, it should be tweaked along those longer-term trends. In the short term, you have to ask yourself: How is this? How does Trump usually operate? To put it charitably, he operates chaotically. I think you have to use the volatility that he creates around things like seizing the Panama Canal, acquiring Greenland, turning Gaza into a resort, and implementing tariffs against allies. You have to use the volatility of those announcements and those actions to invest along your long-term trajectory. Because long term we should all be investing in high-quality businesses that are driving free cash flow growth. To the extent that Trump volatility creates a sell-off in any of those types of companies, that’s where you should be allocating your capital to capture those outsized returns that his chaos and volatility create.
Darren Coleman
Many people have not read The Art of the Deal, where he gives a guidebook to the way he’s going to play the game, and it might be a little too early to pick definite winners and losers. There are certain winners and losers, for example, like hybrid cars or electric cars. It looks like some of the subsidies might be going away. It looks like they’re on a real mission to eliminate a lot of government spending, which makes sense given the size of the debt. Are there certain industries right now that you like?
Dennis Mitchell
I think based on not just Trump, but who he’s put in Cabinet, you can look at energy, the traditional fossil fuel energy industry, as an area that’s going to be attractive going forward. Clearly, technology. The tech oligarchs have all lined up, not just at his inauguration, but they’ve all lined up to pay fealty to Trump and work with him. And you have to look at anything being manufactured outside the United States that could conceivably shift to the U.S. I say conceivably, because I think a lot of people are concerned about the auto industry in Canada. It would take decades to replicate the supply chain of southwestern Ontario within the continental US. So that is not an industry investors, in the short and intermediate term, have to worry about in terms of replication and capital flowing outside of the country and into the U.S.
I mentioned his Cabinet, RFK Jr. taking over Health and Human Services. That is of concern for healthcare businesses. You have to think there will be continued downward pressure on drug costs. There will be increased review and oversight and downright skepticism around some of the treatments that exist out there, whether it’s women’s reproductive health, vaccines, even the vaccines that Trump himself spearheaded and created for COVID 19. You have to be concerned about increased oversight and questioning and potential outright bans of some of these industries and some of these treatments and technologies based on who Trump has put in various Cabinet positions. But I think technology and energy, specifically, are two areas that will benefit from a Trump administration. The previous administration was very focused on renewable energy and was not necessarily a big fan and partner of the tech oligarchy.
Darren Coleman
Let’s spend some time on those two industries. On the energy side, in his first day, he said ‘Drill baby drill’ in his speech. So that was pretty clear that fossil fuels are going to be around a long time. And he’s signing agreements with places like Japan for liquid natural gas. Canada had a shot at those agreements, and we decided not to. So if we’re going to see a focus on the energy sector, is that good for American energy companies, or positive for Canadian energy companies?
Dennis Mitchell
I think it’s good for both and the simple reason is that the demand for energy in the U.S. in particular is almost insatiable and will not be met without significant investment on both sides of the border. So if we take a step back, the energy industry, the traditional fossil fuel energy industry in North America, has gone through a significant restructuring over the last 20 years. Gone are the days where guys are going door-to-door and raising capital to drill.
Darren Coleman
Passenger mines, that kind of thing?
Dennis Mitchell
That was an exercise in destroying capital and delivering negative, long-term returns, and no one benefited. The industry is restructured around being sustainable producers, being more efficient producers, and returning capital to equity investors. And that resulted in more stable and consistent capital flowing into the industry, and more stable and consistent returns flowing out of the industry. And anything that creates more and more demand for power is a plus.
So what have we seen recently? We’ve seen Stargate, right? That’s open AI that is soft bank. There’s Oracle announcing they’re going to invest $500 billion to develop data centers across the U.S. And data centers need power. Over the next 20 years, you are going to support AI development. You’re going to see data centers built that will require as much power as the US is currently producing. Wow!
So whether it’s fossil fuels, renewable energy, or technologies under development now, the energy space is going to be the recipient of a significant amount of capital investment, and it’s my hope they maintain enough discipline that the returns that come out of the industry will reward that capital investment. We haven’t even talked about Microsoft. Microsoft is going to spend $85 billion over the next year on data center buildout so the demands for power across North America are going to be significant. And again, the U.S. will not be able to satisfy all this demand. They’re going to need Canadian energy as well. So that comes back to the original point I made, use the volatility that his style creates to invest longer term in the trends he supports.
How Canada should respond
Darren Coleman
I think that’s perfect advice because I think people are getting caught up in the short term, which is the way the ball is bouncing right now. We have to look down the road to where all this is headed. The noise as he tries to find his parking space is not what we should be focused on, although that’s what the press wants us to think about every minute. Now let’s pivot to how Canada is going to respond to this because in the energy sector longer-term trends are looking good. But if we’ve got tariffs on our energy and other things, how do we navigate that? Or is that just noise in the short term?
Dennis Mitchell
The biggest challenge we have in this country, and this may surprise you, is inertia. It’s inter-provincial trade barriers which limit trade between provinces, but it’s also negotiated barriers. For instance, Alberta has tried unsuccessfully to partner with Quebec to send energy out east to export markets other than the U.S., and they’ve tried unsuccessfully to negotiate with First Nations and BC to send energy north and west to get it out of this country. So we have one customer exactly.
The tariffs and the volatility he’s creating are another opportunity for Canada to figure this out, because the global energy market – everything I just said about Canada and the U.S.’s demand for power, and multiply it a couple of times, and that gives you China’s demand for power, India’s demand for power, and the ECB’s demand for power. So we have what the world needs. We’re talking oil and gas, but you can expand that to nickel, rare earth, minerals, water, gold, the list goes on.
We should take this as an opportunity to diversify our export markets, diversify our trade relationships, and grow wealth within this country. And I would even say with energy, let’s find a way to make stuff with it in this country and export to other countries. So it’s not just raw materials we should be looking at exporting. We should take this as an opportunity to attract foreign investment in this country, to make high value goods within this country, to create more wealth by exporting higher-value items out to other countries, other than the US. I think that’s the way to win long term. A trade war with the United States? We won’t win in the short term. We just can’t. The law of large numbers is against us. But longer term, using this as an opportunity to diversify, I think that’s how you win longer term.
Darren Coleman
That’s been an argument we’ve been hearing since the ‘70s. Canada seems to be this land of promise and opportunity, but it’s also unfulfilled opportunity. And the data center thing you mentioned is interesting. I’m going to echo Kevin O’Leary saying that’s a massive opportunity for Canada. We’ve got cheaper energy and an abundance of energy. We could pop data centers all the way along our borders to support the US and keep that business, keep that revenue, keep those opportunities for jobs in Canada. But I don’t see any politicians talking about this at the moment.
Converting Warehouse Assets to Data Centers
Dennis Mitchell
I’m not sure there’s a ton of politicians in this country that actually understand that. And I’m not sure there are a lot of politicians in this country right now thinking about anything other than the Liberal leadership race and the eventual election later this year. Fortunately, in terms of investment in data centers, it doesn’t really require participation from the federal government. You’re talking more about who are the large consumers of space at data centers? Telecom firms are your obvious example. But expanding beyond that, any large Canadian company – energy firms, financial services firms, including banks and insurance companies, health care companies – these are all potential large, hyper-scale users of data centers, and that’s just Canadian companies.
You’re going to expand that thought into very large multinational corporations, right? So last time I checked, people still use Twitter or X in Canada, they still use Facebook, Instagram, Microsoft 365. All these large technology companies still have a presence in Canada and require local servers and data center utilization. So it doesn’t necessarily require top-down leadership from the federal government. It’s more recognition from people who would actually construct these data centers that there’s an opportunity here if they can partner and create opportunities for themselves.
One other thing I would say is this is a good segue into the real estate space. Darren, what you’re seeing is a lot of industrial landlords, like a Prologis GMG group out of Australia, a lot of them are embarking on programs to convert warehouse assets into data center assets. And I’ll give you an example. Goodman group out of Australia, GMG, as a sort of pilot project, spent $300 million converting one of their warehouses into a data center. They then sold it for over $700 million. They estimate they could do 20 of these conversions a year for the next five years. That is massive.
When you look at your major costs for development, land is the major cost. If you already own the land and the shell, you save enormously on the development costs. You also cut down on the time. So it’s no longer about zoning and permitting it. You can pivot to the permitting process. Look at a company like Prologis, the largest industrial landlord in the world, with a billion square feet in 19 countries. They estimate they’ve got at least 100 assets around the world they could convert from warehouses to data centers. Seagro is undertaking this. They’re the largest Pan European data center operator, sorry, industrial landlord. And then you’ve got the Canadian REITs like dream and granite, who have similar opportunities in their portfolio. So you know, in terms of the build-out and all of this investment that you’re hearing, somebody’s got to build the actual infrastructure to support all this investment. I think the industrial real estate space, in addition to data center REITs, are the natural beneficiaries of all this capital investment.
Darren Coleman
The business case is obvious. Going back to what the federal government can do is kind of grease the wheels for that to happen in greater volume. Some things that may have inhibited that a little bit have been questions around, what is our tax policy like? What is the capital gains rate going to be? So I think messing with some of those things has created a little more uncertainty about is there more capital coming into Canada? Because I think that those are the things the federal government can control about making us more attractive to foreign investors. But if you start messing with what the eventual capital gains tax rates are, that may make capital not want to come here.
Dennis Mitchell
Those are interesting dynamics. So the potential increase in the inclusion for capital gains taxation has been deferred until next year. That’s basically a nice way of saying we’ll defer the implementation until these guys come in and kill it formally, which does create a little indigestion and volatility in the short term. But it goes hand in hand with volatility in the short term to invest longer term along the trends you mentioned: investing in Canadian equities or Canadian assets in general, has become, you know, 15 or 20% more attractive and cheaper.
Darren Coleman
What I’m getting at is some of the uncertainty around things the federal government can control, like tax policy, which would include things like the carbon tax because companies need visibility on their cost of capital. Those are two important items that will hit their income statement, and they’re not entirely sure how to factor those in. I think if they have clarity on those, maybe we will see more money coming in to take advantage of that lower dollar.
There are two other sectors I want to talk about. One is technology. But I want to leave that to the end. One that seemed a little bit of a surprise was when President Trump mentioned Canadian banks don’t let American banks come up here. We’ve had a really good oligopoly in Canada for the banks and bank investors, but maybe not for customers. And we can look at 2008 and say maybe that oligopoly and that conservatism protected us. But do you think that might be another policy issue we need to pay attention to? Is our Canadian banking sector getting more competition?
Trump’s take on Canadian banks
Dennis Mitchell
With Trump you have to deal with the fact that he says stuff, but then if it gets traction he tends to gravitate and focus on it. In fact, I think that might explain his entire first administration. He said he was going to run for President, and then he got traction, and he actually became President. Coming back to the Canadian banks, he comes at it from a guy who’s borrowed enormous sums of money from banking. I think he looks at the closed loop that is the Canadian banking system. And let’s be fair, there are a number of U.S. banks that are here and have been here a number of times. Merrill Lynch has been here and is currently here. Morgan Stanley is talking about coming here. JP Morgan is here. Wells Fargo is here.
Darren Coleman
They just don’t have the same ability to compete.
Dennis Mitchell
There’s two ways to do that. They come in and spend decades building infrastructure to compete. Not really an attractive proposition. Two, they buy a Canadian bank, which is unlikely to be allowed because that would result in the externalization of all our banking. I don’t think it’s a stretch to say banks are a strategic national asset that should remain Canadian-owned, or majority Canadian-owned, and certainly Canadian-regulated and controlled. I don’t see that as a longer-term threat or something we have to be concerned about. Now I would love for more aggressive competition in the Canadian banking sector. I think that would unleash a lot of innovation and a lot of productivity growth in the Canadian economy.
Valuation of Tech Stocks
Darren Coleman
Look at his comments about banking in Canada as maybe a trial balloon. And if it gets traction, maybe we see more. But if it doesn’t get traction, maybe, well, I think one of the interesting things is he’s done so many directives. This is such a different presidency from his first one. I think the organization has been remarkable. They’ve come in with a mission and in the first two days he did, like 100-plus presidential directives. I think if anything gets traction, they’ll run with it. But if it doesn’t, hey, I got five more ideas I’m still working on.
Let’s move to technology. It was interesting watching all the tech bros lining up at the inauguration with their billions of dollars. They’re recognizing we better support the new sheriff in town. But I think valuation is a real concern for investors. We’ve seen such a concentration of wealth. In the S&P 500 less than 10 stocks dominate most of the market performance, and investors just keep piling into the same names. And even though the business might be great the price they’re paying might really be a huge stretch, and a little shock to the system can create a huge effect in the stock price. Nvidia gave us a great example of this when Deep Seek, this Chinese competitor, showed up and in a day Nvidia lost 18% of its value because it’s at such a high point. So how do investors approach this?
Dennis Mitchell
I’m old enough to remember when Nortel was 33% of the TSX and everybody chided the TSX for being an inefficient benchmark. But now you fast forward to 2025 the Magnificent Seven are over 30% of the S&P 500. It’s proof that the next generation is doomed to repeat the mistakes of previous generations. Coming back to technology. I think technology and healthcare are the two global sectors where you see the lion’s share of innovation and the lion’s share of capital investment as well, because there’s no growth without investment.
I think what you’re seeing out of the tech response is they have an administration that is aligned with them. Compared to the previous administration he shows almost no interest in regulating them beyond making sure that they don’t censor conservative viewpoints and speakers. And you’re seeing the fallout. You’ve got fact-checking declining, entire fact-checking teams being fired. You’re seeing the reinstatement of controversial people on social media. So I think technology sees this as a four-year period where they have almost carte blanche to do whatever they would like to drive investment and growth. The market has figured Trump out, right, and so a lot of these tech CEOs and oligarchs have figured him out.
Darren Coleman
Canada could take some cues from this. I think wanting to go toe to toe is not the right strategy. I’ve told a few people there’s a few things we can probably work together on. And you’re right. Our military, we haven’t lived up to our commitments. Is there a salesperson from Lockheed Martin or Raytheon we could maybe talk to and buy some submarines and things?
Dennis Mitchell
I think you’re on the right path, but he needs to actually win a fight. He needs to actually implement tariffs. And then he needs you to announce that you’re doing his bidding so he can say, as a result, I am eliminating the tariffs. That’s what happened eight years ago.
Interprovincial Trade Barriers
Darren Coleman
You mentioned at the beginning we’ve got enormous interprovincial trade barriers that have existed for generations. We need to get rid of those.
Dennis Mitchell
Exactly. This is yet another opportunity to diversify the domestic economy, but also diversify our trading relationships and partnerships globally. I think there’s a tremendous opportunity here. We can narrow the candidates for Prime Minister down to two people, Pierre Poilievre and Mark Carney. There’s this thing called democracy, and we kind of swore we would abide by it a couple hundred years ago. It gets kind of squeaky and annoying at times, but it also works longer term. So, you know, there’s a process to everything. So eventually, you know, hopefully you’ll knock on wood. You end up with Carney vs. Poilievre and I think both of them are free-market operators.
I think Poilievre probably strikes a better relationship with Trump out of the gate but longer term I think Carney is probably the better option for Canada. Here’s a person who understands global markets, has got a platform and a profile globally, is used to building consensus, having run two of the big seven central banks on the planet. I think either candidate is probably going to have a good opportunity to do a lot of things to diversify the Canadian economy and build trading relationships outside of the U.S.
Darren Coleman
Let’s go back to the tech thing for a minute. What are the trends that exist, and how can I profit in a slightly different way? So, yes, I want tech and energy, but maybe I’ll do it through the data center.
Dennis Mitchell
We talked about industrial real estate and shifting over to provide more data centers and capacity, but taking a step back, we talk about the gold rush in San Francisco back in ’49. Ironically, how the 49’ers got their nickname. This is the picks and shovels. Very few people got rich actually panning for gold. But the people who provided the picks and shovels made money regardless of who actually found gold. So who’s going to win in terms of AI? It’s hard to pick a winner when you you know you’ve got Microsoft versus Oracle versus Google.
What I know is that the guys who provide the infrastructure that allows them to actually wage this battle, they’re going to win. Data centers is an obvious example. Power is an obvious example. But then you start getting into derivatives. Like, who are the guys physically constructing these data centers? Those guys are going to benefit. But some of the cream is going to come off, some of the outsized returns are going to come in, and returns are going to normalize. And anybody who invested through one or two business cycles recognizes this pattern. You really want to look at the guys who provide infrastructure that allows this technology boom. Those are the bank shots, if you will, that are going to pay off in a more consistent manner and with a tighter range of potential outcomes.
Darren Coleman
I’ll call them amateur investors versus professional investors. This is where a team like yours comes in to do the homework and see these other things unfolding and maybe the most popular kid at the party is getting all the attention. The Nvidias and Microsofts. But long term, as we’ve watched in Canada, that can be a pretty dangerous party to be part of.
Dennis Mitchell
Professional investors are smart. The advantage that I have as a professional versus somebody who’s not a professional investor is I have the experience, the expertise and the framework. And I have the access. A lot of amateur investors, to use your term, are hyper-focused on the returns and what they could potentially earn, but overlook the risks they’re engaging in to achieve those returns. Even when people get the story right, you may have the company wrong. There are a lot of people who understand that our population is aging. We’re living longer. The demand for seniors’ housing is increasing. But just saying that the seniors’ housing industry looks attractive right now doesn’t necessarily mean every company there is an attractive investment. If you get the sector right, but the actual company wrong, you’re still wrong.
Darren Coleman
If you go back to the mid ‘80s and said, I think this personal computer thing is going to be a big deal. You know what I’m going to do? I’m going to load up my portfolio on digital equipment. But Wang, Commodore, Compaq, and all those businesses are gone today. But if I go back to 1986 unless you bought Microsoft, you lost all your money. So you’re right. You can have the theme correct, but if you bought the wrong business, or you paid too much for the business, I’d go back and encourage people to look at a chart of Cisco in 1999. If you said the Internet’s going to be a big deal, well, you were more right than you knew. But if you put all of your money into Cisco, you’re still not back to where you were in 1999 as a stock price.
Dennis Mitchell
The other piece I as a professional investor enjoy is access. In any given week, I’ve got three or four CEOs coming through the office to talk to us about their results and their outlook, and their plans for capital allocation. I have access to research from 60 or 70 different shops around the globe. I can go to conferences. I can go to property tours. I can see the physical assets if I need to, and I have access to databases that will give me first-hand industry knowledge and information. So those are the advantages. It really comes down to experience, expertise, framework and access.
Darren Coleman
That’s a great way to end our call today on the advantages you bring to investors. I think I’m going to ask you to come back and do another podcast in the future, and maybe zero in on another area of expertise. We just talked about the residential real estate market, both in Canada and the U.S. What are the trends there? Is the Canadian market overpriced? We see a huge institutionalization of purchases going on in the U.S. housing market. Will we see that in Canada? I think I’ll set the table for that being a future conversation.
