Opinions
Swanzy Quarshie A Comment -- General Comments From an Expert A Commentary N/A Mar 28, 2017
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You have to think about what consumer prices are going to look like and how consumers may have to cut back. 2/3 of all economic growth comes from the consumer. If they have to cut back on spending, then chances are that profitability may be weaker in the coming quarters.
Impact from tariffs seems to be limited for now. Q1 earnings were pretty decent. Those companies that said tariffs were going to be bad, were bad. The NA economy is service-based, and the impact of tariffs is not material. Headlines about Trump and Xi speaking on Friday. Market's feeling as though the worst of the tariff threats are over -- all the bad news has been delivered, and maybe some good news will come out.
May start to see interest rate cuts in both Canada and the US as we head into the end of the year. Hopefully, inflation will start to come down to a more normalized level. Corporate earnings are strong. Summer is starting in Toronto :) Things feel good.
The market always climbs that wall of worry. It overreacted insanely in April, so dumb, and that was the opportunity. Now markets have gone back to a level similar to where they were in January.
Haven't seen this yet. Both BOC and the Fed have to see either all tariffs removed or consensus on a certain percentage. We haven't seen impact of tariffs on inflation numbers yet.
But there are all these offsets. Seeing declines in rental costs, commodities, gas prices, other products. Economics are very hard to figure out. If there's a price rise in one asset class, there could be a decrease in something else as people switch their demand.
He's not too concerned about tariffs. Biggest worry is what Trump is going to say tomorrow. The companies he owns are adapting. We should expect a pretty good year for corporate earnings.
Believes BOC will not cut tomorrow, but hold steady. They'll probably want to wait to see when the US starts cutting again. Keep in mind, BOC cut 7 times already. One worry is that the CAD has been really strong against the USD. BOC will also want to see how the employment situation plays out over the next few months.
As inflation numbers come out over the rest of the year, thinks the Fed and BOC will both cut 2-3 times.
He's more freaked out about what happens in 2027 if Carney brings back the capital gains increase. If you're rich, get used to being taxed more because NA is broke and the deficits are out of control. He saw that Carney wants to fast-track infrastructure spending, but where's this money going to come from? It's going to come from taxing the rich.
It absolutely won't change at his firm how they make investment decisions and buying US stocks. They don't buy stocks for the dividends. He focuses on long-term trends of the companies they own and what's going on in front of him right now. Maybe Trump will TACO this one too.
If you need a large amount of money from your portfolio within a year, get it out of the stock market. Anything can happen like a pandemic or an April 2025.
Various reasons to sell. He sells if he finds a better investment idea. Management team does something that doesn't create value. Or the fundamentals don't prove themselves anymore. Buying back stock with debt. Balance sheet getting worse. Revenues aren't growing as fast as before or are going negative.
One reason not to sell: market volatility. He's a long-term investor who focuses on the fundamentals.
Gold is a key beneficiary of uncertainty and "chaos". It's done well since the US election being up about 20%, and YTD even more. It will continue to benefit from the uncertainty and wild swings.
Though the market has recovered from April, no one's sure from a sector-to-sector basis what President Trump will do in terms of tariffs. Recent moves in aluminum and steel, but we're still quite a ways from understanding the overall goal and where things will ultimately settle.
All this is beneficial to gold in the short and medium terms, but at the end of the day his long-term perspective on gold is continued central bank buying. Central banks have realized the need to diversify away from the USD, which probably started with the Russian invasion of Ukraine. It woke up the world to the fact that not everything is as secure or stable in the world as you think. People are worried about US debt, running GDP deficits, and so forth. Drives people to reevaluate how they want to own the USD and perhaps diversify into something like gold.
There's a level of complacency now where people have seen the US administration come out with these dramatic numbers and then pull back in reaction to market perception. Gold is like an underwater current. There's this steady current of central bank buying, and then above the surface you have investor demand that comes and goes.
We'll see steady improvement in gold, with significant gyrations. In the last 2 months we've seen 2-3% swings in gold, which is uncharacteristic. It's due to the underlying significant inflows and outflows of ETFs, which drive the price on a day-to-day basis.
Keep your eye on the prize of what you think is happening fundamentally over the next 6-18 months, and he doesn't see the underlying story changing.
Fairly good resistance around $60, whether it's $1 above or $1 below. Market's grappling with the demand side and whether this uncertainty, and these significant changes in global trade, will mean economic slowdown. Despite OPEC hikes, what keeps it in this fairly equilibrium state ~$60 is supply coming off. US shale production will probably decline over the next couple of years, because $60 means skinnier profits.
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Markets. There is a lot of negative sentiment in oil. The lack of visibility of what OPEC has done and how it has fed into inventories is what is causing nervousness out there. She is confident that OPEC’s actions will work. With production increasing in the US, it is being balanced by cuts that OPEC has made. We won’t get a lot of growth in oil in the US next year if the price does not increase. She looks for companies that have the best growth and the best plays. There is a valuation gap between the US and Canada that makes Canada much more attractive. A border tax into the US will increase the price of oil in the US and thereby encourage production growth there.