Opinions
Veeral Khatri A Comment -- General Comments From an Expert A Commentary N/A Dec 08, 2017
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Yes. She doesn't even know what to say. Thinks this might be one of the easiest shows, as every answer will be along the lines of "Good company, but too expensive." Market's in mania territory, more so in the US than in Canada. It's like a runaway train and nothing can stop it.
Doesn't know what's going to make the market turn, but these valuations are unsustainable. Her firm is being cautious right now, only deploying $$ where they see long-term value rather than short-term trends.
Her firm is a conservative shop on a good day, let alone on a day when valuations are this high. You have to balance this with collecting dividends, and they're all about dividend investing. If you're not invested, then you're not collecting that dividend.
They try not to trade, buy low sell high, or time the market. It's all about getting invested, collecting dividends, and compounding them over time.
That said, for new $$ coming into the firm, they're having a hard time deploying it right now.
Canadian valuations are trading at half of what they are in the US, so there's relative value in Canada. In particular, likes infrastructure stocks -- things that are going to support the backbone of the Canadian economy. Things like utilities, pipelines, telcos, energy infrastructure.
Along with collecting dividends, one of their main theses is that increasing power demand is a secular trend. It will continue to increase over the next 20, 30, 40 years. Despite where we are in the economy right now (going into economic weakness and possible recession), power demand is not only defensive but also a growth story that could supersede any short-term economic weakness.
No secret that for months the economic data has been trending negative. GDP numbers in the US were positive last week, but it's backward-looking data. Job numbers have been coming in weak. And with the US government shutdown, we won't be getting as much economic data.
The economy was saved in the first 2 quarters because a lot of demand and buying were pulled forward. We're now starting to see the impact of tariffs, and inflation risk is increasing.
But the market is not wavering, just continues to go higher and higher.
Sees inflation as more of a risk in the US than in Canada. If we are headed into a recession, then Canada is a bit more ahead than the US on that front. Our GDP numbers are lower, and our employment numbers have been worse than the US for longer. Consumers in Canada are more strapped, with spending that's been slower for longer.
Canada's mortgage rules are different, so we have our 5-year resets. Canadians are going to be paying more for mortgages that were locked in at historically low pandemic rates. In the US that's not an issue. US consumer is stronger for now.
Investing 101: Make mistakes when you are young with less money to lose
If you are going to make a mistake, in almost all cases it is probably better to make them young. With investing, you have more time to bounce back from a mistake but perhaps more importantly, the dollar value with which a mistake is being made is going to be far lower. A mistake at a young age is going to be far less impactful than at a later age and be assured, mistakes will be made whether you are active or passively investing.
As a 20-something that retires 40 years later (hopefully), you are probably not going to look back at that initial $10,000 you (maybe) lost in the market and view that as the big difference maker in your retirement. However, if that experience turned out well and led to added financial security, you will probably view it as one of the most important financial decisions you ever made.
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He wouldn't expect a lot from this meeting. The tariff regime from the Trump administration has been very well telegraphed. Most heads of state have come away with a deal they wouldn't have expected. Keep in mind that the land border between Canada and the US is the longest trade conduit we have. We have some critical minerals that they use in the US, so there are some areas that we can push back on.
The bigger, thornier issue is that USMCA is up for renegotiation next year. Will the Trump administration just rip it up and say let's start again? The optics of cutting a deal on the fly are interesting. Something like the healthcare sector had follow-through that was quite disconnected from the initial announcement.
He'd expect some headlines, but what we actually get delivered may be somewhat different. We've reached the point where the president needs to recognize that Canada's a major trading partner, and the US will suffer if tariffs remain. Tariffs are a tax on US consumers, not on Canadians.
You can look at a number of different sectors. Take healthcare, for example. If companies can find a workaround, then tariffs are irrelevant. Luxury has sold off. Europe has sold off. Tariffs on the Swiss with their 6 million people and global operations don't amount to much.
While tariffs are a hot button in the US, it doesn't get to the heart of US overspending or its debt problems. Budget deficit in the US is not helpful. Compounding that with the defense budget, and the fiscal stimulus being pushed into the US economy, the result has to be inflationary in some shape or form.
Markets. He doesn’t see systemic risks or gross overvaluation, but does see a premium valuation in the markets. That means he has to be a.) a little more selective in stocks he owns and b.) if he does get a little more cautious, how does he migrate the portfolio to a more cautious stance. To do this, he starts to look at larger cap names instead of owning a bunch of junior or intermediate companies.