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Joshua Varghese A Comment -- General Comments From an Expert A Commentary COMMENT Oct 08, 2024
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In all his conversations with professionals and savvy people, not a single person says "Yup, this is how it should be." Most people think there's a disconnect.
Longer term, if you look at the interest rate policy we've pursued since the financial crisis of 2008, it has destabilized the bond market to the benefit of the equity markets. So equities and valuations have benefited. At the same time, we have an ongoing new paradigm as it relates to AI. And that's feeding off of itself too.
So it's a number of things happening all at once. At his firm, they just look through all of that and assess where we are today in relation to a long period of history, and where are we going in the future? They still like the stable fundamentals of the companies they own.
The theme that will most likely come through in today's show is "For new money, wait for a better entry point."
What's interesting about the negative reactions in April, and earlier this year when the tariff news first hit, is that it wasn't the general economy stocks that were impacted. It was the tech stocks. So he hesitates to say where the market's going to go based on the general economy.
He's not too concerned with trying to figure out where we are in the cycle. It's really driven by policy. Right now, policy is saying we're going to cut rates. The US President is saying we're going to cut rates. So the market has given an almost-Pavlovian response by pushing up valuations.
On the overall economy, real-time data doesn't look very good. Port landings, freight traffic, trucking company and courier results all show problems. Consumers aren't necessarily getting stuck with tariffs. It's the retailers, importers, and manufacturers that are swallowing the extra costs for now. Once those start to get passed through, it will start to hurt the consumer.
Consumer discretionary is the worst-performing sector in the S&P this year, and that shows you where the limited impact is. But the market as a whole has been able to power through that.
Fall is the weaker period for equities, so he's hoping to see some opportunities. But he's not super-optimistic.
Good place to get some income. Nice spectrum of companies with higher yields, lower yields, higher growth, and less growth. He wants to have a mixture, but also a core position. He's tilted more towards natural gas than oil, because fundamentals for nat gas in Canada look pretty good relative to the oil fundamentals (sideways market barring some sort of crisis).
Still thinks both the Canadian natural gas and oil stories are positive. CAD below 70 cents makes us more competitive as well. US shale production may or may not last at current levels -- both in terms of capital required and lifespan of reservoirs.
Don't divest. Instead, hunker down in a few core names. See his Top Picks.
Beware of online scammers. Someone is perpetuated a fraud under his name, promising returns and such. He would never do that on social media, except offering advice on YouTube. The Fed this week: What will they do about the future? Trump wants to take away their independence. Many expect the Fed to open the door towards a rate cut. He's not sure, expecting them to be more hawkish and September will be a coin flip based on data (job losses).
He loves alternative strategies, because these funds take no or little direct market risk. Instead, they pick the best ideas and go long, with leverage, then short some names to create the leverage of names they don't like. Few managers are good at this. A manager called AQR, in Connecticut, is one he uses and likes. He loves multi-strategy funds that will be huge in coming decades.
Population growth is based on net immigration and births minus deaths. 20 years ago, Washington forecast a 1.4% productivity rate. The actual growth to 2025 is 1.1%. We need a lot of growth to climb out of this current debt. We're creating jobs, wonderful, but there's a lot of talk of AI to steepen productivity. Getting a liberal arts degree won't cut it in terms of where the growth will be in the future. Rather, the economy needs people trained in STEM research, those who can contribute to AI.
AI spending is at an all-time high, the fastest in the history of any tech the world, including the internet. No, valuations are not excessive, and he's still invested. These companies remain the best-positioned, because immigration policies means a labour shortage, especially in small business whose margins will suffer because of a lack of cheap labour. Stick with the Mag 7.
Tech has been so strong but some sectors like Healthcare that have been really beaten up are starting to rotate. Energy is not ready yet but the gold sector is strong and should accelerate. Valuations are getting stretched in big tech and they could start to grow into their multiples. September is one of the weaker months along with early October. People returning from summer vacations may start examining their portfolios more closely and look at taking profits.
Investing 101: Capital Gains vs. Capital Loses
Capital gains are defined as the increase in value above one’s cost basis for an investment that has been realized upon sale. When Canadian investors sell equities that have increased in value above their cost basis in an unregistered account, they must pay income tax on this increase in value.
Capital loses occur if an investor also sells an asset that has decreased below their cost basis, this realized capital loss can be used to offset any capital gains, and thus decrease one’s income taxes. One technique that many investors use is selling an asset that has decreased in value to realize that capital loss and repurchase the stock 30 days later.
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Private markets used to be for institutional investors, but are increasingly reaching retail investors. Blackstone is the largest player, and they launched a fund for retail investors. More players will enter this space as costs will decline. Public RE stocks will have to catch up to private market values (as they grow more popular) or the REITs will go private.