Opinions
Keith Richards A Comment -- General Comments From an Expert A Commentary N/A Dec 18, 2013
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Typically, people go on holiday in August; seasonality is poor in August; and September is the weakest month of the year. Indices have been making record highs and sentiment is tilting to bullish, so he's starting to get cautious. Doesn't know why September is the worst, but it's the only month with a negative return. At the start of this year, he was cautious, sensing that we're near the end of the economic cycle that began in Oct. 2022. Every 3-5 years there's a big 15-20% correction (usually 5-7% corrections), but the correction between Feb.-Apr. was quick. At May's end, he saw a near 4-year cycle begin. Once the Dow hits a new high, trading will be sideways before there's a correction, which will be a great opportunity to buy.
Yes, a good idea, given U.S. policies now which will debase the US currency. Also BRICS is helping the shift towards a gold standard, which will be positive for the Canadian dollar. Likes the CAD going forward very much. The USD will bounce the next 6-8 weeks, but the USD will remain in am overall downtrend. Since 2022, we're seeing lower highs and lower lows after an uptrend from 2020-2022. We saw a similar pattern in 2000 when the CAD was worth 62 cents then rose to around 2000 went the CAD was over par the USD. He sees a stronger CAD vs. the USD.
Off that April bottom, we've seen probably one of the most dramatic V-bottoms in history. That's telling you that things are starting to get a bit extended. If you look at the CNN Fear & Greed Index, or the NAAIM exposure of almost 100% invested right now, you can see that short-term things are extended.
Markets made a really big push to highs. Now zoom out and look at the longer term, some things have happened that indicate we're setting up for higher markets long term. But there could be chop in the short term. Depends on what type of investor you are. If you're more for the short term, you might want to look at raising some cash. If you're in it for the long haul, you'll probably just sit here and ride out the volatility.
There's so much going on right now, and we've seen a year like no other as far as geopolitical news and tariff talks. Now the focus will probably turn to earnings for Q2. After Q1, a lot of companies didn't provide much for guidance because of the tariffs. So now we'll want to see what the guidance is going forward, and that will let us get a better sense of valuation on the market.
Looking at the market from a historical, rearview perspective, it certainly is expensive right now.
One factor is the timeframe for how long you want to stay invested. You need realistic timeframes, because we saw this past March what volatility can do to markets. He tends to focus on a lot of small- to mid-cap companies, and they can be really volatile both on their stock and on their underlying business.
Know yourself and how you react to making money and to losing money. When a stock's losing money do you follow it down, buy more, or stop yourself out? Need to know that ahead of time so that you don't get emotional in the moment. When you're making money, will you hold and make a lot of money for the duration or will you harvest your gains along the way and reinvest somewhere else?
It's important to know ahead of time what you're going to do, especially with the small- and mid-cap companies.
When you talk to people ahead of time, most say either they can handle volatility or they don't want any volatility. If an investor doesn't want any volatility, then really the market's not the right place for them.
If they say they can handle volatility, it comes down to how much they can handle and over what timeframe. If you look back to what happened in March/April, and now we're right back to where we were, know that it doesn't always work out that way. There have been times in history when a downturn can last for a much longer period. Think back to 2008 or 2001-2003. So investors have to understand how much downside volatility they can stomach.
If you can handle a 15-20% drop, but only for a year, then perhaps the market isn't the place for all of your money. If you can stick it out for 3-4 years, then the market is OK for you.
Also, if you have a steady cashflow and you're adding money to your portfolio all the time, you want cheaper prices. That will really help you in the long run over time.
Numbers for Canadian financials are starting to accelerate. Canadian banks over-provisioned for loan losses; if they don't have to tap into those reserves, should see really strong numbers going forward. On technicals, all the Canadian banks are moving up the ranks. Over 10-20 years, there hasn't been a better investment. They all pay a dividend, though not fantastic growth every single year, a bit lumpy.
They've all done well, and TD has caught up to the others, so it wouldn't make sense to switch out of one for another at this point.
The best sleep at night you can have.
Markets. We are in a new secular bull market. There is always room for a correction but that is a few months away (10-20% correction). There may be one in later 2014 or early 2015. A second year presidential year tends to be a little softer. In 2009 there was a trough and he finds they happen every 5 years, so that brings us to 2014. Then markets have room to run after that. Any correction will be a very good buying opportunity. He is a big believer in rotation. Some of the old leaders are just beginning to roll over. He is trying to buy into emerging leaders.