Opinions
Kash Pashootan A Comment -- General Comments From an Expert A Commentary N/A Aug 23, 2018
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Markets are temporarily overbought. We are coming into November, which often leads into the better part of the year. Though this summer has not been bad at all, so how do you use seasonality?
Yes, there's some potential short-term risk with the Trump-Xi meeting at the end of the month. That could cause some volatility. Maybe it'll cause a pullback, or maybe it won't. He doesn't know.
He's spent 40 years staring at stock charts. He knows the signs of a bubble, and we're in one. But that doesn't mean that it pops tomorrow. His firm plays the trend, but in the back of their minds is a certain level of caution.
In a nutshell, he looks for breadth getting narrow -- and it did, as AI is all the focus. Volatility gets low -- on the S&P chart, previous wild swings have gotten very tight. He also looks at sentiment indicators -- "the crowd" is becoming too enthusiastic, though not at the levels when bubbles actually pop (though they're getting there).
As long as the Fed is pushing, we're going to keep going up (don't fight the Fed). But at some point, there's going to be a day of reckoning.
For more insight, investors can go to his blog at valuetrend.ca and search for relevant articles.
We'll see how many government workers were really out there collecting data, or were they guessing on a lot of items. Thinks we'll get a number that's a little bit higher than the FOMC would like to see, but not high enough that it would change their plans to cut interest rates the following week.
Right now, the equity market is focused on pending rate cuts with the S&P 500 and various averages at all-time highs.
It's a bit of a problem in terms of messaging. They know what they want to do, and this is a bit of a headwind in terms of the message. He thinks they would like to cut rates. Some of the officials have been quoted as saying that it depends on which inflation measures you look at and, as we know, there are a few ways to look at it.
He thinks they're more worried, as they are in the US, about the health of the economy (and making sure it doesn't roll over) than they are about inflation. They're ready to accept that inflation might be just a touch stickier than it would be in a perfect world. It might take them over that 2% mark, which is largely an artificial baseline, but they're willing to live with that.
His team doesn't see the constituents of the classic bubble. You can't deny that the markets have moved forward. To most people that's a good thing. But of course it brings with it some risk, and then some people start to apply that "bubble" label.
In 1996, Alan Greenspan (Fed chair at the time) famously talked about "irrational exuberance". When Gordon looks at the market today, he'd label it as "rational exuberance". Exuberance is a bit scary for markets, as we like them to be discerning and analytical.
But markets are like a lot of things -- if enthusiasm builds, the focus moves away from the company and toward the stock price, causing people to become momentum investors. We've seen a bit of that, but we've also seen very strong corporate earnings. The leadership is fulfilling the third leg of the so-called "economic revolution" -- from industrial, to technology, and now to early stages of AI.
Absolutely. It shows up in the returns that they're gaining off their investments, and those investments are mammoth. This year, the hyperscalers will invest close to half a trillion dollars in data centre development to create the capacity for what we're told will change our lives. And we're already seeing some of those changes.
Bottom line is they're making money. GOOG, for example, is trading at about a 3.5% discount to the valuation of the market as a whole, even though its growth rate is a number of times greater than the average company. Some of these companies have stretched valuations, but not all of them.
You can't answer the question on the basis of the commodity itself. It depends on how you've constructed your portfolio, what percentage gold is in your portfolio, and how you invest in gold. Talk to your financial adviser.
His firm sees gold as a bit of an enigma. It's not really open to fundamental analysis, you can't really understand the value of gold, and this make them nervous. But they understand that it's driving forward on global macro forces. Central banks around the world are losing faith in fiat currencies, especially the USD. Geopolitical issues favour gold, and put pressure on the US dollar.
His firm owns AEM.
You could hold a stock like HON until the spinoff, but then you run into that tax issue again. You have to be careful.
When you're issued new shares, it comes through in the US on a tax-free basis. But Canada often treats it as a dividend, so you're fully taxed on it and it can be quite hurtful. You have to do your research, which is often difficult as the CRA may not have issued a ruling yet.
Market. If the US president would be impeached what reaction would we see? Markets do not like uncertainty so if that scenario played out the markets would be uncertain as to who would get in next, etc. The market has had time to digest Trump's approach. The world would not end but there would be meaningful volatility of 5-15% of he was impeached. This is now the longest bull market in history so people are trying to guess when it will end. Going to the sidelines has shown to be risky over the last few years. There is nothing out of the ordinary or a reason to hit the panic button. He gets concerned from a geopolitical perspective that the market is incorrectly balancing the bad with the good. This could lead to a meaningful pull back. You need to look at what you own and decided if you can live with it if we get into a bad market.