Larry Berman CFA, CMT, CTA A Comment -- General Comments From an Expert A Commentary COMMENT Feb 07, 2022

TSX is largely gold, so that's what's driving the bus. It's the only sector outperforming the index this year, and it's outperforming by so much that it's raised the average of everything else.

Under the surface, the infrastructure stocks they own are doing pretty well. So he's happy with where things stand.

We're in some sort of changing of the world order. US government taking positions in private companies. Ongoing trade war which escalates and de-escalates day by day. A lot of that is filtering into gold. His firm is a bystander in  this. They own a bit, but not a lot. 

He's been watching the dichotomy between gold and Bitcoin. Bitcoin is supposed to be digital gold and better because it's portable and costs less to store. But it's not performing the same way gold is. That tells him that adoption isn't there yet. As well, when the person on the street is chatting about gold, that's a warning sign of bubble-like behaviour.

The changes we're seeing in the US treasury market and in many countries makes it hard to tell exactly how assets should be valued. Assets are valued relative to each other. A year ago, gold was clearly undervalued relative to other assets, and now that's changed.

You can make logical arguments both that there's room to run higher, as well as that we're overheated here and due for a pullback.

Some investors like the entertainment and streaming segments, but his firm doesn't find those areas durable enough for their clients. That world just moves too fast for them.

Just this morning, he had a discussion with a client who's retiring at the end of this year. She's 58 and has worked for the same company for 30 years. It's not as though she's retiring with a massive portfolio, but it's enough for her to live off of. This portfolio has to take her to, say, 98 years old. That's 40 years. She needs something that's very durable and will last that length of time. Produce income for her to spend, protect the downside, and provide some upside if there are worries about inflation or currency debasement.

Interestingly, whole Canadian energy space has been pretty resilient. Gradually people are returning to Canada on the basis of our lower decline rates, better prospects for transporting oil out of the country, and a government that might support further investment. Good case to be made that oil prices could rally from here. 

In 2026, you'll really want to watch drilling plans for US shale drillers. If they're not drilling, that could set the stage for a pretty good environment in Canada.

He's underweight, and has been for some time. His portfolio position on banks is ~15%, compared to 20-25% of the index. It's not a market-timing call, but more of a long-term structural call. Better places to put $$. For individual clients, he doesn't mind selling some bank stocks to fund expenses. Otherwise, he's happy to hold and collect the dividends. 

All of them are quite rich, he's not buying right now. And we're still not at peak reset for Canadian home mortgages, which will be end of this year and into next. He'll be watching that.

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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.

There are a number of stocks that his firm is in and out of all the time. You can identify a swing pattern of stock moves on a chart in a tight range. Up and down, up and down, all within the range.