A Comment -- General Comments From an Expert (A Commentary)

US employment numbers. He's said that the thing that will upset the market's apple cart will be the real economy starting to sputter. We saw signs of that in 2024 where initial claims went up here and there, or payroll numbers were slightly softer, slight uptick in inflation. But there really hasn't been a lot of follow-through. 

That's what it will take for equity markets to have more of a correction than just the 1-2% dip we've gotten used to and that everyone can handle.

That's one of the things that can keep you up at night. What's Trump going to do this time? With the people named to cabinet positions, he's pretty serious this time around. Looking to break the system and change it with his America First agenda. While everybody discounts him and says it's just his style, this time around the impact is going to be more material than last time. 

It's been stronger than expected. You could look at that and say "Goldilocks", because it hasn't weakened yet. That's where we are right now, so there's a balance between still getting jobs growth with inflation that's come down and is not going back up. The best of both worlds.

But it doesn't mean that we will continue to expand the market multiple. It does mean that we shouldn't correct a significant amount. And when we finally do get that economic weakness and/or significant uptick in inflation (because the economy's stronger than expected), that's where we can expect some more problems in equities.

You're never going to see a private with the same benefit as a public ETF, virtually impossible. You're earning a less-volatile, premium income (called the "illiquidity premium") and giving up some liquidity.

He tends to be more of a trader than a very long-term investor. But he looks around the world and asks what's relatively cheap compared to a lot of things in the market that are very expensive? He looks at Warren Buffett, who is holding a lot of cash right now.

Whether the correction for the broader markets comes in a year, a month, or 3 years, he doesn't know. But Warren's building this massive cash pile to take advantage of at some point. So that's Larry's mindset. He wants lots of dry powder as he looks for companies where there's relative value.

Future of the US dollar

Long-term perspective is really important. Currency started floating about 50 years ago. He's looking at a chart that goes back to the early 1970s. Currently, the CAD is sitting around $1.40. The average CAD rate is $1.23. Very little time in the last 50 years was it actually at $1.23; either at a significant premium or discount.

Historically, the Canadian interest-rate environment always had to be higher than the US to prevent the CAD from weakening. This was due to our having twin deficits -- capital account deficit, and current account deficit. Capital account deficit: investors globally buying fewer Canadian assets than Canadians are buying foreign. Current account deficit: terms of trade.

As we get into 2025, investors should think about where they own a lot of foreign securities, and exposure that isn't hedged (ETFs are a great example), and where they can flip to a version of a fund that locks in the currency. When the CAD goes back to that median level (and it will at some point in the next number of years), there's a significant amount of currency appreciation that would, otherwise, start working against you.

In the short term, it could go to $1.42 or $1.43, even spike to $1.45. Those are targets where you'd want to hedge some currency exposure.

It will, because there's no other economy in the world that has all the great things that the US does. It's the best dirty shirt in the laundry. Not going anywhere anytime soon.

iShares S&P/TSX Canadian Preferred Share Index ETF (CPD):

We can see that as interest rates were aggressively hiked in Canada from 2022 onwards, CPD’s performance declined. Rates had previously been cut due to COVID-19, and CPD reached a price of $14 at the end of 2021. An interesting point brought up was that expectations of future rate cuts are priced into CPD which suggests limited upside. The expectation is that rates will be cut in December so to an extent, this is priced in. However, further cuts are certainly on the table and the economic response will be the determining factor. We think the Canadian economy still has plenty of progress to be made and future rate cuts would help CPD. Additionally, if corporations are able to effectively grow earnings, then the equity features of CPD’s holdings offer more upside potential than a bond ETF.

CPD has done well in 2024, up 19% due to the declining rate environment we have entered. CPD also offers a high yield at 5.25% so we see the potential in holding it in the short-to-midterm as it offers both income and a some growth upside.
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We're having a really good run since the US election. 

It's been interesting in terms of rotation. The first half of the year was dominated by big caps and tech. From about July until the election, we had a lot of choppiness and uncertainty. Since the election we've had another shift with the broader indices starting to go up, but the leadership has changed quite significantly.

The shift in leadership has seen some of the bigger names (like the Mag 7) start to slow down. Keep an eye on that. Tariffs are an issue. But the USD is a bigger factor; if it continues to go up, that can negatively impact multinationals regardless of whether they actually make something or not.

What's interesting about this year is what didn't happen. We didn't get a big correction in the summer, with August and September usually being weak and choppy. This year, the whole correction got compressed into about a week. Right at the beginning of August, we got a ton of volatility. And then it sorted itself out, and markets resumed their upward course.

Now we're in the time of year where markets are historically strong. So it's quite interesting going forward.

RSI is showing us primarily that the leadership we had before has changed. Even within technology, the first half of the year was dominated by semiconductors. Now they're coming off, and the sector has been dominated by software and communications.

Post-election, drug stocks have not done as well. Aerospace and defense have struggled through November. But we've seen good strength in financials, industrials, and consumer discretionary. A broadening out of the markets. We've also seen small- and mid-caps start to come back.

Intriguing. Fantastic run for much of this year. Nice uptrend recently broken, may be moving into a sideways trend. After a run, not unusual for gold to go into a consolidation range for a few months.

Starting to see a symmetrical triangle formation on the chart. We've had lower highs, but also higher lows -- struggling to get upside, but still has support on the downside. Recent support around $2600. $2500 is a huge round number so it's a psychological marker. $2400 is the previous breakout point. 

Using Fibonacci retracement you could get some kind of retracement in the 38% range, around $2600, and we're just kind of sitting there now. Looking at the chart for gold, you can see the breakout earlier this year at $2000, with the peak about $2800. That's a move of 800 points, so a 50% retracement is a move of 400 points which would put you back at $2400, which is a previous breakout point. 

Based on a mathematical equation. Helps you measure how big a correction or advancement could be. Most people tend to use it for corrections. The feeling is that there are 3 levels of note -- 38%, 50%, and 62%. These numbers come up all over the place in all kinds of relationships, not just those related to the stock market. For example, 62% is the relationship between miles and kilometres :)

If you take the height of the consolidation pattern (for example, resistance of $10 - support of $7 = $3), and add it up again, you get ~$13, at least to start. That's what we'd be looking for over the shorter term. 

Nothing wrong with that. You're better off averaging up on a stock that's been showing good performance, looking good technically, with good momentum or RSI. If a stock looked good before, and it still looks good, why not?

Better than the opposite, which is averaging down -- a mistake that a lot of investors tend to make. You could end up chasing it downward for quite some time.