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

He uses fixed income as a way to manage risk. He's sticking to the short end of the curve (4.5-5 years max). He doesn't want to buy a long-duration bond and get into a volatility situation, where the component of the portfolio that's supposed to be the stabilizer gets too volatile.

Likes the ladder approach. He buys actual bonds; when that bond matures in 3 years, you know you're going to get your par investment back. The issue you get into with the short-term ETFs is that you never actually get to the maturity date, as the duration is maintained at the 3 year (for example) timeframe. If things go awry, he likes the thought of just holding his bond and getting his $$ back in 3 years.

He doesn't own any of the pure-play oil producers right now (though he does own TOU). The reason is the volatility we're seeing. His team plays energy these days by owning ENB, and some of the smaller midstream companies like PPL and GEI. He likes their stability. 

ETFs are a decent way to play the sector. You get both liquidity and diversification. Look at the MER and make sure you're not paying too much. Good providers are iShares, Global X, and BMO -- go to their websites and look at the suite of offerings. Many of them just passively buy the index.

He owns a little bit, high-quality names plus 1 aspiration company, only 3-5% total. More than 50% of returns for the TSX last year was driven by gold (and, to a certain extent, base metals). He'd put on a small position, and an ETF is the way to do it. Doesn't think central banks are finished buying.

If the Fed raises rates, there might be better options (such as yield) than buying gold. So gold's checked back. 

This is typically the time of year markets get really soft, usually first week of August and through September. Up to now, breadth has been improving and markets have been pretty buoyant as they've been driven by incredible earnings. All in spite of trade uncertainty, inflation, and geopolitical tensions.

However, when you have oil going up $6 in a day as it is today, that's a wrecking ball that's going to upset a lot of things. The yields on the US 10-year were already pretty high, and we've seen them spike again today. It'll be a tough tape for stocks on a day like today.

He's bullish on markets till the end of the year. Amongst the earnings cycle right now, the market's having second thoughts. We're going into the typical August/September swoon. You'll want to buy this dip, and he thinks markets will be higher at the end of the year.

The impact on stocks is key, because bonds are competing assets for stocks. If, all of a sudden, someone can get a reasonable return on a 10-year treasury (right now it's 4.7%), why bother taking the risk on stocks? That's point #1.

Point #2 is that everyone has a balance sheet and everyone borrows to grow earnings. Higher rates can really cramp margins and make everything more expensive. If we have higher oil for longer, it's going to have an effect.

Great question. If we're going into an ultimate bear market, then you want to be cautious. But if it's just another pullback, with earnings growth that continues really robust, you don't want to miss that -- you want to add when there's fear. Typically you have this weakness anyway heading into August and September. There's also uncertainty about the Fed decision next week.

We have all these uncertainties, valuations that aren't cheap, and a lot of expectations going into these earnings. Earnings have been really good, with tons of capex spending. There's a lot of punishment if a stock is perceived to miss.

The bulls will say that all factors that were in place for the runup are still in place. That's where we were until February. Since then, the USD has strengthened and the Fed's become more hawkish in trying to anchor long bonds down. That's what's caused the decline in the price of gold.

Now trading pretty soberly on price to NAV. If you believe that the USD is eventually going to put in a high here and gold will start to assert itself (and that's the better view), then you can buy gold stocks here. Gold stocks can be fickle. Upcoming quarter may see margins pinched a bit due to higher costs, but that's already reflected in the price.

Gold is great. But it works for 5 years, and then it doesn't work for 20. Tough asset to own, not like copper which is all about supply/demand.

AGI and AEM look pretty good. If you don't want those, you can buy the XGD ETF, or GDX and GDXJ in the US.

Good question, which no one can really answer. The future is really unknown here. Action in the Red Sea. Action in the Strait of Hormuz. How many times have we seen the price of oil spike up, then spike down? If things go really badly, this conflict is prolonged, and oil can't get through those two areas, then we're looking at a higher oil price. That will affect the economy and stock prices.

If the conflict ebbs and flows, as we've seen over the last few months, then oil prices won't get that high.

If you have a more sluggish economy, that won't be good. Traffic has to move in both US and Canada. He's an optimist :)  A lot of this is typical jockeying. Deals will get done. The sun will come out tomorrow.

In general, it's a bit of a cautionary note for the market overall. All this fighting is good for oil prices, which is good for the companies that he covers. Higher prices = higher revenues and earnings. So it's very positive there.

But overall, investors have to be cautious for a few reasons. Chip stocks have come under pressure. The Shiller PE is back up near historic highs. And the 10-year government bond yield is just over 4.6% (~5% is where people in the know start to get very concerned about ability of US government to meet its obligations). There are enough things there to worry about.

The defense for that is to pick inexpensive companies that are trading at a discount to peers. Look for ones with identifiable catalysts.

It's a little more vulnerable. The worry is that it'll sell off if there's a selloff in the US markets. We could, potentially, revisit the time between 2000-2010 when commodities did really well but US markets did poorly. 

Time to be a bit cautious, perhaps raise a bit of cash. Be selective in terms of what you choose. Realize that it's been going great for a long time, but that doesn't mean it'll be extrapolated out to the future.

Commodities could do very well if the status quo holds. If the AI balloon continues to stay inflated, that's positive. Uncertainty in the Middle East will mean higher oil/gas prices, especially in Europe. That's all positive for the stocks he covers.