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

Likes Mexico for the idea of near-shoring back to the US. South Korea ETFs are a nice place to be, if you're OK with the volatility (things move very quickly). 

But he tends to focus on regions, not specific countries. His firm owns emerging market, equity, and international ETFs. They don't usually get too granular on specific countries, as they prefer to buy individual names rather than individual countries.

Selectively, you want to be in technology. Industrials -- given the manufacturing resurgence in the US, reshoring, data centre buildout, and creating a more powerful electrical grid. Certain, specific areas of healthcare. US financials are good value, too.

He's been getting a lot of questions about covered call strategies. The attraction of a very high yield has interested a lot of  investors. But you really need to understand your objectives as an investor. 

If you're looking particularly for income, and tax-efficient at that, covered call strategies can make sense. On the flipside, they tend to underperform the underlying securities in a rising market. You earn a premium from the options, but you get struck out as stock prices reach those option prices.

When markets are falling, covered calls can provide a bit of a buffer. They can give you a better return than the underlying securities. In a falling market, though, you probably want to be out of that security altogether.

So it really depends on the goal of the portfolio. For long-term growth, just buy a regular ETF with equity exposure. If you're looking for income in a taxable account, then you could consider covered call strategies.

Duration bonds are a great way to grow core safely. They haven't kept up with inflation though. For cash flow, long-duration bonds have been horrific for investors. But use covered calls--gives you equity exposure and create a 7-9% annual yield--if you seek cash.

A few factors are really contributing to inflation. The first is energy prices and what's going on with Iran and the Strait of Hormuz. The second thing is the AI infrastructure buildout in the US. Both those things are creating price spikes in certain commodities and pushing inflation up. 

This puts the US Fed in an awkward position. Recent employment numbers weren't as strong as anticipated. There's speculation in the market as to how hawkish the Fed will be. If you look at the Fed's stated goal of 2% inflation, they've been above that for more than 5 years. So there's some pressure on them and the new chairman to curtail that. 

The market's sitting on edge on whether rates will be held steady or be reduced. That translates into a lot of volatility.

The argument for lowering them is really tough, as that will stoke inflation. US unemployment for last month missed by a huge amount. If the trend of weakening employment continues, that makes the case for the potential to lower rates. Makes sense to hold off and wait and see, which is exactly what the Fed did.

Time will tell, but it is an awkward environment.

The US intervened in the yen currency market for the first time in 30 years, with the goal to keep a lid on long-term rates. The US central bank has a little more control over the shorter end of the yield curve, but less so on the longer end. The US 30-year yield is now above 5%, which is a key threshold. Not really a red flag, but more of an orange one to keep an eye on.

Lots of negativity surrounding the spend. What's unique about this buildout is that you're seeing some companies already start to monetize. You don't know the exact ROIC because they don't break it down by projects, but a company like GOOG has already started to monetize its AI investments.

It may not be a bubble; it may be a legitimate infrastructure buildout. Similar to what happened for rail infrastructure back in the day. It's really important to focus on companies that are monetizing AI so you have good insight into how they're going to get payback on their investment.

There are a whole bunch of companies with dual Canada-US listings. And lots of companies earn a whole bunch of money in the US, but you can buy them on the Canadian exchange. So you don't always have to shift your money, especially as the CAD is fairly weak right now.

Here's one idea. Take a look at your income names -- banks, utilities, pipelines. A lot of those tend to be fairly richly valued right now. This might be a good opportunity to reduce exposure to some of your income names and move into what's fairly inexpensive right now, and that's some of the growth names. You can access US companies within Canada, without the need to shift your money.

See his Top Picks for names that feed into that strategy.

In a balanced portfolio, there is an opportunity here. He tends to stay shorter on the curve. Bonds for utilities, pipelines, and financials have really attractive bond yields. A good time to lock in, especially in Canada because the odds of an interest rate cut are significantly higher over the short term.

Investors are climbing a wall of worry: the US-Iran war, and trade tensions with the US. Markets are hitting all-time highs though as earnings growth is delivering. Q2 earnings growth on the S&P rose 50% in a year, primarily driven by AI. The semis did very well in Q2, though a July pullback was healthy to broaden the rally. Consensus thinks EPS will grow over 30% this year and 15% next. Nobody is calling for a recession, which would cause a sharp pullback. Most importantly, if the economy  continues to grow, so will share prices. Canada has 2 quarters of negative GDP, but doesn't see a recession; things have rebounded since Q1. Many policies are spurring trade with other countries and Canada is building infrastructure, which all benefits the Canadian economy.

Going back 2 weeks ago, Chairman Warsh talked about a more laissez-faire approach to how the Fed is going to handle interest rates. That is, let's stop intervening in the markets and see what happens. Following that press conference, it would appear there's been a loss of confidence in the Fed's ability to manage inflation. They've been putting out small fires along the way, with Scott Bessent on the weekend talking about keeping the cost of the US deficit under control and interest rates down. It's all linked to inflation expectations.

When we look at what the market's pricing on inflation, the long-term outlooks are very benign. We have what's going on in the Middle East impacting oil prices -- spiking one day and down the next, war on/war off. It's causing a lot of anxiety. Equities don't care whatsoever about that, as they're high on earnings and AI. But at some point they might, and then we'll see multiple compression.

If we look at where long-term interest rates were coming out of the dot-com bubble, and before we got into the era of 0% Fed policy and negative interest rates all over the world, the US 30-year traded between a low of 4-4.25% and a high of around 6%. That's probably the trading range for 30-year yields, slightly less for 10-year yields, and we need to get used to it for decades to come. Unless there's some kind of revelation in the US Congress as to how to balance the budget ;)