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

Case for Owning Equities Over the Long Term: 

This might make the prophets of doom quiver a bit. We ran a Bloomberg screen this week, using Jan. 9’s closing market prices, on every stock in North America. The market at that time had been open for a grand total of six trading days, yet we found 21 stocks that were up more than 20 per cent this year, ranging from a high of 106 per cent for Athena Bitcoin Global to 20.6 per cent for Structure Therapeutics Inc. Since we are on the topic of pie-in-the-sky news, how about annualizing those returns? Wow, that would be something.

For our screen, we only used companies with a market capitalization of more than $100 million. The two companies noted above are more than $1 billion each. If we take off our market cap restriction, we get even more early winners.
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Garner predicts a surprising but sharp uptick in grain prices though agriculture has been hated. Tech has made farmers more efficient. New production came online after the grain shortage following Russia's initial invasion of Ukraine. But demand from China has softened. However, the bears/pessimists have sold by now until we're now seeing a floor/bottom. Garner predicts corn rally to $5.50. Don't buy wheat now, only on dips. He expects wheat to rally with corn. Wheat's chart shows an inverse head-and-shoulders, so wheat is pointing up and could rebound to the neckline of $6.60; a breakout could touch $7.60. Soybeans could see short-term weakness, but a breakout past $13 could see the price reach $14, and can bottom at $11-11.80.

Historically it is a good sign that U.S. markets keep hitting record highs after 18 months of not making new highs. Also we are in an election year after a negative mid-term (presidential) market. This is good too, historically. There has been 5 new net term highs in January which predicts well for the rest of the year. A number of global markets have woken up after 15 years, including Japan after 30 years. There is a substantial improvement of the breadth of the market and in putting new money to work. Along these lines there could be a fair bit of money coming back into Canadian stocks. Also there are a lot of Canadian companies not just focused on the Canadian domestic economy, especially in industrials. Latin America and parts of Asia are interesting - not just the U.S. U.S. earnings are improving after a contraction - could be up 15% by the 4th quarter. There are corporations and individuals with high cash rates.

The question was on ballooning U.S. debt and the U.S. dollar. He owns no U.S. debt or anything that has a lot of debt. He owns companies with excess cash. He would sell the U.S. dollar for other currencies including Canadian.

Lots of chatter in the markets about high valuations. Depending on investors outlook - will affect investing strategy. Small cap stocks appear to be valued much better. Would advise investors to diversify in order to spread out risk. 

Reasons to Own Stocks For the Long Term: How about a one-day stock market return of 14.1%?

We are not talking about a single company here, but about an entire market moving up 14 per cent in a single trading day. Sounds like a fever dream of an investor on margin, but it can happen. Indeed, it happened on Jan. 3, 2001, after the United States Federal Reserve surprisingly cut interest rates to fend off a recession. Tech stocks soared like they never had before. I was a (younger) portfolio manager at the time. It was a very fun day.

Sure, the best market days come during troubled times, and the top 10 Nasdaq moves (all more than 7.8 per cent single-day moves) were all during the COVID-19 pandemic or in recessionary times. But you have to own stocks to get those moves.

We can hear you say, “But that’s the Nasdaq market where stocks are always extra volatile. What about the Dow Jones industrial average?” Well, in March 1933, it rose 15.3 per cent in a single day. That was in the middle of the Great Depression, but it is still the largest upward move on record.
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Yes, but unduly confident. We saw GDP numbers from the US yesterday, and they were more than 50% higher than expectations. Earnings are still robust, and stock markets are at record highs. The Fed may have tamed inflation, but the next logical step isn't that we're going back to 0% interest rates. In this environment, it just ain't gonna happen.

Either the market's going to be disappointed, or it will come to accept the rates as they are. This is something that's closer to normal where people have to pay to borrow money, rather than what's been going on the better part of 20 years.

Yes you have 5%, give or take, on CDs and GICs, so they're a viable alternative to the stock market. Why do I need the stock market if I can get 5% from a GIC? The same sort of issue happened 40 years ago when interest rates went up precipitously to 20%, so people put money into Canada Savings Bonds that reset every year. 

There are 2 options. If you really believe interest rates are coming back down again, buy longer bonds. But with an inverted yield curve, where longer-term rates still lower than shorter-term rates, others are choosing GICs. 

If interest rates are coming down, you can ignore both of them and just own the stock market. Whether interest rates go up or down, companies with good strong earnings are in a position to raise their earnings and dividends. So you're better off in the stock market than in either bonds or bank deposits.

The environmental, energy-conscious people tend to dismiss the nuclear power option, because it's nuclear. It has really the only possibility of providing sustainable, cheaper, renewable power for a long time. It's dependable. He likes the sector for 2024.

Mid-cap energy stocks have been strong, even with reduced fund flows from pension and ESG funds. WCP and ARX will continue to do well.

Never sell just for tax reasons. Whenever he's done this, it's been a mistake. Instead, ask yourself if your thesis still holds for owning the stock? If yes, hold on. If not, let it go.

Yes, very well. But there's a lot going on with so many new products and services coming out, especially out of the AI revolution. New products on the hardware side with chips and data going into the data centres. Now the applications are going to come into play, with processing and interpretation and so on. 

Vendors are making a heck of a lot of money, centering around generative AI. But you'll see, this year, the end users are going to make some hay out of this too. It's going to make corporations faster and more efficient. 

Training in the new ways of AI is taking some time. Productivity does take a while to emerge, but you can see from the vendor side, especially from the chips, that they're just making a lot of money. Not only are they selling a lot, but the margins are enormous.

Take, for example, NVDA. Gross margin on the superchips is 75%. 

The new thing is packaging the GPUs together with the CPUs. That allows the data processing to move faster, and the interpretation to be delivered very, very quickly.

Graphics processing unit. With NVDA 8 years ago, GPUs were huge in the gaming industry. With a lot of the crackdown, especially in China, they took a back seat. But then cryptocurrencies came along, and they had to use the GPUs. Now it's given new life to generative AI, because it requires GPUs.

The likes of NVDA, INTC, and AMD have come out with packaging combining CPUs with GPUs, making the processing and the interpretation a lot quicker.