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

Inflation has already had an impact on debt. The US would have to pass larger spending bills, and that's just about impossible with the Congress they have. There are so many things going on in the background that are out of government control. They spent a ton of money just like everyone else during Covid. Debt to GDP in most countries is on the decline.

Strongly advises investors to avoid rate-reset preferreds. Reason: traded horribly when rates went down, and horribly when rates went up. Relatively illiquid. Not fixed income, not equities. Either buy fixed income, where you know what your return will be and the maturity date. Or buy equities and get the growth.

Whole rate reset world has not been great for investors for a number of years. He thinks the whole sector will have less issuance over time.

GOOG had some difficult numbers but, generally, the numbers seem to be good. We're waiting for Thursday, when META and a bunch of other names will come out. MSFT's numbers show that they were executing quite well over the quarter. 

The big thing is how do companies show how the talk about AI will drive revenue? That's difficult. It is slowly happening, as can be seen by MSFT's numbers. It will take time to implement AI into products and then benefit from that.

The other issue is that expectations have gotten very high for a lot of companies. Even though they're beating them, stocks are pulling back.

There's a target of 2% that we're supposed to get to. If you drop rates too quickly, you may get stuck in a situation where inflation stays higher and you may have to hike again, and central banks don't want to do that. People criticized them for not jumping to hike rates sooner, but the reason they didn't was they felt that US and Canadian economies were fragile.

Central banks can push down inflation faster later on if they need to, rather than starting to lower rates now. Market's pushing for 6 rates cuts, but waiting is better for the stock and bond markets and for the economy. If central banks around the world wait, we'll have a better economy down the road.

Canadian banks have underperformed for 2 years in a row, which is very strange. Last quarter, all the banks "kitchen sinked" everything, giving expectations that things were not going to be pleasant. But they're actually setting up to beat expectations over the next year.

Cost structure's a bit out of whack, and they all need to cut back. Very hard for a bank in Canada to lay off people, so it takes a long time to take down their labour force.

He doesn't own gold stocks. Gold exploration is expensive, so it's easier to take over a company. Environmentally unfriendly, often in bad parts of the world.

With the price of gold where it is, why aren't the stocks higher? Companies may have aspects to them that don't benefit them even when the price of gold goes up. You might be better off owning a mid-cap stock that's not as leveraged to gold. There's an argument to be made that, if you really believe in gold, you should just own a gold ETF.

He doesn't own any EM stocks or ETFs. You can still get a lot of diversification owning NA stocks. For example, 50% of MSFT revenue comes from international. You can be over-diversified, and you already get a lot of diversification from these big global companies.

If you are in EMs, do it through an ETF. You have to have a very long timeline for this. The companies tend to be smaller and much more volatile.

He does own international stocks, but they're a very small percentage of his portfolio.

Market Update:

The TSX index was up 3.5% for the month of December 2023, up 8.68% for the year 2023. This compares to the performance of the S&P 500 which was up 24.2% for the year; DJ Industrials up 13.7% and the Nasdaq  Index up 43.4%. Globally, 2023 was a strong year as hopes for interest rates to turn down in 2024 led to general price earnings ratio expansion as the year ran out. However, inflation rose to 3.4%Y/Y for December 2022 in Canada and the US inflation rate also ticked up to 3.2%. On the employment front, full time employment was sinking in the US and Canada. The high immigration rate in Canada softened the employment drop in Canada. That fact will also soften a drop in home prices, but support rising rental rates. Rate cuts are still expected in 2024, but perhaps at a slower rate than previously anticipated. With this background the following Table presents the high and low stock market performers in Canada in December 2023.
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He wasn't surprised with Powell nor the sell-off. People fool themselves into unjustified euphoria. Yes, in 2024, stocks can indeed go down. The risk is for the Fed to cut too quickly and then we get a hot inflation number. Instead, Powell is doing the right thing.

Last year, markets did very well because of tech, but the rest of the sectors were very mixed. A mixed year. 2024, we'll likely see the opposite, because the economy is weak. So, tech will not perform as strongly. Some names are left behind, so this is a great stockpicker's market. Profits will come under pressure this year.

Watching for US Treasury announcements this week on quarterly refinancing needs. Appears requirements will be less than originally planned for. Upcoming US Fed meeting will also be indicative of US economy. If US Fed starts to issue more bonds than expected, not a good sign for markets (need to raise capital is bad). Widely expected that US Fed will keep rates flat, and appears rate cuts are on the horizon. Reduction of US Fed balance sheet will also be interesting to watch. Upcoming earnings from big tech companies will be defining on direction of markets (could break momentum of markets). 

Educational Segment.

Best place to get growth in portfolio that is not tech oriented is ETF called PAVE. Offers investors an option to get infrastructure spending exposure. As globalization reduces, more spending will occur "at home" in North America. Bricks & mortar staple businesses also provide traditional cash flows. Not a cheap valuation, but would recommend buying on share price weakness. PAVE ETF also pays a nice dividend yield for defensive investors. 

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.