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

Yes. We're already hearing from retailers, whether apparel or Home Depot, that they're seeing softer consumer demand. Consumers are more price conscious, putting off large projects. Those sectors are feeling that lagged impact now.

The question is how long do interest rates stay at these levels? It was encouraging yesterday that the BOC Governor acknowledged that maybe rates had gotten high enough. In Canada, GDP growth in Q2 was actually negative. Q3 numbers have not officially come out, but she doesn't think there's been much improvement since then.

We're seeing the impact of higher prices filtering through. Especially in the Canadian economy, we're much more interest sensitive in terms of our mortgage market.

She always allocates a portion of portfolios to income stocks like these. They've been hurt because they're interest sensitive. As rates go up, their stock prices come down and the yields go up. The dividends are very safe and should keep increasing.

But at some point, rates will stabilize. Hopefully next year some time, rates will start coming down, providing a tailwind for those stocks.

It's been a violent selloff. Started when Hezbollah said no regional incursion to the north of Israel, so risk premium evaporated, leading to a mass liquidation, and financial demand for oil collapsed. You had stop loss after stop loss being breached technically. 

All energy investors suffer from a type of PTSD, as they remember what happened in 2020, and the rise of shale in 2014. OPEC's delaying upcoming meeting generates fear that it doesn't have strong unity, the deal will collapse, and the world's going to be awash in oil again. That's not his perception.

Very minor issues in OPEC that need to be sorted before it comes out with a larger cut. Oil balances have been tight, but not as tight as expected. The reason is not demand, as that's up. He's been surprised by supply growth from US shale, Russia, and Iran.

He stands by his thesis for 2024, that shale production will be more modest. He didn't expect the White House to turn a blind eye to enforcing sanctions in Iran. All these extras have meant that while inventories are falling, they haven't fallen as much. Sentiment has taken a kick in the teeth. Need a catalyst to change this, and he thinks OPEC recognizes this heading into the meeting next week.

Any prospect for over $100 for oil is out the window for the next 1-2 years. But he thinks there's a strong floor for around $80, given that global inventories sit at multi-year lows. While we're in this trading band, that's not a bad thing. 

Though oil is down 4-5%, he has names that are barely down. There's already dislocation between valuation and price. Free cashflow being generated, even with the lower price and the foreign exchange, is still very real. The theme remains of strong balance sheets and free cashflow, with more of it being returned to shareholders.

He's not a technical guy. He's never met a rich technical analyst. He likes to buy misunderstood names. When the price of oil changes, how much does free cashflow go up? How do people's perceptions change? Those are the multi-bagger opportunities he hunts for.

A big theme next year will be that shale production is close to a peak now and will fall off. Next year's production will be half of this year's. People will realize that shale companies have an inventory problem -- they have less than people thought, and the quality is eroding. As people get more bullish on oil (not today, but it's going to happen), value placed on long-dated reserves will go up.

Outside of Saudi Arabia and Venezuela, Canada is blessed with the longest-dated reserves in the world. TMX is coming online Q1-ish of next year, so the era of super-high differentials will finally be over. These names will spew free cashflow, and we're going to get it all.

Based on the price action of recent days, the setup is for the S&P to hit 4,600, back to July's highs. The Nasdaq has already made a new high for the year. The Magnificent 7 has seen strong performance from Microsoft and Apple.

Inventories will build as demand weakens. China's refinery runs are down. Remember that oil stocks are not declining as much as the spot price of oil. He isn't worried about the meeting postponing. But Monday will see alot of options expiring, and they now need to be quickly unwound. Will Saudi Arabia push back against speculators?

Gold has bottomed. Gold works best during deflation and we're hearing that word now. He likes gold as well as silver now.

He's very bullish oil. The strategic petroleum reserve is very low and the US said it will fill it below $79 WTI, which is up from $72. This will drive demand and prices.

It's not his thing, but there's a lot of support for gold heading into year's end, because real interest rates are declining. 2013 and 2017-2018 saw good returns for gold. It's viewed as a hedge against geopolitical risk and inflation.

Driving the market to new highs near-term: interest rates are coming in, investors including himself are not taking gains including in the Magnificent 7. True, markets are overbought in the near-term, but he doesn't see a catalyst for a sell-off. Next year is a different story.

“Stocks go down faster than they go up, but go up more often than they go down.”

David Gardner is the co-founder of Motley Fool, an investment service that likes to stress the common-sense aspects of investing. Any investor knows that fear is a more powerful emotion than greed, and that stocks tend to plummet far faster than they rise. No one typically panic buys, but every so often, millions of investors panic sell. Yet, over time, stocks have been one of the great wealth creators.

Yes, markets have bad years. Sometimes, they have two bad years in a row. Three bad years in a row is very rare. In the other years, equities go up, maybe not dramatically, but often steadily. 

Anyone entering the market needs to know that they could immediately lose money. But they also need to know that if they stick with stocks long enough, they will likely end up ahead. Gardner’s quote nicely sums that up.
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After three months of loses, the market has definitely changed direction this month. The reason is that investors are confident that the US Fed and Bank of Canada have stopped raising interest rates. The Nasdaq continues to lead, driven by chatGPT a year ago kicking off. In Canada, he's picking his spots given this technical recession.

Open AI headlines very surprising. Will be interesting to see how impacts Microsoft(positively). Learning models and AI will be very important part of life in the coming decades. Question is how much investors should pay for future earnings in tech names. Fundamentals often disconnected from tech names. Impact of A.I. on day to day user cases also difficult to predict. Historically, markets trend positive in the final months of the year.  Believes market is over valued and due for a hard landing.