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

Trimming energy holdings on strength, and now seeing weakness start to play out. Over 2-3 years, you'll get nice returns, but if we do get a recession, we'll see some weakness in demand.

Interest-rate sensitives have all been hit, but he thinks interest rates are probably close to peak, and those will be opportunities from here.

We're getting closer to a Buy signal for Canadian banks, a lot of fear is already priced in. Better bank environment 6-12 months from now. He'd be looking to pick up some banks, given they're trading at a rarely seen below 10x.

The insurers have held in fairly well, so he'd be looking to buy banks over insurance at this point.

Tax Loss Selling:

This strategy can be accomplished by simply selling a temporary losing name in a non-registered account which could then be used to offset the net capital gains tax investors have on their investments. The unused amount of capital losses can be used from up to three years in the past or carried forward indefinitely.

After 30 days of the sale, investors can reinvest back in the same companies if they continue to believe in the companies’ fundamentals. At the end of the day, even the best compounders can have bad years. Over the long term, what matters is the company’s competitive positions and growth stories, investors need to evaluate the companies’ fundamentals, not necessarily only the share price.
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Believes economic retraction required before economy is corrected. Watching US Treasury market very closely. Rising bond yields causing tightening of economy. Recent pause in interest rate hikes will put less stress on markets. Expecting markets to struggle again as recent rally wont last. Massive US Federal debt levels need to reduce. Anticipating earnings next week from companies like NIVIDIA, Walmart & Hope Depot - will be good bell weather on the economy. 

Expecting an economic hard landing as business cycle progresses. Economic indicators pointing towards a recession. When 3 month unemployment rate rises above 12 month average - economic recession guaranteed. Yield curve also pointing towards recession. Not expecting new highs in stock market. Investors should be cautious. Defensive strategy warranted. 

Reasons for this rally's staying power: 1) improved outlook at the Fed given economic data showing, 2) positive treasury issuance (the bond bears have become pigs, greedy), 3) more immigration contributing to lower wage inflation and stopping the labour pool from shrinking, and 4) more upbeat commentary about China's economy (based on reports from Apple, Starbucks and others recently). Also, earnings season shows that tech performed overall well and was not a disaster.

October Market Mover: The North West Company Inc.

The best performer was North West company (NWC) whose stock was up 12.16% on the month, down 3.82% YTD and up 6.81% over the past year. The stock hit a near term low on September 7th , 2023 of $29.81 from which it rose precipitously to $34.65 on September 13th  about where it closed for the period. 

It is a leading retailer to rural and developing small population communities in northern Canada, rural Alaska, the South Pacific and the Caribbean. It started in 1987 when the Company's predecessor purchased 178 stores comprising the Northern Stores Division of the Hudson’s Bay Company. Its stores offer a broad range of products and services with an emphasis on food and a compelling value offer of being the best local shopping choice for everyday household and lifestyle needs.

The announcement on September 12t ,2023 of 2nd quarter results was the apparent trigger to this stock price jump. Sales at $618 were up 6.8% over the prior year  comparable period; Gross profit was up 11.1%; adjusted EBITDA at $83.3 million was up 14.7%; net earnings at $38 million up 17.5%; diluted eps were $0.76 compared to $0.64 in the prior period.

Near term operations will continue to be influenced by inflationary cost pressures and wild fires. Over the longer term, Management believes the outlook is favourable due to impact of Government transfer payments and higher infrastructure spending in indigenous communities.
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The Fed has a poor track record when it comes to the accuracy of their predictions on interest rates especially in 2020 and 2021. You can't really count on them when making investment decisions. It is very difficult to make these decisions based on the macro environment. A quote from Ben Bernanke after retirement goes something like this: Sometimes monetary policy is 98% talk and 2% action. Also the guest felt that the ability to shape market expectations of future policy through public statements is one of the most powerful tools the Fed has.

The caller asked about his choice for one of the Canadian pipelines: Enbridge, Pembina, TC Energy and Keyera. He owns the first three and if buying now would choose TC Energy although it has had some issues. It has come down the most of the pipelines and has the most insider buying. It has a 7.8% dividend so even with just a $1 increase in the stock price you would have a total yield of 10% over the next year.

The question was on Canadian banks. They are all down and trading at 9X this coming year's earnings which are somewhat compressed. Therefore they are at a good valuation. CIBC has the second highest dividend yield of 6.7% but it has more exposure to commercial real estate especially in the U.S. as well as greater exposure to the Canadian mortgage market. The banks in general will have to deal with a few hundred billion dollars in mortgages coming up for renewal in the next couple of years.

The rally last week was a big move, but we were pretty oversold. September and October were miserable, but we've seen this before where everybody is down, then we get a surprise bounce. A lot of last week was probably short covering. The tailwind we needed was a break in rates and that's what we got last week. The markets expects a traditional Q4 rally. The US is seeing the rally continue, but Canada is a different story where the cyclicals are struggling, which is logical given the economic outlook. The economy is heading to a recession and Canada will happen before the US. Some of the bad news is already built into stocks like CargoJet. Also, he feels that rates have peaked and rates have been overdone. SPending has lasted longer than expected given the savings from Covid, but that savings is being depleted. There are headwinds out there and a time for caution. He's cautious, neutral.

Has been lightening his bank stocks--where's the good news? Is out of all US banks, given their unrealized loss in US treasuries on their balance sheets.

Isn't much more upside from here. The S&P will top at 4,400-4,500. Doesn't see earnings rising to push stocks higher. We will be stuck and rangebound for a while. Stops are popping this week only because yields are falling and the market was wildly oversold.

Spectacular dividends available in Canadian blue chip stocks. Telco & energy infrastructure very attractive dividend yields. Question is whether to invest in industry, or pick a safe Government bond paying 5-6%. Bargains available in energy infrastructure and energy in general. Not sure whether Canadian banks have reached bottom on share prices. Higher interest rates put pressure on Canadian banking and justifies investor fears. 

Market Update:

The US GDP accelerated in the third quarter, growing at the fastest pace in two years, with a 4.9% annualized rate compared to the 4.5% expected, fueled by a big burst of consumer spending and defied expectations of a slowdown. The Bank of Canada held interest rates unchanged at 5%, indicating the economy is not overheated anymore, but left the door open for more rate hikes if necessary. The Canadian dollar was 72.10 cents USD. The U.S. S&P500 ended the week down 1.8%, while the TSX was down 1.5%.

Most sectors ended the week in red. Technology gave up 4.5%, while energy slid 2.7%. Materials edged lower by 2.4%, while industrials slipped 2.0%. Real estate dropped by 1.5% while consumer discretionary declined by 1.1%. Consumer discretionary ended the week slightly down 0.3%. The most heavily traded shares by volume were Corus Entertainment, Baytex Energy, and Dye & Durham.
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