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

For example, take a company that's historically traded at a 4% dividend yield, and it's trading at 8%. Longer term, unless there's something fundamentally, structurally amiss, dividends have to go back to 4%. And so that's an opportunity. A dividend compression from 8% to 4% would drive 100% capital gain.

Definitely something investors should be paying a lot of attention to right now.

If you're having trouble selling your shares, you should look at the nature of the shares you own. Typically when a company's stock falls significantly, it enters a halt period when you can't sell the shares. When a share price is falling dramatically, it's probably time to sell. If you can't sell shares directly, you might try selling via the options market. 

You might need to investigate further as to why your order won't go through. In the case of LAC earlier this week, trading was temporarily halted while the company restructured and its share structure was adjusted.

From the sub-5% era, everyone's now facing significant interest rate increases in terms of cost of capital. The surety of locking up your capital for longer periods of time is going to diminish the impact of higher interest rate spikes. Any government bonds are guaranteed, so that's fine if that's what you want to do.

But locking up your money for a long time is going to limit your ability to participate in any of the inflation trades. A portion of your portfolio makes sense. Be aware of putting your money into money markets, because if the recession happens and interest rates fall, we're going to see bond returns lower and that will impact you as well.

Need a mix of income and growth. Income from the likes of telecoms, utilities, and pipelines lets him re-invest in high-growth names. It provides balance and stability on the downside.

This has been a very difficult selloff. You could have predicted seasonality with a typical September and October. But why this erosion and why so fast? Earlier this week, the TSX gapped down 250 points and everything was falling everywhere. 

More than anything, he thinks it's the speed that bond yields have moved up. For the good part of last year, people were buying the recession narrative, and the front end of the curve was higher than anything else. But then when people started to give up on the recession and started to see higher growth, yields started to push higher on the 10- and 30-year, which is actually somewhat more positive. This has caused a lot of marginal buyers to say why should I buy a 7-8% dividend stock, when I can get almost 6% on a GIC?

That's the head scratcher. We were supposed to have recession fears being a better environment for stocks. But yields pushed up this dramatically make people wonder if the Fed is going to go harder, or will it be higher for longer, and we're going to tip over?

The other reason is probably more technical. A lot of bond issuance is going to be happening over the next couple of months. So this is the market's way of pricing it in.

It doesn't change the fact that we're probably still in a bull market. But if he had to take a position, he'd say that much of the damage in the market has already happened and there are a lot of really nice buying opportunities. 

We either need that, or for yields to top out. The bullish camp has been predicated on the job market still being good, the economy hanging in and, most importantly, earnings expectations are up for Q4 and pretty rosy for 2024.

This reporting season will be very important for what companies say and that could put a stop to this market erosion. He's optimistic that it will.

Funding costs have gone up. OSFI capital ratios have gone up. Revenue growth has slowed, bigger emphasis on cost control. Great stocks to hold, great wealth builders over time. But now's not the right time to step in.

He's all about being efficient. Score as many points as you can with the lowest risk possible. Sometimes a tech stock is the darling of the 7, and sometimes you don't want to own any of the 7. Sometimes there's more downside than upside, even though it's a great long-term asset.

An ETF is a tool to use to make money and spread the risk around. That's when it works.

It's rates, rates, rates. If they go up, Tesla and utilities will go up, those most-beaten down will move up, though not parabolically. The 10-year will bump along between 4.25-4.8%. Today is an old-fashioned bounce.

We could be in a recession now. The consumer is weakening and gas demand is at a 25-year low. Renewable energy had gotten a lift from the IRA, but is imploding now. 

He expects earnings this month to be strong. Over the last 40 years, the S&P is up 4.6% in Q4, and 81% of the time the S&P is up.

What is Keynesian Economics and When Did it Become Popularized?

When we think of the current economic structure and principles that we use today, most of them are using Keynesian economics. Prior to 1946, Classical economic theory dominated the principles followed by market participants, and it wasn’t until the Great Depression in 1929 that political leaders sought out new theories to assist the economy's recovery.

Classical theory was rooted in the idea of supply, and more specifically that following a recession the economy would balance itself out, as businesses would continue to create goods and those goods would be bought by individuals. When the Great Depression hit in 1929, it lasted for 10 years, and it was devastating to the US stock market, GDP, and employment. Demand for goods was so low that economists were unsure of how to rebuild the economy since traditional theories relied on demand being readily available to soak up excess supply. John Maynard Keynes developed the Keynesian economic model, which was rooted in the idea of aggregate demand. Keynes proposed that in times of economic recession, the government should begin spending money on infrastructure, tax cuts, and other forms of spending to force demand in the economy and restore a balance between supply and demand. This is what brought the world out of the Great Depression in roughly 1939 – the government began increasing expenditures and introducing programs that would bring back full employment.
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Despite today's sharp sell-off, he feels that Q4 will be positive. Happening now is some tax-loss selling. Also, now there's a short-term fixed-income opportunity of 5-6% in GICs and bond ETFs, but there's little reward in holding these for the long term of 5-more years and stocks eventually rebound--and he expects. Remember that stocks can raise their dividends and bonds cannot. October could be bumpy but Q4 will be strong. The next move on interest rates will be down. It's immaterial if there's one more rate increase, likely in November and December, because rates will then hold. He likes energy, financials and industrials, where the selling is overdone and the fundamentals are very good. You can get a 6-7% divvy on a Canadian bank and he can't remember when that last happened. Banks will feel some turbulence over the mortgage market, but they can make more money under high interest rates than low.

Avoid office REITs, because people are not returning to the office, at least not yet. Industrial REITs are faring better and are worth a look. Housing REITs: the government is doing what they can to encourage building during this huge housing shortage, but ramping up will take time, especially when interest rates are high. Also, there's an attitude to place rent controls on properties, which is another obstacle. Be very cautious with REITs.