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

The market ran up into Q2, was soft in the summer, with some fairly significant give back in September. If you trimmed winners, you're sitting on cash. That was the right thing to do.

We're starting to see a real plethora of opportunities whether it's income, growth, value, or geography. 

Within the sector, he'd favour the insurers because they definitely benefit from rising rates. Be wary of the banks, even though we haven't seen a lot of carnage in terms of loans and bankruptcies. Banks will benefit from rising interest rates. We have world-class banks in Canada, and he owns RY and  TD.

Because of the structural differences in Canadian and US banks, in this environment he'd actually favour banks that have balance sheet risk. Once interest rates go up, you get slowing transactional volume, and that's not good for US banks. Equally so, when you get a recession, and the floor's in, US banks offer significant upside relative to Canadian banks.

There are other parts of the world you can look at as well.

He spoke to a large European multinational this week about the state of the global economy. The response was that Europe's in recession and not coming out anytime soon. US chemicals are in a recession, and possibly energy. Wait to see if the US is going to go through a recession. China is the closest to coming out.

If China comes back online meaningfully, base metals will move. Copper is giving you an indication that the economy's going to be weak.

Thinking about the global economy, you have to figure out where the opportunities lie and where you want to stay away from. If you're thinking about a 3-5 year investment the way he is, you want to buy names when they're weak in anticipation of big cyclical moves. For example, last year BHP moved from $48 to $70 in the space of 5 weeks, and that's the kind of move you can get in commodities.

Buy cheaply, trim them at the top, add at the bottom.

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.