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

Investing Trends: The future of retail.

If retail wants to compete with the online landscape they need to do one of three things from our perspective:

1. Be lower cost (hard to beat online for this)
2. Be more convenient
3. Offer some sort of experience

Online wins on cost & convenience, so customers need an experience of some kind. Give people a reason to go to the store, to interact with others who have similar interests, share ideas and educate your customers or just plainly make a destination that is fun to be in and interact with. Apple get this and I think Indigo is starting to catch on as well.

Much ink has been spilled over the death of retail and a lot of stats show this to be coming true. The reality is that retail will always have a place in society, it will probably just need to look a lot different than it does today. The companies that can execute on this early or companies that can help make the physical shopping experience more personal and tailored whether it is through digital aids or not, will have a certain type of first mover advantage and will be the ones to watch.
Unlock Premium - Try 5i Free

If you go back a year ago, the world was coming to an end, it was disaster. Meanwhile, the S&P is up 22%. What the experts missed was the common sense part, which was that production was really constrained, and demand was far outstripping it. That's not the environment for a recession, and we're still in that. There are still shortages out there, but they're getting better. 

If there's an inventory-type recession, it will probably be 9-18 months from now, when production finally catches up to demand and we start to see excess ordering work itself through the system. Other than that, the day we declare a recession the market will take off, because we'll be in a recovery.

We've seen the boom come back in travel, and that's been pretty impressive. A lot of money has been recovered in that area. There have been flight delays, but travellers aren't being told they're not going to reach their destinations at all.

Banks around the world are being squeezed on loss provisions. BAC has been broke twice in his career, as has Citi. Canadian banks have chugged along, giving 6% dividend increases continuously. Whereas US banks are cyclical as heck; you can make, and lose, a lot of money. Right now, we're going up, so hold on, but remember to sell when you get to the top.

Yes. We're seeing price momentum continue to trend higher. Last time he was on, he was of the view that a rally would take us into late June or early July. He thinks the short-term rally phase is getting long in the tooth. Three different sentiment indicators are suggesting that there's likely to be a 1-2 month, potentially longer, corrective phase. 

His longer-term work says that we started a new 4-year economic cycle (or 3-5 year cyclical bull market) back in October 2022. That's still his view. He'll be using the correction over the next month or two to add exposure.

He'd agree that in the next 1.5-2 months, we're going to see a pretty decent correction of 3-7%. But his longer view remains that this is a new cyclical bull market, within the context of a secular bull market that's been in place since 2011, and which has upside out to 2030. 

If we are starting a new 4-year cycle, portfolio managers will rotate out of the defensive sectors, and this will be the trend for the next 3 years. This includes consumer staples, utilities, and telecoms (especially in Canada). These sectors are most at risk for being a source of funds.

Over the next couple of weeks, they're primed for at least a short-term bounce. We're going to see a rotation to defense over the next month or two.

Silver as a commodity is seeing higher highs and higher lows. Silver has more economic applications than gold, and it's responding positively. His work suggests taking out highs of $27, with next upside target around $30. Really likes the potential longer term, especially for a Santa Claus rally.

Beautiful and strong chart is up and to the right. This type of chart's telling you that the market likes the stock, and the company's doing everything right. These are the kinds of charts you want to be looking for as you hunt for names to put in your portfolio.

The volatility index is telling us right now that the market is definitely not pricing in fear. Spikes highlight previous cycle lows. Pandemic was a black swan event. The last spike was in 2022.

Very positive that the VIX is heading lower. It's telling us that there are fewer surprises on the horizon. Market hates uncertainty. It's in line with his longer-term work. There's upside out into 2025. He expects the VIX to trend lower over the course of next year, which is really positive for equity markets.

For commodity stocks, you always want to look at the underlying commodity, as that will be a big driver. Energy is a late-cycle play and will be in the penalty box, similar to 2019-20. Crude will be locked in a trading range of $60-85 until late 2024 or early 2025.

Energy stocks will be relative under-performers for the next 1.5-2 years. So if the TSX is up 10%, energy stocks might be up 8%. You really want to be long energy when the cycle is long in the tooth and everything is running on all cylinders. 

Has been under pressure, as the Fed is nearing the end of rate hiking. His view is that the US dollar will be in a sideways trading range, same as rates and same as crude, for the next 1.5-2 years. With that headwind lifting, it will be positive for commodities.

Investing Lessons: Make mistakes when you are young with less money to lose.

If you are going to make a mistake, in almost all cases it is probably better to make them young. With investing, you have more time to bounce back from a mistake but perhaps more importantly, the dollar value with which a mistake is being made is going to be far lower. A mistake at a young age is going to be far less impactful than at a later age and be assured, mistakes will be made whether you are active or passively investing.

As a 20-something that retires 40 years later (hopefully), you are probably not going to look back at that initial $10,000 you (maybe) lost in the market and view that as the big difference maker in your retirement. However, if that experience turned out well and led to added financial security, you will probably view it as one of the most important financial decisions you ever made.

The bottom line is that when you are younger, you are able to take "riskier" investments. As you approach middle-age, caution should warranted when picking stocks.
Unlock Premium - Try 5i Free

It's been a bull market since last fall when inflation peaked. The indices hit new highs today, so what could derail this rally? Inflation, if it flares up again. Stocks, like tech megacaps, keep rising based on valuation expansion--investor perception--rather the preferred higher earnings. Hot housing numbers, for example, could slay this rally. Also, the Fed raising interest rates too high and a frothy market could end the rally. Other threats: If China invades Taiwan, though it probably won't happen because it could trigger WWIII; a Ukraine war stalemate (he hopes the next coup attempt against Putin succeeds); a flood of IPPs; a recession though he doesn't see signs of that yet with these strong earnings; the end of short covering; another bank run like last March; disappointing earnings. Bottom line: there's still enough cash sitting on the sideline to extend this bull market.