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

Believes seizure of First Republic Bank by JP Morgan will create stability in US banking market.
Deposits leaving small banks are a result of US Fed policy of hiking interest rates.
Investors prefer money market funds at large banks paying ~5% yields (small banks cant compete).
Without slowing down the labor market - US Fed will not be able to tame inflation.

Dividend Investors Beware: With different characteristics compared to growth investing, income investors must be prepared to deal with adverse scenarios including reduced dividend payment, return of capital, and possible capital losses. A decreased dividend payment is still digestible if it is temporary or a small cut. How will income investors react if a company were to slash its dividend by more than 90% to ‘self-fund’ growth?  This is precisely the case at Sylogist. A company characterized for its strong cash flow profile, high recurring revenue, acquisitions, and high dividend yield (more than 8.5% on Oct 31, 2022) slashed dividends from $0.125 per share per quarter to $0.01 per share per quarter.

Believes energy sector good place to invest in. Strong fundamentals with supply shortage.
Excellent prospects for income oriented investors (high dividends).
Interest rate hikes have not affected portfolios too much.
Higher interest rates are required to tame inflation.
Consumers holding up with rate hikes, but expecting pain if rates continue to rise.

Structuring Asset Allocation. We hold a strong conviction that holding equity, in the long run, is the way to generate greater returns and build wealth whether you are a growth or income investor, so our asset allocations are tilted a bit more to the 'aggressive' side.  Overall, we are generally of the view that investors need more equity than they think in a world where pensions are not what they used to be, individuals are living longer and many big expenses are growing faster than wages are. The fact that investors can put their money in very safe blue-chip equities and realize a dividend yield comparable to most bond yields make it even less attractive to own bonds. 

He's seeing strength across the board in the tech space, particularly after 18 months of pretty weak results. This is turning the corner. MSFT cloud guidance was much stronger. AMZN traded up on that, reports later today, and he's expecting good news. There's been concern about cloud computing growth and the apocalypse in smaller tech companies, but mega-cap techs are showing that they're built differently. Corporate spending is still holding up in a strong economy. More of the general economy is moving toward technology rather than it being just in niche areas.

Exactly. The story of 2022 was all about inflation, and it's come down pretty significantly over the last 6-9 months. It will keep trending down, especially in the US. The housing portion of inflation has been very sticky, and we're seeing home prices decrease YOY, and rents are now decreasing. That will be a driver of inflation continuing to trend lower for the rest of 2023.

Housing prices are down YOY, but they're finding a bottom. No one wants to sell if prices are lower, especially in the US if a homeowner is locked into a 30-year mortgage at an attractive rate. Homebuilders are starting to see accelerating interest in their product. It's good for general economic activity if they start building more homes.

Can do the first draft of code, thereby saving lots of programming time. Another example is that it can review video for 5 km of sewer pipe looking for flaws, rather than a technician doing this. Reviewing radiology scans.

He owns TD and BMO, which have exposure to that market without the existential risk of the regional banks. FRC is definitely a name he wouldn't be stepping into. FRC could be gone by Friday or it could get a lifeline and triple from here, but it's a binary risk. There are lots of well-run regional banks, but if you don't have that sticky deposit base, when the money leaves you're done. 

In Canada and for the larger US banks, the deposit bases are strong and growing. That's what he wants.

When you buy a company, you know what you own. Whereas if you explore and develop yourself, there's always execution risk. To capitalize on this market for the next decade and get scale, it seems easier to buy.

Money inflows start with ETFs, then flow into senior producers like AEM, ABX, and NGT. If enough retail interest, money then flows to intermediates, juniors, and even exploration. As the cycle matures, exploration really starts to outperform, as that's the last flight of capital. 2022 was tough, so there's a bit of overhang. Looking for better things this year. 

$80 is probably a fundamental floor. Lots is predicated on OPEC being willing to create that floor. Question marks about the velocity of China reopening. Recession: when, how deep, how long? 

Companies are probably valued in the $65 range, so there's material upside in the right companies. The key is to stay defensive, own companies with dividends and clean balance sheets that are willing to return capital to shareholders.

They've all focused on cleaning up the balance sheet, and pivoting into return of capital. Crucial to maintain the balance between running a business with moderate growth and returning capital to shareholders so they can see the true value of the business they've created. 

They heard shareholders, after a 5-6 year span of growth at any cost, especially in the US. The new mantra has become the norm, and the stock prices have reacted. Executives used to be compensated on absolute growth, but now it's based on other criteria like return of capital and generating free cashflow.

Defined Benefit Versus Defined Contribution. If you are the owner of a pension asset, particularly a defined income stream, consider yourself lucky! A pension is one of your greatest financial assets. There are two types of company pension plans: Defined Benefit (DB) and Defined Contribution (DC). A DB pension means you receive a specific, known and periodic payout that is guaranteed by your employer regardless of how the pension investment performs. Your defined benefit amount depends on how much is paid into the plan and your years of service with that employer. The employer bears the investment risk and any ‘underfunded’ status. A DC pension is entirely dependent on investment performance. The employee typically directs the asset allocation via investment fund choices. There are no guarantees about what your payout will be when you either retire or leave that employer.
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