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

To see a Christmas rally, we need to see cooler CPI (consumer inflation) and the FED raising interest rates only 50 basis point and saying they will take some time to examine data before deciding their next move. Today's producer price index was higher/hotter than expected, which pressured markets. The Fed has to hike by 50 points. But CPI is more influential. However, we are seeing deflation in used cars (these prices have fallen) and gasoline keeps falling and showing no sign of rebounding, because Russia is flooding the market with crude oil to fund its war on Ukraine. Key will be Powell's comments next week.

Believes strength in market is the start of a new bull cycle. Volatile recovery as investors digest earnings etc. 3rd market rebound this year occurring right now (initiated by Fed pivot hopes). Added energy in Q4 in 2021 & recent pullback creating investment opportunities. Likes prospects for Canadian banks especially TD, BMO & RBC.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Investment Red Flag: Inventory or receivables rising faster than sales. Investors should always look at receivables and inventory levels in relation to sales when considering a company. Look for consistency: if sales rise 10 per cent, then a 10 per cent increase in inventory is OK, but a 25 per cent rise is not. Sure, the company might be building inventory for a future growth spurt. But just as likely — if not more likely — the company’s expectations for sales are wrong, and its inventory is building because customers are not buying as fast as expected. This can hurt two ways. Customers might have too much and thus back off making new sales orders for a period of time, resulting in weak future sales growth at the company you are investigating. Or, worse, you might see the company take a writedown as its inventory becomes obsolete and unsaleable. Similarly, one needs to watch receivables. If they are growing faster than sales, it could mean your company is offering favourable payment terms in order to secure more sales, or, much worse, it is having trouble collecting on customer invoices.

Bank of Canada move of 50 bps. No surprise yesterday, 50 was the sweet spot. They'll take their lead from what the Fed does. The US today saw relatively bullish news on unemployment, as the Fed wants unemployment to increase, and jobless claims did that. This leads him to believe that inflation has topped out and is coming down. Central banks recognize that, and if they haven't finished yet, they're going to finish pretty soon.

The Fed announcement next week. Probably half a point, maybe a quarter if they see the data. The big number that will affect them is the cost of rental housing in the US, which seem to be coming down quite sharply. If they're convinced that the unfilled jobs vs. the unemployed is moving in the right direction, they might go up only a quarter, which would be massively positive for markets.

When to get into oversold tech? Right now is fine. What happened with tech stocks was not so much earnings driven as sentiment driven. Huge multiple compression, people banking less on growth and willing to pay a much smaller price for that future growth. AMZN and GOOG are way oversold. MSFT, which is more of a utility than a tech stock, is somewhat oversold. AAPL less oversold. All are attractive at these prices.

Dividends for the oil and gas sector. For the mid-market like the PPLs and the KEYs and TRPs, where pricing is more stable and contracts are long term, the dividends are much safer. In the explorers and producers, they depend on the prices for the end product much more. They'll increase dividends when times are good and prices are high. But when prices fall, those dividends could become unsustainable. Investors understand that those are two different ends of the industry. One one hand you have your stable, utility-type pipelines, and on the other the more speculative producers that are price takers and not price makers.

CDRs explained. CDRs are Canadian Depository Receipts. For a long time in the US, if you wanted to buy European or Asian stocks, you did it with ADRs. Basically a trust that's set up. Now someone's done the same thing in Canada, so you don't have to deal with USD and the exchange. Doesn't change the tax treatment, as would happen in a mutual fund. It does relieve the burden of having to change the currency.

Are CDRs a good option for AMZN or AAPL? Sure. These stocks are so big and so liquid that it would work well for them. The sponsors of the CDRs would be very careful to use big, liquid names where the volume will be enough that you don't get an arbitrage situation where the CDR price is different than the underlying stock, because you don't want that.

Aerospace stocks. Not a sector he pays a lot of attention to. But we know that the big companies are being tapped to manufacture more because so much is ending up in Ukraine. US is running out of artillery shells, for example, because they're all being shipped overseas. Defense industry stocks might be an interesting place to look.

BOC 50 bps rate hike. Perhaps a little higher than people were expecting. Might be a signal that they're done, as we're already seeing many signs of slowing starting to take effect after one of the most aggressive rate hike cycles in memory.

Fed decision next week. They've already done enough, way too much. They might do one or two more. We're already seeing signs of pullback. Money supply has moderated greatly since the massive Covid stimulus. The PMI for both manufacturing and services is now below 50, which represents a contraction. CPI has peaked, and core CPI has probably peaked and is coming off summer highs. He hopes the heavy lifting is already done.

Possible recession? The million dollar question as to whether we'll get a hard or soft landing. Personal savings rates are now well below the 3% level, which is below historical averages. Now consumers are burdened with higher prices across the board, and that will affect us as we go through next year. It will be a faster contraction than many people are expecting.

Layoffs in tech sector. Not concerning, normal process for business models. They're uncertain about the future, even though they're seeing pretty good prospects as we head into 2023. So they're just making some defensive moves.