A Comment -- General Comments From an Expert (A Commentary)
COMMENT
The market looks irrational to retail investors as it see-saws. Markets are looking at a developing recession, which is increasing volatility. Yet, stocks are oversold. The US Fed will remain aggressive in hiking rates. If we see a wave of downward revisions and guidance this earnings seasons, it could warn central banks that we risk an overshoot in tightening.
COMMENT
Canadian banks They've seen a lot of pressure this year, including recessionary fears. But banks can now raise dividends; always been an attractive point for banks. Banks are well capitalized and the dividends are safe. He's been adding to his banks, preferring those exposed to the U.S. A real estate decline is a concern, but not right now.
COMMENT
Don't take the bait in buying as markets fall. Sure, everybody is negative and news is bad all around. There's a drastic decline in the savings rate, yet people are still buying houses. We don't know when the Fed will stop raising rates, but not soon. They will when wages, homes and food prices go down. Until then, all these rallies are head fakes. Stay the course and hold cash for better times.
COMMENT
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Don’t Hold Too Much Cash. The urge to hold cash right now is probably very high. With many stocks down 60 per cent this year, cash looks attractive, even after considering the loss of purchasing power from inflation. But you need to own something other than cash to maximize potential returns in a market recovery. Cash is paying close to five per cent (on some guaranteed investments certificates), but there are stocks that will double or triple when the market shifts to bull mode. Smart investors know to buy when everyone else is selling, and that is certainly the case today.
COMMENT
COMMENT
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Thoughts on the US dollar. We anticipate that the strength in the US dollar will eventually come to an end, as macroeconomic concerns subside, and the Federal Reserve nears its terminal interest rate. If the US dollar continues its surge higher, we expect the markets to continue to face headwinds as investors flee to safety in cash or money market funds. Alternatively, if we begin to see weakness in the US dollar relative to foreign currencies as a result of the Federal Reserve signaling it is near pausing rate hikes or the resolution in macroeconomic events, then we expect the markets to gain some support
COMMENT
Short-term pain from rising rates. We're feeling the pain based on having low rates. Inflation built, asset bubbles built, and we're now paying for that. People at home are feeling effects of higher grocery and gas prices. What we're going through now will, hopefully, solve that. We won't see a reversal to 0-2% interest rates, those were an anomaly. Normalized interest rates are mid-single digits, 4-6%. As a society, market, and economy, we'll get used to that. If the economy is operating in an efficient manner, inflation will be lower than that, and we should see that in the next 6-18 months.
COMMENT
Markets. The market is digesting the impact of interest rates, and it's doing it in quite an orderly fashion, even though it feels as though we're on a roller coaster. Market's at a fulcrum, it wants more information. Labour numbers tomorrow. If hot, Fed will continue to force rates higher. If they're weaker, and inflation comes off the boil in other areas, the Fed may pause, and the market would really like that. We're not sure exactly where we are for the next few weeks or months.
COMMENT
Bank of Canada warning of more rate increases. A piece of ammunition that doesn't cost anything. It's moral suasion. They want to make sure people are taking the BOC and Fed seriously. If they talk tough, but act dovish, they're working against their own agenda. The big risk is that they go too far, and put us in a deeper recession than we need to be. That's been the history, because the cost of going too far is less than the cost of not going far enough.
COMMENT
Loss of confidence in currency. In going too far, you might have a financial accident that could relate to currency. Not likely relating to the CAD or USD, but international currencies are at some risk. They have a lot of debt in US dollars, and that's costing them a lot of money as the USD strengthens. Bank of England did an about face, as they saw the risk of a financial accident.
COMMENT
Healthcare vs. consumer staples. Healthcare is a better defensive place to hide. He has a 50% overweight in healthcare. Healthcare represents about 14% in the S&P, while he has about 22% of his US large-cap portfolio allocated to it. Less expensive, and growing faster and better. As inflation rises, companies are under the gun, as costs have increased but they haven't raised prices and so margins are squeezed. Coming out of inflation, input costs drop, and so margins expand. Don't get fooled by that, it's a short-duration event.
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