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

Buying US stocks on margin. He's not a fan of this strategy, as it makes time your enemy. Time should be your friend. All the concerns we've talked about today will eventually be gone. If you have the time to stay invested, you'll participate in that growth. For example, BAC is one of the great American US institutions. If BAC has a bad day, the brokerage firm says put up more money or we're selling your BAC shares, and then you don't have the time to participate. Normally, higher interest rates have helped banks. But now capital markets are a much larger part of the business, so fluctuations are more than they were historically. You need time. He'd whittle that margin down before the brokerage firm does it for you.

Today, people are selling off everything. He expected a Santa Claus rally this year. Instead, people are locking in their losses before the next year. No one is chomping on the bit to get into stocks. Q1 2023 will likely be tough as this sell-off likely gains steam. What's the rush in buying?

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. The Bottom Line for High-Interest Savings ETFs. High-interest savings ETFs are a safe and effective method of attaining high yield in an investor’s portfolio. While they do not have as attractive rates as GICs do, their benefit of price stability, no minimum investment or lock-up period requirements, and reasonable management fees make them a great option for an investor seeking yield. Overall, we think the entrance of high-interest savings ETFs into the Canadian space is a net positive for an investor's portfolio and can help to minimize volatility and maximize yield.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Pros and Cons of Each Yield-Generating Product: 1) High-interest savings accounts through financial institutions can offer competitive sources of yield and offer an individual with price stability, although they often carry requirements for holding a minimum balance in the account or a minimum investment amount and may have monthly account fees. 2) REITs provide investors with modest yield, but they are highly sensitive to changes in interest rates and the price instability can at times offset any benefits from their yields. 3) Bonds have been a historically safe approach to earning yield while offering some level of price stability, although, their prices are negatively impacted by sudden changes in the interest rate, and this year is particularly evident of this dynamic. 4) High-interest savings ETFs, we feel, offer a good combination of all factors, providing an attractive yield with high price stability, and no minimum investment or lock-up periods.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Traditional Vehicles of Yield: For the past couple of decades, strong sources of yield have been few and far between, but the most common vehicles of yield for investors have been: 1) Bonds 2) GICs 3) Savings and High-Interest Savings Accounts 4) REITs. Each serves its own purpose and has its own place within a portfolio, but these represent common sources of yield in the world of investing. All the above-listed vehicles are dependent on interest rates. The higher the Central Bank raises its interest rate, the more attractive the yields are on bonds, GICs, high-interest savings accounts, and even REITs (although more indirectly). The surge in central bank interest rates over the past year has rippled through to yield-generating investment products and has created a resurgence in the want for yield and stability in a portfolio. This is where high-interest savings ETFs play a role. These are relatively new investment products that have filled a need for providing investors with liquidity, stability, attractive yield, and minimum limitations.

Markets and inflation. The Fed, BOC, and every other central bank have been very clear that inflation is a big issue for them and they have to deal with it. For him, that means they'll continue to raise rates well into 2023 until they can bring inflation down to an acceptable level. People have to realize it's a lagging indicator. Inflation has come down, but core inflation is still relatively high. Also, while the S&P PE has fallen to around 17x (historically it's 16x), earnings for 2023 have not come down that much. The big issue for that is if we're going into a slowing economy, corporate earnings will be lower and analysts have to bring down their numbers. Once that happens in a much more aggressive form, that will be the low in the stock market and it will give you the chance to buy.

The VIX. The VIX is a measure of people's stress in the market, and there's been a lot of complacency. The VIX closed last week at 22.6, which indicates people are very comfortable with the market. You need to see the VIX much higher before you can talk about a low in the stock market. When it does get high, people are stressed and don't want to be in stocks, so you can find a low in the market. You can't talk about a low when people are happy-go-lucky. In 2008 and 2020, the VIX went up to much higher levels. So if we're in a bear market, the VIX should be at a much higher level. Earnings expectations have to come down from the current 234, and when they do, there will be a good opportunity to buy the stock market. He doesn't think everything's priced in yet. Reality is that this is a great time to do your research on the companies you like. Amidst the volatility, there's opportunity.

Precious metals. He doesn't own any, as he's never liked them. Very hard to forecast where gold is going to go. Everyone talked about gold being a hedge against inflation, but it really hasn't done that well relative to where the inflation numbers are. These companies are difficult to own because they're based on the underlying commodity, you have to understand the company dynamics, not ESG-friendly, and there's often geopolitical risk. If you have to be in the space, best to own a gold index or ETF.

Canadian banks. Banking industry is in very good shape in this country. This is not 2008 or 2020. Great dividend yield, trading at reasonable book value. Trouble is that increases in net interest income are being offset by investment banking and such that are doing poorly. All these segments will come back. Longer term, will do well. Tend to over-reserve going into a difficult period, which is what they're doing now with the slowing economy and housing fears. When things turn out not as bad as they thought, the reserves come back into earnings. Lots of capital to increase dividends or buy back shares. Banks are about 33% of the TSX, so when people sell the index, they have to sell the banks. This creates volatility, especially in this bear market, and the share price can drop. Don't forget, bank shares had a great run already.

Healthcare stocks. The way the market is, owning healthcare is safer than owning other things. Very defensive. He owns JNJ and NVO, but any of these companies will be fine. Big issue is blockbuster drugs can make them look like growth companies. Look at pipeline, drugs coming off patent, and what is area of specialty?

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. The Importance of Cash in an Investment Portfolio. A diversified portfolio typically includes a cash component to it, and this cash holding provides an investor with liquidity and convenience. Traditional portfolio theory suggests that investors should carry some static percentage of their portfolio in cash to act as a diversifier against volatility in one’s portfolio, for liquidity purposes to add to one’s existing bond or equity positions, or fund new purchases. While cash in a savings account, bonds, GICs, and others, have usually offered lower yields than the returns that can be found in the stock market, the benefit that the liquidity and stability cash offers can sometimes outweigh the benefit from the higher returns that stocks offer.

It's perfectly fine to be in cash. After the bell, Nike will release earnings and maybe that will signal the future of earnings. We'll probably see the cascade in earnings.

Will Canadian banks raise dividends in 2023? 2023 will be challenging. Don't expect big increases in dividends next year. However, on average you get a 4.7x dividend, the PEs are cheap and the banks are always a good investment, perhaps at lower levels.

A top pick 1-year GIC. You can get 5%, perhaps more. Nobody is certain about the economy. If there's a recession in 2023, it'll likely be mild. Don't buy a GIC for all your portfolio, but good to buy for a TFSA or RRSP.