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

TFSAs are a great vehicle. Put high-dividend Canadian payers outside a TFSA. Don't get speculative, though some risk is fine and don't be too conservative either. Buy strong growth companies.

Believes central banks raising interest rates was long over due. Expecting higher interest rates for longer. 50 basis point raise this week almost certain. Question is whether more rate increases are coming. Not sure whether a soft landing is possible. Rising interest rates makes sense, and real estate investors should have been prepared. Tailwinds from the past decade are in the rear view mirror (best of tech growth etc.). Thinks that inflation has peaked, but question is where it will settle (4 or 5%).

Educational Segment. Believes market is misinterpreting US FED policy, and thinks rates will remain higher for longer. Interest rates need to remain higher for longer in order to stabilize the economy. Market is pricing in aggressive interest rate easing as if recession is coming.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Investing Reg Flags To Watch For: Declining sales. As growth investors, we will hardly ever be that interested when a company is reporting lower sales year over year. But in an inflationary environment, this becomes even more of a potential red flag. If inflation is running at eight per cent, and your company is not increasing sales by at least that rate, it is moving backwards. We all know costs are rising, so a two per cent boost in sales really means profit margins are down at least six per cent. Watching this red flag can help you find more companies that potentially have pricing power. Of course, cyclical companies have widely variable revenue growth, since they are price takers (for example, commodity plays), so declining revenue is less useful as a red flag. But if you happen to find a tech, health-care, industrial, consumer or non-cyclical stock showing declining revenues, just skip it and look for something else.

Investors are waiting for the Fed announcements on Wednesday. There will one or more interest rate increases but fear of a recession is more on people's minds now. Also there is the question of what will happen in Europe where inflation is even more worrisome than here. There could be a disjoint between interest rate increases here and those in Europe. Next year will be challenging for global investors. It is a tough call.

Santa Claus rally The VIX will go down during this rally. After Thursday, there will be days of strong stock-buying.

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.