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

The question was on fixed income strategy. Five year laddered GIC's are good. Also in laddered portfolios they are buying coupon bonds with an average yield of 5 1/2% or more. An example would be 7 year investment grade bonds which are flexible since you can sell anytime. You can buy them at a discount so you are guaranteed capital appreciation if held to maturity.

The question was on oil and oil stocks. They started buying oil stocks three years ago and have had good returns. However, the oil market is manipulated and unpredictable so be careful. They have pared down their positions but there is still value in Canadian companies.

We're not as entwined with China's economy as we fear, as seen with the 1.5% sell-off today on civil unrest in China, triggered by their misguided zero-Covid policy. Look at oil. It's been declining because of the slowing Chinese economy, but he's been adding energy stocks. OPEC could announce another production cut, and domestic U.S. air travel could maintain oil demand. Cyber Monday and Black Friday show that the U.S. consumer remains strong....On Wednesday, Jay Powell will speak, but he expects him to be vague.

The Dow's outperforming the other indices at least through January The Dow is up 2% in the last 6 months, leaving the S&P and Nasdaq behind, because those two indices are weighed down by speculative stocks and tech names. Many Dow stocks have benefited from supply chain problems fading away. The insanely strong US dollar has pulled back from its highs, this increasing the profits of many Dow companies.

This was another question on Canadian banks. The outlook will depend on what they say this week and the guidance the individual banks give. For the previous quarter there were not really any signs of recession. If inflation is still growing then this will a problem for the banks. Regardless, they a great investment over the long term.

Christmas has come early for energy investors with recent selloff. World oil market is getting tighter (despite record record US SPR release and China pandemic lockdowns). Believes 2023 is setting up for higher energy prices. Fear of missing out on energy returns will force generalist investors back into the space. Reports from the WSJ on Saudi/OPEC increase in production not accurate. Is leaning towards companies with oil production over natural gas. Lack of supply, inability of super majors to grow and rising demand leading to higher growth in oil demand. Global oil inventories sitting at generational lows.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Lower Commissions are Bad for You. After launching in the United States, free stock trading has now started to expand in Canada. But are trading fees of $0 good for investors? Well, contradictory to our comment above about fees in general, we think free commissions are bad for investors. Zero commissions encourage trading, and trading can seriously hurt your long-term returns. Low-cost trading causes you to react rather than invest. You are more likely to sell on one piece of bad news, and more likely to take a 10-per-cent short-term profit rather than a 1,000-per-cent profit though longer-term compounding.

Effect of higher rates on corporate profits. Tricky environment. We've seen massive tightening very, very rapidly, which is going to impact the economy, and we haven't fully seen those effects yet. Lots of data is being thrown at us. The yield curve is very steeply inverted. Signals are suggesting that the economy 3-6 months out isn't as bright as some hope it will be. He's being cautious as the data trickles in to see what effects it has. So far, it hasn't had a massive impact. Lots of job openings, employment still very strong, consumer is in OK shape. It's taking a while for tightening to show up in the data.

Inverted yield curve. Short term rates are high relative to long rates. But it's inverted even short term vs. short term, so 12 months vs. 3 months. Lots of the yield curve indicators are inverted or close to it, which is usually a precursor to a recession of some kind. Bond market is screaming that we've tightened enough. He wants to see how that translates into the economy, earnings, and profit margins going forward.

Gold. Starting to pick away at some of the names in the gold space. In this environment the USD has been very strong, but it's backed off a bit and that's been positive for gold. As real yields start to come down, gold is looking attractive.

Fixed income. The fixed income market looks quite attractive now. A slowing economy is going to be a tailwind for bond prices as yields come lower on the middle side of the curve, maybe 5-10 year government bonds, which are looking very attractive.

Markets. Great 4th quarter rally, with S&P up about 15% from the October lows. It's a bit of a stealth rally, where no one really believes the market moving higher is real. If anything, people think it's a bear market rally. With inflation, which is the main worry, hitting an inflection point, it's allowing markets to look ahead and move higher on seeing a better macro picture going forward. Sees Fed and other central banks pause in 2023, and perhaps pivot later in the year. That's good for equities. Seasonality sees the fourth quarter typically strong for equity markets. Since 1950, there's never been a negative 12-month period following mid-term elections. Year 3 of the presidential cycle is the best, averaging a 16.8% return. 89% of the time, year 3 of the presidential cycle sees positive markets.

US Congress. Bit of a gridlock with Congress being split, so no real chance of extreme policy shifts. Equity markets like this sort of split in power.

Higher interest rates and insurers. Higher rates are helping them for sure. But they're also a bit more defensive within financial services. Financial services have been outperforming the S&P for the better part of this year.