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

Market and economy are not always closely correlated. Often when a recession is looming and the news is negative, people expect that stocks won't do well because corporate earnings will fall. Reality is that stock markets often do well partway into a recession. We have a positive jobs market, and we're getting to the end of the interest rate rising cycle that's putting so much pressure on markets. It appears that inflation is actually peaking, and we expect it to do so in most of the world later this year. This will set the stage for a more positive outlook. War in Ukraine is not going to go on forever. The West is not going to continue to pour billions into the effort, and Germany's not going to let itself freeze over the winter. Over the next 12-18 months, the world's going to look very different.

Ignore the gloomy prognostications, and take advantage of opportunities? Greatest opportunity in banking. Global bank stocks have been hammered. Canadian banks are down substantially, but much less than global banks. Phenomenal opportunity in the best of the best, both in the US and in Canada. Dividends are safe, banks are in outstanding financial shape, balance sheets are solid, loan losses remain minimal. Chance to step into great businesses on sale. Large cap tech valuations have come down as well.

Nugget of investing wisdom. Never give up on a solid company just because the share price is lagging at a moment in time.

Long-term BCE 2044 bond, yielding 4%. BOC only impacts short-term interest rates, so raising rates doesn't necessarily have an impact on long-term bond yields. Please don't put a large chunk of your money into long-term bonds, because if long-term bond yields rise, your bond will suffer a significant price decline. You should own a diversified bond portfolio, and diversified by maturity date as well. You should probably tilt a bond portfolio to the shorter end.

Paying a high price to acquire. Big companies don't have much organic growth, so they're all trying to acquire the same assets, thereby bidding up prices. He doesn't like to criticize management for paying a high price to acquire a company, as they probably have a strategy of, for example, wider distribution to recoup the purchase price.

Canadian banks. Canadian banks represent the greatest weighting in his Canadian equity strategy, for the simple reason that they've done a spectacular job creating shareholder value over the last 50 years. All in excellent shape. The top 5 have never cut their dividends, though they were forced to suspend hikes during Covid. Very well capitalized. Canadian regulators force them to be more conservatively managed than in lots of other places. We'll get some loan losses with the recession, we always do, but the loan books are in outstanding shape. Wealth management is in good shape. Will continue to grow earnings. Benefit from the fact that foreign banks are not allowed to operate branches here. A great place to invest.

Have delays in Rogers-Shaw deal been disproportionately favourable to the likes of BCE and Telus? He owns them all. Rogers has spent a lot of management time on this deal. At the end of the day, if the deal gets approved, any short-term benefits to BCE and Telus will fade away.

Long-term US treasuries. Best to buy them if you already have USD, and not converting your CAD. Buying long-term bonds now is a very risky strategy if bond yields rise. Fed has already signalled it's embarking on swift unwinding. He'd be very careful of putting a lot of money into long-term bonds. Bond ETFs have not always tracked well versus individual bonds. You can probably employ a simple buy-and-hold strategy for individual bonds.

Markets. All eyes are on Jackson Hole, with the expectation of higher rates for longer, and the market isn't going to like that. We've already seen a weak market this week. A lot of market participants believe there's going to be a pivot in the tightening cycle, but that's misplaced. There's been a selloff, there's been a retracement, and 2023 could be quite a tough year.

Canadian banks. Yesterday, we saw that BNS had fewer loan loss provisions than in the previous period. By contrast, RY had significantly worse numbers than BNS on a relative basis. Standout issues are that loan loss provisions need to be built, and they're due for a change in CEO leadership, which could prove interesting in the changing macro environment.

Criteria for investments. High yield, high free cashflow, low debt.

What happens on a delisting from NYSE? You would transfer the ADR to Hong Kong, where you can monetize your shares. There will be a liquidity correction, but that risk is somewhat overblown.

Efficient capital deployment? Look at ROIC. You need some fairly advanced software to do this. You can also look at EVA, to see if a company is producing a return over and above its cost of capital. You can perhaps find this analysis on public platforms. Is the company's growth path growing relative to competitors and the market? Look at total return in your currency. Any company that's providing a solid total return, and whose needs are growing, could be interesting to look at.

Does paper trading of oil increase volatility, or is it just background noise? Saudis commented on the disconnect between liquidity in the market and the physical product. There has to be somewhat of an equilibrium to maintain a normalized market. Supply constraint coming out of Russia is causing issues. How much higher does the physical price need to move to stimulate an equilibrium in terms of supply constraint? You need to make a projection in terms of Europe. Without a combination of these two factors, you will have a pricing impact, and that will be detrimental.

Play gold via the commodity or producers? Doesn't particularly like it. It's important during macro shocks. Does provide an inflation hedge, but so do many other categories, and you don't get a dividend just by holding it. He'd prefer to look at the streaming companies such as FNV or WPM. He doesn't own any gold, and doesn't plan to.