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A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Believes world is in a multi-year bull market for energy.
Concerns for demand destruction during weak economy unfounded.
Historically, demand growth for energy (even during a recession) has been steady.
Oil inventories continue to fall even with US SPR releases (largest ever) and China under lockdown.
COMMENT
Still sees meaningful upside for Canadian energy stocks in the form of share buybacks and dividends. Recent USA SPR release to reduce gasoline prices is unsustainable. Financial demand for oil has fallen, even when physical demand has remained strong. Believes OPEC is looking to establish a floor price even with US SPR releases.
COMMENT
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Oil prices have been showing weakness which initially eased investors' concerns, but the services sector continues to underpin the elevated inflation numbers. Bond yields are rising and the consensus is for the Federal Reserve to hike rates by 75 bps at its meeting next week. Still, markets have not made new lows and headline inflation is not accelerating, so we feel it is necessary to assess how the contracting economy interplays with the financial markets. Unlock Premium - Try 5i Free
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Premium contentCOMMENT
COMMENT
Markets. Constructive. If you look backward, there have been dozens of bottoms since he started in the business, and there's a great rhyme to these things. June lows were probably the bottom, though we may test them again. Great opportunity to start putting some money to work that you've had on the sidelines. He has about 20% in cash, and he's been trickling it in as the market gives him opportunities to do so.
COMMENT
Sectors. Old economy vs. new economy. For growth, you want to be in the new economy. Old economy is going to be a tougher slog, because the growth isn't there. Though you can have some investments in the old economy, the growth orientation has to shift to new economy names and away from the names that have been used for the last 20-30 years.
COMMENT
Renewable energy. It's a part of his portfolios, but not a big part. Real test this winter in Europe, as they spent billions on infrastructure in renewables. Hopefully, it will pay off. The worst scenario for them is cold and calm, vs. chilly and windy. Chilly means they won't have to use all the power they've stockpiled. Windy means they can take advantage of all their wind farms. It's certainly the future, and will grow as we move forward, but it's not the only game in town.
COMMENT
Royalty streams vs. gold miners. The miners are very cheap. The question is what's going to happen to the commodity, because you have to make your call on it before you look at the businesses. If the price of gold goes sideways, those companies won't do much. Right now, he likes stocks better than royalties. Royalty companies are better to have once things get going. Stocks like AEM, NGT and ABX are really down, and that's a better way to play now.
COMMENT
Fintech and growth. When to buy? If you're not sure, put in a partial position now and wait and see what happens. If the market goes up, you're averaging your costs higher and that's a good thing. He owns some of the fintechs, new economy stocks. Focus on where's the growth going to be in the future. We're going to need the growth, especially if inflation hangs around for a while. Returns get eaten up by inflation. How much growth can I get, how much safety can I get, and am I in the right sectors?
COMMENT
Timing a buy on utilities. Key to any utility and high-yielding stocks is you have to factor the inflation rate into your return. If inflation gets sticky, around 5-6%, you'll have a negative rate of return. You need to get this on sale, especially important if you hold it in a taxable account. If inflation goes back to 3-4%, it's not that big an issue.
COMMENT
Oil in January/February 2023? Somewhere between $80-100. Demand from China has been flat over the last few months, and it looks as though this will continue. Europe looks as though it can hold itself together, as long as it doesn't get too cold. We haven't invested enough money in our own oil patch. What we're getting instead are dividend increases and share buybacks. Can't blame them, as the government's sending mixed messages to the oil industry.
COMMENT
Lessons learned with this week's selloff and recovery? As an investor, you're always learning. Objects resist motion. Traders were all positioned for this number to come down, and people were being too aggressive with that. Inflation is there, it's real, and it will take some time to work through. Even if we did get a positive number yesterday, hinting that inflation wasn't as high, it's still pretty high. The Fed pivot is still pretty far away. Further exacerbated fear. We're going to have to continue to deal with high inflation. Equities now have competition. If you can get 4% in a 2-year, that's pretty attractive, and equities have to contend with that.
COMMENT
At what level will GICs start drawing enormous amounts of investor money? GICs are paying 4-4.4% on a 1-year, not bad. But it's all taxable. If inflation is really at 8%, you're still losing money. Bear markets don't last forever, usually 16-20 months, perhaps less. If we're already 9 months into this, and you allocate your money correctly into equities at the right time, you could be looking at a double for a lot of stocks. You want to have some fixed income in your portfolio. That's why they call it the 60/40 portfolio, you want 40% in fixed income. If you can get attractive GICs or other investment-grade fixed income, grab it.
COMMENT
Inflation and interest rates. Full-scale velocity inflation that we had in the 70s is a whole different situation. What's somewhat comforting is that this is not the great financial crisis and deflation when the Fed had no idea what to do. There's a script for how to bring down inflation. It hasn't reached wages yet, so it just means the Fed is going to keep going harder until they get the result they want. There's a tradeoff: some pain now with job losses, or real pain later with letting inflation go and end up with a lost decade like the 70s. The whole conversation is about whether they can engineer a soft landing. The trick is to raise rates without doing a lot of job damage.
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