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

When will housing get more affordable? Patricia: We'll have to keep an eye on incremental changes in the interest rates. When we think those have peaked, we'll see an inflection point in the housing market. Right now, it's hard to say. John: When the economy starts to roll over. This is not the same inflation valuation and financial mechanics problem as in 2008. Canada may see a downturn, but it won't blow up the way it did in the US.

Good time to nibble at banks and insurance companies? John: Insurance companies, he doesn't worry about. Canadian banks are fine, they'll pay their dividends. But a lot of the tailwinds will turn into headwinds. He wouldn't rush in there. He'd look at the US banks more, or at Canadian telcos to give more protection in a downturn. Patricia: Good banks in the global markets depend more on the spread. So with rising rates, they get to reprice their loans.

Is BOC hiking rates what's responsible for inflation? Earl: The interest rate number you see is a combination of the BOC rate plus inflation. They'll get inflation down by raising rates faster than inflation, because it reduces demand. With people buying less, the price on the offer side comes down.

Will inflation come down enough that the BOC doesn't have to be as aggressive? Earl: Yes, we're seeing signs that prices are coming down in some areas, but it doesn't matter. The target rate for inflation is 2-3%. Even if we peak at 8% and come down to 5%, that's not good. Interest rates have to be above inflation to break inflation.

Why has fixed income been hit so hard? Earl: Record down year for fixed income. Reason is inflation. Good thing is that now we're down, the coupons will be higher. Expects further losses over the summer, and then we'll settle down for the year. He'd recommend reducing the duration in your portfolio, which will take away some of the price volatility and negative price movement. For example, if the duration is 5 years, reduce it to 3.

The one thing to think about heading into the second half of 2022? Earl: It's a secular environment of higher volatility, inflation, and interest rates that will last 5-20 years. You want to own the companies that have hard assets, the ones that hurt if you drop them on your foot. Patricia: Own quality compounders. Cash returns on assets. Do your due diligence. Be an active investor. John: Assess risk profiles of the stocks you own. If you can't sleep at night, maybe you shouldn't be as involved in the market. Tremendous opportunities right now, whether in the next 2 weeks or 2 months, for the longer term.

People fixate on stock prices and ignore intrinsic value. The markets have fallen 20%, but mostly that's from multiples contraction. In fact, this and next year's earnings have not changed that much. Keep an eye on company earnings coming for signals. We're probably in a recession which will impact earnings which were only 8-10% and could decline. There could even be flat earnings in the next 6-12 months. After 2009 to 2021, there was a compression of the risk premium in all kinds of assets, and that's widening further today. Something has to give in the dichotomy between the stock market and earnings. Expect volatility.

Commodity rallies are wild but short-lived, says Carley Garner, technical analyst. Commodity booms are good for traders, not investors. Such booms are very volatile and can edge suddenly and violently. The GSCO commodity index over 50 years, shows commodities were rangebound in the 70s through 90s, then moved into a higher range in the 2000s, but stayed there. These booms never last. In 2007, we feared we would run out of oil, but by 2014 there was a oil glut. Supply rises to meet demand, then prices fall. The last 20 years of the GSCO show a boom, then bust, boom then bust.

Important to remember timeframes in uncertain times. Faster pace of Fed rate hikes is likely to stabilize. Inflation is close to peak.

Considering investing in GICs. Is the BOC still expected to raise the prime rate? Bank of Canada is likely to match what the Fed does. Expectations are to be around 3-3.5% at the end of the year. Highest GIC rates, should come in the next 2 to 3 months. GIC is good for capital preservation but not the ideal choice when worried about capital erosion due to inflation.

Educational Segment. Jim Cramer recently called a market bottom. Disagree. Nasdaq has been underperforming. Now starting to outperform. Could argue some form of market bottom has been reached but not necessarily THE market bottom.

Inflation is peaking now and supply is improving. He hopes things will moderate. The big thing is the Russian energy issue, replacing Russian oil and preventing them from selling it. He expects car production to rise quite nicely in latter-2022. Not sure if a recession will come, but it would happen in late-2023 or early 2024. It's tough to have a recession when everybody has a job and demand is strong. The market has sold off a lot, down to 15x earnings. 2023's earnings' growth is 8-10%, and 4-6% beyond that. You're getting value for your money now in stocks.

We're in an inflation shock that could lead to a growth shock globally. Too much monetary policy and under-investment in energy fields are key factors. If demand continues to rise, then interest rates will continue to rise. If the demand declines, it could lead to a recession. It is a bizarre world, now. From 1990-2021, inflation was only 1.3% and consistently so. Before 1990, inflation was 5%. Central banks have limited power except to dampen demand.

Canadian bank ETF The challenge with an equal-weighted bank ETFs is that it includes only six companies. Because of the MER to pay, you may to own the banks directly. Also, there's more risk than you think with the banks now, despite the juicy dividends. There's a pullback in housing, so if low-loss provisions become higher than expected or there's a world economic slowdown, there could be pain in banks. Wait the next quarter or two.