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

Short-term, inflation-linked bonds. Hold or sell? After years of lagging, a bit better today. Important to read the fine print so you're not caught off guard; it will show the yield you're getting above inflation. Yield has popped, but looking forward, we're getting to the time when you should switch to a more normal bond fund. A large part of the move has already happened.

Bond fund for 81-year old widow? You're looking for liquidity, income, and low tolerance for volatility. Shorter-term to medium-term bond fund. Not the Canadian Bond Index, which has a much longer duration and so is much more sensitive to interest rates.

High-yield corporate bonds. Incredibly opportune asset class today. In a rising rate environment, high-yield bonds are usually the best performing fixed income asset class. One proviso: bulk of high-yield market is in the US. Canadian high-yield bonds are in oil & gas and mining. Buy a fund with the majority of bonds in the US and currency hedged, so if USD goes down, it won't hurt your return.

Disasters are increasing. Is this a hit on insurance companies? For example, ALL is property and casualty, they do cars and homes. That's where disasters will hit them. MFC is life insurance. People are living longer, but MFC prices this in. Rising rates are positive for them. For example, if someone bought life insurance 30 years ago, with a life expectancy of 80, but they live to 85, this is good for MFC because they don't have to pay out the money.

Housing market. Mortgage rate has doubled from a year ago. A lot of investors are not covering costs anymore. Rising rates have to have some kind of impact on housing, not a positive for real estate. Foreign investors have caused a lot of upward pressure. Economy remains strong. Perhaps not everywhere, but in the hot markets like Toronto and Vancouver, it looks like housing is poised to take a break. It's not having an impact on landlords yet. Because of rent control, when interest rates go up, you can't raise your rents accordingly. The problem comes when you want to sell, but no one wants to buy because prices are declining. As Warren Buffett said, investors should stay away from leverage.

Criteria for picking a stock. He looks for companies that pursue dramatic share buybacks and raise their dividend. Look at Warren Buffett: He bought his last share of AXP in 1998, and he owned 11% of the company; now, with share buybacks, he owns 20% of the company. Those types of companies keep on creating shareholder value for you. All you have to do is sit back and enjoy the ride.

The US Fed hiking rates, the Russian war and China's Covid lockdown are weighing on markets. When markets gets jittery, the Fed lowers rates, but it can't do that now, while Russia and China we can't solve overnight. Markets are gradually pricing in negative earnings growth. Typically when the US 10-year yield touches 3%, the market trades at 15.5-16x. We're close to a bottom, one or two bad days away. Blue chip stocks (pay a dividend and shares grow) have corrected 10-15% while momentum stocks fell 60% and these may not have earnings in 2023. Put those aside and buy a quality name like a bank, pipeline or Visa. He's very close to deploying cash.

The VXN, the Nasdaq volatility, peaked today (over the past year). A few spots, like Walmart and CAT, are doing okay amid this sell-off. Today felt like a liquidation as stocks cascaded across many sectors. ETFs declining will add to the sell-off.

Bitcoin You need puts to the downside in something like QQQ.

Everybody is so negative. He hasn't seen this in a long time. Investors should take a deep breath and stop looking at the stock market day to day. A bear market story is in every single stock and the market will go lower. Ignore this if you don't need the money in the mid-term since the time horizon is important. He quoted Warren Buffet as saying you need the right temperament and most investors are not wired properly for investing in the stock market. If selling you need to have sold months ago, not now. Be the first to sell and not the last. Most stocks he is looking at are cheap across the board. He is interested only in the stocks he owns today that are free cash flow positive, high quality, profitable businesses.

The question was on U.S. banks. They have sold off more than the Canadian banks. His clients own JP Morgan, a good company. It is hard to know how U.S. bank earnings will do. Wait for cooler heads to prevail with markets.

The question was on major gold and silver producers. He avoids commodity producers because there is no control over commodity prices and they can't be predicted. Higher inflation is not necessarily good for commodities.. Focus instead on companies with higher cash flows and recurring revenues.

He expects banks to go even lower as the Fed hikes rates. It's a macro call.

Today's rout The selling since last week's Fed announcement makes sense, including today's rout. He sees the next level being 3,750 on the S&P. ETFs selling off is a good sign; the excess is being cleared out, though we haven't capitulated yet.