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

The market is reacting positively to Powell's comments today: the Fed has a blunt tool to raise rates and yet start quantitative tightening--two things that haven't come together before as the economy slows or maybe stalls. We are in uncharted territory for a few quarters. We are in purgatory.

semiconductors He owns no semis, because they are a commodity and we are in a declining economy. Earnings can grow more reliably and strongly elsewhere. You have to time your entry into semis perfectly.

Glimmers of hope over next 6 months? Historically since WW2, every time the stock market ran up 20% or more as in 2021, it fell double digits in the first half of the following year. In the second half of that year, markets had at least returned to break even. The second thing is that inflation and interest rate hikes have already been significantly priced in. So by spring of 2023, developed world economies could experience a relief rally, if investors convince themselves that the Fed will dial back aggressiveness to prevent a deep recession. Remember, stock markets tend to look 6-12 months ahead. So spring 2023 should look more optimistic than today. Lastly, technology sector needs to lead the charge, as it's the biggest sector. Look for tech to be more robust as we enter the second half of this year.

Which area of tech to watch? Every 10 years, the pendulum swings between hardware and software. From 2011-2021, the horses that led the way were software. Before that, it was hardware. Now, the ones that seem to have the stabilizing factor, like META, are starting to move towards hardware. The trend is just starting to swing away from software and over to hardware.

Semiconductor space. The semi space has come off a good 50-60%. Though he's unsure of the macro headwinds, he kept his stocks and shorted the SOXX to protect the portfolio.

Portfolio protection for aggressive tech positions. Everyone should have the tools to at least weather bear markets, if not profit. To protect yourself in a name like ARKK, you can buy the PSQ, which is the inverse of the QQQ. What he does is use equity indices to protect his long stocks. Yes, this year he's down 7%. But this is very manageable compared to the NASDAQ that's down 33%. ARKK's down more than that.

Ideas in tech security. Interesting opportunities in cybersecurity. Look at ZS for web gateways, SPLK for security information management, or PANW for network security.

This is a shopper's dream--everything is on sale. Higher interest rates and oil prices means consumers will have less money to spend. Offsetting that partially are people who won't buy a new home and spend in retail instead. Tech has been punished. So has banking. Canadian banks are down at least 15%, but American ones a lot more, even though the banks are in great financial shape (share buybacks and dividend increases). Energy and metals stocks: buy them when prices are low and sell high. 12 months from now, the Russian war will likely be over (to no one's satisfaction) and energy prices will subside partially. Oil prices are probably near their peak.

Buy preferred shares? Many investors don't understand preferreds, because the dividend rate is reset every 5 years or called away by the issuer. When interest rates declined, preferreds trading down sharply. If you buy one, you risk the rate being cut. If we have a recession, rates certainly will. Instead, buy 5-year corporate bonds yielding over 4%, which he recommends for someone like a senior who seeks income, rather than preferreds. Safer.

BC Bonds Bond yields have taken off in the past year. There's not decent value for bond investors. Your capital will be secured with BC Bonds, and you'll get a reasonable yield. Stable income here from bonds in the 1-5-year range.

Seniors seeking bonds Regular investment-grade bonds are the best--some Canadian bonds, provincial ones and quality corporate ones like Royal Bank or Bell Canada lasting 1-5 years. Would generate easily over a 3% yield.

Over the the last few years valuations have been a risk but not now since prices have come off. Depending on price movements over the next while the S&P could have the sharpest sell-off since 1962. Over the last 140 years there have been 20 bear markets and the average length has been 289 days. This would take the S&P from Jan.3/22 to Oct.19/22, the 35th anniversary of Black Monday in 1987 so there could be a bottom in October of this year. Property and casualty Insurance could be a good sector to invest in. Also companies that can appreciate over time and are not too volatile.

Believes rising interest rates causing falling markets. Investors rotating out of past holdings which is creating buying opportunities. Be cautious before selling stocks as market is falling.

Messaging from central banks is that there is too much risk in global financial system (Crypto/housing etc.) Federal Reserve increasing interest rates to cool markets. Will cause difficulty for investors. New environment will force companies to return capital back to shareholders and show profits.

This market is brutal and exhausting. Today was a rollercoaster as usual, starting strong, then got crushed by the dip-sellers who dumped stocks. Crude slid today though it shows that we're making progress against inflation. Today did see a rebound in tech. He doesn't see oil staying down until there's a peace deal in the Russia-Ukraine war. Powell can't win: he must prioritize fighting inflation and not creating jobs. He needs to see oil keep coming down.