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

Bull run for energy stocks. This cycle is more pronounced because of the issues in Ukraine. In March 2020, we started a new energy bull market, based on the interest in renewables and EVs. We needed to find a lot of lithium, copper and nickel, which would need a lot of capex and a lot of fossil fuels. With cutting off Russia from selling oil, we're in a super-cycle for commodities that probably has 4-5 more years to go. Money will have to be spent to bring on natural gas and LNG. Since March 2020, crude oil price has gone up over 4x, nat gas even higher, and S&P TSX Energy Index over 5x. So it's been a fabulous sector for investors.

Bearish on price of oil? He's cautious. Historically, when you have these very powerful bull markets, you have corrections along the way. We'll see record oil prices 4-5 years from now, we've had a fabulous run, and he sees the likelihood in 2022 of $150 US a barrel for oil if weapons of mass destruction are used and Russia is prevented from selling oil and natural gas. He sees a recession ahead. CPIs and PPIs are really high. Central bankers are raising the price of money and removing the liquidity. Don't fight the Fed. He sees an economic slowdown by Q3, and that's when the higher price will end as we try to beat inflation up over the next couple of quarters.

Inflation is peaking Technical analysts Larry Williams says there are two ways to look at inflation: 1) The sticky consumer price index measures a basket of items that change price slowly; 2) the flexible price index which changes quickly. Now, #2 is currently at an all-time high. Once the flexible CPI surges, then the sticky CPI. History says that inflation that stays above 2.5% for 29 months on average and we've been through 14. Cycles: the CPI has a dominant 5-year cycle, so it should peak in the middle of 2022, then decline for the rest of the year. Further, the Advance Decline Line tells whether more stocks are rising or falling on a daily basis; currently this line signals to Williams that the AD line is due to rise, leading to a major broad-based rally through the end of June, then pulling back starting in early August, then rebound as the summer ends.

Expect volatility in the short and medium term. The S&P has crossed the 200-day moving average several times on the upside and downside. Lots of worrying among investors, sparked by geopolitical and Fed moves. The software business has gotten soft, because businesses are unsure about spending money in this environment. That said, volatility can be your friend--you can trade it, which is what he is doing more of. He's 25% in semis, 25% in internet software, 20% to cybersecurity which has done well for him, and the rest scattered through fintech and e-commerce.

It's about who owns the data. On the infrastructure side, go with the big guys. As we enter earnings season, mega tech will maintain their growth levels. Twilio is the cloud/AWS of the communications side. If interest rates continue to rise to battle inflation, it will compress valuations.

Volatility and markets short term. Increased volatility. Two narratives. 1) If you live in Europe, will the conflict in Ukraine expand? 2) Outside Europe, it's higher rates, which will also have some impact on slowing demand. As we transition to higher rates, it causes a rotation. The impact on high-growth, non-profitable tech has been a selloff. Now we're starting to see buying into value and GARP names. Options and futures markets are moving around like yo-yos. If you look at a longer term 3-5 year horizon, there are fabulous opportunities right now for those with capital to put to work.

Price of energy going forward. Tied to Ukraine. Supply in Europe has to come from somewhere else, and this is good news for Canada. The price ultimately reaches a point where it becomes a tax on the global consumer. Some countries are backtracking on taxes on oil. He sees it spiking up into the $130 range, which is reminiscent of the 1970 oil crisis. Investors need to think through these dynamics.

Advice to investors. Prudent to have a cash buffer right now. This cash can be used to buy high quality stocks when they've sold off. Some good quality European companies have sold off, even when they have no debt, so it's worthwhile to take a look at those. Some of the global opportunities are looking very good, especially those based in Europe. Those that have European HQs, but global pressures. Lower and rebalance your tech exposure, in the face of higher rates.

Investing in tech right now. In the face of rising interest rates, stay away from high growth with no profit. Instead, go with more mature tech with dividends and a structural theme. Big tech will hold up much better in an inflationary environment. Higher rates are toxic for tech.

Cybersecurity. Cyber hacking is an ongoing threat. Clearly, it's a growing market. Still, the interest rate environment will be toxic for tech. Pay attention to the space, but be leery on the pricing right now. Come back in a year and revisit the space.

Has inflation peaked? The price of natural gas, oil, wheat, corn and other commodities is spiking. Nat gas is approaching $8. So, inflation isn't finished.

Has inflation peaked? Yes, but inflation could sustain at high levels of 4-6%. In this environment, valuations contract to 15x; if the market trades higher, then 10-15x. Don't fight the Fed on the way up or now. Valuations are contraction and that's painful and unbalanced. A good earnings report of nice data point will offer brief relief. Stocks above 19x PE will contract and will weigh on the market for some time. 75% of companies so far that have reported have beat. Earnings and a strong consumer will save the day. This doesn't mean it will lead to an explosive rally, but the market won't fall as much otherwise.

Has inflation peaked? Maybe a little. Look at natural gas which is pushing $8 and crude oil has risen. If inflation has peaked, it doesn't rule out that it won't sustain. The market is nervous, as reflected in the Nasdaq.

Has inflation peaked? If it has peaked, interest rates still need to rise meaningfully. The Fed will keep tightening regardless. Another worry is Putin--suppose he uses chemical weapons or tactical nuclear weapons. Earnings will come under pressure, so what will happen them? We didn't see a peak inflation rally recently, but a bear market rally. As for a strong consumer, the consumer isn't that strong. Rather, they're fighting to stay alive in this 70% consumer-spending-driven economy.