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

Criteria for healthcare stocks. Dominant companies, proven ability to execute over economic cycles. Large cap with diversified product lineups. As you're reviewing and rebalancing your portfolio, you really want to be in quality companies. Robust financial metrics, reliability of earnings across economic cycles.

Boost to brand recognition from Covid? Early on, yes. More so for Moderna, which went parabolic. Not so much for PFE. If PFE can build out its pipeline, we should see the stock get re-rated.

Interest rate hikes and the overall market. Biggest source of volatility will be not what interest rates do, but what expectations are for those rates. Driven by inflation, supply chain factors, and Russia-Ukraine conflict. Sees very small signs that inflation is peaking. For example, shipping container prices are starting to roll over. Signs, but no trend just yet. Bearish sentiment is the second-lowest it's been since 1990. Last time it was at these levels was 2008. If we don't see as many hikes, market is spring-loaded for a bounce. But there's still uncertainty. Look for good quality businesses, areas with visibility, less exposure to cost on the input side. Healthcare seems to have some of these characteristics.

US inflation. Sees inflation either peaking now or close to the peak. As inflation cools, he has confidence that the Fed will be able to take its foot off the gas a bit, which will be accommodative to markets. Important to understand that bond yields are way below what they've been for the last 15 years or so. Healthy to have a normal yield curve, so that when there is the next recession, the Fed has room to cut rates. Bulk of the bond market increase has already happened. It may go to 4-4.5% at the outside. Consumers are in excellent shape, wages are rising, there's a lot of money on the sidelines to spend, and he's still bullish on corporate earnings. Remember that, 12 months from now, the war in Ukraine will be resolved somehow, China's shutdown will be resolved somehow, and we'll be talking about something else.

Turnaround coming for tech? You have world-class companies like AMZN that make money, have a great market share, and are dominant. Then you have companies that are losing money or trading at sky-high multiples, which remind him of the NASDAQ in the late 90s. AMZN has retraced back to where it was before the pandemic, so he sees value. For a stock like SHOP, AMZN is stepping up competition, and it's still not cheap despite the decline.

Areas of opportunity? Financial services, banks in particular, have been hammered globally. Canadian banks have outperformed, and have fallen 10-15% from where they were a few months ago. Global banks in the US offer great opportunity with cheap multiples, earnings multiples, and healthy dividends. Credit and consumers are in great shape. If we don't see a steep decline in the housing market, the loan books will remain in very good shape.

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.