A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Hard to say when the markets hit a bottom. Usually, all news is bad when the bottom is reached. What really matters is corporate earnings and interest rates. Short term driver is inflation. A consistent buyer is the best strategy. Sell-offs become your friend in this case. Unlock Premium - Try 5i Free
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COMMENT
The market has been very volatile - last week was a big flip from the previous two weeks. The Canadian market is set to do well and could beat the U.S. The Federal Reserve has been supporting the market and is now planning regular interest rate increases. This combined with inflation moving higher and some early signs of a slowing economy will hurt the market. With possible softer markets towards the summer, investors should become more conservative or defensive as spring moves along.
COMMENT
The question was on the effect of interest rates on banks. There is a big difference between U.S. and Canadian banks on these effects. The U.S. banks are very sensitive to interest rates and Canadian banks less so. Rising interest rates are good for banks because of interest rate margins. Also consider the yield curve which is starting to flatten out. This is a tougher environment for banks to make money than if the yield curve is rising.
COMMENT
Wall Street is seeing its best week since November 2020, but he expects more volatility. QT is behind us, yet the US economy remains strong. The second half of 2022 could see lower inflation. He's focused on supply chains--if those shortages ease later this year, will the Fed be as aggressive? Time will tell. We could see some bounces in coming weeks heading into the next earnings season.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. In the event of a recession, utilities, financials and consumer defensive sectors should hold up fairly well. Cyclical stocks tend to be volatile. Tech, consumer cyclicals and industrials would see the most downside. Unlock Premium - Try 5i Free
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COMMENT
Uncertainty and markets. He looks at EBV levels, taken from balance sheets, and aggregates all the S&P 500 companies. Since January, S&P has collapsed down to the EBV 5 level. His EBV level is 4280 (recalculated every night), and the S&P closed last night at 4357. He's trying to predict if there will be a bounce off this level. He thinks yes, and we'll retrace the highs from January. Going forward, the market will hold above this level until late summer or fall. He emphasizes that if we solidly break 4280, we're officially in a bear market.
COMMENT
Sectors with upside? Look for what's cheap in this market. There are only 2 asset classes out there that are cheap. See his Top Picks for ideas. Two years ago, it was easy to find value, but this is no longer the case. Market is clearly rotating heavily out of tech, and into hot areas like commodities. Growth stocks are getting to levels that are very interesting. If the market can stabilize, without surprises, or with a tentative peace plan, then he suspects this market will rally and rally hard. In which case, he'd predict that the market will go for names that have corrected substantially over the last couple of months.
COMMENT
Jump on the commodity super-cycle train? Everyone's talking about the commodity super-cycle, but the issue is whether these companies can make any money. We're seeing prices going up, but we also have an inflation problem. Costs of extraction could go up substantially. There's a mismatch between revenue upside and escalating costs. Where does that leave earnings?
COMMENT
TFSA portfolio construction, with 40K to spend, and a focus on US financials. Put your funds into USD. We're going through one of the biggest macro changes since the World Wars. Don't put it into individual companies. If you're focused on the US, try to keep it as safe as possible. Wait until things get cheaper, which may involve sitting on your hands for a while. Look at iShares, and see his Top Picks.
DON'T BUY
US tobacco companies for the dividend? Hard to analyze, because they don't have any balance sheets (which, yes, does sound weird). For example PM, with its 5.5% yield, has negative shareholder equity of 10B. If something were to happen to this company, there's no balance sheet to help you. It's a high wire act. These stocks are too risky for him. Try to avoid.
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