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

It's been the worse start of the year for the NASDAQ. S&P500 and bonds are also having a bad start. Typical portfolios are not doing well this year. We will probably get a bit of a trading rally.

We will probably get 50 basis point increase this week. They want the overnight rate to 2-2.5% as fast as they can. Then they will pause and re-assess. First quarter GDP results were negative. Although consumption was fine, the Feds will still look at it to decide how much to tighten.

Inflation. Things should moderate eventually. Some of the big accelerators such as rents and car prices should slow. Wage pressure will be sticky. We could see base rate of inflation stick in the 3-4% range. It will be different and more difficult on a policy basis to stimulate.

There is 1.7 trillion in repos. There is money out there to suck up the bonds that are being sold into the market. Over the last month, tax receipts have come in much higher than expected. Funding needs for treasuries will be less than expected.

Job market. Still a decent jobs report. Saw a downtick in labour demand. It is still expanding but right on the line. The Fed may be tightening aggressively could mean a recession.

High inflation due to the fact that Federal Reserve is behind the yield curve (made a mistake). Market multiples are in question due to uncertainty of Federal Reserve actions. If Federal Reserve raises rates too high - concern is that it might cause recession.

Believes a US Fed 75 basis point hike is possible in order to give market comfort. Large interest rate increases will create opportunity to create soft landing. Investors should be looking at value, dividend and energy stocks. Also opportunity to buy depresses technology shares (PayPal/Facebook etc.)

At least it's over, this miserable month of April where the Nasdaq dove 13.3%, the worst since 2008. Normally, April is a good month for markets, like 2000. Today, shares sank 3-4%. You couldn't get excited to buy anything. Next week should be better, though he doesn't expect Monday to be good. Next week, fewer big companies will report. This was one of the worst days he's ever seen. Warren Buffett would say this is a buying opportunity.

Volatility's impact on real estate. There's certainly a wall of worry out there. The public market's already priced in a lot of the risk. He looks to the private markets to see what's really going on. And what he sees is that in those sectors where there is pricing power, fundamentals and pricing are still robust. Yesterday, the CRE reported that cap rates in Canada are lower in nearly every single sector in real estate; the lower the cap rate, the higher the value.

Will Canadian REITs catch up to US ones soon? Yes. For a while, he's been positive on industrial warehouse REITs globally. Looking to US earnings, they've been quite strong, a nice outperformance. He expects the same for Canada, especially in the tightest markets in Canada, namely Toronto and Montreal.

Vancouver also has high real estate prices. Indeed. It's all about supply and demand, and Vancouver is a supply-constrained market across every kind of property type. You're seeing demand in multi-family, industrial, and even office. Unfortunately on the public side, there isn't always a great REIT to take advantage of that strength.

How do high interest rates affect real estate valuations? No one single answer. During times of high interest rates, you can find opportunities to buy buildings. During times of low interest rates, you can find value traps and terrible ideas to buy properties. It depends on the economy and the sector. For example, you could have low interest rates and a booming economy, yet you wouldn't want to buy an office building in Calgary, because there's way too much supply, no demand, and vacancies are at 30%. It's all about supply and demand, as in any business. Too much focus in real estate on interest rates. Valuation equation is Net Operating Income (rent minus expenses) divided by the Cap Rate. Cap rate is influenced by interest rates, but there's a spread to it. We can't do anything about the denominator, only the numerator. Best hedge with rising rates is to invest in those sectors where income will increase because the REITs can capture inflation. Think apartments, self-storage, industrial warehouses. Not office buildings today. Make sure debt is fixed, with not much exposure to variable rates. He's a bottom-up investor, cares about discount to NAV, and has a long-term view.