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

Markets. Tech selloff means some opportunities. Despite talk of rate increases, 30-year US treasuries still yielding only 2.1%, which suggests supply chain issues are transitory, and inflation will fall back sooner rather than later. Supply issues are starting to abate, and semiconductor issues will be resolved in the next 12-18 months. High bond yields won't be much of an issue to stop equity markets.

Does Fed have scope to raise rates? Yes. Healthy that interest rates get lifted a number of times. One, to make clear that the Fed won't let inflation get out of control. Two, gives them more tools down the road when the next recession comes along. Rates won't get to levels seen over the past several years anytime soon, but they will most certainly be higher than they are today.

Streaming competition. There will only be a few companies left at the end of the day, and NFLX should be one of them. He owns BCE, DISCA, and DIS. Prices will probably go up as the field narrows, underpinning profitability.

Share buybacks. He doesn't worry about fewer shares outstanding. He'd be worried if a company was buying them back at higher valuations. Makes sense for long-term shareholders for a company, like BRK.B, to buy back stock when it's cheap.

Has the pandemic caused the travel industry permanent damage? This may be correct. Doesn't know what the new world will like, and what changes there will be to human behaviours. He prefers companies that are more diversified than doing just travel. For example, DIS is more diversified than CCL.

Upside of market selloffs. He welcomes them, as not everything sells off in the same amount. This time around, tech has sold off in a huge way, but other things not at all. Gives him a chance to sell something that's done well, and replace it with something where he sees more upside.

Bond ETF vs. an actual bond. If you're talking about high yield bonds, never buy a single high yield bond because there is a high default rate. There's just way too much risk in a single bond, even in corporate bonds, though government bonds are not a problem. You need to own a basket. Rather than an ETF, you're better off owning a high yield bond fund, so your price moves with the NAV and not with the market, so you're at least protected that way. With bonds, if you win you get your money back and a small return, but if you lose you take a bath. So you need some diversification.

Best Canadian banks right now? He owns several. CM is the cheapest and most attractive. Also owns TD, RY, and BNS. Exited BMO on valuation. Canadian banking sector has been a great place to be, oligopoly. "Hates" being a customer, but loves being an owner. All in excellent shape. The sector is a core holding in his Canadian strategy.

What to look for in a healthcare company. Patent protection is a double-edged sword, as everyone is so focused on when the patents expire. Rather, he looks for a diversified group of drugs coming off patent at different times in different places. Generics and bio-similars are more stable businesses and provide a more stable revenue stream.

ANALYSIS ON INTEREST RATES

During the last 2 years, central banks have created massive money (quantitative easing) in order to make recovery plans and avoid the impacts of the economic crisis caused by the Covid.

This injected money ended up massively in the stock markets (stocks, futures, cryptos), which contributed to give a huge boost to the different assets and to pull them higher and higher. Nevertheless, logically, this huge money creation of several trillion dollars contributed to increase inflation.
To regulate this, central banks can generally play on 2 levers:

• Stop quantitative easing.

• Raise interest rates (today between 0% - 0.25%).

The FED has chosen to raise its key rates for the first time since 2018 (which should start in March 2022), concretely, this means that borrowing money costs more and at the same time, the currency (here the US dollar) that we hold yields more interest. If the currency earns more interest, it automatically appreciates and its value on the currency market increases (you would rather keep 1 million dollars with 1% interest on it than the equivalent in euros with 0%, so you sell your euro to buy dollars).

The equity market is becoming very risky, because with the end of quantitative easing, the liquidity tap will close. As far as the market we are interested in, the crypto-currency market, is concerned, it becomes extremely interesting, because if it is true that it is an extremely volatile market and that it has also benefited greatly from quantitative easing, it is also true that many investors consider certain assets, notably Bitcoin, as a safe haven in the same way as gold and consider using it to fight this inflation. In addition, with some DeFi protocols, it is possible to earn interest passively by staking or farming on blockchain (on stablecoin in particular).

The year 2022 will be very revealing for the blockchain ecosystem, as with the exponential adoption of blockchain projects by many large investors, let's hope that crypto currencies start to de-correlate from other markets, and from each other, in order to fulfill their full potential!

Surprised by BoC not raising rates today? Can't really say. Last September, BoC started preparing markets, and the expected timeframe was April. Makes sense for the BoC to go slow, prepare people, let market digest the news. Long term, not a huge difference whether they hike now or 6 weeks from now. Short term, it will help to smooth some of the volatility.

Do short-term rate increases impact his portfolio? Traditionally, you'd expect that sectors like utilities and telecoms, with higher debt loads, would be impacted by rate increases. Given the change in valuations of tech companies at these extremely low interest rates, tech has now become the most interest rate sensitive. Rising rates are negative for all equities, as it makes bonds more competitive from a risk/reward perspective. Not an outsized effect on dividend payers this time, given where tech valuations sit and absolute level of interest rates.

Outlook for 2022. Challenging. Volatility is a sign of things to come. After the huge bounce in markets, headwinds arise with stimulus withdrawal, interest rate hikes, and geopolitical tensions. It will depend how the economy performs. Investors are wise to tighten their portfolio exposures. He's comfortable with his positioning in defensive, essential needs providers, with infrastructure being the key base in his portfolios.

Canadian banks. He usually prefers whichever is cheapest. Roughly same fundamental backdrop, same set of opportunities. TD is his largest position, as he likes its mix of businesses and management. Prices are not as attractive as they were. Yes, rate increases are good for business. But if their huge wealth management businesses have a tough year, that will have a negative effect. How much will rising rates affect the volume of lending? It's not just how much you make on the spread, it's how much volume you do, and this may be poised to slow down. Had a nice run, in the middle of their valuations. Not in a rush to buy. For clients who have no exposure, he's scaling in by, say, a third of a position. His biggest positions are in TD and RY, followed by BNS and CM.