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

Bull or bear? It's tough to call it now. He's cautious. The Fed offered a lot of certainty over rates this week, but he remains very worried about inflation. The VIX is above 30. Lots of headwinds in the short run. The long run is hard to say. It's a bad time to be buying. He's more bearish than bullish. The Fed will raise rates in 2 weeks, but US growth has already started to slow. In the second half of 2022 when the tightening cycle gets underway--and strong employment grows--supply chains should ease and he hopes will moderate inflation, which sets us up nicely int he second half of 2022.

Today's sell-off as the Russian invasion worsens The S&P is in a slight correction, around 10% from the high. In energy and materials, though you don't feel the pain, but if you're int he ARK tech stocks, you are. He's bullish; he's buying dips. The 38% of S&P stocks now in a bear market, well that number was much higher last year. Paramount and Cleveland-Cliffs both fell and those were buying opportunities--those are examples of buying dips. Paramount was down 20% on earnings last week and he called a buy--and he was right. (CC was down 10% on earnings.) If you're in the wrong stocks, you feel terrible now. Build a diversified portfolio! If you can't handle a 10% correction--which happens yearly in tech--then you shouldn't be investing. Look at jobs growth in the US (job numbers beat today). Covid is fading--we don't even talk about it anymore. People will return to offices and factories. He does not see a recession. America, not Europe, does not propel the world economy, and America is doing darn well.

Average Canadian energy company trades at ~1.5x cash flow (historically has traded at 7-9x). Massive opportunities being presented to investors. Current multiples on Canadian energy stocks cheaper than ever.

World currently in the middle of energy supply crisis (surging demand, exhaustion of OPEC capacity, end of US shale growth & investment). Energy supply crisis presenting generational opportunity for investors. Current oil price ($100), average Canadian energy company can privatize & be debt free in ~3 years. Excess free cash flow will be returned to shareholders. Not too late for investors to take advantage of energy opportunity.

Markets. Our complaints pale in comparison with the conflict going on in Europe, and our thoughts are there right now. This will be a tough time. We're in a bear market. Experienced investors suffer through bear markets all the time, stocks just don't work, and it's hard to see any light at the end of the tunnel. At some point, the market will price in a resolution, but he can't tell when or how. Same thing happened in 2009 and 2020. There's no playbook for supply chain problems, inflation, Fed that doesn't know what to do, a war on European soil. His best advice is to not do much. Don't chase what's working, don't get rid of what's not. Just be patient, and let things play out. The worst thing you can do is fiddle with your portfolio because you don't like the prices.

Bear market, but hasn't the S&P not done badly in the last week? This is the difference between index investing and active investing. So many names are down 20-40% from highs in November. Some of the bigger names have held up. In the US, mega-cap tech is not down as much. In Canada, banks, utilities, and oil companies have rallied. But no doubt, this is a bear market. Many are at 52-week lows, especially high growth or those that did well in 2021.

Canadian banks and splits. Banks are flip-flopping right now, based on interest rates and uncertainties about the global banking system. All the banks have lots of capital, so he expects more share buybacks, dividend hikes, and surprise acquisitions. A good place to be. They usually only like to split shares when times are happy, not when news is negative.

Investing advice. Take the long view. It's hard to remain positive when every day is a red day. In the short term, asset managers especially can look really stupid. He's not a trader. For shares he owns that are down, he's looking past the sentiment and accumulating. What was first will be last, and what was last will be first.

Markets. We entered 2022 with a lot of volatility and uncertainty. The invasion of Ukraine elevated that across all sectors and asset classes. Commodities are spiking, and that's going to make the problem of inflation even worse, plus there might be a knock-on effect of slowing economic growth. In this environment, you want to focus on companies with resilient demand and some sort of inflation protection in revenues, and that's precisely where infrastructure equities shine.

Infrastructure sector. The space is quite broad. In general, infrastructure equities provide daily essential services to a majority of the population in a supply-constrained manner. Even if growth is slowing, their essential nature makes them not likely to see as much demand destruction as the cyclicals. Think waste collection and water. A lot of the business models have inflation-linked contracts. Putting these two things together, infrastructure is a great place to be, whatever geopolitical path we take from here. The sector provides defensiveness plus inflation protection.

Advice for clients amid the Russia-Ukraine conflict. Every client is different. Take a long-term perspective. The invasion has put the spotlight on too much dependency on Russian oil and gas, especially for Europe. For the next 6-18 months, we're going to see greater focus on renewable procurement, more R&D in technologies, and a push from countries including Canada and the US to generate more energy domestically. This is a different tune than recent narratives, but civil rights and security and safety of the world take precedence over ESG concerns. Certain things can be done to mitigate the carbon impact. We need to get more oil from the Canadian oil sands and from US shale. We just can't depend on a country like Russia, given the aggression they've shown on the local stage.

Is there more support for Canadian infrastructure now? Too early to tell. Since the pandemic, there's been a slowdown in Canadian and US names. Yes, the path forward is to go green, but Europe is so dependent on Russian oil and gas. To reduce Russia's leverage, Europe needs to get oil and gas from somewhere else, and Canada and the US are probably two of the best options. We'll see a small increase in production to allow us to transition to a more renewable-friendly grid, and if that means 4-5 years of extra North American oil production, that's a good tradeoff to reduce dependence on Russia.

Towers or carriers? His advice is to diversify from carriers and own some of the towers such as AMT, SBAC, or CCI. Carriers have held up quite well, whereas the towers have sold off in reaction to interest rates. In general, if the carriers are doing well, the towers will do well.