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

Pharma stocks. A lot of the pharma stocks have really suffered due to legislation that takes their drugs off patent. A leaky boat sector. Spend money on R&D, but then they lose exclusivity on patents. Big pharma buys each other to try to reduce costs, but you can only do this so much and they're there already. So PFE gets a boost on its vaccine, but you have to be careful what you pay, as the boost may not be long lasting. Also LLY, trading at a premium because of the Alzheimer's drug it has in the pipeline. Be careful, as these are one-offs. He's shy of the whole sector.

Expectations for 2022. Markets up over 20% this year. Third year of straight double digit gains. Hopefully 2022 will return to normal. Supply chains will resolve probably in Q3 or Q4, inventories will be replenished, and growth will deaccelerate from very high rates off the bottom.

Market challenges. The Fed has its hands full. CPI hitting 4.9% in November, 30-year highs. Unemployment levels at 4.2%. Going forward, have to look at pricing power. Brand strength is vital to maintaining margins and market share. Key to strong businesses is being able to raise prices without losing market share. For example, some global consumer products companies, such as UL, may lose pricing power because they're up against private label penetration in key categories such as food or home care. This is a red flag for next year if you think prices are going higher, which could motivate people to substitute private labels for brands names.

Sector focus. He doesn't advise from a sector point of view. He runs a concentrated portfolio, with 35-45 names. Bottom up approach, developing a thesis, with a target price.

Key to 2022. Brand names, with higher margin businesses and sustainable business models are key. Short term, 2022, we'll see higher prices from "transitory" inflation. In 2020, things were fine, and then the world stopped working. Easy to stop, but harder to bring the world back up to speed. So we're seeing shortages and backlogs. It'll take 6-12 month to resolve, you have to be patient.

Canadian bank preference. TD and BNS.

Markets rallied after Jay Powell's comments today about tapering and interest rates. Now, it's done. Some pundits felt Powell was dovish, others hawkish. Once more, Powell threaded the needle. Growth stocks like Eli Lilly then rallied 10%. Powell said that more people are vaccinated, the more stable the economy will be. He also recognized there's more inflation than he originally said. Overall, he was on the mark. Bank stocks declined today, because some investors expected Powell to screw up (he didn't). What's next? Maybe the long-awaited Santa Claus rally, and this may have already started. But things have changed: stocks that trade at high valuations will suffer.

Markets were at all-time highs in mid-November, then Omicron triggered a pullback. Markets then recovered through last Friday, but are shaky now. Omicron remains a concern; science suggests it's more contagious, but the booster shot will likely contain it. The economy is indeed growing with higher corporate profits despite higher costs. Companies can increase prices as well as productivity. This profit growth is the key catalyst for markets going forward. The other key story is Powell acknowledging that inflation will be more persistent than expected. The market is pricing in sooner interest rates next year likely in the second half, but those rates remain very low. When rates start to climb, immediately before the first hike, history shows there are positive returns in stocks. Later in the cycle when the yield curve flattens is concerning. Employment has recovered nicely, especially Canada, which is encouraging, because the Fed looks at employment. The right move by the Fed is to start raising interest rates and not fall behind the ball.

Market Outlook Inflation has to be on your radar, but he thinks it is transitory -- caused mostly by supply chain interruptions. Wage inflation seems to be more pronounced in the lower wage category, which likely needed it anyway. This means we will likely pay more for food service, for example. When production comes back up, he expects we will return to a deflationary market. The world is awash in liquidity which will cause prices in general to return. There are opportunities in many Canadian sectors such as health care, small mid-caps, lumber and other industrials. Yet these groups are producing record results.

We're entering a more hawkish environment, say analysts like Jim Cramer This is why he's sitting in cash. He expects the market to have a knee-jerk reaction down. Look at retail and freights in the past week; the market isn't sure the market will continue to be this strong, while rate increases will weigh. Pick your spots very selectively.

The Fed could invert the yield curve If this happens, it will hurt the banks, because they will lose their spread. But he's not worried about it now. If it inverted, he would hold a lot (more) cash. Possibly, that inversion could lead to recession, but not necessarily.

Today's show was cancelled due to the Bank of Canada announcement .