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

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Strength in consumer spending. Consumer is quite strong. It's never been an issue of demand weakness; it's always been a problem of supply. Pent up demand from being locked inside for so long. Corporate earnings have been excellent, up Y/Y by 39%. Operating margins are close to a record high. This says that companies can either offset or pass through inflationary pressures. If you look at a 2-year chart, there's been a huge 25% in earnings growth since 2019. Corporations haven't missed a beat, and this is supporting higher prices.

Neglected areas of the market. Some areas are presenting opportunities, like industrials. The growth metrics get you excited, and the valuations get you even more excited. See his Top Picks.

Considering exchange rate and low CAD, sell Canadian stocks and buy American for long-term profits? Don't move from currency to currency looking for a foreign exchange gain. That's a tough game. But when you move to US equities, you move beyond the shackles imposed by an economy that represents only 3% of the wealth of the world. US has huge breadth and depth and exposure to many sectors not available in Canada. Have a broad, geographically diversified portfolio. Build your portfolio, with Canadian and US stocks, 20 of each, with a 2.5% position for each.

US equity allocation TFSA vs. RRSP. When you move to US equities, you move beyond the shackles imposed by an economy that represents only 3% of the wealth of the world. US has huge breadth and depth and exposure to many sectors not available in Canada. Have a broad, geographically diversified portfolio. Build your portfolio, with Canadian and US stocks, 20 of each, with a 2.5% position for each. Put the most aggressive stocks, with most capital appreciation, into your TFSA. Use your RRSP for a more balanced approach. Tax implications for TFSA include a 15% US withholding tax, which is not recoverable. Whereas in an RRSP, there's no withholding tax on US equities. In a cash account, you can recover the withholding tax when you file your taxes.

Fintech opportunities. 75% of millennials don't have a credit card. They pay by other means. AMZN just shut out Visa UK. This may be the thin edge of the wedge. Lean more towards fintech, but be careful, as they are pricey. Wait for a good entry point. PYPL may be approaching that.

Homebuilding cycle. Cyclicals don't last forever, but the homebuilding cycles tend to be longer. Demand is still very strong. Millennials are moving from cities to the suburbs. Interest rates are low, even if the Fed raises. As a cyclical, you always have to watch for it to turn.

Inflation costs being passed to the consumer. So far, big US companies have been able to pass these through. Operating margins from September are 12.9%; record level was 13.1% at the end of June. Companies are profitable, and the only way to do this is to pass costs along to the end user. This is called pricing power, and it's a good thing. It turns bad when it becomes so intense that there's demand destruction. You can charge more for your widget, but you end up selling fewer of them.

Wait to recoup losses or sell? A lot of investors want to get their money back, sticking with a stock as it loses money for them. Your feet should hit the floor every morning thinking "Is my portfolio the best it can be?"

Inflation. Definitely top of mind for all investors. US CPI just over 6%, plus Canadian numbers creeping up to just under 5%. The highest numbers we've seen in a very long time. Question for next year is how much pressure will central banks feel to raise rates to combat inflation? They've been very accommodative since the pandemic. But now it feels as though they're losing control of the narrative. Everyone is feeling the pressure from higher prices. At some point in the new year they'll have to get more aggressive. But they're faced with hiking rates into an over-leveraged economy, which creates other problems. The inflation question is the one that's most important to the direction of monetary policy from here.

Pushing cost inflation through to customers. With the markets being as strong as they have been, markets don't seem too concerned about inflation. But some companies are having a harder time on cost pressures. This earnings season we're starting to see the winners and losers in terms of who can push through higher prices without being affected. Growth is still high. Corporate profitability remains very strong. Markets hitting all-time highs shows it's not too concerned about inflation yet. It will all come down to monetary policy in the new year, and investors will have to assess how it will affect their portfolios.

Position in highly leveraged nat gas stocks? If things continue to be in the sweet spot, you're more likely to get a higher return with a company that's highly leveraged. But he'd rather stick with the high quality producers, get a decent return, and be happy with that. He doesn't need to gun sling for a massive move higher.

Canadian banks. He owns TD and RY right now. Setup is interesting. OSFI recently released the handcuffs on dividends and share buybacks. Usually banks do well at the beginning of a tightening cycle. We're in a tremendously over-leveraged economy. As we go along, and rates rise, banks on the other side of this credit cycle might have a tough time. He's as underweight banks as he's ever been. TD and RY are still great franchises, but he's not that excited about the banks. They can go higher, but you have to evaluate the risks of the credit cycle.