A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Educational Segment. Everyone is looking for enhanced yield in their portfolio. People are looking at covered calls so their safe money is protected from inflation. The covered call strategy is a buy low, sell high strategy.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Earnings and interest rates, the two things that count most, are positive. However, there is some worry over inflation and government debt. Some say asset prices have increased due to money printing. The velocity of money needs to increase for real inflation to kick in. Unlock Premium - Try 5i Free
Stockchase InsightsUnknown
COMMENT
US Inflation. Have to look outside of the current period that we are reporting for. Some activities suggest it could get better in the future. Looking at inflation and central banks, he does not think the magnitude of inflation priced into the market will be realized. If supply chain issues are resolved, inflation should be modulated. For example, there is pressure being lifted from the auto industry with semi conductors.
James TelfserUnknown
COMMENT
Generally, the higher quality companies tend to check back when materials and energies perform. This is a good entry point for good companies. There are pockets of the market where there is good value. Valuation disconnect in Canada is quite wide compared to the US. Both are good markets.
James TelfserUnknown
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. If you are concerned about inflation, commodities, materials and consumer staples are good places to be in. Telecom and financials also do well. Companies with high pricing power would be at an advantage in this environment. Unlock Premium - Try 5i Free
Stockchase InsightsUnknown
COMMENT
Is there too much cash looking for a home? A combination of tons of cash, investors desperate for yield, with low interest rates making investors more confident that rates will remain low. If people think that the 10-year bond yield will be less than 2% five years from now, and that stocks look cheap, that's a pretty risky bet.
COMMENT
Unloved areas of the market. Financials, even though they've participated in the run up. Banks, insurance companies will be huge beneficiaries if interest rates go up, especially if the yield curve steepens. There are still some companies that offer great long-term growth and there's still value, but they're getting tougher to find, and one has to tread carefully. You don't want to buy into a stock whose PE used to be 30 and now it's 50.
COMMENT
SELL
Perpetual preferred shares. Most preferred shares these days are rate-resets, where the issuer has the option to call them back and take you out. Perpetuals go on forever. The problem with perpetuals is that they're like owning a 100-year bond, so if bond yields go up, the value of your perpetual goes down. He's of the view that interest rates are going up, and so if he owned perpetuals, he'd be selling.
COMMENT
Government debt. Global debt is weighing down government balance sheets, but not so much their income statements because all the debt has been issued at extremely low interest rates. Money needed to service the debt is not as much as it seems. When there's inflation, the value of that debt declines over time. So he's not that worried about it. Debts peaked late 2020/early 2021, so debts will decline globally going forward.
COMMENT
Corporate bonds with a high yield. Regular bonds are in negative territory. The only fixed income class that does well in a rising rate environment is high yield bonds, which have an attractive 4-5% yield now. The thing is that you need a very diversified portfolio. The only way to invest is to own a fund with adequate diversification, hedged to CAD because you want to be in US bonds. You're always going to have a default or two, and that's why you need a fund, rather than just picking some up on your own.
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Premium contentCOMMENT
- GameStop Corp. (GME-N)
- ContextLogic (WISH-Q)
- Advanced Micro Devices (AMD-Q)
- Tesla Motors Inc (TSLA-Q)
- Paysafe (PSFE-N)
- Bumble (BMBL-Q)
- Goldman Sachs (GS-N)
- SmileDirectClub (SDC-Q)
- Blink Charging Co. (BLNK-Q)
- Caterpillar (CAT-N)
- HSBC Holdings P L C (HSBC-N)
- Lordstown Motors Corp. (RIDE-Q)
- Affirm Holdings (AFRM-Q)
- Rivian Automotive (RIVN-Q)
- Walt Disney Co. (DIS-N)
COMMENT
Inflation. Significant portion is coming from energy. There are real inflationary pressures out there, as the labour market keeps getting better and wages are rising. Interest rates will remain lower for longer, so it won't have too much effect on the companies they own for the long term. Shorter end bond yields, tied to monetary policy, has been moving all over the place. But the 10-years haven't moved quite that much. People might be thinking we're getting to peak inflation.
COMMENT
Positioning. Continues to like tech. It's been a great space. There was a time when rates were going up, tech stocks were getting pulled. It might make some sense on a discounted cashflow model for some higher growth companies; however, there are a lot of good companies that aren't as tied to rates as the market was suggesting. This disconnect has been rectified with tech now going up with rates, which is more normal. He's focused on workplace technology and enterprise solutions. Security has been important. He's not avoiding any sectors in particular; they have broad exposure.
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