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

There is a lot of dividends, stock buybacks happening. Cenovus came out with an aggressive stock buyback plan. Shaping up for another good year for next year. In a multi-year bull cycle for oil. There is still a long ways to go. Companies are re-allocating cashflow, generalists are coming back and the set up is unbelievable. Demands are back to pre-covid levels.

There is a lack of knowledge of how oil is integral to our lifestyle. Analyzing other alternative, the time line is decades. Most companies can privatize themselves with 3 years of cashflow right now. Even today, there is a generational opportunity. Stocks are cheaper today than January 1 of this year.

Demand will start to fall with other alternative come online, but the real story is on supply. OPEC spare capacity has been falling and global super majors have not been investing either. Other than a new wave of vaccine resistant variants, it is hard to see a reversal right now. Commitment to return of capital will rerate the stocks.

Oil. We went through a commodity trough last year, and we're coming out the other side. Supply/demand issues. Everybody is looking for ways to recoup what they missed along the way, and OPEC is no exception. We're going to be in a tight oil supply situation for some time. The liquidity that's been pushed into the system is only just starting to hit. On one side we have producers who've been exercising control in capex spending, and on the other side a ramp up in demand. It's going to be an interesting winter.

Markets and inflation. Wonderful lift in the reflationary sectors from October till April of last year, and then they went into hibernation and consolidated. We correct markets in price or in time, but not much price correction even in September/October. Russell 2000 just broke out in the past week after 6 months of consolidation. We've just started the second leg of this bull market. Likely to be a good winter into spring.

Risks. Breadth is expanding solidly across the board. A concern if rates were to spike more quickly than the market is expecting. Bond market isn't hurting anyone too badly, but it's something to keep an eye on. If earnings estimates started to roll over, that would be a worry. The sectors that had relative improving price strength through the correction were the economically sensitive groups, and that's where he's focused. That's telling you that the market is looking through the problems to things improving on the other side.

Economically sensitive companies. If you were to look at all the companies that really benefited during the pandemic (for example online retail, digital payments, fitness), most got quite expensive and are now a source of cash for companies that are more sensitive to a reopening.

Buying on a pullback. There are 1000's of companies to choose from, but you only need 15-20 companies to build a portfolio. You don't want to buy the one that has a current question mark. If we're in for 6 months of a great market, which he thinks we are, there are better ways to use your money.

Online retail. The whole online retail group continues to struggle a bit. IBUY, as a proxy for the entire group, has underperformed for several months.

Commodity cycle. We've been in a commodity bear market since 2008. The major commodity indices, as of a year ago, had given 10-year annual returns of about -10% per year. Let that sink in. When a commodity bull market completes after 10-15 years, the 10-year returns tend to be about 18% per year. The 10-year compounded returns of the major commodity indices are just now breaking even. There's a time to own things, and a time not to. For commodities, you need to have the wind at your back. We're in the very early stages of a structural bull market across the commodity complex. Last cycle for RIO was a 10-bagger over 10 years. The Canadian market has more exposure to commodities than most, which is why we act more like the commodity cycle than the US growth cycle. It's early for this group, and it's underowned. The best commodity index to look at is the Rogers Commodity Index, RICI, an unweighted index across all major commodities. It peaked in 2008 and has only recently broken out of that downtrend.

Be afraid of financials making new highs? When something's making a new high investors get nervous, since they don't want to be the last ones to buy. The reality is that it's been making new highs all along the way. Don't be afraid of a company that's making a steady advance, especially if the sector they come from has a tailwind. Financial sector is currently one of the best performers currently relative to the rest of the market. Seeing good conditions such as rising bond yields and improving economics. Most of the Canadian banks will raise dividends when allowed. Financial services around the world have been underappreciated for a long time, as they did badly in the financial crisis. An underowned and relatively inexpensive group. Financial services are likely to lead for a long time. Added fuel of dividend increases will be very attractive. Making a new high, and then consolidating, could kick off a new leg in the rally. Financials are likely to perform well over the next number of months and years.

Markets near all time highs. Yes, but there's not too much optimism. Almost mid-way through Q3 earnings season, and the numbers are rolling in very strong. Strong and broad-based growth. Looking forward to continued earnings growth of an additional 7% for 2022.

Weight of government debt. A longer term cost that will have to be borne. Government spending adds to GDP. You could argue that governments over-stimulated, and so we have more pervasive inflationary pressures. This will be additive to growth in 2021 and likely to continue in 2022. Ratifies centre-left agenda of big government, big spending. Down the road, we'll need to see more fiscal restraint in the form of spending cuts and tax increases. This should bolster, not detract from, expected strong earnings growth next year.