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

Educational Segment. Jeremy Grantham, renowned value investor, put out a report arguing value should come back. The percentage of US companies trading at 10x revenues is not quite as high as the peak in 2000, but it is still extraordinarily high today. On real basis after inflation, the expensive stocks trading at 10x sales did no better than bonds. You have a market environment that is crazy today. Value should preform better than growth. Value is trading at 40% discount to where it traded historically. He is increasingly moving into the value stocks.

Market outlook. There are signs of stagflation. Globally, inflation pressure is rising. There is a persistent uptick in inflation expectation and retail sales are wavering. The US economy may be in recession. The fiscal cliff with support being cut off could lead to spending stopping.

Stimulus. If this fiscal cliff comes, unless there is a robust economy next year, control of congress will move. The progressive policies of Biden's administration will not go through. They are pushing through spending bills. There are some political fallouts from the reconciliation process.

Federal reserve. The delta variant's R0 number, the transmission rate, has come down significantly in recent weeks. There is good news on this front. There is uncertainty around the debt ceiling and the financing needs of next year. It allows the fed to go slower. This makes inflation the biggest risk if it is not transitory.

There's consistency in this market will various sector taking turns in leading. This will lead to buyer's remorse as investors chase the Nasdaq then suddenly want the S&P. Seasonality predicts a confluence of negatives that lead to a sell-off. Oil and has is the only sector with true staying power; Occidental jumped today. The again, high energy costs push inflation for all other sectors; your cup of coffee gets more expensive. Also $70 oil always leads the Saudis to boost production to cap the price and keep their American competitors in line. Inflation is rolling through all sectors of the economy, markedly up from last year. Meanwhile, there are supply shortages which don't help; this hits industrials and transports. Meanwhile, retailers are struggling to get product for Christmas as stuff is stock at overseas ports due to Covid and other reasons. tech has been bid up, but it can't go further. Keep cash and take some profits by Sept. 17 when markets tend to dip.

September outlook. September is a seasonally weak month on average. -0.9% is the historic average for the TSX. Market sentiment seems there is a risk off atmosphere. There is political risk with an election up coming. With the back to school season and delta circulating, there are reasons. You can still buy into weakness. Still bullish moving forward.

Has exposure to value and cyclical trades. There is a good weighting in secular growth stocks. They also hold interest rate sensitive or defensive plays. Their most recent purchase is an industrial purchase.

Industrial sector. It's not a homogenous sector. Transportation sector has seen logistic problems so there is a lot of pricing power. There are shortages of trucks, as well as labour. It's difficult to get qualified people. More broadly, the sector is pro-cyclical and demand is coming back.

Bitcoin versus Gold. Does gold remain at these levels, or will certain categories and sectors come back? In an inflationary environment, gold will be preferable to him to bitcoin. It has a proven record of holding value. He would prefer Ethereum over Bitcoin since it enables processing payments and settlements.

Have relations between China and America so strained that the bulls are excited only when those two leaders talk on the phone? He's skeptical of any detente between the two nations. He thought that things would improve when Biden became President. We didn't see a rally in Chinese stocks today. Let's see if there's progress on Monday.

Seasonality Technical analyst Larry Williams explains that September is historically a brutal month for stocks. Add to that Delta worries and high government debt. 20 years ago, seasonal charts showed that stocks dive in September especially after Sept. 17. Today's chart by Williams shows that the patterns hasn't changed much. Sept. 17 is still the heaviest sell day through the end of September/start of October. The best time to sell the S&P is the 7th-last trading day of September, which is Sept. 22 this year. Though riskier, hold onto the 14th day of trading before selling for a higher return.

Momentum in tech stocks now? There are fundamental and technical criteria, but these days they're taking a back seat to momentum and stimulus. Massive miss by payrolls last Friday, but markets seem to ignore these events. S&P 500 has broken above resistance and tech has upward momentum long-term, but not in an excited way. Large caps are in overbought territory. He'd rather wait for some mean reversion before putting new money to work. He's just over 92% invested, with a 64% short equity hedge to protect on the downside. So, if the market were to drop 3-7%, he'd lose a bit but not as much as the market. If it goes beyond the 7% downdraft, his portfolio starts to make money. For example in March 2020, he came out with just over 8% rise in NAV.

Undervalued areas. In some of the unliked stocks. But, because there's so much money sloshing around, large caps are ruling the roost right now. FANG stocks keep going up because they have the liquidity on the upside and the downside. This year has been more of a trading arena in the tech sector. When stocks reach their price targets, he takes money off the table and goes back to his shopping list. There's tremendous upside in the Chinese tech arena, but he's stayed away because of the political risk. Every 2-4 years, the Chinese government comes in and flexes some muscle to remind everyone that they're driving the bus. When you get wind of that, best to get out of the way until the dust settles.