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

Are megacap tech stocks too powerful? FAANG plus Tesla? Government is cracking down on some of these big names like Amazon, Apple, Alphabet and Facebook. Only Microsoft and Tesla have gotten away from getting targeted. He thinks Washington considers these companies all wrong. Do they need some control? Sure, but tech companies are innovative--he's proud of them.

The TSX has been on a 14-day run, pausing this morning. The outlook is reasonably positive, given how consumers are flush and are spending more on restaurants and travel with more to come. Stocks are expensive, but there's better value in Canada than the U.S., so there's room to run in Canada with pockets of value. There's a lot of uncertainty and disagreement over inflation, driven by supply shortages. If inflation stays around 3%, this could lead to problems, placing some risk on stocks.

Educational Segment. Looking at core inflation over the last couple decades, the level now is the highest since 2014. Starting to get in the 4% range due to oil prices that are rising. Net importers of oil will have negative GDP shock, compared to producers of crude oil. On Friday, Powell sounded much more hawkish than in months. Feds announced unwinding in the next few months. Yellen also showed some change in sentiment on inflation. The market is not ready for this.

Interest rates. Whatever the terminal rate of the interest rate hikes will be less than what it was in the last cycle. The global economy cannot handle higher interest rates. We will see central banks pull back accommodations and things will weaken off, where things will need to be cut off again. The important aspect is how sticky the inflation pressures are.

Big tech earnings. Traditional FANG names with a focus on advertising will be stressed from the Apple privacy changes. There will be more and more scrutiny as they get larger and larger. Should look at areas that has value, especially with inflation perhaps being less transitory.

Inflation. This inflation will be more sticky than what we have seen in the last 10 years. There is meaningful strength in labour in terms of negotiating. Inequality is the biggest issue and governments have a mandate to attack inequality. Higher wages would hurt corporate margins.

China. If China wants to be the biggest economy in the world, they cannot clamp down as much as they want. Demand side for commodities doesn't moderate much. Demand for energy will continue.

Market. There are still lots of great growth companies to buy at attractive valuations but valuations are going to go higher. Yields will go higher. The air may be taken out of some of the higher valuation names. The banks have been sleepy over the last couple of years. The net interest margin should increase and lots of capital should be released over the next year or so, coming out of the pandemic. Shortages in commodities will continue for the next couple of quarters. Inflation is not going to run rampant. We are coming out of a decade of underinvestment across metals, oil, gas and uranium, so you may see prices continue to move higher.

Mastercard announced that any of its merchants can soon offer crypto services. MA is up 1% YTD, but Visa is up 7% and AmEx 50%. Stay with AmEx. Remember that most banks won't let you buy cryptos; banks are so behind this story and when banks do adopt cyptos then Bitcoin can go much higher.

Oil outlook as the price keeps surging It's likely oil will see another boom-and-bust cycle; ESG is a major influence as investors move out of oil and into renewables. He's long oil. He sees a trade in these oil stocks, though. He prefers the integrated energy companies (didn't name one).

Mastercard announced that any of its merchants can soon offer crypto services. It's a very big deal, this adoption of cryptos. He sees four phases of crypto adoption: the venture capital phase, growth phase, commodity phase, and now it's heading to the last phase where Bitcoin becomes a usable currency through Mastercard.

He's very bullish and staying in the market. not selling. Wage inflation is transitory and he sees normalization coming in the next few months. He's not surprised by bottlenecks, post-Covid. This is a stockpicker's market.

His outlook is long term. There are no great asset classes now, given inflation and interest rate concerns. Nothing looks great. He's been to conservative this year, though he's done okay with oil and other commodities. How will rates behave next year? It's impossible for anyone to know, including the Fed. If the US 10-year stays around 1.6%, stocks will probably go up by 5-10%, and he'll play the game by going in and getting out. But it's stupid to buy bonds at 1.6%. Will people keep buying bonds? And selling stocks means paying a large tax bill. Stay exposed to stocks for the long run. It's likely the Fed will taper next month, but he doesn't know what will happen. Overall, he doesn't like the market now. It's like Vegas now.