A Comment -- General Comments From an Expert (A Commentary)
COMMENT
The U.S. 10-year yield keeps falling He disagrees with the Fed. He thinks we'll test 1.25% in the 10-year yield, but bets we will hit 2% by year's end. The markets could crater even below 1.25%, but he expects rates could go higher. In fact, rates can go higher, and the USD lower. We may be on the verge of this. If so, he would buy resources.
COMMENT
We're at a point in the road where the easy money has been made--reopening in China and America who have driven commodities hard. Investors are now taking a breather to determine how sustainable oil prices (and other commodities) will be going forward. Meanwhile, the US 10-year yield (now 1.37%) has paused the gold trade--June was its worst month in 4 years. May saw the worst inflation rise in years, and the U.S. Fed increased 2021 expectations from 2.5% to 3%. It will come down to how "transitory" inflation will be, and will get priced into gold the longer it stays sticky, especially going into 2022.
COMMENT
Delta variant. A noise factor. We have seen the positive impact of vaccinations and health measures. It is not eliminating transmissions but it is impacting hospitalizations. Markets respond with memory of what happened last time cases went up. However, the impact is reduced.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Didi IPO. Have looked at KWEB a few months ago, which tracks Chinese tech. He saw that there was a risk of a pull-back. The valuation of Chinese tech companies relative to the US, there is a significant discount in terms of multiples. Any weakness caused by something like the Didi Chinese regulator issue would be an opportunity for investors.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Alternatives to fixed income. This asset class is broken and it may be on a permanent basis. The yield you get from your core fixed income is lower than what it used to be, which causes the challenge. You don't get the interest protection and after inflation, it is negative. The debt in the world means interest rates must stay low. The private credit area is booming, where they lend in areas banks can't or won't. The yields are around 6-10% but without volatility. Private real-estate lending is quite interesting. There are alternatives but they are hard to get into with minimum balances. There will be more in the next years that will come to market.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Utilities to combat inflation. They have a lot of capital and if the cost of capital goes up, then their margins go down. The energy sector for now is very positive. If you think inflation pressures will build and you want fixed income type exposure, then you can look at gold and inflation-linked bonds. Utilities in general will not be a good hedge against inflation.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Educational Segment. The world is going green and there is a tremendous down trend in investment in the energy sector. There is ESG, US shale dropping off and Canadian production being stymied that are affecting oil right now. The futures markets are at $65-$75 for the next year or so. If you extend this out to a decade from now, prices are anchored in the $50s. Prices were depressed in 2020 and forward prices are still depressed. There is short-run supply and demand. It is bullish for oil as a trade. The prices could go up to $100 range. However, it is not investable. Only for trade.
Larry Berman CFA, CMT, CTAUnknown
N/A
Market. There are two camps when it comes to market opinion. The first camp feels that the market might be a bit high and a correction may happen but otherwise it is upwards from here as the economy opens up. The other camp believes that a savage bear market lies ahead of us as valuations are so high. Once a bear market gets under way it would be hard to stop. He feels that a lot of investors have lost tack of how expensive the S&P actually is in price to book terms. Consider that the S&P is just 15% away from the same peak in price to book terms that it reached in 2000. After a 5000 level, he would be surprised if it can rise. He thinks the FED cannot afford another market sell off.
Ross HealyUnknown
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Holding USD for currency diversification is positive. However, forecasting exchange rates is complicated, especially over long time periods. It is preferable to hold US equities long term instead. Unlock Premium - Try 5i Free
Stockchase InsightsUnknown
COMMENT
Second half of the year. We have had a great run in the market. We have gone from a scary situation last March to getting out of the pandemic. Many companies have thrives through this year as well. Markets have done well and over the last year, the best strategy was to buy companies that were growing, irrespective of whether it was making money. This year will be different where stock picking will be very important.
Alex RuusUnknown
COMMENT
Growth versus value. Usually putting stocks into two categories is an oversimplification. Has done extremely well by picking stocks that were overlooked by the market and not getting much attention. Focusing on the fundamentals, such as free cashflow and valuation, is a much better way to evaluate stocks.
Alex RuusUnknown
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. There are always risks in the market. However, 5i does not recommend having a huge cash position, considering tailwinds like economic growth and risk of inflation. Moving cash balances is a form of timing the market. Consider your risk tolerance and timeframe. Unlock Premium - Try 5i Free
Stockchase InsightsUnknown
COMMENT
Is there room to run in the 2nd half of 2021? Any summer sees leisure and travel stocks benefiting, plus we're reopening after Covid-19 so masks are coming off as theme parks are opening up, for example. We'll be hitting the roads, which will revive oil prices and energy stocks. Cryptos had such a huge run, but the price has somewhat stabilized now. They may get a second life and go to the moon in the second half of 2021. We've seen huge tech innovations and investors have become savvier. This isn't your granddad's stock market. We haven't seen a 10% correction since Covid hit. The recession we had saw the fastest recovery in history. Risks are inflation rising again; we could see a surprise--or signal of a--rate hike. There are also cybersecurity risks from abroad. Remember that August is seasonally a slow month. We've seen six months of unemployment gains, which could trigger the Fed to change monetary policy. All this could effect the second half of 2021.
COMMENT
Is there still room to run in the 2nd half of 2021? In coming months, she expects the cyclicals to resume leadership because US 10-year to move higher. Also, excess consumer savings will boost earnings in cyclicals. She guesses surprises to the upside to be significant. She is bullish. She likes materials, driven by global economic recovery, like oil. Valuations of both classes remain attractive despite the stock run-up. She also likes banks which have passed the stress test and buyback shares. She sees the 10-year yield steepening, which favours banks.
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