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

A portfolio based on reflation. In the post-2008 banking crisis, USD stayed strong, US equities outperformed, growth stocks such as technology outperformed. These were big trends that have exhausted their lifelines here. Covid wasn't a classic recession with a long workout period. Instead, we had barely a bear market at all. In the period ahead, we can get higher growth and higher inflation. So, the USD should be chronically weak, growth stocks should underperform, and value and international markets should outperform the US. Last month was a bit of a countertrend rally, but these reflationary themes have years to last. Look to things that do well, commodities included, when global growth is higher.

REIT distributions less attractive with higher interest rates? There is interest rate risk. Bonds are pretty much dead money, but yields will rise over the coming years. Definitely a headwind. Utilities, preferred shares, REITs are in that camp. Interest rate sensitives are difficult, and you have to be really cautious. REITs are an interesting space, but 3-5 years out the returns will be subpar.

European bank dividends. The market's become so demoralized about European bank dividends, they have low expectations. As a macro investor, he looks at the behavioural side of things and that's exactly when you want to invest. Dividends were restricted last year, but those are being lifted now. Buy backs will resume and dividends will be solid. One of those beat up value plays that will be swept up in the global recovery.

Next commodities cycle. His team's belief is that commodities have completed their secular downturn. "The best cure for low prices is low prices." Leaders of this commodity bull market will be the base metals like copper and iron ore. Oil is interesting, but not as interesting as the metals. Instead, he'd investigate some of the ETFs that track base metals.

Markets. He's not on the impending crash bandwagon. Current economic backdrop is anything but a crash scenario. Crashes happen rarely and are normally event driven, not part of the economic cycle. Recessions happen for 3 reasons: events (like the pandemic), cyclical, or structural. We're mid-cycle, with economic growth on the horizon, lots of liquidity, savings rates are high, huge fiscal stimulus, we're not over-inventoried. We're in a good position, having come steeply out of the recession. Try to curb emotion and don't listen to the naysayers.

If the bubble burst in one asset class, would that spread? Structural recessions are often the result of a bubble being burst. Meme stocks and crypto run the risk of a meltdown, as they aren't fundamentally structured. They don't have a lot of support underneath them. Blockchain will be part of the future, but what precedes that are periods of speculative growth. These sectors aren't big enough to throw the economy off the rails. 2021 will probably end 10% higher for the S&P than 2019. Market still has room to go.

Marijuana stocks. They own CURA on the TSX. Canadian-listed, international company. One of the leaders in NA and Europe. Lots of opportunity in the US, where the tide is toward full legalization. See his colleague Brian Madden's comments on CURA.

US banks. An impending recession would make him move away from the banks. For example, if the economy was long in the tooth, and central bankers were trying to dampen inflationary pressures. Where we are is being misinterpreted by the markets. Everything is working for the banks. The economy is starting to do well and there's a ton of liquidity out there. There's not a lot of reason right now to go to banks for loans. Once people spend what they have, they'll have the confidence to go to the bank for a loan. When the economy does well, it will be able to digest higher interest rates, and the banks will do well. This is a good opportunity to buy banks with both hands. Capital is piling up. Very strong on this sector.

ETFs vs individual US banks. An ETF is an option. Make sure you look under the hood to see the component parts. Pay attention to the weighting of the holdings and the MER. Don't buy something that's overpriced.

People miss the forest for the trees, in this case today the U.S. bank stocks which mostly surprised. The banks tell us about the economy: Americans are incredibly rich. Covid transformed this nation from spenders to savers, with consumers now boasting the best balance sheets in history. Consumer spending can truly ramp up going forward.

Vaccines and the reopening are. Corporate earnings growth (earning season is starting today) will drive this market. Emerging markets lag, but she expects they will receive vaccinations and she hopes vax rates increase. YOY growth rates this earnings season will be very high. She'll be looking for management's outlook--increases in demand and corporate spending rising. As inflation spikes, where do companies see cost pressures? Are there labour shortages? Will they absorb these costs or absorb them through productivity increases? The consumer saved a lot of money during Covid, so consumers have stepped up spending in the U.S. Prices in hotels and airfares have spiked. Corporations spent on tech to allow work-from-home, and they continue to spend this year back to pre-Covid levels; corps feel more confident. Demand has returned, so companies have to spend to deplete supplies and she expects them to. This is all positive. Ironically, the problem the banks have now is not enough spending; the savings rate is still up. Consumers are actually paying down their credit cards faster, but loan demand will eventually return and there was growth this past quarter. As international travel picks up, credit card spending will increase (during vacations and work conferences).

CAD outlook for the rest of 2021 Forecasting currencies is difficult. The CAD started strenthening against the USD starting a year ago. Maybe that's due to the BOC being more hawkish than the US Fed, and energy prices have surged. She thinks the CAD is rangebound at 75-85 cents. The economy will drive what will happen to the currency. She doesn't see the Canadian economy growing stronger than the US, though both countries are reopening and both will see higher interest rates at some point.

Market. He thinks we are early in this market recovery We are going to see strong profit growth out of cyclical companies. He thinks there will be strong economies and growth for the next three to four years. Don’t be afraid of the high valuations. Auto parts manufacturers should do well. He thinks supply issues will resolve. A high quality growth name is measured through return on equity and return on invested capital. Investors should stay invested.