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

He expects the Fed's Powell to keep interest rates low in order to boost employment levels, even though there's pressure to raise rates and to allow higher unemployment. Also, if interest rates rise, they tend to keep rising and this could lead to recession which sparks the need to issue more stimulus (which he doubts in a divided Washington). Alternatives to raising rates include allowing gold mines to issue more copper as a buy-product and China slows its orders (their economy is starting to cool); US drops tariffs on Canadian lumber to reign in those prices; plastic prices will plummet as plants they were shut down from recent storms restart; farmers buy needed equipment, plant a lot more and that will drive down those commodity prices; Permian basis drillers produce more which pushes down crude prices; Taiwan Semi shifts emphasis to car chips; the exodus from city to country ends (with Covid); steel mills add capacity; homebuilding slows as does demand for appliances along with need for metals, tech disrupts expensive goods.

Inflation. There are several risks to the market. Valuations in some places are dangerously high. The data is mixed on inflation. We have clearly seen inflation rates kick up. We must be prepared for persistent inflation. Must position portfolios so they work for both environments. There are also taxes being hiked that are changing portfolio allocations.

Cryptocurrency. There has been a past for them. Right now, it is a lot of speculation. There is little fundamental value, yet we are seeing them used. There is enthusiasm for them. The concern is that there is nothing anchoring their valuation. It is a pure momentum play. Likely to see central banks issue cryptocurrencies which could take the wind out of these private cryptocurrencies.

High Yield Bonds. It is a tricky place to be. The credit spreads are pretty low, which means the prices are high. Going through hundreds of bonds to balance risk with returns. Does not look at junk since risks are too high. 4-6% is possible, but you must do deep research in order to find good high yield bonds.

Active versus ETFs. When you own ETFs or index funds, your money is concentrated in high multiple plays. For example, investing in the S&P500, the top 5-6 stocks accounts for 25% of the market. Risks of higher inflation and interest rates means you have to be concerned about high multiple stocks. Companies that rely on higher future earnings will be worth less due to discounting the future more.

Portfolio in retirement. The intermediate solution is to create portfolios that have different target yields on the equity side. You give up a bit of appreciation but you can sleep better knowing you get the dividends. On the other hand, putting together investment grade and barely high interest bonds to get 3-4% yield on the fixed side. Banks are great places to put money in since they pay a dividend, tend to do better in higher interest environments, and it's a reopening play. Energy and industrials are similar.

Currencies. The exchange rate of USD and other currencies are hard to predict. Right now, the dollar is unusually strong due to the stimulus we have seen in the US economy and reopening sooner than other countries. CAD can continue to strengthen relative to the USD but wouldn't make a bet on it. International diversification is important since there will be a global recovery and you can diversify currency risk.

This is JoAnne Feeney's first show so there were no Past Picks .

This week proved that investors can get too negative and miss out on stock performance. There was panic over inflation fears based on rising inflation data, but the last two days stocks, especially tech, bounced back sharply. Also, reopening stocks have run up hard, perhaps too far, lately, so they haven't maintained that pace. Doordash and Airbnb, for instance, delivered good quarterly reports this week and they bounced back strongly. The lesson: Stay the course. When things look ugly, they often snap back. You can buy when they pull back.

Stocks at great value? From a technical perspective, some analysts are cautious. US growth stocks have pulled back. Will there be a rebound, or will the correction be 15-20%? Overall, high price earnings growth stocks will have the largest impact. Wednesday's inflation data was higher than expected. Is this transitory, or will it lead to tighter monetary policy? If the outlook continues to be cautious, gold and gold stocks may benefit. This is a correction, though significant, in the secular bull market that started in 2008 and will continue well into 2030.

Interest rates. Rates will have to get to around 3% before it's a headwind to stocks. Inflation will rise, but it won't be a lot higher than expected, as there is too much production capacity and too many supply chain bottlenecks. The question is will there be an equity correction before the end of the year.

Oil vs. gas. Doesn't have a preference. Oil is headed toward mid-70s. Not enough gas storage in Europe, so this will increase price of gas around the world, and this will benefit Canada.