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

Today's huge tech bounce back--will it last? Today was a respite, not a bounce. Rates will continue to grind higher. This isn't over by any stretch.

Today's 4% rally in tech Bond yields had to decline today after a massive February surge. It's very likely the 10-year treausury yield consolidates around 1.5%. After so much optimism from vaccine news, this is a pause before we go another leg lower. Tech will lose steam as rates creep higher. Be cautious as they approach 1.75%. The second half of the year will be challenging, since the recovery is already baked into stocks.

Market. He looks for companies in the markets that have really well established businesses and competitive positioning. Value stocks have been outperforming Growth recently. This reversal was expected, but he is not doing anything differently. It is difficult to find attractively priced securities. Hong Kong and the UK have pockets of value. He also likes those that raced up at the start of the pandemic and are selling off now.

Inflation. There was an expectation that the Fed would talk about twisting the yield curve or supporting yield. The weakness we are seeing in equities over the last week so far, due to the stress from bond yields, is not upsetting the Feds. The March 17 meeting is a big focus. Investors expect talks about more liquidity to account for the stimulus. The debt needs to be paid, but the economy can't afford more yield. They might twist the yield curve and monetize the debt.

Gold. The story is about real interest rates. As the nominal yields go down, it signifies slower economy. Then there is a real aspect, which is the inflation side. The real driving factor is negative real yield. In the last couple months, nominal yields have been rising and inflation expectations have not kept up. Real inflation has been rising and has been a knock against gold. With additional debt, governments need negative real yields. Bitcoin has also taken away money that would have gone to gold bullion.

Educational Segment. There is a lot of talk about interest rates going up. According to the congressional budget office, 86% of ever tax dollar goes towards mandatory costs in 2021. The deficits are getting worse. The percentage of interest cost as percentage of GDP is 1.38%. In 2031, it will be 2.43%. The central banks are buying the debt and monetizing. This will be a permanent feature. When inflation comes up, it will put stress on the system. Central banks cannot have higher interest rates.

Bond yields. You gotta think about levels and rate of change. Bond yields are moving up, and this is validation that the economy is showing broad based recovery. At these levels, bonds are not competing for capital compared to stocks.

Promising sectors. It is a target rich environment. Positioning for economic recovery and their Canadian portfolio is over-weight in basic materials, metals, financials, and consumer discretionary stocks. Success in 2021 will hinge on what stocks are chosen not to own.

Canadian banks. There is value in the Canadian banks. They are great businesses in a well-managed oligopoly. Specifically this year, they offer good value and wealth management will see tailwind. Their net interest margins are still under pressure, but they should get back by end of this year.

Gold. Bullish on gold. The cycle is still on. A weaker US dollar is usually a good thing for gold.

An unemployment number was just right--enough to inspire a rally in tech as well as reopening stocks. It's been confusing for bond traders/investors. If we're hearing toward a boom, why do we need stimulus aid? The Fed won't raise rates soon; this recovering is in the early innings and still vulnerable. It feels like late-2015 to early-2016 when Janet Yellen raised rates which crushed stocks. He fears that will happen again, though Powell assures he won't raise rates soon. We're not out of the woods. He projects that good economic news will trigger dumping of bonds and raising interest rates, but weak economic data will reverse that. If oil keeps rising, then rates will rise higher and hurt tech stocks. Be prepared for choppiness next week. Lighten up on SPACs so you have cash.

OPEC planning to keep oil production flat through April. The issue is the Saudis don't want to cause the price to collapse. They're doing the right thing by keeping oil stable at these levels. Have to be careful, because if price gets substantially above $70-75, shale will come back on production. It's a fine line. Need to reassess in April. Oil would have to get substantially above $100 to negatively impact the global recovery.

Energy strategy right now. He owns CNQ as best in breed. Has executed incredibly well in its history. Also owns ENB, as an infrastructure play. These stocks got so cheap last year with the drop in the oil price.