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

Rising bond yields. The market was a bit nervous this week, but the US 10-year bond yields are below what they were a year ago. Real interest rates are still negative. When the 10-year bond yields get to 3-3.5%, that's when you start to get a little nervous. Inflation needs to be watched. Feds have committed to low interest rates for the near future. If inflation gets up to 2-2.5% for a sustained period, markets can see more volatility.

U.S. 10 year yield. The US yield is 1.3%, and 1.1% in Canada. Very low interest rates. When interest rates start to go up in terms of the yield curve, it is a good thing since it means the growth outlook is improving. Cyclical stocks are doing better because of this. We must evaluate the discount on future earnings with higher interest rates for growth names and this is what is hampering their performance right now.

Are you still finding reasonably priced equities? We are. You can't look just at valuations. You have to look at the surrounding environment. Historically low interest rates, which naturally lead to higher valuations. Lower cost of capital, as well as competing asset classes. On top of that, the Fed has the market's back. Big cap has really been leading, driving markets higher. A lot of companies under the hood have good valuations, in different sectors, more value oriented, more cyclical, and that's where the economy is going.

Are you interested in stocks that have been hurt by the pandemic? Not necessarily, because the market also has been sniffing around there and driven prices higher. Look at DIS, MCD, and BKNG. He's seeing more value in the likes of GM, an industrial that represents great value with great innovation ahead of it.

How to participate in the EV revolution? He's purchased GM. A long time coming, and now it's a practical opportunity. Planning 30% EV offerings by 2025, and 100% by 2035. Tesla has built a fantastic brand, but there's a fundamental disconnect between the stock price and the fundamentals. GM is trading at 6x enterprise value to EBITDA, whereas Tesla is trading at 95x. A number of the EV upstarts will fail, just as most of the upstarts in the car industry failed at the beginning of the 1900s. GM is in a good spot in terms of innovation and cost structure.

Would you be a buyer of the airlines now? Pre-Covid, the airline industry was as healthy as it ever was. This underlies the importance of diversification. That black swan can come from nowhere and hit you. He wouldn't look at airlines right now. Severe financial damage has been done. A lot of work to do to get back to the metrics from before.

A year from now, what will we say about these markets? Stocks are not cheap now from historical metrics. But a year from now, we won't say that this was a bad time to buy. He's at a full weighting in equities right now. A lot has to do with both growth and inflation accelerating, two important pieces that drive equity prices. This is happening in 90% of economies around the world, and will continue to drive the narrative toward equities.

What about the cloud of interest rates if inflation comes back? No doubt that that's one of the key risks this year. If rates rise because of inflation, not great. But if they rise because of growth, that's not a bad thing. There will be a bit of a tug of war going on. Even with the 10-year in the US at 1.25%, that's still a negative real rate of return on that bond, so he's still not compelled to sell some of his growth stocks. We're still a ways from that discussion, but keep an eye on it. There will be lots of commentary on inflation over the next few months, and this will drive some inflation numbers higher in the short term. It's something to watch that it doesn't spill over into something more systematic. He believes that commodities will stay firm. Supply is low, and demand is picking up, and portfolio managers are trying to add exposure. Commodities outperform when growth and inflation accelerate, and that's what we're seeing.

Are you interested in any of the giant gold producers now? Not really. More attracted to some of the juniors in good jurisdictions, such as Marathon Gold. He'd rather be the one being acquired than doing the acquiring.

REITs right now? For REITs, he zeros in on two areas: multi-residential and industrial. Look at IIP.UN. It's a pretty good place to park capital for the long term. Industrial REITs are still attractive, even with their bounce off the lows. He's not interested in office REITs at all.

Stimulus is driving markets now, but buy any dips on weakness. More money will flow into stocks which will continue to drift higher. But markets don't go straight up. However, markets in the next 6-12 months will see a continued rise. Maybe in 2022, one could be more defensive. Markets are not tied to Main St, and it's unfortunate that some businesses will continue to suffer. Look at the value stocks.

US vs. Canadian banks It's growth vs. income. Canadian bank are an oligopoly: nice dividends and safe, but slower growth. US: lower yields, faster growth. There are more opportunities--and volatility--with US banks. It depends on what you're looking for.

There was no show today in observance of Family Day.