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

Take profits Millions of young investors have started buying stocks, not just because of zero-fee Robin Hood, but these folks are having fun buying tech like Shopify. He's been waiting 20 years for retail investors to return, but he's torn seeing these young investors embrace stocks. The last 9 months have seen a strong bull market, but remember that things can't always stay this good. Are we seeing mania in investing? A bubble? King Midas in Reverse. For instance, EV stocks will get too big and run out of juice. Discipline trumps conviction. Discipline means taking some profits off the table instead of letting it all ride. No, don't dump your entire position, but don't be greedy. No one ever got hurt taking a profit.

Markets started the year euphoric and he sees 10% upside to spring and summer. The election and vaccines mark good news, bad news out of the way. In US, retail investors are throwing money at momentum stories, which is a big vulnerability. He wouldn't be surprised with a pullback. Bond yields increasing: he sees the yield curve climbing steeply. Doesn't see negative rates. After Covid, this economy will be incredibly strong driven by pent-up spending (savings rates are up). This leads to inflation and reflation which he hasn't seen in years. He sees a risk to bond prices as rates climb--the short end will be low while mid- and late-term will be higher. This could lead to inflation that we haven't seen for decades.

Real return bonds Inflation will go higher, so bonds are a great way to participate in this. Remember that when you buy this, you buy a negative yield which offsets inflation; if inflation returns, these bonds will rally. It's complex.

For 2020, the market was expecting $170 in earnings. We got $125 because of covid. Looking at 2021 and recovery, the estimate is around $166-$175 for the S&P500. The multiple is at 23x - 24x, which is quite expensive. Earnings will need to deliver to justify these multiples. Interest rates have also been a justification for the multiple. However, interest rates are creeping up. It should add volatility in the first quarter.

Stimulus will happen regardless. However, it may be a little ways away. He expects to see more stimulus in February and March. The Trump impeachment process should not bother the markets too much.

Gold and bitcoins. Still bullish on gold. People who would buy gold as a hedge for fiat devaluation is now buying Bitcoin. However, Bitcoin is incredibly volatile. Gold has thousands of years of history as a store of currency. Bitcoin is taking money flow from gold however.

Educational Segment. There has been a spike in call volume in the last weeks. The more people speculate with calls, there is more leverage that pushes the market higher. There is more hedging that is required due to this. The indicator shows that the S&P500 are in the cautionary area. The market has nonetheless gone higher due to the leverage coming in. Once the options expire, the hedger needs to sell the hedge. Friday's option expiry will be interesting. He expects some market impact. There is a lot of speculative money which does not make it high quality.

Market. Market. The S&P has made a technical break out that could lift it another 25%, regardless of supporting values. We need to wait a couple of days for confirmation. When you combine all the stimulus that has already been put in, and Biden coming into office, where is all the money going to go. He does detect a sense of un-reality. He lived through the 1972 bubble and the .com bubble. The market will keep going up until it stops. The bond market is breaking out over 1% and although not sounding serious, imagine if it moved to 2%? It would have a profound impact on the markets. He feels value stocks could have a way to run.

Gold Stocks. They are cheap in general, especially the more junior ones. 10 years ago you saw strength and a move, then another move in the gold stocks in the middle of the decade, but in both cases they had big setbacks. This time around the stocks are acting very, very cautious. He feels this is a value group that has yet to participate in the market and that they will.

Tech Stocks. When he calculates their fair market value, they are roughly fifty percent over valued. He does not recommend moving into them. Meanwhile with the value stocks and the market coming on, you have plenty of place to go. When these stocks lose altitude, it takes years, if ever for them to come back to their highs.

Despite a sell-off today, the market continues to focus on the positive, not the negative (i.e. more political unrest in Washington, Bitcoin down 21%, Covid). Monday saw a weak opening, but buyers then grabbed stocks. Retail stocks, for instance, continue to rise, because investors see the positive--the future re-opening--despite line-ups to enter shops like Best Buy (which limits sales and irritates customers).

There's no shortage of uncertainty in the market. The big concern is valuation and where markets can go from here. The uncertainty will not change, but there are pockets of value. Energy infrastructures, financials and REITs offer good sources of value. Hyper-growth stocks have been bid up to extreme levels. We must not paint the market with a broad stroke. There are pockets of excesses but there are others of reasonable valuations.

The deep cyclicals do not interest him. There are some moderate cyclicals that are interesting. Cineplex for example, who was hit by the pandemic, is too speculative right now. It is leveraged and extended. Airlines are also too speculative at this time. Be defensive and focus on valuations. Pick companies that will do well regardless of how the economy weathers the pandemic.