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

It will affect US earnings of certain companies. Those with international operations, which have to bring money back into the US, will be hurt by a strong US dollar. Interestingly, many small-cap companies are domestically based and don't have that exposure. The Russell 2000, for example, has been fairly weak as we started the quarter, and that might be a little bit of a wind at its back.

This issue hasn't been on the front burner of discussions. It probably will be talked about more as the quarter develops, if we continue to see the USD strong, and there's a good chance of that.

You have to look at exposure. He owns some healthcare companies among his US large caps, and they tend not to be as exposed to the USD. For example, MCK completely exited its European exposure in the last couple of years. Something to keep an eye on. It may not be a topic today, but may become shortly in your tenure as an owner of these companies.

No, they're not. And what we've seen is the the expectation for rate cuts from the street, not so much from the Fed and BOC, has gone from 6 down to 2-3. He's always been in the camp that rates would be higher for longer. The Fed and BOC would have great resolve in bring inflation back to the 2% level.

Finally, normal isn't 0% interest rates. Normal is more about where we are. Reducing rates should only be used as a monetary tool when the economy demands it.

Must distinguish between patience and stubbornness. He's patient, but an investor has to recognize that they won't always be right. Have to be ready to move forward. Remember that professional investors are right only about 55% of the time, and that would be a pretty good return. His average is closer to 70%.

Many investors get tired of holding a stock for 2-3 years that's flatlined and they sell. Then, lo and behold, the stock catches a bid and moves up 20-40%.

He looked into it. Message: don't let politics enter your investment decision. He examined research from Bespoke Investment in New York, which investors can read for themselves under Insights at goodreid.com. 

Looks for companies that have pricing power, like semis (i.e. Nvidia), software, insurance and private equity, but avoid commodities including oil which has pulled back and he doesn't see an improving supply/demand balance.

Buy the 2-year treasury at a 5% yield.

What is a hedged (Canadian) ETF?

To understand the mechanics of hedged ETFs we have to first understand the purpose behind hedging. If a Canadian investor wants to invest in a US or foreign ETF, for example a 100% US based basket of equities, the individual investments will have to be made in USD or the given foreign currency. What this typically looks like is if an ETF trades in CAD but the underlying holdings are all in USD. When the investor purchases the ETF, the brokerage who is executing the transaction will convert the CAD to USD at the exchange rate. The holdings are held in USD and assets are not converted to CAD unless the investor sells their shares. When shares are sold, the brokerage converts the USD proceeds back to CAD at the new prevailing exchange rate. Dividends also factor in with the same mechanism for conversion being used since the payments will likely be in USD.
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Markets have done well in Canada and the US. The Canadian 10-year bond yield vs. TSX over the past year: when the Bank of Canada pivoted last October into a QE-easing stance, bond yields immediately began declining, but lifted to start the year when it looked like we'd have to push rates out further. Interesting that the stock market continued to rally. There's more of focus on the economy staying strong and less on when rates will be cut. He expects a cut in June and maybe end of July, and Canada to cut before the US given our huge exposure to housing (our mortgages roll over after 5 years).

It used to be 60/40 stocks/bond split in a portfolio, but bonds aren't as stable as they used to be, given more volatility. The ratio depends on your age and risk tolerance. Younger people own only stocks. He owns some bonds, but you don't always need to hold bond.

One type is a rate-reset: every 5 years will reset to a percentage above the Bank of Canada 5-year bond. The other type is a perpetual preferred, which pays the same rate forever. They act almost like bonds, paying a straight yield. The issuing company can call back these preferreds, which explains why the market for these has shrunk a lot.

Interest rates will decline, so you future GIC rate will also decline. So will bond yields, but bond prices will rise. But bonds are more flexible--you can sell them anytime while GICs are a waiting game. He prefers short-term bonds, so buy those. Could yield 4-6%.

As investors buy the longer-end, it will force yields down and prices up, lower the short end and increase the long end. You could do well on the long end. He isn't going beyond 4 years, so that he can clip a higher yield. The government curve is very inverted now.

Believes there are signs of resurgence in industrial & manufacturing activity across the economy. Supply chain issues starting to resolve themselves. Expecting growth will continue globally, as long as inflation doesn't remain high. Upcoming CPI numbers will indicate state of global economy. If inflation rates aren't too high, interests rates may fall. Energy & materials complex starting to lead markets, while technology stocks are lagging. Will continue to own stocks (not selling) despite risk of inflation spike, and risk of recession. 

Upcoming earning season will be indicative of economy. Geo-political issues a concern, but shouldn't affect investors portfolio. Recent earnings from JP pointing towards strong consumers. Strong economy will create environment where US Fed is not able to cut interest rates. Larry Summers and others think interest rates need to rise (not fall). Expecting interest rates to remain high - economy too strong. Inflation numbers also remain sticky (not falling as quickly as forecast). Believes tech sector speculation is reason for strength in S&P 500 (not concrete strength in economy). 

Geo-political tensions are worrisome, but should not affect construction of investor portfolio. "Panic buying/selling" not a good way to mange investments. Quality companies will perform regardless of tensions in Middle East. When others "panic sell" - can be a good buying opportunity for disciplined investors. Interest rates & inflation are much more important to investors. Underlying fundamentals of companies (debt, cash flow, margins, management etc.) are the preferred indicators to company health.