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

A year or so ago, everybody was debating hard vs. soft landing. As we moved through last year, the Fed really couldn't have asked for much more, keeping rates up and having inflation slowly come down. US unemployment is still incredibly low by historical standards.

Now, employment is still strong, and inflation is still stubbornly hanging in up there. Calls are for fewer than 2 rate cuts through 2024. Whereas in 2023, expectations were for 4 or more cuts.

Interest rates are like a tide that pulls equity valuations down. Fewer rate cuts will impact equity valuations going forward. Some concern in early April, when market valuations pulled back, as the market anticipated fewer rate cuts for this year. Luckily, earnings season is now 80% done in the US. Earnings growth is very strong, hasn't been this good in about 2 years. YOY earnings growth up about 5%, revenue growth up 4%. Investors are starting to look more to the fundamentals, the underlying growth of companies. Economic growth is still hanging in pretty well.

Next week on May 15, US numbers come out for CPI. That's going to be a big indication of whether those 2 rate cuts that are priced in will happen by year's end or not, and that will impact equity valuations.

Companies with floating rate debt are hurt when rates stay elevated, paying a lot more in interest expenses. Also affects their valuations, as equity investors will penalize struggles with debt. Higher interest rates really affect some of those highly levered companies.

Believes best way to earn money in the markets is to look at what is working. Dow Jones Utility average has been outperforming, and should be watched closely by investors. Utilities tend to outperform when markets are slow - indicating slowdown in markets. Not expecting rate reductions given US Fed actions, and state of economy. High inflation numbers supporting thesis that US Fed not able to cut rates. Utilities are market "leaders", as nature of business model is that they predict state of economy (good or bad). Is softening market - pharma and healthcare stocks tend to do better. Data centers are also doing very well on the cusp of a market slowdown (demand for service not going away). US banks appear to be performing well despite higher interest rates. When in doubt - stick with what has worked best in the past during market slowdown (utilities). 

Preventing Investment Fraud: Nothing has to be done ‘now’

Scammers always stress the urgency of whatever it is they want you to do. For example, if you are a target of a boiler-room, penny-stock scam, the broker will urge you to “act now” before the stock runs away on you. They might say a major announcement is pending or a takeover is imminent. The faster you react, the better it is for the scammer.

But if we know anything about investments, it is that you never really need to act that fast. If you are lucky enough to buy a stock that goes up 10,000 per cent over decades, it doesn’t matter so much if you buy it the next day, next week or next month. A long-term winner will be a long-term winner.

Investors need to do their research and know what they are buying. Again, common sense: If someone is calling you about an investment, then they are surely calling others. The word is already being spread. Maybe you should look for an investment that others don’t know about.
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He really focuses on earnings that came out overnight, as they often give an indication of what's going on in the economy. Today was a big earnings day for a number of companies, including DIS. 

He looks for a feel of market sentiment. These days, we're in an environment of good news is bad news, and bad news is good news. Investors love bad economic news because it means that maybe the Fed will cut rates earlier. And if we get great economic news, with a strong jobs number, the market goes down because investors feel that a rate cut is a little further in the future (and they'd be correct).

He pays really no attention to it. Short-term movements, who cares? The global economy is slowing down. Rates will probably get cut somewhat by the end of the year. But if it's not until the first quarter next year, so be it. 

Investors and consumers who are hoping to see the rates we had over the last number of years will be disappointed. Those rates were an anomaly. Even mortgage rates today are where they've historically been in Canada for the last 50 years. In fact, they're relatively low by historical standards.

No. The optimism is really concentrated in the tech and communication sectors. Everybody's forgotten about 90% of the stock market. There are so many great companies today trading at really cheap valuations, with good dividend yields and growth as well. But they're being ignored. Investors will have to get ready for a market that's going to broaden out somewhat.

Historically, not a great investment over time. Floating rate bonds tend to underperform over the long haul compared to fixed rate bonds. In an environment where we expect rate cuts coming down the pipe, you'd be much better off with a laddered bond portfolio of fixed rate bonds. So, locking in rates for 1-5 years or whatever you're comfortable with.

The closest we have to that in Canada is TD, which is the 10th largest US bank by assets. Not at 50%, but not crazily far off. He sees no indication of change coming. TD has other issues, so the US regulator may not let it make more acquisitions. Don't be concerned. 

In general, history of dividends and share buybacks in the O&G sector has not been pretty. They all tend to buy back shares when commodity prices are high and they're making tons of money. And then they have to issue more equity at lower prices because they have no cash left. He wishes they'd do the opposite.

He never bets on the commodity price to stay high forever. Be very cautious. A little bit of economic slowdown, a bit of global peace, and we could see a drop in energy prices and a significant decline in cashflow for these companies.

Stay away. Won't end well. Fees are high. Not very liquid. If you really want in, buy into a private equity fund run by a well-known manager, and understand that your money's going to be locked up for a number of years. He thinks of Warren Buffett's advice: if you don't understand it well, don't buy.

Not a proxy for bonds in any way. Bonds are nice and safe, and you know your return when you buy.

The sector could do no wrong for a while, and all the stocks went straight up. They paid too-high dividend yields. Lots of competitive pressures. Doesn't like the sector. Prefers secular growers.

Unsure whether the market has realized there might not be interest rates cuts. Believes interest rates are unlikely to move before the US Federal election. Real estate investors in Canada are realizing that rates might not fall - creating interesting dynamic in markets. Commodities (gold etc) not rising as fast as expected (due to Bitcoin). However, gold prices appear to be appreciating. Uranium appears to be strengthening as a result of demand for Nuclear energy. Record high US debt also making economy unstable. 

Believes selloff has already occurred given large selloff in the markets. Perhaps the worse of the selloff is behind us. Could be a good time to buy equities that have been priced well. Large tech names have already started to recover. Is a good time to buy FANG stocks. 

Weak job numbers last week are not indicative of overall strength of economy. US economy firing on all cylinders which will cause further inflation. US Fed in very tough position - high debt loads make it hard to raise interest rates. US Fed can't cut rates either, as will increase inflation. Higher jobs numbers and inflation will continue to fuel inflation. Expecting hard economic landing - just not sure when. Inverted yield curve is setting records on length. Recent earnings with tech, not very strong. Strength in economy is very narrow (tech). Warren Buffett trimming Apple indicative of strength.