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COMMENT
Markets up 4 consecutive days. We've seen markets decline deeply, interest rates rise, trajectory of higher rates, job loss numbers are not significant. So inflation and interest rates will continue moving higher. The market is effectively buying the dip, and that's a bit of a mistake. Institutional investors and pros are paring back risk, while the retail investor is gaining risk. It's a disconnect that we're going to need to watch.
COMMENT
Where to deploy cash? For example, one European name was down 30%, and with the currency discount, it was effectively 40% on sale. It's the type of name that if you don't buy it when it's on sale, you regret it. With high 30% return on equity, that's the kind of opportunity he's interested in. To say that tech's down 30% and just buy in is a dangerous trade. You need to look at the underlying story and see the reason to buy a stock. In Europe, the discounts are significant. In the US, you're starting to see a recovery trade. Look at things market by market to see whether or not you should be deploying capital.
COMMENT
What if you're 20-25 years away from retirement? From a risk management point of view, you still always need to keep a cash buffer. Put capital into opportunities that are going to create value over time. Proven business models. Ignore the higher risk, higher valuation names. Interesting places to be might be staples or higher ROE stories that the market hasn't liked for the last few years. Just be cautious how much capital you push into the markets because if they continue to deteriorate, you'll have spent all your bullets, and you're going to have to sell at a discount if we see further macro pressure. And macro pressure is still building. Oil's high, inflation's running, interest rates are going up. That's not messaging that tells investors to add all their capital to the markets right now.
WEAK BUY
Interesting position, as commodities usually respond positively to inflation. Canadian energy faces a significant discount to get into the US. If peace comes to Ukraine, Canadian energy will fall a lot. WDS wouldn't fall as much, and it's a cheaper opportunity, so it may be a better place to be for a long-term, structural position.
COMMENT
Infrastructure stocks. One issue is lots of leverage. Though higher interest rates increase returns, there is a lag, so there may be credit issues with some of the plays. He likes airports and rails. Ports have been mixed. He wouldn't touch shipping right now, but it will be interesting at the bottom of the cycle. He has some exposure, and it could outperform the broader equities. Good, safe category for long-term value creation.
