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

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Don’t Hold Too Much Cash. The urge to hold cash right now is probably very high. With many stocks down 60 per cent this year, cash looks attractive, even after considering the loss of purchasing power from inflation. But you need to own something other than cash to maximize potential returns in a market recovery. Cash is paying close to five per cent (on some guaranteed investments certificates), but there are stocks that will double or triple when the market shifts to bull mode. Smart investors know to buy when everyone else is selling, and that is certainly the case today.

The Case-Schiller index last week indicated that the housing prices are rolling over and rents will go down. The most important factor is inflation. He doesn't expect a benign print next week. All this requires time--patience. Two months from now will give us clarity. Sit, wait, let events unfold.

The market just wants to get this over with, the interest rate hikes. The market has already priced in these hikes.

Market responding negatively to USA & Canada job numbers. US Federal Reserve not seeing hiring slowdown it wants (means wages will continue to go up). Risk that US Fed is able to cool inflation without recession is growing. Markets are being priced for slow aggregate growth (~3.0% GDP) .

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Thoughts on the US dollar. We anticipate that the strength in the US dollar will eventually come to an end, as macroeconomic concerns subside, and the Federal Reserve nears its terminal interest rate. If the US dollar continues its surge higher, we expect the markets to continue to face headwinds as investors flee to safety in cash or money market funds. Alternatively, if we begin to see weakness in the US dollar relative to foreign currencies as a result of the Federal Reserve signaling it is near pausing rate hikes or the resolution in macroeconomic events, then we expect the markets to gain some support

Short-term pain from rising rates. We're feeling the pain based on having low rates. Inflation built, asset bubbles built, and we're now paying for that. People at home are feeling effects of higher grocery and gas prices. What we're going through now will, hopefully, solve that. We won't see a reversal to 0-2% interest rates, those were an anomaly. Normalized interest rates are mid-single digits, 4-6%. As a society, market, and economy, we'll get used to that. If the economy is operating in an efficient manner, inflation will be lower than that, and we should see that in the next 6-18 months.

Real positive interest rates. Rates after inflation will have come down enough that people are actually earning money on a deposit. The rate of inflation will be below the nominal rate of interest. Translates into real increases in buying power. We're headed there.

Markets. The market is digesting the impact of interest rates, and it's doing it in quite an orderly fashion, even though it feels as though we're on a roller coaster. Market's at a fulcrum, it wants more information. Labour numbers tomorrow. If hot, Fed will continue to force rates higher. If they're weaker, and inflation comes off the boil in other areas, the Fed may pause, and the market would really like that. We're not sure exactly where we are for the next few weeks or months.

Investing strategy now. He's taking a barbell approach. A certain portion of portfolios is risk-on, and a certain portion is defensive. That strategy has worked for 2022.

Bank of Canada warning of more rate increases. A piece of ammunition that doesn't cost anything. It's moral suasion. They want to make sure people are taking the BOC and Fed seriously. If they talk tough, but act dovish, they're working against their own agenda. The big risk is that they go too far, and put us in a deeper recession than we need to be. That's been the history, because the cost of going too far is less than the cost of not going far enough.

Loss of confidence in currency. In going too far, you might have a financial accident that could relate to currency. Not likely relating to the CAD or USD, but international currencies are at some risk. They have a lot of debt in US dollars, and that's costing them a lot of money as the USD strengthens. Bank of England did an about face, as they saw the risk of a financial accident.

US banks. He's overweight. Represent 11% of the S&P, and he has 14-15%. Cyclicals, but they'll do well as we rebound out of a recession. Things are difficult now, but you always have to look forward, and the market's starting to price this in. Banks are great early cycle stocks. See his Top Picks.

Cruise lines. Lots of worries. Is this industry really as healthy as it was in 2019, and the answer is definitively no. The whole industry issued a lot of stock and borrowed high-priced money. Not in good financial shape. The healthcare side is an overhang, and any hint that we're having Covid 2.0 will be devastating. Travel numbers are red hot, but the cruising industry isn't keeping pace.

He expects the Fed to raise rates by 75 points in November. The only way they will lower that to 50 is if lower inflation numbers come in. The market has been rallying this week on hopes that the Fed will raise less than 75.