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

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. A Disconnect between the Markets and the Economy. As most of us have heard before, the financial markets are forward-looking. One of the biggest hurdles for investors is trying to understand when periods of disconnect between the markets and the underlying economy occur. Take 2020 for instance, the financial markets declined roughly 30%, and yet we were just at the precipice of the economy locking down for an indefinite number of months, which would lead to massive losses in corporate profits. When the markets rebounded in the following months, many investors were left scratching their heads as to how the markets could be increasing in the face of a worsening economy. The biggest takeaway from this period in time was that the markets were forward-looking and pricing in the impacts of QE, fiscal stimulus, interest rate declines, and the ingenuity of consumers to shift their spending to online.

There are signs that inflation may be leveling off and that there's a peaking of interest rates. Every region in every country should be looked at differently. Smaller and developing nations have debt problems but larger countries not as much. Their markets are more diversified. The U.S dollar is seen as a faculty for emerging markets. Some companies are doing well because of the strong U.S. dollar.

Question was on an ETF recommendation for Europe. Europe has several months of winter ahead and a probable shortage of oil and gas. Also several countries have economic difficulties such as debt so now is not a good time to invest in Europe.

The question was on the Mexican Stock Exchange - is it likely to be more like other North American exchanges or Latin American exchanges which have more volatility. The Mexican economy has been growing quickly but there is a concern that there is not much growth left. Oil exports are in a perennial decline and there are structural issues such as no water in the northern part for industry. Also it can't compete with areas like China. She owns one company in Mexico so buyer beware.

The question was on the effect of the severe lockdowns in China which has a zero Covid policy. This has affected growth and the GDP forecast of 5.6% is in question. There are stoppages in factories, etc. However the re-opening of the manufacturing processes in various industries starts up again quickly. Inflation has not been much of an issue but may return quickly. She also mentioned that the Chinese Covid vaccine does not work very well. Overall China continues to grow in services, consumption and technology and there are strong pockets of opportunity.

The question was on getting involved in the Indian stock market. You can go to a broker, buy ETF's or buy Mutual Funds. Registration takes a long time. India has lots of entrepreneurship and good businesses. You can target many industries including the smaller pharmaceutical companies which have more growth opportunities than the bigger ones elsewhere. Private banks like ICICI will do better than government owned banks. They have to tackle inflation which is a problem because of infrastructure. She has a positive outlook.

Believes world is in a multi-year bull market for energy. Concerns for demand destruction during weak economy unfounded. Historically, demand growth for energy (even during a recession) has been steady. Oil inventories continue to fall even with US SPR releases (largest ever) and China under lockdown.

Markets. Constructive. If you look backward, there have been dozens of bottoms since he started in the business, and there's a great rhyme to these things. June lows were probably the bottom, though we may test them again. Great opportunity to start putting some money to work that you've had on the sidelines. He has about 20% in cash, and he's been trickling it in as the market gives him opportunities to do so.

Sectors. Old economy vs. new economy. For growth, you want to be in the new economy. Old economy is going to be a tougher slog, because the growth isn't there. Though you can have some investments in the old economy, the growth orientation has to shift to new economy names and away from the names that have been used for the last 20-30 years.

Renewable energy. It's a part of his portfolios, but not a big part. Real test this winter in Europe, as they spent billions on infrastructure in renewables. Hopefully, it will pay off. The worst scenario for them is cold and calm, vs. chilly and windy. Chilly means they won't have to use all the power they've stockpiled. Windy means they can take advantage of all their wind farms. It's certainly the future, and will grow as we move forward, but it's not the only game in town.

Royalty streams vs. gold miners. The miners are very cheap. The question is what's going to happen to the commodity, because you have to make your call on it before you look at the businesses. If the price of gold goes sideways, those companies won't do much. Right now, he likes stocks better than royalties. Royalty companies are better to have once things get going. Stocks like AEM, NGT and ABX are really down, and that's a better way to play now.

Fintech and growth. When to buy? If you're not sure, put in a partial position now and wait and see what happens. If the market goes up, you're averaging your costs higher and that's a good thing. He owns some of the fintechs, new economy stocks. Focus on where's the growth going to be in the future. We're going to need the growth, especially if inflation hangs around for a while. Returns get eaten up by inflation. How much growth can I get, how much safety can I get, and am I in the right sectors?