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

Powell's hawkish comments today Clearly, Powell was forceful in saying the Fed will stifle demand. There's been so much free money in markets, so Powell had to say what he said today--will keep rates up to beat inflation.

Powell's hawkish comments today The last thing the market needs is to expect a dovish pivot by the Fed. He expects more tough talk from the Fed. So, a definite recession in Europe within 12 months and a 50% chance in the U.S. There have been 9 instances since 1945 when a recession was the cure for inflation.

He's not surprised with Powell's hawkish comments today that have triggered a market sell-off. No surprise to anyone that he will be data-dependent.

He's never seen a market down nearly 3% because it expected something. A lot didn't expect such a hawkish statement. There's been free money around the world for a long period like an addiction. There has been some delusional thinking. The market got to 18x--expensive at any time.

Canadian June job vacancies. Usually when we get a recession there are significant job losses, which pushes things down even further. With so many vacancies already, if we get an economic slowdown, there will be more losses but any recession would probably be a very mild one.

Market and economy are not always closely correlated. Often when a recession is looming and the news is negative, people expect that stocks won't do well because corporate earnings will fall. Reality is that stock markets often do well partway into a recession. We have a positive jobs market, and we're getting to the end of the interest rate rising cycle that's putting so much pressure on markets. It appears that inflation is actually peaking, and we expect it to do so in most of the world later this year. This will set the stage for a more positive outlook. War in Ukraine is not going to go on forever. The West is not going to continue to pour billions into the effort, and Germany's not going to let itself freeze over the winter. Over the next 12-18 months, the world's going to look very different.

Ignore the gloomy prognostications, and take advantage of opportunities? Greatest opportunity in banking. Global bank stocks have been hammered. Canadian banks are down substantially, but much less than global banks. Phenomenal opportunity in the best of the best, both in the US and in Canada. Dividends are safe, banks are in outstanding financial shape, balance sheets are solid, loan losses remain minimal. Chance to step into great businesses on sale. Large cap tech valuations have come down as well.

Nugget of investing wisdom. Never give up on a solid company just because the share price is lagging at a moment in time.

Long-term BCE 2044 bond, yielding 4%. BOC only impacts short-term interest rates, so raising rates doesn't necessarily have an impact on long-term bond yields. Please don't put a large chunk of your money into long-term bonds, because if long-term bond yields rise, your bond will suffer a significant price decline. You should own a diversified bond portfolio, and diversified by maturity date as well. You should probably tilt a bond portfolio to the shorter end.

Paying a high price to acquire. Big companies don't have much organic growth, so they're all trying to acquire the same assets, thereby bidding up prices. He doesn't like to criticize management for paying a high price to acquire a company, as they probably have a strategy of, for example, wider distribution to recoup the purchase price.

Canadian banks. Canadian banks represent the greatest weighting in his Canadian equity strategy, for the simple reason that they've done a spectacular job creating shareholder value over the last 50 years. All in excellent shape. The top 5 have never cut their dividends, though they were forced to suspend hikes during Covid. Very well capitalized. Canadian regulators force them to be more conservatively managed than in lots of other places. We'll get some loan losses with the recession, we always do, but the loan books are in outstanding shape. Wealth management is in good shape. Will continue to grow earnings. Benefit from the fact that foreign banks are not allowed to operate branches here. A great place to invest.

Have delays in Rogers-Shaw deal been disproportionately favourable to the likes of BCE and Telus? He owns them all. Rogers has spent a lot of management time on this deal. At the end of the day, if the deal gets approved, any short-term benefits to BCE and Telus will fade away.

Long-term US treasuries. Best to buy them if you already have USD, and not converting your CAD. Buying long-term bonds now is a very risky strategy if bond yields rise. Fed has already signalled it's embarking on swift unwinding. He'd be very careful of putting a lot of money into long-term bonds. Bond ETFs have not always tracked well versus individual bonds. You can probably employ a simple buy-and-hold strategy for individual bonds.

Markets. All eyes are on Jackson Hole, with the expectation of higher rates for longer, and the market isn't going to like that. We've already seen a weak market this week. A lot of market participants believe there's going to be a pivot in the tightening cycle, but that's misplaced. There's been a selloff, there's been a retracement, and 2023 could be quite a tough year.