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

REITs. In a weird spot. Either you're worried about a recession, or you're worried about rising interest rates. Probably don't do well in a rising interest rate environment. Should hold their own if we fall into a recessionary environment. He prefers names like GRT.UN, as industrial REITs are a great place to be.

Market themes. So many to focus on. Mainly inflation and the Fed, plus the economy on top of that. How much will the Fed have to raise rates, and what kind of economic slowdown will there be? Can the Fed engineer rate decisions to avoid a recession?

S&P 500 hit lows in May. Sentiment was pushed to extremes. Historically, no matter what the fundamentals are, those extremes can prompt a market rebound. And that's what we saw. Now a lot of people are saying this is a bear market bounce. He's watching to see if that's true, or if the low is in for the year. If investors think it's just a bounce, people will sell into that and, and it means that the market climbs the wall of worry and heads higher.

Bear market bounce vs. sucker rally? There's no difference. What you see is short covering. All the shorts take a position and then they start to cover that, which starts the move upward, the optimism starts to grow that the bottom's in, people come in, only for it to reverse, test the lows, and then go lower. That's what people are trying to figure out.

Investing in small caps. When the tide goes out, there's nothing you can do. Despite strong fundamentals, the stock price can still go down. See his Twitter feed @SC_FUNDS for using stop losses, which are so important with small caps.

Stop losses. See his Twitter posts @SC_FUNDS for how to implement stop losses.

Recession? Numbers are showing a significant slowdown as we're going into a tightening cycle. Higher chance of recession than not.

How to be more defensive? At the beginning of the year, it was easy. You just went to the bond market for protection against a slowing economy and volatile equity markets. But that didn't happen. Both bond and equity markets went down together, by 5-10%. It's been 100 years since a bond market has acted in that way, and it has a lot to do with inflation. He's more confident that the bond market is settling down. Early days, but we're seeing the heights of inflation modelling, though he doesn't have a high conviction on this.

Is there value anywhere? Sounds crazy, but energy and commodities still show significant value. The sectors were starved for capital, but the underlying product is up 4x. When oil is this high, the CAD should outperform, and it is outperforming all other currencies except for the USD. Oil sector has tremendous free cashflow. We're maybe 2/3 done in terms of share price appreciation, with another 1/3 still on the table. So you should still hold those types of assets. With everything else, it's hard. Growth has problems. At this point, some tech stocks are showing terrific value.

REITs vs. Canadian banks Both benefit and get penalized from higher interest rates. Banks generally do better with higher interest rates because of higher net interest margin. Banks are in a good position. Problem is growth potential is being stymied because housing market will slow down. Canadian consumer is leveraged out, and banks will be dealing with defaults. For REITs, being punished by higher rates and valuations make them less attractive. Going forward, he'd rather buy REITs. Banks are vulnerable from a recession and a cooling housing sector. Banks really enjoy a steepened yield curve, but the curve is flat. Banks are down 2.5-5% YTD.

Regarding recession, developments have increased the attention being paid to it e.g. Geo-political, inflation. He hopes for the best but be conservative and invest in high quality companies and maybe have a cash cushion. For the tech group be under-weight or on the sidelines. It has had a great run and may be in a 'pause' mode. There are still good opportunities but be selective. Healthcare and Energy which had fallen behind have re-asserted themselves and it looks like the markets are gravitating to new leadership.

Believes it is too early to determine whether markets have reached a bottom. Predicting a 30% chance of recession. Market will have a soft landing. Thinks most portfolio managers have completed selling off stocks.

Believes Canadian energy & software are presenting value and buying opportunities. USA financials also presenting opportunity. Has increase equity holdings to approx 65% of portfolio. Good time to be buying undervalued stocks.

Recession? Either we enter a recession or it looks possible in Q3 of this year. Central-bank induced, as they're really talking tough. Very hawkish talk. Fed's not too concerned about the economy. They want to affect demand and get inflation down. Fed has 7 more rate hikes this year. A lot of macro people say no way. A lot of air is coming out of asset valuations like SPACs and high-flying NASDAQ names, and the Fed is quite happy with that.

Has tech hit a bottom? 4200 on the S&P was his line, and we were at 4221 last night, so this is a negative transit of his EBV line. We're now officially in a bear market in US equities. For any stocks, macros, or currency he looks at, his first thought is we're in a bear market. Names with stories, but no real fundamentals, are down 50-70%, which is normal if Fed is going to hike as planned. Stocks really have to prove themselves with earnings and dividend yields. If we have a positive transit of 4221, we're back into a bull market. Central banks depend on the macro picture, and he feels they aren't sad that they're popping the mini-bubbles that have cropped up over the last few years.