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

When resources do well, the TSX does well. Same goes with financials. But the US outpaces Canada and other markets because of their innovation, breath of companies, and deep liquidity in the US market. You can still have exposure to Canada, though.

Will be watching Canadian bank earnings this week. Impact of rising interest rates and how this affects consumers. If delinquencies and consumer struggles are rising, will be indicator of economy. Mortgage resets around the 5 year mark up for renewal, will also be of interest. Bad loans are the biggest concern, as mortgages can be insured from the home owner perspective. Thinks US Federal Reserve will keep rates higher for longer - curious how long this will last. Personally, does not think rates need to go higher. Believes Canadian sales are not rising in material way, and all increases are nominal. 

Benefits of Small Cap Stocks: Believes 2023 year of inequality in financial markets. Large cap stocks dramatically outperforming small cap stocks. Quality of economic growth not very good. Money has been chasing top tech stocks, which is not good for markets. Broader economy not performing nearly as well. In the long run, small cap stocks will catch up to large caps. Small cap stocks could be a great way to outperform market going forward. 

The December/January period is a seasonally strong time of year for equities. There may be a rotation out of large cap tech names into the Russell 2000 type stocks, small cap financials etc. The whole U.S. regional bank sector is down and technically basing so it is at a good value for buying.

Editor's Note: The guest wasn't familiar with the specific equity and talked about indicators in general. Use volume at price. If the price stays below where many have been buying for long enough then many will begin to sell. Support levels are an indicator. Where the price breaks above the resistance point then that is a good sign. Coming up from a low point is also a good indicator. Use moving averages to apply stops.

Upside and Downfalls of the FHSA:

While the FHSA and RRSP share some similarities, contributions made to an FHSA during the first 60 days of the calendar year are not tax deductible on the prior year’s income tax return. To withdraw from an FHSA, there are certain requirements that need to be met, including a written agreement from the account holder to buy or build a qualifying home with a completion date before October 1st of the year following the day of withdrawal. We can see that the FHSA combines the best elements of both the RRSP and TFSA, and has a higher annual contribution limit than the TFSA. Although, an FHSA does have an upper limit on how much can be deposited ($40,000) and the maximum carryforward amount is not all unused contribution room from prior years like the RRSP and TFSA. The FHSA also has benefits over the home buyers’ plan, where Canadians can withdraw up to $35,000 from their RRSP. With the home buyers’ plan, individuals need to repay these funds over 15 years, whereas in an FHSA, eligible withdrawals do not need to be paid back. Overall, the FHSA is an interesting new registered plan offered by the government of Canada to assist individuals with tax-efficient savings for purchasing their first home. Each investor has unique preferences and needs, but for individuals that are focusing on saving for their first home purchase, we feel that the FHSA is a better vehicle than the RRSP or TFSA. 
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Prefers individual stock selection, but paying attention to macro factors including upcoming Presidential cycle (3rd & 4th year administrations traditionally good for markets). Thinks interest hikes are done for now. US Federal Reserve looking forward will be steadfast in keeping the markets steady. Effects of near zero interest rates, combined with extreme fiscal stimulus (Covid-19) will be felt for decades. Unsure what the total effects will be on the markets. 

What is the First Home Savings Account (FHSA)?

The First Home Savings Account (FHSA) is a new registered plan developed by the Canadian government to assist Canadian first-time home buyers. The plan opened for investors on April 1, 2023, and to qualify, an individual must be at least 18 years of age, not more than 71 years old on December 31 of the year opening the account, a resident of Canada, and a first-time home buyer. The plan can stay open for a total of 15 years or until the year that an investor turns 71.

The real benefits of the FHSA are that it combines some of the best features of an RRSP and a TFSA.

The annual contribution limit for an FHSA is $8,000, with a lifetime limit of $40,000. The maximum contribution carryforward limit is $8,000 per year.

For example, an investor that contributes $5,000 in their first year of opening an FHSA will have unused contribution room of $3,000 and is able to carry this amount forward for a total contribution limit of $11,000 in the following year ($3,000 carryforward + $8,000 annual contribution limit). If an investor does not contribute to the plan in their first year, the total contribution limit in the following year is $16,000 ($8,000 carryforward + $8,000 annual contribution limit). If an investor contributes $3,000 in their first year of opening the account, they have total contribution room of $13,000 in their second year ($5,000 carryforward + $8,000 annual contribution limit), and if they contribute $10,000 in their second year, they will have a total contribution room of $11,000 ($3,000 carryforward + $8,000 annual contribution limit).
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Bit better than expected, up 6.5% YOY. We've seen EPS revisions downwards for Q4, but they still remain positive, expected to be up 2%. That's encouraging because typically in a sharp slowdown, corporate profits turn negative. Analysts and companies are saying that, generally speaking, they expect profits to grow, and for next year to continue to grow.

We know that those profit numbers are hugely influenced by the large-cap tech stocks. Nonetheless, that's what the earnings outlook looks like now.

Yes. We're already hearing from retailers, whether apparel or Home Depot, that they're seeing softer consumer demand. Consumers are more price conscious, putting off large projects. Those sectors are feeling that lagged impact now.

The question is how long do interest rates stay at these levels? It was encouraging yesterday that the BOC Governor acknowledged that maybe rates had gotten high enough. In Canada, GDP growth in Q2 was actually negative. Q3 numbers have not officially come out, but she doesn't think there's been much improvement since then.

We're seeing the impact of higher prices filtering through. Especially in the Canadian economy, we're much more interest sensitive in terms of our mortgage market.

She always allocates a portion of portfolios to income stocks like these. They've been hurt because they're interest sensitive. As rates go up, their stock prices come down and the yields go up. The dividends are very safe and should keep increasing.

But at some point, rates will stabilize. Hopefully next year some time, rates will start coming down, providing a tailwind for those stocks.

It's been a violent selloff. Started when Hezbollah said no regional incursion to the north of Israel, so risk premium evaporated, leading to a mass liquidation, and financial demand for oil collapsed. You had stop loss after stop loss being breached technically. 

All energy investors suffer from a type of PTSD, as they remember what happened in 2020, and the rise of shale in 2014. OPEC's delaying upcoming meeting generates fear that it doesn't have strong unity, the deal will collapse, and the world's going to be awash in oil again. That's not his perception.

Very minor issues in OPEC that need to be sorted before it comes out with a larger cut. Oil balances have been tight, but not as tight as expected. The reason is not demand, as that's up. He's been surprised by supply growth from US shale, Russia, and Iran.

He stands by his thesis for 2024, that shale production will be more modest. He didn't expect the White House to turn a blind eye to enforcing sanctions in Iran. All these extras have meant that while inventories are falling, they haven't fallen as much. Sentiment has taken a kick in the teeth. Need a catalyst to change this, and he thinks OPEC recognizes this heading into the meeting next week.

Any prospect for over $100 for oil is out the window for the next 1-2 years. But he thinks there's a strong floor for around $80, given that global inventories sit at multi-year lows. While we're in this trading band, that's not a bad thing. 

Though oil is down 4-5%, he has names that are barely down. There's already dislocation between valuation and price. Free cashflow being generated, even with the lower price and the foreign exchange, is still very real. The theme remains of strong balance sheets and free cashflow, with more of it being returned to shareholders.

He's not a technical guy. He's never met a rich technical analyst. He likes to buy misunderstood names. When the price of oil changes, how much does free cashflow go up? How do people's perceptions change? Those are the multi-bagger opportunities he hunts for.