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

Hold cash He doesn't see a turnaround, but we are due for a short-term rally. Sentiment is bearish. He expects inflation to stay stubbornly high, given the war in Ukraine and supply chain issues. Today's jobs report with wages rising 5% was amazing, but inflation is 8%. You can sell the market on pops. Until the market rolls over, he isn't buying.

He has sold most of his stocks to take option positions, totalling $2.5 million. between now and June. He has only 1.5 months to participate in the market. Do I go back into those names as stocks or not? Energy, he expects to go much higher when China returns online. The VIX is hitting highs today, so there could be a bottom soon. After breaking 4,100 on the S&P today, could 3,800 be the next level?

He's buying a lot in this bear market, including Chevron, Dupont, Apple, JNJ, Pfizer, BABA, Moderna, Home Depot and Meta. All these companies do no require financing; they have strong cash flows and balance sheets. They pay shareholders. Their PEs have been crushed. He can either go to cash--but would lost 7.5% in the face of 8% inflation--buy the 10-year bond at 3% (not, not until it pays 5%), or buy stocks with pricing power. They won't go out of business regardless of Powell, Ukraine or anything.

Believes widespread negativity in the market will improve. Situation in Ukraine not going away soon, but thinks other concerns (US monetary policy & China worries) will subside. Market already pricing in hawkish US Federal Reserve actions.

China opening up, Ukraine situation de-escalating and falling inflation would be catalysts towards an improving economy. Shifting trends in spending will also affect certain stocks better than others (travel services vs. eCommerce).

Are market fears justified? Wild ride this week. Markets jumping yesterday, but giving up those gains and more today. VIX is now at those critical levels of 30 or so, which tend to show an inflection point in the market near-term. Lots of fear and panic due to geopolitical tensions, rising rates, inflation, and renewed lockdowns in China. April was a tough month for markets all around, especially the NASDAQ. When we see these major swings, as we saw in March 2020, it's an opportunity if we can look beyond the near-term noise. Heed the Warren Buffett adage: Be fearful when others are greedy, and greedy when others are fearful.

Every challenge has opportunities. Where are they right now? He's been tilting his portfolios from growth, especially high growth and high multiples, over to value. The global economy will expand at 3.6% GDP expansion, based on recent numbers from the IMF for 2022-23. The volatility is caused by the chatter about recession, which is premature and overstated. Look at the Conference Board leading economic index and the US 3-month/10-year yield curve, which is highly predictive of a coming recession. Neither of those predict a US economic downturn in the next 12 months. Manufacturing numbers, retail sales, and housing numbers still look encouraging. Sectors he likes now: financials, energy, materials, healthcare.

Time for GICs? Rates are definitely moving higher. The only problem with them is that there is no exit until they mature. No liquidity. Whereas you can get out of bond ETFs today or tomorrow. You'd want to be at the 3-year mark at the most. It becomes a choice of what the investor is looking for. 3-year GICs are about 4%, and 1-year GICs are around 3.1%. Is that difference worthwhile locking in? He's not so sure. If you wait for rates to go higher in shorter rates, you're not getting that yield in return, so there's an opportunity cost along the way.

Risks to price of oil. A resolution in the Russia-Ukraine conflict would see a short-term fall in oil prices and energy stocks. Longer term, there's an imbalance between demand and supply. Oil prices should go higher or remain very firm. Recession would cause demand to fall off. But recession is not his base case. Energy is not a crowded trade at this stage.

Anticipated market reaction to Fed rate decision? Fait accompli that we're going to get a 50 bps hike. Probably a case of investors selling on the rumour, and perhaps there will be a bit of a relief rally on the news of the actual hike, especially if Powell dials back on the hawkishness we've heard to date. There will be a lot of eyeballs on this one, for sure.

A return to the days when Canadian markets outperformed US? The good ol' days are back. From 1999 to 2010, Canada outperformed the US in 10/12 years. Then the reverse from 2011 to the present, where Canada lagged the US in 10/11 years. Things are off to a relatively good start for Canadian stocks YTD, with the TSX Composite outperforming the S&P 500 by around 800 basis points in the first quarter, which is the widest outperformance in a long time. Sustained trend, because of rising interest rates and higher value vs. growth orientation in Canada. As well, commodity boom in resource companies in the energy and materials sector benefits Canadian stocks over US. These 2 sectors have just eclipsed the financial sectors for the first time in quite some time.

Portfolio construction now. Canada has the home ice advantage right now. He's been shifting meaningful portfolio weightings from the US to Canada. From longer duration, secular growth stocks into value, cyclical, resource trades. All the while being mindful of the risk of the economic cycle being truncated by the expected rate hikes.

Gold. Agrees that gold is going higher. He has good gold exposure across his 3 portfolios from momentum to growth to dividend growth. He owns a royalty play and a big miner. See his Top Picks. If you believe gold is going higher, do you want the high torque name, or the big diversified large cap? The answer depends on your conviction in the direction of gold. Gold's behaviour is enigmatic. Trend is favourable for long positions.