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

We might have recession in Canada, not the US. The Bank of Canada has gone too far. Canadians are too indebted and too many have variable rate mortgages. So consumers will spend less. It will be a mild recession. Canada imports so much food and doesn't control energy costs, so we can't control that much inflation. But savers will do well, given these high rates. Seniors, who rely on fixed income, will collect 5% interest. The US will pull off a soft landing.

That's the problem. There's not just one thing. Data is coming at us like a firehose. It's not clear what's positive and what's negative, there are mixed signals from everywhere. 

With interest rates, it's like going for a stress test. You hop on the treadmill, and at first it's not that bad. But then it picks up again. And again and again. By the time you get to the last stage the speed is higher, you're on an incline, and the doctors just keep it there. 

That's a lot like what's going on with interest rates. We don't know for certain, but it's looking as though interest rates aren't going any, or much, higher. We're in that higher for longer phase. The question is how long are we going to be going at this speed and up this hill, and how long can the economy withstand that?

Rates could go a bit higher. But if you're building a balanced portfolio and you can lock in 6% for the next 3-7 years, it's a good component to have in your portfolio.

We're seeing now from Q3 earnings that organic revenue growth is not there. It's only 1-3%. But companies are trying to maintain earnings and grow them over time. 

If you can't grow revenue, you have to cut costs. So we're hearing talk of layoffs. For example, CTC.A just laid off a chunk of its workforce. If people are losing their jobs, that filters into consumers' psyche and they're more reluctant to spend, or they defer big-ticket items, and that starts a potentially bad cycle. ZZZ has also run into a bit of trouble. 

There are things for an investor to be aware of. Understand the yield (what interest rate is it paying right now)? What is the makeup of the interest-generating instruments (corporate or government bonds)? What are the fees? Getting a 5% yield but paying 1.5% in fees doesn't put you that much further ahead.

It's become a bit like the Wild West in money market funds. It's worth your while to spend some time researching.

Believes economy is due for a hard landing. Large retail earnings(Home Depot) will be instructive on state of economy this upcoming week. Believes consumers are getting more defensive, as higher interest rates take their toll. Expecting inflation to remain above 4%. US Federal Reserve ability to manage inflation is not very good. Does not think chances of US Fed interest rate cut are very high. Trend towards less Globalization will also add to inflation and consumer costs. China invasion of Taiwan will be most salient point in upcoming US/China meeting. 

Energy Investing Overview: Expecting $70-$90 oil prices. Believes ESG faltering due to poor returns. Focus on traditional energy return of capital is resulting in shortage of supply. Short term, outlook for energy investing looks good. Long term, outlook for energy investing not as good. Vague on timing, and unable to give timelines.

Moody's rating of US Treasuries downgraded means mounting concern on uncontrollable debt levels in USA. Does not see any scenario where US debt levels improve. Rising interest rates will make it very difficult for US government to pay interest payments on debt. Every dollar spent on interest payments is a dollar not spend on social services. Believes tough economic times ahead as a result of rising debt levels. 

Power of the Magnificent Seven:

2023 was such a volatile and challenging year for the equities market with geopolitical tensions, high energy prices, persistent inflation, weak consumer spending, etc. As for large indexes such as the Nasdaq or the S&P 500, the heavy lifting was done mainly by the “Magnificent Seven”, which referred to the mega-cap tech names. Excluding these names, the index was largely flat or even slightly down. The point of this post is to highlight the influence large tech names have on indexes, and their ability to skew readings on the economy. 
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The market keeps climbing a wall of worry, but he predicts that the inflation prints of tomorrow and Wednesday will prove to the Fed that they are winning the battle of inflation and will pause hiking rates.

He successfully called the bounce after the market bottomed at the end of October. Now, he predicts WTI crude rebounding this month or next month. Turning points in the oil cycle correspond with turning points in the Dow, based in history. Oil's rebound means that the Dow will rebound too, likely into April 2024.

Believes 4200 is good support level for S&P 500. Question is where it will go next. 1) 200 day moving average & 2) comparison to recent peak, most important aspects of measuring S&P 500. If markets can remain above 4200 for several days, believes market is in a bull run. Remains in 24% cash, and is waiting for markets to fall before buying. 

Not adding to gold position at this time. Chart indicating a horizontal direction. Not as bullish on gold prices as was 3 months ago. 

The Value of Small Losses:

As the saying of the billionaire investor, Stanley Druckenmiller goes “It is not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong”, we think a few big winners over a lifetime of investing could make the journey worthwhile. Therefore, we think investors should equip themselves with a long-term mindset, keep their heads down during tough times, stay invested, and take advantage of the opportunity from stocks that result in a capital loss. Often times, investing is as much about avoiding the losers as it is about achieving large gains.
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