A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The preferred strategy is to buy solid companies, invest in them, and wait. Selling very infrequently unless to rebalance or when cash is needed. Could sell some puts as a hedge but no need to complicate. Unlock Premium - Try 5i Free
COMMENT
Is Covid finally on the run? Good news about the virus lifted markets today: 1) Omicron may not be as deadly as feared, especially if you're vaccinated (South African data suggests Omicron peaks in a few weeks); 2) US approved Pfizer pill treatment today which could become widespread soon (120 pills by end-2022, says Pfizer); 3) scientists at Walter Reed Hospital are developing a vaccine that can beat any Covid strain. So, this could mean no more lockdowns slamming economies; schools will stay open. Such optimism means that travel and payment stocks are flying and recommended (i.e. Visa, Royal Caribbean, Delta, Disney). South Africa today said that 1.7% of Omicron patients were hospitalized vs. 19% of Delta variant patients.
COMMENT
Sometimes tax-loss selling offers bargains this time of year, but not always. Normally, you get a Santa Claus Rally then the January Effect, but markets have been so strong and run up for the past 1.5 years, so maybe there is tax-loss selling now. But but the bigger worry is interest rates. Central banks seem to be raising them after keeping them so low. We've seen asset inflation and now inflation in the real economy, so rates could rise, which will pressure asset prices. Governments have been pumping so much money into the system that no real inflation like in the 1970s has happened. But this could change in 2022.
COMMENT
EV stock to buy? He owns no EV stocks, including Tesla. It's a tough sector from a PE perspective--valuations are too high. One could say these are not EV stocks at all, but rather a way of transforming one's life. There will be big opportunities in this space, but during Covid, people have changed how to get from point A to B. Three of his four adult children don't drive and the younger generation will see driving differently from his generation.
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Car stocks? If you believe that EV's are the wave of the future, maybe take a look at the traditional car companies. He owns no car stock or parts makers like Martinrea or Linamar. The wider supply chain squeeze may make people think no cars are being sold, and car lots are offering so few cars now. But the demand is there. There are waiting lists even for basic cars. There could be a rush in car sales and a bump in revenues.
COMMENT
Educational Segment. At the beginning of the year, US $175 was the target for EPS for the S&P500. This year, we did better than that. What was not counted was the massive stimulus bill from Biden that filtered into earnings. In 2022, estimates are now $230, which puts the multiple at 20x earnings and S&P around 4,600. This seems more reasonable than 22 or 23x that markets are trading at now. Next year, we could see earnings grow and multiple come down a little. Largely a flat year.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Not overly concerned with 2022 outlooks. There is full employment, high corporate profit margins and valuations have recently adjusted. There is tons of cash on the sidelines and interest rates are no longer uncertain. Would predict a 10% return in 2022. Unlock Premium - Try 5i Free
COMMENT
2021 surprising in terms of market performance. S&P has had over 15% annual return for 3 years. Next year will be difficult since we have the highest market valuation since the 2000 bubble. There is a challenge of earnings continuing to rise at these rates. Earnings increases will need to come from increases in profit margins which are already at high levels. There are rising infrastructure costs as well as wages. Banks should be the best sector to benefit from an inflationary environment.
COMMENT
Amid today's selling, keep calm and carry on. He caught Covid last Thursday, suffered a cough and scratchy throat, but his symptoms cleared by Saturday. He is triple-vaccinated, so he suffered mild symptoms. He advocates jabs. He tested positive today, but feels okay (and still doing today's show). That said, he worries about rising hospitalizations...The collapse of Biden's bill today would have boosted the economy. Pity. Do not dump your stocks, but add selectively and opportunistically. Healthcare and packaged goods are places to pick, as well select tech names like Micron. Tomorrow marks the traditional start of the Santa Claus Rally for the last 20 years almost every year, even during the Great Recession of 2008. He thinks markets will bounce.
COMMENT
Central banking policies top of mind the past few weeks.
US Federal Reserve hawkish announcement worth noting.
Leaning towards a defensive portfolio in light of inflation.
Feels equities are the best use of capital at the moment.
Cash and fixed income low returns.
Avoid uncertain business models, or low yield businesses.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The mid-week rally is probably due to some hedges being unwound. The Fed announcement on interest rates eliminates uncertainty, which can be good for markets. Cash will most likely come back form the sidelines and support markets now for a period of time. Unlock Premium - Try 5i Free
COMMENT
It'll get harder to pick stocks as the Fed tightens. Raise cash to buy dips, if you're afraid the Fed will raise rates fast like they did at end-2018, but he doubts this will happen. Powell learned his lesson in 2018. Instead, Powell will likely slow the economy until the industrials and retailers start missing their earnings estimates. Don't quit, but rather buy safe stocks like McDonald's, Pepsi, Eli Lilly and Costco (maybe Walmart). Or you can be aggressive to plan for the end of Covid, though that's hard to picture now. You can plan for a scenario where the tightening cycle won't be as harsh and people return to work in a soft ending. Then, buy tech like Amazon, Marvell, AMD and the autos, like Ford. He owns all these names....Technical analyst Larry Williams predicts a Santa Claus Rally and to buy next Tuesday. There have been riskier years yet there was still a SC Rally.
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