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

Do the Canadian banks still hold a competitive advantage over small fintechs? Yes and no. Yes, given banking regulations which limit competition. No, they're not as agile or forward-looking as the fintechs. These are two very different investments, two different risk-rewards. PE and PB both classes have hit the midpoint historically. As interest rates rise it will be positive for business, but negative to the amount of loans issued. Banks remain well-protected and necessary for society. Banks also pay solid dividends and are actively raising them--expect that for the next few quarters.

How do inflation and interest rates effect stock valuations We've had declining interest rates since 1983 which has fuelled stock valuations. Generally: 15 years ago a Canadian 10-year bond yielding 5% equalled a stock with a 5% dividend or a PE of 20x. Today, that Canadian bond yields, say 1%, but at a 100x PE with no chance of appreciation at maturity. Historically, stocks trade at 10-25x PE. When interest rates decline, this makes stocks more attractive. Inflation is rising, but he's waiting and seeing. Inflation was predictable given supply constraints and sudden demand. In time, these two forces will level out. Even a small interest rise will have a big chilling effect on the economy. He's not worried about inflation long term.

WTI price outlook At $80 the oil market was priced for perfection. Demand will decline even if a variant impacts it. Even if we shut down all OECD jet fuel demand, crude oil would only drop 2% in demand. The oil stocks have not come off that much. Until we see more weakness, these stocks are a solid hold. Would buy oil stocks on weakness.

Interest rates and real estate investing. Sentiment continues positive. We're seeing real inflation, translating into rent growth, which is the key part of the valuation equation for real estate. Very high new lease growth in US sunbelt apartments, single family homes, and industrial sector. Those who own properties and have taken the opportunity of low interest rates to get well capitalized are well positioned. They have dry powder to take advantage of an increased rent environment in those sectors that have pricing power.

Typically, real estate outperforms with rising inflation. Absolutely. It's able to keep its value, because as rents go up values go higher. As inflation costs go higher, so do replacement costs.

Value in retail real estate? Yes, on the grocery and anchor shopping side. That's his focus right now, necessity shopping. Pandemic proved the resilience of this asset class. Institutions like Blackstone are getting back into the shopping centre space in the US.

REIT convertible debentures. For any new offering, always read the prospectus, the filings, and understand the fine print. Majority of the issues by Canadian REITs include a clause about "payment in kind". If bankruptcy, you would be paid back in shares, rather than having a seniority position for cash. He wouldn't typically invest in these, unless he's also willing to own the equity. In terms of bonds, there are better yield plays out there.

Outlook for industrial REITs. The Blackstone takeover of WPT.UN this year shows big bids for high-producing real estate. So he remains bullish on the sector. Anywhere where you can reduce the last mile to make it more efficient, you'll find industrial warehouses.

US housing sector. Seasonal sector, but some of those factors are not occurring. Traffic is up. People are looking to buy before mortgages or rents go higher, resulting in very low inventories. If volume is at or above this year's levels in 2022, stocks look cheap. If volumes tick up, could be lots of upside again.

Educational Segment. Year to date, almost $900B in new equity money has flown into ETFs and long-only equity funds. This surpasses the cumulative total of the last 19 years combined. Usually, the behaviour is very cyclical. When markets are doing well, money runs into them. After, they underperform. The rapid upswing in performance, looking at annual returns, could lead to weaker returns in the near future. The government has given money to people and this has flown into equity markets. This should add more volatility to markets in the next 3-4 months until we get more clarity about the variant. The money coming in is massive, and the question is how sticky it is.

Hedge against inflation. Inflation index bonds is the best way. However, for most people, not having any fixed income in a rising interest rate environment for most investors. Gold and gold equities should be protective too but in the last year, this has not panned out. Gold and gold equities are the cheapest asset classes. Market place views inflation as transitory. Likes silver more for its application in greening of the world now.

Covid variant. Have seen some recovery but not broad based. We saw tech recover. There will be a big noise factor until we get more clarity on the variant. Markets should not like uncertainty. For the next couple weeks, should not be a buyer here. From a technical perspective, the price action from last week was damaging and there were reversal patterns. Need to test support levels of September lows and 200 MA before markets can rebound.

Debt ceiling. Suspects a new resolution on the budget and they will probably kick it down the road. Clear that it is difficult to pass new infrastructure and stimulus. This adds to the noise for the next few weeks and is not positive.

Those who panicked and sold Friday were ruled by fear, not rationality. Biden ruled out a return to lockdowns, and markets rose. It's likely that an Omicron variant case will occur on American soil, and markets will sell-off again, but do not panic! Remember that technology developed a Covid vaccine in record time; what once took months and years, now takes weeks. Also, there's no wider systemic risk in the current market. Panic is not a strategy. Besides, we've seen this movie before (the Delta variant).