Market Commentary — Page 193

Market Commentary

COMMENT

EV demand. If GM and Volkswagen reach their targets of 100% EV production in 15 years, EV will be the only option at dealerships. Batteries will last longer, just as they do for an iPhone. Technology is always amazing. At the right price, there's consumer demand, and prices will be coming down.

SELL

Perpetual preferred shares. Most preferred shares these days are rate-resets, where the issuer has the option to call them back and take you out. Perpetuals go on forever. The problem with perpetuals is that they're like owning a 100-year bond, so if bond yields go up, the value of your perpetual goes down. He's of the view that interest rates are going up, and so if he owned perpetuals, he'd be selling.

COMMENT

Government debt. Global debt is weighing down government balance sheets, but not so much their income statements because all the debt has been issued at extremely low interest rates. Money needed to service the debt is not as much as it seems. When there's inflation, the value of that debt declines over time. So he's not that worried about it. Debts peaked late 2020/early 2021, so debts will decline globally going forward.

COMMENT

Corporate bonds with a high yield. Regular bonds are in negative territory. The only fixed income class that does well in a rising rate environment is high yield bonds, which have an attractive 4-5% yield now. The thing is that you need a very diversified portfolio. The only way to invest is to own a fund with adequate diversification, hedged to CAD because you want to be in US bonds. You're always going to have a default or two, and that's why you need a fund, rather than just picking some up on your own.

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COMMENT

Inflation. Significant portion is coming from energy. There are real inflationary pressures out there, as the labour market keeps getting better and wages are rising. Interest rates will remain lower for longer, so it won't have too much effect on the companies they own for the long term. Shorter end bond yields, tied to monetary policy, has been moving all over the place. But the 10-years haven't moved quite that much. People might be thinking we're getting to peak inflation.

COMMENT

Positioning. Continues to like tech. It's been a great space. There was a time when rates were going up, tech stocks were getting pulled. It might make some sense on a discounted cashflow model for some higher growth companies; however, there are a lot of good companies that aren't as tied to rates as the market was suggesting. This disconnect has been rectified with tech now going up with rates, which is more normal. He's focused on workplace technology and enterprise solutions. Security has been important. He's not avoiding any sectors in particular; they have broad exposure.

COMMENT

Semiconductor sector. TSM has geopolitical risk, but he likes to think cooler heads will prevail. Hasn't participated in the recent rally as much, but it's only a matter of time. A great company, and one of his favourite ways to play the space for foundries. He likes AMD for CPUs, NVDA for GPUs, ASML and AMAT for semi manufacturing equipment.

COMMENT

Access to global stocks. This is what asset managers do. It is tricky to access them through the pink sheets or through ADRs. You have to make sure there's liquidity, look at foreign exchange, etc. In most cases, the simplest way to do it is through a fund.

COMMENT

WEIGHT OF THE CRYPTOCURRENCY ECOSYSTEM

In the last article, we saw that the market cap of crypto-currencies was around $3 trillion. The question of a speculative bubble or a real paradigm shift is on everyone's lips.

While it is always important to handle them with care, statistics can always give us clues that we need to dig deeper.

There is over $1 quadrillion in the world. The global equities market represents about $90 trillion, the precious metals market such as gold and silver represents $12 trillion. The world's total M2 money supply (physical money, deposits, etc...) is $40 trillion and global real estate accounts for $30 trillion. Including other forms of investment, global debt, and the derivatives market, we get a total of $1 quadrillion, or $1,000,000,000,000,000.

A quick calculation immediately reveals that the crypto-currency market represents 0.3% of all wealth in existence. It is also 4 times smaller than the precious metals market, and 30 times smaller than the global equities market.

We can therefore think that, even if there is a bubble (a lot of behavior leads us to think that there is an abusive speculation on the part of many investors), there is also, on the long term, a place to take for crypto-currencies which are increasingly adopted, have already proven themselves and are increasingly valued by people to fight inflation and have easy access to means of payment thanks to the DeFi.

COMMENT

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Rates may go up soon. For the time being, investors could reduce very expensive growth stock exposure, and reduce high income dividends that have no growth. Short duration bonds should be the only type kept and be cautious of commodity exposure. Unlock Premium - Try 5i Free

COMMENT

5 year outlook. The market is very expensive right now. Beaten up stocks have come back. Some of it's justified, and some sectors like travel and leisure will take longer. EV has a lot of froth from low interest rates and a lot of momentum. There will be money lost 5 years from now. He prefers value investing, rather than chasing momentum with complete disregard for valuation, as this never ends well.

COMMENT

Internet giants. Some are looking frothy, though not necessarily MSFT or AMZN. NVDA and AMD have gone straight up, and they'll go down at some point. Small group of stocks that everyone's chasing, disregarding valuation, which is almost a guaranteed way of losing money. More a game of musical chairs than investing. Great opportunities to buy when everyone is panicking and selling.

COMMENT

Big 6 Canadian banks raising dividends. That's the 6M dollar question. Every bank should raise, but at different rates as some have lower payout ratios. BMO could raise the most. Question is whether they'll do it in one fell swoop, or over quarters. Owning any of them now is good. Stock prices have had quite a run, so the prices already reflect raised dividend potential.

N/A

Market. Tech names have PE ratios in the hundreds. Other stocks are in the teens. There is a big disparity. The FANG stocks' multiples have come down. They are priced to perfection. It's going to be hard for the FANG stocks to grow at 20-30% over the next few years. You hit saturation. This is where you risk PE ratio compression, which can be detrimental to price.

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

EV demand.(A Commentary)

Perpetual preferred shares.(A Commentary)

Government debt.(A Commentary)

Corporate bonds with a high yield.(A Commentary)

🔒 Premium Content Alert – This buzzing stock opinion is accessible only to Stockchase Premium

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

Inflation.(A Commentary)

Positioning.(A Commentary)

Semiconductor sector.(A Commentary)

Access to global stocks.(A Commentary)

WEIGHT OF THE CRYPTOCURRENCY ECOSYSTEM(A Commentary)

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research.(A Commentary)

5 year outlook.(A Commentary)

Internet giants.(A Commentary)

Big 6 Canadian banks raising dividends.(A Commentary)

Market. (A Commentary)

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