A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Educational Segment. The focus is on disruptive technology and innovative themes. This reminds him of the tech bubble in the 2000s. Some of these companies don't exist anymore. You run into market cycles where a lot of good news is priced in. The best stock in the past decade in the big cap space is Amazon. Intel has not come above the peak in the 2000s. Same with Cisco from the 90s. What stocks today are the Amazons and which one is a Cisco? We don't know.
COMMENT
The reconciliation bill is coming up. The budget ceiling and everything else was kicked down the road but it is coming up. It will go down to the wire. He does not think the US will default. The markets will be watching this. There is also China that cracked down on education firms but now they are allowing it now. There is a lot of noice. Feds also started tapering. 2022-2023 is about Fed tapering and less liquidity in the financial markets. Analyst targets for next year aren't much higher than today since the market has been pushed up by easy money policy.
COMMENT
A key inflection point will be the mid-term elections. Based on last week's elections, the GOP will retain control of the senate and the lower house. This will mean lower spending and a fiscal cliff. Coupled with feds pulling liquidity, this will be a challenge. We could go higher in the next 3-4 months, but in a year, he expects it to be flat.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. With the infrastructure bill coming up, it is probably a better idea to buy the sector. It’s hard to say which company will be the biggest beneficiary so remain diversified. The tech sector is also of interest now although it carries more risk. Unlock Premium - Try 5i Free
COMMENT
In the short term, it is hard to call. OPEC has stated they cannot fix the oil problem. It is a healthy area for crude oil. There will be $100 oil by next year probably. Energy stocks are still trading at low multiples, at average 23% free cashflow yield. All energy stocks are committing to returning capital. There is 10-15% returns going back to investors. Generalists are coming back to the sector. Energy stocks are about to be rerated.
COMMENT
There is a lot of dividends, stock buybacks happening. Cenovus came out with an aggressive stock buyback plan. Shaping up for another good year for next year. In a multi-year bull cycle for oil. There is still a long ways to go. Companies are re-allocating cashflow, generalists are coming back and the set up is unbelievable. Demands are back to pre-covid levels.
COMMENT
There is a lack of knowledge of how oil is integral to our lifestyle. Analyzing other alternative, the time line is decades. Most companies can privatize themselves with 3 years of cashflow right now. Even today, there is a generational opportunity. Stocks are cheaper today than January 1 of this year.
COMMENT
Demand will start to fall with other alternative come online, but the real story is on supply. OPEC spare capacity has been falling and global super majors have not been investing either. Other than a new wave of vaccine resistant variants, it is hard to see a reversal right now. Commitment to return of capital will rerate the stocks.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The two proposed bills by the Dems should offer some short term boost to markets. However this can take time to go through and the actual money can take many months before it works through the system. A net benefit but not material in the immediate term. Unlock Premium - Try 5i Free
COMMENT
Oil. We went through a commodity trough last year, and we're coming out the other side. Supply/demand issues. Everybody is looking for ways to recoup what they missed along the way, and OPEC is no exception. We're going to be in a tight oil supply situation for some time. The liquidity that's been pushed into the system is only just starting to hit. On one side we have producers who've been exercising control in capex spending, and on the other side a ramp up in demand. It's going to be an interesting winter.
COMMENT
Markets and inflation. Wonderful lift in the reflationary sectors from October till April of last year, and then they went into hibernation and consolidated. We correct markets in price or in time, but not much price correction even in September/October. Russell 2000 just broke out in the past week after 6 months of consolidation. We've just started the second leg of this bull market. Likely to be a good winter into spring.
COMMENT
Risks. Breadth is expanding solidly across the board. A concern if rates were to spike more quickly than the market is expecting. Bond market isn't hurting anyone too badly, but it's something to keep an eye on. If earnings estimates started to roll over, that would be a worry. The sectors that had relative improving price strength through the correction were the economically sensitive groups, and that's where he's focused. That's telling you that the market is looking through the problems to things improving on the other side.
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