A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Yields seem low with inflation being high. Inflation will be more persistent than people think. Rates for labour are sticky. Once pay goes up, it is hard to get back down. There will be persistent pressure on the labour side. Housing and rent increases, which are large parts of the CPI, will be an issue. Majority of portfolios are under exposed to securities that will do well in inflationary environments.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. There is lots of upside in the industrial sector in 2022 as the global economy picks back up and supply chain disruptions ease. Healthcare, tech and financials should do well too. Underweight energy due to the rebound. Unlock Premium - Try 5i Free
COMMENT
Markets and the economy. Not seeing synchronized global growth. Fed will taper bond buying, but rates will remain low in US and Canada. We'll see global bond tapering. We're also seeing inflation, but hard to determine if it's temporary. He thinks it is. At the beginning of the year, analysts were predicting roaring 20s type growth, but this has vanished. We'll have lower growth, lower inflation, and higher savings rates, so best to focus on technology, healthcare, and consumer discretionary like COST and AMZN. These companies depend less on economic growth. Commodities and related areas grow when there's strong economic growth. The economy is still very fragile. As rates go up at the long end of the curve, that will benefit financial services in the long run, so that's a good place to be whether US or Canadian banks.
COMMENT
Asset managers. Asset managers tend to involve alternative assets, mostly private equity, and it's all debt-related. They have huge amounts of money to spend. When it's really great for them is a situation like March 2020. PEs are substantially higher today. Good to own at the right time, which is not now. Wait until the interest cycle changes.
COMMENT
Sell any exposure to China and Evergrande? Something like BABA would be different, as all its revenue comes from China. But banks don't lend that aggressively into those areas. China is a worry from an investment perspective, as it's not a democracy. They can punish companies simply because they don't like them, and they're worried about consumer data getting into the hands of the US. Lots of growth there, but a difficult environment in which to own stocks.
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COMMENT
US tech giants. Selloff, as in Feb/Mar when inflation was becoming a bigger worry. Tech companies are long-duration assets with lots of free cashflow in the future, such as MSFT and AMZN. When interest rates are so low, small moves in either direction can have a big impact. Also have had a big run up. This selloff is temporary.
COMMENT
Investment parameters. He owns companies in a very specific niche. Low debt, high ROIC, and have generated predictably high ROIC. Doesn't distinguish between value and growth stocks. Looks for growing free cashflow, but trading at a reasonable valuation. Finding companies all over the world. Valuations are better outside NA borders. High quality, predictable companies that are border agnostic. He owns 20-30 securities at any one time.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The rate rise is the same thing that occurred in February. Rates rise in a stronger economy. Markets will adjust to the new reality. Earnings are strong and the stimulus from the pandemic is mostly over. The recession is over according to 5i. Unlock Premium - Try 5i Free
COMMENT
Natural gas in this market If the price of natural gas stabilizes or decreases, then FAANG stocks will stop falling and maybe bond yields will come down. This happened 4:30-10:30 am EST today. Nat gas has been rallying in the US for no reason--the US has so much of it. So how and why did it fall yesterday? One reason is that there aren't enough pipelines to move it, so some of it is left in the ground. Some even burn excess supply instead of find storage space.
COMMENT
Educational Segment. Inflation on the shorter term horizon is going up but the longer term number is relatively low. However, longer term expectations are now rising. If prices become unanchored, people will go buy today instead of in the future. There has been no meaningful change in terms of inflation in 5 years. This is why the Feds think it is transitory. If inflation goes up, PFIX could offer a hedge to inflation, as well as IVOL.
COMMENT
Energy prices. The energy price melt up is probably transitory. There has been underinvestment in replenishing due to the greening of the world. The demand side is not curtailed as fast as the green side wants to see. The demand for energy is still relatively high. Depletion will come into play. Since we have not reinvested in the past, there could be meaningful upside pressure on prices.
COMMENT
Stagflation. There are many trends are pointing to stagflation. Productivity and population are the two key factors. Productivity may go up thanks to technology even though the work force may shrink slightly. There are many signs of stagflation coming. Bond yields are breaking out, and with the yield curve's behaviour, we are seeing that the bond market will push back. Equity risk premium will rise and we will get some compression in PE.
N/A
Market. There are sector dynamics going into office space. Post-pandemic you would expect numbers to increase but he is trying to estimate what percentage of workers will stay working from home. The office sector is one to continue to avoid as we are too far from the bottom. Office vacancies are the highest since the '90s. XRE-T collapsed at the start of COVID but has not got back to where it was pre-pandemic. It has a mix of winners, post-pandemic, retail, and office. These later sectors SHOULD suffer post-pandemic. You should not look at one ETF overall.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The 10-year US treasury rate did rise. Rates are moving up as the economy gets stronger. The concern is the speed and expectation rather than the fact of rising rates. Companies can continue to do well, even with higher rates. Higher risk, expensive stocks may be affected. Unlock Premium - Try 5i Free
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