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

Gold. Highlighted the disappointment in gold in the past weeks. The compelling nature of negative real yields means gold should be significantly higher than it has been. In 2011 and 2012, we had seen a similar divergence to develop before gold broke down. Thinks there is one more move to the upside but disappointing for gold bulls. Short term, it is a buying opportunity but increasingly, it will be difficult for it to sustain above $2000.

The disinflation aspect of the recovery versus the risk on markets. Gold weakens because inflation expectations came down. We will surely not go back to massive lockdowns. There are ripple effects on inflation expectations due to the delta variant and new wave.

In October or November, they will run out of extraordinary measures. Congress needs to pass new budget bills and raise debt ceilings. It will be messy for a couple months. Equities should not be sent into a tailspin but it is not bullish.

Educational Segment. Seasonal patterns are most powerful in markets when there is a fundamental catalyst that sets it up. We have had a strong market in the past couple months. When we get into seasonal weakness, there is a good reason to pull back. Monetary policy has been behind the strong earnings. The debt is a perennial problem. Seasonality points to weakness in the next little while. Market breadth is starting to decay. There is a perfect storm brewing. The last 5% correction was in February and we can revisit this over the next couple months.

Market. Earnings is the biggest driver. COVID is still a driver, but it feels like investors are looking to the eventual end to COVID. The rates market has been pretty interesting, based on the level being so low and the volatility seems a little high. There are structural reasons that rates can stay low. His view is that with demographics and labour markets, as people retire and there are fewer people in the workforce, and considering the demographic curve in China, it could weight on rates. Debt is in a weird way deflationary as in when you are tapped out how much more can you borrow. His company is taking a diversified view to the markets. He has holdings that will do well if interest rates remain low – renewable energy (European), which did not do well this year, and clean technology names in solar, hydrogen and electric vehicles, are starting to recover. For real estate he is positioned for a continued growth in E-commerce.

Renewable Energy: He likes this space. His value proposition in the renewable space is that he is giving access to global leaders, even if they trade in Europe. It is safer to play bigger companies.

Market outlook. Important to be optimistic about the economy. We are out of the shortest recession ever. Economic cycles tend to run for several years. It makes sense to be involved primarily in cyclical businesses. What makes sense last year and now is not the same. They are shifting towards higher quality companies. Want to avoid the strong performers that came back from near death.

Financials and interest rates. The really hard work of interest rates rising from near zero to more normal levels may be largely over. Rates might go higher but the curve tends to flatten when Feds start to taper. Financials have the ability to grow. we have most likely seen the maximum steepness of the curve.

Sectors to avoid. Avoiding the defensive spaces. Have no investments in utilities. Not a place to be since it outperforms and only outperforms by not going down as much in a bear market. Getting exposure to the expanding economy is important.

Market headwinds. After 6 consecutive monthly gains, concerns will be more inflated. We'll have to watch the Delta variant, and some of the aggressive Chinese regulatory actions can certainly keep the market in check. August and September are seasonally weak. Seeing volatility. Vaccination rates continuing to climb. The race between the Delta variant and vaccination rates will determine how equity markets will do over the next several months. Macro economic outlook is quite favourable because of massive fiscal stimulus, tremendous amount of global household savings, and continued low interest rates. These provide a positive backdrop for the global economy and for equity markets.

Stock-picking in this environment. Always look for strong secular growth companies, with high quality attributes, trading at fair or reasonable valuation. Tactically, you want to be in cyclicals like financials, materials, energy, and consumer discretionary over defensives like consumer staples and utilities. Likes the US for depth and breadth of high quality names. Europe looks attractive from a relative valuation discount. Covid numbers dropping in the UK. In Canada, likes financials, energy, and materials.

Rich valuation of US equities. Parts of the US market do look rich, such as less mature tech names. Price to sales measure of the S&P Tech sector is back to 2000 levels, and we know what happened after that, so you have to watch out. Some tech names he'll continue to hold and add to, but some areas are looking expensive. It's the job of portfolio managers to choose the names and sectors that make sense for their clients.