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

Canadian banks. Not a time to hold significant cash. Asset prices are inflating to offset global liabilities. Have to take central banks at their word that they will continue to push monetary policy and that fiscal policy will continue to push growth. Make sure you own things that will hold their value. Canadian banks have been a great place to do this. Great history of deploying capital effectively and growing dividends.

The reflation trade. For a while, large cap, secular stocks like NFLX were the only places for growth, as so became expensive. In a reflating economy, we have surging demand across many industries. Many companies have significant uptick in earnings growth, and are less expensive. NFLX is a long-duration asset, and less attractive with inflation. It was one of the casualties of not over-delivering enough. He's reduced his tech position significantly in favour of cyclicals.

Not a typical recovery? No. It's been a self-imposed recession by closing the economy. Can't be certain about the economy just roaring back, but it will be in fits and starts. It's time to be careful. Y/Y gains look deceptively good because we're coming off such extreme lows. Be thoroughly conservative in your investments. The base has broadened, but valuations are not inexpensive. Wouldn't hurt to have a fair bit of cash on hand in case of significant downdrafts, which is not out of the question. Stick to your knitting, and invest in those companies you have confidence in.

Tough to find truly cheap stocks? Yes. Price to earnings still look a bit expensive across the board. Earnings won't pick up all at once. Be acutely aware of the valuations we're paying for companies.

Where to park cash? Not a believer in timing the markets. But where you have profits, take some off the table. You could look for a company that you think has even more upside. Limited areas for cash to earn you anything. He owns 30, 60, 90-day paper. Money market funds earn almost nothing.

Sell-offs are gifts for those not bullish enough in the reflation trade. He expects a robust US earnings season. Financials, industrials and even tech hold strong gains or value, though pockets of the market are frothy. Rising Covid cases in India and Philippines warrant his attention, though. He's been buying hotel and leisure stocks ahead of re-openings there. These sectors will benefit in the coming 12 months. Israel and US data tells him these rising cases will eventually pass. Fixed income and interest rates remain a worry this year. Rates will likely creep back to 2% eventually, but Fortis, Emera and Hydro One still offer bond-like yields.

Canadian Federal Budget. It is a difficult time and balanced budgets have been thrown out the door. It is important they spend money prudently and invest in the future. Free handouts are not productive in the grand scheme of things. Would like to see investments for future tax payers. There are signs for it so is looking forward to it.

Crypto currency. We will see some ETH ETFs this week. The ability to speculate in these assets are becoming main street. It could blow the bubble even bigger. Speaks to lack of trust in governments and money printing. Hard to value it.

Gold. There is real negative interest rates and the imbalance between treasury yields, debt supply and central bank action. Yield curve control is a factor. There will be higher inflation. Crypto is taking money that would have gone into the gold sector.

Interest rates. The long bond change would change inflation expectations and central banks have less control over this. If longer yields start to take off, there will be stress on lending. Another way for interest rates going up would be the Feds seeing inflation and raising interest rates to correct it. It is a real time experiment. They will probably initiate yield curve control. There is also increasing debt by government and central banks need to monetize debt. If inflation rises significant, it is a huge problem.

Canadian banks. On a multiple basis, they are not expensive. They are not cheap however. Everything is inflated because of the low cost of money in general. The steepness of the yield curve is largely priced in. It will not get much steeper. There could be a flattening risk but this depends on policy. If yields push up and central banks don't support, then banks could fall.

Educational Segment. Looking at fixed income's place in portfolios. In a balanced portfolio, based on tolerance, bonds are included. We are looking at a rate of 1.8% for Canadian bonds. However, inflation is 2%. The whole asset class has negative real yields. Government bonds are safety, and corporate bonds are the risk. The yield on high yield is the lowest it has ever been. However the yield does not compensate you for the risk you are taking. Emerging markets is where you will see real returns but risks are higher. There is a big problem in this asset class that has historically kept volatility in your portfolio lower.

Market. Economically people are optimistic. Things will get better next year. This is priced in, though. Sentiment is elevated. The first year of a recovery is accelerated and we are past that. At the start of COVID a lot of people went to the sidelines. The next two years will be more volatile. He expects the markets to be higher a year from now but there will be a rocky ride getting there.

Market Frothiness – Correction depth? He thinks where interest rates are and stimulus, you have tail winds. He thinks at 10% you would shake a lot of frothiness out and he would be a more aggressive buyer.