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

Feels okay about the market. The market endured a scary event (the regional bank crisis), and expects a 25-point hike this week, and earnings were better than expected. But: What's the right market multiple? 18x means only 4,350 on the S&P.

If you take out Amazon, S&P earnings were flat this quarter. Sure, 80% of companies beat, but they cut earnings the past 5 quarters--companies manage expectations. He remains bearish. The market might rise with a new generation of investors/buyers who have fresh eyes on the market. The economy is weakening with the impact of the Fed still to come. 

The S&P is approaching 4,200, so let's see what happens at this technical level. Will there be new buyers? A breakout? We got to 4,200 on the megacaps and better-than-expected earnings. Also, the market has digested the First Republic meltdown, and the markets expects a 25-basis point rise in rates this week. Overall, we're pushing to 4,200.

Higher interest rates have hurt the smaller technology companies which are more leveraged. A few big techs are driving the U.S. market higher. 'Buy the dip' is starting to work again after this strategy failed in 2022. Owning after the down days produces good results.

Believes seizure of First Republic Bank by JP Morgan will create stability in US banking market.
Deposits leaving small banks are a result of US Fed policy of hiking interest rates.
Investors prefer money market funds at large banks paying ~5% yields (small banks cant compete).
Without slowing down the labor market - US Fed will not be able to tame inflation.

Dividend Investors Beware: With different characteristics compared to growth investing, income investors must be prepared to deal with adverse scenarios including reduced dividend payment, return of capital, and possible capital losses. A decreased dividend payment is still digestible if it is temporary or a small cut. How will income investors react if a company were to slash its dividend by more than 90% to ‘self-fund’ growth?  This is precisely the case at Sylogist. A company characterized for its strong cash flow profile, high recurring revenue, acquisitions, and high dividend yield (more than 8.5% on Oct 31, 2022) slashed dividends from $0.125 per share per quarter to $0.01 per share per quarter.

Believes energy sector good place to invest in. Strong fundamentals with supply shortage.
Excellent prospects for income oriented investors (high dividends).
Interest rate hikes have not affected portfolios too much.
Higher interest rates are required to tame inflation.
Consumers holding up with rate hikes, but expecting pain if rates continue to rise.

Structuring Asset Allocation. We hold a strong conviction that holding equity, in the long run, is the way to generate greater returns and build wealth whether you are a growth or income investor, so our asset allocations are tilted a bit more to the 'aggressive' side.  Overall, we are generally of the view that investors need more equity than they think in a world where pensions are not what they used to be, individuals are living longer and many big expenses are growing faster than wages are. The fact that investors can put their money in very safe blue-chip equities and realize a dividend yield comparable to most bond yields make it even less attractive to own bonds. 

He's seeing strength across the board in the tech space, particularly after 18 months of pretty weak results. This is turning the corner. MSFT cloud guidance was much stronger. AMZN traded up on that, reports later today, and he's expecting good news. There's been concern about cloud computing growth and the apocalypse in smaller tech companies, but mega-cap techs are showing that they're built differently. Corporate spending is still holding up in a strong economy. More of the general economy is moving toward technology rather than it being just in niche areas.

Exactly. The story of 2022 was all about inflation, and it's come down pretty significantly over the last 6-9 months. It will keep trending down, especially in the US. The housing portion of inflation has been very sticky, and we're seeing home prices decrease YOY, and rents are now decreasing. That will be a driver of inflation continuing to trend lower for the rest of 2023.

Housing prices are down YOY, but they're finding a bottom. No one wants to sell if prices are lower, especially in the US if a homeowner is locked into a 30-year mortgage at an attractive rate. Homebuilders are starting to see accelerating interest in their product. It's good for general economic activity if they start building more homes.

Can do the first draft of code, thereby saving lots of programming time. Another example is that it can review video for 5 km of sewer pipe looking for flaws, rather than a technician doing this. Reviewing radiology scans.

He owns TD and BMO, which have exposure to that market without the existential risk of the regional banks. FRC is definitely a name he wouldn't be stepping into. FRC could be gone by Friday or it could get a lifeline and triple from here, but it's a binary risk. There are lots of well-run regional banks, but if you don't have that sticky deposit base, when the money leaves you're done. 

In Canada and for the larger US banks, the deposit bases are strong and growing. That's what he wants.

When you buy a company, you know what you own. Whereas if you explore and develop yourself, there's always execution risk. To capitalize on this market for the next decade and get scale, it seems easier to buy.