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

Absolutely. Macro data is ruling the day. Everyone watches the Fed and the interest rate call. It's a massive focus, particularly in the first quarter. Continuing strength in the consumer and employment. His view is that we're really headed down, though it's taking a bit of time. Especially since we went from 0% interest rates on a journey of the most aggressive rate hikes ever. 

Rates haven't translated yet to economic weakness because the immediate impact was more on savings. The other thing is that people have rolled over from variable rate mortgages to long-term fixed, and we haven't seen the impact yet. But those are going to wear off, and then we'll see the impact of higher interest rates.

So it's taking longer to get to this downturn. It will be the most expected recession we've seen in decades, but it's going to happen. The housing market has started to roll over. Seeing cutbacks in tech and high-growth sectors. Haven't seen it in the consumer and employment, but those are lagging indicators and they'll be the last to break. Some of the US data is already showing a recession in the back half of the year. Hopes of a shallow recession.

With higher rates, we're seeing some of the worst valuations we've seen in 15 years in terms of the equity risk premium. Rates have risen, but multiples haven't been cut, so earnings are about to fall. Lots of negatives out there. There's a lot of negative sentiment, and a lot of cash on the sidelines. Lows were set last October, and now we'll bounce around in a trading range. Likely the next breakout will be to the upside, but it might not be till the end of this year.

Stocks are discounting mechanisms, as they look to the future. You can't start playing the next recovery when you haven't even gone into this recession yet.

Already starting to see some earnings downgrades. Industrials have started underperforming, consumer cyclicals have already been under a lot of pressure over auto stocks and retailers. This will continue. He'll be interested to see the tech earnings when they come out in the next couple of weeks. And, more importantly, what the bank earnings are, though they've already tracked in a lot of bad news there. Earnings will be the next focus.

Doesn't see how you avoid this downturn. You have some bad news ahead, but the stock market has adjusted somewhat. We're in a trading range, so you look for opportunities and pick your spots. Oils and financials have been kicked down, and oil's become a great buy now. Gold is starting to perform a bit better.

Tech stocks got totally beat up last year, but had a great rally in Q1 on the view that rates are going to be cut, no matter what the Fed and other central banks say. They've factored into the forward interest rate curve over 100 bps worth of cuts by next year at this time. That's quite a reversal, especially when they're all talking about higher for longer. 

Someone is wrong on this. Central bankers just need to stick to their game plan because they don't want to take the chance of re-igniting inflation, which happened before when they eased off too early.

Lots of balls in the air. That's why we look for ways to make money, or at least not get beat up too badly.

US firms overspent on content, levered up massively. He prefers Canadian telecom at this point, like BCE, Rogers, and Telus. Telcos are always going to be under regulatory scrutiny.

He's more inclined to be a buyer of the big money banks, both Canadian and US. TD and BMO would be at the top of the list, as acquisition pains have given both better valuations. 

Canadian banks have proven themselves. Crisis after crisis, they come through. They haven't had a really negative time since the real estate debacle of the 1980s. Very good at managing risk, not being overly aggressive, stability, secure oligopoly. Balance sheets are in great shape. Came through as heroes after 2008-9.

Insider trading reports are a great indicator. People sell for a variety of reasons, but there's only one reason an insider buys a stock. It's cheap, and it's going higher. He prefers insider buying reports to corporate buying, as individuals are putting their own money on the line.

One of the problems is that investors are emotional before they're rational. Putting Canadian banks in the same bucket as US ones is wrong. We have a very regulated sector which has consolidated a few banks, and that's a good thing. 

If you look at the US, it's not the big banks that are the problem; it's the smaller, regional banks. The US has 13-14,000 banks, and the bigger ones are stress-tested every quarter. The regulations around big US banks are very similar to ours. SVB was a concentrated, regional bank. It's not like 2007-08, where Citi Bank was going to go bankrupt. We're in a different world now. It might make them think how to increase regulation in the US.

He's surprised. He assumed that the regulators would feel much more comfortable having a regional bank in the hands of a large player like TD as opposed to being on its own. So he's not sure why people are so worried. It remains to be seen if they buy it for a lower price. TD owns part of SCHW, which is having its own issues because of the banking crisis going on, but it's a very different business altogether.

Yes. They've come down for Q1 and Q2, but Q3 and Q4 are basically up. If you believe there's a slowing of the economy, you should have some kind of recession in earnings. If that's the case, you'll probably see a further pullback in the S&P 500, and that will let you buy stocks at a reasonable multiple. 

This is a great time to look at companies, as their multiples have fallen. You can buy stocks you really like for cheaper. When stocks are going up indiscriminately, that's a hard time to be an investor. Now's a great time to be an investor.

He finds it very confusing. Even if people are working 3-4 days a week at the office, you still need the building and the space. How do you get rid of it if you have all your staff coming in 3 days a week? It's a complicated issue. How do you manage this whole process? What's going to happen in the next 6-12 months? A bigger issues with a place like Toronto is that a lot of real estate is coming on with new builds.

The market is forcing legacy combustion engine companies to move to EVs. There are complications down the line. Everyone goes on about how clean EVs are, but making them is actually very dirty.

Fertilizer companies are having a tough time because there's a sense that the economy's slowing down. Tend to do well in times of strong economic growth. Pretty good time through Covid due to lack of supply. Better run than they were before. A chance to own them cheaply. He doesn't own any.

With a slowdown in the economy, oil will trade around between $70-80. OPEC cut production, but those things tend to have a short-term impact on the oil price. Oil demand continues to grow, and production is not growing as fast. So you're probably going to get higher prices for oil over the long term.