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

Technical analysis by Larry Williams Comparing the charts of the Nasdaq and Dow, while studying Berkshire, which values growth and is thriving in this growth market. Though tech/Nasdaq has started this year strong, be wary of it, and instead invest in the Dow/value stocks. However, Cramer would throw in quality-tech names.

Investor complacency and market opportunity. The VIX is at 20. There's some complacency around what's going to happen in the market over the next year or so. Earnings for the S&P 500 are probably still too high. If we enter a period of slower economic growth, those numbers have to come down. Most of the companies report over the next couple of weeks. Earnings for the S&P 500 have slowly come down, but there's more to go and that's when you want to look at buying.

Inflation. Canada started increasing rates a lot faster than everybody else. Central banks around the world are still going to be increasing rates, albeit at a slower rate. If you look back to 2019, a lot of things like oil and gas are at the same price, so nothing's really changed. Even GDP is not that far off what it was before. The one thing that has changed is interest rates/inflation. Supply issues caused inflation with prices going up. Over the next year, that should change, especially if China really starts moving again. Though this will have implications for oil, in general it should add some deflation to the environment. May have a rocky road for the next little while, but in chaos there's opportunity. Pick companies that you want to own for the long term and put them in your portfolio at cheaper multiples, though they may still fall a bit more.

Gold. He doesn't own gold or gold stocks. Owning gold doesn't pay you anything. It's done very well in the last little while, perhaps because Bitcoin isn't as stable as people thought it was going to be. There's a feeling that the USD is coming off, and that will help gold. The feeling that interest rates are being lowered is also helping. He'd rather own gold than the stocks, because you have to deal with company dynamics as well as geopolitical issues. They don't meet their cost of capital on a regular basis. Has the potential to go up from here. It might have done poorly or been flat last year, but it didn't hurt you.

Invest in Europe? Hedge the CAD? He doesn't hedge the CAD at all because these are long-duration assets, plus a lot of companies like MSFT manage the foreign exchange themselves. There are great European businesses, and you should own them if you can find them. But there are a lot of great companies in Canada and the US that have access to the rest of the world, and you're not taking as much currency risk. However, hedging a bond portfolio that's investing internationally makes a lot more sense, as you need to be able to hedge the maturities.

Canadian banks. He owns CM, BNS, and RY. Canadian banks are not expensive. Difficulties with housing market plus slowing economy are pushing them to over-reserve. 2008 scared them. Not expensive, great dividend, oligopolies. CM has always been a difficult story. It had a great retail franchise, until investment was diverted to wealth management where it's always been playing catch up. Great businesses, will continue to do well. May suffer this year on asset management and investment banking. BNS international business sometimes gives them a higher multiple, but sometimes a lower one in times of slower economic growth. Any of them should do well for you.

Uranium. At an interesting level. What happened with Ukraine and Russia has put an inflection point on how we think about energy. Where do we get it from and how do we use it? This is going to help uranium. More interest in using nuclear power to meet green demands.

Natural gas. Spiked because of what happened in Europe. Trouble with commodities is that manufacturers adjust. In Europe, price of nat gas has gone down, even though people thought it would be a terrible winter. You had a supply shock, and then companies did what they had to do to meet demand. There's actually a lot of gas around. The price may have gone down too much. It needs to stabilize at historic levels, somewhere around $3-4, and a company should do well from there. You have to look at a company's cost of extracting and selling.

BOC rate increase. A bit of a surprise on the pausing after this, and the CAD sold off right after the announcement. This is the first of global central banks coming to the end of rate increases, and this will put a bit of pressure on the Fed, especially if bigger markets like Japan or England start to slow increases. Definitely, inflation's coming down, and the BOC is responding to that.

Effect of rate increases still to be seen? For sure. And it was raised again today, so any borrowers who've been squeezed are going to feel it that much more. They're still at a restrictive level, even if inflation does settle back to that 2-3% range, we still have that real rate healthily positive. Stock market's down 10-12% YOY, and that's the response to the slowing in the economy that we're feeling today.

TSX vs. S&P 500 Toronto's been benefitting from the stronger resource market. Companies like CNR and CP were strong performers until today, and now they're starting to feel that slowdown.

The case for equities. Still seeing strength in the real economy. That's why he's still bullish on equities. Sure, the economy's slowing. But we're not seeing a recession or large layoffs outside of particular industries. If inflation goes away, central banks can start to ease and that will help everyone out.

Canadian banks. Canadian banks are in a tough space right now, with slowing economy and housing. That will affect CM and BNS more. RY and TD are the gold standards of banks in Canada, and they trade at a valuation premium for that. It's always that tradeoff, valuation vs. growth & quality. He owns BMO, a nice happy medium. If you're a long-term investor, can't go wrong with TD either. New BNS CEO starts in February, and questions remain on this.

Natural gas price. Nat gas prices have come off significantly last 6 months. From $10 down to $3. Warm weather in some big markets, and this impacts the price more than anything. Undersupply is now closer to balance, plus ton of new production has come on in both Canada and US. Even at $3, companies like CNQ and TOU are still getting good returns. A cold snap could make the price spike. Not really bullish on it.