Investment Q&A

Q: I hope the 5i team and readers enjoyed a nice holiday weekend. Looking ahead to the second half of the year, what do you think we’re in for with the markets? I realize prognostications are hard to make (maybe I should say they are easy to make but hard to get right!). I get nervous because I keep seeing more doom and gloom forecasts which reference the tightening of fiscal policy in the US and ongoing inflation. I would appreciate hearing your general comments at this time. Thank you.

Jason

Q: Hi 5i,
There is a lot of doom and gloom around the potential for a recession. Do you feel that the market has already priced this in? I am hesitant to deploy additional capital in advance of the government confirming a recession which could result in another steep decline.

Would the confirmation of a recession happen on a specific date (i.e. at a specific time in the quarter?)

Q: My portfolio is split about 50-50% in C$ and US$. Over the next few years I'm bullish C$ (and A$) and bearish US$ but think shifting to something like 75-25% is risky if I'm wrong.

In this scenario does buying an ETF such as FXA with some funds in my US$ account make sense as a partial hedge against the US$? Any other strategies you could suggest?

Q: It appears that pre-1984 the P/E ratio of the S&P 500 could go below 10 at times (not clear on what measure -looks like trailing earnings), apparently in recessions. But since then, no sub-10's. Is there a reason we may now be in to a new era of P/E norms ie well above 10 and if so for what reasons? If we were to go down there now that would be pushing a 35-50% drop from here, depending on what P/E measure ( and much further if earnings are adjusted down). Also, Josh Brown (CNBC) pointed out this 9-range P/E ratio in recessionary times as in if we get a recession look out below--any comment on his comments?

Q: Can you pls explain why China has only 2% inflation, while the US has 8% inflation!?..if so...why are we all not buying Chinese stocks?

Q: Hi There,
Can you suggest a method where one can estimate the realtime Equity Risk Premium for US market and Canadian Market using ETF's. Can you also give a guide as to what values may cause investors to shift between the risky asset and the safe asset for US and Canadian markets. Thanks

Q: Is the time for buying longer term bonds, like SHY or even TLT coming closer?
Thanks

Q: Waiting for the other shoe to drop..." Your comments in the last update. Is there formal or informal talk that China maybe in "lockdown" for their own political reasons and to advance their cause in the world? What is your opinion on what is going on with China and Russia, could this be a co-ordinated effort to weaken the "free" world ? Thank you for any input you can provide on this topic.

Q: I am relatively new to investing and started when the pandemic began. Since I started I feel like my learning has been like drinking from a fire hose. More of an education question: now that inflation continues to increase and central banks do what they can to slow it down, I am wondering under what conditions do central banks start to look at reducing interest rates again. I have never been through any of this before so trying to get a better understanding, especially as I look to buy a house at some point.

Q: On a 1 (unlikely) to 10(very likely) scale how much likelihood do you place in recent predictions of people like Michael Burry and Jeremy Grantham that this is just the start of the bear market, and that markets could drop a further 50% from here?

Q: Is there a reason that the vix has currently not spiked more? Does not the current market warrant a good panic? Thanks.

Q: In your latest report (6-17) you state
"the main three forces that we have seen across rising commodities prices are adverse weather conditions (drought), the Russia-Ukraine conflict, and concentrated country risk"
However you failed to address perhaps the most significant cause of inflation which is the Fed money printing.
Why is that?

Q: Hi Peter, Do you think so called July hike by Fed and recession fears are already reflected upto some extent in today's market ?

Q: Hi Ryan,
Several years ago I engaged with 5i for a portfolio analysis. I'm a recently retired investor. 5i strongly encouraged me to include a fixed income component to stabilize portfolio fluctuations and lower volatility.

With that advice and for tax purposes I purchased XBB, CLF, and PMIF into my RRSP. Now that the interest rates are marching steadily upwards I'm in a significant capital loss situation on my portfolio's bond allocation.

At this point do you suggest I just hold through the cycle and absorb the loss or should I sell and reallocate funds? Perhaps into some solid Canadian dividend payers? (eg. GWO?)

As always, much appreciate your advice and guidance in these unprecedented times. Thank-you.

Q: Everyone, well the feds raised rates and will raise again next meeting. Are the rates increases what the market was looking for? Clayton

Q: I was listening to Ross Healy on BNN Market Call this morning, and he thinks the NASDAQ composite could drop by 75-80% off its peak. I also saw a headline on the same show whereby a Manulife survey indicated that 25% of homeowners would sell their homes if interest rates continue to climb upwards. Can you comment on the historical relationship between stock prices and house prices? For example, if stocks tank, will house prices follow downwards? Or if house prices drop significantly, can we expect a major market sell off?

Q: Hi there, I hold a large amount of my portfolio in these broad based ETFs. I have about 30% in cash. At these levels, would you be adding to these indexes for a long term hold? How likely do you think it is that we would see SPY at 3300 to 3400 range? What would your strategy be to deploy my cash position into equities? Thank you!

Q: I have been hearing a lot of negative views on the stock market lately because of rising inflation/interest rates. I had a look at the US 10 year bond rates, compared to the S & P 500 level over the last 60 years. The 10 year moved up over 8% in roughly the 1978/1979 period and basically stayed there until roughly 1991, with a peak of over 15%. During that time, the S & P 500 went from roughly the 400 level to around 850, so the market more than doubled. Inflation was also very high then, and unemployment was much higher than it is now. It seems curious to me that so many people are so negative about the stock market, citing rising rates/inflation as the reason, when the market performed quite well during an extended period of much higher rates. Wondering if you had any comments about this.

Q: In the current market environment with high inflation, lower growth, risk of recession and war, if you were building a portfolio today for income/growth what sectors would you avoid entirely, if any? And, if one was building the portfolio today what percent would you allocate to each area that you are suggesting? Thank you!

Q: hello 5i:
I'm asking for help in understanding current rate expectations and the way forward.
Given that the current Fed Funds rate is 1% and given that the future Fed Funds rate is expected to rise to 3.5%, it seems that interest rates, or expectations of interest rates, seem close to peaking. Would you agree?
If so, it seems bonds might become much more investable. Would you agree or disagree, and in either scenario, what is your opinion and the results on the bond market?
Would the results of a future Fed Funds rate of 3.5% not push us directly into recession?
I am also supposing (please confirm) that the Canadian path forward (although with higher rates) will directly follow US rates.
thanks for the economic primer
Paul L