Investment Q&A

Q: As the market starts to recover, can you please give your opinion on what sectors do you expect to recover faster than others. Thanks

Q: One of today's questions was about the impending rise of inflation after all this government printing of money and historical government debt. I like to look at history to see similar situations and the outcomes. We only need to look as far a Trudeau Senior to see the last time historical levels of debt were reached. As history shows its usually the next term(s) that has to deal with the repercussions of the spenders reign. So in 1981 under Clark (and then P.Trudeau again after that) inflation went over 10% and prime rate was increased to an all time record of 22.75% to try to bring down inflation. I'm sure everyone remembers either their parents or themselves having mortgages on their homes with rates in the high teens to mid 20% range. So my question is what will be different this time around? After Covid is over we will be sitting with the biggest deficit in Canada's history by miles, massive unemployment so a very slow recovery is likely (more stimulus likely needed). Were there any lessons learned around increasing interest rates to record levels to correct massive inflation or is that the likely path government will take again when this inevitably happens in the next few years? Thx

Q: This is a kind of crystal ball question. I have had trouble getting through to BMO yesterday and today. When I finally got through, the agent told me that one of the reasons for the slowness is that everyone is trying to rig their accounts for option selling. I wonder if this is a signal that the end of options season is getting close. I have made quite a bit of money on options myself in the last couple of months and would like to keep it up. But, I have a nagging worry that although I might make some money on options, if an upturn comes , I may miss out on getting some good companies for the long term. I read an adviser recently, for instance, who predicted that we may not have as long to buy as we think. Things could be turning up in just a few weeks. From your experience, can you give any advice on how to look at this situation and best handle it? What signs to look for when things begin to turn, and how much time will there be to leave one strategy behind and jump on the other. I realise this is a bit like crystal ball gazing. Bu,t, you have more experience that I do in the markets and probably can foresee the future better than I can.
thanks

Q: With China starting to ramp up and the sudden rise in markets over the past week, do you believe the market will stay, drop, or rise? and can you please explain your answer?
Thanks

Q: Someday soon the sun will rise and shine brightly. This new day we will see inflation arrive at our front door with a loud bang. Inflation will arrive quicker than we think due to a significant increase in money being printed from all countries. During inflationary times what sectors are good investments and what companies would excel.
Clayton

Q: Do you think this rally is sustainable? The markets have really rallied lately and was wondering if a guy should lighten up a bit.

Q: Good Morning

The goverments are doing the right thing by adding a huge amount of liquidity in the system.I agree with this, but..
at one point in time, you have to pay the piper

what are your thoughts on this

Q: RE: Asked by Terence on March 30, 2020 - $1.3 million in stocks presently sitting with $800K (90 % cash).

Hi. I'm (60 & retired) in similar situation; understand everyone's different. Planning a similar strategy to what 5i suggested, but starting with a more conservative ETF (i.e. VCNS or even VCIP) for a period (i.e. 3 months), transitioning (on a strict schedule or market declines %) to VBAL once market volatility declines. I used to be a VGRO-type investor, but after -15% YTD, I've seen the light & am now a converted VBAL-type.
>> What is 5i's opinion of this transition strategy? <<

Also plan to add some Gold [PHYS] soon, and carefully/slowly add a few choice solid stocks (i.e. CSU, BAM.A, MSFT),
maintaining asset mix, over next 6 months.
>> What to do you thing of this Hybrid (ETFs + Stocks) approach? <<
>> My schedule was over 6 months; 5i is suggesting 12 months; can you explain rational of 5i's 'extend' period? <<

As always, thank you for your sound advice.

Q: Thank you ALL 5i staff for your continuing, excellent service in these most unusual times. Hopefully, everyone will be able to"deleverage" some of the virus related stress sooner than later.
As for deleveraging, do you think enough of that was done in the past few weeks to alleviate that uncertainty from the markets currently?
Cheers, Joe

Q: Good morning,
My grand childrens' (8 years old) in trust accounts each have $60K in CASH and would appreciate your thoughts and comment on the merits of my following investment plan:
Q1. Investing $20K in each of these funds (HXS, HXT and HXQ) and not selling any of them until the children are 18 years old at which time they would each open a TFSA account and start transferring each year the maximum annual TFSA contribution allowable from their non registered account to their newly opened TFSA account; and
Q2. Assuming that you are ok with the above plan and given that there may well be still a further sell off in all three sectors, when would you recommend initiating a full or partial position in all three sectors? Thank you.
Francesco

Q: Just read an article about the 3 Rs. Retreat, recovery and retest. We had a retreat of over 30% a recovery or bounce of the bottom of 20%. How about retest is it usually swift or a slow drift down or may not happen ?
Thanks for your insight!

Q: One would think that taxes will go up in a big way to pay for the stimulus. In that sense, richer canadians are effectively paying more for this, with their future income. It is a transfer of wealth from the richer to those who are leveraged, from landlord who has 3 properties on maximum leverage, to the new grad who bought that 600k condo and lost income.
This is still what I think will happen, but I'm curious if there is an economic mecanism that could make this not happen. If all developed countries are coordinated in their stimulus (they seem to be) and all spend about 10% of their GDP on their system, could government bond credit remain UNCHANGED? This would mean that the cost to service government debt would effectively not change (since credit is a relative metric), and taxes would not need to go higher. What do you think?

Q: I understand that the market is forward-looking. What has been difficult for me to ascertain, especially in these tumultuous times, is how forward-looking they are. I realize no one knows the future so we all have to decide for ourselves how long we think COVID19 will continue to roil the markets. But is there any way to know (guestimate) how far out the market currently thinks this will last? For example, I am writing this question on Sunday and wondering how the markets will react come Monday. Personally, I feel the increase in cases and apparent disarray in the leadership in the US is unfolding as I anticipated it would. Would a steep downturn in the markets Monday morning suggest analysts had it wrong or would it not really tell us much regarding the anticipated future? I guess I am looking for an indicator like the percentage chance that is assigned as to whether or not the Fed will change interest rates. Don't know where that percentage comes from but it always seems rather accurate.

Appreciate your insight and for your wisdom. It's helping me to keep off the proverbial ledge!

Paul F.

Q: Hello Peter
Has the covid 19 fully or near fully priced in the market? I look at the log graphs for new cases and deaths and it is still on the rise.
Is the market in North America forming a base or is there another sharp leg down coming? What is your opinion?
Regards.

Q: RE: Bank of Canada announcement about the secondary market purchases of Government of Canada securities.

What's your opinion about this?

"The effective start date is 1 April 2020. Program details are as follows:

Purchases will begin with a minimum of $5 billion per week across the yield curve. The program will be adjusted as conditions warrant but will continue until the economic recovery is well underway.
Operations will be conducted daily.
The operations will be cash purchases conducted via reverse auctions.
Following the launch of this program, the Bank will discontinue the Government’s repurchase operations (both cash and switch buybacks) and cash management bond buyback operations done as fiscal agent. The Bank`s secondary market purchases will provide significant support to the liquidity and efficiency of the government bond market, reducing the need for these fiscal agent operations."

Q: Last year I took a sizeable position in VEE as one of the main parts of my foreign diversification. It has, like so much else, dropped a lot. I am wondering if the prospects for recovery in the emerging markets are not as favourable as the potential in the US or Canada, where economic resources (or the ability to backstop printed money) are stronger. As such, I am inclined to sell this position (and as you point out, harvest a tax loss) and migrate to some North America holding(s). Your comments, pls. Thanks for your excellent service.

Q: Will the massive stimulus packages being added by governments negatively affect market health over the long term and how will this affect bank stocks?

Q: Hi guys,

Thanks for your valuable advice.

I am trying to process the wild swings going on and the lagging advice coming out through business news channels. With the new upswing in the markets, everyone is now proposing what we should have bought (and could still do). This is frustrating as it was good advice a week ago, and things will surely change again.

While we all understand that there is no crystal ball, what do you feel are likely scenarios for markets as investors process central bank and legislator market stimulants?
It appears that investment strategy is now heavily influenced by what has dropped, in combination with highly likely to be supported by government as critical assets.
If you could suggest any further insight in future direction or departures from recent strategy, and whether you feel that the government interventions are likely to hold us at a V shaped market curve, that would be helpful.

Thanks,

Peter

Q: Hi 5I,

In your blog on markets specifically the S&P 500 you state: "If we go back to 1990, the average trailing P/E ratio for the S&P 500 is 19.9. Currently, the P/E ratio is 19.3. Over the last five years, the P/E ratio has averaged 21.5. Looking at forward P/E ratios, the S&P 500 has averaged 15.8 and is currently sitting at 17.6."

My question is what do see for earnings based on current market conditions ? If in the last recession in 2008-9 we saw earnings drop by 50% then how much more can this index drop? The low for the S&P 500 was approx 780 back then, and if makers the same assumptions then we could get to around 1500 to 1800.

Thanks,
Chris M.

Q: While our politicians and others say this is unprecedented, the truth is it has happened before. The 1918 Spanish Flu killed 33 million world wide because they didn't know much about prevention and soldiers were returning from war. Some areas did close borders and practice self-isolation. Even the word quarantine comes from the 40 day isolation period in the middle ages. What happened after 1918?
Markets improved, then there was the 1920-21 depression (maybe war related) followed by one of the biggest bull markets ending in the 1929 Great Depression.

We haven't used the word depression yet but a depression is a fall in GDP of 10% or more or a Recession lasting more than 2 years. I think it is likely that we will have a technical "Depression" and using the word may send markets lower. Either way we are not finished and we need to test the lows and see some real light at the end of the tunnel. But it will end and return to normal and higher prices. My thoughts as I sit in self isolation. Stay safe everyone.