Bill Booth

[music] Hello I'm Greg Bonnell and welcome to MoneyTalk Live which is brought to you by TD Direct Investing. every day I'll be joined by guests from across TD many of whom you'll only see here. We we'll take you through with moving the markets and answer your questions about investing. Coming up on today's show. We will get a reaction to another jumbo sized rate hike and hawkish talk from the US Federal Reserve. Bill Booth, Co-Chief Investment Officer at Epic Investment Partners will join us. And in today's WebBroker education segment, Nugwa Haruna will take us through how you can review the historical performance of your investment strategy using the platform. So here's how you can get in touch with us with your questions and comments. Just email moneytalklive@td.com or you can fill in that viewer response box right into the video player right here on WebBroker. Before we get to all that let's get you an update on the market action. The day after the Fed, not only the Fed, but also the central bank activity this week. Hauling on their heels raising the cost for the respective citizens and it's another down day on Bay and Wall Street. We'll start right here at the TS compass index. Loss of 106 points, a little more than half a percent. Nothing too dramatic just a little bit blah if you're on the market. Checking in on a few names, tech seems to be taking it differently on the rate hike. Shopify now 39, 37 down a little more than 4%. Stelco, doesn't mean they're not some bright spots on the market. Stelco up to the tune of about 9% at this hour. 34 bucks and $0.91 a share. Cancelling 30 million of its own shares and investments seem to like the sound of that. The S&P 500, that brought a reader the American market, the day after the Fed at 3764. We will call that 26 points in the downside or two thirds of 1%. As we said, it appears that the tech stock is taking the news a bit tougher than the broader market. Right now you have the NASDAQ 100 down to 1 1/4%. Let's check on Bank of America and see from the Wall Street banks and how they are faring today. A bit of a slump day there as well. Down to the tune of 2%. And that's her market update. Marcus on the back foot after the US Federal Reserve delivered a supersized rate hike and a pledge to continue raising rates to fight inflation. Joining us now is Bill Booth, each co-Chief Ofc. at Epic Investment Partners. Bill would like to pick your brain in all this. >> Great to be here Greg. Thank you. We got the 75 basis points we were expecting, we got the tough talk that recently we've been accustomed to from Jerome Powell. The market reaction was a bit interesting. Ultimately it's at the downside but walk me through what you've seen out there. >> I think we should start calling fed day "no fun day" for investors anyway. The volatility has been quite remarkable as you pointed out. The market action was pretty interesting in terms of initially declining then rebounding during a press conference and so on into the close. I think it's now abundantly clear that the Fed's sole mission in life is to kill inflation and the message was pretty much they will do whatever it takes to get inflation back towards its longer-term target. I think investors are grappling with this reality that the Fed is willing to sacrifice the economy to some extent, willing to sacrifice the labour markets. Jerome Powell basically said if they will make a mistake it's going to be keeping rates too high for too long and not making the mistake of pivoting early. And so I think that's really what's starting to settle in here. As we now sort of, have a higher for longer, type situation. >> They really seemed to pour cold water. We go back to Jackson Hole where he was not in the mood to give us any hints. Now this cold water idea where the last refuge for investors was "they have to get aggressive and get inflation under control." They seem to really want to throw that out the door. >> They are really concerned about inflation expectations becoming embedded into the psyche of the American consumer. So it's clear, inflation is top of mind. I don't think they're gonna stop anytime soon. The big surprise yesterday was the terminal rate is now sitting somewhere around 4.6% in 2023. And so, you mentioned at the top that tech is really feeling some of the brunt of this. It makes sense because the first impact of rising interest rates of course is on valuation multiples. Some of these highflying tech stocks that we have endured during lofty multiples, really during this last decade of quantitative easing as the regime has now shifted. They are bearing the brunt at least of the valuation compression that we are seeing the market. >> Let's talk, Bill, about that regime shift. I was on the epic website the other day one of the articles your shop published in the Summer. We have grown accustomed to a certain regime to a past decade. I was reading the paper directly. It was basically saying that is over now. The decade behind us is behind us and we are entering a new kind of decade. What is that look like for investors? >> First and foremost it's just higher levels of inflation. So certainly we have gone through a decade of modest inflation. A fairly decent economic growth. I think as we look to the longer-term, inflation will probably be higher than we have become accustomed to. I'm not saying it's to be five or 6% but maybe 3% is the new 2%, if you will. Certainly from an economic growth perspective, there is lots of issues that are weighing on potential growth and in economies around the world. Certain demographics. We have an aging population that will naturally slow growth in the wake of all the supply chain issues associated with COVID. Then the Russian Ukraine situation… We probably are starting a new era of de-globalization. Maybe these supply chains become more reliable but certainly they will become more costly and so I think as we look forward, growth is probably going to be lower than we experienced over the last decade. Inflation is probably going to be higher. >> For investors in that climate, seeking return, looking for yield… Where do they start to look now? What you have to say that their mindset? You said there was a. There were if you were rolling with the test stocks, and good for you if you are making a lot of money that space… Where do we look for our returns going forward? >> I think if you look at the last decade, what's interesting is when you look at the components of equity returns, you sort of have valuation multiples going up and down. You have a earnings growth and you have dividends. What's been interesting is valuation expansion being a big driver of these outside market returns over the last decade. And now, I think you have to go back to those other two components of earnings growth and dividends really to generate the bulk of your returns in equity markets going forward. So for us that would basically mean looking for those companies that are selling products and services into structurally growing and markets. Companies that, you know, are exposed to long-run ways of growth and companies that are profitable. A lot of the unprofitable tech for the so-called "story stocks"… Investor favourites over the last several years. I think that game is largely over. At the end of the day, when you're buying a stock, you are buying a business. I think people forget that. They don't realize that there is actually a real business underlining that stock in the price and I think you need to focus on companies that are profitable, cash generating. And really have strong balance sheets. I think the other feature, maybe this new era, this new regime, is probably hiking volatility and uncertainty. The world order seems to be falling apart a bit. We have geopolitical issues left and right. We have this energy crisis with Europe at the centre of it. I think just the range of outcomes going forward is probably also wider than what we may be accustomed to over the last decade. >> Two qualities that I have been shocked. And I should have under control. Going forward, we need to be patient and we need to try to take some emotion out of it. I've been surprised by myself lately about my lack of patience and my excess of emotion. I'm assuming the path laying out going forward we will have to get a little bit more discipline with ourselves as investors. >> I think so and it's sort of the force of the trees argument. If you think of what's happening in the markets today, there are areas that are potentially very attractive long term growth prospects. If we talk about green energy or automation or just technology more generally. Obviously, I think technology is really feeling a new industrial revolution. Everything from the Internet of things to the cloud, to big data. If you take a step back from the date of the volatility, you kind of think yourself and say "has any of that really changed?" In 10 years from now we will have more semiconductors or less. And if you could, to your point, be patient, some people may view this selloff in some names as being an opportunity. One of the arguments I heard through the better part of the market is "everything is so expensive. I miss this stock. I miss that stock". Perhaps investors are getting in some cases, a second bite at the Apple. There may be meric more pain to come in the short term but the fundamental research and analysis, have conviction in some of these companies and the end markets that they are selling into… You can actually get quite excited when lots of people are being fearful. > Great perspective and a great start to the show. We will get your questions for global equities with Bill Booth in just a moment's time. US homebuilder lender is reporting an earnings beat for its most recent quarter. That despite a supply crunch brought on by soaring costs for building materials and labour shortages. Leonard says while higher borrowing costs are hitting demand, a national shortage of homes for sale is supporting the business. It's rival, KB Home also says the longer-term outlook for the housing market remains favourable in the US. The strong US dollar is taking a toll on yet another American company with global operations. IT service firm Accenture says the elevated greenback will result in a 6% drag on its fiscal 2023 results. A higher US dollar makes for a difficult situation for companies as they repatriate earnings from overseas – and Accenture derives more than half its sales from outside the states. Other big firms such as Apple have also warned the strong US dollar will be a drag on results. Shares of Eli Lilly in the spotlight today. That after the drugmakers said the US Food and Drug Administration has granted an accelerated approval for its Re-Tevmo cancer drug for adult patients. The news is being well received by the street. A quick check on the market. It is a down day. Drifting, down about two thirds of a percent. And south of the border, let's check on the S&P 500. 3762. All right. We are back now with Bill Booth, Co-Chief Investment Officer at Epic Investment Partners your questions about global equities. Let's get to them. I'll start with this from from from our audience. All sectors are being affected by this bear market. Any safe sector to wait this out? >> The short answer is probably no. Energy is perhaps not surprisingly the only sector in the green. The other every other sector has declined. That said, obviously some sectors of done better than others and not surprisingly areas like utilities, consumer staples in healthcare. Declining day-to-day in the overall market average. So certainly that's an area where, if investors want to say invested in the market, there may be lots of opportunities to do a bit better than the market overall. But you don't need to limit yourself to any particular sector. I think when people talk about sector and things like staples… You take a step back and really say "what is it about these businesses?" I think that's really where investors should focus. Irrespective of the sector. What I mean by that is which companies have pricing power, which pricing are selling products and services into markets that are structurally growing or where demand is on the elastic. Which companies have healthy balance sheets? Whether an ongoing period of economic uncertainty… A potential recession scenario. I think you kind of take it from the sector level and take it to the individual companies in certain characteristics that may offer a bit more resiliency than the average company in the market. >> Let's get into some of those characteristics. This is illuminating. >>… If there is a need to refinance it's going to be at a significantly higher rate with the maturing. So you really want to see a strong balance sheet where companies have the liquidity and solvency to be able to weather this period of uncertainty. And as I was starting to mention, I think really it is what the nature of the company's products and services and obviously one of the recent staples in healthcare. Health reform and down markets is because their products are exceptional. So whether it's food, beverage or everyday medicines. Those are things that people are going to spend on as opposed to say going out to a restaurant and other such places. Another way of protecting against the downside is you sort of have a cushion. If you are a very low margin business it doesn't take much for a profitable company to become unprofitable. If you become someone with high margins, that does have a little insulation to the downside as well. So we find names with these characteristics in a variety of sectors including consumer and staples in healthcare. But believe it or not, there's some technology names that we think also fit this description. >> All right. Sound advice indeed. Another question off the platform:I think maybe healthcare might come up again… >> Of course. Healthcare for sure. But more generally, the world is growing older. What's interesting is it's not just a developed market for now. It's not just the US and Western Europe or such that are growing old. You are actually seeing some demographic issues in the emerging markets including places like China where the birth rate is dropping to all-time lows. So that demographic dividend of having a very young, growing population is starting to dissipate. So certainly one of the areas that benefits from an aging population is healthcare. It's highlighted, older citizens tend to consume more healthcare products and services. The good news is people are living longer on average. So that means you will be consuming those goods and services for a longer period of time. But there is another area that potentially benefits as well. Those are industrial companies that really sell into industrial automation and robotics. Because the other issue associated with demographics is the workforce. It's either growing more slowly or in some markets is even shrinking. So there is an acute need to basically substitute human labour with machinery and automation. And so we think healthcare and automation are two of the longer-term beneficiaries from a demographic situation globally. >> Fascinating I had not thought of the automation component. Something you put up on my head. Another question off the platform: any stocks that will benefit from the rise of 5G technology? We've been given a lot of promise is about 5G changing the world. What you think? >> I think first and foremost you can start with telecommunications companies themselves. I think if you think about 5G, the average person probably just thinks "I can download a video a lot quicker than I could with 4G." That is true. But when you think about 5G, certainly upgrading from 4G to 5G is a growth driver. But 5G is also becoming very competitive for in-home Internet. So you are seeing 5G providers able to deliver high-speed Internet to homes and basically replace or substitute cable or physical land lines. On the business side of things, the real promise of 5G, I think, has to do more with machine to machine communication. So as we proliferate smart devices throughout the world, we have things like autonomous vehicles that are trying to communicate with each other in real time. With very low latency. 5G becomes a critical enabling technology to do that. So I think the real exciting thing about 5G, potentially, is this new application. Not just the fact that you and I can download a video in 10 seconds instead of two minutes. But as we get into individual names, there are certainly companies exposed to this. One of the in would be T-Mobile US. A merger between T-Mobile and Sprint. A national 5G coverage. There is a lot of cost savings and cash savings relating to this merger integration. So if you think about having to companies that were selling phone services combining into one, you don't need to networks. You don't need to have two sets of spectrum and so there is a lot of opportunity. … (Video lag)… … Our apologies there for that interruption to the feed. Back now with Bill Booth from Epic Investment Partners. Let's go to the platform. One area of the world to your investors see value in the long term? >> The rest of the world is basically experienced similar drawdowns than Canada in terms of equity markets. If we look outside of North America, certainly the developed markets, say the UK, Western Europe and Japan, are trading near the low and historical evaluation ranges relative to the US. And sowe have seen valuation compression in these markets and of course we've also had the foreign-currency issue where the yen, the British pound, the euro are all trading at multi-decade lows. And so it has been a rough go for investors investing outside of North America. So as we look at these markets longer-term, it seems like there could be opportunities to take into account both the valuation discount which is a at historical lows as well as the potential for foreign-currency to turn from a headwind to a tailwind for those investors who are unhedged. So I would focus more on the developing markets than the emerging markets at this point. But the important point I would make about investing anywhere is that ultimately, we are buying companies and not countries. So… (Video lag)…we have renewable power generation through Hydro and solar. And winds. But there are some less obvious plays in this area as well. For instance, industrial gases. Industrial gas companies like a German company that uses gases used in a number of applications including healthcare, technology, chemical production and many of the companies in the gas area are starting to become involved with hydrogen. people may be familiar that hydrogen is an area seen as a potential solution as an alternative to fossil fuels. So these industrial gas companies with expertise could potentially instead of traditional carbon. Carbon-based fuels. >> Fascinating stuff. A lot of ideas that I haven't heard before. Talking to the right guy. (Video lag)… >> Consumer electronics and I think I'm again, taking that step back, the longer-term, big data, artificial intelligence, autonomous vehicles, I think that's enduring and that's here to stay. So we would be looking at companies that can capitalize on some of those trends. And again, it's not necessarily the household names like your Microsoft and Apple. It's names like a XML which make something called lithography equipment. I'm not sure if you're familiar but basically it's the printing of the circuit pattern on a semiconductor. So think about memory chip or processing when you need to print certain patterns. Essentially they make the machinery that allows companies to do that. And what's interesting is they are essentially a monopoly leading the edge of technology. When I talk about that I'm talking about the most advanced microprocessors. Most computing power in terms of size, in terms of power consumption… (Video lag)… Essentially a monopoly in this next generation of technology and they are potentially a beneficiary of de-globalization. I think we've all seen the announcements around the world. Most notably in the US and Europe. About a new semiconductor FA bees being built to bring chip production back to the US, back to Europe and de-risked from places like Taiwan, China, Korea. And so as these are being built, ASML will be used. It's not necessarily the names we are looking at on the day-to-day basis that will benefit from some of these trends. >> Interesting perspective. We will get back with your questions for Bill Booth from Epic Investment Partners in just a moment's time. A reminder that you get in touch with us any time by emailing moneytalklive@td.com. Or, you can use the question box right below this screen here on WebBroker. Just writing your question and hit "send". We will see if one of our guests can get you your answer right here at MoneyTalk Live. Have you ever wondered how other self-directed investors were feeling about the markets based on their activity. Bullish, bearish or somewhere in between? The new TD Direct Investing index makes accessing that information easy. Anthony Okolie joins us with more. >>… 2+100 being very bullish. Caped in at -14 in August. That's down six month over month. Self directing investors are feeling very bearish about the markets in August. The chart I brought along with me has some of the components which make up the direct investing index score. We saw fewer investors buying at the top of the market. Taking advantage of the dip. Experiencing a drop in prices. When you look at the proxy for chasing stocks it came it out in highs and for bought at extremes it came down. That came to more bearish. Meanwhile the proxy for chasing trends and investors buying stocks in a rising market was actually -9 in August though that is up 28 month over month. Now only break things out by sector, you can see in the next board I highlight some of the key points for the index. When you break things up by sector, energy, again was the most favourite sector. While other sectors were pretty neutral to bearish. Now, take a look at the top stocks in the energy sector. A lot of familiar names. Enbridge… Suncor Across the board. Except for Gen Z and millennial's were least pessimistic. younger traders who are keen on these so-called lean stocks in tech related stocks in August. When you take a look at the top of bought stocks, such as Bed Bath & Beyond, AMC entertainment, Tesla… These were among the top bought in August. If we dig into trading styles, last month, active traders, these are traitors who have more than 30 trades in the past three months as well as long-term traitors. More of the buy and hold type. Both were less optimistic in August. Most of the drag on the DI Summit was by active traders who were negative on IT and consumer discretionary last month. Finally, when we break things down by region, Ontario was the most bearish. (Video lag) the most bearish of all. Other provinces were pretty much neutral towards the markets. (Video lag)… Interestingly enough, the prairies were historically investors have been quite positive about energy… This was not just one age group. This was across all different demographics. They are moving into this safety because we saw a lot of turmoil in the markets in August. Investors found decent interest rates on long-term GICs and short-term GICs last month. When you look at some of the yields, the one year GICs are yielding north of 4%. So it's not surprising to see a lot of investors concerned about the markets moving into safety. >> Thank you great stuff Anthony. > My pleasure. >> MoneyTalk Live Anthony Okolie. We are seeing economies across the world for the most part with a few other buyers raising borrowing costs trying to raise and get inflation rates under control. … 135 point deficit. last time I checked, we had some money moving towards Athabasca oil. It two bucks and $0.30 a share for Athabasca today. South of the border, let's check on the S&P 500. Pretty much just hanging around. 3762 down 27 points about three quarters of a percent. The tech stocks, as we mentioned earlier the program, seem to be taking the interest rate hike. … And SNAP, one of those social media companies that relies on a healthy digital advertising market. Feeling the pain right now. It down a little more than 4%. We are back at with Bill Booth, from Epic Investment Partners talking global equities. >> I think going back to the general characteristics of strong brands like Coca-Cola or Pacific partners… Western Europe and Australia, they sell Coca-Cola beverages, juices, waters. (Video lag)… … Beverages. Those type of products tend to be quite resilient. (Video lag)…(technical difficulties) >> The banks really are going through a bit of a tug-of-war I think. In terms of everything that's happened from a macroeconomic perspective. Then I would suggest perhaps some pessimism is built-in and perhaps the tug-of-war… A proper recession in which case the tug-of-war switches to bad loans or are consumers going to be impaired? Will banks have to recognize losses? Looking at where we are today, one might think the market seems to be leaning more towards the negative scenario. The benefits of rising rates, the jury will be held on that for a bit before we have clarity. Clarity of exactly how these rates are going to filter in and ultimately impact the economy and banks more generally. >> Bill, great to have you. Lots of great insights. >> Thanks very much Greg. >> Our thanks to Bill Booth, Co-Chief Investment Officer at Epic Investment Partners. And stay tuned. On Monday, Juliana Faircloth, Industrials Analyst with TD Asset Management will be our guest taking your questions about industrial stocks. That's companies like the rails aerospace and transportation. A reminder that you can get a head start just email us your questions at moneytalklive@td.com. That's all for show today. Take care! [music]