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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, 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're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will be joined by TD Wealth's chief wealth strategist Brad Simpson to discuss his current outlook for the markets.
MoneyTalk's Anthony Okolie is going to have a look at a new TD Cowen report on the outlook for gold.
And in today's education segment, Hiren Amin is going to show us how you can test out trading ideas on Advanced Dashboard.
Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
A bit of a mixed session. We will start on Bay Street with the TSX Composite Index.
Pullback of 95 points, just shy of half a percent. Crude on the move higher today bed heavyweights to the downside. Let's dig in among some of the most actively traded names in Toronto today include Enerplus.
Robust trading and the shares are up a little more than 8%. Unconfirmed reports that Devon Energy has approached Enerplus with a takeover offer.
It's unconfirmed but even the speculation is enough to get the shares on the move.
Lightspeed out with his latest quarterly report. It got a beat and a modest boost to the forecast. The company sounded some notes of caution with economic uncertainty and its prospects going forward. That is weighing on the name. Lightspeed is down almost 20% on the session.
South of the border, I want to check in on the S&P 500. It got awfully close to 5000 for the first time ever to crack that number. Pullback today, down two, three points but five ticks. Keeping you away from that big 5000 number. The NASDAQ, a bit of a bid into tech names. This is where the mixed session comes into play.
It is up 36 points or 1/4 of a percent.
Disney hitting it out of the park with its latest earnings report. We will break it down later for you.
Investors like the sound of it all. Up more than 12% in today's session. And that is your market update.
Despite plenty of risks out there, the markets have climbed into record territory.
Can that run continue? Joining us now to discuss his Brad Simpson, chief wealth strategist at TD Wealth. Great to have you back. You gotta knew what quarterly report out. You talk about investors being like pilots looking at all of these gauges and trying to get a read. What is the thinking behind that?
>> Thanks for having me, by the way. What a great starting point with the S&P 500 almost hitting 5000. Everyone's got to stop for a second end if it's really well into our quarterly strategy that we just published. The idea is that for the last three years, three years ago, about a year and 1/2, you knew one thing.
In COVID 19, you knew we were going to deal with it, but it was front and centre.
And then we had inflation.
It's not terribly complicated. What's going to happen with inflation? Working on our strategy this quarter, we didn't have these two big things.
We see the odd person with a mask but nobody is spending a lot of time talking about COVID anymore. Inflation, I'm not saying it's gone, but it is not front and centre.
>> It is not eight or 9%.
>> Right.
The idea of this is that I was doing a sit down and presentation with our chief economist and trying to explain what is the difference between our two jobs.
Beata does an incredible job saying over the next year and following years, this is what we think the economy is going to do in Canada or the United States or in China or globally, what does that look like.
My team thinks about it kind of like flying a big airplane.
It says that, we are flying from a to B.
When we are flying our flight plan, we are thinking about what her team says. This is what we think the train is going to look like. But we gotta fly there and when you're flying from a to B, you can go off course all the time.
What I said is that we kind of took off, we are in the air right now and it is this incredibly big, wide open sky, but you know you are going to be off course and some things are going to come at you.
But you know it's not going to be the two things that hit you in the past.
It's going to also present a bunch of opportunities.
That to me is, we started asking all these questions.
What would that be?
We started out, I think we brought a chart for this, we started out, I don't want to say this was a big formal pole. We just went to our advisor community across Canada and said, what is your client's big fear that you are hearing about?
What is that thing? So informal survey.
Here is how it shook out. It should not be a big surprise, AI, artificial intelligence.
You hear things like, could replace human beings.
This is a pretty big subject.
That made sense. The second one that came out was de-globalization, which kind of makes sense, and then tied for third and fourth was climate change and world war.
These are yours 7 to 10 year big concerns.
>> These are big ideas!
>> Yeah, right?
We looked at this and said, those of the big ones.
When I do Q and a use with clients and investors out there, I had a meeting like that yesterday was a bunch of our clients, and that is top of mind. And then you go to one of the short term concern, what are the things here that if I suggest you that inflation is a lot better, COVID is not a concern, what is your concern?
>> Off the top, we are talking about markets rallying. Markets are nearing record territory.
People are starting to think, what's going on here?
>> The ultimate answer to that is, and through all this blue sky, the answer is, yeah, there are a lot of reasons why it could and you see this ominous number of the S&P at 5000, you've got a kind of start breaking that down and go, how do you get to that number?
I don't think it's any secret that a huge part of that driver is only in a handful of names.
For the last, let's call it since last October now, it is starting to spread out a little bit. Right?
And I think the reason it is starting to spread out a little bit is that if you were going through a checklist of the things that you would want to be getting better, they start to get pretty good.
You and I could be here last year at this time, we could have been reasonably having a discussion, which we were, on a concern that we could be in a deep recession in Canada, a recession in the United States.
And Europe the same.
But that is not what we are having. Today, we could reasonably be having a conversation about stagflation, right? You could say that we have really slow growth, super high inflation and now we are starting to see unemployment go up. But we don't have any of that. That's a real positive. Yields and inflation are both down. We are not talking 10% inflation, we are talking three.
We are talking interest rates are, now we are talking about rate cuts. The argument isn't are there going to be rate cuts, the argument is… >> Do central banks have to be in a rush?
Jerome Powell doesn't seem to be in a rush. He points to the economy and says the labour market is strong, growth is strong.
What would force their hand?
>> If anything, if you wanted to find risk, one of the risks, and I think it's a reasonable one, is not if they would raise rates or how many rate drops would there be, one of the risks might be what if they didn't?
Right?
>> That thought has been entering my head every once in a while. It's still early in the year, but what if they didn't?
>> I think that's a reasonable risk in the marketplace. We think there are going to be 3 to 4 drops.
Instead of in March or April, we think it will be in May and June.
But I think sometimes one people read and says things that people like me say is that but we are always playing on probabilities.
We are saying there is a 60% probability that this will happen.
And there's a 40% chance it won't.
And I think that one of the things that we do that is a way of changing that is that going back TD Economics view of things.
Ultimately, when you are allocating capital, you thinking about what's happening in the economic environment and going 6 to 18 months forward. When you are doing that, an economist is going to say, here is our expected growth or here is our expected lack of growth or here is whatever that term is going to be.
What we do is we will look at that and go, we think that is the most likely scenario, but what we do when we allocate as we say look at, most of the time, we know a simple thing, that there is going to be a rising growth environment, a falling growth environment, an environment where inflation is going up and an environment where inflation is going down.
I'm going to allocate into, we have talked about this, in a game of foursquare, you have each one of those elements and we are going to say the ball is going to hit each one of those foursquare's… >> At some point.
>> At some point. And I allocate to each one of those squares. If I think that there is a higher probability that we are going to have a soft landing and that as we get closer to the soft landing, interest rates are going to start going down, I'm going to allocate more into that box where I think you are going to have a slowing environment but not to slow where inflation is in control and not deflationary and I'm going to make a bigger allocation there. If investors could figure out that's what we are saying, it would change everything because we will say we are neutral equities. I think people translate that to, they don't like the equity market. No. It means that when we are allocating to it we are allocating less to it because we think the probability of where that will go is less.
When we are saying where you would want to kind of think about how you are going to allocate, there are many things that would point to, this is an environment that if you have a soft landing, which especially in the United States it is pointing to that, and you have a consumer that is in pretty good shape, a little bit stretched, their job is pretty rocksolid, the good news is their job is rocksolid but it's not as rocksolid as it was, which means they are less inclined to walk in and say, I need a raise, which causes inflation.
Instead, you think about staying in the pretty good job.
Then use the equity markets brought a no.
If you have a healthy economy, run into a bunch of growth names because you don't believe you can get growth anywhere else, if you start thinking, wait a minute, things are better than what they were, maybe I don't have to pay so much to get that growth, that's a pretty good market environment and to me, looking at the great wide open, those are a lot of the attributes that it has right now.
>> Fascinating stuff and a great start to the program.
We are going to get your questions about market strategy for Brad Simpson in just a moment.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
BCE is cutting 9% of its workforce, citing a tough economic and regulatory operating environment.
The moves are going to see some 4800 positions eliminated across the company and also the sale of 45 of its more than 100 radio stations. BCE reported a 23% drop in profit for the most recent quarter compared to the same period last year, and it is also raising its dividend.
Add 50 bucks and $0.79 per share, BCE is down 4.3% on that news. Shares of Disney are on the move substantially higher, after an earnings report that was jampacked with news from the entertainment giant.
Disney bead on the profit line, hiking its dividend by 50%, and it's taking a $1.5 billion stake in Epic Games, the maker of Fortnite. Expect more Star Wars and Marvel titles on your gaming console. The news comes amid activist investor push for change had Disney. It's one of those quarters when Disney wanted to put on a show.
They are putting on one that people are enjoying. At 111 bucks and change per share, Europe more than 12% on the name.
Also want to check in on shares a microchip designer ARM. Reporting better-than-expected earnings and giving investors a solid forecast.
It's really impressing the street. At 121 bucks and change, you've got ARM up 57%.
That's just in one day. There is growing demand for its CPU designs to run AI applications. It went public in September and Softbank still owns some 90% of the outstanding shares.
A quick check on the markets. Down about hundred and seven points or half a percent on the TSX Composite Index.
The S&P 500 got so close to 5000 yesterday, it just fell a couple of points short.
Today, it's pulling back about four points. Nothing too dramatic. We are at 4990, down about 1/10 of a percent.
We are back with Brad Simpson, taking your questions about market strategy. Let's get to them. What's your view on equities right now?
Can markets keep pushing higher? I think of a picture to show us on this discussion about sentiment.
>> It… There are a couple of pieces to this and let's look at it. I'm going to throw a curveball on this and then I want to go on and I want to answer this question directly maybe with a bit of a twist and tie into something that you just said there.
When you think about is the market hi right now, the S&P 500 is. Let's call it 20 times earnings, 19, 21, but I think you could characterize that as an expensive market.
The market in Canada is about 12 times earnings. You could say that's pretty expensive. You look at the Chinese equity market and see that is almost free. You can also go, there is good reason for that.
One of the things I think is fascinating is in your last segment is, we wrote about this in our PS Q, where to allocate and how to allocate and how to think about allocating right now.
You have BCE and you have Disney. Both are… >> A tale of two media companies.
>> They are in the same sector.
Let's be clear that almost everyone who is watching this today on average is going to be over allocated in Canada.
We have domestic bias.
In Canada, for our large-cap companies, we have telcos, we have financial services companies, we have oil and gas companies and metals and minerals companies. We have variations on top of that but really that's it. So if you are going to say, okay, I'm going to get media exposure, I'm going to own Bell Canada.
Or I'm going to own Telus. I'm not saying either of those are not good things down.
On the flipside, you have a company like Disney, we don't have a Canadian version of Disney. We don't have a company that has a headwind like they have that goes, okay, we will make those adjustments.
Those are really big moves they've made.
And they are all really intriguing moves that they made.
And so one of the things is instead of saying, is a good or bad to be in the market, one thing I think we need to do is look at, I'm an allocator of capital.
That's my job. You think about, how do you allocate?
One thing I think Canadian investors need to do, this is going to be a theme today, is step back and say, should my only media exposure be telcos? Because that's really the media exposure you are going to get here. We would argue, no, I'm going to pay up and have that exposure.
We are moderate overweight US equities and we are at neutral equities. We want to be neutral to that but we wanted to move a little bit more into the states. And it would be the most expensive one but it would be the most expensive one for reason and the reason is that when you walk through a story like Disney, you can see it and go, wow, what a company and even with that, with the issues they have, okay, we are going to fix them, here's what we are going to do and where the opportunities are going to be. They didn't say they were going to increase the dividend and there's nothing on the positive side that they can do.
They said we are going to pay a larger dividend and by the way, here's a way we are going to grow our earnings.
So when I look at that, I think that's how we need to start thinking about it.
If we go back to the sentiment in the first part of what we talked about is that, you will see how much we can switch gears on this is that the thing about allocating capital well is to allocate to the things that are less expensive in the goal of getting them to go up down the road.
So we just went through a period of time where from October to just about now, equity markets really rallying and United States bond markets really rally. When you ask an investor how they feel about things, we brought two charts. One is looking at how does the retail, just human beings like you and me, if I wasn't doing my job, let's say, if I was nonprofessional, how do I feel about things, I feel really good because for three months the wind is at my back.
Institutional investors say the wind is at my back.
So the next part which I want people to think about is when you feel euphoric is there is a Paul Simon song where he says, I've got magic powers but then I slammed into a brick wall. Right?
Markets were kind of like that.
I brought another chart and I wanted to show these back to back for a reason. What I am showing here is right now, we are also adding hedging to our portfolios.
What I'm showing you here is hedging strategies. Three of them: a put, a put spread and a caller.
Don't need to go into detail with what those are, just to say these are strategies of ways of being able to control my downside and profit from downside. The arrow going down is right now if I am adding strategies to hedge my portfolio, it's really inexpensive to do so because people, when you get in that euphoric zone, go, there is no brick wall.
But me, I'm saying, no, I know there's going to be turbulent. I've spent a lifetime in airplanes between my business life, my father is ironically a portfolio manager and a pilot.
>> He put the two jobs together.
>> I jokingly said he subconsciously helped me write my article for our portfolio strategy quarterly.
This is also an opportunity for investors to have an inexpensive way to have hedges in their portfolio that you can make money on and when we have volatility, when that volatility to the downside, we can be reducing or actually making money on that.
And so it's kind of a two-part question.
The answer ultimately to the viewer was to say we like markets today. When you say that, how do you define that? What start to finding that different. Let's look at it and go, how do I want to allocate into markets? And then also say, if I'm saying we'd really like markets, I'm knowing that something can also go wrong so if I can be inexpensively hedging, I'm going to do that too.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions. we are going to get back to questions for Brad Simpson on market strategy and just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
Earlier in the week, we took a look at how you can test out trading ideas on WebBroker.
In today's segment, we will show you how you can do the same thing on Advanced Dashboard.
Joining us now with more is Hiren Amin, Senior client education instructor with TD Direct Investing. Great to see you. Take us through it.
>> Great to be back.
Let's chat about Advanced Dashboard and the tools they offer to help us track portfolios as we are testing out ideas.
One thing you can see is I'm already on Advanced Dashboard and we've set up a new workspace for ourselves. We called a portfolio manager right over here.
This is, in fact, a widget or tool available to everyone who uses Advanced Dashboard.
You can access it by going to the category at the top called account details and then pulling it up over here.
There's nothing in there so let's start building this out.
What's the case for using this? It will be for those traders who are looking at a different number of stocks and maybe sitting on the fence before pulling the trigger or let's say you have physicians on different avenues and you want to look at a consolidated view in one spot, this is the tool that you want to use. What we want to do is head over to the top right appear where it says new portfolio. Click on that and start over here. I'm going to label this February 8. You can title it whatever you want. It's going to ask you which currency. Then to create.
Then start to add in symbols. Since Disney is in the news, let's go ahead and add Disney.
When you do that, it will ask you, this is the way you can track the position. Let's say we bought a lot of shares of Disney and we want to, we can also put in our cost base information. If you have this information, you can put it in. If you want to test out an idea or back test, let's say we bought this at some point in January, January 10.
What the system does is it will pick up the exact closing price on that date and put it in as that cost basis for you.
Let's say we are going to go for that in his say. Now, what you will see is you will see that information loaded up.
It gives us pretty much what you would see in a portfolio if you had the position in life.
You can see the quantity and it keeps track of your daily, open PML numbers as well.
We will go ahead and add another one.
PayPal. Let's say we own 50 shares of PayPal and put in my own cost basis. Let's assume we bought this for 50 bucks at some point.
We can hit save over here and in this way you can start building the list.
Not only can you start building the list, you can change the look in terms of the information displayed.
You can see these data columns that they are showing us.
We can go to templates and switch those around to see different views.
You can come to this hamburger menu in the top left corner and manage templates and add in any of this information that you want to see.
You can even separated if you want. You can see that we have a preset over here.
We have some custom ones over here.
I take things out, let's say you don't want the entry date, check that out and it's gone. And it automatically saves. So once you close out of this, you can toggle between these different views to see different pieces of information.
The last thing I will mention on this note is that traders who have the ability to actually export this into a CSV file or Excel if you wanted to track it on there.
To do that, come to the hamburger menu appear.
You will notice there is an export list as CSV appear. This is a fantastic way if you want to do it off-line as well, add some other information and do further analysis.
That's a quick look at our portfolio manager tool on Advanced Dashboard.
>> Great stuff as always. Thanks for that.
>> My pleasure.
>> Hiren Amin, Senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Including ARK Invest's Cathie Wood will be discussing a high stocks on Thursday, February 15.
We are back with Brad Simpson taking your questions about market strategy. 20 coming in.
In an article in the Globe and Mail today, Tim she felt reference to a research paper from Benjamin Felix at PW all capital. He ran data through a million simulations of an ideal portfolio and concluded that bonds add virtually no value.
I would appreciate Brad's thoughts on this.
Bonds had no value.
>> There is a… One of the things that, I have a quantitative background, I've been a quantitative investment manager, not a fundamental investment manager, I run a quantitative team. I'm comfortable with the quantification of things.
One of the things that I think you also have to be really careful of is when you are running simulations, what is your input to that? And sometimes you just got a step back and just kind of simply look at this.
If you look at, across the capital stock, if you take a Canadian universe of bonds, yielding let's call it 4% today, taking very little risk, you get your capital back, there is a risk that interest rates will go up and down and there will be volatility, and let's go to the hardened, you can go out and get a 10% return on emerging market bonds. You are taking a currency risk there, a default risk and there, and in the middle of that, get a corporate bond at 5%.
I'm trying to use simple solids on that.
And then historically, if you looked at the yield of something that is paying today and a bond and the maturity date of it, the duration of it, you can basically go over a. If you are in a flat or declining interest rate environment, the yield of all the bonds you are getting today ± 50 basis points and what your rate of return is going to be at the end of that duration. Right now, you can look at that and say, on average, my expected rate of return for taking pretty low risk is around 4%. Taking a reasonable amount of risk is five, taking more, let's emerging markets, it's 10.
If I'm taking a high-yield bond and I'm getting 7 1/2% yield on that, that's kind of like historical equity type return. And I think it's fair. But if you are looking at allocating capital and he wanted to say, if you wanted to call high-yield equity factor risk, so while it is encompassed and framed in this asset class, the DNA of it is probably closer to an equity then it is closer to a fixed income unit. But that would mean its expected yield is what an equity yield is.
In those terms honest rate rate of return basis, that equates to a good deal of value on their own right.
The second part of that is a diverse a fire and the diverse a firearm that is on the duration side, so on the government side, it's that we indeed experienced a 20 year period where interest rates went down, bonds went up and paid a coupon from it. We think there's going to be a lot more interest rate volatility going forward and we think that the interest yield rates that we have today, ±, if we wanted to go across the yield curve, let's say you want to go from one year to 10 years, ±, you have a 50 basis point shift up and down from the short term or onto that 10 year period.
You know what your coupon is going to be in you know if you have more volatility, when you have volatility, it was up and down, when you have downside volatility, you are getting the capital gain and you will be adding and trading in and adding to that position.
More often than not in an environment like that, we are now in a period where you believe there is more interest rate volatility, that we would say it is a perfect diverse a fire but it won't be anymore. Sometimes they do correlate with one another. They move together. We have really seen that in the last 18 months.
But on average over the next five years, it will pay out between that spread of 4 to 10, depending on the risk that you are taking, and as a diverse a fire, it will on average more often than not bring a diversification effect with it.
I also believe you need to have other diverse of fires. But for those alone it makes tremendous sense still and as a tremendous amount of value into a portfolio.
It depends on where you come from.
We are proponents of adaptive markets because I don't think you just take past data, extrapolate and move it forward. But I do believe that if you looked at what's going on through the windshield and what we are looking towards that that whole capital stock of fixed income from duration to corporate risk to high-yield risk to emerging market risk adds a tremendous amount to portfolios going forward and continues to be part of the diversification of an investor's portfolio if it suits their profile and what they are trying to do and what gross metric they are looking for.
>> Fascinating staff and a great question from the audience. We will get back to your questions for Brad Simpson nonmarket strategy in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us at any time. Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Central bank buying and geopolitics helping drive the price of precious metals to new highs to close out last year. What about this year? TD Cowen is that with a newer report on some of its expectation.
Anthony Okolie is going to break it down for us.
>> TD Cowen said the central bank mine continue in a rapid base in 2023 and annual purchases totalled 1037 tons would fell short of the 22 record of 1082 tons.
Mounting investor concerns over some of the geopolitical conflicts, a weak US dollar, expected fed pivot, those also contributed to or supported gold prices and 23. TD Cowen expects central bank buying and other physical flows to continue this year, driving demand for gold. In a previous report, TD Cowen noted that the increasing importance that central banks are placing on gold as a reserve asset, they believe that this will be a big driver of gold demand in the future.
TD Cowen also noted that China, which was a significant buyer old last year, still had plenty of room to grow the reserves to catch up to the US, Germany and Russia. TD Cowen remains positive on the gold price amid the 2024 rate cut expectations.
Driving this view is that the US Fed rate cycle has historically been a significant factor driving gold prices. In past years, it was up 34% during the easing cycle following the last rate hike of a tightening cycle versus an average of just 6% during periods of tightening. As a result, TD Cowen expects the end of the hiking cycle and the start of the easing cycle to be supportive of gold prices.
TD Securities global rate strategy group also said they are forecasting the Fed to start cutting rates in May and they expect 250 basis points of cuts by early 2025.
TD Cowen expects the strength of gold throughout 2024 to reach prices of $2200 US per ounce for the fourth quarter of this year.
Looking ahead to the rest of the year, TD Cowen also talked about some of the key themes that they will be focusing on. One of them is that they believe cost pressures, particularly labour cost, are expected to continue despite cooling inflation. They expect cash costs to rise roughly 3% year-over-year.
Now, although they expect these costs to rise moderately, TD Cowen does expects another wave of cost inflation. They expect increasing margins for gold producers this year purely driven by the expectations of higher gold prices.
With margins expected to climb and 24, they also expect gold stocks to perform well as a result.
>> There is always a risk, right?
>> I will highlight some of the key risks to their equity target prices.
They are not limited to risks related to gold and oil prices. They highlight risks related to deposit size, things like mine ability and risks to production levels as well.
>> Interesting stuff. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
And no for an update on the markets. We are back in TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
Let's look at the TSX 60 by Price and volume. BCE, by the real estate is occupying, is trading high volumes and it's down almost 6% on the heels of its latest earnings report.
Bit agreed on the screen and energy space.
Shopify is also up 3%.
S&P 500 got close to 5000 yesterday.
In the S&P 100, there are two standouts, Disney up 12% on earnings and PayPal down 11% on earnings. You can get more information by visiting TD.com/Advanced Dashboard.
We are back with Brad Simpson from TD Wealth taking your questions. How do you hedge risk in your assets? You talk about hedging in times like these.
>> There are lots of ways to do it. One was we were talking about puts and callers.
We can allocate vehicles able to do that.
There are both passive and active strategies where you can be hedging out duration risks or interest-rate risks. You can, we were talking about in the fixed income question, when you are going across a capital sack, the more risk in a bond you are allocating to, the higher the yield, the other part when you are allocating to fixed income, once you get into the corporate side, is that during different eras when you are willing to lend, with a bond, there is something called covenants.
Those covenants are expectations of, if you are not paying me back, what could happen. When money is really loose, and we went through a long period of loose money, that these bonds have what bond guys, I'm not a bond guy but I spend a lot of time with them, if you have a company with bonds out and they are not well-run and all of a sudden you get a slowdown, let's say you're a Canadian corporation doing business in Canada, the Canadian economy has been slowing a lot, we were talking about that with Bell Canada today, if you see that kind of slowdown, all of a sudden some of the hair on my company might start showing up and you might start saying to yourself, maybe the price of this bond is going to start going down because they may not be able to pay us, that a bond like that that is covenant light, borrowing money at the rate they could, you can short a company like that or you can allocate money to a manager that looks for companies like that that are covenant light, are not doing well, they will show up a basket of those and then on the other side there is an equivalent with the same grade that has far more difficult covenants, that is a well-run company, that has a great yield to it and that adds as an economy is performing less well than it was in the past, what can happen is you can say, wait a minute, I'm willing to pay a premium for this better run company with the same reading.
So I can go long with this company here, I can short this one here and what I'm doing is I'm hedging, if it gets ugly, I'm protecting my downside. So that's a really good strategy for people to implement in their fixed income portfolios where you are still getting yield but you are actually controlling downside.
So in fixed income, what I'm explaining, is using investment grade credit for the same things, I'm going out for high-yielding getting 7 1/2%, I can do the same thing with a a high-yield bond as well or I can say look at a high-yield bond that I think is going to move into investment grade and what I can do is say I'm going to go long on that high-yield bond because I think it's going to go investment grade and I can be sure dating really junky high-yield bonds to reduce my risk on the other side.
So that same methodology or way of looking at things, you can move over into the equity market.
The equity market, you can do the same thing. You can look at it and say, a rising tide lifts all boats. And then I can go across sectors and look at that.
We can look at an example, I can do cross-border, I keep harping on this but it's the timing, I can look at it and go, I think that Bell Canada, just theoretically… >> We are not recommending any trading strategies for BCE, bonds or stocks.
>> Just because these were two announcements today.
You could say, in a sector, I'm going to go long in the media sector, communications sector. I'm going to say within that, I want to go long, I'm going to use an ETF to go long and then I'm going to say I'm worried about a Bell Canada, as an example, so I could be shorting that and I can go, you know what?
I think Disney is going to have issues and I'm going to go, I like the US side so I will do that there, I can short the Canadian sector and see what the biggest player is and that ensured that and then go long and that's running a nuts and bolts long short strategy with equity.
That is an example of hedging out. The last one going to Anthony's comments on here, one reason why you want gold is a theme we talk about in our portfolio strategy, de-globalization and unfortunately war.
We have two significant wars going on right now.
Ukraine Russia, and Israel Hamas. When you look at wanting to hedge a geopolitical risk, if you quantify that and step back and look at it, what we want to be able to do is head show an example like fixed income and then an equity example, I also want to hedge out geopolitical risk so some people will say you can use fixed income hedging and equity hedging.
We think, and when you run the data and look at it, we actually think that commodities are a better hedge for geopolitical risk then fixed income hedging or equity hedging.
So some of that demand our own gold you are seeing is adding to a basket of the commodity that you are using for growing geopolitical risk. And we are doing that in strategies like that in our portfolios across the enterprise because it is one of the things and we say we have a theme called de-globalization that anchors these wars, part of that demand, and I would like to thank that we are absolutely brilliant and the only ones thinking these ways, but we are not.
The two things you can see is you can see partially I'm less interested in a gold company, I'm interested in gold as a basket of commodities, as a diversify or to hedge against that and for they are, you tie those in and you get, you do those three things, you have a really, really well hedged investment portfolio.
>> Always a fascinating discussion.
I always learn a lot and the audience enjoys it too.
>> Thank you.
>> Our thanks to Brad Simpson, chief strategist at TD Wealth.
As always, make sure you do your own research before making any investment decisions.
stay tuned. We will be back tomorrow to give you an update on the market's reaction to the latest Canadian Jobs Report.
On Monday, Michael Craig, head of asset allocation and derivatives at TD Asset Management will be our guest.
He wanted to your questions about asset allocation.
You can get them in ahead of time.
Just email MoneyTalkLive@TD.com. That's all the time we have the show today.
Thanks for watching and we will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will be joined by TD Wealth's chief wealth strategist Brad Simpson to discuss his current outlook for the markets.
MoneyTalk's Anthony Okolie is going to have a look at a new TD Cowen report on the outlook for gold.
And in today's education segment, Hiren Amin is going to show us how you can test out trading ideas on Advanced Dashboard.
Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
A bit of a mixed session. We will start on Bay Street with the TSX Composite Index.
Pullback of 95 points, just shy of half a percent. Crude on the move higher today bed heavyweights to the downside. Let's dig in among some of the most actively traded names in Toronto today include Enerplus.
Robust trading and the shares are up a little more than 8%. Unconfirmed reports that Devon Energy has approached Enerplus with a takeover offer.
It's unconfirmed but even the speculation is enough to get the shares on the move.
Lightspeed out with his latest quarterly report. It got a beat and a modest boost to the forecast. The company sounded some notes of caution with economic uncertainty and its prospects going forward. That is weighing on the name. Lightspeed is down almost 20% on the session.
South of the border, I want to check in on the S&P 500. It got awfully close to 5000 for the first time ever to crack that number. Pullback today, down two, three points but five ticks. Keeping you away from that big 5000 number. The NASDAQ, a bit of a bid into tech names. This is where the mixed session comes into play.
It is up 36 points or 1/4 of a percent.
Disney hitting it out of the park with its latest earnings report. We will break it down later for you.
Investors like the sound of it all. Up more than 12% in today's session. And that is your market update.
Despite plenty of risks out there, the markets have climbed into record territory.
Can that run continue? Joining us now to discuss his Brad Simpson, chief wealth strategist at TD Wealth. Great to have you back. You gotta knew what quarterly report out. You talk about investors being like pilots looking at all of these gauges and trying to get a read. What is the thinking behind that?
>> Thanks for having me, by the way. What a great starting point with the S&P 500 almost hitting 5000. Everyone's got to stop for a second end if it's really well into our quarterly strategy that we just published. The idea is that for the last three years, three years ago, about a year and 1/2, you knew one thing.
In COVID 19, you knew we were going to deal with it, but it was front and centre.
And then we had inflation.
It's not terribly complicated. What's going to happen with inflation? Working on our strategy this quarter, we didn't have these two big things.
We see the odd person with a mask but nobody is spending a lot of time talking about COVID anymore. Inflation, I'm not saying it's gone, but it is not front and centre.
>> It is not eight or 9%.
>> Right.
The idea of this is that I was doing a sit down and presentation with our chief economist and trying to explain what is the difference between our two jobs.
Beata does an incredible job saying over the next year and following years, this is what we think the economy is going to do in Canada or the United States or in China or globally, what does that look like.
My team thinks about it kind of like flying a big airplane.
It says that, we are flying from a to B.
When we are flying our flight plan, we are thinking about what her team says. This is what we think the train is going to look like. But we gotta fly there and when you're flying from a to B, you can go off course all the time.
What I said is that we kind of took off, we are in the air right now and it is this incredibly big, wide open sky, but you know you are going to be off course and some things are going to come at you.
But you know it's not going to be the two things that hit you in the past.
It's going to also present a bunch of opportunities.
That to me is, we started asking all these questions.
What would that be?
We started out, I think we brought a chart for this, we started out, I don't want to say this was a big formal pole. We just went to our advisor community across Canada and said, what is your client's big fear that you are hearing about?
What is that thing? So informal survey.
Here is how it shook out. It should not be a big surprise, AI, artificial intelligence.
You hear things like, could replace human beings.
This is a pretty big subject.
That made sense. The second one that came out was de-globalization, which kind of makes sense, and then tied for third and fourth was climate change and world war.
These are yours 7 to 10 year big concerns.
>> These are big ideas!
>> Yeah, right?
We looked at this and said, those of the big ones.
When I do Q and a use with clients and investors out there, I had a meeting like that yesterday was a bunch of our clients, and that is top of mind. And then you go to one of the short term concern, what are the things here that if I suggest you that inflation is a lot better, COVID is not a concern, what is your concern?
>> Off the top, we are talking about markets rallying. Markets are nearing record territory.
People are starting to think, what's going on here?
>> The ultimate answer to that is, and through all this blue sky, the answer is, yeah, there are a lot of reasons why it could and you see this ominous number of the S&P at 5000, you've got a kind of start breaking that down and go, how do you get to that number?
I don't think it's any secret that a huge part of that driver is only in a handful of names.
For the last, let's call it since last October now, it is starting to spread out a little bit. Right?
And I think the reason it is starting to spread out a little bit is that if you were going through a checklist of the things that you would want to be getting better, they start to get pretty good.
You and I could be here last year at this time, we could have been reasonably having a discussion, which we were, on a concern that we could be in a deep recession in Canada, a recession in the United States.
And Europe the same.
But that is not what we are having. Today, we could reasonably be having a conversation about stagflation, right? You could say that we have really slow growth, super high inflation and now we are starting to see unemployment go up. But we don't have any of that. That's a real positive. Yields and inflation are both down. We are not talking 10% inflation, we are talking three.
We are talking interest rates are, now we are talking about rate cuts. The argument isn't are there going to be rate cuts, the argument is… >> Do central banks have to be in a rush?
Jerome Powell doesn't seem to be in a rush. He points to the economy and says the labour market is strong, growth is strong.
What would force their hand?
>> If anything, if you wanted to find risk, one of the risks, and I think it's a reasonable one, is not if they would raise rates or how many rate drops would there be, one of the risks might be what if they didn't?
Right?
>> That thought has been entering my head every once in a while. It's still early in the year, but what if they didn't?
>> I think that's a reasonable risk in the marketplace. We think there are going to be 3 to 4 drops.
Instead of in March or April, we think it will be in May and June.
But I think sometimes one people read and says things that people like me say is that but we are always playing on probabilities.
We are saying there is a 60% probability that this will happen.
And there's a 40% chance it won't.
And I think that one of the things that we do that is a way of changing that is that going back TD Economics view of things.
Ultimately, when you are allocating capital, you thinking about what's happening in the economic environment and going 6 to 18 months forward. When you are doing that, an economist is going to say, here is our expected growth or here is our expected lack of growth or here is whatever that term is going to be.
What we do is we will look at that and go, we think that is the most likely scenario, but what we do when we allocate as we say look at, most of the time, we know a simple thing, that there is going to be a rising growth environment, a falling growth environment, an environment where inflation is going up and an environment where inflation is going down.
I'm going to allocate into, we have talked about this, in a game of foursquare, you have each one of those elements and we are going to say the ball is going to hit each one of those foursquare's… >> At some point.
>> At some point. And I allocate to each one of those squares. If I think that there is a higher probability that we are going to have a soft landing and that as we get closer to the soft landing, interest rates are going to start going down, I'm going to allocate more into that box where I think you are going to have a slowing environment but not to slow where inflation is in control and not deflationary and I'm going to make a bigger allocation there. If investors could figure out that's what we are saying, it would change everything because we will say we are neutral equities. I think people translate that to, they don't like the equity market. No. It means that when we are allocating to it we are allocating less to it because we think the probability of where that will go is less.
When we are saying where you would want to kind of think about how you are going to allocate, there are many things that would point to, this is an environment that if you have a soft landing, which especially in the United States it is pointing to that, and you have a consumer that is in pretty good shape, a little bit stretched, their job is pretty rocksolid, the good news is their job is rocksolid but it's not as rocksolid as it was, which means they are less inclined to walk in and say, I need a raise, which causes inflation.
Instead, you think about staying in the pretty good job.
Then use the equity markets brought a no.
If you have a healthy economy, run into a bunch of growth names because you don't believe you can get growth anywhere else, if you start thinking, wait a minute, things are better than what they were, maybe I don't have to pay so much to get that growth, that's a pretty good market environment and to me, looking at the great wide open, those are a lot of the attributes that it has right now.
>> Fascinating stuff and a great start to the program.
We are going to get your questions about market strategy for Brad Simpson in just a moment.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
BCE is cutting 9% of its workforce, citing a tough economic and regulatory operating environment.
The moves are going to see some 4800 positions eliminated across the company and also the sale of 45 of its more than 100 radio stations. BCE reported a 23% drop in profit for the most recent quarter compared to the same period last year, and it is also raising its dividend.
Add 50 bucks and $0.79 per share, BCE is down 4.3% on that news. Shares of Disney are on the move substantially higher, after an earnings report that was jampacked with news from the entertainment giant.
Disney bead on the profit line, hiking its dividend by 50%, and it's taking a $1.5 billion stake in Epic Games, the maker of Fortnite. Expect more Star Wars and Marvel titles on your gaming console. The news comes amid activist investor push for change had Disney. It's one of those quarters when Disney wanted to put on a show.
They are putting on one that people are enjoying. At 111 bucks and change per share, Europe more than 12% on the name.
Also want to check in on shares a microchip designer ARM. Reporting better-than-expected earnings and giving investors a solid forecast.
It's really impressing the street. At 121 bucks and change, you've got ARM up 57%.
That's just in one day. There is growing demand for its CPU designs to run AI applications. It went public in September and Softbank still owns some 90% of the outstanding shares.
A quick check on the markets. Down about hundred and seven points or half a percent on the TSX Composite Index.
The S&P 500 got so close to 5000 yesterday, it just fell a couple of points short.
Today, it's pulling back about four points. Nothing too dramatic. We are at 4990, down about 1/10 of a percent.
We are back with Brad Simpson, taking your questions about market strategy. Let's get to them. What's your view on equities right now?
Can markets keep pushing higher? I think of a picture to show us on this discussion about sentiment.
>> It… There are a couple of pieces to this and let's look at it. I'm going to throw a curveball on this and then I want to go on and I want to answer this question directly maybe with a bit of a twist and tie into something that you just said there.
When you think about is the market hi right now, the S&P 500 is. Let's call it 20 times earnings, 19, 21, but I think you could characterize that as an expensive market.
The market in Canada is about 12 times earnings. You could say that's pretty expensive. You look at the Chinese equity market and see that is almost free. You can also go, there is good reason for that.
One of the things I think is fascinating is in your last segment is, we wrote about this in our PS Q, where to allocate and how to allocate and how to think about allocating right now.
You have BCE and you have Disney. Both are… >> A tale of two media companies.
>> They are in the same sector.
Let's be clear that almost everyone who is watching this today on average is going to be over allocated in Canada.
We have domestic bias.
In Canada, for our large-cap companies, we have telcos, we have financial services companies, we have oil and gas companies and metals and minerals companies. We have variations on top of that but really that's it. So if you are going to say, okay, I'm going to get media exposure, I'm going to own Bell Canada.
Or I'm going to own Telus. I'm not saying either of those are not good things down.
On the flipside, you have a company like Disney, we don't have a Canadian version of Disney. We don't have a company that has a headwind like they have that goes, okay, we will make those adjustments.
Those are really big moves they've made.
And they are all really intriguing moves that they made.
And so one of the things is instead of saying, is a good or bad to be in the market, one thing I think we need to do is look at, I'm an allocator of capital.
That's my job. You think about, how do you allocate?
One thing I think Canadian investors need to do, this is going to be a theme today, is step back and say, should my only media exposure be telcos? Because that's really the media exposure you are going to get here. We would argue, no, I'm going to pay up and have that exposure.
We are moderate overweight US equities and we are at neutral equities. We want to be neutral to that but we wanted to move a little bit more into the states. And it would be the most expensive one but it would be the most expensive one for reason and the reason is that when you walk through a story like Disney, you can see it and go, wow, what a company and even with that, with the issues they have, okay, we are going to fix them, here's what we are going to do and where the opportunities are going to be. They didn't say they were going to increase the dividend and there's nothing on the positive side that they can do.
They said we are going to pay a larger dividend and by the way, here's a way we are going to grow our earnings.
So when I look at that, I think that's how we need to start thinking about it.
If we go back to the sentiment in the first part of what we talked about is that, you will see how much we can switch gears on this is that the thing about allocating capital well is to allocate to the things that are less expensive in the goal of getting them to go up down the road.
So we just went through a period of time where from October to just about now, equity markets really rallying and United States bond markets really rally. When you ask an investor how they feel about things, we brought two charts. One is looking at how does the retail, just human beings like you and me, if I wasn't doing my job, let's say, if I was nonprofessional, how do I feel about things, I feel really good because for three months the wind is at my back.
Institutional investors say the wind is at my back.
So the next part which I want people to think about is when you feel euphoric is there is a Paul Simon song where he says, I've got magic powers but then I slammed into a brick wall. Right?
Markets were kind of like that.
I brought another chart and I wanted to show these back to back for a reason. What I am showing here is right now, we are also adding hedging to our portfolios.
What I'm showing you here is hedging strategies. Three of them: a put, a put spread and a caller.
Don't need to go into detail with what those are, just to say these are strategies of ways of being able to control my downside and profit from downside. The arrow going down is right now if I am adding strategies to hedge my portfolio, it's really inexpensive to do so because people, when you get in that euphoric zone, go, there is no brick wall.
But me, I'm saying, no, I know there's going to be turbulent. I've spent a lifetime in airplanes between my business life, my father is ironically a portfolio manager and a pilot.
>> He put the two jobs together.
>> I jokingly said he subconsciously helped me write my article for our portfolio strategy quarterly.
This is also an opportunity for investors to have an inexpensive way to have hedges in their portfolio that you can make money on and when we have volatility, when that volatility to the downside, we can be reducing or actually making money on that.
And so it's kind of a two-part question.
The answer ultimately to the viewer was to say we like markets today. When you say that, how do you define that? What start to finding that different. Let's look at it and go, how do I want to allocate into markets? And then also say, if I'm saying we'd really like markets, I'm knowing that something can also go wrong so if I can be inexpensively hedging, I'm going to do that too.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions. we are going to get back to questions for Brad Simpson on market strategy and just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
Earlier in the week, we took a look at how you can test out trading ideas on WebBroker.
In today's segment, we will show you how you can do the same thing on Advanced Dashboard.
Joining us now with more is Hiren Amin, Senior client education instructor with TD Direct Investing. Great to see you. Take us through it.
>> Great to be back.
Let's chat about Advanced Dashboard and the tools they offer to help us track portfolios as we are testing out ideas.
One thing you can see is I'm already on Advanced Dashboard and we've set up a new workspace for ourselves. We called a portfolio manager right over here.
This is, in fact, a widget or tool available to everyone who uses Advanced Dashboard.
You can access it by going to the category at the top called account details and then pulling it up over here.
There's nothing in there so let's start building this out.
What's the case for using this? It will be for those traders who are looking at a different number of stocks and maybe sitting on the fence before pulling the trigger or let's say you have physicians on different avenues and you want to look at a consolidated view in one spot, this is the tool that you want to use. What we want to do is head over to the top right appear where it says new portfolio. Click on that and start over here. I'm going to label this February 8. You can title it whatever you want. It's going to ask you which currency. Then to create.
Then start to add in symbols. Since Disney is in the news, let's go ahead and add Disney.
When you do that, it will ask you, this is the way you can track the position. Let's say we bought a lot of shares of Disney and we want to, we can also put in our cost base information. If you have this information, you can put it in. If you want to test out an idea or back test, let's say we bought this at some point in January, January 10.
What the system does is it will pick up the exact closing price on that date and put it in as that cost basis for you.
Let's say we are going to go for that in his say. Now, what you will see is you will see that information loaded up.
It gives us pretty much what you would see in a portfolio if you had the position in life.
You can see the quantity and it keeps track of your daily, open PML numbers as well.
We will go ahead and add another one.
PayPal. Let's say we own 50 shares of PayPal and put in my own cost basis. Let's assume we bought this for 50 bucks at some point.
We can hit save over here and in this way you can start building the list.
Not only can you start building the list, you can change the look in terms of the information displayed.
You can see these data columns that they are showing us.
We can go to templates and switch those around to see different views.
You can come to this hamburger menu in the top left corner and manage templates and add in any of this information that you want to see.
You can even separated if you want. You can see that we have a preset over here.
We have some custom ones over here.
I take things out, let's say you don't want the entry date, check that out and it's gone. And it automatically saves. So once you close out of this, you can toggle between these different views to see different pieces of information.
The last thing I will mention on this note is that traders who have the ability to actually export this into a CSV file or Excel if you wanted to track it on there.
To do that, come to the hamburger menu appear.
You will notice there is an export list as CSV appear. This is a fantastic way if you want to do it off-line as well, add some other information and do further analysis.
That's a quick look at our portfolio manager tool on Advanced Dashboard.
>> Great stuff as always. Thanks for that.
>> My pleasure.
>> Hiren Amin, Senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Including ARK Invest's Cathie Wood will be discussing a high stocks on Thursday, February 15.
We are back with Brad Simpson taking your questions about market strategy. 20 coming in.
In an article in the Globe and Mail today, Tim she felt reference to a research paper from Benjamin Felix at PW all capital. He ran data through a million simulations of an ideal portfolio and concluded that bonds add virtually no value.
I would appreciate Brad's thoughts on this.
Bonds had no value.
>> There is a… One of the things that, I have a quantitative background, I've been a quantitative investment manager, not a fundamental investment manager, I run a quantitative team. I'm comfortable with the quantification of things.
One of the things that I think you also have to be really careful of is when you are running simulations, what is your input to that? And sometimes you just got a step back and just kind of simply look at this.
If you look at, across the capital stock, if you take a Canadian universe of bonds, yielding let's call it 4% today, taking very little risk, you get your capital back, there is a risk that interest rates will go up and down and there will be volatility, and let's go to the hardened, you can go out and get a 10% return on emerging market bonds. You are taking a currency risk there, a default risk and there, and in the middle of that, get a corporate bond at 5%.
I'm trying to use simple solids on that.
And then historically, if you looked at the yield of something that is paying today and a bond and the maturity date of it, the duration of it, you can basically go over a. If you are in a flat or declining interest rate environment, the yield of all the bonds you are getting today ± 50 basis points and what your rate of return is going to be at the end of that duration. Right now, you can look at that and say, on average, my expected rate of return for taking pretty low risk is around 4%. Taking a reasonable amount of risk is five, taking more, let's emerging markets, it's 10.
If I'm taking a high-yield bond and I'm getting 7 1/2% yield on that, that's kind of like historical equity type return. And I think it's fair. But if you are looking at allocating capital and he wanted to say, if you wanted to call high-yield equity factor risk, so while it is encompassed and framed in this asset class, the DNA of it is probably closer to an equity then it is closer to a fixed income unit. But that would mean its expected yield is what an equity yield is.
In those terms honest rate rate of return basis, that equates to a good deal of value on their own right.
The second part of that is a diverse a fire and the diverse a firearm that is on the duration side, so on the government side, it's that we indeed experienced a 20 year period where interest rates went down, bonds went up and paid a coupon from it. We think there's going to be a lot more interest rate volatility going forward and we think that the interest yield rates that we have today, ±, if we wanted to go across the yield curve, let's say you want to go from one year to 10 years, ±, you have a 50 basis point shift up and down from the short term or onto that 10 year period.
You know what your coupon is going to be in you know if you have more volatility, when you have volatility, it was up and down, when you have downside volatility, you are getting the capital gain and you will be adding and trading in and adding to that position.
More often than not in an environment like that, we are now in a period where you believe there is more interest rate volatility, that we would say it is a perfect diverse a fire but it won't be anymore. Sometimes they do correlate with one another. They move together. We have really seen that in the last 18 months.
But on average over the next five years, it will pay out between that spread of 4 to 10, depending on the risk that you are taking, and as a diverse a fire, it will on average more often than not bring a diversification effect with it.
I also believe you need to have other diverse of fires. But for those alone it makes tremendous sense still and as a tremendous amount of value into a portfolio.
It depends on where you come from.
We are proponents of adaptive markets because I don't think you just take past data, extrapolate and move it forward. But I do believe that if you looked at what's going on through the windshield and what we are looking towards that that whole capital stock of fixed income from duration to corporate risk to high-yield risk to emerging market risk adds a tremendous amount to portfolios going forward and continues to be part of the diversification of an investor's portfolio if it suits their profile and what they are trying to do and what gross metric they are looking for.
>> Fascinating staff and a great question from the audience. We will get back to your questions for Brad Simpson nonmarket strategy in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
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Central bank buying and geopolitics helping drive the price of precious metals to new highs to close out last year. What about this year? TD Cowen is that with a newer report on some of its expectation.
Anthony Okolie is going to break it down for us.
>> TD Cowen said the central bank mine continue in a rapid base in 2023 and annual purchases totalled 1037 tons would fell short of the 22 record of 1082 tons.
Mounting investor concerns over some of the geopolitical conflicts, a weak US dollar, expected fed pivot, those also contributed to or supported gold prices and 23. TD Cowen expects central bank buying and other physical flows to continue this year, driving demand for gold. In a previous report, TD Cowen noted that the increasing importance that central banks are placing on gold as a reserve asset, they believe that this will be a big driver of gold demand in the future.
TD Cowen also noted that China, which was a significant buyer old last year, still had plenty of room to grow the reserves to catch up to the US, Germany and Russia. TD Cowen remains positive on the gold price amid the 2024 rate cut expectations.
Driving this view is that the US Fed rate cycle has historically been a significant factor driving gold prices. In past years, it was up 34% during the easing cycle following the last rate hike of a tightening cycle versus an average of just 6% during periods of tightening. As a result, TD Cowen expects the end of the hiking cycle and the start of the easing cycle to be supportive of gold prices.
TD Securities global rate strategy group also said they are forecasting the Fed to start cutting rates in May and they expect 250 basis points of cuts by early 2025.
TD Cowen expects the strength of gold throughout 2024 to reach prices of $2200 US per ounce for the fourth quarter of this year.
Looking ahead to the rest of the year, TD Cowen also talked about some of the key themes that they will be focusing on. One of them is that they believe cost pressures, particularly labour cost, are expected to continue despite cooling inflation. They expect cash costs to rise roughly 3% year-over-year.
Now, although they expect these costs to rise moderately, TD Cowen does expects another wave of cost inflation. They expect increasing margins for gold producers this year purely driven by the expectations of higher gold prices.
With margins expected to climb and 24, they also expect gold stocks to perform well as a result.
>> There is always a risk, right?
>> I will highlight some of the key risks to their equity target prices.
They are not limited to risks related to gold and oil prices. They highlight risks related to deposit size, things like mine ability and risks to production levels as well.
>> Interesting stuff. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
And no for an update on the markets. We are back in TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
Let's look at the TSX 60 by Price and volume. BCE, by the real estate is occupying, is trading high volumes and it's down almost 6% on the heels of its latest earnings report.
Bit agreed on the screen and energy space.
Shopify is also up 3%.
S&P 500 got close to 5000 yesterday.
In the S&P 100, there are two standouts, Disney up 12% on earnings and PayPal down 11% on earnings. You can get more information by visiting TD.com/Advanced Dashboard.
We are back with Brad Simpson from TD Wealth taking your questions. How do you hedge risk in your assets? You talk about hedging in times like these.
>> There are lots of ways to do it. One was we were talking about puts and callers.
We can allocate vehicles able to do that.
There are both passive and active strategies where you can be hedging out duration risks or interest-rate risks. You can, we were talking about in the fixed income question, when you are going across a capital sack, the more risk in a bond you are allocating to, the higher the yield, the other part when you are allocating to fixed income, once you get into the corporate side, is that during different eras when you are willing to lend, with a bond, there is something called covenants.
Those covenants are expectations of, if you are not paying me back, what could happen. When money is really loose, and we went through a long period of loose money, that these bonds have what bond guys, I'm not a bond guy but I spend a lot of time with them, if you have a company with bonds out and they are not well-run and all of a sudden you get a slowdown, let's say you're a Canadian corporation doing business in Canada, the Canadian economy has been slowing a lot, we were talking about that with Bell Canada today, if you see that kind of slowdown, all of a sudden some of the hair on my company might start showing up and you might start saying to yourself, maybe the price of this bond is going to start going down because they may not be able to pay us, that a bond like that that is covenant light, borrowing money at the rate they could, you can short a company like that or you can allocate money to a manager that looks for companies like that that are covenant light, are not doing well, they will show up a basket of those and then on the other side there is an equivalent with the same grade that has far more difficult covenants, that is a well-run company, that has a great yield to it and that adds as an economy is performing less well than it was in the past, what can happen is you can say, wait a minute, I'm willing to pay a premium for this better run company with the same reading.
So I can go long with this company here, I can short this one here and what I'm doing is I'm hedging, if it gets ugly, I'm protecting my downside. So that's a really good strategy for people to implement in their fixed income portfolios where you are still getting yield but you are actually controlling downside.
So in fixed income, what I'm explaining, is using investment grade credit for the same things, I'm going out for high-yielding getting 7 1/2%, I can do the same thing with a a high-yield bond as well or I can say look at a high-yield bond that I think is going to move into investment grade and what I can do is say I'm going to go long on that high-yield bond because I think it's going to go investment grade and I can be sure dating really junky high-yield bonds to reduce my risk on the other side.
So that same methodology or way of looking at things, you can move over into the equity market.
The equity market, you can do the same thing. You can look at it and say, a rising tide lifts all boats. And then I can go across sectors and look at that.
We can look at an example, I can do cross-border, I keep harping on this but it's the timing, I can look at it and go, I think that Bell Canada, just theoretically… >> We are not recommending any trading strategies for BCE, bonds or stocks.
>> Just because these were two announcements today.
You could say, in a sector, I'm going to go long in the media sector, communications sector. I'm going to say within that, I want to go long, I'm going to use an ETF to go long and then I'm going to say I'm worried about a Bell Canada, as an example, so I could be shorting that and I can go, you know what?
I think Disney is going to have issues and I'm going to go, I like the US side so I will do that there, I can short the Canadian sector and see what the biggest player is and that ensured that and then go long and that's running a nuts and bolts long short strategy with equity.
That is an example of hedging out. The last one going to Anthony's comments on here, one reason why you want gold is a theme we talk about in our portfolio strategy, de-globalization and unfortunately war.
We have two significant wars going on right now.
Ukraine Russia, and Israel Hamas. When you look at wanting to hedge a geopolitical risk, if you quantify that and step back and look at it, what we want to be able to do is head show an example like fixed income and then an equity example, I also want to hedge out geopolitical risk so some people will say you can use fixed income hedging and equity hedging.
We think, and when you run the data and look at it, we actually think that commodities are a better hedge for geopolitical risk then fixed income hedging or equity hedging.
So some of that demand our own gold you are seeing is adding to a basket of the commodity that you are using for growing geopolitical risk. And we are doing that in strategies like that in our portfolios across the enterprise because it is one of the things and we say we have a theme called de-globalization that anchors these wars, part of that demand, and I would like to thank that we are absolutely brilliant and the only ones thinking these ways, but we are not.
The two things you can see is you can see partially I'm less interested in a gold company, I'm interested in gold as a basket of commodities, as a diversify or to hedge against that and for they are, you tie those in and you get, you do those three things, you have a really, really well hedged investment portfolio.
>> Always a fascinating discussion.
I always learn a lot and the audience enjoys it too.
>> Thank you.
>> Our thanks to Brad Simpson, chief strategist at TD Wealth.
As always, make sure you do your own research before making any investment decisions.
stay tuned. We will be back tomorrow to give you an update on the market's reaction to the latest Canadian Jobs Report.
On Monday, Michael Craig, head of asset allocation and derivatives at TD Asset Management will be our guest.
He wanted to your questions about asset allocation.
You can get them in ahead of time.
Just email MoneyTalkLive@TD.com. That's all the time we have the show today.
Thanks for watching and we will see you tomorrow.
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