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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 show, we'll discuss whether more volatility is a head with Michael Craig, head of asset allocation with TD Asset Management. And in today's WebBroker education segment, Bryan Rogers will show us how to compare different ETFs using the platform.
So here's how you can get in touch with us. Just email moneytalklive@td.com or you can follow the viewer response box under the video player on WebBroker.
Before we get our guest today, let's get you an update on the markets. First trading day of the week. It was bumpy last week. We have some modest green on the screen today. At 19,489 on the TSX Composite Index, We are up 102 points, about half a percent, despite the fact that American benchmark crude West Texas is down modestly today, talking about 66 bucks per barrel for crude.
got First Quantum met up almost 6%. Now the tech stocks don't seem to be in favour today.
We will show you Shopify here right now at 5912, we are down a little more than 3 1/2% on the name. South of the border, it's going to be a big way. We have a US Federal Reserve rate decision meeting.
Those are two day meetings. They will go in tomorrow and come out on Wednesday and we will find out what Jerome Powell thinks or at least what he's willing to tell us what he thinks about this turmoil we have been seeing in the global financial system. Layer on top of that, the fight against inflation with what the Fed has been up to was going to be interesting. Right now you have a bit of a big, 25 point to the upside for the S&P 500, a little bit more than half a percent. The tech heavy NASDAQ has been bouncing around on either side breakeven. It is on the positive side right now, up 1/3 of a percent. Notice saying that some of the chipmakers were on a good run up last week. AMD was getting a bit of a run up last week. Giving a bit of that back today, down almost 4% on name. That's your market update.
Investors are keeping a careful eye on the health of the global financial system that as central banks a coordinated action to try to calm markets and UBS agrees to buy troubled lender Credit Suisse. Joining us now for his view on how to think about it all this volatility is Michael Craig, head of asset allocation at TD management.
what do we make of what has transpired over the past couple of days?
>> Pretty historic.
it takes away some anxiety in the market.
Credit Suisse was coming off pretty hard last week.
This will give us some time for breath. But the overlying issues that were there going into it still remain.
So expect to see, this is probably the end of the beginning… Or the beginning of the end if you think about where we are going to hear.
>> So basically what we are talking about is the goal of financial system, the concerns, I mean it seems like a million years ago. Silicon Valley Bank was a week and 1/2 ago that it failed, and then all the pressure on the US regionals, wondering what the exposures of the bigger banks.
You get this event were UBS steps in and buys Credit Suisse.
What do we need to be watching for as investors going forward?
>> Credit. In terms of credit availability, banks pulling back. There is data from the federal weekly that shows liability is across the US banking system and we will be watching for that to start the contract as banks start to pull away.
these failures have been very different. Silicon Valley Bank… This is not an original global bank.
There are a bunch of deposits and put them in longer-term investments and that went against them.
And with Credit Suisse, they've been kind of bumping into sharp objects now for some time.
They've been in the press for any kind of mistake that happen, it seems they've been tied to it. These were not high quality business models, if you will.
But we are coming back.
The Fed, as you mentioned, we get a rate decision this week. The Fed is in a tough spot between we've got this newfound problem with financial stability but they still have an inflation problem.
And so they will have to choose in terms of what they're going to focus on. My sense is it will be on the inflation side.
>> On the inflation side, there is no shortage of punditry out there as to what the Fed might do only two days from now. There's a school of thought that things they will still raise, maybe only 25 basis points to show that the fight against inflation is an important one. If they don't raise, maybe they are more concerned about the global financial system and are going to show their hand. It's hard to make sense of it with only two days to go as to what they are going to say about it.
>> For us, it's to try and first predict what they are going to do and think and then the turnoff is next to impossible.
You need to think about what the range of probabilities are and the expected reaction. I always say that if they do come in and hold and not do anything, that will probably create more damage than not.
We are in the midst of, because of the marketers believe that they are going to lose their zeal against inflation, then we could see a repricing of inflation expectations and that's way more problematic in the long term. I would expect them to go 25, and it continues… You can't… This belief that you kind of bring inflation down, it's not like you can just die… Unemployment to a perfect level and consumption to a perfect level and not create distortions.
We have two.
It's the cost of dealing with inflation is likely a recession and so I think they will have to stay the course until they see evidence of a real turn in inflation.
and so I think if we actually just forget about the recent banking stress it still stay the course in terms of a hiking cycle and more corporate failure as a lot of companies are just not set up to operate in an environment of tighter financial condition.
>> You talked about was particular to Silicon Valley Bank and the strategy that they had that went against them.
Credit Suisse, long before this happened, there was no shortage of headline surrounding that bank.
With the Fed take that into consideration and say these are specific incidents that are specific to the circumstances there?
Or is there a broader read for everything that's happening right now?
>> Well, they are definitely going to be concerned about the performance of regionals.
The regionals have a different compliance regime than the money centres.
So there is a risk there and those models are not as a diversified and had to be focused on geographic region.
There are 6000 banks in the US. The equivalent in Canada would be having 60 banks.
It's a system that's always going to have some degree of bank failure because you got so many that it's hard, you are going to have some big mistakes.
But their mandate is inflation and so I just don't think they can step away from this and not worry about that what we still have… Core has been stubborn as of late.
So until you see a real backup in unemployment, they are going to stay the course.
I don't think that terminal rate is probably as high as it was a few weeks ago.
But the way the market is behaving right now, the short end is trading like a penny stock.
As expectations whip around, we might be back to 5 1/2% terminal in no time if we get another hot inflation rate. That's probably what they are afraid of and I think it would be a foolish mistake to go less than 25 at this meeting only because I think it would signal that they are panicking.
>> You won't go too deep into the weeds on this one unless you want to give us a master class on… But there was a notice from central banks over the weekend saying that this group of Western central banks is going to make sure that we take some action to preserve US dollar liquidity. How important an event is that?
>> What it does tell you is I think they are separating hiking and inflation on one hand and financial stability on the other. This is all about financial stability.
This is all about providing liquidity to bank so that they can continue to operate.
there are going to use this as a tool to quell stress.
They will use other tools. If you are an investor and you are hoping because your investments are perhaps set up for lower interest rates, I think you need to be concerned because I don't think you're going to see that.
The funny thing is, last week, the market was pricing another hike and then for cuts until January next year.
And I don't think that's what happened.
I would say there's no chance.
What is this tell use of the average doesn't make sense but it's the inputs in the average that are quite interesting and they would be that there's let's say 80% of no cuts this year and a 20% chance you get like 400 basis points of cuts which is actually typical of an interest rate cutting cycle.
If we get 400 basis points, that's a hard landing.
>> If your bet is that you're going to get lower rates, it's because something bad has happened.
>> Yes, it's a hard landing.
We're talking the six or 7 million Americans out of work. A couple percent higher unemployment.
That's kind of the realm of probabilities that the market is looking at. You probably don't see that.
80%, a lot of moving around.
When you think about base case procession, but now there is that increasing risk of a credit crunch because credit conditions are going to tighten based on all the stress on regional.
March is always a funny month.
March and September… I remember them like my children's birthdays.
And once again, March has delivered.
And I think it's important to be mindful that the range of probabilities are probably more now to the bearish side than they were a month ago.
>> Fascinating stuff as always had a great start to the program.
We are going to get your questions about asset allocation for Michael Craig and just moments time.
a reminder that you get in touch with us at any time.
Email moneytalklive@td.com or follow the viewer response box on 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.
There are more layoffs in the tech sector today.
E-commerce giant Amazon plans to lay off an additional 9000 workers.
the announcement was made in a memo to Amazon employees from CEO Andy Jassy.
It's the latest in a string of layoff announcements from some of the biggest names in tech in recent months. Amazon right now down a little more than 2%.
Shares of first public bank are under pressure again to start the trading week. The US regional down 29% now, it's steeper than when I first checked in this morning.
The US regional bank was hat with a credit rating downgrade amid concern that $30 billion infusion of deposits from several big Wall Street banks may not solve its liquidity problem. First public saw deposit outflows along with other regional banks in the wake of Silicon Valley Bank collapsing. Investors are weighing a mixed outlook for fitness apparel retailer Foot Locker.
The company is forecasting a sales slowdown for its current fiscal year.
It's also touting what he calls a renewed relationship with Nike in the wake of the sneaker giant ramping up its direct to consumer offerings.
Right now you fell Foot Locker down about 2%.
a quick check in on the market, we will start with the TSX Composite Index.
We are of a modest 71 points, about 1/3 of a percent.
South of the border, is going to be a big week with the Fed entering the two-day meeting tomorrow and coming on Wednesday with the rated outfit. You do have some green again. It's modest. You got 14 points we will call on the S&P 500, a little better than 1/3 of a percent.
We are back now with Michael Craig, head of asset allocation at TD Asset Management, taking your questions. Let's get to them. What percentage of the portfolio should be in bonds?
> Everyone is different.
We manage money for a handful of investors, from very conservative to higher risk.
We have increased our exposure materially. We are probably at the highest we've been in 10+ years.
And so again, it's, depending on the individual, or they 25 or are they 80?
Or somewhere in between?
But certainly an increase allocation is how we are set up right now and particularly focused on government backed bonds at the moment.
>> Let's dig a bit deeper into that because of course that's how you sort of set things up heading into this year in terms of where you are thinking these markets were going to be headed. Obviously, we seen a rush into bonds and fixed income in the past several days or several weeks, I guess, however long that we are counting back to the Silicon Valley Bank. Yields coming down. What we expect going forward?
It's been beneficial to bonds in a very short period of time.
>> I would expect to see yields continue to perform.
Bonds right now, if I told you you could buy house insurance and earn 5%, it's pretty good house insurance.
And I don't think bonds make… They are always kind of a key part of a portfolio as a diversification asset butthe market expects inflation to be over time and so they make a lot of sense. They performed this year.
I think we are still in the early innings of this.
Now we haven't really within our asset allocation committee, underweight equities, we would think that over time that's the right position this year.
So I think there is still tremendous, quite a bit of upside in that asset class.
rule predictions are a tough thing to do. We go into a more severe recession, bonds will really perform.
I think the worry is that if there is a real acceleration of inflation and a dovish Fed, I guess it's possible but I wouldn't put a high probability on a.
>> I think he set off the top of the focuses more on government bonds.
We could talk corporate, we could talk to you. In a recessionary environment, sometimes they start to think about corporate and high-yield to how they might react.
> Yeah.
I mean, so again, it's all about credit quality. I wouldn't expect high-yield to perform terribly well in a recession.
Not like equity. On the corporate side, on the investment grade corporate side, today's a really interesting day.
Financials are really struggling around the world.
In the wake of what happened with their Credit Suisse purchase on the weekend, they did right off they're kind of a junior 81 bonds they are called. These are bonds that have a regulatory trigger and the regulate or wipe them to zero to restore capital to the bank.
In this case, 17 billion were basically priced to zero on Sunday night.
Those bonds are subordinated bonds that are trading off materially so it's a weird day where high-yield is doing okay, investment grade has struggled. I would caution that is financial spread start widening, it will start to affect all their customers again as the financials, the cost of money is going up it will be passed on to clients. I would expect credits would not do it well for a little while. As in a repurchase of a security,you see some credit spread widening but… These are priced off treasuries.
A more pure play exposure is government but high-grade credit will do okay but I would think it would underperform treasuries in this part of the cycle.
>> Interesting stuff. Let's get another question.
Plenty coming in from the audience. Any sectors to avoid when deploying new money into the market?
Interesting question considering the times.
>> Yeah. This is always a hard question to answer.
I would say broadly speaking that rather than just focus on the sector, you want to stay away from high beta, low-quality.
All companies will go through.
A volatility right now.
I just want to make sure that you survive.
Right?
You don't want to be a shareholder at Credit Suisse over the weekend where you are basically taken out at half the value on Friday.
It's all about survival and ensuring you have businesses that are going to withstand this period.
a lot of people are making comparisons to 2008.
2008 was the worst recession in 100 years. I don't know if that's the right way to think about it. Companies do disappear in recession. You want to make sure you have companies that will make it to this. And have a higher bid on the market which means they have a more solid balance sheet.
>> And what could be for the broader economy, this idea of hard landing.
People were throwing that out for a little bit.
What if there is no landing at all agree is continuing smiling?
>> Yeah, I mean, okay… Historically, this is the way it works.
You start to see evidence mounting of stress and you know there is the old ostrich approach to managing money.
Everything's kosher.
We are full employment, we have an inflation problem, we just had 400+ basis points of rate hikes and you don't need to know a lot of financial histories and other correspondence with challenging market.
So I never really bought into it.
Within our industry, a lot of those views tend to be from investors was short time horizon.
And I understand why you think that way. Today, as you said today, I don't think many people have turned quite bearish quite quickly.
I think that kind of outcome is likely to be priced out.
> Okay. Let's get a question here in about central banks.
You do have expectations that the Fed will continue to hike or at least hike this week. And the BOC said it was on hold and proved it was on hold.
So how wide cannot differential in rates get?
Does the BOC factor that in when they make decisions?
>> The BOC is focused on Canada and I think that's the way to think about it.
I would've pushed back.
There call not to hike was the right one.
There call to kind of leave the market to believe that they were going to be on hold I thought was unnecessary, to take with their rationality, but whatever. I do that differential is probably going to be maxed out after this meeting and I would be surprised at the Fed is on for a while. We don't think the Fed is going to do much more.
It's a question of how long they are going to stay here. Again, historically, as soon as they get kind of peak rate, they cut within a couple quarters because they don't want to overcook to economy. It's an interesting time because they had this inflation issue so it would be challenging to see them start cutting while inflation is at this rate.
I think they're both on hold mode after this weekend we will see what happens.
But we are at restrictive territory now, even with where they are at, but there's been some good analysis based on what's happened recently with the banking sector. It's almost like adding another hundred and 50 basis points of hikes because of the financial tightening that's coming within the US base. We are in restrictive territory and I was expect to see economic data start reflective.
>> As always, make sure you do your own research before making any investment decisions.
we'll get back to your questions for Michael Craig on asset allocation in just a moment's time.
A reminder that you get in touch with us anytime. Email moneytalklive@td.com.
Now let's get our educational segment of the day.
If you're looking to compare different types of exchange traded funds, WebBroker has tools which can help.
Bryan Rogers, Senior client education instructor with TD Direct Investing, has more.
>> So I want to take a look at how to basically find ETFs or look for certain ETF categories and WebBroker.
Sometimes, we find it can be a little bit daunting because there are so many out there.
There been so many that have been added on of the last three years as well, so we do jump over to WebBroker, we are going to go to the research screen and we are going to click on research and go to ETFs initially.
This is a way where you can filter right off the bat for certain types of ETFs. You can see at the very top you have all, US stock, international and so on.
And you can scroll down further and see there are a few checked off already that are going to show on these graphs.
You can see there are things like ultrashort bond, technology.
There are still quite a few that you can see right off the bat.
But one of the things I want to show you that we've recently been looking at to show clients in some of our classes is if you for example want to look up a broad-based index ETF, which a lot of us have heard of, as PYD, that is the S&P 500, so it represents the top 500 stocks in the S&P 500 that tracks the broad market.
See click on that and you pull up the ETF itself. But I would say you can do as a quick trick is you can scroll down on the summary page and you can see that it will have a category.
So we see right here there is a category. It says it's a large blend category.
You may not have known that before when you are looking for similar ETFs because this one can be very expensive were $390 per share.
If you want to have something that has a similar approach upon looking at that large ETF, that large blend, you can go to the category itself that it's giving you a big list of all the different ETF that may have that same approach.
You can sort by volume if you want to find ones that have a little bit of a higher volume.
You can add all of these with these buttons, you can add it onto a graphic that will, to do some comparison.
On the right-hand side, you can see that there is average daily volume. You can swear by the top ETFs for average daily volume of this particular category.
You can sort by MER, the management expense ratio, distribution yield and so on.
So you can actually, what I would say is a good research approach as you can go into Google, for example, and you can search for a particular ETF and say one of the top dividend ETFs? We will be doing webinars on passive income ETFsso if you find her here of a particular ETF, put it in the symbol box and then find that category. He is an example of what I look at recently. There is a covered call banking ETF coming from the Bank of Montréal. If I scroll down, I can see that in the financial services equity ETF category.
Now I can click on that link, I can search the more I'm gonna have an idea of what's out there in terms of the other offerings. One other thing we would say to you is you can go to the learning centre and I mentioned we have a webinar coming up shortly, you click on webinars and you can see right here, this is Adrian, he is a passive income investor, he is going to talk about passive income investing using exchange traded funds.
they might be called based or leveraged to get a better return.
He might be mentioning some funds in that webinar. You can search an individual one and see others that are available.
And lastly you can use the screeners. If you take that category, you can go into WebBroker and click on the research screen as we have talked about that several times before and click on a fund category, an ETF category in the screener tool and then you can find all kinds of additional information on exchange traded funds.
>> Our thanks to Bryan Rogers, Senior client education instructor at 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.
NOW before you get to your questions about asset allocation for Michael Craig, a reminder of how you can get in touch with us.
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.
we are back with Michael Craig, head of asset allocation with TD Asset Management. We are taking your questions about all things markets.
Here's one. We touched on this earlier but it was interesting.
Let's do a bit of a deeper dive.
What should we make of the press release over the weekend and the central banks?
>> Well, they are trying to show a united front and to calm the markets.
They are certainly focusing on financial stability.
And I think there will be a sense of relief that at least with Credit Suisse, and Credit Suisse has over 500 billion of assets.
It's not a regional bank.
So the fact that they have hopefully dial down that risk somewhat, but them in the hands of a stronger institution, will be as somewhat calming at least from a systematic risk standpoint. Goal is trading off today after rocketing into 2000.
So we're kind of through today, it goes back to regular programming which was hiking, the inflation problem and that is I think the bigger issue investor should be focused on.
>> What I think about when I read through the release, this is about the plumbing of the financial system.
It's esoteric stuff.
It's not things that everybody understands.
It's empty enough to know that they are saying, we want to make sure that the plumbing continues to function the way it should, the way we would like you to through all of this.
>> I've a great paranoia whenever I hear is central bankers say that everything is fine.
I generally start to get a bit nervous.
But ultimately they are just trying to calm the public perception of what's going on and not have this lead into more catastrophe in terms of more financial institution coming under pressure because of that.
That is the objective of those statements is the kind of stem the panic and the sooner they do that, the sooner they go back to the primary problem du jour which is inflation. Central banking, it's this Trinitywhere you're trying to focus on employment,inflation and stability. Usually you only get two of the three. Sometimes you only get one of the three. this is where they want to get the financial stability side calmto deal with the longer-term issue of inflation butthat won't come without the cost of employment.
It is not a fun time to be a centralbanker but I think this is going to be a period that we will study and textbooks in years down the road.
>> Great question there. Another great question coming in here about rates, if they are going to stay higher for longer, which Canadian sectors could benefit from that?
>> There are two ways I kind of answer that question.
One is in this environment, we would expect to see economic growth slowed materially. And so you do want to focus on sectors that perhaps are less baited to growth, that would get you into utilities, stables, boring stuff that tends to define no matter where we are. That's kind of a trade.
For us, were my thought process is and I will generally be guilty of showing up at 5 o'clock for a 10 o'clock train, I tend to look at things and be early and you do need to invest for the sequence of it.
To be buying Gold a year ago is the right idea now but you've gone through a lot of volatility to get here.
So where I'm going as I do think that there will be later this year a once in a cycle opportunity to increase equity. Between now and then, it's going to probably be rough.
But my thought process isn't so much what you need to own right now, I think you need to own fixed income and security.
But later in this year,I think we go back to the thematic areas for the next decade which is infrastructure, decarbonization, removing emissions from growth, etc. And all of these companies that are going to be part of this ecosystem should do quite well for a long period of time. Until then, we need to get throughthis period.
>> We do arrive there, you have this longer-term view, of course there will be ups and downs. You said, this is my thesis, this is how I think the next decade plays out, there will be ups and downs.
They shouldn't get hung up with the daily and weekly moves.
>> Yeah, for sure, 100%.
There are periods like this where you do want to get it right because you can be buying things at a very cheap valuation that sets you up for long-term performance.
But ultimately, investing is not a… Is not some finite thing where December 31, we say we're done.
It's an infinite profession. Markets will be here long enough to work on.
And so there are the ebbs and flows of things like this but you have to be mindful of what the longer-term objectives are. So that's why we, I will get caught up on this, you gotta break down your time horizon, five years, 10 years, three months. It very different conversation on all three.
Five year, 10 year horizon, much of what we talk about is relevant but isn't critical.
But it is for the next 12 months.
>> Which global geopolitical tensions are you focused on?
>>from a market perspective, I think the biggest area of risk will be the US budget this summer.
I was reminded and corrected last week by someone who clearly reads the U.S. Constitution in his free time which I don't, the 14th amendment.
But in after the Civil War, states that the sanctity of US debt should not be-- shall not be question.
Which is essentially saying that if they go and don't get a rise in the debt ceiling,the question about the default is actually false.
There will be no default.
There is a risk that they stop payments to everything else, Medicare, Medicaid, Social Security, government.
So if we do get a budget impasse and the ceiling doesn't get raised and the setup today is far worse than in 2011 one there was some degree of consistency across the Republican Party, but right now there is not.
You have some very extreme views within the Republican camp.
And McCarthy is not in a position of strength right now. If we do get a situation where they don't raise the ceiling and they stop funding things, again, it's very much a buy treasury story because growth falls off a cliff because a lot of Americans live paycheck to paycheck and this will affect them.
from a geo-political perspective lessons from a humanitarian perspective, it's not as severe as was happening in Eastern Europe. From a market perspective, I think it's pretty critical to be mindful this summer what's coming with the budget.
>>has the market figure this out? You said humanitarian crisis and the market reacted in the early innings.
Have they sorted it out?
>> There's always escalation risk.
And so that's where you can get a lot of weakness.
I don't think it so much that it's focus on that.
I just don't see the market focusing on more than a couple of things at a time.
I think that's just how markets function. And right now it's just not focus… Unless things materially ratchet up in terms of tension or ratchet down, like if it's kind of a stalemate which it feels like it's kind of turning into, well from a humanitarian standpoint, it's just god-awful, from a market perspective, they will look at the next thing to worry about.
>> Let's get to the next question.
Call us coming in for Michael.
The tech sector.
Will tech still be weak?
This is been interesting off the top of the show.
We were talking about further layoffs from Amazon.
There's a lot happening.
> I think so.
For a long period of time, I think tech was expected… It was kind of idiosyncratic part of the market that performed regardless of whether GDP did well. For a lot of the major tech companies, big chunk of the revenue comes from advertising and a slowdown in advertising budgets will be/. That's a headman.
Broadly across company earnings, any companies that have been involved in cloud computing, you have seen material slowdown in cloud growth.
It still positive but you don't biotech company because you've got strong but slowing growth.
So I think recently you've seen a bit of tech rally with the long in coming off.
People thinking about, well, if long treasuries are rallying, their form going to buy technology, I think that is past thebest before date.
That's not the way tech is thought about anymore.
Tech is still quite expensive and unless you think we are going back to zero interest rates, free money, air of the past decade… Until valuations look interesting again, Microsoft, after the peak in 2001, Microsoft continued to earn, do phenomenal in terms of earnings-per-share but the stock price went nowhere for 12 years.
When I try to say that to happen this time.
Just a reminder that we are going into a period of derating and I think that's likely… Tech is probably not the place you want to be.
We are talking about trillion market Companies.
Do you think you're gonna go from one to two or 2 to 4 trillion? You have to think about a world where some crazy things happen for that to happen. I think there some opportunities in the market.
>> Fascinating set.
We are going to get back your questions for Michael Craig on asset allocation in just a moment.
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.
let's check in on the market. We will start with the TSX composite index. First trading day of the week. We had a choppy one last week.
No shortage of intrigue right in front of us at the moment when it comes to the global financial system or the global banking sector for the Fed coming up on Wednesday. 71 points to the upside on the TSX comments of about 1/3 of a percent, fairly modest. I did notice some of the mining names getting a bit today, not just in gold but other spaces. Got Teck Resources up 2.7%.
Athabasca Oil with West Texas intermediate crude at $66.21 per barrel on my screen.
That has taken a significant step back in recent sessions.
At 275, got Athabasca down a little more than 2%.
The S&P 500 is starting the week with a little upside momentum.
17 points, a little shy of half a percent.
The Fed will enter the two day meeting tomorrow and come out the other side on Wednesday.
We will have full coverage of all that for you across our various MoneyTalk platforms.
Let's check in all the tech heavy NASDAQ right now. Not keeping up with the broader market, this one back into negative territory to the tune of about 34 points. Been hovering on either side of the breakeven line today. A little shy of 1/3 of a percent of the downside.
Credit Suisse, the big story of the weekend. They are down 53% colony.
There is a long glide path of the past year.
When you get right to the end of it, their the steep declines of the recent sessions.
We are back with Michael Craig, head of asset allocation at TD management.
This question about artificial intelligence.
Please discuss the AI industry and companies to follow.
ChatGPT made a big splash for the early part of this year.
>>There are a handful of smaller-capnames to follow.
The amount of proprietary research and capital in terms of computing power and data requires, the various entry for this business are quite high. Two, I think this will be a huge source of productivity games but it's a ten-year story, at least a 10 year story as it starts to automate a lot of mundane tasks.
From an investment thesis, it's one of those things were I think the material. But like anything, companies have failed at this and companies have consolidated.
I'm not that far in the weeds to say Who's Who, but I would say just be mindful that you could've thrown out dart at the wall in the 1990s.
A small little bookstore turned out to be a behemoth.
It's unclear yet who will win this race so I would be cautious about saying because we are very much early days.
>> The first thing I got off of Amazon with this massive book of Beatles songs.
I can find it in any traditional bookstore.
I thought, what a weird thing, buying a book off the Internet.
I'll never do that again.
A package is probably sitting on my front step right now.
Some member of the audience wants to know about the TSX.
The TSX, where do you think will end the year? What sectors do you think will be higher?
It is crystal ball time for you.
>> I would say a couple of things. I think we have seen the highs of the year. So do with that as you may. I think there are some interesting valuation. The financials now are trading subtenant PE. I think there will be a period of indigestionbut over a three-year period it looks interesting.
And I think again what's been consistent through the last little while, he mentioned it earlier, oil continues to trade lower which actually find fascinating.
It is a barometer of economic activity and if it continues to fall, that tells you something is happening.
As we bottom antidote, energy will probably do okay as we will go back to the same issues of supply and demand.
Right now, demand, there has to of been something going on on the demand side to see this drop in oil.
Probably not for today but those will be areas that I would have a look at next year.
>> Squeezed another question in here for Michael before we say goodbye.
With everything going on, and there's a lot, should we avoid high-yield bonds?
> High-yield is very much a specialist asset class.
I traded a little bit of high yield in my wasted youth.
It is complicated and it is not one for,High yield loans and deals, the ton of optimality in terms of how things play out.
As an example, there are many investors this morning who had subordinated a T1 bonds with Credit Suisse who were shocked to find that they were trading at zero.
No recovery, wiped out.
A lot of that is because you didn't read the fine print of the prospectus.
>> That was the whole purpose. It was a Balin bond.
>> I think sometimes in high yield when things get frothy, people just forget about it and buy it as a blog and its Autoblog but it has some cracks.
So we own high yield.
We have cut it in half last year but we hold some. We are quite selected with what we hold.
I would urge any viewer, this is a complex asset class where there is tremendous returns long term.
You get some upside in equities with half volatility so it's a great asset class in a multi-asset portfolio.
It's a far more complex one than many others because of the nature of loans.
You could have a company with multiple deals out, always very different covenant structures and they will trade differently.
So that's an example of how it's easier to buy the equity on the equity.
We are underweight. Something I will look to increase if we get some kind of widening of spreads later this year.
We'll see if that happens.
But it's a complicated place to be and make sure you understand it if you do this on your own. You don't want to be like many this morning who are looking at a zero on their lines and their holdings because of what happened over the weekend.
> Before he let you go, there's a lot going on, allowed for investors to try to figure out. What should we be mindful of in the next little while?
>> stay defensive. Have some cash to take advantage of opportunities.this will pass and we will be back as we always are or in any period of time.
it happens every eight years or so.
Manage and make sure that you are not overextended and have a bit of a conservative bias in your portfolio.
>> Was great to have you. Look forward to the next time.
>> My pleasure.
>> How are things to Michael Craig, head of asset allocation at TD Asset Management.
On tomato, Alex Gorewicz, portfolio manager with active fixed income at TD Asset Management will be our guest, taking your questions about active fixed income. You don't have to wait, he can get a head start on this question.
Email moneytalklive@td.com. That's all the time we have for the show today. Things were watching.
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 show, we'll discuss whether more volatility is a head with Michael Craig, head of asset allocation with TD Asset Management. And in today's WebBroker education segment, Bryan Rogers will show us how to compare different ETFs using the platform.
So here's how you can get in touch with us. Just email moneytalklive@td.com or you can follow the viewer response box under the video player on WebBroker.
Before we get our guest today, let's get you an update on the markets. First trading day of the week. It was bumpy last week. We have some modest green on the screen today. At 19,489 on the TSX Composite Index, We are up 102 points, about half a percent, despite the fact that American benchmark crude West Texas is down modestly today, talking about 66 bucks per barrel for crude.
got First Quantum met up almost 6%. Now the tech stocks don't seem to be in favour today.
We will show you Shopify here right now at 5912, we are down a little more than 3 1/2% on the name. South of the border, it's going to be a big way. We have a US Federal Reserve rate decision meeting.
Those are two day meetings. They will go in tomorrow and come out on Wednesday and we will find out what Jerome Powell thinks or at least what he's willing to tell us what he thinks about this turmoil we have been seeing in the global financial system. Layer on top of that, the fight against inflation with what the Fed has been up to was going to be interesting. Right now you have a bit of a big, 25 point to the upside for the S&P 500, a little bit more than half a percent. The tech heavy NASDAQ has been bouncing around on either side breakeven. It is on the positive side right now, up 1/3 of a percent. Notice saying that some of the chipmakers were on a good run up last week. AMD was getting a bit of a run up last week. Giving a bit of that back today, down almost 4% on name. That's your market update.
Investors are keeping a careful eye on the health of the global financial system that as central banks a coordinated action to try to calm markets and UBS agrees to buy troubled lender Credit Suisse. Joining us now for his view on how to think about it all this volatility is Michael Craig, head of asset allocation at TD management.
what do we make of what has transpired over the past couple of days?
>> Pretty historic.
it takes away some anxiety in the market.
Credit Suisse was coming off pretty hard last week.
This will give us some time for breath. But the overlying issues that were there going into it still remain.
So expect to see, this is probably the end of the beginning… Or the beginning of the end if you think about where we are going to hear.
>> So basically what we are talking about is the goal of financial system, the concerns, I mean it seems like a million years ago. Silicon Valley Bank was a week and 1/2 ago that it failed, and then all the pressure on the US regionals, wondering what the exposures of the bigger banks.
You get this event were UBS steps in and buys Credit Suisse.
What do we need to be watching for as investors going forward?
>> Credit. In terms of credit availability, banks pulling back. There is data from the federal weekly that shows liability is across the US banking system and we will be watching for that to start the contract as banks start to pull away.
these failures have been very different. Silicon Valley Bank… This is not an original global bank.
There are a bunch of deposits and put them in longer-term investments and that went against them.
And with Credit Suisse, they've been kind of bumping into sharp objects now for some time.
They've been in the press for any kind of mistake that happen, it seems they've been tied to it. These were not high quality business models, if you will.
But we are coming back.
The Fed, as you mentioned, we get a rate decision this week. The Fed is in a tough spot between we've got this newfound problem with financial stability but they still have an inflation problem.
And so they will have to choose in terms of what they're going to focus on. My sense is it will be on the inflation side.
>> On the inflation side, there is no shortage of punditry out there as to what the Fed might do only two days from now. There's a school of thought that things they will still raise, maybe only 25 basis points to show that the fight against inflation is an important one. If they don't raise, maybe they are more concerned about the global financial system and are going to show their hand. It's hard to make sense of it with only two days to go as to what they are going to say about it.
>> For us, it's to try and first predict what they are going to do and think and then the turnoff is next to impossible.
You need to think about what the range of probabilities are and the expected reaction. I always say that if they do come in and hold and not do anything, that will probably create more damage than not.
We are in the midst of, because of the marketers believe that they are going to lose their zeal against inflation, then we could see a repricing of inflation expectations and that's way more problematic in the long term. I would expect them to go 25, and it continues… You can't… This belief that you kind of bring inflation down, it's not like you can just die… Unemployment to a perfect level and consumption to a perfect level and not create distortions.
We have two.
It's the cost of dealing with inflation is likely a recession and so I think they will have to stay the course until they see evidence of a real turn in inflation.
and so I think if we actually just forget about the recent banking stress it still stay the course in terms of a hiking cycle and more corporate failure as a lot of companies are just not set up to operate in an environment of tighter financial condition.
>> You talked about was particular to Silicon Valley Bank and the strategy that they had that went against them.
Credit Suisse, long before this happened, there was no shortage of headline surrounding that bank.
With the Fed take that into consideration and say these are specific incidents that are specific to the circumstances there?
Or is there a broader read for everything that's happening right now?
>> Well, they are definitely going to be concerned about the performance of regionals.
The regionals have a different compliance regime than the money centres.
So there is a risk there and those models are not as a diversified and had to be focused on geographic region.
There are 6000 banks in the US. The equivalent in Canada would be having 60 banks.
It's a system that's always going to have some degree of bank failure because you got so many that it's hard, you are going to have some big mistakes.
But their mandate is inflation and so I just don't think they can step away from this and not worry about that what we still have… Core has been stubborn as of late.
So until you see a real backup in unemployment, they are going to stay the course.
I don't think that terminal rate is probably as high as it was a few weeks ago.
But the way the market is behaving right now, the short end is trading like a penny stock.
As expectations whip around, we might be back to 5 1/2% terminal in no time if we get another hot inflation rate. That's probably what they are afraid of and I think it would be a foolish mistake to go less than 25 at this meeting only because I think it would signal that they are panicking.
>> You won't go too deep into the weeds on this one unless you want to give us a master class on… But there was a notice from central banks over the weekend saying that this group of Western central banks is going to make sure that we take some action to preserve US dollar liquidity. How important an event is that?
>> What it does tell you is I think they are separating hiking and inflation on one hand and financial stability on the other. This is all about financial stability.
This is all about providing liquidity to bank so that they can continue to operate.
there are going to use this as a tool to quell stress.
They will use other tools. If you are an investor and you are hoping because your investments are perhaps set up for lower interest rates, I think you need to be concerned because I don't think you're going to see that.
The funny thing is, last week, the market was pricing another hike and then for cuts until January next year.
And I don't think that's what happened.
I would say there's no chance.
What is this tell use of the average doesn't make sense but it's the inputs in the average that are quite interesting and they would be that there's let's say 80% of no cuts this year and a 20% chance you get like 400 basis points of cuts which is actually typical of an interest rate cutting cycle.
If we get 400 basis points, that's a hard landing.
>> If your bet is that you're going to get lower rates, it's because something bad has happened.
>> Yes, it's a hard landing.
We're talking the six or 7 million Americans out of work. A couple percent higher unemployment.
That's kind of the realm of probabilities that the market is looking at. You probably don't see that.
80%, a lot of moving around.
When you think about base case procession, but now there is that increasing risk of a credit crunch because credit conditions are going to tighten based on all the stress on regional.
March is always a funny month.
March and September… I remember them like my children's birthdays.
And once again, March has delivered.
And I think it's important to be mindful that the range of probabilities are probably more now to the bearish side than they were a month ago.
>> Fascinating stuff as always had a great start to the program.
We are going to get your questions about asset allocation for Michael Craig and just moments time.
a reminder that you get in touch with us at any time.
Email moneytalklive@td.com or follow the viewer response box on 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.
There are more layoffs in the tech sector today.
E-commerce giant Amazon plans to lay off an additional 9000 workers.
the announcement was made in a memo to Amazon employees from CEO Andy Jassy.
It's the latest in a string of layoff announcements from some of the biggest names in tech in recent months. Amazon right now down a little more than 2%.
Shares of first public bank are under pressure again to start the trading week. The US regional down 29% now, it's steeper than when I first checked in this morning.
The US regional bank was hat with a credit rating downgrade amid concern that $30 billion infusion of deposits from several big Wall Street banks may not solve its liquidity problem. First public saw deposit outflows along with other regional banks in the wake of Silicon Valley Bank collapsing. Investors are weighing a mixed outlook for fitness apparel retailer Foot Locker.
The company is forecasting a sales slowdown for its current fiscal year.
It's also touting what he calls a renewed relationship with Nike in the wake of the sneaker giant ramping up its direct to consumer offerings.
Right now you fell Foot Locker down about 2%.
a quick check in on the market, we will start with the TSX Composite Index.
We are of a modest 71 points, about 1/3 of a percent.
South of the border, is going to be a big week with the Fed entering the two-day meeting tomorrow and coming on Wednesday with the rated outfit. You do have some green again. It's modest. You got 14 points we will call on the S&P 500, a little better than 1/3 of a percent.
We are back now with Michael Craig, head of asset allocation at TD Asset Management, taking your questions. Let's get to them. What percentage of the portfolio should be in bonds?
> Everyone is different.
We manage money for a handful of investors, from very conservative to higher risk.
We have increased our exposure materially. We are probably at the highest we've been in 10+ years.
And so again, it's, depending on the individual, or they 25 or are they 80?
Or somewhere in between?
But certainly an increase allocation is how we are set up right now and particularly focused on government backed bonds at the moment.
>> Let's dig a bit deeper into that because of course that's how you sort of set things up heading into this year in terms of where you are thinking these markets were going to be headed. Obviously, we seen a rush into bonds and fixed income in the past several days or several weeks, I guess, however long that we are counting back to the Silicon Valley Bank. Yields coming down. What we expect going forward?
It's been beneficial to bonds in a very short period of time.
>> I would expect to see yields continue to perform.
Bonds right now, if I told you you could buy house insurance and earn 5%, it's pretty good house insurance.
And I don't think bonds make… They are always kind of a key part of a portfolio as a diversification asset butthe market expects inflation to be over time and so they make a lot of sense. They performed this year.
I think we are still in the early innings of this.
Now we haven't really within our asset allocation committee, underweight equities, we would think that over time that's the right position this year.
So I think there is still tremendous, quite a bit of upside in that asset class.
rule predictions are a tough thing to do. We go into a more severe recession, bonds will really perform.
I think the worry is that if there is a real acceleration of inflation and a dovish Fed, I guess it's possible but I wouldn't put a high probability on a.
>> I think he set off the top of the focuses more on government bonds.
We could talk corporate, we could talk to you. In a recessionary environment, sometimes they start to think about corporate and high-yield to how they might react.
> Yeah.
I mean, so again, it's all about credit quality. I wouldn't expect high-yield to perform terribly well in a recession.
Not like equity. On the corporate side, on the investment grade corporate side, today's a really interesting day.
Financials are really struggling around the world.
In the wake of what happened with their Credit Suisse purchase on the weekend, they did right off they're kind of a junior 81 bonds they are called. These are bonds that have a regulatory trigger and the regulate or wipe them to zero to restore capital to the bank.
In this case, 17 billion were basically priced to zero on Sunday night.
Those bonds are subordinated bonds that are trading off materially so it's a weird day where high-yield is doing okay, investment grade has struggled. I would caution that is financial spread start widening, it will start to affect all their customers again as the financials, the cost of money is going up it will be passed on to clients. I would expect credits would not do it well for a little while. As in a repurchase of a security,you see some credit spread widening but… These are priced off treasuries.
A more pure play exposure is government but high-grade credit will do okay but I would think it would underperform treasuries in this part of the cycle.
>> Interesting stuff. Let's get another question.
Plenty coming in from the audience. Any sectors to avoid when deploying new money into the market?
Interesting question considering the times.
>> Yeah. This is always a hard question to answer.
I would say broadly speaking that rather than just focus on the sector, you want to stay away from high beta, low-quality.
All companies will go through.
A volatility right now.
I just want to make sure that you survive.
Right?
You don't want to be a shareholder at Credit Suisse over the weekend where you are basically taken out at half the value on Friday.
It's all about survival and ensuring you have businesses that are going to withstand this period.
a lot of people are making comparisons to 2008.
2008 was the worst recession in 100 years. I don't know if that's the right way to think about it. Companies do disappear in recession. You want to make sure you have companies that will make it to this. And have a higher bid on the market which means they have a more solid balance sheet.
>> And what could be for the broader economy, this idea of hard landing.
People were throwing that out for a little bit.
What if there is no landing at all agree is continuing smiling?
>> Yeah, I mean, okay… Historically, this is the way it works.
You start to see evidence mounting of stress and you know there is the old ostrich approach to managing money.
Everything's kosher.
We are full employment, we have an inflation problem, we just had 400+ basis points of rate hikes and you don't need to know a lot of financial histories and other correspondence with challenging market.
So I never really bought into it.
Within our industry, a lot of those views tend to be from investors was short time horizon.
And I understand why you think that way. Today, as you said today, I don't think many people have turned quite bearish quite quickly.
I think that kind of outcome is likely to be priced out.
> Okay. Let's get a question here in about central banks.
You do have expectations that the Fed will continue to hike or at least hike this week. And the BOC said it was on hold and proved it was on hold.
So how wide cannot differential in rates get?
Does the BOC factor that in when they make decisions?
>> The BOC is focused on Canada and I think that's the way to think about it.
I would've pushed back.
There call not to hike was the right one.
There call to kind of leave the market to believe that they were going to be on hold I thought was unnecessary, to take with their rationality, but whatever. I do that differential is probably going to be maxed out after this meeting and I would be surprised at the Fed is on for a while. We don't think the Fed is going to do much more.
It's a question of how long they are going to stay here. Again, historically, as soon as they get kind of peak rate, they cut within a couple quarters because they don't want to overcook to economy. It's an interesting time because they had this inflation issue so it would be challenging to see them start cutting while inflation is at this rate.
I think they're both on hold mode after this weekend we will see what happens.
But we are at restrictive territory now, even with where they are at, but there's been some good analysis based on what's happened recently with the banking sector. It's almost like adding another hundred and 50 basis points of hikes because of the financial tightening that's coming within the US base. We are in restrictive territory and I was expect to see economic data start reflective.
>> As always, make sure you do your own research before making any investment decisions.
we'll get back to your questions for Michael Craig on asset allocation in just a moment's time.
A reminder that you get in touch with us anytime. Email moneytalklive@td.com.
Now let's get our educational segment of the day.
If you're looking to compare different types of exchange traded funds, WebBroker has tools which can help.
Bryan Rogers, Senior client education instructor with TD Direct Investing, has more.
>> So I want to take a look at how to basically find ETFs or look for certain ETF categories and WebBroker.
Sometimes, we find it can be a little bit daunting because there are so many out there.
There been so many that have been added on of the last three years as well, so we do jump over to WebBroker, we are going to go to the research screen and we are going to click on research and go to ETFs initially.
This is a way where you can filter right off the bat for certain types of ETFs. You can see at the very top you have all, US stock, international and so on.
And you can scroll down further and see there are a few checked off already that are going to show on these graphs.
You can see there are things like ultrashort bond, technology.
There are still quite a few that you can see right off the bat.
But one of the things I want to show you that we've recently been looking at to show clients in some of our classes is if you for example want to look up a broad-based index ETF, which a lot of us have heard of, as PYD, that is the S&P 500, so it represents the top 500 stocks in the S&P 500 that tracks the broad market.
See click on that and you pull up the ETF itself. But I would say you can do as a quick trick is you can scroll down on the summary page and you can see that it will have a category.
So we see right here there is a category. It says it's a large blend category.
You may not have known that before when you are looking for similar ETFs because this one can be very expensive were $390 per share.
If you want to have something that has a similar approach upon looking at that large ETF, that large blend, you can go to the category itself that it's giving you a big list of all the different ETF that may have that same approach.
You can sort by volume if you want to find ones that have a little bit of a higher volume.
You can add all of these with these buttons, you can add it onto a graphic that will, to do some comparison.
On the right-hand side, you can see that there is average daily volume. You can swear by the top ETFs for average daily volume of this particular category.
You can sort by MER, the management expense ratio, distribution yield and so on.
So you can actually, what I would say is a good research approach as you can go into Google, for example, and you can search for a particular ETF and say one of the top dividend ETFs? We will be doing webinars on passive income ETFsso if you find her here of a particular ETF, put it in the symbol box and then find that category. He is an example of what I look at recently. There is a covered call banking ETF coming from the Bank of Montréal. If I scroll down, I can see that in the financial services equity ETF category.
Now I can click on that link, I can search the more I'm gonna have an idea of what's out there in terms of the other offerings. One other thing we would say to you is you can go to the learning centre and I mentioned we have a webinar coming up shortly, you click on webinars and you can see right here, this is Adrian, he is a passive income investor, he is going to talk about passive income investing using exchange traded funds.
they might be called based or leveraged to get a better return.
He might be mentioning some funds in that webinar. You can search an individual one and see others that are available.
And lastly you can use the screeners. If you take that category, you can go into WebBroker and click on the research screen as we have talked about that several times before and click on a fund category, an ETF category in the screener tool and then you can find all kinds of additional information on exchange traded funds.
>> Our thanks to Bryan Rogers, Senior client education instructor at 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.
NOW before you get to your questions about asset allocation for Michael Craig, a reminder of how you can get in touch with us.
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.
we are back with Michael Craig, head of asset allocation with TD Asset Management. We are taking your questions about all things markets.
Here's one. We touched on this earlier but it was interesting.
Let's do a bit of a deeper dive.
What should we make of the press release over the weekend and the central banks?
>> Well, they are trying to show a united front and to calm the markets.
They are certainly focusing on financial stability.
And I think there will be a sense of relief that at least with Credit Suisse, and Credit Suisse has over 500 billion of assets.
It's not a regional bank.
So the fact that they have hopefully dial down that risk somewhat, but them in the hands of a stronger institution, will be as somewhat calming at least from a systematic risk standpoint. Goal is trading off today after rocketing into 2000.
So we're kind of through today, it goes back to regular programming which was hiking, the inflation problem and that is I think the bigger issue investor should be focused on.
>> What I think about when I read through the release, this is about the plumbing of the financial system.
It's esoteric stuff.
It's not things that everybody understands.
It's empty enough to know that they are saying, we want to make sure that the plumbing continues to function the way it should, the way we would like you to through all of this.
>> I've a great paranoia whenever I hear is central bankers say that everything is fine.
I generally start to get a bit nervous.
But ultimately they are just trying to calm the public perception of what's going on and not have this lead into more catastrophe in terms of more financial institution coming under pressure because of that.
That is the objective of those statements is the kind of stem the panic and the sooner they do that, the sooner they go back to the primary problem du jour which is inflation. Central banking, it's this Trinitywhere you're trying to focus on employment,inflation and stability. Usually you only get two of the three. Sometimes you only get one of the three. this is where they want to get the financial stability side calmto deal with the longer-term issue of inflation butthat won't come without the cost of employment.
It is not a fun time to be a centralbanker but I think this is going to be a period that we will study and textbooks in years down the road.
>> Great question there. Another great question coming in here about rates, if they are going to stay higher for longer, which Canadian sectors could benefit from that?
>> There are two ways I kind of answer that question.
One is in this environment, we would expect to see economic growth slowed materially. And so you do want to focus on sectors that perhaps are less baited to growth, that would get you into utilities, stables, boring stuff that tends to define no matter where we are. That's kind of a trade.
For us, were my thought process is and I will generally be guilty of showing up at 5 o'clock for a 10 o'clock train, I tend to look at things and be early and you do need to invest for the sequence of it.
To be buying Gold a year ago is the right idea now but you've gone through a lot of volatility to get here.
So where I'm going as I do think that there will be later this year a once in a cycle opportunity to increase equity. Between now and then, it's going to probably be rough.
But my thought process isn't so much what you need to own right now, I think you need to own fixed income and security.
But later in this year,I think we go back to the thematic areas for the next decade which is infrastructure, decarbonization, removing emissions from growth, etc. And all of these companies that are going to be part of this ecosystem should do quite well for a long period of time. Until then, we need to get throughthis period.
>> We do arrive there, you have this longer-term view, of course there will be ups and downs. You said, this is my thesis, this is how I think the next decade plays out, there will be ups and downs.
They shouldn't get hung up with the daily and weekly moves.
>> Yeah, for sure, 100%.
There are periods like this where you do want to get it right because you can be buying things at a very cheap valuation that sets you up for long-term performance.
But ultimately, investing is not a… Is not some finite thing where December 31, we say we're done.
It's an infinite profession. Markets will be here long enough to work on.
And so there are the ebbs and flows of things like this but you have to be mindful of what the longer-term objectives are. So that's why we, I will get caught up on this, you gotta break down your time horizon, five years, 10 years, three months. It very different conversation on all three.
Five year, 10 year horizon, much of what we talk about is relevant but isn't critical.
But it is for the next 12 months.
>> Which global geopolitical tensions are you focused on?
>>from a market perspective, I think the biggest area of risk will be the US budget this summer.
I was reminded and corrected last week by someone who clearly reads the U.S. Constitution in his free time which I don't, the 14th amendment.
But in after the Civil War, states that the sanctity of US debt should not be-- shall not be question.
Which is essentially saying that if they go and don't get a rise in the debt ceiling,the question about the default is actually false.
There will be no default.
There is a risk that they stop payments to everything else, Medicare, Medicaid, Social Security, government.
So if we do get a budget impasse and the ceiling doesn't get raised and the setup today is far worse than in 2011 one there was some degree of consistency across the Republican Party, but right now there is not.
You have some very extreme views within the Republican camp.
And McCarthy is not in a position of strength right now. If we do get a situation where they don't raise the ceiling and they stop funding things, again, it's very much a buy treasury story because growth falls off a cliff because a lot of Americans live paycheck to paycheck and this will affect them.
from a geo-political perspective lessons from a humanitarian perspective, it's not as severe as was happening in Eastern Europe. From a market perspective, I think it's pretty critical to be mindful this summer what's coming with the budget.
>>has the market figure this out? You said humanitarian crisis and the market reacted in the early innings.
Have they sorted it out?
>> There's always escalation risk.
And so that's where you can get a lot of weakness.
I don't think it so much that it's focus on that.
I just don't see the market focusing on more than a couple of things at a time.
I think that's just how markets function. And right now it's just not focus… Unless things materially ratchet up in terms of tension or ratchet down, like if it's kind of a stalemate which it feels like it's kind of turning into, well from a humanitarian standpoint, it's just god-awful, from a market perspective, they will look at the next thing to worry about.
>> Let's get to the next question.
Call us coming in for Michael.
The tech sector.
Will tech still be weak?
This is been interesting off the top of the show.
We were talking about further layoffs from Amazon.
There's a lot happening.
> I think so.
For a long period of time, I think tech was expected… It was kind of idiosyncratic part of the market that performed regardless of whether GDP did well. For a lot of the major tech companies, big chunk of the revenue comes from advertising and a slowdown in advertising budgets will be/. That's a headman.
Broadly across company earnings, any companies that have been involved in cloud computing, you have seen material slowdown in cloud growth.
It still positive but you don't biotech company because you've got strong but slowing growth.
So I think recently you've seen a bit of tech rally with the long in coming off.
People thinking about, well, if long treasuries are rallying, their form going to buy technology, I think that is past thebest before date.
That's not the way tech is thought about anymore.
Tech is still quite expensive and unless you think we are going back to zero interest rates, free money, air of the past decade… Until valuations look interesting again, Microsoft, after the peak in 2001, Microsoft continued to earn, do phenomenal in terms of earnings-per-share but the stock price went nowhere for 12 years.
When I try to say that to happen this time.
Just a reminder that we are going into a period of derating and I think that's likely… Tech is probably not the place you want to be.
We are talking about trillion market Companies.
Do you think you're gonna go from one to two or 2 to 4 trillion? You have to think about a world where some crazy things happen for that to happen. I think there some opportunities in the market.
>> Fascinating set.
We are going to get back your questions for Michael Craig on asset allocation in just a moment.
As always, make sure you do your own research before making any investment decisions.
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let's check in on the market. We will start with the TSX composite index. First trading day of the week. We had a choppy one last week.
No shortage of intrigue right in front of us at the moment when it comes to the global financial system or the global banking sector for the Fed coming up on Wednesday. 71 points to the upside on the TSX comments of about 1/3 of a percent, fairly modest. I did notice some of the mining names getting a bit today, not just in gold but other spaces. Got Teck Resources up 2.7%.
Athabasca Oil with West Texas intermediate crude at $66.21 per barrel on my screen.
That has taken a significant step back in recent sessions.
At 275, got Athabasca down a little more than 2%.
The S&P 500 is starting the week with a little upside momentum.
17 points, a little shy of half a percent.
The Fed will enter the two day meeting tomorrow and come out the other side on Wednesday.
We will have full coverage of all that for you across our various MoneyTalk platforms.
Let's check in all the tech heavy NASDAQ right now. Not keeping up with the broader market, this one back into negative territory to the tune of about 34 points. Been hovering on either side of the breakeven line today. A little shy of 1/3 of a percent of the downside.
Credit Suisse, the big story of the weekend. They are down 53% colony.
There is a long glide path of the past year.
When you get right to the end of it, their the steep declines of the recent sessions.
We are back with Michael Craig, head of asset allocation at TD management.
This question about artificial intelligence.
Please discuss the AI industry and companies to follow.
ChatGPT made a big splash for the early part of this year.
>>There are a handful of smaller-capnames to follow.
The amount of proprietary research and capital in terms of computing power and data requires, the various entry for this business are quite high. Two, I think this will be a huge source of productivity games but it's a ten-year story, at least a 10 year story as it starts to automate a lot of mundane tasks.
From an investment thesis, it's one of those things were I think the material. But like anything, companies have failed at this and companies have consolidated.
I'm not that far in the weeds to say Who's Who, but I would say just be mindful that you could've thrown out dart at the wall in the 1990s.
A small little bookstore turned out to be a behemoth.
It's unclear yet who will win this race so I would be cautious about saying because we are very much early days.
>> The first thing I got off of Amazon with this massive book of Beatles songs.
I can find it in any traditional bookstore.
I thought, what a weird thing, buying a book off the Internet.
I'll never do that again.
A package is probably sitting on my front step right now.
Some member of the audience wants to know about the TSX.
The TSX, where do you think will end the year? What sectors do you think will be higher?
It is crystal ball time for you.
>> I would say a couple of things. I think we have seen the highs of the year. So do with that as you may. I think there are some interesting valuation. The financials now are trading subtenant PE. I think there will be a period of indigestionbut over a three-year period it looks interesting.
And I think again what's been consistent through the last little while, he mentioned it earlier, oil continues to trade lower which actually find fascinating.
It is a barometer of economic activity and if it continues to fall, that tells you something is happening.
As we bottom antidote, energy will probably do okay as we will go back to the same issues of supply and demand.
Right now, demand, there has to of been something going on on the demand side to see this drop in oil.
Probably not for today but those will be areas that I would have a look at next year.
>> Squeezed another question in here for Michael before we say goodbye.
With everything going on, and there's a lot, should we avoid high-yield bonds?
> High-yield is very much a specialist asset class.
I traded a little bit of high yield in my wasted youth.
It is complicated and it is not one for,High yield loans and deals, the ton of optimality in terms of how things play out.
As an example, there are many investors this morning who had subordinated a T1 bonds with Credit Suisse who were shocked to find that they were trading at zero.
No recovery, wiped out.
A lot of that is because you didn't read the fine print of the prospectus.
>> That was the whole purpose. It was a Balin bond.
>> I think sometimes in high yield when things get frothy, people just forget about it and buy it as a blog and its Autoblog but it has some cracks.
So we own high yield.
We have cut it in half last year but we hold some. We are quite selected with what we hold.
I would urge any viewer, this is a complex asset class where there is tremendous returns long term.
You get some upside in equities with half volatility so it's a great asset class in a multi-asset portfolio.
It's a far more complex one than many others because of the nature of loans.
You could have a company with multiple deals out, always very different covenant structures and they will trade differently.
So that's an example of how it's easier to buy the equity on the equity.
We are underweight. Something I will look to increase if we get some kind of widening of spreads later this year.
We'll see if that happens.
But it's a complicated place to be and make sure you understand it if you do this on your own. You don't want to be like many this morning who are looking at a zero on their lines and their holdings because of what happened over the weekend.
> Before he let you go, there's a lot going on, allowed for investors to try to figure out. What should we be mindful of in the next little while?
>> stay defensive. Have some cash to take advantage of opportunities.this will pass and we will be back as we always are or in any period of time.
it happens every eight years or so.
Manage and make sure that you are not overextended and have a bit of a conservative bias in your portfolio.
>> Was great to have you. Look forward to the next time.
>> My pleasure.
>> How are things to Michael Craig, head of asset allocation at TD Asset Management.
On tomato, Alex Gorewicz, portfolio manager with active fixed income at TD Asset Management will be our guest, taking your questions about active fixed income. You don't have to wait, he can get a head start on this question.
Email moneytalklive@td.com. That's all the time we have for the show today. Things were watching.
We will see you tomorrow.
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