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I think that the US market will underperform Canada over the next couple of years. The US had a good run the past while but with the decline in growth stocks and move to commodities it's Canada's turn. The Canadian banks seem to keep an even footing in good economies and bad. Barring a total collapse in RE they should be just fine even with the interest rate hikes taking some air out of rising house prices. If you look YTD the Canadian market is barely underwater in comparison to the US's 13% and 22% declines. Even if this is the bottom a pullback is healthy once and awhile to keep investors in check.
 

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Discussion Starter · #82 ·
I was thinking about this more, and I think US stocks are going to fall a lot further this year.

Consider that the US market is still far above where it was at the end of 2019, and even 2019 was a high stimulus year. So the Fed was already pumping the market pretty seriously in 2019, and today, stocks are FAR above where they were before the pandemic happened.

I think the stock market will more gradually realize what's going on. So far, volatility has been quite low and I believe sentiment today is still quite good ... there's still a lot of confidence in stocks, even a lot of greed. That suggests to me that the big selling has not even started yet in US stocks.

Quantitative Tightening hasn't even started yet, and the Fed has barely raised interest rates at all. The fun hasn't started yet!

Having worked in tech I can say that there's been an incredible tech bubble in recent years, at least as far back as 2017 and maybe even further. That isn't going to be resolved in a few months of NASDAQ declines so I really think there is a lot more pain and selling to come. The tech people I know are still saying very greedy and optimistic things today, so I can see that the market has not yet caused them any pain.

That being said, I'm sticking with my 30% stock allocation because that was my original plan. The S&P 500 makes up around 14% of my total portfolio.
 

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I don't disagree @james4beach I think there is a good chance that last week was a bit of a breather before more downside in the US. Most bears take longer than a couple of months. The pandemic V-drop was quick and steep but that is unusual. The circumstances are completely different to 2020. There are similarities to the tech wreck of the 2000s as well as (gasp) the stagflation of the 70s. I am hoping that we don't see such a long bear but I am prepared for it. I'd much prefer that inflation supply chain issues subside and inflation cools. That will be sufficient reason for money to come back into the market. There is still a lot of headwinds. If we think food costs are high now wait till fall if fuel prices stay high, there is crop failures, and the war overseas continues. You are correct that most are still happily spending and excited to go out and have fun. I know of several people that are excitedly waiting for the arrival date of their shiny new vehicles.
 

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A bear market will be a wistful dream in a few weeks.

The “all things bubble” has a lot of air to let out yet.

My prediction Is up to 40% dump in housing and solid stocks and 80% to 90% in meme stocks, crypto, and collectibles.

When the big daily dumps start piling up investors will go completely risk off.

It always goes like that with inexperienced DYI investors leading the rush out the exit doors.

Both the strength of the downturn and the subsequent recovery are always under estimated.
 

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What is the % of “high risk” stocks in todays market mix ?

The companies that lose money, have lousy business models, carry too much debt, etc

The kind of companies Warren Buffet wouldn’t buy with someone else’s money ?
 

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Discussion Starter · #86 ·
What is the % of “high risk” stocks in todays market mix ?
The highest risk stuff are the companies which don't have very low earnings, promising that they MIGHT later have strong earnings, and which are trading at high multiples. These are sometimes called "growth stocks" due to high P/E multiples.

That's a good question... what's the % in the market mix.

Here's a very crude estimate. Tech stocks are probably mostly growth stocks with very high multiples. They're about 20% of the US market. In Canada it's close to 0%.
 

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Using the low earning now strong earnings definition provided by @james4beach does not mean all tech companies are high risk nor items Buffett would touch. Last time I checked Apple was considered tech and owned by Buffet.

Here is a recent list of the TSX Composite Index with their market cap which makes up 70% of the Canadian market. As "high risk" is subjective it will vary by investor.

Market Cap TSX Composite Index Companies Canada 2022: FKnol.com

Perhaps 20% is still a reasonable estimate. I am not sure the value in knowing the actual number. For me I don't purchase highly speculative names with zero history. Perhaps, if a definition could be made and a number assigned one could use it to determine how frothy the market is relative to other timeframes.
 

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Discussion Starter · #88 · (Edited)
A nice video from a Bridgewater analyst.

The truth of this situation is: rising interest rates are just a bad environment for investors. It's going to hurt. That's because interest rates are the discounting rate for all future cashflows. Higher rates simultaneously lower the value of stocks, bonds, and real estate. That's just how the math works!

For years, I've been talking about how stock markets are propped up by low interest rates and central bank liquidity. Liquidity has driven such insane gains for 10 years, so I think it's natural to assume that stocks decline quite a bit when liquidity is removed.

I'm a bit overweight in Canadian equities and I think Canadian stocks will hold up better than American stocks. These American analysts are always mentioning "emerging stocks" but Canadian stocks actually have many similarities, with resource exposure and lower valuations. So I feel more confident about my Canadian stocks at the moment.

 

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A nice video from a Bridgewater analyst.

The truth of this situation is: rising interest rates are just a bad environment for investors. It's going to hurt. That's because interest rates are the discounting rate for all future cashflows. Higher rates simultaneously lower the value of stocks, bonds, and real estate. That's just how the math works!

For years, I've been talking about how stock markets are propped up by low interest rates and central bank liquidity. Liquidity has driven such insane gains for 10 years, so I think it's natural to assume that stocks decline quite a bit when liquidity is removed.

I'm a bit overweight in Canadian equities and I think Canadian stocks will hold up better than American stocks. These American analysts are always mentioning "emerging stocks" but Canadian stocks actually have many similarities, with resource exposure and lower valuations. So I feel more confident about my Canadian stocks at the moment.

Wait 'til next Thursday. (Fed is out on Wednesday)
 

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I still have most of my fixed income sitting in redeemable GICs. I also am looking for ways to prevent myself from raising current order prices as we wait for the fed announcement in regard for outlook for the fall and inflation data. My guess for now is 50 bps and 50 bps and wait and see for Sept. With this much consensus over raises, market downturn and recession, it's almost a guarantee markets will bounce back up the expected bottom is announced. :p
 

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Very high US inflation has increased the probability of more hawkish Federal Reserve action.

@Covariance any thoughts?
CPI is not PCE but it gave us a look, and the message is no slow down in the cadence of increases in Q3. Base case for some time has been 50 next two meetings (June, July, no Aug meeting). Sept looks like another 50 unless we have two or three prints of moderating core. The PCE for June release ( in July) is going to be a big day.
 

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Wow, bonds ETF are super scary, more than stocks.

Look at this on Portfolio Visualizer.

100% US Stock Market is currently in its 10th worst drawdown of the past 50 years.
100% 10-year Treasury is currently in its 2nd worst drawdown of the past 50 years.

Maybe by the end of this month it'll take the first place!
 

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Wow, bonds ETF are super scary, more than stocks.

Look at this on Portfolio Visualizer.

100% US Stock Market is currently in its 10th worst drawdown of the past 50 years.
100% 10-year Treasury is currently in its 2nd worst drawdown of the past 50 years.

Maybe by the end of this month it'll take the first place!
Not done yet, but somewhere I read the bond market had not previously done two negative return years in a row (in the modern era). I may have that wrong. Either way we are in exceptional times.
 

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Discussion Starter · #98 ·
Wow, bonds ETF are super scary, more than stocks.
I thought benchmark treasuries were now in the largest drawdown ever in history. Possibly the same for aggregate bonds.

By the way, this is why it's important (in modelling and back-testing) to look at the historical worst case and then plan to see a little bit worse. For example, most people think of the "worst case" drawdown in large cap US stocks as 50%, based on 2000 and 2008 bears. That's a bit too literal. I believe 60% to 70% is the worst case stock drawdown. It's a safer way to model things.

What's that thing people always say to me on this board? "Why would anyone ever hold a GIC?"
 

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Discussion Starter · #100 ·
Cash has zero beta and zero duration. On a relative return basis it’s killing it this year.
The irony, right? Inflation is at a 40 year high and yet cash has been the best performer. In other words, -7% real return is beating stocks and bonds.

What a difficult situation for people. A diversified portfolio of assets is likely the better way to beat inflation... and yet, financial assets are doing horribly so far. I suppose this situation is going to tempt a lot of people to sit in cash, and they will miss out on the eventual rebound and high performance of financial assets.

@Covariance are you leaning towards market timing (staying in cash) or staying fully invested, as a way to beat inflation?

I personally think that sitting in cash is a dangerous game.
 
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