The Szeto Report - Oct. 14, 2022

October 14, 2022

We have enjoyed reaching out to YOU

Thanks to those who have reached out to us, concerned to see how we are doing through this market downturn. It’s not a comfortable environment for anyone and we truly appreciate all the warm wishes our way. Working together is a two-way street and we love taking care of you and your family as well. We remain committed and determined to navigate through this market, together, so we can, once again, participate in an up-trending market.

Dare we say bottom?

Yesterday’s nearly 2000 point intraday reversal on the Dow Jones Industrial Average Index was spectacular. This type of volatility, from our experience, is not typical of smart money action. We suspect that it was made up of short covering as many had bet on stubborn inflation persisting and expected markets to react negatively, which is what occurred early yesterday morning. The covering of short bets gained momentum, driving markets violently upwards. With what has been happening the past couple months, investors embraced this strong move upwards, with some even calling that we have “confirmed” a market bottom.

Not to be too negative, we believe there may be more downs to come, however we are getting closer to interest rates flattening. To get to a more stable rate environment, we will need to see headlines such as “a sovereign nation’s currency defaulting”, “foreclosures occurring in the real estate market”, “financial institutions becoming insolvent”. The push upwards in yields will inevitably disrupt leverage strategies that worked the past two decades – we believe that it is only a matter of time. The governments are targeting the use of reckless leverage and until we see some of this unwind, we do not think we will see a sustained move upwards.

Pricing Disconnect

There are some private investments out there that are not priced daily. This means that they are not priced “mark to market”, which is how stocks and most bonds are priced. With the deterioration of global public markets, we have seen Canada’s own broad REIT (Real Estate Investment Trust) index down over 26% year to date. This is a collection of real estate companies across Canada and the public market is discounting them that significantly. In contrast, private real estate funds, which are priced less often and sometimes only once per quarter, some of these Private REITs are up almost 10% so far this year. There is a significant disconnect occurring in this space and only time will tell whether the public discount was warranted or if the private REITs need to come back to reality.

Have a great weekend,

Peter, Adam, Jason, Marie, Don and Jennie

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“I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc.” 

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