MARKET OUTLOOK:
I consider myself an optimist, but I don’t see much to be happy about in reading others’ comments about what might be expected in 2022. Consistently shifting people’s attention to bullish outcomes is what I call “bullshift” and it’s rampant in the financial services industry. 

While it has mostly served investors well over the years, it has morphed into a mindset where no one thinks a significant drawdown is possible due to central bank interventions these past 21 months. In fact, on average, markets go down nearly every third year. 

Despite this, the industry predictably fails to properly alert investors of looming risks. We should all be very concerned about a coming correction that I think will be huge. Looking at the S&P 500:

• The Cyclically Adjusted Price Earnings (CAPE) ratio for the S&P 500 is now around 40 – the second highest ever.
• The S&P 500 has finished up in 12 of the last 13 years and 17 of the last 19.  
• From 2019-2021, the U.S. market has more than doubled - the best three-year run since 1997-99.
• The biggest drawdown in 2021 was a paltry -5.2 per cent.
• Today, inflation in the U.S. is over 6 per cent - the highest in 30 years.
• Government debt levels throughout the Western world have never been higher in peacetime than they are now.

We are way past due for a reversion to the mean. I would like to be optimistic, but I don’t honestly see how anyone can be in light of these facts. 


TOP PICKS:

Vanguard FTSE Emerging Markets All Cap Index ETF (VEE TSX)
VEE is a market leader in getting diversified exposure to a fast-growing part of the world which has the added benefit of having low market valuations now.

iShares S&P/TSX Global Gold Index ETF (XGD TSX)
XGD provides exposure to Canadian gold mining companies. When there’s inflation and/or market uncertainty, gold tends to do well. The price has been mostly stable lately, so this is a good entry point.

BetaPro S&P 500 Daily Inverse ETF (HIU TSX)
HIU provides inverse exposure to the U.S. market. I think the S&P 500 is massively overvalued and primed for a tumble. This product cannot be used by IIROC advisors, since the overnight re-sets require that they be sold the same day they are bought, so they are difficult to use as a strategic position. Still, the thesis has merit. Just be very careful if you use the product.

PAST PICKS: January 6, 2020

SMARTBE GLOBAL VALUE MOMENTUM TREND INDEX ETF (SBEA NEO)

• Then: $20.11
• March 26, 2021: $18.60 (DELISTED) 
• Return: -8%
• Total Return: -8%

S&P/TSX 60 DAILY INVERSE ETF (HIX TSX)

• Then: $11.02
• Now: $7.12
• Return: -35%
• Total Return: -35%

BETAPRO S&P 500 DAILY INVERSE ETF (HIU TSX)

• Then: $22.56
• Now: $13.21
• Return: -41%
• Total Return: -41%

Total Return Average: -28%