Keith Richards:
Hello and welcome to Smart Money, Dumb Money. I am your host as always, Keith Richards. Today, we are doing one of our interviews. I’m really, really pleased with this score, I’m going to call it, with Frances Horodelski. I hope I pronounce your name right, Frances. Frances, everybody probably that is watching this video is probably familiar with Frances because she’s been a longtime BNN TV personality, but I have to say before I give her background, I was interviewed over… I started with BNN on the show back in ’08, and through all the different hosts, Frances was always my favorite. This is why I’m so pleased. I’m going to give some background on Frances. This is where the… I have to hold up a piece of paper. Frances has been in the business since 1970s. She started in the insurance side, but she, by the 80s, moved into the brokerage side, and actually worked her way up to become a manager.
Keith Richards:
She’s actually got a different background than my own as a technical person. She’s a CFA, which is great, because that perspective by itself is something that I’m happy to have on the show. But more than that, Frances interviews many, many people. We were talking about this just a minute ago off camera, that Frances sees people like me from the technical world, and quant people, and all these different economists, et cetera, and she puts it all in her cranial vault and has a big pile of experience and opinions that she can draw on when she talks to us about the markets. I’m just so thrilled to have Frances on. Frances, welcome to the show.
Frances Horodelski:
Thank you very much. It’s a pleasure to be here.
Keith Richards:
It’s great. We talked a little bit about what we were going to talk about just recently and we decided to keep it pretty open. In other words, I’m going to just start off with an initial question that everybody’s thinking anyways, which is, Frances, maybe just give us a broad view on what you think is happening in the markets, where it may be heading or not heading, and just some broad perspectives on what you’re seeing out there from your views.
Frances Horodelski:
Thank you very much for inviting me. As I said, just as a little bit of additional background, I started on BNN the month that Bear Stearns went down in 2008, the greatest time to be in financial TV, which pretty amazing, one year actually until the markets bottomed in March of some say October of 2008, but most people think March of 2009. In any event, and I’ve been through too many bull and bear markets to count, but I did want to start, as you said, with a big picture thing. The first big picture comment I want to make is that I’m not sure why, when we have had such an unprecedented couple of years. Remember, unprecedented was the word of 2020. We’ve had the pandemic, supply chain upsets, huge government stimulus, trillions in negative rate fixed income investments, in particular in Europe, a war, the rise of authoritarianism and tyranny around the world.
Frances Horodelski:
All of those things have been pushing us, one way or the other, over the past couple of years. It strikes me as odd that we think that all of our old tools and rules are going to help us this time around. I mean, I don’t want to say it’s different this time, but maybe the interaction of all these things and how we interact with all these things will make for outcomes that are different than previous, whatever you want to call them, dislocations, crises, whatever they are. That was the first thing I wanted to mention. The second is sort of aligned with it, is that there is just so much information out there. Social media, good information, bad information, lies. I think, increasingly, we have to have, and I’m going to thank Howard Linson who started FinTwits and I kind of follow him for this thought process, is that we have to have better and more stringent filters than we ever had before.
Frances Horodelski:
I don’t mean not to use a mosaic and get information from all over the place and make decisions, but there’s too many bad things that are being thrown at us. We always have to got to step back. We’ve got to filter out the noise. That noise is making things move so much faster than I’ve ever seen, and rotation happen faster, maybe even bull and bear markets happen faster than… And economic expansions and contractions happen faster than they ever did before. Those are the big picture things I wanted to opine on, that it might not be different this time, but the results might be different than we have seen in the past. That’s my big picture view of how I approach things. Maybe you can start throwing questions at me about where you want to go.
Keith Richards:
Sure. Well, yeah. Frances, that’s interesting to bring that up, because you interviewed me a million times and I was always that one guest that didn’t want to have my top picks presented six months from now. I like a month, or two months, or whatever, the next show I would always ask, because I’ve always been a believer in… I mean, there’s a case for holding long term, but that case for holding long term is becoming, as you were mentioning, harder to make because the market has become far more neurotic based on, like you said, the social media, the info flow, and the BS flow that comes out of many of these sources, we hear some.
Frances Horodelski:
Interestingly, a lot of people, and I will put technical analysts in this box, if I can use that phrase, a lot of people talk about prices truth. You just look at the price and that’s going to give you a good sense of what’s going on, but I’ve found that price is less truth-y recently because of all that other noise. You may think that, switching to the fundamentals, you may think, “Geez, that company had this, that, and the other thing going for it.” You go to Bend, you say, “God, I’m going to wake up and that’s going to be up 5% or 10%,” and it’s down five or 10% because the market seems to make fools of us all.
Frances Horodelski:
Just in terms of where we’ve been or where we’re going, look at the S&P 500. We’re essentially where we were in March of 2021, just under 4,000. We had a 20% move up and essentially a 20% move down, 17% actually. You might have got that big trend up and that big trend down, but maybe you went to sleep for a couple of years, you’re exactly where you were with a lot of stuff happening underneath, of course.
Keith Richards:
Yeah. That’s actually, Craig and I, I have a CFA working with me. Same idea, we do try to combine the two. I do the technicals. But we wrote a research paper a while ago for our clients and basically presented an argument that maybe we’re going to be stuck in that 1965 to ’82 kind of scenario where the DAO couldn’t crack a thousand, if you look back at the history, and maybe we’re going to enter into something like that where it just goes up and down. That’s probably case in point of what you’re saying.
Frances Horodelski:
But my old friend, Leon Tui, rest in peace, does always told me to look at what’s happening underneath. We spent a lot of time looking at the TSX, or the S&P, or way back then, the DAO, but there were lots of things that went to the moon and back during those periods when the DAO did not break a thousand. We had the NIFTY 50, we had a huge oil cycle. We had, in the early 70s when we went off the gold standard, huge uptick in gold. There was a small-cap problem. I mean, there was lots of things that one could do if you step back away from the major indices.
Keith Richards:
You got to come and work for Valerie Tran. Because this is what we have been preaching for a while now, is that see the couch potato, I don’t know if somebody coined that as a couch, the couch potato way of investing, where you buy a bunch of index ETFs and you sit on them and it did work. I mean, you can go back 20 years and you would’ve been really well-served to do that, but the future ain’t what it used to be, as they say. It’s to us, and you can see it, like you’re talking about right now. There’s so much sector rotation and you can make lots of money on this rotation just because the broad indices.
Keith Richards:
Craig talked about that in the research paper we wrote up, that basically things are recapitalized and stuff according to which way the market’s moving every year on these indices, but you need to be ahead of that curve and rotate into these sectors. Absolutely. That brings me to a question for you. You were talking about the big picture, maybe it’s going to be choppy and not so easy for indices, but like you said, there’s sectors. What are some of the sectors that you’re seeing, at least right now, showing some hope?
Frances Horodelski:
Some hope, yeah. I hate that whole hopium thing. Over the short term, I got no idea, to be honest with you. Over the long term, I think that there are some big trends happening in the world and those big trends are going to be, sadly, deglobalization. Bringing things back onshore, I think that’s going to be a big trend that’s going to help the industrials, whether it’s in America or in Canada. Before all the banking noise, the industrials were breaking out, and a lot of industrial companies are cheap. I think that’s going to be one area where we can focus. I’m a big fan of copper. I think the demand-supply balances are going to be in favour of an imbalance where demand is going to be higher than supply. McKinsey has a report out that says copper in fact will have a 20% shortfall in the next, let’s call it 10 years.
Frances Horodelski:
I think there’s a huge opportunity in copper, and to be honest with you, the mining companies are making oodles of money at $4 copper. Despite all the recessionary fears and a bit of a hiccup in copper just before the wheels fell off the bus on the American financials, copper pulled back, but then it had a huge move back up. I mean, that commodity’s not going down, in my view. Those are two areas. I mean, you can pick and choose amongst the different sectors. I mean, certainly, I’m getting a bit tired of AI already and it’s only been, I don’t know, since the end of last year when we had ChatGPT and everybody got excited, but there’s going to be innovation on the technological side. I tend to be more deflationary than inflationary. I like gold, on a trading basis, but I think she is kind of persona non grata.
Frances Horodelski:
But I think Cathie Wood has it right on some of the price global pricing trends which are going to be deflationary rather than inflationary. I don’t know, the next six months or nine months or whatever. Again, who knows? I think the long term trends may, in fact, be more deflationary than inflationary. I’m not an economist so I’m sure somebody can pull real big holes in all of that, but that’s a trend that I think might happen. In the short term, I want to have a little gold, but I don’t know over the long term.
Keith Richards:
Yeah, it’s interesting you like copper, because again, Craig and I, we at ValueTrend, we moved into the metals quite a bit recently. We’ve seen the volatility. We were out, we bought the metals and oil and all that back in late ’20 when everybody hated them. We sold out early 2022. We basically evaporated out of everything with those few small positions left, but next to nothing. We’ve just been moving back in into both but with the particular emphasis, because of, like you said, the look of copper, and there are fundamental reasons, like you said, behind the move on copper and the future for copper. Now that actually brings up the… One of the guys we like is Larry McDonald from Bear Traps, and he’s a guy that’s been… He was one of our influences to look at the commodities back in ’20.
Keith Richards:
But he’s also saying, “Look, inflation is not going to be 5%. It might be three or four, but it’s still not going to be two,” is what his argument for the next few years. That really is long-term inflation. If you look at long-term, it’s always been around 3%. It stands to reason that 2% is a fantasy. The Fed wants to get us there. With a 3%, or maybe a three and a half, or even 4% inflation rate, things like copper, oil, whatever you’d think, would be a good place to be.
Frances Horodelski:
I like Larry a lot. I mean, that man came out of the fire as of Lehman Brothers. He’s got a pretty good… [inaudible] A very, very learned man, but pretty good contrarian sense of things, whether it’s the bond market, which he knows intimately, or the equity market. I used to read them pretty regularly and I follow them on Twitter. It’s a little bit disheartening, Keith, to tell you the truth, that we are kind of in agreement. We don’t want to be totally on the same page. “Yeah, you’re right. Yeah, you’re right.” One area where I’m looking, and I’ve been so wrong so far this year, and I know you’ll not like this, but is the Canadian dollar, which has been a bit of a dog certainly. But I think whether it’s going to be the commodity trade, whether it’s going to be the positive impact of immigration in this country, whether it’s going to be somebody getting our… I don’t want to talk politics, of course, but somehow getting this country back on a productivity train, if we can do that.
Frances Horodelski:
Right now, I’m seeing the commercials, who are the so-called smart money, extraordinarily long Canadian dollars, and the speculator, so-called dumb money, extraordinarily short Canadian dollars. If I’m wrong long haul, I might be right over the short term. That’s another area where I think that I want to have… I think there’s some reason to suspect that the U.S. dollar will not retain its glow. You’re even seeing that now. I mean, it has not caught a bid in the face of whatever this banking situation is. Usually, when, as I like to say, the wheels are falling off the bus, the U.S. dollar is a safe haven. Well, it hasn’t been over the last couple of weeks. The yen has. The yen’s been more of a safe haven. But the U.S. dollar, although it’s strong a bit today and every day you can make an argument one way or the other, but I think that’s a an interesting tell on the global view of the U.S. buck as a place to hide.
Keith Richards:
Yeah. I mean, it’s interesting. The yen is usually the contrarian and currency against the U.S. dollar. That’s [inaudible]. Our view is largely just technical. When it comes to looking at the U.S. dollar, we noted that gold had a big pile of resistance at around 80 and gold tends to be the negatively co-related asset to the dollar. Gold has some resistance right around where it is right now. The U.S. dollar seems to be coming off of a support level. We felt that maybe, who knows, short to short medium term, that the U.S. dollar might do okay, and that affects Canada because it’s relative to everything, right?
Frances Horodelski:
Absolutely. One, it’s, is that the right term, a zero-sum game. The U.S. dollar goes up, other things have to go down, or vice versa.
Keith Richards:
Yeah, it’s always a relative thing. Yeah. The currencies are a hard one, honestly.
Frances Horodelski:
Absolutely. Absolutely.
Keith Richards:
Too many moving parts aren’t there. It’s like this inflation.
Frances Horodelski:
It’s like the banking system, to be honest. I mean, there’s a joke going around that, in 2020, everybody was an immunologist expert, and then in 2022, they all became geopolitical experts, and now everybody knows exactly how the Fed balance sheet works and lending long, borrowing short, or vice versa, and how banks work. Nobody knows how banks work. They are probably the most complicated entities on the planet, and all of a sudden, everybody seems to know, or if they don’t know, they’re running for the hills and we’ll figure it out later. Complexity is one of the banes of our existence in the financial services industry right now or in the investment business.
Keith Richards:
Yeah. You become, what do they call it, analysis to paralysis or whatever, because there’s just too many things to look at. You’re right. Actually that’s what always drew me to charts, because it’s a chart. It is volume, there’s momentum, there’s pattern, and then you just make your decision. It’s easier.
Frances Horodelski:
In the financials, over the short term, I think we might short chart at one point, the financials versus the S&P 500 over very short term. I mean, we fill out a bed. The small-cap banking sector in the U.S., down 20 or 30%. Some down, of course, 80 or 90%, went out of business. But there’s going to be jewels to pick up in that crumbling banking sector because we still need to go to the bank. We still need to borrow money. We still need to earn on our savings. Banks aren’t going away as an entity. If you can stomach the volatility here and if you can buy the best banks, if you will, and I think Canadian banks are the best banks, you’ll probably do okay over maybe not as well as you did over the past 10 years, but you could probably hide in the banks still in, certainly, in the Canadian banks with 5% dividend yields.
Keith Richards:
Yeah. Well, actually now this video will be seen probably a week after I make this statement, but I think I sent you the blog. I wrote a blog on the Canadian versus U.S. banks. I noted, yes, it was largely the, you can see it on the relative strength chart that I posted, it was the regional banks, the little guys that have fallen more out of bed. To your point, the Canadian banks, they’re all down. I think that’s a sympathy move more than anything, plus, of course, interest rates. But whatever the case, the Canadian banks actually don’t look too, too bad technically, and probably, fundamentally, don’t have any of the issues facing the U.S. There’ll be a bargain at some point. It’s really…
Frances Horodelski:
Interesting, people are going to see this in a couple of weeks, but the week ending the 24th of March, really I found it really interesting that the only big Canadian bank that did not go down and was up a snick was Bank of Nova Scotia, which has been, well, been a poor place to put your money in the stock over the last many years. I don’t know if it’s going to be their emerging market exposure, which might benefit them if they retrench in some way or focus on it better, or that they don’t have the U.S. exposure that BMO Royal and TD have, which has been weighing on them here recently, but I found that interesting. I mean, that’s one week. What does one week make? But it was an interesting difference that Bank of Nova Scotia was up a snick where the other ones were all down.
Keith Richards:
Yeah, that is interesting. Actually, I didn’t go deeper in when I looked. I just looked at the index, but Bank of Nova Scotia has always been, well, not always, but has been for quite a number of years. Like you said, it’s been the dog’s breakfast.
Frances Horodelski:
It has, absolutely. They got a new guy that ran a tractor company, an equipment company thinning. Maybe it’s better now that you don’t know anything about banks to run a bank. I don’t know.
Keith Richards:
Yeah, yeah. I love it. Yeah. Yeah. Okay. Last thing maybe we’ll bring up, and I was surprised because you sent me a list of some things that you’d be interested in talking about, you’re seasonal trends. I didn’t know that you were interested in seasonality. It’s usually Brooke Zachary and Don [inaudible], whoever. Tell me what are you seeing there that might…
Frances Horodelski:
Well, certainly, I don’t know if you put this in the seasonal count, but each month over history has presented certain opportunities. Generally speaking, March and April are good months. March and April are especially good months in the third year of the presidential cycle, which we’re in right now. You’ve seen the charts, I’m sure. This year tends to be a good year, overall, for stock markets. They tend to be good after a bad year, which last year was absolutely a bad year. I’m not going to go into the “sell in May and go away”, because I think that even from May to October, there’s a lot of different things that happened. I have seen that natural gas, the best month for natural gas, is April. Natural Gas has been after the Russian invasion of Ukraine and the start of that war. Of course, natural gas went through the roof and now it’s at about two bucks.
Frances Horodelski:
There’s all kinds of seasonal reasons why it does pull back this time of the year, but I like natural gas on a seasonal basis starting in the month of March. I don’t know if it’s going to be a, as one of my friends used to say, a rip-your-face-off trade, but I think there’s opportunity in some of the natural gas names. Can natural gas go to 180? Yeah, for sure, because things happen. But I think that’s one seasonal trend that I think will be an opportunity. Generally speaking, back to the third year of the presidential cycle in March and April, or interest rate cycles, well, I’m more of a glass half full than glass half empty gal right at the moment.
Keith Richards:
I’m going to ask you with a branching into energy, just very briefly. Normally, from a seasonal perspective, oil, crude oil is usually pretty good from around February to around May or June. That’s on a relative basis. That’s all seasonals are. But WTI literally broke a short-term support level recently. It’s been tough to… Now we have been picking it up because it seems so oversold and there’s another level of support we can say, “Well, the downside from here isn’t too ugly,” but it sort of stopped us from adding to we leg in, and we just stopped legging in soon as it broke that support. We haven’t sold because we’re going to give it the benefit of the doubt for now. But what are your thoughts? Because it’s certainly not following the seasonal pattern of bottoming in February and then moving up after that, and there should be reasons for it to go up, but Strategic Petroleum Reserve refills and all these reasons that the fundamental side says, and yet none of the above seems to be happening. What’s your thought?
Frances Horodelski:
Yeah, yeah. I think a couple of things that happened. One, some of the global markets have been able to stay supplied by oil because Russia is able to support, whether it’s China, or India, or other countries that need the oil, so there hasn’t been that demand sign. I think we came into this season with a lot more oil because the weather turned out to be better this past winter, although in Canada, we had some bad days. But generally speaking, Canada was… The cold countries had not a bad winter, so there was a lot more oil. It’s the same with natural gas, to be honest. There’s a lot of, I don’t know, is it manipulation between wet barrels and paper barrels, and what OPEC is doing or not doing, some new alignments in the Middle East. I think that’s probably overshadowing traditional seasonal trends.
Frances Horodelski:
I don’t want to count it out though, because I think the companies themselves are making… Again, at 60 or $70, it’s not 60, it’s 70, but at those prices, those companies are making a lot of money. They’re generating huge amounts of cash flow. I will just bring up the fact that he has made mistakes, but Warren Buffett continues to buy up Occidental Petroleum, and I, myself, had bought back into a little energy. I sold probably too early on the way up, but that was okay. I didn’t get the highs, but quite frankly, nobody actually does. But I’m probably a little underweight on the energy side, so I’m thinking about where I want to put my toe in. It might be a pipeline, it might be a producer, it might be a natural gas player. I think the fundamentals, in the end, for the individual companies, will hold them up as we move through whatever this spring will bring seasonally.
Keith Richards:
Yeah. I’m glad you mentioned that, because that is… Of course, as a technical guy, I’m constantly questioning Craig. I’m like, “He’s a CFA.” I was like, “Craig, look as it’s breaking.” Panic, panic. Technical guy that I am. He’s like, “Look, they make money.” I think, did he say, and maybe you’ll… Did he say 40 or 50 bucks a barrel is a… Plus is a good point for these guys to be making profit.
Frances Horodelski:
Their balance sheets are in great shape, to be honest. I mean, you look at some of the individual reports of various companies. I mean, I think Imperial Oil will be debt free next year, or some… That’s the only one that can come to my head right now. But a lot of these companies, the balance sheets aren’t over leveraged. They’re not putting money into the ground that should actually help the price of the commodity, but they’re in great financial shape.
Keith Richards:
Yeah, yeah. Absolutely. That’s a point for them. Yeah. Frances, that’s great. I mean, anything you want to conclude with?
Frances Horodelski:
Every cycle, I get humbled with going into this, as I say, whatever we call this banking situation. I went in being confident that this was not 2008, 2009. It’s felt like that over the past couple of weeks. It’s a different dislocation than it was way back then. There are still issues out there, but we do tend to come out the other side. Fingers crossed. Whether humbled or not, you learn something each cycle, and every day I’m learning something new.
Keith Richards:
Yeah. That’s why I love this business. I mean, you can’t retire because it’s like Hotel California, you couldn’t check out but never leave.
Frances Horodelski:
That’s exactly right. That’s a good note to end on.
Keith Richards:
I’m going to just shout out to your… You have a really cool website. It’s so, not socially… Or whatever they call it, politically… It’s called views from abroad, two words.
Frances Horodelski:
I’m abroad.
Keith Richards:
Yes, so I love that. You modify it, Frances online and all her can connections to her social media, whatever’s there. I’ll continue to follow you and thank you so much for coming on.
Frances Horodelski:
You’re very welcome. I’ll continue to follow you too.
Keith Richards:
Yeah, there we go. Thanks for coming on.
