A Comment -- General Comments From an Expert (A Commentary)

Market. The message the market is giving us is that it is very tuned in to what the Fed is doing. A rate rise from 2-4% is a doubling but from 8-10% in the past, is not as big. It influences those using debt to finance their operations. Interest rates are the single biggest factor in the valuation of assets – present / future value. The bar-bell strategy is paying off for him. He is much more conservatively positioned now. He does not own bit coin at this point. He has assets that can do better as the market goes higher in the short term but others that will do better if the market starts to go downward.

Market Outlook - This market got very overbought. It needed an excuse to sell off. A market that continues to trend up. The rumor is that we will see a deal with China next week. He thinks that if we don't see a robust deal, the market could sell off. The bar was low for earnings. There is a kind of all-clear. Another concern that was put aside for now. Tomorrow's print on jobs is going to be in line.

Market Outlook. There appears to be a disconnect between the stock market and the economic outlook. Markets are buoyant, while companies continue to load up on debt. Companies have been beating earnings expectations, but earnings growth is deceleration. Share buybacks have been supporting the market, but he thinks now is the time to be more cautious. Watch companies that may have a hard time maintaining dividends.

Energy stocks for diversification? He is a firm believer in diversification and Energy has a good valuation. He might expect to see increased M&A activity by the stronger players. He wouldn't make a huge play in energy right now if you are retired -- it all depends on your personal situation.

Today, the markets sold off after Powell's remarks this afternoon. He's not sure why, but he expects the markets to continue to rise. The Fed must be cautious with rates going forward, and they need to see strong data to support a rise. He's starting to see some exhaustion in his market indicators, though he sees good recovery from his technical indicators. Loblaws reported same-store sales declines today.

Is it smart to sell cannabis producers and buy cannabis retailers who enjoy wider margins? The big issue with retail is weak supply. Once supply ramps up, then retailers will enjoy ramped-up earnings. True, retail margins are strong, but in five years probably, retailers will be as common as liquor stores. Meta Cannabis Supply is a good retailer to buy with more outlets than all, positive revenues as well as earnings.

A new sector to invest in? Energy. The oil price has moved up, but stock prices have lagged, and early reports note that cash flows are rising. Foreign investors will raise Canadian oil stock prices and catch up to the commodity price.

The Canadian banks: yes, there are concerns, but are already reflected in the stock prices which have been flat--though earnings are rising and solid. In fact, based on earnings, the banks are a third cheaper than in 2007-8. He doesn't see much downside going forward, and the bank dividends are safe and growing. The banks are good long-term holds. True, loan losses will hurt the stock one day, but the market isn't currently paying a high multiple for these stocks. Energy stocks vs. crude oil prices: it's an opportunity to buy Canadian companies as they report their latest earnings in May. It's a pity that foreign investors aren't buying Canadian oil stocks, but we'll see if they take notice with these reports.

What proportion of bank earnings are not from the loan book? Much less than 50% of their revenues come from loans. But if those loans good bad, they will overwhelm earnings. This is what short-sellers are arguing--big loan losses. Provisions for credit losses in the US are double than in Canada; this shows how competitive their lending environment is. We have a different attitude here from walking away from loans, so he doesn't see a mass exodus from paying off loans in Canada unless there is a massive macro-economic shock globally, largely American.

He's not excited by the tech sector, even with Apple beating earnings today. After a pretty good run, markets are now overbought. Tech and cons. discr. drove that downturn. He's not bearish, but we need another pullback now and those two sectors are more vulnerable. Apple's chart: it may hit last year's high, but tech overall will be more contained and choppier going forward. Google is a good example of how vulnerable tech is given today's 7.5% drop after earnings; it also tested last year's highs and sharply turned down. He's being staples, REITs, and a US bank stock that had been punished.

What is your momentum indicator? It tells you whether a stock is overbought or oversold. He uses stochastics, RSI and bollinger bands together.

Earnings season has been good. No surprise, because they were beaten so down in recent months. But 8-10% earnings growth going forward? Really? The Fed says it won't raise rates, basically saying that the economy is pretty fragile. The quality of this market isn't great. The percentage of stocks making new 52-week highs is only 10% of the index, not 30-40% and not broad. It's common to see this low percentage late in the cycle. He thinks we're making a big top here, but markets could be grinding here because of liquidity. The FAANGs: MSFT blew the doors off their earnings report last week due to their strong cloud service. Intel has also made a new high, but fell 10% due to a miss in the topline and bottom line in their earnings report. So, it's been a mixed picture in tech and the US market. In the U.S. consumer sales are anemic and there's a massive build in inventories in Q1. We could see a zero quarter coming if sales don't pick up.

Bank stocks vs. utilities in terms of PE As people get older, they want a safer dividend, so more utility products are coming out in the market to meet that demand. Utilities are defensive. The PE on utilities have been pushed up much more than they otherwise would. They're expensive and therefore risky. Bank PE's are lower, because their income variability fluctuates more. Banks could lose billions in a down cycle. Risk-wise, he slightly prefers the dividend from utilities in this phase of the cycle.

Educational Segment. The trouble with U.S. monetary policy--too big and failing. Each week, he hears the question about not liking GICs or bonds, so can you recommend an ETF to give me a better yield. Bond yield have been pushed really low by central banks--and Trump wants them even lower. The average yield-to-maturity is 2.5%. The real return is zero worldwide. So, if you buy bonds, you will get nothing--inflation erodes your purchasing power. What will central banks do during the next downturn? How can they lower interest rates further? This makes it hard for the savers. Also, there's $265 trillion of debt across the world. What if interest rates rise 1%? So, there's been an astronomical transfer from the savers (retirees) to the corporations and governments through lower rates. This won't work going forward. What happens to the savings of retirees--and the world is rapidly aging?

We're at the end of a credit cycle as in 2000 and 2007: people have borrowed too much, some sectors overheated then the market corrects. 17 countries have yield-curve inversions, so supply and demand for credit are peaking. Equity markets are at all-time highs, but that attracts only more bullishness. A key indicator is margin debt. In 2000 and 2007, there were all-time highs in margin debt. We saw a similar pattern in margin debt in the late-2018 sell-off. Also similar to 2007, the US housing market was falling apart in the summer and equity markets made all-time highs in October. He fears the eventual outcome will be quite nasty. There's excess money-printing by central banks globally. Central banks, though, are being a little pro-active this cycle by raising rates last year, which is good. He thinks central banks will stabilize any correction. By doing this, maybe we'll see a 30% correction instead of 50%+ during 2008. Still painful, but we saw a 20% move in the past 6 months.