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

Market. The inversion of the yield curve tells you only ONE thing and that is that there WILL be a recession, but it does not tell you WHEN it will be. A recession is like death and taxes – it will happen, but when? Some of the best returns in the market are between inversion of the curve and when the economic ACTUALLY goes into recession. He will be watching carefully. He can't tell you if it is 12 or 36 months to recession. If businesses have access to credit then the economy can grow. Utilities had shrinkage of 5% in EPS last year but were one of the best performing sectors. People bought the ETFs because they thought they were defensive. Today the utilities are so expensive that it is pointless to be involved.

Resources: He is zero weighted right now.

It was a boring day, though Asian came off a lot last night, but that's good for investors. This will allow investors to get back into the market to buy stocks on sale. He's neutral-slightly negative in terms of outlook and sees this time as a chance to take profits, build cash and/or but bonds. He doesn't fear the market, though. Today, Apple unveiled its move into TV streaming, but it lacked detail. For shareholders, this was another reason to be excited over Apple again. It will take time for this avenue to take shape. Apple is fairly valued now, though probably has some upside. There are tech opportunities elsewhere too.

5-year US dollar index. If there's one thing to look at to worry about, the US dollar is interesting. Nascent uptrend into late fall caused markets lots of problems. Started falling late November. Strong US dollar is not good for lots of reasons. Investors are anticipating good outcomes for Brexit, US-Europe, US-China trade relations. EMs benefit from weaker US dollar, as well as US global corporations. Weaker dollar is good for markets. General downward trend from 2016 should continue if we want markets to remain positive.

S&P chart. Bottoming pattern. Not surprised to see a bit of chop. By and large, pretty positive. May go sideways for a bit. Lots of people are concerned we're in late cycle. He says we're more in a mushy mid-cycle. Base metals and technology have been strong.

TSX. Has moved up faster off the bottom. Want to see it break through, should see some softness first, especially in energy and base metals. Some of the defensive plays will come back in the picture after the fall selloff.

Copper. Trying to make a bottom. Getting back above $3 is critical. Goes back to the US dollar, to which it's correlated in many spots. Expects copper to hold in here, and China is the biggest determinant of where it goes.

Market. The market is reactive and the FED has done a 180 from tightening to extremely dovish. Markets like that. Investors should be realistic about what the FED is signaling. Things are not as buoyant as they were in the US as previously perceived. Corporate results will be weaker this year. They were boosted last year from tax cuts. They will be up only mid-single digits this year. We should be looking for growthier stocks with higher predictability levels. 2019 could actually be better than some people think. It could be a decent year for the markets.

US Regional Banks. [Caller named a regional US bank but it was inaudible and no chart or ticker was displayed]. You have to be adaptive to the current changing situation. That includes banks. It was thought that interest rates would rise, but now it looks like not. It is not as constructive at it once was. You should think of paring it back.

Market Outlook - He is still risk averse. Holding 20% times the equity allocation for accounts in cash. Even if there is no economic recession, there is some signs of an earnings recession. Corporations made a lot of acquisitions and carry a lot of debt. He sees the S&P 500 crossing 2,900 and then you will have momentum probably pushing it another 10%. His top is 3,700. There he would rise cash as we would be at the 2000 or 1929 highs on a relative valuation. Yesterday the 10-year yield came low enough to match the 2-year yield. That happens usually in Canada. We are there already in Canada. If a recession comes it usually lasts 18-24 months and the market could fall 20 to 40%. The banks were rising on the expectation that rates would continue to go higher. Banks are not the best place to be for now.

Question on analyzing debt on a balance sheet - The first thing to look at is debt to cash flow. If you have 2 times debt to cash flow you are fine. At 4, 5 things get difficult. The other things is how it is spread out over time. The credit rating is important as well.

The market has bounced back quickly. He's surprised. It's like the last gasp; we've seen this before prior to past downturns. We had a sudden downdraft (December 2018), then a bounce (January-present), then things hit reality. Reality is tthere's a disconnect between high markets and economic realties around the world, particularly amid trade wars. Economists are lowering expectations for global growth. Be very cautious by holding more cash than usual, be careful what you invest in, and take profits. He expects no move by the U.S. Fed today, not in this market.

Worth buying preferred shares? Be very short in the curve with preferreds. He wouldn't look at perpetual preferreds. Most preferreds are issued at a base price of $25, but they are extremely sensitive to interest rates. Look at reset-rate preferreds; they will roll their dividends up in the coming years. If they are called, they'd be called at the $25 price. Caveat: if a company runs into trouble and their dividends become questionable, yes, they may continue to be paid, but he's seen $25 prefers selling for $15--be very, very cautious. Example: Bombardier's preferreds have been all over the map.

The market before today's U.S. Fed announcement was down, then it bumped up. Everyone was expecting one rate hike for 2019, but the Fed today announced none, and only one in 2020. When the dust settled, the only negative was in banks--fundamentally this new is not great for the banks, because they need higher interest rates--the yield curve is flat. The stock market liked the Fed announcement today. Yes, global growth is slowing, but it is still growing. REITs, utilities and consumer discretionary did quite well today. The U.S. and Canadian 10-year bond spread has never been wider because the U.S. has massive budget deficits. The past six years have reversed the norm where Canada's interest rates are higher than America's. Canada is in good financial shape vs. the U.S. and predicts this outperformance for the next 12 months. This flies against common thinking. Also, oil is reaching for a new recent high while Canadian oil companies have reduced costs to be more efficient. The oil patch won't ramp up, but be stable. Overall, he's not negative Canada like so many. He's bullish.

Housing measure introduced in yesterday's federal budget designed to help first-time buyers. Ottawa spent two years slowing down the hot real estate market and now it's trying to reverse it in a targeted way. Why not let the market do its thing? It shows confusion. Real estate lobbyists are problem at work here.