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

Where should a new investor start in today's market with a troubled outlook? He's never found a great time to invest in all his career. So, start--as a balanced investor--and buy the TSX 60 index with XIU, then SPY, XBB and XSB at 25% each, so that you buy the Canadian economy, bonds and the S&P 500.

Initiating a 1-2 year put option that's out of the money. What are the risks? Selling a put option means you're taking on an obligation to buy a stock at a certain price (but not in a sheltered account because you need margin) below the current price. If you don't get the stock, you keep the premium and the trade ends. If you sell long-term options that are out of the money you'll get more for them, but you have a much longer obliation (for a long time). The risk: don't do these unless you have the security in cash. During a sell-off, the value of the put rises because the market is declining. It'll also be hit by an increase in volatility--a double hit on the position. You must weather this situation, which will correct short-term.

Market Outlook China is a huge consumer of commodities -- about 1/3 of all raw materials in the world. He thinks a trade deal between China and the US will eventually be reached. Technically, the advance-decline line for all the major US indices closed at recent highs, suggesting there is still room for things to go higher for the next year. He thinks the semi-conductor space is a leading indicator for the Purchasing Manager Index (PMI). He thinks by next summer the PMI will be increasing based on activity for semi-conductors today, which will lead to continued support in the market. The US Fed taking the foot off the pedal is going to bring support to the US housing market he thinks. This will bring greater consumer confidence.

Trade and the markets. A great trade deal with China, which has the markets popped. Momentum after the volatility. His concern is that if we raise 10% a month, we'll be at 3700 on the S&P by July. It all depends on the earnings. He hasn't been enthralled at all. The economy better get super-charged in a hurry from Fed not raising rates and from trade deals, because otherwise markets can't sustain those levels.

Interest rates. If there were to be a rate cut, means economy probably slipping into recession. GDP might be 2-2.5% around the world, not great growth. For multinationals, organic growth is not as expected.

How are you positioned? 20% cash. If he can do better than the market with that, he's happy. The last thing he wants to do is sell in a falling market. You don't fight the Fed. When interest rates rise, you have a selloff. As rates start to fall again, impetus for markets to be positive.

Comments on the Fed. They're in a bind, because unemployment is as low as possible, but they're not getting that 4-5% GDP growth that goes with it. And technology has taken care of wage increases, so you're not getting inflation. He thinks they should do nothing for a while. Companies are passing costs along to consumers, and this isn't being talked about yet. And 2/3 of the US economy is made up of consumer purchases.

REIT recommendations. Doesn't own any. Dividend growth is only about 2% a year, so it will take you 36 years to double your income. Inflation eats away at the yield. Focus more on something that will give you a decent yield growing 10% or more. Plus, if you already own real estate, there's correlation risk.

Pharmaceuticals. Have to look at where the revenues are coming from. If 40% revenues from the US, you might want to avoid it. For example, type 2 diabetes expected to grow in China and India. Demographics are a huge tailwind to medical devices.

Market. The bounce of the recent lows is a whole combination of factors. The market over reacted in December. There was fear that the Fed would continue to raise rates and that triggered a sell off. That reversed itself in January but where do we go from here? There is a lot of skepticism to this rally so there is a lot of money on the sidelines. The Fed got scared and rate hikes are probably off the table for the near term. He is skeptical of the durability of the rally but the risks are measurable to him.

ETFs. There is no regard for what the valuation is of the companies – what you are paying for it. ETF selling probably accelerated the selloff in the December.

FTS-T vs. Utilities vs. Telecoms. It is an easy choice to Telcos. They are both regulated. Both steady state, stable businesses. BCE-T vs. FTS-T. He is long BCE-T. It is has good valuation here. 16 PE. FTS-T has 13 times. You should do better in Telecoms. T-T is warnings of implications f the Chinese telecom is banned from Canada.

Market Outlook - Retail sales were surprising but seems reasonable to assume that the reason behind it was the market downturn of December. The problem with the telcos is that they have gone the Huawei road and it is going to cost them if there is a ban on it. Given his academic background on defense policy he agrees when the 5 eyes (US, Canada, Australia, UK and NZ) say that they have real concerns about this company integrating in the system. Canada doesn't have the spine to ban the company by itself. If this happens this can happen in conjunction with Canada's trading partners.

What is your favorite option strategy in this market environment? Anywhere where he can make money (laughs). the first thing to do is what options need to do for him. He likes covered calls because he wants to create tax efficient income. Some traders buying options to leverage their position. It is a good way to lose money. So you have to be careful. If he feels the market is overheated sometimes he buys puts.

Can you recommend a tax efficient ETF? On thing about ETFs is that if it is an index-based ETF is that the only time that you get a trade is when a stock is replaced on the index. So it is very tax efficient. If you don't need the income then you can look at the total return ETF of Horizon because they don't have distributions as they use swaps. There is a little bit of risk but they never had a problem and he doesn't see that probable.