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

How do you select ETFs? He likes low MERs in general when looking for ETFs -- usually under 10 bps. Don't buy the "smart Beta" ETFs with higher MERs. Look at iShares, BMO and Vanguard websites for more specific information. He thinks many of the higher MER ETFs might close down as there are simply too many doing the same thing at higher costs. He thinks XIN-T is a good candidate for the European markets as an example.

A typically volatile day today. It started ugly, but ended up. That's great, but this volatility needs to stop. He would love a couple of weeks of calm with Trump keeping his mouth shut, so we can build a bottom then go up. We'll get Q4 earnings soon. Oil prices helped today's rally, but PMI data from China was not good. Trump thinks he can--and needs to--fix trade tensions with China. There is a global growth slowdown, but there will still be growth this year. It will take a few weeks, at least, to find calm. If earnings are okay (the bar is so low), that will start to calm markets--and if Trump calms himself too. Markets no longer ignore him--they're paying attention because he effects trade.

Number one black swan worry? A recession way earlier than we think. He's not predicting this; black swans come out of left field. As long as the US Fed slows down and US earnings are okay (and he expects). He sees a recession in late-2020. But we've priced in a recession already lately.

How many interest rate hikes do you think the US Fed will do in 2019? One in the spring and only one in 2019.

Market. We so oversold that the bullish percent index reached the lowest level in twenty years last week for both Canada and the US. These levels give us a benchmark as to where we are going into 2019. In July 2002 a low level was set and then the S&P went up 24%. In 2008 it went up 27% after such a level. In Canada the TSX in 2002 went up 10% right after a bullish percent index low, and similar levels in the years listed above. After this next correction, it is a multi-year low. As an investor you want to hold off until this low coming this summer or late fall. Traders can have some fun in the meantime. This is just a 4-year spike down on the bull market. We've seen most of the correction. It is a strange market but you can take advantage by owning specific securities in the short term. The US index has completed a double top pattern in the last two weeks. It means commodity stock prices will start moving higher. Gold is strong until mid-Dec. until the end of Feb. and that has clicked in. Copper normally bottoms this time of year and then goes higher until May of each year. Crude oil bottoms the third week in January. You need to play the seasons, but remember that the seasons do end.

Were ETFs exacerbating the selling in December? ETFs are a greater percentage of trading activity in markets. Between Christmas and New year, volumes are low and concentrated on retail investors. ETFs have a greater influence during this period of time. It ends next week so don’t be too concerned. Indiscriminant selling due to ETF sales is concerning and was so recently when a lot of computer trading took place. It exacerbated the downside but now it is going to exacerbate the upside going into 2019.

Outlook for oil into the summer. Crude oil has a history of bottoming in the middle of January until May. This kind of volatility on the down side means increased volatility on the upside later. Crude prices are trying to bottom. They should then turn up.

How far will we go down in the S&P? He sees the S&P going up in the first quarter and then below the previous low following that and it will then be a multiyear low for the index. It will be a new floor of support. It will then slowly move higher.

Canadian Bank Stocks. A good time to buy in? Historically the bank stocks in Canada reach a low in January and then move higher into April. Currently they are in a downtrend but within the next month the sector will bottom. There is longer term support at current levels to the downside. Risk is minimal. Dividend yields could go higher from current levels.

Educational Segment. There is going to be another leg lower. The Dow normally does this in a pre-election year: The first quarter goes up significantly. It is the second strongest quarter of the 4 year cycle (5.2%). There was the shutdown of the government which they will get rid of. During the last 18 periods after shut down 9 of them have seen the market not go higher. Negotiations with China are important because if they reach a trade agreement it will have a big impact on markets. Fourth quarter earnings reports from the S&P are expected to be up 12%.

Market. He has been short most of the year and in the last week went net long. There is less downside risk for the markets now. There are potential catalytic events that could send them to the upside. This is far from over in terms of a bear market because we haven’t got all the bad news yet. It is after a 10 year run-up in the markets. A lot of the tail winds have gone. It is a trading market. Look for beaten up companies at low multiples with good earnings with low trading risks, such as FDX-N. We've seen the best in earnings for the next year. He thinks they could go negative for the next year. It is too soon to sound the bell that the bottom is in.

Are 8-9% dividends because of stocks dropping – are these dividends going to be cut? North of 10% the market is saying they expect the dividend to be cut. Tech companies should invest and grow the business with cash but banks typically pay out a lot to shareholders.

Canadian and US$. It is a good question to ask when buying US stocks. He does not know if the Canadian dollar will have a big move either way. Canada has its economic problems. The economic outlook in Canada is getting clouded and could cause a move downwards. However it does not have a huge impact on his decisions about US stocks.

2018 recap: few saw the difficult Q4 and December especially coming. The Nasdaq was down 3% while last year it was up 28%. The TSX fared badly. What next? He doesn't think 2019 will be *that* bad. Sure, December was rough with no buyers and everyone selling at once. It's wishful thinking to feel US-China trade wars will just disappear. This is the new normal. Expect volatility. China won't bend under US pressure. US and China are battling over the 21st century. The line in the sand has been drawn. Can investors get used to this situation for the long term?

2019 outlook He's always had a good EM allocation. He buys ADRs in nations he wants exposure to, but recently he's been buying American stocks with that international exposure, like Starbucks. He's been conservative with cash, buying a little during the October dip, but only a little. You can't ignore the Chinese consumer, like Canada Goose opening a store in China.