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

Liquidate $250,000 in stocks and wait out this market downturn? He doesn't give portfolio advice, but he sees trouble ahead. The credit cycle has turned, and interest rates will--THOUGH the U.S. Fed may half further rises if the economy sharply downturns. That said, this market is grossly oversold. If we're entering a bear market, this is only getting started. He's read that 90% of CFO's expect a recession by end-2019. A downturn doesn't start this fast, though, and usually has some sort of bounce back. We'll see.

Market Outlook He sees extreme oversold indicators in the market right now. The market has discounted a deep recession for next year, which is good, he thinks. Now the market looks forward and there is great opportunity. Looking at corporate earnings and GDP growth he is not too pessimistic; rather thinking that a lot of the issues concerning the market are transient. You need to take on a non-emotional view of the market. His balanced portfolio is about 6% above his benchmark -- he is pleased with his performance this year.

Market Outlook - These are very unhappy markets. Everything suggests that we are in a bear market. Oil is falling, this sort of volatility, rallies that won't hold, this looks like a bear market. It looks like a bear market, smells like a bear market, most of the rest of the world is probably in a bear market; the question is when stocks have corrected to this degree as long as there is no recession coming you have to start buying. You want to de-risk if there is a recession coming. The thing that is still inexplicable is the coming off the quantitative easing. He doesn't think there is a recession coming. You have to be at your long term asset allocation. Some of the best stocks in the world have gone on sale. He may be selling the Fortises of the world and some REITs that swelled. Buying stocks that are increasing their dividends at one level but 5 or 3 or 1 year from now the value is back where it should be, it is a powerful formula

S&P 500 has been down 13% from the September high. We want to hold the February lows at 2,530 and now we're barely above that. Indicators say the market is really oversold, even though some economic numbers are really good like retail sales and the China-US tensions are seeing a detente. If the market can bounce off the 2,500 low it's very good news. The equity put call ratio is at elevated levels--there's a lot of hedging going on. Everything is set up to have a great run, but fear and greed can push the market even lower. That said, all we need are a few days of positive push to have a good, few months. He's guardedly bullish.

Tomorrow's last rate decision by the U.S. Fed: It'll likely increase by 25 basis points. If Powell doesn't do it, it'll be a downer. What they'll likely do for 2019 is a wait-and-see approach, which is fine. Instead of 3-4, it'll likely be 1-2 hikes. We got a reprieve on today's markets, but we won't get a Santa Claus rally this year. Market sentiment is terrible. Earnings momentum has rollen over; it will go up in 2019, but at a lower rate than this year. Another question mark is the China-US trade war. Liquidity gets tight in December. Money is coming out of the stock market in December this year with few buyers this year.

Market. He thinks the US president has to stop trying to interfere in the FED because is it makes it hard for them to be wholly independent. They are not going to cut interest rates here. Yes, a yearend rally is coming because we always get one. The question is to what level. A five percent rally is the most likely. He expects a very dovish rate hike in interest rates. He is relatively long but not bullish. He is playing a trading bounce. Once we get that bounce, he is back to extreme defense.

When a corporation has added a lot of debt on the balance sheet and we go into a downturn, credit contraction and expansion is the factor that influences the growth. Extra growth above the 1.5% due to population, in good times, comes from extra borrowing to invest. During bad times we go below that 1.5% growth to make up for it and that is a recession.

GIC or a good Bond ETF? You need a way to get out of a GIC. In the next year to a year and a half there will be a phenomenal opportunity to buy equities. In a recession, bonds DO have positive returns. If the FED unwinds the balance sheet, there will be extra supply. There is a case to be made where bond yields don’t go much lower than we have seen.

Bond funds. He would not buy a conventional bond fund right now. Go to ETFs for core exposure. ZWG-T is the entire Canadian bond market.

Market. No utilities or infrastructure. He thinks we have seen a nasty tax loss selling season and that it is almost over. The market is at a pivotal level. There is a draining of liquidity on the Fed balance sheet as they let investments roll off. He watches the VIX. At market lows it goes to the 40-50 range. It went to 50.3 recently. 1987 we went up to 80-90% on the VIX. There are bargains out there but the key thing is that everything is on sale, both good and bad companies. You have to find the good companies. He sees a 5 year bull market.

Oil supply and demand. Supply keeps growing year after year. He thinks supply and demand will be be kept tight. He thinks we may see $80 oil in 2020.

The sell-off today (again): He doubts we'll see Santa Claus rally. It's been a brutal two months. Macro events are adding up: France, Brexit disaster for UK and EU, Italy; interest rates rising; the US-China trade war; and Trump's destabilizing tweets. The yield curve is flat, but keep an eye on the 2- and 10-year yields in the U.S. If they invert, then a recession could hit 6-18 months later. Many European buyers, especially Germans (where there are negative yields), are buying US t-bonds lower than their own bonds and get a 225-300-basis point yield. That depresses the yield. These leads to the yield inversion.

If I purchase a put option with a stock at $20 and you buy the option at $1 with a $20 strike price, if the stock decreases to $15 and the option rose to $5 and you let the option expire, what happens? You own the option, so you decide whether to exercise it or not. If the option expires in the money, it will be exercised on your behalf by the broker. When you're buying a put option, you're making a bet that the stock will decline in price. It's like a short without the unlimited risk that the stock can shoot up to infinity; the most you lose is the cost of the put. But if you let it expire, then you'll be short the next morning--and you don't want that. Don't let the put expire--sell it.

If you sold a call and the stock decreased, and the price of the option has fallen to 10% of its original value, should I buy a call (believing the stock will rise and the call you bought gains in value)? First, buy the call back (if the option has declined more than 50% of its value). If you're very bullish and nothing fundamental has changed in the company and you see great potential in the stock, then buy a call. If not, buy another call option.