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

Educational Segment. Seasonality this time of year is very positive as everyone looks for a Santa Clause rally. His chart does not include 1987. Sell in May and Go Away still holds until early October. This year has not played out at all. As markets recovered, there was a big down. We got none of the taking off from the seasonal lows of October. This is the longest bull market in history. We expect a bunch of failed rallies. We likely will not get anything big on the upside. The highs are probably in for this bull cycle. Bear market rallies on good news can make new highs, but we are in a bear market.

Canadian Dollar. There has been a lot of damage to oil and gas. The curtailing of supply has helped tremendously. In a global recession it will not have helped. It will play out into 2020. Buy US$ into a pullback.

Market. Sell the rallies instead of buying the dips. Many investors are feeling shell shocked with 10% loses in portfolios. This is not out of the ordinary. 2018 has been a tame year. Once every two years the S&P goes down more than 10%. In the last 5-6 years investors are used to much less variation. Tech stocks ran up a lot and now came off a lot. He does not think it is a tech bubble. They have economically justified their growth.

Aren't we already in a bear market? It is up to the companies that are in the index to be in a bear market to call it that. We are in a bear market in some sectors and with some companies. It all depends on how you define a bear market.

So much turbulence in the markets: he has larger cash positions than usual. Cash is the place to be. But it's getting time where if you have cash, you should start to look at where to invest. This is the wrong-time to be a short-term investor. We've had nine years of a slow recovery and in the past year, the U.S. has surged ahead. Globalized synchronized growth is over. Europe is hard-hit, and there's less growth coming out of China and India. Will America stall and the rest of the world come up? Europe has a lot of problems: French unrest, Italy, tightening liquidity across Europe. If all the wheels fell off at once, we'd see a sharp correction, then maybe things will get back on track. Or 2019 will be a painful year. You can move into the defensives, the yield-sensitives. Valuation is become important again--look at a company's valuations and earnings. Invest in well-financed companies.

General Market Comment – The current extreme volatility in the market reminds him of the crash of 1987. Not that he expects this to happen again, he sees a lot of uncertainty in the market – usually this results in a down turn. The market has been bounded on the intrinsic value on the cap (around 3000 on the S&P500) and 2.5 times book value on the floor (about 2500 on the S&P500). He is waiting for the floor to buy again, but will trade with a tight stop as this could lead to a massive failure if that floor support does not hold.

The markets slid today and this week. If you have the proper portfolio in place, don't worry. If you were chasing the flavour of the day, like the FAANGs, then you're bleeding. But if you're fully diversified, you're fine because those winners offset those stocks that fell. He's up (in his portfolio) for the year. He's seen gains in Europe and Asia. He avoids stocks that correlate with each other. So, if he owns TD, then that covers US and Canadian banks, and he will hold no other Canadian bank. He holds 20% cash. For bonds, he builds laddered-bond portfolios of 10 years or more. As interest rates have risen, something matures each year that is rolled over into a higher coupon. He's in corporate U.S. bonds.

What ETF to buy that focuses in on industrials, particularly something in Japan? Can't afford stocks, just ETFs. Buy 1 Canada, 1 U.S. and 1 international, the latter for Japan exposure. Make them all big indexes to avoid price slippage that you'd find in a more concentrated ETF.

How to buy an ETF When you consider an ETF, look at its weightings, the tracking error (how the ETF moves vs. the stocks themselves) and the MER. He owns no ETFs. he prefers stocks; you make the return minus the fee.

Market. This one of those good but horrible snapshots when you can't look at your typical indicators. What got us here is liquidity. Look at corporate credit spreads; Financial conditions. The turn back in the US is not going to continue. People demand more and more on corporate bonds than on treasury. People are pricing more and more into the default of that corporate bond. The trend is important. Rising interest rates and reducing liquidity mean you should wait this one out. You should always ask if you would buy something today when deciding whether to dump it. Growth is slowing and credit is becoming more unavailable. Don't catch a falling knife. You have to watch liquidity.

Market Outlook - The inversion of short end of the yield curve is probably affecting the markets now. Probably some algorithms also had a part. He sees a triple bottom on the market now which is a bullish situation. The China-US trade situation seemed to have a truce. There are also worries about a recession. All these factors have come in and affected volatility. Expect volatility to be high in the short term. There is an opportunity to be tactical and move into more defensive names with stable earnings and high ROE.

What sectors would you look at for the next couple of months? 75% of the time December is a positive month for stocks. It is the best month going back to the 70's. So he would look at the cyclical names. Financial names have been beat up too much and there is an opportunity for trade. If you are looking a couple of years out and looking for income, look at the consumer staples, health care and some utilities.

What is your opinion on US financials? The concern is the inversion of the yield curve. It is cheap here. He wouldn't own it longer term if the economy starts to slide but he feels there is an opportunity to trade here.

General Market Comment – REITs have not fallen as badly as the rest of the equity market. The US and global REITs are still holding positive gains for the year. In Canada, the REIT index is up almost 1%. You will always get a sell off as interest rates rise, but he feels it creates good opportunities going forward. He cautions this is a tough time to be trolling for value in the REIT space.

Breaking news: arrest of Huawei's global chief financial officer. Is this bad? No. Appears to relate to breaking sanctions rules. Repercussions tomorrow, if she's violated trade sanctions, are minimal. Only impact is China's reaction. No permanent impact on US or China. Bigger impact might be on Canada, as we try to improve trade with China, we're caught in the middle.