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

ETF providers have their version of monthly yields, focused on high dividends and so on. When the yield is higher than everything in the ETF, you are getting some of your capital back.

Educational Segment. David Rosenberg is his favouite economist on the planet and was his guest today. He is a forensic economist. He focuses on the yield curve. We have seen that the yield curve did not invert in two countries recently and yet they have gone into recession. It is the general increase of interest rates in the most indebted countries in the world that could tip it into a recession. The recession odds are one in three right now. Catalysts around recession are around trade. Since Trump put tariffs on goods, the markets are really down. His guest feels it is all about the FED. A global recession will be caused by liquidity. We will have massive fiscal policy withdrawal next year. When interest rates rise, the impact is down the road. We are transitioning away from the long term bull market.

STPL and DISC are ETFs of global consumer stocks. Cyclicals do better when the economy is booming. Staples do better when the economic cycle turns down.

Market. The WTI oil price increased. We will see if this lasts more than a few weeks or days. The correction was long overdue. The volatility we saw was caused to a large part by automated trading and panic selling in the retail market. We have tax loss selling season coming, in addition to current market weakness. He does not like E&P companies but likes mid-streamers. You want to be the toll collector in the commodity business.

US-China truce spark a rally today, but can it last? Trump said a lot of things this weekend, and thhis entire year has been volatile. It's nice to see a reprieve. We haven't seen earnings decline, though there's been a multiple compression in the broad market. He's still bullish about 2019. In Canada, Alberta Premier Notley cut oil production will initially cause the WCS spread to narrow, but long-term the ruisk premium will go up in Canadian oil. He prefers buying dominant global oil players, not just Canadian. As for healthcare, you should always hold them in your portfolio, because they are a permanent non-cyclical sector with aging demographics bring a tailwind. The long-term fundamentals are strongs, despite any short-term political headwinds. Healthcare is 15% of global equities; hold 10-15% in a portfolio.

As tech pulls back, will we see an upswing in health? Tech could continue to post robust returns, depsite the fall rout. He likes tech a lot. But the tech sector still trades at a discount to the wider market. Pharma is considered a "superior good" and has outpaced the wider market with great topline growth. Hold 10-15% health, especially large-cap biotech. Drug spending is 10% of expenditures for Americans, but also a political lightning rod. He likes the move towards more transparency in drug pricing.

He is sitting back and processing the violent selloff in tech stocks recently. He is surprised we have not seen a bounce in the market yet. As a value investor he likes the buying opportunities. The US Fed announcement this week towards being neutral has caused investors to become frigidity. The S&P500 PE ratio shows the market is expensive especially with interest rates near historic lows, so he expects “gentle headwinds” going forward.

How does he calculate value? – He thinks of value as a range, not an exact number. He looks at the intrinsic value based on the earnings power of the stock and can he buy it at a low enough price to reduce his risk. You have to do your due diligence and have risk controls when things go wrong.

Is Energy good value right now? – He thinks it is tough for a value investor to be in energy right now. He only holds 3% of energy in his portfolio. We just don’t know how long the supply glut will continue for.

How do you stay disciplined? – He suggests having a checklist. Look for companies that can protect high earning growth returns. Does the company deploy capital in an intelligent way? Does the company re-invest cash-flow to grow the company? Lastly, look for opportunity to purchase value – the lower the price relative to its intrinsic value.

Are Canadian banks good value? – They are currently good buys and recent quarterly earnings are good. BNS-T had great international growth. The group trades at a discount to the long term PE. They are an oligopoly in the Canadian space – a strong position. The banks have done a good job at risk control.

Markets. An improvement this week. Canadian markets could still catch up this year, if we can get energy onside. Some stocks are down so far, he could see them coming back 50-60%. There's lots of potential, but he's not bullish on energy until the world changes its mind. Good value in the sector, but may be 6 months to a year before people realize that.

What's going on with interest rates? Powell did change the game, but not as much as people think. We're amazingly free from inflation, so there's not the same incentive to push things up. We got too far ahead in terms of interest rates. We could stay at 3% for a while, so stocks will do OK. If the curve starts to invert, that would indicate trouble ahead.

US economy. US economy still has some steam in it. Deals are getting done, so cycle could carry us well into 2020. There's still infrastructure spending to come, which could extend the cycle.

The recent correction. We're at the bottom of this particular correction. Corrections are a standard part of markets, and this one has less justification than most. The fundamentals of inflation, unemployment and corporate profits all look good.