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

Market Outlook. Seeing a good correction now in the markets. Be patient and take a disciplined approach to allocating capital. Think of it as buying good stocks on sale now. Corrections and higher volatilities are a normal part of the market. When the whole market corrects, that is an opportunity to pick up real good companies that are trading a low valuations. He thinks the US economy will slow next year but does not see a recession. He thinks the Feds may raise rates next year just once or twice depending on the economy.

Today's Canadian fall fiscal update was exactly what the market expected, though Morneau didn't go as far as Trump. He hopes it's a shot in the arm, but those looking for relief from the WCS differential saw nothing concrete. Also today, oil rallied, but what can happen until pipelines are built? The lack of pipelines are a man-made problem and didn't have to happen. Maybe use a legal remedy by Ottawa to build new pipelines. Today, US markets saw some relief today. TSX outperformed New York in the past month, which is encouraging. We're 90% done this correction with maybe another 3% down to go.

What’s pushing markets down? Since October, and especially this past week, fight between earnings and interest rates and the consequent uncertainty. Optimism on earnings side from analysts, giving way to pessimism that earnings will slow down plus rising interest rates. Earnings expectations too rosy going into 2019. Yields are down from their highs, but Fed is conveying rising rates both in US and Canada, affecting equity prices. All this is taking the bloom off equity markets.

Facebook down 40% since July. It’s down, but not as dramatic as earlier in the year. It’s decline is company specific, but it’s also a factor for the tech sector which has come down. A lot of tech companies are doing well, and when they go on sale, that’s a positive.

Nobody likes a prolonged sell-off. Money managers, in reaction to clients calling them during this correction, are selling the baby with the bathwater. Today, oil went down 7%--uncommon--and there was a lot of negativity about Boeing, which is a barometer about China/US trade tariffs. Boeing called off a conference call, and investors want information about their companies. This selling stampede will continue and it's indiscriminate, then a rotation in the value names. The next few weeks will be telling. He has sold off and now holds up to 45-70% cash in some accounts. Investors are running to defence stocks. If the S&P can bounce off its 2018 lows from January and October, then that's positive.

Market. The conference this weekend was a bit of a surprise. It looked like they were making some progress. Theft of intellectual property is a big thing. He is doubtful that this will get solved two weeks from now in Argentina. The markets for the next little will find this to be a significant negative factor. The price of oil for the last 8 weeks has been making lower lows and lower highs. He does not see that it will collapse now. We will probably get a tradable bounce in the energy sector. As global numbers have come in the last number of weeks, purchasing managers are cutting back. The Fed is indicating they cannot raise rates as much as they thought they could do a month ago.

Oil and Natural Gas – An ETF for gas and light oil. There is a split between traditional oil production and natural gas. ZJN-T covers this in Canada. XEG-T is the broad Canadian energy market. ZEO-T is equal weight. There is no split between heavy and light oil via ETF.

Why are Natural Gas stocks dropping in the face of a boom? They are outperforming the oil stocks. When people sell an ETF they sell the whole sector including the gassier companies. These stocks should be going up. The market is considering this spike in natural gas as a non-permanent thing.

Bonds. You have fixed coupon bonds and floating rate notes where the coupon adjusts so the price does not. Floating Rate and Reset Preferred bonds are better in a rising rate environment.

Canadian Banks, BAC-N. See his educational segment today on Canadian banks. The US banks will make weaker lows before new highs. He is long on KRE-T (US Banks).

Educational Segment. Covered Call ETFs. All the ETF providers write Options differently. The Covered Call bank ETF vs. the non covered call variant were compared since inception. In 5 different periods, ZWB-T went down less in market downturns. In strong periods, you make most of your money. The covered call exposure significantly underperforms the non-covered call strategy.

Market. The Texas rail commission in the US used to mandate lower production to boost oil prices locally in the distant past. But today, the NDP government in Alberta will probably not do that. Governments should not do this and the industry created the differential in oil prices themselves. Some of the companies that brought on extra capacity don't have the refinery capacity to refine it. He has been bullish on Natural Gas. Some funds are having to unwind their trade on oil vs. Nat Gas and that is forcing the price of oil down. He is turning bullish on oil.

Oil. We are already seeing oil prices reacting to the cold weather. There may be only one or two more weeks of inventory build. We have a dollar or two of downturn in oil and then tax loss selling, but after that: buy, buy, buy oil stocks. He likes condensate, light oil and natural gas.

OPEC meeting in early December. They are talking about cutting back production but only one country will do it. Differentials will narrow as a new refinery comes online. However we need asphalt season next spring to boost the stock.

Another sell-off today: we will see a bounce, but we are late-cycle and investors have trade concerns and about interest rates rising by central banks. Now, investors should be defensive. If you have cash, you can find some opportunities to buy oversold companies. He can't predict the bottom. Instead, focus on companies you like, maybe buy on days like today, considering dollar-cost averaging where you buy a company over a few weeks (buy-wait-buy). He has 20-25% cash and has invested about 4% of that recently. This is a normal correction, not a bear market. As for tech, Netflix and Amazon are too expensive now, but Google is good now.