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

Market. Saudi Arabia is going to tighten the taps on oil to support oil prices. $50 +/- $10 is probably where we should be for the next 5 years. He is okay with trading US energy equities. When we hit the next recession, say in the 2020's, we will see oil in the $30s again. Europe is very fragile. Japan is not really tightening policy. Only the US is now raising interest rates and so the US dollar keeps getting stronger and stronger.

Long Bond Durations. Once interest rates start to fall these will make a lot more money compared to shorter term bonds. You can now tactically take positions in long term bonds. He is starting to sell TLT-T. He made one percent in less than a week. It is negatively correlated to equities.

Real Estate. Should one take profits or can you continue to take dividends. The answer involves risk. The Canadian REIT sector is tremendously overvalued. It is one of the last interest rate sensitive industries to turn over in rising interest rates. You could see 10-15% downturn sometime through to 2021. ZWU-T would give a better yield and he prefers this one.

Lithium. LIT-N is an ETF. It is the electrification of vehicles. It is an interesting sector. It is going to be a great long term investment.

Educational Segment. Controlling risk in portfolios. Beta is market risk. Buying a low cost ETF on the market index is a beta of 1. Get this when the outlook is clear. Otherwise he suggests ZUE-T, ZSP-T, ZLU-T, ZPW-T, ZWH-T. All but ZSP-T have a beta lower than 1.

Market. Significant technical damage has been done to equities. It's not like 2008. You have to know what to do – hold more bonds, for example. As people come back to buy the market they are not so sure about the market and there is a wall of selling as the market comes back up. GS-N came out and cut their earnings estimates for the market over the next two years. The growth in Canadian household debt has been reducing as interest rates are rising. Technical, in markets we are at relative strength lows. Global PMIs are decelerating. He is reducing equity exposure.

Global Healthcare Outside the US. He prefers XLV-N or IHI-Q in the US. There is a larger portion of Pharma in the Global healthcare space. He stays away from the biotech side. He was adding to healthcare exposure last week.

Impact of Trade War on US Credit. We have not seen a major retrenchment in the US. We are not seeing lower liquidity as there is a tightening in US credit, as we are in Canada. In the US there is impact from the trade war but not on credit. All the metrics are okay.

What to move from insurance into. Insurance has not been fantastic, but it has not blown up like Tech. Insurance flattened out. The picture is not that great for them. He would not want to be overweight on them.

The big sell-off today was caused mainly by the strong U.S. dollar which is inversely correlated to China. Anything not U.S. has been hurt. Since 1946, 12-month returns after the U.S. midterms are 100% positive at an average return of 10.5%. The dollar is dragging markets down as investors flock to it. Also, American companies have been repatriating US dollars in massive amounts since January. There's a massive increase of 7-8 times compared to previous years. Add to these worries over US tariffs on China, which he feels is temporary. Base metals today actually performed well, so he sees this as investors viewing the US-China standoff as a game of chicken that both sides will push to the wire. He feels there'll be a resolution. The market is looking for a place to hang its hat, because the market has been oversold.

1. Political cycle effects on markets: Optimistic that markets normally increase after these midterm elections. Broadly, there are opportunities in the markets. It was time for a pullback. Canada is a bigger concern than the US. In Canada, there are some sectors that are trading at very high multiples and some that are trading at ridiculously low multiples. Canada seems to be all over the place.

Biotechnology Sector. There are a lot of good buy opportunities and good values in the US. He is generally over weight this sector. He likes Regeneron Pharmaceutical, Biogen, Amgen, and Celgene. He is very bullish in this sector. Expects growth in this sector over the next couple of years.

What’s the problem with the markets? Oil is coming off because of supply/demand. It may not be over yet. Pipeline capacity could support this argument. Oil trading at big discount is the problem, plus environmental issues. Higher interest rates in December. Thinks the Fed will do only 2 next year. Doesn’t think 2020 will be that great, that could be the recession. Could have a rally in the meantime.

What should the Fed do? They’ve kept rates artificially low for a long time. They’re doing a good job. Real problem is they’re raising rates and de-levering at the same time, and there’s no playbook for this. Rates have to normalize because the economy’s doing so well. He’s on the side of the Fed.

What’s the best way to short ETFs? Just buy a put option, to keep it simple. A number of ETFs out there are short, but he wouldn’t do that.