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

The day after the U.S. election Growth names roared back today, including tech (Nasdaq bounced nearly 4%). This is one of the greatest rallies he's seen. The election was one of the biggest headfakes in history. It looks like Biden will win, but the Republicans keep the Senate. So he expects years of do-nothing gridlock government. Banks and industrials were crushed today, because the Blue Wave sweep now won't happen. Last week, tech stocks like Amazon and Microsoft were sold off despite strong quarterly reports (crazy), but it's come back in this week's rally. Selling those was a major mistake. The end of the Blue Wave means that drug and health stocks have less to fear; and a smaller stimulus package is likely. All told, this benefits tech, but limits cyclicals. Whoever is determined as president, he expects a peaceful transfer of power.

It looked like a Blue Wave, so investors feared that the far-left wing of the Democrats would lead to socialized medicine and limits to drug and healthcare costs. That would have pressured healthcare stocks. The Blue Wave didn't happen. Today health/drug stocks exploded, even more than tech. Leading up to the vote, investors sold off health stocks as they do in every election, but he had advised buying weakness.

Stocks are up on election day to anticipate the result of the vote, meaning a Biden "blue sweep" of the House and Senate. During Trump's term, China's trade surplus with the US grew 25%. In other words, what corporations and presidents so are different. Essentially, it's very difficult to untangle the complex trading relationships that countries have with each other.

When to use a CAD-hedged ETF? Currencies are like stocks and can be over-owned. Look for underloved, under-owned currencies. ETFs offer a variety of currency hedges in Canada and US. Embrace this hedged view; it's a secret weapon used to manage risk. Active currency management is good, managing risk. He feels that the USD will decline against other currencies, including the CAD, in coming years. Remember that emerging markets have been beat up for years, both their stocks and currencies. However, be unhedged in the Chinese and Brazillian currencies. Hedge to the USD.

International bank outlook Look at the differences between the Canadian, US and European banks. We've had a lopsdied market where people chased tech and consumer discetionary. The US banks have the most lift in the next 3-5 years. Canadian ones are reliable dividend payers with good balance sheets. European ones trade far less in book value. Their dividends are paused this year, but next year will pay 6.5%. The US banks hold more growth in 2021. He's bullish the banks, but would rank Canadian ones here in the third rung.

U.S. elections. Looking at the poll aggregator fivethirtyeight.com, we are seeing a shift to more towards Biden. They may be missing a significant shift of black votes going to republicans, but he still expects Biden to win. Trump is trying to discount mail-in votes received after election day, and he will go down kicking and screaming. Markets don't like uncertainty. There is some post-election volatility that is not fully reflected in the market right now.

Tech earning results. FANG companies announced record revenues. In a bear market, good news is bad news and investors sell the news. That being said, it could be that the high multiples for tech are now moving away to re-opening stocks like leisure and travel, especially taking into account eventual stimulus. Growth outperforms value from a tactical standpoint.

Natural gas. The energy story, if he were to run everything, he would invest in nuclear and natural gas as a step. Natural gas relative to crude oil and coal is a win. However, the industry overall will loose so you want to have tradable rallies. It is not investable. Buy for a trade.

Educational Segment. When outcomes are uncertain, you want optionality. Ratio-put spread is when you buy a put to play the downside risk, and to pay for this put, you sell 2 puts at a lower price. This is a strategy that helps buy a dip. You make money on the way down. If you get an upside move, like we might see if there is a massive blue wave. You can write a put at, for example, the 200-day moving average. Then you can buy a call for the upside. You get a lot of optionality then. Either you buy a dip at a good level, or participate in the upside.

The U.S. vote on Nov. 3 The US vote result this week could be traumatic or calming. Beyond that, he looks at the monetary debt that must be discussed down the road; that's the bigger picture. If Biden wins, it'll be a global coordination to deal with this debt. If Trump wins, it will be like Hoover in the 1930s when American retrenches and becomes more isolationist. Either way, gold wins; gold is the only constant during a debt reset. The debt is the real issue, and the election is a lot of noise. We'll see. He's hedging for greater volatility. By fiscal reset look at 1933; governments re-value their currency on which their debt is issued. Problem is, if you hold that debt, then that value will plunge. Also, many foreign currencies are tied to the USD. If Trump wins and devalues the dollar, there will be problems. This happened in 1971 with Nixon.

Today saw value stocks win over growth. Tech has had a growth run, but now selling off to give way to growth stocks. Investors are sick of the election and want to make money regardless of who wins. Tech money moved into oil as the price of oil rebounded, but then tech mounted a comeback late today. But such mass rotations from growth to value make him suspicious. Oil, for example, remains terrible to invest in (oil popped today). Rotations ignore the work studying individual stocks. He advises selling (tech) into strength. Choose value stocks wisely or you'll get trapped.

He is not overly concerned over the recent price action. It is probably pre-election jitters and worries over tech due to the NASDAQ peaking early September. The correction is healthy. It does not change the long-term perspective and his optimism for equities.

It's difficult to say whether the global economy will be back to normal in the next 2 years. There were secular trends that were accelerated by covid, that has helped the market. There is an element of safety there, despite these companies being growthy companies. E-commerce, and other trends will not slow down.