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

Currency risk. Terms of trade and money flowing in and out of Canada are important considerations. 5%-10% of your return is the currency swing when investing outside of Canada. Over the last 20 years, the terms of trade for US-Canada are still great, but Canada-China is a growing part. The Canadian dollar can get a lot weaker. He expects it to go down to .70c. Therefor you want to be unhedged for US exposure.

Concerned that media has spooked investors? The media has added a fear dynamic to the global economy, so we're going to have a hard time getting back to "normal". Toronto, for example, is empty. It's going to be a slow recovery. Difficult to get back to a normalized economy when you put the fear of god into everybody.

Now, more than ever, buy high quality companies? Yes. If you bought a mediocre company, it will be much worse. A quality company will do better. Tech companies, and the great companies like Home Depot and Costco have done very well. Good balance sheets let them grow their business in this difficult environment. Especially the e-commerce aspect. These companies will continue to do well regardless of what happens going forward.

Which sectors will continue to struggle? Technology will continue to do well, and the consumer side like Amazon, Target, and Walmart. Tougher on the retail side if you don't have an e-commerce presence. Oil and gas are still struggling. We need a sustained global recovery for oil to do well.

Canadian bank stocks. Investors have cooled on Canadian banks because Canadian consumer was in worse shape going into the pandemic than in the US, real estate not as hot, oil and gas have had a tough time. People are worried about loan loss provisions. They're well capitalized, dividends are well covered. Over the last 30-40 years, have delivered 10-12% ROE. They can manage.

What's exciting and new in tech? Quite the roller coaster. Record highs, and Apple is now a 2 trillion dollar company. Only a couple of years ago, the PE multiple was only 17x, now it's at 34x. Feels frothy out there, but you can't fight the tape.

Why the acceleration of tech? The title of 2020 is going to be "fear and greed". The paradigm shift to the digital economy was brewing in 2019 and before, but this year has accelerated that shift. Semiconductors and e-commerce are the sectors that have adopted digitalization. The end users are enabling the acceleration, which is benefiting the vendors. Into next year there will be a maturing of the industry.

News today: Chrystia Freeland is reported to replace Bill Morneau as finance minister: This is not a good thing to happen in a crazy, unprecedented time. This change shows a rift in the federal government and is not a happy day to be a Canadian. But this news doesn't seem to be effecting our stock market. Also, Mark Carney is in the background, which should offer some comfort, and Freeland has been a good voice for Canada, but she has a big job ahead of her. The CAD is holding in today....Many wonder how the stock market can be doing so well during this economy. Interest rates are near zero for a long while to come which raises equity markets. He feels we need to be in equity markets and not sit in cash. He buys renewable infrastructure, which he expects to be an area where pension funds will flow into, yet this setor pays a good dividend.

It's a head-scratcher: Why is the market in a V-shape when the general economy is doing poorly? Answer: Government liquidity and really low interest rates which allow the market multiple be a lot higher. Tech stocks have had a great run, but now this is a tale of two stock markets, between tech stocks and others like airlines. Some stocks like BCE, Telus and BIP stocks are paying 5% dividends, so you can sit and wait. Valuations on some stocks are super-high now, but on a 2022 basis when we come out the virus by then (we should be) are not that bad, given super-low rates. Another strong tailwind are investors who invested in commercial and residential real estate and gun-shy in those areas now, so that makes the market more desirable. Goldman Sachs today raised its S&P target by another 7% for end-2020. The market wants to go higher. Some investors have misjudged this rally all along. Don't go into more tech stocks at current extreme valuations, but find value in stocks like Power or Pembina as we head into a recovery.

Canadian banks The market-sensitive fees (i.e. trading) have really improved. Loan growth going forward may not be as bad as forecast three months ago. True, loan provisions and delinquencies are shooting up, so that's a concern. The hit to capital is another worry. But all in, the banks are priced right. Earnings around around 9-11x, so there's opportunity here with the dividend paid. He hasn't been buying banks since the pandemic, but he's starting to now. But these names when there's doubt.

Gold. People can still hop onto gold and they haven't yet missed the boat. In 2018, he really started increasing his allocation in gold. Gold is about what is happening in the central bank and the stimulus they put in. The run up was a response to the Feds saying they would support the economy whatever the cost. The systemic risk is growing and gold rises with it. The money that was printed is not in the economy, and he believes the populous wave is the response. Inflation is expected to pick-up, especially with policies that put more money directly in the hands of the population.

Platinum and palladium. A rarer metal than gold and silver. On companies that want to recycling catalytic converters, it makes sense but will they be making money? The metals are produced mainly in Russia.

Gold. Berkshire Hathaway has taken a position in Barrack gold. They have also lowered allocation in financials. It probably means that Buffet is very worried about the economy. There were some short term traders that contributed to the volatility. He expects increased volatility at this later stage.

US Elections. The VP pick is a safe and centrist pick. They know that they need to be more in the centre to win the broader votes. It's shaping up to be very interesting. He thinks it will be a Biden win.

S&P 500. The index is flirting with all-time highs, but there is still narrowness to the market. The big 10 names are the doing the vast majority of lifting the index up.