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

North American banks. Low interest rates do pressure profitability. But the banks are such dominant players for so many different parts of the economy. They're much stronger now than they were going into the 2008 crisis. Strong demand for borrowing money, and banks are making it easier for clients to make those payments. US consumer is in good financial shape overall. Banks are increasingly finding other ways to make a living.

After a black swan, how do you know when to buy? Tough question. Think about what your comfort level is. Big believer in knowing what businesses you own. Large moats. Survivors. Products and services that are durable, and needed in the long term. Durable franchises that touch people daily and have strong brands. Doesn't get too fussed in a downturn, and they did no selling. They started picking away after March 23, mostly on the way back up after things calmed down.

Predictions for tax-loss selling this year? Tough question. Generally rotates around when stocks are more or less volatile. Only a few stocks have recovered to pre-Covid peaks. Enough companies have favourable long-term outlooks that you can buy those right now. Tax-loss selling now takes place a lot earlier than November and December, and may have already taken place this year.

Markets like today are discouraging, diving 2-3%. But this decline is healthy, needed a beat-down. Remember: buy low, sell high. Don't panic in a sell-off but really an investor should cheer for it. During this year's rally, he worried we were seeing something like the 1999 boom, then correction. The multiple expansion this year was driven by investors buying up stocks with the hope that others would buy these stocks higher, too. However, a key difference from 1999 are the recent IPOs which have genuine staying power (but they're overpriced now). In 1999, many tech companies didn't deserve to exist, lacking earnings and sales. Now, the market needs to cool off. If you have cash on the sidelines, now's the time to buy in. There are two buckets of stocks to buy on weakness: falling stars among big-cap tech names like Apple, down 25%, and consumer defensives like Pepsi which yield more than 3%. Expect more choppiness and for stocks to go down.

This market volatility was expected. Markets had risen too far, too fast, fuelled by government stimulus. Q2 reports were better than expected, but based on massive expense cuts. Also, many companies have cancelled future guidance, so Q3 and Q4 are uncertain. What to expect? He added to safer investments are in telcos and utilities, like Altagas, Loblaw and Brookfield Infrastructure (which pay safe dividends). He's avoiding banks. Also he's buying small caps like Savaria, which pays a safe dividend.

Today's sell-off it a convergence of a lot of stuff that's been building up. It now feels like February into March. He's got put options out there and built up hedges. There are 46 days till the US election. He sees vulnerability to the downside. The catalysts for the recent tech sell-off: valuations went through the roof and central banks issued stimulus and governments offered fiscal stimulus to pump markets. Now, that stimulus is off the table. And the US election is coming up.

Recent market activity has nothing to do with seasonality. The speculative bubble with small traders, options market and hedging have come unwound. The market did not like the fact the Feds did not commit to more quantitative easing.

He hopes that Feds never start buying equities. Japan has been buying equities for years and that has not helped. The market is now testing the froth and they will correct until the Feds steps up.

Bonds. With interest rates so low, bonds now are yielding very little. There is virtually no return after inflation. It is a problem for retirees. The central bank is also seeking more inflation, which is a big problem for bonds. Dividend yielding stocks are okay to replace bonds only if you can handle volatility.

Volatility. The stock market is not reflecting what is going on in the real economy. This is largely due to central bank stimulus and speculation. The froth is coming off, but how low it goes is hard to say. He does not think there will be a major recession however. The correction may last a couple months, especially with election uncertainty.

Educational Segment. The death of RBG is the latest wrinkle in the US election. There is litigation against the Republicans making it difficult to vote. There were negotiations for a support plan, but the new appointment issue will be the new focus. This means there might be no stimulus bill before the election. There may be testing at around half of the market rally.

Forget about a lack of further stimulus; there could be a US government shut down next month. Small businesses in restaurants and bars need financial help the most. Many will go out of business. Airlines and the travel sector also need a bail-out. House-buying is booming, but apartment renters are sinking. With the US election looming and Trump threatening to immediately replace Ruth Bader Ginsburg on the Supreme Court, there are jitters among investors, enough that he urges them to hold (not sell) stocks.

The Covid trade We're seeing the Covid trade now, as 17 states see an uptick in cases. Buyers sell anything remotely related to a lockdown, namely bars and restos (Dardens), and buy stocks that, say deliver good, like Dominos, or fill your pantry like Campbell's. Walmart and Amazon will be able to sell online and thrive. Square and Paypal will be used by small businesses. Cybersecurity like Palo Alto are also buys. The stay at home stocks that have been working will continue to do so. We've been through this pattern twice and will continue until a vaccine emerges.