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

Coronavirus cases in the United States. There was a compelling headline this morning of Remdesivir, the anti-viral drug from Gilead, showing efficacy in treating critical patients. The market celebrates this type of news, but it is not a cure, and we need a vaccine for things to go back to normal.

Earnings season. Last week he suggested being bearish on American banks. Today, there was massive call spread buying on the options market. Call spreads are a defensive way to play the earning season. There is optimism coming into the market. Banks have pulled back so there is some value trade. He expect the earnings to have more disappointments than good news.

Q2. There is tremendous amounts of noise. With the current levels of markets, there is a fair bit of perfect scenario priced in than disappointments.

Canada's AAA rating. Looking at where Canada should be trading, it should be at AA-. The US should also be at a similar level. He doesn't think the rating agencies are correctly reflecting the risks. Governments are printing money to manage the debt issues.

ARC ETFs. An ETF issuer that has a number of thematic ETFs, including fintech, robotics, general innovations, etc. He loves this company's funds. Right now, be patient and wait for a pull-back.

Biden. There's going to be political will to raise corporate tax rates and bring jobs back to America. There will be some supply price increases since labour costs will go up. He wants to raise minimum wages, reverse Trump's tax policies, and tax policies that encourage outsourcing. These policies will add to margin pressures. Biden wants to focus on clean energy in regards to infrastructure. ICLN, ZMT could be a good way to play this. Technical set-up and fundamental catalyst point to both benefitting if Biden wins.

Selling in the markets today. After tremendous Q2 recovery, equities are due for a bit of a pause. In part due to rising Covid-19 cases, especially in the US. Slower reopening would dampen corporate earnings. Renewed US-China tensions are probably at play. Upcoming US election divisiveness is weighing on consumer sentiment as well.

What kind of stocks are you buying? Still likes growth over value, as it's performed well over the last decade and should continue with low interest rates. Quality is important, as is high ROE, low leverage. Likes dividend appreciation over high yield. Largest weightings are healthcare, tech, communications, and some consumer. Key secular themes exacerbated by the pandemic are work from home, e-commerce, cloud infrastructure, and healthcare innovation.

Hedged vs. non-hedged ETFs? Long term, US dollar has been moving sideways. CAD will stay in the 70-80 cent range. In general, prefers the US dollar ETFs. But right now, prefers ETFs not hedged to the CAD. It's a little less expensive.

Market Outlook The pending federal deficit is not far from analyst expectations. The deficit is likely only going to go higher. The government is trying to re-balance, but they are trying to support as much as possible so the economy is not permanently impaired. Eventually government spending will have to decline and taxes will have to go up -- likely through the GST. The crisis has caused companies that were already growing well and have done well through this time have seen their multiples expand -- with PEs exceeding 30. The prime beneficiaries have been the fintech companies so far.

Hyperinflation worries? Companies that are not price takers are the best in a hyperinflation situation, where prices rise sharply. Technology companies can -- like MSFT.

The virus surge in the US and elsewhere reflects complacency, since past outbreaks have had second waves. It's tragic. Expects these flare-ups in coming months. Investors have to be positioned for this and as citizens expect draconian lockdowns. Don't time the markets. The market now has high expectations and has been complacent about a second wave. He seeks defensive names, but also stocks exposed to a cyclical recovery happening now--a barbell approach. Caveat: he seeks companies with strong balance sheets to survive a sustained recession. Hot potato stocks like cruiselines have seen wild swings, partially because of novice traders.

Market. The big tug of war is when inflation is going to push interest rates up. He thinks we are in a deflationary period. At what point do we get serious inflation and what does it look like. We have to position portfolios for it. He looks at the velocity of money. Really, printed money is finding its way onto banks' balance sheets and it is their job to find a way for that money to get out in to the economy. There are greater deflationary pressures than inflationary pressures but you have to keep an eye on it. Inflation is unlikely but you should see how much money they are printing in Japan. When Japan started doing this there were fears of runaway inflation but it did not happen. Gold could challenge 2011 highs. There will be a period of consolidation and then it should move higher.

Canadian Banks. There is not a lot of innovation going in so it is how they operate and what is the environment that matters. The banks don't meet his criteria on return on invested capital. There is always the threat of being disrupted. If he did buy one, it would be TD-T or RY-T.