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

We're pushing conditions like those in 1999 with high valuations. The global pandemic has created a bifurcation in new economy vs. old economy stocks as central banks support markets. It'll be interesting how this plays out. He sees a gradual, L-shaped recovery, not V-shaped. The world economy has shrunk 5%, there's double-digit unemployment, a change in behaviour (in videoconferncing vs. working in an office) and a massive $9 trillion in emergency stimulus from world central banks. Make sure to have true diversification in your portfolio. Can you handle another downturn? companies like Microsoft and Visa are trading at lofty valuations--everything has to go perfectly to receive a payoff from these stocks. Is future growth reflect in current valuations? That's the $64,000 question.

US ETFs hedged and not hedged to the USD? Buy hedged as well as non, half and half. Both.

Market Outlook The market is close to valuations of 2000. When the market is peaking, this may attract a new wave of investors that creates a mockery of valuation metrics. There will be a flood of financial reportings in the market next week that will undoubtedly lead to a substantial move in the marketplace. It was similar market conditions back in 2000, before the market finally let go and collapsed.

Market top still 3150? The 3150 level for the S&P500 is his estimate for fair market value. There has been a radical change in the outlook for the market based on government stimulus. His fair value is now 2600-2700. The technical price-to-book metric he follows projected 3400-3600, the last peak in 2000 before the collapse -- that is about 4 times book value. There will be 500 new balance sheets coming into the market next week as earnings are reported. This will cause the market to move substantially.

Gold He sees an extreme loss of confidence in the paper currency market sometime in the future. He recommends holding at least 20% gold in your portfolio. His gold holdings have crept up to become 40% of his portfolios and he has no intention to reduce that -- he is letting them run. This is not just as US problem, it is a global problem as the balance sheets of all the key economies are of concern. He thinks we may also see a rebound in inflation as well. He is not a gold bug, he is a balance sheet bug.

US Presidential Elections. People are discounting the polls like last elections. The market is not prepared for a Biden win and a major change in government. In terms of tax policy and earnings, it's gonna be bad if it happens. The earnings growth expectations won't be anywhere close if Biden is elected, especially without a V-shaped recovery.

Earnings expectations. Markets are discounting this year and focusing on next year. We have higher debt and more taxes so there will be pressure on a strong year next year. Earnings are better than expected. Trade and bank revenues were up this week. Loan loss is higher than average though. There is more uncertainty and he expects lower multiples.

Bank of Canada. The interest rate will be anchored to zero just for the economy to get by. At some point, there will be an inflation shock. When inflation pressure builds, it will be a colossal cost to governments. They will raise taxes.

Value stocks vs growth stocks. The NASDAQ closed down and the S&P closed up this week meaning there was more money going into the value stocks. When comparing the NASDAQ100 ETF to Berkshire Hathaway, when the tech bubble burst, money came back to the value stocks. Looking at the S&P500 value vs growth ETFs, we can see that growth stocks have outperformed. There is a big concentration of the growth portfolio relying on big names like Amazon and Google. For him, it's not between growth and value, but that energy is out and there is change in fundamentals. He thinks technology is the future. Healthcare is the only sector that he sees growth.

Do you feel that the economy is running off a cliff, with people not realizing that the only thing holding it up is government support? There is some disconnect between markets and the economy. Household and corporations are getting a lot of support. So the consumer isn't feeling the decline in income.

Will the US election be the focus in months to come? There will be increasing focus. Polls show that Biden has the lead. We hear more policy statements every day. Corporate taxes will go up, which could become a headwind. So profit recovery to pre-Covid levels may be more protracted than the consensus. It will take longer than just next year.

Where are the opportunities? Bifurcation in the market. Money flow has gone to some of the secular growth areas, so valuations are elevated. Some of the more defensive names have been left behind, like staples and utilities. We're seeing some value in the market. Could be due for a pullback.

Market Outlook There are a lot of moving parts in the market these days. We are at an important juncture right now. This is technology valuations being detached from the fundamentals of the market. Either the broad market will rise faster than the tech stocks or tech stocks are going to fall. He hopes for the latter. Vaccine stocks should be treated as speculative. Human trials are beginning, but it will take a while to prove them up. He does not pretend to be a biotech expert. He continues to see digitization being even more important during the pandemic theme. AI, merging the real and virtual worlds, along with digitization are the key themes. He is 85% invested in these themes, with a 65% short equity hedge overlay. He is over weight on his hedge as he beliefs there are more downside risks in the market right now, which still allows him to benefit somewhat on the market "melt up". He sees the Cloud being split between the semi-conductors and the equipment space.

Bitcoin? He has some limited clients that hold bitcoin. There are two ways to play it 1) directly into a bitcoin wallet or 2) into a fund. He has not bought into the funds as they trade at a premium to the underlying bitcoin price. If you are looking for a cryptocurrency as an investment, he would recommend buying the bitcoin itself. If the funds ever move into alignment on value with the underlying, then he would recommend the funds.

In this split market, the cyclical stocks will face headwinds until COVID comes under control in the U.S. and consumer demand picks up. In contrast, the tech stocks are on fire and will likely continue to do pretty well. He likes industrials such as Linamar; cars are starting to see a pick-up and Linamar continues to invest in technology, so the company should be strong post-pandemic. He doesn't expect the market to return to March's lows, though the recovery could take longer than expected especially for industries like restaurants. A vaccine will certainly offer comfort and improve business.