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

We're in a consolidation period after panic forced selling that was too hard. This rebound is moving stock to more realistic pricing models. We got to release the economy at some point. To get back to normal, Canada needs to start focusing on that. Don't be emotional about investing. There was panic in the third week in March, down 1,000 points a day. Each cycle has these emotions and swings. Part of the problem is we don't have enough information to forecast the economy and stocks. In 1918-1928, the start of which was marked by the Spanish Flu. Look at this period for perspective--the outcome doesn't have to be Depression. At least 50 million people died of Spanish Flu. The world is NOT coming to an end. In this period, the Down went from 70 to 380 points. Electricity became common in this period, which freed up people to have leisure time. Today, tech is doing the same thing, also boosting productivity. After the Spanish Flu, the markets and economy took off worldwide. This will happen once we get past this current pandemic.

Why has the Canadian dollar held up so well? He's surprised it has hung in, given the hit that oil has taken. A reason is that Canada has a hidden tech industry and that's kept the economy and CAD afloat. Tech is the future of the Canadian economy.

Gold sector outlook in 3-6 months. He doesn't own gold, just a bit in his RRSP. The best charts on the TSX are gold. He was disappointed when gold sold off during the initial panic sell last month. Now, gold is in a perfect place with cheap lending rates and good demand for gold. The mines can re-open even during social distancing. But he considers gold stocks a trade, not an investment. It's an opportunity now to trade. Gold is in seasonal strength now through the summer.

Market. This will not have been a complete quarter with the COVID19 crisis but earnings season will allow us to put real numbers to the bottom line with what we have seen with this pandemic. You will get a bit of a pass on the numbers from this quarter. The US Fed was an immediate savior of the liquidity crisis after the first fall in the markets. He thinks going forward we will see a distinction between the winners and the losers in the markets. The forthcoming rise will be more selective. Now is a time to reposition your portfolio. It is a bear market rally. Restarting the economy on the other side of this will be challenging. Some industries will do better than others. Massive debts that are being built up will have to be addressed.

Banks. A core holding in his equity portfolios. They are facing pressure and margins will be compressed. At the end of the day, we are not renting these stocks for the next 90 days or even for the next year. They are a leveraged play on Canadian economic growth. They are much better capitalized now than in the last recession.

Perpetual Preferred shares vs. Rate Reset Preferred Shares. Perpetual shares are usually issued at $25 and pay a fixed dividend and it is paid until the issuer redeems the preferred share. The rate reset preferred share is issued at $25 and pays an initial dividend but is reset every 5 years. That market has been hit pretty hard as rates have been cut. The fear is that when they reset the dividend it is going to be significantly reduced.

Market Outlook There is a positive sign in the market over the last couple of weeks with the market looking to establish a floor -- somewhere around 2400 on the S&P, he estimates. We are now only 200 points away from the highs of September 2018. We are seeing a recession coming with large numbers of people being laid off. He sees large sums of cash sitting on the sidelines. The panic selling is now over and he sees a recovery coming of some sort. You have to have a strategy with dealing with volatility. This is done through asset allocation. He began to get concerned with bond issuers and sold his bond ETFs before the crash.

Buy long dated Call options? He usually sells options about 99% of the time as he prefers to receive the premiums rather than pay them.

CAD dollar? He thinks the best thing that can assist the Canadian dollar are pipelines. He would, however, hesitate moving away from the US dollar. We will under-perform the US economy until the commodity markets significantly recover.

CAD bank dividends safe? It is not very likely that the Canadian banks will cut their dividends. They are in much better financial shape than back in 2008. He thinks the Canadian Central Bank would make enough liquidity available -- we may pay for it as taxpayers however. The Great Depression was caused by there not being enough liquidity available for the banks. This is not a worry.

TFSA investment? XSP is based on the S&P500. He always has held this as a core holding in his portfolio.

He doesn't think we're ahead of ourselves, but responding to improvements in credit markes of the past 7-10 days. Not unusual--stock markets follow credit markets. Central banks are doing the right things, step by step, rapidly adapting, even regulatory changes to improve the smooth functioning of markets. Some of his portfolios must be fully invested, some not. He has plenty of dry powder still. He focuses on companies with strong balance sheets that have held up better than others. It's possible we've hit the bottom of the bear market. Maybe or maybe not there will be a testing of the bottom, but he feels most of the damage has been done.

Goldcorp vs. Pan American Silver He doesn't cover Canadian stocks. Gold bullion, he owns though. Gold bullion (not gold stocks) looks interesting. From 1970 to 2012, gold was a good hedge for an equity portfolio. A 5% gold holding in bullion was an excellent hedge. From 2012 to just recently, bullion wasn't acting normally, rising and falling in tandem with the stock market. Now, gold is behaving more normally. Gold bullion is not gold stocks and acts as portfolio insurance. When stocks perform well, then bullion is not and vice versa. It's a small part of his portfolios.

Market. The longer this goes on, the longer the economy remains significantly hampered and the longer it is in that state the more likely it is to remain in significant recession. If you look in history, significant corrections always take 9 months to play out. The down turn is almost mirroring the '08/'09 downturn. It states caution. We are in the relief rally phase of this market. The panic has subsided but when the economic reality comes around we will see more downturn in the markets. A dollar buys you almost 30% more dividend income than a couple of months ago. You have to look at it company-by-company. If your companies are doing things that are needed by society then you can buy those companies with confidence that will eventually get through this.