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

Long term hold to buy now. Look around at what we need in increasing amounts and look for the companies that provide them. This incident may have taught us to go away from nonessential consumption. Telecom, utilities, energy infrastructure banks are his core holdings. T-T are providing essential communication structure and they have a healthcare element to their business. Banks are struggling and will for a while but you can't replace that function. Utilities coming out of this with low interest rates have come 15-20% off their highs and you normally can't buy them there.

Utilities- good? and if so, when? He owns utilities in excess of 17% of portfolios. You will not get another chance in a persistent low interest rate environment like this. You would lag on a recover if we get a 'V' shaped curve. We don't know the path this virus will take but the economy being shut down will reverberate for months to come. You have to average in. Buy a bit each month or one company at a time.

Banks. He thinks the dividends are sustainable. It could be a prolonged down cycle for the banks. He expects them to maintain their dividends.

Market Outlook It is important to differentiate the short term and long term outlooks (post-2021). There is demand deferral accounting for about 26 million barrels per day, being associated to the number of COVID cases worldwide. The outlook for oil is positive going forward as we were already expecting global production to be slowing in growth and for US shale production already being mortally wounded with low oil prices. Shut-ins will begin to counteract the volumes increased by Saudi Arabia if new OPEC agreements are not worked out. At these prices, every oil company (outside OPEC) would be bankrupt -- so we know these prices are not sustainable. Companies with good hedging strategies and sound balance sheets will emerge from this. A price of $20 into 2021 could be catastrophic for some small cap producers, due to their outstanding debt.

Insider buying? Insider buying is a critical indicator as to management's belief they will survive in difficult times. The average energy CEO makes about $3.2 million, so their lifestyle would allow them to buy shares. If a CEO is not stepping up now, you should be asking, why not?

Educational Segment. Market. He suggested last week that the rally was more about a rebalance between bonds and stocks on a quarterly basis. That is now clearly what it was. Part of the legislation in the US says that any corporations that are going to need help from the government are going to have a restriction on share buy backs or dividend issuing until the loan is paid off. He showed a chart of expected dividends from the S&P and how three months ago they would go up steadily. Now they will take a dip and then climb back to what they are now in about a decade. His sleep at night portfolio (ZZZD-T) sank with others until about a week ago and then rose and has lost less than his other comparisons YTD.

EFTs Selling Holdings. 95% of units bought and sold of an ETF involve one unit holder selling to another. Ultimately when the market maker is accumulating positions and does not want to hold them, they are forced to sell them. Other than this 5% of transactions, there is no impact on the underlying shares.

Buffered ETFs – It seems they got dragged down with everything else. Go to the innovator website to see their videos. You are long the underlying, and then it buys a put and pays for it with a put at a lower strike and then a call at an upper strike. It is done at a zero cost to the ETF. The protection plays out over an entire calendar year. During an aggressive sell-off, you get a little short volatility. At the end of the year, if the market is within the range of buffered support you will not lose any money, but if it is lower like it is now, then you will have a loss. He likes the strategy and he uses them in private portfolios.

Japanese tech gaming companies. He has not looked through it nor through the sector because it does not appeal to him to invest in longer term. There has been a lot of speculation on companies that benefit from people staying at home more. He can't tell you whether these companies in Japan are better than those here.

Will the gold miners catch up to the gold price? They should but they are equities with risk. The monetization of debt that will be necessary by central banks around the world is a bullish scenario and gold stocks will eventually come. A lot of these mines aren't working today, however. He has positions in the sector.

Market Outlook He thinks there is crisis on three fronts: health, economic, and financial. The government was a little late to get the virus contained, but he is seeing indications that curve is not rising as quickly. From an economic and financial crisis place, the government was quick to respond -- dusting off the 2008 crisis aid book. It will take time to work through the system. For him, he wonders if this is enough? Does the government have anything left? Interest rates are effectively zero and they released the bazooka on financial relief. He is hearing up to 6 million jobs may have been lost this week in the US. People need to be defensive right now. There is going to be trouble in the Canadian oil patch for sure. Risk management is more important than ever -- this includes defensive stocks, bonds and even cash. He is sitting with short term cash as a tactical holding, so they can purchase equities at lower prices.

Bonds? Bonds are an important part of a portfolio as they have half the volatility of stocks in times of stress. With interest rates effectively at zero it is tougher. Big institutional players have been forced to raise cash, making inventory of bonds available that are investment grade. Yields of 3-5% are available for A or AA rated companies.

He expects an economic recovery, though doesn't know how long this downturn will last. He is 80% invested with 20% in cash. He isn't timing the market, but making returns for clients. He's up 16.5% YTD by making singles, not swinging for the fences. He was up 10% last year, because he had a hedge in place due to concerns over high valuations. He has stuck with that hedge. Late 2019 he started putting some put options, three tranches of Nasdaq puts. That helped him earn this year's return (YTD). The hedging overlay is really important these days.

What is a hedge overlay (mentioned in his opening comment)? He shorts equity indices, using as benchmarks the Nasdaq and Russell futures as well as those around the world. He employs a 75% short equity index overlay atop his stock portfolio, because he's not sure if the market will go up or down. In late-2019, he built a near-100% equity index overlay, because he was very concerned about the market. This overlay protects the downside and reduces portfolio volatility.