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

Market. These huge declines in the market are not driven primarily by the CoVid19 conditions. About 20% are related to it and the other 80% is related to US and Europe and has been related to an expected deflationary shock expected before the virus hit. What you have seen is massive movement and liquidity hitting the market. Everyone should look at the US dollar. Even the US stimulus is not enough. We have to wait and see. Today is the first day we are seeing volatility going down. The deflationary shock is over. It has been averted.

West Texas Crude – When to buy. Looking at other oil prices, Wyoming sweet oil is on the low end at -19 cents. There is no real control over these prices. Trump wants the US & Canada to put tariffs on foreign oil. These are strategic assets. If that happens all these stocks will jump.

Canadian Banks. Going back to the great depression, a lot of Canadian banks didn’t cut their dividend. Some are trading at EBV -3 so he would be a buyer. The hedge fund community is after these guys but they are down enough.

[Berman's Call was pre-empted today by the Prime Minister's Update on the COVID-19 situation.]

Gold & Market Outlook From an asset allocation perspective, he is holding 30% gold in his portfolio right now. Gold is rising along with systemic risk. Earnings of gold producers has also been rising, although their share prices have not. Most Canadians have 0% allocated to gold. Producers are generating positive cash flow and some are buying back shares here. He thinks these are the best asset to hold during uncertain times. For the overall market, he is concerned about the amount of debt by the central banks. As cash flow shut down globally, we have a debt black swan forming. The US Fed and the BoC are all issuing more debt now. He prefers to stay cautious and watch how the global shut down progresses. He thinks investors looking for gold should avoid anything relying on gold ETFs. You don't want to own just paper. ABM Ambro announced they are cashing out investors as they do not have the physical gold to back their investments. If you don't own physical gold, you don't own anything. Silver has even greater upside, he thinks, as real physical price discovery takes place. For his cash position, he wants to see a level off of COVID-19 cases in Europe before deploying any cash. He wonders how long the central banks can keep the system going. So he would prefer to wait to see how things level off.

Gold vs HUI If you look at HUI, trading near $198 and gold at $1654, there is a massive discretionary between their values. HUI (Gold Bugs ETF) is trading as if gold is trading at $1000. Company earnings are improving, so he thinks you could begin building positions. He would consider buying FNV here as a starting point and look to build a diversified portfolio. He would stay away from ETFs, if they don't own the shares in the underlying companies. He thinks you should own 20% in the gold sector.

Market. If you go back to the great depression and the stimulus done then and adjust for inflation and you see the stimulus now is multiples of that. It is unmistakably great for liquidity and markets to see governments around the world recognizing the size of the shock we are going through. This could be a rally to lighten up in things you did not get a chance to do. They are never, ever going to be able to pay back the debt. This has to be the most bullish for gold. This crisis is not over.

Risk that does not exist in the underlying holdings, e.g. in XFR-T (floating rate bonds). You don’t get your money back when bonds mature. They are always reinvesting for you. Look at the bid/ask spread and put a limit in the mid point. If there is enough liquidity then you can get your ask, but if at market, you will only get the bid. He sold some floating rate notes today on the rally.

The difference between the miners and the bullion. Some mines are shuttered in for weeks or months. It will take supply out of the market. There is a great opportunity for some operators to make significant money. He sees gold going much higher. There is a dislocation between futures and spot markets right now.

He prefers the diversification methods with ETFs. We are all going back to work so industrial REITs should recover. Buy them on weakness, not strength.

XIC-T is the broad TSX and the XIU-T is the TSX-60. These are two excellent ETFs to get exposure to the broad TSX. Wait for the next major sell off to buy them.

Hyper-inflation. It takes a total loss of confidence in the system. We won't have hyper-inflation. There will be some inflation for sure. Spreads in corporate bonds have spread out significantly and that is where the price pressure comes from in the broader bond index. ZCS-T is a good choice. ZST-T, ZCB-T would also be good.

Market Outlook The incentives for investing are improving. Back in January, valuations were so priced to perfection there was room for risk. Over the past 25 years the market has been characterized by benign inflation, sustained global growth and liquidity. It appears there is a paradigm shift happening. The speed to which risk can manifest itself for instance. Being prepared for any market, with some investments to hold when markets decline for example. When we get shocks in the economic system, different assets classes respond differently. Currently we have a growth shock that is also deflationary. This suggests cash, long duration treasuries and gold are the holdings that are expect to do best. They have been advising to have something to deal with every market environment. Diversification is the real key. Small business in Canada represents 98% of all businesses in the economy and they have an average cash buffer of 27 days. It is unlikely this will be a V-shaped recovery. Potentially the market is still underestimating the growth impacts. You should start to think how to add those segments that will do well.

Big gains in today's markets, because there's lots of optimism about the US Congress pushing through a massive relief bill for working Americans who are staying at home to battle the virus. Also, there may be negotiations between the US and Saudi Arabia over the oil war. We face two black swans: COVID-19 and the Saudi-Russian oil war. Also hitting energy stocks earlier was a mild winter, depressing oil demand. Until China, Europe and South Korean restore demand, the storage costs for just holding existing oil will continue to skyrocket. The bottleneck in oil will be not just selling it, but shipping it. This will be the problem in April for Canadians and the Saudis alike. WCS oil: C$12 doesn't even cover operating costs for heavy oil. so he expects many more shutdowns of oil production. By late-April, the worst of this oil shakeout should be over. If the virus is tamed by May/June, oil should rise to $30-40/barrel, and the price in the second half of 2020 will depend on the wider economy. To pick an oil stock now, look at their balance sheets and cash flows last year. Natural gas prices haven't been hit as hard during all this. If oil prices rise in the second half of 2020, which he predicts, the 2020 average will be in the low-$50s. Oil companies have no choice but to cut dividends except those with strong balance sheets like Tourmaline and Birchcliffe. Energy infrastructure stocks are very cheap now and will bounce back.

[Berman's call was pre-empted this morning by the Prime Minister's COVID-19 update. However he appeared for half of the Commodities show after his show would have aired. An Announcement said that he would be appearing regularly on the Thursday Market Call show at 12:00 EDT on Thursdays for a full hour.]