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

Financial institution dividends. He does not know if they will be maintained but most are distributing half or less of their earnings. Two years from now we will be long past it.

This isn't the end of the sell-off (despite markets plunging 10% today). We're in a perfect storm with the Saudis hitting us with the oil shock. Where's the bottom? On July 26, 2002, the S&P bottomed at twice book, 2175 points. That is just 200 points from today's close--and that amounts to one day's trading! You can trade markets now, but where's the bottom? All kinds of people are suffering. Also, this is the first social media bear market.

What is the intrinsic value of the S&P now? How fast will the economy--and earnings--bounce back? There'll be a lot of damaged consumer sentiment, making consumers cautious.

Be cautious short-term. All Dow stocks he tracks are halfway to his downside targets. One more nasty day like today will trigger his buy signals and offer a nice upside (except Boeing).

Market Outlook The markets have never correctly so quickly in history. The TSX is off 30% from its highs. Technically this is a bear market since we have already fallen over 20%. There is still uncertainty with COVID-19, especially with machine driven investing systems being popular. China is starting to recover and stores like Starbucks and Apple are almost completely re-opened. We need to still see policy statements from the government to compensate employees who will be impacted here at home. She sees more scenarios where negative growth will impact Canada for the next few quarters, making a recession more likely -- especially with the plunge in oil prices.

Bank dividends? The dividends are safe for the Canadian banks she thinks. The payout ratio is only 45-50%. Banks will increase their dividends similar to their earnings growth she believes -- around 5% a year. If earnings contract, they will likely keep dividends flat (three years during the last financial crisis).

Time to buy? We won't when volatility has peaked until we know more about the infection rates in China with COVID-19. In the past couple of days the market correction has been severe and she now sees opportunities and is buying at a measured pace.

Fiscal stimulation We will want to hear the details from the Federal Finance Minister regarding support for workers who will be make unemployed by COVID-19 and what the reactions have been from the other G7 countries.

Market. The markets cannot continue to decline the way they are as 10 days in Toronto and 15 days in New York would see the indexes at zero. In past huge dips if you owned quality companies and stuck with them, the dividend payments mostly stay where they are and the stocks will recover. He may sell bonds and go to cash. His worry is that at some point they will turn around and interest rates will go up.

What if you have no more money to put to work? What happens in the short run can be very unpleasant but if you have quality it will do fine in the long run. Don't go in on margin or with debt, however.

Currency Risk. You have to be cognoscente of currency around the world. He buys only the best companies around the world. It does not look like the Canadian dollar is coming down as much as the US$ so as you see huge losses on US markets, after currency conversion your investment has not come down quite as much. Coming out of the financial crisis the US markets were the ones to own. Currencies tend to even off after 10 years.

Markets. Don't do binary things. It's not all in or all out. Review your financial plan. This is not 2008, as that was a crippling banking crisis. Three things are happening. First, COVID-19 is destroying supply and demand and slowing the economy. It's clear that we're going into a recession because of it. Second, while central banks are doing all the right things, they can't stop the volatility. Third, the price war in oil is gumming up the debt market, especially high yield debt. This will have a real effect on the real economy. What we need is for the US government to do something similar to what the Canadian government did. If it does, you're likely to see a better outcome. Difficult in a democracy to do what China did. This will happen again, so we need to learn how to make the healthcare system better.

Average down on oil stocks? Problem is you need to be in the larger cap names, rather than mid cap names. Some may have to cut their dividends. Saudis tried in 2014 to increase production to drop price of shale. Except shale had access to capital back then, but it doesn't now. So oil could go even lower.

Buy on margin? You have to be very clear that you can withstand the payments. Margin isn't particularly a good thing to do, but there's a right time to do it. In 2009, it was a good thing to do. If you think markets are going up, margin is smart. Great companies that generate a lot of free cash flow are safe longer term. But a lot of leverage can be painful.

Chance of yields being cut in Canadian pipelines? Yields will be cut in mid caps oil and gas. ENB can make it through. But others will be asking if it's prudent to keep paying the dividend yield. The world has changed. Admires Cenovus, which cut capex. Most pipelines will be fine for a little while, but if this continues it will be difficult.