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

Canadian Banks? What investors want to see is substantial revisions for reserves. Most US banks have taken massive reserves, but they have had an increase in book value as well. Canadian banks will report in the third week of May and he thinks investors will be watching closely to ensure large reserves are being taken. If not, they may lose confidence with international investors. He thinks Royal, National and TD are all getting good support by the market. You are already starting to see separation.

Market. There is this unprecedented fall and then unprecedented rally. There is a lot of belief that we are going to get out soon after being locked in for so long. People are overestimating how long it will take for the economy to get back on track. Even six months from now it will still be trying to get back on track. The economic picture is not really bright. We're back up to 2900 and this is a major resistance level for the market if you go back to 2018. It would make sense for the market to pause a bit. On average the stock market tends to perform weaker and is not a strong period for the market, but it is not where you tend to get big huge gains. 'sell in May'…

Canadian Energy Sector and especially XEG-T. XEG-T is a great ETF to play the energy market overall. It is a good core position for the Canadian sector. Seasonally it is strong until May 9. It is based on supply/demand imbalances. It is not working right now but does not mean it will not work soon. The net seasonal period is late July into early October. When he finds weakness through the summer it often work well in the fall. But he would not look at it right now.

Banks long term. They are well capitalized and have high dividends but if we see this big downtick in the economy then they will underperform. He is worried about residential loan books. Seasonally they should not do well until October and then into the new year. He would not look to add at this time even if it is a core holding.

WTI going into the next shoulder season. There were two things pushing the price down: Over supply and contracting demand. Now we are seeing them raising prices and there is less oil going into inventory. It is hard to say where the shoulder will go. Companies can operate efficiently here. If we get economic numbers we may get a pull back.

Gold seasonality. All commodities have less robust seasonal trends than other stock market sectors. Late December into February and then early July into late September are its periods of seasonal strength. Longer term the fundamentals are good for gold. He would look at it in a month or two.

Market Outlook He would not be surprised if the market re-visits the March 23 lows. He thinks tech stocks will benefit from the work-from-home trend. The cloud, hardware, data centres, social networks, telecom and e-commerce companies will benefit. Internet networks have held up as utilities have ensured there is enough electric power available. The real estate industry will need to adapt, but it is too early to judge, but commercial real estate will have to adjust for sure.

Spread your bets in high-quality asset classes, a departure from his concentrated portfolio approach in these times. As debt to GDP ratios get close to 90%, growth starts to slow. He's holding government debt though. As central banks expand balance sheets, this will debase their currencies--the last time was the 1970s. So, favour hard assets like gold and real estate, and less so financial assets. Gold is in a sweet spot, performing well in deflationary and inflationary times too. Also likes silver. He owns Kirkland Lake, for instance. 15% of his portfolio is in gold, 10% bullion + 5% Kirkland Lake. IAU IS good gold ETF. Not all ETFs are created the same, though.

What will a growth stock be in the New Normal? What metrics to look at? He could talk hours about this. We will get back to normal at some point, like driving, taking kids to school, vacations, etc. He looks for high margins, high returns on capital, low debt; excellent capital allocators (generating excess cash and buyback shares, paying down debt) for 5-10 years, etc. How does the pandemic effect a company's outlook, like CSU-T or Royal Bank--is their business model broken? He doesn't think so. Anyone who says they know for sure what'll happen in the future is lying. No one knows for sure. But he expects in a few years from now, this pandemic will look like a blip just like other crises we've seen in past decades.

Market. Over the prior few years it was one of the best performing stocks on the TSX. He has dumped the airlines due to the pandemic and will never buy an airline stock again. Their management has done a terrific job and airlines have been strong in terms of load factors. The world has changed dramatically. He is concerned how it will do over the next years and their balance sheet is destroyed. It is hard to rationalize how airlines come out of this.

American Equities. Currency concerns are short term and he looks long term. He is looking to own the best quality companies that have strong balance sheets; capital-light business models; huge re-investment opportunities; and run by smart management. He will buy them in whatever country he is comfortable to own them in. The majority of these business models are found in the US. He does not see the CAD$ jumping in the short term. He is a long term investor.

He is not a fund manager. He builds a portfolio based on many different companies he wants to own. He does not like gold or commodities, nor capital intensive companies. Attractive companies are beaten down the most and have upside potential.

Market Outlook He is skeptical about the monthly rally -- since March 23 the TSX is up 32% off the lows. The economic data continues to worsen, as he has expected. Corporate earnings are confirming weak results and he expects them to worsen in Q2. He does not think we are out the woods yet. Bear markets are more often a process, so he thinks we could retest the March 23 lows or go lower yet. A retracement seems more likely now. Oil stock holdings have been high-graded in his portfolio -- lightening up on any higher cost producers. Look for companies that have a competitive advantage and are surviving in this virus related market. Shell's decision to cut its dividend should be a signal that a lot of other companies will consider doing the same -- now is the time. You should be evaluating the likelihood of dividend cuts in all the holdings you have -- look at payout ratios, whether they have in the past, their leverage, etc.