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

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.

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.