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

Time to step in? If your time horizon is less than 1-2 years, you should be staying out of stocks in general. Canadian banks index is down 24% relative to only 13% for the TSX. Bank credit loss provisions will increase and next earnings will reflect losses from April. You may want to begin establishing a position in stages to allow a further buy in on a further pullback. Then buy in chunks as you get a better sense of a recovery.

Investors are surprised with the bounce since the March bottom. We're heading into a recession, but multiples are high, which is a strange situation, because typically multiples fall as stocks sell-off. Also, investors are looking past the recession and directly at the recovery before entering the recession itself--this is very optimistic. He is defensive. Restaurants are a question mark--how will they be profitable with social distancing? Airlines will be down for a while. He looks at companies based on the density of the consumers/audience of their business. Government stimulus and other measures: this aid is needed, but down the road the piper must be paid.

Market. Nobody knows what is going to happen but afterwards they will have a great explanation as to why it did. Advisors, medical and financial, are there to advise and are not there as a crutch. They need to understand the depth of the crisis and the complexity. This is what has to happen or we do not get to some kind of normalcy. Mobility of the workforce will allow us to do more and more things remotely and he thinks we can do these things and be productive.

Market Outlook COVID is not driving the market - it is only accelerating what we already know. Before this we were headed to a recession anyway. The US, Mexico and Africa are the only countries with positive demographics in the years ahead. Oil markets will see demand increase, along with natural gas. He sees game changers in technology, for example, that will allow carbon to be separated from energy molecules. You could see amazing returns in some energy stocks about 3 years from now.

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.