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

Educational Segment. Environmental Social Governance Investing. The environment has been a theme in this day and age. There is a lot of value being created in this sector. EOM-T and CVX-N are the top of his list. SU-T and ENB-T are the better names in Canada.

Market. 2020 is going on with what happened in 2019. Equities continue to march higher. Rates will remain lower for longer. 2020 is going to be about multiple expansion. This is where infrastructure equities really shine. Digital infrastructure is going to play a much bigger role in the future.

It's a mania with so much momentum that won't derail money flowing into markets. This includes FOMO and a passive flow of funds, plus the thought that the Fed will save our butts. As for coronavirus, he compares it to the Fukushima nuclear disaster which took a major economy, Japan, off-stream for a quarter. Copper, oil and bonds tell us there's a problem, but not the rest of the market. Over 90% of the market gain last year was due to the higher multiple on stocks (lifted by cheap liquidity), not earnings growth anymore. Looking ahead, we'll have continued low interest rates, though the failed negative rate experiment has failed apart from trapping liquidity. We need basic fundamentals.

Market Outlook The US employment numbers were better than expected. The four year cycle is still up. He spoke with an analyst who believes there is at least another 4 up years to come. We are in a short term pullback, which should provide a strong buying opportunity. With bond yields about 1.3% in the US, corporate average dividends exceed that so this will act as another bullish catalyst to the market. Buy the dips.

We saw bond prices rising by 6 basis points which is a concern. The yield curve has inverted yet again. Bond investors are running to the hills. Looking at the junk bond yields, at 2008, it was at 16%. Now, the yield is at 3%. It tells him that the bond market does not reflect the equities.

Looking at the background of what's going on and why. Last year the NASDAQ was up 35% and stock prices were up 25% based on price-earnings multiple expansion and not on earnings. There were investors who were rotating sectors or piling into shares, like what happened to Tesla. He would recommend half-position entries. Have some cash on hand to see how things unfold.

Historically, momentum traders last around 2-3 years. When the music stops, stocks can dip 60%. Right now, the stock market is overbought so any volatility will send the market even lower quickly.

Market. Fang Stocks. At least a couple of them are overvalued. He thinks history will repeat itself from the Nifty-Fifty days. He presumes they will take a hit. He is concerned about the level they have reached. AAPL-Q is only about 40-50% overvalued, but AMZN-Q is unbelievable. The question is what are their earnings.

Record highs across the board. Coronavirus had an effect on the market, but people realize it can be controlled, especially outside China. In Canada, there's a lot more transparency than with SARS. It's hard to get transparency in China. China is a bigger part of the economy now than back then. Slower growth over first quarter, but then we'll move on from there.

How long with the party south of the border continue? Looking at the US stock market, if you have single digit earnings growth, that translates into single to mid-double digit returns, which isn't bad. The US consumer continues to hold up. ROE in the US is higher than in rest of the world. You pay more, but get a bigger bang for your buck. With interest rates, equities are still attractive. Stay liquid but don't leverage yourself.

Too late to deploy new money? If you have a long-term view, consider whether it's a good company and if it meets your requirements. Whenever you buy a stock, there's a good chance it will fall below your purchase price very quickly. Pullbacks can be very short. Sometimes with waiting, you can miss a gain. Consider your risk allocation. Put some in equities, and some in bonds, since on a really bad day in the markets, bonds will rally. Develop a personal investing and risk management philosophy. Stock volatility is much higher nowadays. If a stock falls a lot, he goes back and reassesses. If he still likes the company, he buys more. Also if a stock gets to be a substantial part of a portfolio, trim a bit.

Are stock splits a thing of the past? Back then, it was hard to buy an odd lot, but today it's easy and it doesn't cost you anything more. You can buy one share of any company you want. The multiple determines how expensive a company is, not the actual dollar amount of a share.

Gold. Doesn't own any gold or gold companies right now. It's doing well because negative interest rates are helping, as it doesn't cost you to hold gold anymore. Trade issues and coronavirus have helped, because people see gold as a safety asset. A feeling that central banks will keep the market liquid, and this will continue to help.

Market Outlook He thinks this virus scare will likely be a short-lived one, much like SARS was. Towards the second-half of the year he expects a re-acceleration to the market. Cyclicals and commodities tend to do well in this environment. Unemployment and interest rates are low, which aids market growth. Add to this a Presidential election year and all things look positive, especially for stocks.

Cannabis? His view of this space is fairly negative. It is a very tough market. Demand forecasts were too high, he thought. These companies are spending a lot of money and will have a difficult time sourcing more cash in the future. In 20 years this will be like the alcohol sector, but there is a lot of uncertainty between now and then. It will be particularly challenging for the smaller companies. He would not invest new money in this space.