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

Free Cash Flows Several companies are posting great free cash flow -- up to 40% of market cap. Once we get past the Corona virus scare, global demand will grow again. We will see WTI go back to $60/bbl. Valuations will rise sharply. You don't have to be a believer in wild oil price increases.

A lot of folks missed this current rally. But how can this rally happen during the trade war last year and the current coronavirus? He answers, markets are the result of a thousand moving parts, and this market has huge shock absorbers. Since 1950, bull market corrections of over 12%, on average, the market rallied 90% before the next 10% correction over 31 months. Investors discounted the bad things that happened in 2018 and sold the rally in 2019. All through 2019, investors sold during the rally (instead of holding on). We've have huge liquidity from central banks while manufacturing data has slowly been improving around the world. There's also wage growth in the U.S. If the market is strong and there are under-positioned investors, the strong market will drag them in. Think of the 2014-5 pullback, then the rally of 2016-7; 2017 didn't allow investors to get in. The coronavirus pullback lasted only 4 days and dipped only 3.9%, but the buyers came in.

The hard part for investors is that we're not viral experts, but some experts have said that the coronavirus will peak in the spring and subside when the hot weather of summer. Also, China's measures to contain it are helping. Overall, things look good for stocks. The rally won't be derailed. He sees no end to the bull run in tech, his favourite sector. He prefers American over Canadian stocks. He's been all-in America (MSFT, Amazon) in the past 5 years. The US economy looks better than the Canadian, but there are winning stocks in Canada.

Markets are continuing, simply. You don't know what'll happen with the coronavirus--markets dropped then recovered, but it may or may not be a black swan event, but it isn't over yet--and there remains risk. Markets are being defensive. The impact will be negative for products made in China and for transportation.

Is there a 5G ETF? Not that he knows of. Maybe there is one in the U.S. But the universe of these 5G stocks like Nokia and Ericcson is too small. Better to buy the individual stocks.

Do covered call stocks and ETFs actually protect on the downside, as in Dec. 2018's sell-off? Covered calls offer little protection on the downside except the covered call premium of 3%. He likes covered calls, but they confuse retail investors. When markets tanked in Dec. 2018, he sold covered calls and bought stocks.

Market. He is attending two conferences in Florida this week. (a) The FX conference and (b) one with keynote speakers by Fed economists. Corona Virus: It is temporary for sure, but this is going to be a lot bigger than SARS was by a long shot. It won't have a long lasting impact. But it will have a more prolonged impact than the SARS issue and probably has some more meaningful economic impact. We saw the German Chancellor's heir apparent step aside. There is more extremism against more globalism and to more nationalism. This is troubling to him. Ultimately he thinks it is another headwind to more global economic growth.

Play China? KWEB-N is an ETF whose founders he met with at the ETF conference last week. It plays the Silk Road Initiative. He plays China through the 'A' shares market.

Mortgage Insurance Plays. We are late in the cycle but interest rates will likely stay low for a while. He would not go for mortgage insurers at this point but would avoid.

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.