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

The Shiller S&P closed today at 31.75, indicating an overbought market. Is a near-term correction coming? He's never seen the markets move this far up for so long. What will derail it? The coronavirus? Something strong will. There's no stopping it in a low-rate environment. Doesn't see a correction.

Market. The impeachment trial starts this week and he thinks the markets are too heavily discounting a negative outcome. They are trying to paint Trump's issues here as not violating the constitution. The surprise here is that Trump gets impeached. He is expecting volatility because the market is expecting this to be a non-issue. From a simplistic perspective there are a couple of ways we can predict things going from here. The trend line started up at the beginning of 2019 and now is at the top of the channel. We don't know what's coming but when it comes, be prepared for a melt up. After about another month it could be another period of extreme volatility.

Dollar cost averaging. Buy the total world through ETFs. If you want a higher yield and better capital preservation, you might go with Balanced ETFs. There are lots of low cost versions but there really are none protection from low interest rates. There is no one-stop solution so look at an active ETF that focuses on capital preservation. There is not one ETF that ticks all the boxes.

Copper. He is much more for diversification. COPX-T is all the copper miners. It is one of the primary things. Looking back 10 years he wonders why you would own this. He does not think this is a now an early play but it does have cyclicality. He would not like this sector long term. You might be able to trade this short term.

The CAD$ is closer to the upper end of the range. He is about a market weight position for US$ (about 53% exposure). The CAD$ could drift a little higher here and then he would want to add to exposure.

Educational Segment. Natural Gas. With nothing trading on the cheap he is always looking for relative value. He has seen the gas sector show up. The carbon footprint of natural gas is half that of coal. There is an opportunity for us to replace a lot of coal with natural gas. LNG will let us transport it around the world. UNG-T trades the commodity and the problem is the forward contracts and volatility. From 2000 to now it has declined from $2000 to $20. It is the front month futures contract. He would look for natural gas over the traditional energy guys.

Market. He has been looking for a potential recession for a year. He de-risked his portfolios a year ago. The inevitable correction will be that much stronger. He has some growth bets and will not ever, not have positions in the kinds of companies he looks for. He also likes long dated US treasuries. Nobody knows what will happen in the future but he is prudent this late in the cycle to have positions that will do well if the equity markets falter.

The market is fast approaching year-end targets (already), continuing last year's rally. But more people are questioning how long this rally can sustain. That said, it's expected that interest rates will stay low and earnings growth will rise by high-single digits. Also, trade tensions seem to have moderated, though how much did the US-China trade deal actually solve? The markets are relieved that tensions have diminished, however....Boeing: there are discussion about a financing package. Nobody knows when the 737 Max will return to service, but the company needs capital now. Boeing just can't sell the 737 now, a big problem and a severe, long-term blow to Boeing's credibility as well as profitability.

The S&P is 15% of its 200-day moving average, and there could be a correction. If so, how much cash should I hold now (and how much to sell now)? He doesn't know when the correction will happen, but risk is increasing. The higher the market rises, the more he will prune positions. He carries 12% cash, which is high for a money manager. That level has been a little higher; he's bought a few position recently. That said, look at individual stocks, including those trading above their 200-day averages. Catalysts? Could be a geopolitical event or a sudden change in investor sentiment.

Market Outlook He feels the market is back to dot.com type valuations -- 14 times EBITDA and all time highs for marketcap to GDP. Historically at these valuations you could see zero to negative returns on average for the next 10 years. At the trough of the 2008-09 market collapse, valuations plunged to 8 times EBITDA. Not every part of the market is necessarily over valued, but defensive areas like utilities and value stocks are very expensive. Investors could look to energy, but they are in a perennial down trend. Financial, industrial and consumer staples are middle ground areas that are still affordable.

Healthcare has permanent and non-cyclical drivers like no other sectors. Looking at developing markets, a lot of their GDP gets spent on healthcare. There is also technological innovation, happening in medical, biotech and pharma industry which is strong.

China is a great example of healthcare spending expansion. In 2002, spending was around $250USD per capita. Now it's around $850. The expansion just has to continue at the pace right now.

The healthcare sector has been the whipping child of the election campaign. However, the macro environment is important. Last year, healthcare was under a lot of pressure but this was sentiment driven from macro politics. There was a shift in sentiment in Q3 earnings where any misses were bought, and beats were rewarded. Sentiment is now positive.

Market. Getting out of Bombardier: He has been one of the major sellers. He uses stops on every position. If it doesn’t work out then he is gone. This is a position he cut back some time ago. It was a big position for him. In the end he looked deeply at fundaments and price was not doing what he thought it should do and it was ultimately the stop loss that took him out. If a stock gets hurt in a bull market then there are other things to do. Don't try to pick bottoms. There are an army of unhappy shareholders that just want to get their money back out of the stock. Many markets, unlike the S&P are only just breaking out of multi-year sideways choppy markets. France Switzerland, Taiwan, Japan, for example. More and more markets are joining the rally. He would fully expect a 2-5% correction over the next few weeks. The risk/reward is in equities.

He likes software. Technology as a sector is a theme he will continue to like. IGV is an ETF you can buy to get a basket. He would like LRCX-N this time of year. These are more economically sensitive than others.