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

He isn’t calling for a recession, but valuation multiples are going up and risks for investors are up as well. He is more defensive, looking into consumer staples, dividend payers and those with strong balance sheets.

The rush of mergers and take overs recently is a positive sign for equities for organic growth. Interest rates are low so companies can get good financing. He has a number of companies in his portfolio that grows through mergers and acquisition. Organic growth is hard to come by since the economy is growing more slowly.

Markets. What a difference a year makes. Markets were collapsing, but he felt it was driven by macro, not fundamental, issues. No doubt about an upcoming Santa Claus rally. He's seen a lot of underperformance of active management as they held a lot of cash, so to catch up, look at the bellwethers like Microsoft and Apple. They'll probably stay strong till year's end. Russell 2000 has reached new highs, a positive signal. You want to see broad based participation. The January effect is another positive factor.

The Fed has provided a lot of liquidity. In 2018 4th quarter, 28 central banks were raising rates. Now there are 56 lowering rates. Very accommadative global policy. Also, Trump is really concerned with appearances and cares about how the Dow and the S&P are doing.

China announces intellectual property protection This is the critical part of the trade deal--great news. Bottom line though, Trump keeping tariffs on remains a big problem for the world economy. Meanwhile, markets keep marching higher; we're in a manic phase. No one knows where this could go. There's FOMO now. The combined market cap of Apple and Microsoft is twice the size of the US energy sector. This shows how mammoth these two corporations are, touching everyone's lives. There is concentration risk here, speaking to anti-trust issues. As for oil, it could be a value trap (though it will have rallies, especially if the TransMountain pipeline is built in Canada), because ESG is a growing force.

Will the CAD rise to 80 cents vs. USD? No, he never said that, though he added alot of USD exposure as the CAD rose to 77 cents. The CAD will likely fall to 70 cents in the next downturn as Canadian oil prices weaken. So, he'd buy ETFs that have USD exposure.

What is a market "melt-up"? It's markets rising but defies logic. There's a lot of money on the sidelines. Towards the end of the year, money managers need to perform for the year, so those managers put money into the market to play catch up. FOMO plays a part. A melt-up is chasing performance.

Educational Segment - costless collar (https://www.theoptionsguide.com/costless-collar.aspx) and Ray Dalio (https://www.cnbc.com/video/2019/11/22/global-markets-outlook-dalio-bearish-bet-squawk-box.html) Last week, Dalio (see link below) spent 70 basis points on his whole portfolio to hedge downside risk. Maybe he used options on the S&P, or on future or ETFs. He probably used a costless collar: you buy a put "at the money," say $3.11, to protect the downside. To pay for that, find the price of the call to match that put, usually slightly above where the market is. Your profit is capped at the level you write your call. Your entire downside risk is hedged with the put. He likely bought a put at SPY at $3.11 out to April 2020; this means he expects downside risk in the coming months. 70 basis points is 70% of one S&P point which is $2.18 of premium he spent. So, if he bought the $3.11 put ($11.29 and spent $2.18), that leaves $9.11, he could have written a $3.14 call and had the position fully paid for. So, he can still pay the dividends, protect the market risk 100% to the downside and still make one more percent if the market goes higher before he gets called away. He loves these option strategies especially late in the cycle. They avoid or lessen capital gains tax.

Predatory short selling and the harm done on small-caps. Smallcaps have underperformed in this momentum market. Among weed stocks, they weren't shorted until they broke down; then recently there was a short-covering rally, up 20-30%. The trouble happens when short-sellers write reports then work as groups to short them. It's tough to do a short-sell on a small-cap because they are illiquid and hard to borrow. Shorting is part of the market, but is sometimes malicious. The laws are far more lax in Canada than America. Some short-sellers make up rumours as an excuse to short.

He's overall bullish for the rest of 2019. In Canada, REITs and utilities have hugely outperformed, but value and cyclicals have not. The rotation in recent months will continue to early 2020. Be selective in names. Investors are inflating, large caps with the TSX up 18% YTD, but smallcaps up only 5%. Companies want to get into ETFs, which further pressures smallcaps. There's so much demand for ETFs, which is creating problems.

There has been gross underspending in most commodities in the last decade. Companies are effectively streamlining in the sector. Today’s Newmont acquisition is a sign of this consolidation. Also, gold companies are starting to use oil and gas techniques of directional drilling.

There is a move out of utilities into cyclical stocks. He expects this bull market cycle to continue for the next couple years. Banks around the world, including the Federal Reserve are being supportive. Dividend yield for equities are above the yield of 10-year US bonds. When this happens, stocks usually continue to outperform bonds by 20% in the subsequent 12 months.

Market Outlook He considers trade talk issues the "cow bell" that is leading the market in and out of favour. He held a lot of cash in the summer and then on Oct 31 he increased his beta as he saw a buy signal. He now thinks the market is overbought as his "bearometer" is showing big money holding more cash, while retail investors are already all in. He expects near term volatility, but he does not expect any crash over the next few weeks. Market breadth is good so there is lots of reasons to be bullish. As soon as he sees the market making lower highs and lower lows he will be out.

Oil Stocks If we get a break above consolation, he will get back into oil stocks in general. He sees an ascending triangle right now with higher lows for oil prices currently -- good, but he will keep watching. He would need to see a break above $60, holding for few days, before he will get excited.

The market is a little expensive overall but he doesn’t pay attention to the wider market. Things are going pretty well. Industrial and healthcare stocks are struggling so you could find some good value there. You could find some good valuations right now if you look.