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

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.

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.