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

A big day today. Nobody expected Canada to cut rates, and everyone expected the U.S. to cut rates (but will pause). Both happened. And the markets lifted. Now, if the US and China don't get a trade deal and Brexit fails to happen, then the Fed could get negative like Japan and Germany are. As for the Canadian interest rate, he expects that we will close the gap between us and the U.S. given the Canadian economy.

2020 outlook It looks like we will avert the worst--a full-blown trade war between US and China. Neither wants to go into 2020 with very bad trade news. Trump has a lot to lose, because he wants to get re-elected in 2020. China doesn't want to roll the dice and face a Democratic president who may be tougher on trade.

The U.S. is doing better than we are, because Canada has a resource--and now, a gold--drag. Gold has pulled back recently like yesterday. Some TSX sectors are cheap. Financials are fine, for instance; Canadian banks do well in recessions as they manage risk well. So, you will do well with banks, long term though they haven't done well in the past 18 months due to flat rates and mortgage worries.

The street expects a 50-point cut tomorrow from the US Fed though a 25-point is more likely. An accommodative bank help assets. But abroad, things are less rosy, such as Germany where PMI (manufacturing) is contracting. The overall investing picture is confusing. A lot of investors, given their age, know only low or lowering interest rates. He believes U.S. rates will go lower as growth slows and companies become more profitable. If we see a growth shock, there will be lower PEs and big bear markets. Yes, stock prices are reaching all-time highs, but earnings are not. Be careful of over-confidence. Utilities and growth stocks make up a big portion of markets, like the S&P. Think about bonds. He's buying bonds. The returns may be low, like 3%, but they avoid drops on stock prices.

Preferred stock ETFs as interest rates decline Preferred stocks are like Jekyll and Hyde: they're rosy when markets are calm, but act like stocks, not fixed income, when markets go sideways. They're not a bad idea, but be careful with a preferred ETF. Many Canadian preferreds are rate-reset preferreds, so when rates go lower, their yields are reset lower. It's a tricky asset class. Be careful here. Not for the faint of heart. He prefers preferred that are perpetual, not rate-reset.

How do you decide which ETFs to buy? He likes ETFs because they grant access to markets you could not 20 years ago. What areas of the world are underexposed in most portfolios? And do you want a deep value ETF or something that tracks closely to an index like S&P? Market cap ETFs are the lowest cost. Low-vol ETFs are low risk, but higher-vol pays potentially better returns. How solid is the provider? Is the ETF active or passive?

Value-based ETFs VT-N is a global market-cap ETF, and VMOT-N is a very deep-value global ETF. VMOT can give you excess returns, but also massive tracking error. Buying value works. How much tracking error is there? Another deep value ETF is SBEA (grant manager). VT has outperformed VMOT hands-down VVL is another consideration; behaves like the benchmark.

A regular S&P ETF and one that's CAD-hedged? When you buy the S&P and don't hedge, you own both the S&P and US dollars. So, if each rises 5%, you're up 10%. But if you're hedged, then you're up only 5%. The opposite occurs if the US dollar falls.

Market. BREXIT delays: The can is getting kicked down the road but he thinks we are closer to resolution. It is part of the polarization that too many people want different things as an outcome. A third election in four years in the UK is a failure of government in his eyes. A big, high level, communist meeting in the communist party of China occurred and they want to notch up their leadership in the world from technology through to trade. Technology and the 5 G networks are key things. This is what the US trade war is all about. The market is excited about getting a really watered down deal as a sort of phase one of this. But there won't be any more progress on this unless Trump throws in. The US election 2020 is the biggest thing investors should be thinking about. The S&P is at an all time high and yet the fed is cutting rates so he can't get excited about it.

Canadian High Tech ETF, not currency hedged and using a covered call strategy recommendation. There is only one. He likes the strategy if you want to play technology in a defensive way. TXF-T is the ticker.

Will the TSX make a new high and is Energy part of it. The seasonals are quite positive. The TSX could make a new high but energy is very politically motivated; the NDP/Liberal coalition involves NDP not wanting any pipeline progress at all. He does not think the pipelines get built if Trudeau has to give in to the NDP and needs their support to govern for a longer term. We are not getting any price relief on Western Canadian Select any time soon.

CAD$ -- how best to play. Canada is 3% of the world. He is using the current strength in the US dollar to add to exposure to it. 90% of the time the Canadian dollar goes down when the US$ goes down. At the bottom of the next trough we will have the CAD$ at $0.70. He buys US$ into the strength that we may see in the short term.

Educational Segment. Market Risk and the 2020 Presidential Election. He thinks the market can't see the forest for the trees. There is a potential very big shift in US politics from the very nationalistic right-leaning Donald Trump to a Left but protectionist Elizabeth Warren. There is still a risk of Trump being impeached. She wants to rip Wall Street away. She is not a capitalist. He agrees with her view on climate. There are 16 million 14-16 year olds that could not vote last time. Gun laws and the environment are important and he thinks a massive amount of these kids are going to vote this way. The vast majority of Trump supports have deceased since the last election so he does not think trump can win. There could be a catalyst for a significant decline.

Market. Low interest rates can only do so much to keep markets high. Earnings seasons can be interesting. The big story for the last 9 months has been the pivot of the last 9 months where the US Fed has been supplying liquidity to the markets. Trade issues will not be resolved any time soon. September and October are the two most precarious months of the year and they are almost over. There are a lot of things that are pointing to cloudy skies for 2020 but today the market is comfortable having more liquidity and earnings still being okay.

5G has been in the news for the last number of years. There will definitely be companies that benefit from the adaptation of 5G. BCE-T has been rolling out fiber to the home and will benefit from 5G. AAPL-Q will roll out their 5G phone in the next year or so. The 5G roll out in the US will be slower because of the investment required in rural areas. CSCO-Q will benefit from 5G. They are rolling out more software as a service that connects through 5G networks.