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

REITs & utilities instead of bonds? If you are doing it for income and don't worry about volatility then REITs and utilities are a good way to go -- they have more tax efficiency and better yields. If capital preservation is more important, then holding bonds makes sense.

He owns a lot of cannabis stocks. Volatility is endemic; we've seen 8 uptrends/downtrends to date. He's been on offence and defence this year. He holds more cash than usual now though he's been deploying during recent volatility. He looks at the topdown and the bottom-up, especially in cannabis where there are many junior companies. To predict a recession, he looks at the inverted yield curve and other metrics.

The US market is news-event driven, namely the tariff war. It's hard to make a fundamental analysis. If the trade war goes down a dark path, we cut hit negative GDP growth. But he thinks Congress and Trump himself will prevent this. That said, the trade war is definitely a negative. Meanwhile, negative interest rates are messing up the capital--and especially bond--market. There's only so much the US Fed can do.

Are rate-reset preferred shares good for an RRSP? They always talk about preferreds as fixed-income, but they are not. With rates going down, these investments are down 20-25% this year. This badly hurts savers and seniors who need the income. Compare that to a bond which pays 2% typically. He stresses that these are not bonds. He will look at preferreds where they are really, really cheap, not now. There's no tax advantage putting these into an RRSP.

Convertible debentures pay well and offer little downside. They should be talked about more, much better than preferred shares. Problem is in Canada they are not liquid. Large institutional investors can't buy it; just retail. But he likes and own several of them.

Big news today was the impeachment announcement. The markets used to trade on earnings and seasonality... Nike reported after hours and beat in a big way, confounding China trade fears. The US Fed's 25-point cut was measured and smart. Germany just reported disastrous PMI numbers, and today America released weak consumer confidence numbers, so there is a slowdown. That said, consumers are still spending. He won't predict a recession. However, October is one of the most volatile months and the TSX is flirting with all-time highs. Be ready for big drops to swoop in. Beyond that, he sees good growth.

Market. There are weak economic numbers in Germany. You had BREXIT, Chinese trade, general slowing of world exports, rising interest rates and an inverted yield curves, and now we are seeing more and more of that showing up in real economic data. With Germany being so export driven you are seeing the lowest numbers in a decade in terms of German output. None of what the European central bank has done in terms of QE, and negative interest rates, nothing is going to solve or fix these economic cycles. Trump started a global trade war and contracted the global economy but it won't fix any of that. We need resolution of the trade issue to get through this. As long as Trump is running this we will not see any resolution to all this.

Gone to Cash, what is the timing on when to get back in. No one knows. Bond yields are so low it is hard to move to them as a safe heaven. Don't try to be in and out of markets because they are volatile. Sit down with a financial planner to plan out your financial plan within your time-horizon.

Educational Segment. Last week we had a perfect storm. We had quarter end tax needs, regulatory issues that hurt liquidity, the Fed unwinding the balance sheet a bit and then a massive push of new debt. This sucked a lot of cash out of the markets. QE may become more permanent.

Market. No one can predict the future but there are going to be lower returns in the future. Valuations are quite high and interest rates are low but that is because growth has been slow. He has over a 10% exposure to real estate, which is higher than the TSX. This has benefitted from low interest rates.

Quantitative Stock Picking. You buy a company's future value of its cash flow stream and then discount it back for how much risk you are taking. Fixed income has very low risk. With equities it is hard to figure out how sustainable the cash flow is. Rail companies, for example, are easy to be sure of. Moats can be many, many things. They can be legislated, natural like the rails, or brands. It could be network economics such as with a credit card. This could manifest itself in high returns on capital.

The Real Estate Sector. He is well over 10% in real estate. Publicly traded real estate is typically at a discount (20-30%) to private transactions.

Mortgage Investment Corporations. They are not publicly traded typically. Half the mortgages in Canada are insured by the CMHC so the lenders are making risk-free profits. They go after those clients who do not quite qualify for a mortgage. Typically you go directly to these companies to invest in them.

He's still finding companies with a competitive moat. The TSX broke out a little and the S&P flirted with 3,000. The markets are opening higher, then come down--interesting. Not boring at all. We're in a Twilight Zone where bad news (negative data) leads to good news (the Fed will cut rates). So, poor PMI numbers in Germany and Korea points to recession there. Then if Trumps tweets, markets may jump higher. He follows Nike which reports tomorrow--and this may reflect the US-China trade war. If the Chinese yuan gets weaker it will benefit Nike as well as Dollarama.