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

Capital position is at risk right now, so look at dividend stocks. If you have profits, maybe should take some right now. Definitely park money in big dividend stocks.

U.S. Dollar. Still the strongest performing economy, and the federal reserve looks to be holding interest rates. It's still a good play in the U.S. China is more hurt by the tariffs than the U.S.

Market. This is a time when investors what to make sure they have all their ducks in a row and the time to do this is now and not when there is a problem. The headlines around the world about the recession might be pre-mature and a false signal. The Fed is saying that the economy is not necessarily heading for recession. They are saving bullets. Manufacturing is only about 12 or 13% of the US economy. Full employment indicates their confidence is high. There will be a recession, and when there is one it could be shallow and not last that long and they could now occur more often than in the past. The roll of a money manager is to purge the emotion of the client. He makes sure he is attentive to portfolio mixes.

A few US Fed chairs have been hawkish today about interest rates which took markets by surprise. Chair Powell will speak Friday 10 am EST and is expected to have a dovish tilt. The markets have 100% priced in a 25-point cut, so Powell can't stray too far from that. We haven't seen clarity since the last cut, though. Economic data is coming softer than expected. The inverted yield curve may not auger a recession, because we're in a different situation this time. More than a third of bonds worldwide are negative, so that's depressing the bond yield. She isn't changing her strategy to adjust for a recession, but is keeping her eyes wide open. Employment and spending are still high; data doesn't point to a recession. For real estate, interest rates are good, but not if there's a recession. If that happens she will look at healthcare and apartments (REITs). In Canada, the latter are affordable.

Can REITs sustain themselves in a low-interest environment? Low rates are good for real estate, and we're not heading to a recession. Investors chase yield worldwide and the average REIT pays 4%. Attractive. Hold onto your REITs, which were the second biggest-gaining class in the US YTD (after tech).

Double-down on a declining U.S. mortgage REIT that pays a high yield? There are various kinds of U.S. mortgage REITs, like agency-backed mortgage securities that are backed by the government, and non-agency ones that pay a higher yield (riskier, no govt guarantee). Also are commercial mortgages for offices and hotels. The biggest risk for mortgages REITS is repayment. A caveat: she has seen such high-yielding US mortgage REITs cut their dividends by 15% in Q2.

Bank earnings. Bank index in Canada has underperformed compared to the broad index, which is a first in 9 years. They usually trade around 9 - 11x earnings. They are currently closer to the 9x earnings range, so it is a good entry point. However, banks have changed and there are headwinds to bank earnings, such as fee compression and fintech encroachment. Still have 5% yield and growing dividends so it is good for dividend investors. Doesn't expect it to outperform largely.

RBC didn't blow away investors with their earnings, and doesn't expect any of the others to either. The quality of the earnings were good, so have to look at each bank individually. Isn't expecting any exciting things from banks this quarter.

Investors haven't been touching Canadian equities, particularly energy, and there is no big upcoming Canadian tech IPOs so there is little money coming into the Canadian equity market.

Preferred bank shares. Given the rates are low, and if the security is a rate reset, you should be careful. Preferred shares are equity and not bonds, so it could be better to buy the individual stock at these evaluation.

Investors flocked to Canada for resources when China was hungry for resources. Now, there is more preference to U.S. stocks. Right now, tech and healthcare is in, but the Canadian market has few of these companies. Could be a good time to buy US dollars if you believe the Canadian market won't strengthen.

The market is noise. The market today is like February 2018 with a correction in place during a bull market. The US Fed: it's in uncharted territory so they're making up the playbook as they go along. The bull market is now long in the tooth; the yield curve inverts periodically. Both point to a recession. The long bull market is based on easy money, which is actually indicative of inflation. The negative interest rates on the world's debt is actually inflation. No, the weakness in Europe or elsewhere won't trigger a U.S. recession. Only American forces trigger that. The US economy is 70% a service economy, which aren't as volatile as a manufacturing economy, like Germany's who have gone into negative growth. The boomers have money and are spending, so they will keep the U.S. service economy stable.

ETF/stock allocation? 65% of his portfolios are in their pools or ETFs. Stocks are riskier than an ETF, because a basket avoids company-specific risk. If one company in an ETF is hit by, say, wage raises, then it will be offset by other stocks that don't face wage raises. But if you own that company and it faces wage raises, then that stock will get hit. Hold no more than 50% in stocks.

If Brexit crashed out of the EU without a deal, is there an ETF to pick up then wait for a rebound? Good question. He's thinking of buying UK pounds after Brexit; the pound has slipped a lot. The EU won't discuss the last negotiation, so he expects a hard exit which will challenge UK markets. He can't think of an ETF now, but Google for a UK-specific one.

Trump said he may introduce more tax cuts, but this is noise. You can't trade according to the headlines. He doesn't know what's going through Trump's head. Huge sections of the stock market have gone nowhere or gone down 10-20% over the past two years, including Google. Investors are worried about a crash and inverted yields. Google, which he owns, boasts growing earnings, but the stock price has been down. Same with bank stocks. He doesn't understand what's going on. Buy companies that have durable balance sheets and ignore the noise each day. If you buy a stock, be prepared to hold it for at least five years, while investors who trade regularly make less over time. For example, Disney did nothing for years, then shot up this year (on news of the Disney+ launch). He doesn't buy one-day dips.