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

Educational Segment. The Earnings Recession and What it Means. We will know after this quarter if we are in an earnings recession. It means we had two quarters of negative growth. He wants to be protected when (1) markets get over valued and (2) there are geopolitical issues as these can trigger a recession. Earnings weakness is coming from trade. 21.5% of the S&P is technology. Because it is such a big sector it will be swinging earnings round and round. When we go into recession we will get a multiple contraction as well as an earnings contraction and this is the worst case. He maintains low, low risk portfolios but with as high a yield as possible, moving into areas such as bonds, cash-like instruments and gold, etc. to lower overall risk. It is always all about asset allocation.

Market. He is seeing signs of froth in the market. Investors are probably happy with the year-to-date returns but there are more traps than there are opportunities as we get to half way through the year. Beyond Meat is trading at 90 times sales. Uber investors are subsidizing rides about 30% right now.

The capital asset pricing model doesn't take into account yields, but Europe has negative yields across the board, like Swiss bonds (they pay a negative return, so you pay them to hold your money). It's unbelievable. So if interest rates go negative, then stock prices more infinite. Stock growth doesn't matter; valuation is all that much more attractive, remarkably cheap. Stocks are attractive. He owns bonds, but it's risky to go long-maturity bonds if interest rates go up. Short-term bonds are attractive, but stocks are the most attactive asset class.

All US stocks vs. GDP since 1971 to determine whether the value of the whole market is supported by underlying economic growth: there were peaks in 1999 (dot-com bubble), 2007 (before the crash) and especially now which is extremely high. This means we are at elevated levels, so we need to be cautious. Caution is necesarry. Also, growth has outperformed value for a decade. Before then, they were basically in line (based on the Russell 1000 growth vs. Russell 1000 value charts). He's looking for value in companies that are still growing modestly below 10x earnings and growing in dividends because their cash flows are still growing.

Long-term returns in Canada vs. US since 2000 The US has outpaced Canada since 2000, though that gap has recently narrowed. After the tech bubble burst in 2000, the TSX benefitted from the backlash against tech stocks. Then, after the Great Recession, Canada benefitted from the junior oil boom. If you traded that, you would have done really well. But if you are a buy and hold investor, then the US is much better; the US is better-diversified whereas Canada is dominated by oil and banks.

Long-term returns in Canada vs. US since 2000 The US has outpaced Canada since 2000, though that gap has currently closed. Remember that tech stocks have bolstered US stocks. There were was a junior oil boom after the ... trader But if you are a buy and hold investor, then the US is much better; the US is better-diversified. Canada is dominated by oil and banks.

The Fed. Seeing disparities. If we're cutting rates, economy isn't great. But if we aren't reducing rates, the market gets upset. Just relax and breathe. Make sure your portfolio is set up properly and diversified by country, size of company, industry. Avoid correlation and concentration risk. Have some cash on the sidelines. Set up the structure that's right for you with respect to cash, stocks, fixed income.

Change in bond yields. Causing a few issues. If interest rates are falling, signalling no growth in the economy. We're probably toppish right now. There's no direction, so we're getting a whipsaw effect. Breathe. Make sure your plan is in place and stick to it. If you have cash, you can take advantage of anything nasty that happens.

Market. He sees a risk that oil goes below $50. There is the inventory build in the US, the battle with China over trade and sanctions with Iran. But the EIA report was favourable this time and the news with Iran and the drone today. The G20 will involve Trump and the Chinese leader having an extended discussion. He thinks the G20 will not come to the solution that everyone thinks. Trump won't want to solve it until Q1 of 2020 because of the election. The US may already be in recession. People are throwing out the number that maybe the Fed will cut by 50 basis points. This is the longest economic recovery in history and we are beginning to see signs that there may be some problems. If the trade issue does not get resolved in July we may see the price of oil back off.

Market Outlook - From a technical perspective 2950 seems to be the breakout point. It will fail from here or it is going to continue on the trend that we have been experiencing prior to January 2018. We had previous failed breakouts. The same for the TSX. It has had a lid in the 16,500. It is testing the lid. He needs to see that resistance levels are broken with conviction before he is convinced. He looks at the rule of 3 and 3 to identify breakouts: minimum of 3 days, and 3% higher.

What is your opinion on the tariff issue? You never asked a technical analyst about the economy (laughs). He read a research from a trustworthy source saying that China is going to come OK in terms of stock prices out from this. It is fairly undervalued.

Can you provide your opinion on Bitcoin? He is price guy. He doesn't look at events and so as everything is reflected in the charts. It peaked and it fell and now it put in the bottom. Very volatile. Looks good for somebody that wants to trade a high vol high risk asset.

Market Outlook Earnings are always what drives the market. Q1 earnings dropped over the year and only 38% of companies reporting beat estimates. The sectors of growth are limited making growth slow going forward. Companies will get through it, but the short to mid-term outlook will face head winds. Real estate may plod along, but will not likely be a growth sector. Tech is the most promising, but it is so thin with opportunities in Canada.

Cannabis He is starting to get a better feel for what the industry is going to look like. Companies are recording big misses on earnings and revenues, so it is hard to justify the multiples. It is a tough space still. They would like to see more care for the share count. He feels they are issuing shares like crazy since they are highly valued.

The US Fed held rates today but laid the groundwork for a July cut. The Fed is right on top of things, neither ahead nor behind the curve. They even steepened the yield curve at 2.03% for the 10-year. This and the ECB moves have placated investor angst. Inflation remains low, subpar with concerns over de-flation. To deal with this, there remain stocks with healthy--growing--dividends with little risk (they're mostly defensive). Then, there's big tech, which has come down a lot but boast higher-than-average growth rates. We could have both a US-China agreement and low interest rates, but not for the long-term, just short-lived.