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

Canadian apartments REITs are still a good place to be. What drives their returns is their ability to increase rents. There is a shortage of housing in major Canadian cities. They have all been doing it. He likes IIP.UN-T. If you look at next year's numbers you see continued growth. They have been historically smart with their capital. They don’t come to the equity markets unless they can and it really makes sense.

Poloz said today that there are challenges around the world that need to be managed. Indeed, there is slower growth, though maybe things are picking up in China. Clearly, the U.S. is nervous and some there want to cut rates. Market growth may return to mediocre levels, but this is a good time to own stocks. No way interest rates will rise in North America in 2019. But he's worried about relations with China--Canada has taken several steps back in terms of befriending China and shifting away from the U.S., but Ottawa is currently distracted by the SNC scandal. He doesn't see a recession coming--good news.

Which bonds to buy? You gotta hold some bonds and not only stocks. Stocks can plunge. He likes liquid, transparent assets. He's buying very short bonds and corporate ones. He wants zero risk in bonds. He buys bonds to protect capital--but it's horrible to buy bonds right now because of really low rates.

He is not a fan of the commodity based equity sectors. The US yield curve inversion often indicates a recession. Quite often see the markets rally after a yield inversion. Need to structure a portfolio that can withstand short term and long term scenarios. There are always going to be 10% pullbacks, which is the risk of equity investing. You are never going to be able to time the tops and bottoms.

Market. BREXIT is not looking good and with earnings coming out, there is a chance we might see the market weakening a bit here. That usually pulls energy down even though fundamentals of energy remain strong. The time to buy was the tax loss selling of last year. If we pull back we will get another buying opportunity but not as good as December 23rd. Now that Muller is over, Trump needs things to tweet about and now it is OPEC and cutting back on production restrictions. If it happens repeatedly. The market could pull back. If stocks pull back as a result they could be a fantastic buy. He thinks we will see $70+ oil in Q4 and $80 in 2020. In April/May we could see significant erosion in stocks he discusses in this show and if you are going to buy them, do it then. He thinks we are in the early stages of a new bull market in energy and energy services stocks.

Market Outlook - He is finding much more pessimism in his clients meetings. Many people asking: is a recession coming? Pessimism is pronounced. Pessimism is intellectually seductive. There is an asymmetry in gain vs losses. That is why he uses stop-losses where possible. Diversification is a big tool and so a balance between aggressive / defensive. We just had a 20% correction. It wasn't as bad as 2009 but close to 2011. You have to take advantage of those situations. He would argue that in his years of career most money has been lost on opportunity costs or being too defensive preparing for a corrections than in the actual correction. The Market is a big world. Unless you are completed committed to a monthly contribution for 20 years then he is not for passive investments. The inverted Yield Curve is a little misleading and a recession could come after 8 months to 3 years after the inversion. Also some people are picking the points in the curve. Also some people are fitting this event to their negative narrative as there has been cases where no recession came after an inversion.

Veritas saying get out of Canadian banks. We've heard this "cry wolf" for over a decade. Veritas tend to be short analysts. Bank sector is slowing down, but to predict a precipitous drop is really sticking your neck out. Mortgage lending is slowing, interest rates are lower. But they're still making money and have attractive dividends. Doesn't expect big surprises in loan losses. It's fear-mongering. But growth is muted for sure, so he doesn't own any. Plus, they're expensive price to book. There will be loan losses with oil and gas, but sees no ticking time bomb out there.

What sector would you put money into now for income? He doesn't normally invest by sector. He looks for opportunities and value. Avoids resources, oil and gas, mining, biotech. Loves renewable energy, energy infrastructure like pipelines, senior living. Tech, consumer staples, and industrials are company-specific. Stay on the conservative side and keep a long-term perspective.

Brexit: the political process is very messy and PM May is now stepping down (why didn't she earlier?). While this is happening, UK is enjoying low unemployment and decent growth, but UK stocks are on sale....Lyft will do an IPO on Friday. He uses Uber, but it's never made money. This is an example for investors are desperate to find something to give them a return. Even a loss-making business can get financing....Global growth is slowing in Europe, China and North America, so long-term rates have plummeted. The inverted yield curve is an accurate harbinger of a market downturn. He's taking profits now, but interest-rate sensitives (pipelines, utilities and REITs) are back in favour and pay a dividend. Trim aggressive stocks like tech.

Huawei and investing in China Huawei is like SCN Lavalin, facing a lot of political pressure. He wouldn't buy it. When investing in China, it depends on what the Chinese government's policy is. Are you friendly or well-connected to the government? Could those connections suddenly change (and hurt you)? Better to invest through Hong Kong, because it's well-regulated and offers quality Chinese companies and there is some protection legally.

Perception that global growth is slowing. There will be a recession, he just doesn't know when. Looks like global economy has peaked. Debt levels are at record highs. Feds have taken a breather and given markets a boost. Policy makers don't have a lot of arrows in the quiver now. He never tries to guess where the economy is going, there are too many permutations and combinations.

Yield curve inverting. He doesn't like to say because of A, then B will happen. Bond markets have already reacted by knocking rates down. Who knows if yield curve will stay inverted for a long time. Globally, investors aren't afraid to buy Spanish and Greek low-interest credits anymore. German yields are 0 or negative, so the idea is just to not take on any risk. We don't see deflation around the corner.

US high-yield bonds. For US high-yield bonds, he hedges the currency. No sense buying a US high-yield bond fund, if the CAD rises from the 75 cent level. There is a US high-yield bond ETF that hedges the currency so you don't get burned. Do not buy US bonds unless you're going to have a currency hedge.

He isn't spooked by the inverted yield curve, given his long experience. He remembers Paul Volker who induced the 1981/2 recession when the prime rate hit 22.5% and the 10-year bond yielded 14%--a much-higher yield curve than today. The inversion now at 2.3% is a lot different. The US Fed raised short rates too far, too fast in December and took its foot off the gas selling longer-dated securities. It had continued, that 10-year yield would be 50-100 points higher. So, the inverstion is caused by regulation: on the long end by stopping selling bonds; on the short end by forcing up the Fed's funds rate. Now, we've never seen a recession with interest rates this low for so long, though it could still happen....Canadian banks go up and down like any stock and shorting is an investor's right, but our banks are nothing like the ones in America during the Recession. Defaults from consumer debt are still low. The dividend rates on the banks put a floor on the stock prices, and it's unlikely any bank will cut their yield.

Market. Stress in the US housing market. He presented a graph of the percentage of households who own homes and pay more than half of their household income to mortgage costs. The last peak in 08/09 had 17% doing that and now it is 23%. So this is a sign that leverage is a problem, even if we have low interest rates. However the credit core back then was better than it is today. This is another reason why interest rates cannot go up.