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

Walmart's numbers were very good today, signalling that the U.S. consumer is healthier than we thought in December 2018. That challenges the idea that the American economy was doing well last year until September. But he doesn't any stock that pulls back in the last minutes of a trading day, but he likes Walmart for the long term. Compared to Amazon whose multiple can't be justified on a retail model. (He owns Amazon.) We've never done deleveraging on the scale that the US Fed has done, like it is now. The December rate rise in December was probably a rookie mistake by Powell. He's sure there won't be a rate hike this year. We'll be in a trading range until the US and China sign a trade deal which will be the next catalyst--and it's partially built into the market already. Conversely, we'll see a major sell-off if there's no deal.

How long should you hold a covered cold after a stock goes ex-dividend? Say you buy a stock on Monday and sold covered calls on the same day. The stock hits $36 and you sell covered calls at $32. The next day is the ex-dividend day. On Tuesday morning 9 am, the stock is not been sold, so you re-purchase the covered call then sell the stock. On Thursday, he was told he must re-purchase the stock and shouldn't have sold it. The only reason you couldn't sell it the next day is if the optioned was exercised and the stock was taken from you; you shouldn't learned this on Tuesday morning. This is the dividend capture program. The challenge with this is if the dividend is large, then the person who bought the call has the right to exercise it--and if he does this on the ex-dividend date, then he owns the stock and captures the dividend. Such a move doesn't have much time value. Apparently, you didn't know you had lost it. Talk to your broker/firm.

Where should a new investor start in today's market with a troubled outlook? He's never found a great time to invest in all his career. So, start--as a balanced investor--and buy the TSX 60 index with XIU, then SPY, XBB and XSB at 25% each, so that you buy the Canadian economy, bonds and the S&P 500.

Initiating a 1-2 year put option that's out of the money. What are the risks? Selling a put option means you're taking on an obligation to buy a stock at a certain price (but not in a sheltered account because you need margin) below the current price. If you don't get the stock, you keep the premium and the trade ends. If you sell long-term options that are out of the money you'll get more for them, but you have a much longer obliation (for a long time). The risk: don't do these unless you have the security in cash. During a sell-off, the value of the put rises because the market is declining. It'll also be hit by an increase in volatility--a double hit on the position. You must weather this situation, which will correct short-term.

Market Outlook China is a huge consumer of commodities -- about 1/3 of all raw materials in the world. He thinks a trade deal between China and the US will eventually be reached. Technically, the advance-decline line for all the major US indices closed at recent highs, suggesting there is still room for things to go higher for the next year. He thinks the semi-conductor space is a leading indicator for the Purchasing Manager Index (PMI). He thinks by next summer the PMI will be increasing based on activity for semi-conductors today, which will lead to continued support in the market. The US Fed taking the foot off the pedal is going to bring support to the US housing market he thinks. This will bring greater consumer confidence.

Trade and the markets. A great trade deal with China, which has the markets popped. Momentum after the volatility. His concern is that if we raise 10% a month, we'll be at 3700 on the S&P by July. It all depends on the earnings. He hasn't been enthralled at all. The economy better get super-charged in a hurry from Fed not raising rates and from trade deals, because otherwise markets can't sustain those levels.

Interest rates. If there were to be a rate cut, means economy probably slipping into recession. GDP might be 2-2.5% around the world, not great growth. For multinationals, organic growth is not as expected.

How are you positioned? 20% cash. If he can do better than the market with that, he's happy. The last thing he wants to do is sell in a falling market. You don't fight the Fed. When interest rates rise, you have a selloff. As rates start to fall again, impetus for markets to be positive.

Comments on the Fed. They're in a bind, because unemployment is as low as possible, but they're not getting that 4-5% GDP growth that goes with it. And technology has taken care of wage increases, so you're not getting inflation. He thinks they should do nothing for a while. Companies are passing costs along to consumers, and this isn't being talked about yet. And 2/3 of the US economy is made up of consumer purchases.

REIT recommendations. Doesn't own any. Dividend growth is only about 2% a year, so it will take you 36 years to double your income. Inflation eats away at the yield. Focus more on something that will give you a decent yield growing 10% or more. Plus, if you already own real estate, there's correlation risk.

Pharmaceuticals. Have to look at where the revenues are coming from. If 40% revenues from the US, you might want to avoid it. For example, type 2 diabetes expected to grow in China and India. Demographics are a huge tailwind to medical devices.

Market. The bounce of the recent lows is a whole combination of factors. The market over reacted in December. There was fear that the Fed would continue to raise rates and that triggered a sell off. That reversed itself in January but where do we go from here? There is a lot of skepticism to this rally so there is a lot of money on the sidelines. The Fed got scared and rate hikes are probably off the table for the near term. He is skeptical of the durability of the rally but the risks are measurable to him.

ETFs. There is no regard for what the valuation is of the companies – what you are paying for it. ETF selling probably accelerated the selloff in the December.

FTS-T vs. Utilities vs. Telecoms. It is an easy choice to Telcos. They are both regulated. Both steady state, stable businesses. BCE-T vs. FTS-T. He is long BCE-T. It is has good valuation here. 16 PE. FTS-T has 13 times. You should do better in Telecoms. T-T is warnings of implications f the Chinese telecom is banned from Canada.

Market Outlook - Retail sales were surprising but seems reasonable to assume that the reason behind it was the market downturn of December. The problem with the telcos is that they have gone the Huawei road and it is going to cost them if there is a ban on it. Given his academic background on defense policy he agrees when the 5 eyes (US, Canada, Australia, UK and NZ) say that they have real concerns about this company integrating in the system. Canada doesn't have the spine to ban the company by itself. If this happens this can happen in conjunction with Canada's trading partners.