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

Educational Segment. Guest - Barry Allan. He tries to have ETF products launched before the sector is going to perform very well. FGO-T has done 3.85% with lower risk. He thinks we have seen the peak in equity markets and the peak in bond markets. It does not mean we are going into recession tomorrow, however. The risk of owning long duration government bonds is minimized significantly now. He thinks it is an opportunity to accumulate long term government bonds. He sees pockets of value in short term high yield corporate bonds also. He is cautious on preferred shares and floating rate products.

Market. Speculative manias coming into the markets are usually indicative of a top. Global markets are slowing down and NASAQ companies get 44% of their sales from global markets. It was bound to happen that companies would guide down. We saw a bit of a rebound this year but now you are seeing companies impacted by a higher US$ and trade wars slowing growth. CAT-N is feeling the pinch. Canada is his focus. He thinks there have been bargains in Canada for the last few years. Last fall there was indiscriminant selling that created real bargains. He is sticking to sectors that are not that cyclical and have low sensitivity to the Canadian consumer like wine, retirement residences, cemeteries, etc. They are recession resistant.

Banks may decline over mortgage fears and debt concerns. Those are always fears. The banks look toppy, which means we're probably at the premium level. As a technical analysis, sell them.

Gold? $1,100-1,400 is his expected range. Once gold breaks above $1,400, which he expects, then it's time to look at gold stocks.

Market Outlook 2018 was a disaster year for energy investors. What we didn't see was the narrative around the Saudi production ramping up in support of the the Trump Administration Iranian embargo. However, exemptions were allowed for Iran and there was a clear long position for supply and traders sold oil and energy stocks. The late season tax loss selling was the most vicious he has seen in his career. This year is a year of rebuilding confidence for energy investors. He sees this as an opportunity for investors as upsides are easily 50-100%.

Venezuela impact on Canadian energy? Setting aside the humanitarian issues, this has the biggest impact on Canadian heavy companies. They have struggled with PDVSA, the national oil company, suffering from a massive brain drain. Fields have been under invested for years. Even a change of government will not allow them to turn around production quickly -- it may take several years. As their production has been falling it has been bullish for Canada and has contributed to the $9 differentials now.

They kicked the can down the road by re-opening the US government today. Now, can the US solve the China tariff issue? Then, we can focus on the economy and fundamentals. We'll return to mediocre or slightly above average 3-7% earnings growth, but don't expect 18% growth as we did in 2008 right before that recession. This is good. Of course, some companies like Intel today will disappoint, but that's normal. Don't invest with your gut (emotional), but stick to the long-term. Investing is a marathon, not a sprint. When stocks plunge....do nothing. Nobody knowd what will happen, but we know what works over time. Be patient.

Market. Christmas Eve was the bottom for the energy sector. A massive amount of hedge funds where long oil and short natural gas. They were wrong on both calls. The FANG stocks were going down at the same time. He thinks it is not over and that there may be one more pull back in energy. There may be one more buying opportunity. He thinks WTI will get above $70 this year.

If the price of oil goes to $70 and then 80 or 100, it is about worldwide events. Enbridge line three will probably be put on. Heavy oil has more of a problem than lighter grades of oil. Lighter grades of oil have more to do with the worldwide price of oil. We could see bills get stalled in government that are supposed to stall the egress of oil.

Market Outlook - The 50 - 60% retracement of the massive drawdown of December makes your head spin. Where are we now? We are from an oversold position in December to a likely overbought now. If the TSX breaks the low that we saw in December, we are probably in the third wave and the market could get lower. He just raised more cash and now he is 30% cash which is very unusual in winter for his firm.

What is the difference between a log scale and a regular scale? A logarithmic chart shows the percentage change as opposed to a pure price change in a non-logarithmic chart. The proportionate change is different. Technical analysts use log charts because the dollar only charts is disproportionate.

Market Outlook He is optimistic about the Canadian market. If you look at last year's 10% TSX drop, historically the subsequent market goes up 12% -- good 90% of the time, he says. Canada is very washed out in the energy and financial sectors. Multiples on banks have come down a lot, which should bode well for them. He does not think we are headed to a recession, relative to earnings growth. If we can see some stability, we can see some catch up on values. Small caps got hurt hard last year and he thinks that means a healthy rebound in this space.

Volatility from 2018 will continue this year as the cycle matures. He doesn't think a slowdown is imminent, but it will happen. We've seen a nice rally since Dec. 24 and investors are coming back. Geopolitical concers are also easing. US labour and manufacturing numbers meanwhile have been good. The US economy is still firm. Maybe we won't see new highs, at least not until China-US resolve their trade war, and he's confident it'll happen. He's overweight the US and underweight Canada now, and zero in Europe, with some in Asia, which is getting cheap (maybe add there). Canadian banks and insurers will do okay in 2019. He doesn't see a massive slowdown. He doubts the US Fed will hike beyond once this year; they'll remain calm. Key here is US-China resolving their trade war.

2019 will be an epic bears vs. bulls battle that'll be a lot like 2018. Up 10% and down 10%, and in between you'll see fantastic opportunities because of volatility. Great for traders (not long-term investors). He won't say we're in a bull or bear market, just a transitional market with lots of volatility. But there is a bearish backdrop out there given a world slowdown. Between the bearish and bullish moves, you can bank some money.