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

Alberta oil refineries (the government announced today) are a good idea, but 40 years too late. Also, carmakers will be churning out more e-cars by the time those refineries are up. Audi just launched their today to rave reviews. As for oil, the US rig count slipped in December, but ultimately Canada needs pipelines to ship oil to market. The North American economies are too weak to warrant an interest rate increase. US housing is weak, for instance, and inflation is rising fast enough to warrant a hike. Outlook for US stocks: 80% of reported stocks in have been beaten the street--and earnings drive markets.

Market. Almost half of Canadians are very close to insolvency. Larry started working when he was 9 years old so he knows all about this. His family had massive credit card debts. The world is extremely fragile from a growth perspective. Governments need to help the bottom half. He believes the first $40k of income should not be taxable. There are political solutions for hard issues like this that do not put the owness on the bank of Canada. He believes Trump will be impeached. He believes it will be disruptive. He likes earnings season so far in the US. Banks missed on earnings but the market handled it very well. Markets should be okay for a couple of weeks. He was aggressively selling into last week's strength and he thinks there is a bear market coming and we are heading into a recession. China has been running a 15% deficit for the last 15 years. It is the biggest bubble building in history. Interest rates cannot rise very much as we cannot afford it.

Educational Segment. Horizons' ETFs. The active ETFs' space has really taken off. Total return ETFs have done well also. Horizons has 33 actively managed ETFs. They started with fixed income. Active ETF MERs are 10 basis points more than passive ETFs. Their active ETFs are primarily in the yield space. They have a suite of ETFs with a unique Total Return Swap. Beta is important to a portfolio. They use derivatives that give them the return of the index on a totally dividend-reinvested basis every day. The ETFs generate a capital gain. These ETFs don't add any benefit to a registered account.

Put Write vs. Covered Call strategies. Put write is the most defensive strategy. Buying long is the most aggressive. If you think there is limited upside you used covered calls. A put strategy is more defensive. You get yield off the market.

Alternative asset classes. Many stocks go up and down together. Gold and commodities tend to be an alternative asset class. This is a way to generate gains when things are going to be difficult.

In an average recession earnings tend to drop 20%. The S&P should go down to 1500, the breakout of 2000 high.

Market. He is focused on those big companies that have deposit receipts (ADRs). There are markets that are not that safe but ADRs are. This was the last chance the Americans had the chance to rein in China and make it stick in terms of making them conform in terms if intellectual property rights. The manufacturing in China is trailing off and is impacting China. Chinese markets have had a steel correction. It has been pulled back hard. While FB-Q and AMZN-Q are mostly in the US, The Chinese companies are expanding much more. He is into them.

He was exited the REIT sector when the rates were making the turn. That does not mean there aren't good REIT companies in that sector. He thinks with interest rates rising, it would be a headwind on the sector. He would stick with the bigger guys.

We're in a time of slower economic growth. The TSX has been a tear so far in 2019, but we're not out of the woods yet. The TSX has gone nowhere for five years. Now is just a technical bounce, but he could be wrong. The pullback last fall meant that markets couldn't handle rising rates. We are very indebted. After all, interest rates are at historic lows. He's keeping an eye on the junk bond market; if those continue to widen, we'll see a serious downtown, a recession. Non-financial corporate debt is really high, issued with few checks and balances. He thinks both central banks in Canada and the U.S. have stopped raising rates for now. Maybe 0.25% more. He expects a recession next year. Rates may even fall back to zero (perhaps negative rates), and we will get back to quantitative easing. We're in a market addicted to cheap, readily available money. How do we break this habit?

Market Outlook He is not really buying into the full rally mode of the market. He is holding a larger amount of cash than normal. He is not sure we have seen the lows yet. He does not buy into a "V" bottom. Nobody really knows. The key is to own companies that you can own for the long run. Don't try to guess what the market is going to do in the short run. He is looking to get back into the Canadian oil sector. Although he doesn't like the political environment, he thinks it is too oversold now.

Are banks a good investment? He is not big into Canadian banks. There is a small US hedge fund shorting Canadian banks on the expectation of a slowing housing market. He is not saying it will be anything like the US banking system was, but he actually is holding more US banks today. He sees Vancouver and Toronto real estate markets starting to plateau.

What's today's rally due to? On the back of tech selling last year, people are sitting cash and jumping back in. His concern is that don't forget US firms had benefit of tax cuts last year. Now they have to show real earnings, not something artificial. Last year was similar to 2011, where there was a correction of 20% and then 5 years of straight up. He has 20% cash, so still being defensive. If a portfolio manager can beat the benchmark by about 2% after fees, they've done well.

Do you see the rally continuing for 2019? For the Russell 2000, it's risk on again, since biggest movers had little volume or were penny stocks. The expectation is that US rates won't rise and will probably stay neutral. If there's an agreement between US and China, multinationals can start earning greater profits because the currency won't kill them. If we get an inverse yield curve, corporations will still suffer, as it reduces money in innovation, prompts hiring freezes, and reduces M&A activity. Have we seen peak margins that could trigger an earnings recession, rather than an actual economic one?

More M&As in 2019? Yes, if capital is available. But there's a lot of leverage out there. Plus, banks' profit growth is not as high because they're buying back shares. This market is still priced for perfection.