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

Canadian Bank Stocks. A good time to buy in? Historically the bank stocks in Canada reach a low in January and then move higher into April. Currently they are in a downtrend but within the next month the sector will bottom. There is longer term support at current levels to the downside. Risk is minimal. Dividend yields could go higher from current levels.

Educational Segment. There is going to be another leg lower. The Dow normally does this in a pre-election year: The first quarter goes up significantly. It is the second strongest quarter of the 4 year cycle (5.2%). There was the shutdown of the government which they will get rid of. During the last 18 periods after shut down 9 of them have seen the market not go higher. Negotiations with China are important because if they reach a trade agreement it will have a big impact on markets. Fourth quarter earnings reports from the S&P are expected to be up 12%.

Market. He has been short most of the year and in the last week went net long. There is less downside risk for the markets now. There are potential catalytic events that could send them to the upside. This is far from over in terms of a bear market because we haven’t got all the bad news yet. It is after a 10 year run-up in the markets. A lot of the tail winds have gone. It is a trading market. Look for beaten up companies at low multiples with good earnings with low trading risks, such as FDX-N. We've seen the best in earnings for the next year. He thinks they could go negative for the next year. It is too soon to sound the bell that the bottom is in.

Are 8-9% dividends because of stocks dropping – are these dividends going to be cut? North of 10% the market is saying they expect the dividend to be cut. Tech companies should invest and grow the business with cash but banks typically pay out a lot to shareholders.

Canadian and US$. It is a good question to ask when buying US stocks. He does not know if the Canadian dollar will have a big move either way. Canada has its economic problems. The economic outlook in Canada is getting clouded and could cause a move downwards. However it does not have a huge impact on his decisions about US stocks.

2018 recap: few saw the difficult Q4 and December especially coming. The Nasdaq was down 3% while last year it was up 28%. The TSX fared badly. What next? He doesn't think 2019 will be *that* bad. Sure, December was rough with no buyers and everyone selling at once. It's wishful thinking to feel US-China trade wars will just disappear. This is the new normal. Expect volatility. China won't bend under US pressure. US and China are battling over the 21st century. The line in the sand has been drawn. Can investors get used to this situation for the long term?

2019 outlook He's always had a good EM allocation. He buys ADRs in nations he wants exposure to, but recently he's been buying American stocks with that international exposure, like Starbucks. He's been conservative with cash, buying a little during the October dip, but only a little. You can't ignore the Chinese consumer, like Canada Goose opening a store in China.

2019 prediction? January to June may be up and down, but after July we'll be in much better shape after digesting a long correction.

Market Outlook He thinks the washout lows of December are now oversold. He expects a full rebound into March and perhaps into September or longer. An inverted yield curve typically results in a market rally for nine more months. The trade overhang issues will continue, particularly on the technology side. He expects patent battles with China to continue. On a 200 day moving average basis only 11% of US stocks were trading above the long term average -- similar to 2011 and 2016. This has resulted in PE ratios becoming much more reasonable. He has 6 "okay to buy" dividend strategy stocks right now -- so he is waiting for the all clear signal to come.

Dividend trading strategy You must look at a company's trailing four quarter payout ratio. If it is less than 75%, it is a buy. If it is above 100%, then it is a sell as the dividend is not likely sustainable. The earnings growth is also important to be able to sustain the growth. This generally results in his picks averaging less than the market average yield.

Canadian dollar outlook. He thinks the Canadian dollar is likely headed lower -- based on recent technical analysis. It is usually a reflection of what is going on in the country -- with oil prices looking weak, he is not bullish. He is not expecting the Notley government's production constraints for January to have much of an impact on the dollar.

Where are the markets going from here? Major 4-year bottom cycle in 2016. In October, there was a standard pullback. At first, they called it a "holiday sale." But the technical damage was severe, a 4-year cycle reset, a business cycle contraction. So 6-9 months from now, there will be economic weakness. We're in the process of starting a new 4-year cycle. On average, the 4-year cycle pullbacks were 15%, and they lasted 34 weeks. If we hit either goalpost, he'd look to add to equities. This is not the start of a new bear market. From 2000-2010 was a secular bear market, where the price damage was around 34% and the duration was also extended. Current cycle sets us up for another 2-3 years of upside.

Gold longer term. "Intermediate term" is 3-6 months. Right now, we're in a commodity bear market. Whereas between 2000-2010, we were in a commodity bull market while in a secular bear market in equities. So commodities were bid up more than stocks. The next commodity bull cycle should be around 2028-29. In the next few years, gold will underperform equities, but there will be periods when it will be great to hold. Three factors caused him to be bullish on gold in August/September: seasonality, low valuation, and commercial hedgers were long. It could get more dicey in the near term.

Healthcare sector for the long term. Managers rotated to it as a place to hide when the market was volatile. If it's paying a strong dividend, no reason to sell. Especially with the 4-year cycle reset coming up. There will be a rotation out of defensives and back into cyclicals, so don't sell at the lows. There's more upside to come. Has a long-term, stable uptrend.

Copper. This is one of the canaries in the coalmine. If the 4-year cycle reset does take hold, copper should hold in. We're getting close to a critical level. So if we go below the lows, the next major support level will be $2.50. And if we go below that level, then something bigger might be happening, and the 4-year cycle reset may not be coming up.