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

When do you expect a recession? We could see cracks in late-2019 and a recession in 2020, though it won't mean a 2008 deep recesssion, but an old-fashioned one.

Producers are already saying they are going to cut back their production. Capitalism usually finds a way to make it work, but would like to see if happen faster. We need to get a better price. Royalties and government revenues are going to be significantly down. This is not just an Alberta problem, but a Canadian problem. Albertans are very frustrated at lack of pipeline construction progress. If Bill C69 goes through in its current form, there will be few if any pipelines ever built again. Need more forward looking management and Boards in Canadian energy sector. She would like to see more 5 year strategic planning in the energy sector like you are currently seeing in other sectors.

1. Crude Oil Outlook: She does not see the renewable energy side taking charge for another 20-30 years. There has not been a lot of traction for non fossil fuel businesses. Weaning off fossil fuels is important but until there is a way to fix it, Canada has to continue producing fossil fuel energy.

The markets have entered negative territory because the Wall of Worry has broken down with fears over the US-China trade war, FANG stock weakness and rising interest rates. He's not worried about Apple; growth rates can't continue, because the iPhone is near saturation. Geopolitical concerns weigh on sinking oil prices. He believes that the overall market is seeing a temporary correction, because economies are doing well and unemployment remains low. He doesn't see anything to be really fearful of. Corporate profits will decrease next year, but remain strong. Stocks are the place to still be.

American banks He doesn't and wouldn't buy them. Why? He's a long-term investor. Citibank and JP Morgan have gone bankrupt in the past, while the Canadians have sailed through.

The trade war and the pace of US interest rate raises are key worries. The latter will continue because the U.S. economy is growing and healthy with unemployment at a 50-year low. It's difficult to determine what'll happen in the US-China trade war. In the Q4, though, US companies are starting to see pressure on costs (transportation, wages), so will this slow corporate growth? Tax cuts, that have helped corporations, will moderate next year. Earnings will continue though. We are at the latter part of the cycle, but she doesn't see a pending recession. Trade wars are not good for economies; they increase costs and inflation. In turn, the Fed could raise rates even faster.

Volatility continued today as oil plunged today. Corrections are normal. History tells us that we get one every two years. This year has been particularly volatile, because we've had two corrections in one year. Before that we had years of every little, which was not normal. We have to be patient (but not stubborn), and have a long-term discipline. With U.S. Presidents, there are always issues. Companies are the slaves of earnings--remember that. With dramatic rising earnings with an up-and-down market, to him, spells rising value in the market. He's a half-glass full guy. Be patient and diversified. And when you're wrong, can the confidence to make a move (i.e. sell a stock you own).

Market. Saudi Arabia is going to tighten the taps on oil to support oil prices. $50 +/- $10 is probably where we should be for the next 5 years. He is okay with trading US energy equities. When we hit the next recession, say in the 2020's, we will see oil in the $30s again. Europe is very fragile. Japan is not really tightening policy. Only the US is now raising interest rates and so the US dollar keeps getting stronger and stronger.

Long Bond Durations. Once interest rates start to fall these will make a lot more money compared to shorter term bonds. You can now tactically take positions in long term bonds. He is starting to sell TLT-T. He made one percent in less than a week. It is negatively correlated to equities.

Real Estate. Should one take profits or can you continue to take dividends. The answer involves risk. The Canadian REIT sector is tremendously overvalued. It is one of the last interest rate sensitive industries to turn over in rising interest rates. You could see 10-15% downturn sometime through to 2021. ZWU-T would give a better yield and he prefers this one.

Lithium. LIT-N is an ETF. It is the electrification of vehicles. It is an interesting sector. It is going to be a great long term investment.

Educational Segment. Controlling risk in portfolios. Beta is market risk. Buying a low cost ETF on the market index is a beta of 1. Get this when the outlook is clear. Otherwise he suggests ZUE-T, ZSP-T, ZLU-T, ZPW-T, ZWH-T. All but ZSP-T have a beta lower than 1.

Market. Significant technical damage has been done to equities. It's not like 2008. You have to know what to do – hold more bonds, for example. As people come back to buy the market they are not so sure about the market and there is a wall of selling as the market comes back up. GS-N came out and cut their earnings estimates for the market over the next two years. The growth in Canadian household debt has been reducing as interest rates are rising. Technical, in markets we are at relative strength lows. Global PMIs are decelerating. He is reducing equity exposure.

Global Healthcare Outside the US. He prefers XLV-N or IHI-Q in the US. There is a larger portion of Pharma in the Global healthcare space. He stays away from the biotech side. He was adding to healthcare exposure last week.

Impact of Trade War on US Credit. We have not seen a major retrenchment in the US. We are not seeing lower liquidity as there is a tightening in US credit, as we are in Canada. In the US there is impact from the trade war but not on credit. All the metrics are okay.