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

Why does the TSX follow the American markets in this US-China trade war? A complicated answer. We sell according to world prices. With more tariffs from the US and China, it'll probably hurt China more, so that'll dampen their demand for resources like oil and gas. If steel and aluminum tariffs are rescinded (it could happen), that will benefit Canada. Remember, 70% of our trade is with the U.S., so what happens with the U.S. effects us.

In this market sell-off, base metals are selling off even harder though energy stocks (small caps) are holding better today. Again this year, Canadian small caps have underperformed the large caps. Note that the Canadian and US markets over 20 years actually have evenly performed, offereing the same return. The last 10 years have been a lost decade for Canada, but the decade before that was a lost one for America. He believes in reversion to the mean, like seeing tech stocks coming off lately. Canada has underperformed emerging markets the last few years, but that could change with stable oil prices.

The expert on today's show reported only 2 Top Picks.

Octobers do this--downtowns. U.S. markets needed to come off. It's healthy. The yield curve is still fine, and there's nothing to signal this will be a really deep bear. We're still in a bull market, so at some point you need to buy. You should be selling defensives like utilities because of rising rates. The tech stocks, like Google, are still a buy. He's shifting stocks. He raised more cash lately and holds 14% cash. Cash is important now. He doesn't think the FANGs (including Facebook and Google) are expensive.

Momentum stock to buy? Google, Amazon. Among Canadian dividends, pick away at Intact or Stantec. No shortage here. If you can take risk, look at oversold stocks in Canadian oil, like Baytex. Also Bombardier. These are way oversold.

Worth buying GICs within a portfolio? If you can get a 4% GIC for 5 years, that's great. He can't think of a 4% GIC, but even 3.2% or 3.5% is fine. You need fixed income in your portfolio to act as a shock absorber in downturns like this.

How do you know that a dividend will be sustainble? Look at the payout ratio. Is it a percentage of EPS or free cash flow? Which matters more for the stock? Also look at the top line--what is the top line estimated with pretty good visibility to be growing at. What is the trajectory of say the payout ratio, creeping up? If so, not good. Or going up?

What are the pros and cons of preferred shares? They trade like very very long bond and are interest rate-sensitive. Pro: Inflation protection. Rate resets preferreds mature in 4 years that the company can extend for another 5 years. Consider, What is that reset spread? How competitive is it? These are perpetual; a company can keep them going forever. Make sure they are generous to investor terms. He owns a lot of these for clients. They are fixed income proxies and inflation adjusted for interest rates. They pay dividends and are eligible for the dividend tax credit.

Defensive vs. growth stocks? Defense has done well lately. He still likes AQN-T and Fortis, though he trimmed the latter. Why? If the market corrects further, then Fortis' price won't hold. But these stocks will be pressured by higher interest rates. This correction won't last forever. Essentially, he's trimmed the best names and reinvested in the laggards. If interest rates continue to rise, then go with growth.

Market. The Fed has been the backstop for the market going down. Now they are raising rates unless something else comes along or goes wrong. We saw the peak in September in the S&P as well as the TSX and then we had a correction take place so that we were down for the year. If we can hold above the lows of earlier in the year, then we will be okay otherwise we are in for a bit of trouble. The TSX is at 2014 levels now. Just because the index is lower and underperformed the S&P does not mean it will outperform the S&P. He manages HAC-T (Seasonal rotation ETF) and it has outperformed the TSX. He still has a fairly large chunk of cash. We are coming up to that 6 month period where the market tends to perform well.

Canadian Banks. Rising rates are good but at a certain point in the growth cycle, near the end, loan growth slows. That is what it taking place now. Canadian banks have not benefitted that much given rate increases. Seasonally they should be strong from August until December. As the interest rate stabilizes, it is something he could go back into.

TFSA – What to put in it. The US market is outperforming right now and it could last a couple of years. Over the longer term, you want to look at a worldwide index. If you only want one ETF then you want all the countries. Covered call strategies are great for extra income but if you want long term growth use a non-covered call type.

Market. Not uncommon this late in the cycle to see this type of volatility. Gives investors an opportunity to buy some of the stocks that were hit hard. Seeing a shift from tech into utilities and more defensive names. He doesn’t see a case for recession until 2020. He is long on equities, probably more in growth and cyclical. TSX is down 8% year to date. We have lost a little competitiveness. There are still a lot of good companies in Canada whether it is financials or utilities. Was probably a good year to hold more cash. If you are a long term investment, it is just a blip on what should be a longer term up.

Government commented that Canada is operating at near capacity? Economy is not yet firing on all cylinders. We are seeing some economic growth but not as strong as it should be. Seems to be a tale of 2 countries between the east and the west provinces. With respect to energy, we are over supplied and cannot get our product to market. He would look at companies that have some refinery capacity in the energy sector. He would just have a small or building position in the energy sector.

The Bank of Canada just raised interest rates and said that the global economic outlook is okay. But high debt loads are a concern here and everywhere. Emerging markets are having trouble repaying their debts (especially in US
dollars). We're getting to the end of the cycle, so let's hope that the result isn't as damaging as the collapse 10 years ago. That said, cycles may be getting longer; in the early years of this recovering it didn't even feel like a recovery. The
higher U.S. dollar creates stresses around the world. This is a time to be cautious in the market.