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

Today was a rough ride for stocks. We've reached a turning point in sentiment, that's for sure. The markets took out the lows. We're in the middle of a correction, just like in January. The lack of volatility has lulled some investors. We're not out of the woods yet. The TSX is down 8% YTD. Maybe we could rally by the end of 2018, but to recover that much is a tall order. He expects Canadian earnings, coming in early November, to be good. The US Midterms are in two weeks, a time which is usually good for American stocks. He thinks the Midterms are a wild card. Maybe the Democrats will win, though polls have been wrong. Canadian interest rates went up today. That's the right move. Unemployment is at historic lows and inflation is still contained. Low rates are not needed anymore.

DOW is down 300 points at the opening today: It's a broad sell-off. The long-awaited correction is happening, but a correction never feels good when it happens even if you're expecting it. The market needed to sell off. It's a cleansing and good to get out of the way. China-US trade uncertainties and the US 10-year yield is over 3% are among the long list of reasons. The volality is the price we pay as investors. But it's uncertain that corporations will spend money with these ongoing trade tensions, thus freezing corporate investment. The S&P is barely up this year, but investors won't feel any gain. The TSX suffers pot stocks sell-off which is inevitable. They are higher beta. But even if the market wasn't selling off, cannabis would still come off--a correction in cannabis was due.

What's a long-term dividend play? Spread it among the Canadian banks but not just one. This lessens risk. CIBC is the cheapest. Also buy BNS because they've been beat up and the price is low, then RY or TD for their US exposure,

Market. The fact that the Central Banks are raising interest rates is causing lots of volatility in the markets. More in the US than in Canada. Household debt is extremely high in Canada. If the US economy starts to slow down the Fed will change plans, otherwise they would stick to the trajectory that is now. He doesn’t see a recession in the US for at least a couple of years. Canada is probably more likely given the household debt situation and the Energy sector. But he doesn’t fear that scenario now as interest rates are still at relatively low levels.

What is best to hold now, perpetual preferred shares or rate resets? Very much depends on your outlook for interest rates and the quality of the preferred shares. He sees them lifting another 1% - 1.25% from here, so he prefers the resets. He suggests having the near duration resets and a few perpetuals. It is a timing game. Tricky.

What bond do you recommend for a person that wants to deploy cash? The bond market is tricky in a rising interest rate environment. You should stay short duration in this situation. It depends also on what type of risk you want to take.

Can you recommend a rate reset preferred with a minimum yield for conservative investors? He has many options, but he would go to a BCE Inc (BCE-T) but also he would look at an ETF as well.

What is your pick for the banks? He only owns TD Bank (TD-T) of the Canadian Banks basically because of their exposure to US. They have an excellent Management team also.

Market. The Chinese government has floated the idea of lower personal tax rates. Trump talked of another tax cut for the middle class over the weekend. They should have a deal before the US election. You are going to see a lot of increased market volatility due to trade issues with China. You can ignore one or two but going into the first quarter of next year there is a good case for more volatility. The BOC is talking about raising rates. They are going to gradually raise rates, they indicate. If the US raises rates 4 times in the next year he thinks Canada will do so less. There is no reason why they will not raise interest rates this week.

Educational Segment. Political polarization. In the long term it will start to weight on markets. He looks at the risk side of the equation before looking at potential returns. Governments slapped the world with a massive amount of debt after the financial crisis. We have a credit crisis coming, but you can't time when. The math does not work. Governments have to work on balancing the books. He thinks the US lower house will move to the impeachment of Trump next year and that the house will be democrat controlled after the election (6 in 7 chance).

Market. The market will go down at least 20% before the end of 2020. He is not sure if this is the first part of the fall. He still holds to his prediction. It would be a bear market. The problem in the US is that what Donald did was short term and now the debt has continued to go up. He believes Italy will have major problems at some point. We may be in worse shape than in 2008.

If there is a major sell off, Canadian banks are usually pretty good. If markets get beaten up across the board, you can often get good buys.

Cautiously optimistic about America. The Fed is raising rates to get back some of their dry powder in case the economy hits a rough patch. Trade: China is more complicated than NAFTA or Europe, both of which are approaching a resolution. There will be more headlines about U.S. and China. He's optimistic about the U.S. tax reforms, which has loosened free cash, and will spur more economic activity by corporations. The American economy is doing very well, so now is a good time to raise interest rates. However, as the old saying goes, rate increases in the past have killed recoveries and sparked recessions.

Market. Investors in energy have been moving away from the energy space in Canada and the US. Energy is becoming less relevant to investors as the space is becoming more complex (due to widening differentials for example). He thinks you need to see more hostile takeovers to change things. Despite reduced valuations and strong cash flow margins there is a lack of interest. Over 10% of Canadian oil demand is off line with refinery maintenance with the BP Whiting turnaround. When sentiment changes back to normal situations, he expects to see several doubles or triples going forward especially the larger cap energy stocks.

Why is energy not benefiting despite rising oil prices? He thought this was going to be a great year for WTI prices – hitting $70 per barrel. It did not and LNG projects were positive. There always seems to be another concern for investors. He is not sure what the unicorn is needed to change things. He things hostile takeovers and share buybacks are needed in 2019.