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

Wall street banks vs smaller regional banks in recessionary environment? It depends if the earnings are coming from banking operations or wealth management and investment banking. You have to ask yourself what exposure you want to consumers. He feels pretty optimistic about the U.S. consumers primarily due to debt to income ratio being considerably lower in the U.S. vs Canada.

Market Outlook - A lot of normalization going on the Market right now. Higher volatility. Investors have been blessed with low volatility for a long while. This is kind of a reminder that volatility is part of the investment process. The US shows more average market valuations. The economy is still growing. Shorter term is surprising that a few words from the Fed can move the market so much. That is why he prefers to look at the fundamentals of a company. He prefers US banks over Canadian Banks now because of the growth south of the border. Still thinks Canadian Banks have a place in Canadian investors.

Breaking news: US Fed Chair Powell has just commented, urging caution, that the impact of hikes is uncertain. The Fed pause narrative has picked up steam. We will certainly get the Decmber hike, but may take a pause after that. Growth stocks have dominated almost every investing style until the past few months and is now done. He sees more rotation into profit-oriented stocks. Inflation has come off because of the falling price of oil.

Interest rates: why do Feds keep referring to historical rates? Historically, back to 1947 interest rates in the U.S. were 2.7% on the 10-year (close to current levels). Rates went from 2.7% to 7.7% over the next 20 years. Traditional bonds fared the worst, but stocks did fine, annualizing at 6-7%. So, stocks can bear rising rates as long as it's not a shock. That's why Powell and certainly Trump want a pause to see hikes digested. Interest rate cycles are nothing new.

The US Fed Reserve decision today puts the market on a different path for the rest of the year. Rates are just below the “neutral range” said the Fed, which caused a massive market rally. A rate hike in December is still probably priced in. He thinks the US Fed should be hiking with the state of the hot domestic economy. Trade tensions could heat up again with a weekend G20 meeting of world leaders. He thinks there have been positive statements out of the US ahead of the meeting that a deal might be struck with China – but expect the unexpected. He continues to like Canadian Financials and Industrials.

In the credit market are spreads finally widening, and at a rapid pace this month. Global central banks have supported markets with very low rates, but that's been changing as they raise rates. He expects continued declines in equity markets and likely a recession in late-2019 or 2020. The U.S. tax cuts benefitted businesses both short- and long-term. He doesn't see significant inflation in the near future.

Junior mining sector Precious and base metals: If we enter a recession, be long precious metals, and be short base metals. Among base, he likes zinc (i.e. Hudbay Minerals).

U.S. vs China trade war: This is a president who believes himself to be emperor. If he wants to put tariffs on Europe or doesn't like GM, he doesn't care. We've never seen this. If you're going to wait to see what Trump will do, you'll never invest at all. He's holding only 3% cash. He's slow to reinvest, though, and has taken some profits, but he believes there are always opportunities. He liked Scotiabank's results today--very good with 16% growth YOY in Canadian, and glad they divested their Caribbean operations. They're trading at less than 10x trailing earnings. Canadian banks as a whole are cheap and Scotiabank will grow. In contrast, he's bearish oil. He's incredulous that Ottawa hasn't solved the pipeline problem as Alberta oil companies go under and the country loses millions each day in revenues.

The U.S. Fed's announcement tomorrow He expects Powell to say he'll stay the course, meaning 2-3 interest rates increases coming, though it'll depend on economic data and if there's an economic slowdown. Also, keep an eye on U.S. housing starts, which are flat. The US Fed could pull back the reigns pretty quickly.

Berman's Call was pre-empted in its entirety by GM announcement. .

GM announces it will close the Oshawa, ON plant: It's sad because it was a major plant, but the reality is that the industry is changing, moving towards e-cars and other things. Look at the rise of Tesla. Oil prices and markets today rebounded today. Our economy is doing relatively well, but our oil situation is beyond a nightmare--look at the WCS discount vs. world oil. This crisis will be addressed short term with more rail transporting oil, but we still have issues to deal with (namely pipelines). He hasn't seen selling like this of Canadian oil. Meanwhile, the U.S. tax cut was a mistake. Sure, it juiced up the American economy, but it really just amounted to record stock buybacks by corporations -- it didn't trickle down. Meanwhile, the deficit is rising in America and will continue to. Canada should not go down this road, even if it scores political points.

the logging industry U.S. housing is rolling over, based on data. It's negative. Same goes with China. Settling the trade issue could help lumber. U.S. housing as is good as it gets in this cycle. Canada faces more of a chance of a downturn than America

Sell Canadian banks now? No. Hold them. He isn't worried about a collapse in this sector. They'll be safe in a downturn. But he's concerned about growth in the future. Analysts are too bullish about Canadian banks. Their loan losses are at record levels and Canadian consumers are heavilty indebted. You're getting a decent yield. They're safe.

Are we heading towards a bear market? He thinks so. Earnings growth estimates are slowing down. Margins are at all-time highs. The strong US dollar is hurting overseas markets. Chinese stocks are down 25%; Europe down 15%. We no longer have zero-interest rates. ETFs have sustained past growth, but those haven't been tested in a market downturn. We could still test the February lows, and what catalyst will drive markets higher?

Market Outlook. He has been waiting for the correction that happened last week. Trade wars, ballooning deficits, telegraphed interest rate increases, all predicted that this would happen. He thinks the US tax cuts kept the market up this long as these cuts flowed through to earnings. He would not be sounding the all clear yet. Today is an up day. Volatility is increasing. He doesn’t think the next 12 months will be too great.