Jaime Carrasco's Top Picks: Oct. 30, 2018

Jaime Carrasco, portfolio manager at Canaccord Genuity
Focus: Precious metals, pipelines, utilities, REITs and dividend-paying stocks

MARKET OUTLOOK

As per my last appearance on BNN Bloomberg, I continue to advise extreme caution in this market and still feel good about having raised cash a few quarters back.

Currently in the Equity Income portfolios, I’m sitting on 25 per cent cash and short-term bonds and 15 per cent in good-quality convertible bonds as I wait for better markets. The equity component of those portfolios is currently invested in good-quality, high-yielding pipelines, utilities, foreign financials and REITs that are delivering solid cash flow. As expected, in these portfolios, yields have been steadily increasing as pension funds have begun selling into more volatile markets; the increase has allowed us to slowly begin adding cash flow with the addition of some AltaGas, which has a 10 per cent yield. Going forward, I expect further downside pressure on the overall markets and will be looking to reallocate my cash into much higher yields.

The Special Opportunities portfolio remains fully invested, with 80 per cent allocation in precious metals producers. This portfolio is designed as a standalone solution for investors looking to acquire financial insurance for their investable assets. Many of our holdings have reported great earnings this quarter and continue to deliver great financial and M&A performance, even though the stock prices are not reflective of these positive trends. Of note, Americas Silver has taken over Pershing Gold at a time when not many juniors are able to do so, and Agnico Eagle continues to beat and increase guidance. This portfolio is currently offering great value, as the current stock prices of our considerations are cheap in relation to their value.

For the months ahead, I continue to remain cautious and expect that the bull market façade has turned. I base this on the fact that rising interest rates are finally beginning to affect global economic growth due to rising debt servicing expenses, as well as not justifying current dividend yields. All throughout this “bull market” I have remained steadfast on the belief that trying to fix a debt problem with more debt would only create more problems in the future. Sooner or later, the true costs of these policies would come home to roost. I think that time has come.

I expect that the markets will sustain many negative headwinds that will not be kind to investors. First I expect that after the upcoming election, President Trump will consolidate his power with an overwhelming Republican win, giving him what he needs to “make America great again” and continue dismantling the global economic structures we’ve setup over the past thirty years. In my opinion, these policies will be a replay of Herbert Hoover’s isolationist policies that completely reorganized the global structure in the ‘30s and accelerated the economic dislocations of this period. Like in the ‘30s, global dislocation should accelerate, setting the world into multipolar geopolitical spheres between Asia, Europe and the U.S. This will greatly strain, if not transform, the currency reserve status of the U.S. dollar. Historically in this kind of environment there has only been one asset that has offered a true safety: real money in gold and silver.

On a final note, I continue to point out that there’s a great disconnect between the fact that the biggest buyers of physical gold continue buying, aren’t selling and yet the paper price refuses to climb. I think this will soon change due to the structural shift that has taken place between the commercials versus hedge funds, where the commercials are finally long the sector after many years having passed the short to hedge funds, which now have the largest short position ever. This is setting up the sector for a great “bear trap” as any increase in price will force the hedge funds to cover and buy the sector.

TOP PICKS

AGNICO EAGLE (AEM.TO)

ALTAGAS (ALA.TO)

CASH

PAST PICKS: AUG. 14, 2018

IAMGOLD (IMG.TO)

• Then: $6.00
• Now: $4.62
• Return: -23%
• Total return: -23%

BARKERVILLE GOLD (BGM.TO)

• Then: $0.38
• Now: $0.43
• Return: 13%
• Total return: 13%

DREAM GLOBAL REIT (DRG_u.TO)

• Then: $14.43
• Now: $13.52
• Return: -6%
• Total return: -5%

Total return average: -5%

WEBSITE: https://www.canaccordgenuity.com/