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Frank Mersch A Comment -- General Comments From an Expert A Commentary N/A Jun 15, 2018

Market. In the case of 5G he wants to position himself in the companies that have the most spectrum. There is a spectrum auction coming up shortly. The incumbents will probably share 53% and the rest goes to smaller companies. Cellular is going to change all kinds of occupations in years to come. AI is more applicable to more industries than block chain. In the future you probably won't need a radiologist. The insurance companies will love this as they won't have to employ all these people. He is involved in an AI start up fund.

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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

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COMMENT

The U.S. market is overcrowded. Going back to 1968 there have been 3 major peaks in the U.S. market of high household ownership of stocks. 1968 saw 28% household ownership, 2000 saw 25%. In both cases they were followed by a 50% drop. Now the household ownership is 30% compounded with foreign ownership of U.S. stocks being more than the previous two times, although this year there has been somewhat of an exodus to other markets. When the S&P 500 reaches this level the following historical return is close to 0%. However U.S. tech stocks have a greater portion of the market now so this pattern may not repeat. This all means investors should be more vigilant and make sure the fundamentals justify what they own.

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Today is a sell the news event with oil down sharply. Oil in recent weeks rose because it was anticipating what would happen in the Middle East. Made sense. Today's events de-escalated the tension, but this isn't over by a long shot. Israel wants to delay Iran as much as possible Iran getting a nuclear weapon. Also, no nuclear reactors were hit to avoid spreading radiation. Don't adjust your portfolios, because the wild cards are vast. No idea what will happen.

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Stocks and bonds move in tandem. However, the TLT bond ETF has been falling as the S&P has been rising. Over time, this divergence will change, the gap will shrink in the future. For years, the S&P and bonds were in fact moving in tandem, but around 2024 they separated (S&P up, TLT down). It's a healthy market for the two to move in synch.

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Bitcoin

The chart looks fine, just breaking its last high. A revival in gold's strength would mean Bitcoin pausing, though.

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What indicators to use to evaluate an ETF?

Basically, moving averages, higher highs and higher lows, sentiment and breadth. Also look at sector rotation. 

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Markets.

We have the classic situation where the market climbing a wall of worries, and there's no shortage of things to worry about. Middle East rocket fire, suspension (but not cancellation) of tariffs, US budget bill. Nevertheless, the market trudges higher buoyed with some support from corporate earnings, but mostly by improving sentiment (waning fear and panic from April).

Over time markets make higher highs, punctuated by short and sharp drawdowns that test the mettle of investors.

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Perhaps investors are just tired.

There was a lot of frenetic trading activity late Q1 and early Q2. That's been to the benefit of some businesses such as owners of stock exchanges, investment banks, brokerages. You're right though, it does wear out investors, especially when they keep getting head fakes and kneejerk reactions that are frequently misinformation.

Investors would do well do learn the lesson of focusing on the fundamentals, owning good businesses. Don't bury your head in the sand on geopolitics, but don't be ruled by them. Shifting sands shift often. Easier to build robust portfolios that can weather macro headwinds.

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Iran-Israel conflict caused concern, but not panic.

Right. What really took out some of the fear premium on hostilities was that, going into last weekend, the price of oil already had $10-15 of geopolitical risk baked in. But then the US waded in and dropped bombs, and the results of that are conflicting.

Latest relief rally in equity markets, especially in the US, is the very tepid, feeble, symbolic response by Iran to those strikes. Seems to have taken the worst-case scenario (strikes on oil infrastructure or closing of the Strait of Hormuz) off the table. That would have been very negative for the global economy and risk assets.

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Big 6 Canadian banks, housing, economy.

His firm owns 3 in their dividend-growers mandate. Canadian banks are a cornerstone of a growth and income portfolio. Secular outperformers of the TSX. Dividends typically grow 6-8% a year on an average 3-3.5% dividend yield. Over a cycle, this gives you good line of sight to low-double-digit total shareholder return; the oligopoly of the 6 makes this sustainable. Stable, well managed, well governed, diversified.

Will pull all sorts of levers to overcome economic headwinds. He expects high single-digit earnings growth this year, notwithstanding the housing market.