Mason GrangerA Comment -- General Comments From an ExpertA CommentaryN/ADec 06, 2016

According to his metrics, expect some choppiness in the coming weeks, but not devastating. The market tends to be softer from late-August to late-October on average. Any volatility should be bought.

He sold at the peak, around $5,400. It has since had a downtrend, is consolidating, so now is a good time to buy. Gold is back on track. 

He predicted a return to 72 cents, but now predicts a fall to 70 cents, perhaps 68, because we are the weakest G7 economy with little improvement. Also, our taxes our high compares to peers. He's been buying USD during this rally.

Nvidia is the next big earnings report, next week Wednesday, then there's Jackson Hole. This week will see just a lot of noise. From Nvidia he wants to see how this "leverage on leverage" of circular financing works, which recalls the leverage that led to the 2008 mortgage debacle. It's great that the rally is broadening and earnings keep rising. We're late in the cycle and concerned over bubble characteristics in the market, though overall he's bullish. Given current valuations, the 10-year forecast on the rate of return on the S&P is negative--but the peak may be two years from now.

They're like T-class mutual funds where you get a component of your return every year. This is very tax efficient; the full distribution in the current year is not taxable. For those seeking tax efficiency now and need current income.

BMO. But how much credit risk will you take--high yield or investment grade? What's your time frame? Historically, credit spreads are very tight, so don't take credit risk now. Because rates are backed up, he doesn't mind taking duration risk. But will it make him a total return positive in the next few years? Not sure.

It's 55 years since Nixon took the world off the gold standard. Gold demand: 45% from India and China, mostly jewelry for gifts, but is a huge variable as the gold price fluctuates; 5% used in electronics and medical devices, but gold is expensive so other materials are used; 22% from central banks who keep buying more gold, and 28% from investments like ETFs, which is the speculative part. He likes gold and is bullish, because governments are inept at managing tax dollars. Gold will rise in the long run, but won't break out but go sideways for many years.

He looks at a number of factors to determine market direction. It was mainly the technology sector that experienced a summer swoon. Luckily some of the other sectors held up, such as financials and healthcare. At the end of July and early August, everything has come back together. 

That's a really good sign for the market. It means that there's strength elsewhere than in just technology.

He also looks at credit markets, which aren't showing fear or widening spreads. Interest rates have been a big story this year -- expected decreases flipping to potential increases. There's still a buffer there to decrease if things go off the rails with the economy. Lastly, we have low volatility. There's a saying: "Never short a dull market." When volatility dies down and markets seem to be trending higher, that's not the time to get out.

That was part of the tech swoon. Hyperscalers came out with good earnings, but there are concerns on the capex side. This is a really big investment cycle, and the market acknowledges that these are big numbers but can see them working out over time with monetization. They also have massive cloud revenues to back up spending.

Canadian market's been on a tear for the last 2 years. Right spot, right time. We have lots of energy, financials, and materials. He hopes we can do more to access those and bring them to other markets. We're really firing on all cylinders in Canada. It's our time to shine.

Sees that persisting. The banks are getting high on valuation. Don't mess with the trend. If the trend is higher, you keep going.

Fair question. He might have a market outlook and thinks he's right. But what if he's not? His team always grounds itself in asset allocation. If something's run up, they take some profits and put them into fixed income. 

Investors can suffer from recency bias. Times have been good, so why shouldn't they continue? Protect against that by taking profits along the way.

The US doesn't recognize TFSAs the way it does RRSPs. So you can hold ETFs in your TFSA, just make sure you know which ones serve the right purpose. Stick to the mainstream ETFs such as XIU, XIC, and S&P 500 ones.

Remains very constructive on equity markets. A lot of the story now is the earnings power of the S&P 500, which has become the real market driver. Seeing almost unprecedented earnings growth forecasts going forward. Strong earnings mean a strong market.

We're in a major capital spending cycle, with the beneficiaries being data centres, chips, cloud, power, utilities, industrials, and automation. Those sectors are the parts of the market that are moving higher. 

If you look at the cash component sitting on the sidelines in money markets, it's north of $7.9T in USD. If the geopolitical situation becomes more stable, and if earnings continue to be strong, then some of that $7.9T can rotate into risk assets like equities.

Still some cross-currents to be careful of. Somewhat sticky inflation, elevated long-term bond yields, oil volatility can pop back up, geopolitical situation can toughen up a bit. Seasonally, September could be a softer month. And then US midterms are coming up.

The inflation numbers have been somewhat benign. Expectations for a rate hike have been pushed out. The interest rate environment is beneficial. Oil prices coming down from peaks would be a tailwind for equities. Any volatility from geopolitics, September weakness, and midterms is normal and not thesis-changing.

Probably won't see lower rates in the near future. Likely flat for the time being.