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

What is a good yielding energy stock? For a reasonable dividend you are limited to Vermilion, Whitecap and Torc. His preference is Torc (TOG-T) as he trusts management, it has high-quality assets and the market cap is large enough to attract interest from CPP as an investor. It is trading at 4 times cash flow with a yield of about 4%.

Canadian or US investments. Feels there is still much better value in Canada. He thinks the US dollar has made its run. He is bringing money in back from the US. There are some sectors in the US he still likes, health, financials, and technology. The TSX is a mixed bag. He likes to own high quality real estate, infrastructure, utilities, or pension type investments and high yield bonds. Marijuana stocks does not fit into their investment sphere. Still not enough access in Canada for Canadian energy stocks. Big issue is pipeline access and differential in Canadian oil.

Market. Last week there was a big jump in ETF trading volume during the selloff. People were feeling quite fearful. ETF was almost 50% of trading in the US, but stayed the same in Canada. ETFs are traded on exchanges just like stocks and can even be shorted. They can also be optioned. ETFs can lend out their stock holding within their fund to short sellers and this can create a yield for an ETF when its holdings do not pay a yield.

Market. There are some underlying concerns regarding trade with China, rising interest rates, the fact that the economy is doing so well that it can only do worse and Saudi Arabia – Turkey thing and there is always Donald Trump. And there is lots of things to get excited about. And there are professional traders that also create panics or euphoria to help their short trades. He thinks that the economy is anyways very strong. The market is not cheap trading at 16 ½ next year earnings. He thinks there is still room for solid growth in equities in the next 3-5 years. Normalizing rates is probably healthy.

Question on the US homebuilding sector. The sector has sold off and is all part of rising interest rates. Housing sales in the US has been disappointing for the last 6-8 months. He thinks there is no reason to believe that the sector won’t come back as the population has grown and the prices has not fully recovered from the crash of 2007-08. Picking the bottom is very difficult so it makes sense to buy 25% of the position and 25% in 2-3 months, etc.

He hopes Canada will catch up to the U.S. by year's end. The market could easily rally. Canadian stocks look cheap, but it's hard to find anything to buy. Netflix's big spike didn't set the other FANGs on fire and will probably stay this way. There's now a dichotomy amongst the FANG stocks, acting individually. In the U.S. we won't see clarity until the U.S. midterms. Cannabis was legalized today in Canada, so the market will now expect real numbers--growth, earnings, sales--to justify those high stock prices.

Market. His was the first open-ended mutual fund focusing in cannabis. People are trying to be more proactive on their health care and don’t want to visit the doctor as much. They look at cannabis as a medication and his fund is focused 50-60% Canadian cannabis companies with the rest focused on alternative medicine companies. He holds about 18-20% in cash in the fund presently to take advantage of any short-term sell off in the sector.

Early Advantage for Canadian Marijuana. It is important for Canadians to understand that Canada is the first G7 country to legalize marijuana. Internationally, medical use marijuana can be shipped across borders, creating a great advantage for Canadian companies. He sees an early leader advantage to Canada for international trade. There are 40 countries around the world, representing over 1 billion people, who can legally use marijuana for medical use. He cautions domestic use in Canada may develop slower than people expect due to slow start to the number of legal outlets.

Meta Farm. He has visited their location outside Toronto. He believes there is enough capacity for cultivation and looks to those who can add value – oil extraction, for example. He likes this company and will be watching its development.

Gold has long been range-bound. To change this, there needs to be a systemic risk that hits the general market to force investors to flock to gold, where greed overtakes fear. It's usually trade events that trigger a move out of equities and into gold. Conversely in past years, the rise of equities has made gold a dead trade. Now, we could see a bounce in gold to $1,350. Junior mining is risky, but more retail investors have been moving into this space. The industry is concerned that there isn't enough supply in minerals like gold and lithium. His end game is to find a junior miner that gets taken out by a producer. For the past 5-7 years, gold has been undercapitalized with not enough exploration. But he's really concerned how grassroots exploration has fallen since 2002.

Active vs. Passive funds in mining Mining ETFs have taken out active funds which are seeing redemptions now. There are 18 actively managed mining funds in the U.S. and they dropped $1-billion in AUM and now sit at $8.5 billion. On the other end the 10 passive mining funds increased to $7.2 billion to $14-billion AUM. This is a turnaround, and it's playing out across the spectrum, not just mining. Investors wants the liquidity and anonymity of ETFs.

Markets rallied today, but we stil face volatility. But we're over the hump. We had a mild correction. Some money has moved from the sidelines, but expects some chopiness then the traditional Santa Claus rally. Netflix is the first of the FANG stocks to report, and it beat. Politics will make trading choppy. It's likely the Democrats will take the House and the Senate stays with the Republicans, so you get a muted Trump agenda, which is not a bad thing. Canadian stocks face a tougher road than the Americans where we face much lower oil prices. He expects good earnings in both countries, but Canada will still lag U.S. markets. Cannabis stocks dropped today right before legalization, because investors are nervous. Will online sales work out in Ontario, for example? He thinks the trade is switching to U.S. states that may legalize. It's unlikely that initial legal sales will take multiples higher. Cannabis is very volatile.

Market. It's October so we tend to get some volatility. There are issues with Chinese tariffs. He thinks it will get much larger before it get better. It is all part of the late cycle behavior. The tax cuts are a sugar coating that stimulates earnings. Current geopolitical risks are (1) Brexit deal uncertainty; (2) the Italian Budget; (3) Saudi Arabia / Middle East Tensions; and (4) Trade Wars.

Natural Gas. It has been a very localized market because of the expense and lack of ability to transport it across continents. LGN is a game changer. They have been talking about this for years. He would not trade based on this today. We should not get any more than seasonal spikes.

Educational Segment. You do a disservice if you just hold to an asset class mix. Interest rates won't go up much more any time soon. The recent market bottom was right about Brexit in terms of timeframe. Maybe people are calling for the end of the bond bull, but he disagrees. Bond ETFs have made no money from 2016 to date except high risk bonds. He recommends floating rate bonds.