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

Ford just announced it’s cutting jobs. Not too surprised, because Ford did badly in sales compared to GM and Chrysler. Looking at where they can make cuts, and white collar workers, and AI, means you can eliminate some bodies. Tariffs were a horrible threat.

Defensive portfolio strategy. Easiest way is to concentrate on dividend paying stocks. Think “cash flow,” such as with BCE, or a utility covered call ETF. May have some downside in the short-term if the market really takes a hit, but in the long run you get your cash flow. These kind of stocks sell off only so far, then the fact that they’re paying a good dividend gives them support.

Market. His open ended cannabis mutual fund is being launched on all popular platforms. He has had huge demand. HMMJ-T: There is a strong seasonality in October to November. Fundamentals are pointing to the sector improving. He has not done any shorting but they are very strict on anything happening over their settlement date. There are huge volumes on exchanges due to cannabis. With some shorts when they settled they were not able to deliver the stock. Buy-ins are artificially inflated.

Canadian oil has disappointed Be patient. It's good value and our oil stocks are ridiculously cheap. They will ultimately go higher. He doesn't know what the catalyst would be. We are seeing alot more rail transport and decreasing supply from Venezuela. This week's LNG announcement in BC is also good news. Investors have left this sector, but they will come back. He's willing to buy cheap oil stocks and hang onto them. Oil prices will stay the same or rise.

What sectors to become defensive now? Cash. Nothing more defensive than that. Histroically, defensive sectors have been consumer staples, utilities, telecoms--they all have little earnings variability. But these sectors also benefit from near-zero interest rates, so they are sensitive to a rise. Energy stocks are really defensive, because you get good valuation support here than from other sectors.

Buy the dip strategy on tech stocks still works? He likes tech long-term, but the big tech stocks lately concern him. Facebook's earnings growth is slipping. Apple is still an iPhone company, so they can't continue to sell high-end products. Money is starting to leak out of tech. Netflix for example. Valuations are excessive in this space.

There was hawkish talk from the US Fed about how agressive they'd be on the fund rate. They say they want to move to the neutral rate, but they don't know what that is. Remember that the February dip was triggered by a bond rate rise and it took us a while to recover from that. We're at the end of the cycle and it won't last for much longer. He remembers a decade ago when the US Fed didn't recognize a housing crisis even though the street already knew, so the Fed is sometimes the last one to know--or they don't want to publicly say and to spark a downturn. Emerging markets have rolled over. China is down 25% and Germany down 12% from the January peak. Canada has underperformed. Only the U.S. has done well, but they are late in the game with high valuations and rising rates. The Fed must normalize rates now.

General Market Comment. The announcement by the Federal government to begin First Nations consultations over the Trans Mountain pipeline is hopeful that there can be a solution, but it will take more than two years, he feels. Unfortunately, Canada is suffering from handing three million barrels per day to the US at half the price of world market. Meanwhile, Eastern Canada imports 1 million barrels per day at world market prices. Hopefully, Trans Mountain can eventually be built and exports can eventually go to Asia. This is peak pessimism in the market. China and European market are facing headwinds currently, which is causing a more defensive holding position by money managers. This leads him to feel we are in the seven inning of the bull cycle – expecting another 10-12% growth in markets per year over the next couple of years.

Is natural gas a better buy than oil? He thinks growing LNG demand, reduced coal demand will aid the market for the next 20 years. With LNG on the west coast, our market will open to Asian markets. He thinks Shell will expand an LNG plant into phase II and Chevron will likely enter as well. His favourite names are ARC, Tourmaline, and Kelt on the E&P side and Trican on the service side.

Market Outlook. The economy is good. But cycles are cycles and you have to be prepared for the unknowns and change. The market is comfortable. Trump is the master of claiming wins. The new deal with Canada was the equivalent of a family making $200,000 / year saving 70 cents. Reality and words are often not in sync. He expects a similar path with China. Having said that there are more difficulties with China.

After NAFTA's resolution yesterday there are more opportunities. He likes the auto sector (cash flow, valuations) for a rebound trade. Also likes Saputo, which could see some strength. Outsiders may invest in Canada again. The LNG announcement may signal to the world that we can get things done in Canada; it's positive. Investors want to see resolution to TransMountain though. The housing market could be a Canadian headwind in the next few years. He's always been overweight U.S. stocks where the economy is strong, and he still sees more rebound in that economy.

Comment. LNG Canada is a serious project that will open up the world for Canadian gas producers. It will create a huge number of new projects and new higher-paying jobs in western Canada. He owns Royal Dutch Shell but is not generally a fan of commodities producers, especially not of the companies that are highly indebted or don’t generate enough free cash flow to pay significant dividends. In general, he is not a fan of the Canadian oil and gas producers because they aren’t financially healthy enough.

Market. The new NAFTA Deal. Is this a better deal than before? It is virtually the same deal. He thinks there is some edge to the US. The liberal government did a pretty good job here. He was surprised. He did not expect a deal this weekend. There is an impact on the Canadian dollar, expectations for GDP and so on. Everyone is ratcheting up their growth forecast. There are a lot of expectations for the Canadian dollar to go to 80 cents into the beginning of next year. You want to own US$. Seasonally, it is that time where you get some market anxiety. We saw no early phase of it, surprisingly. He is not sure we will get a massive fourth quarter. There should be anxiety going into the US election in November.

Natural Gas. It has been a very localized market because of the expense of transporting it across continents. The US is kicking our buts in terms of LNG which is a game changer. He would not trade it today. We should only get seasonal spikes in Natural Gas prices.

USMCA (NAFTA deal) is finally done and is as good a deal as possible. Dairy concessions were inevitable, but we kept the dispute resolution mechanism. Overall, not a bad deal for Canada. Trudeau got a fairly good deal. Despite Trump's public negotiation, Canada kept its cool. Auto parts dealers today leapt 5-10% as a sigh of relief (after weeks of getting hit during the uncertainty). But the auto stocks are in the bottom of the 8th inning--late in the cycle. North American auto stocks are down vs. the past few years. Limit your exposure in this sector.