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

Market. No one knows how the bull market will end. It is always something that comes out of the blue. Sometimes the cause is internal to the market: the market “got stupid” during the dot-com era and it all fell apart. Other times, the cause is external. Even with 2008, people saw problems coming but no one understood how severe it was going to be. A bull market doesn’t end because stocks are overvalued. But when it does end, the overvalued stocks are the most vulnerable. Politicians like to take the credit for bull markets but they rarely have much control. Super-stimulation of the economy has an impact, but it can’t last. Similarly, very bad policies can sometimes bring down an economy, but usually the political effect is limited. A trade war, for example, drives up prices, which causes inflation. To counter the inflation, the central banks raise interest rates more than they had planned, and inevitably they go too far, and that drives the economy into a recession. There are reasons for trade disputes between the United States and China, but ultimately, spreading trade wars are the worst thing for the economy. At the moment, there are threats (like the ones against Canada) and skirmishes (like the ones between China and the US). If this escalates into a worldwide trade war, the effect will be like the 1930’s.

Comment on Utilities. In response to a question about utilities he said that he owns some utilities, that they are appropriate for clients who need income. However, it is important to limit exposure to them when interest rates go up. Investors should hold fewer of them when interest rates are going up and more when interest rates are going down. At this time, it is early in the cycle of rising interest rates, so utility stock prices are likely to drop further. Most utilities raise their dividend annually, so the yield will rise as the investor holds them. It is reasonable to continue to hold them but unwise to buy more of them until interest rates stop going up.

The U.S. market has been resilient, despite NAFTA worries, China-US tariffs and Brexit falling apart. There are muted reactions to all this noise. Surprising. His strategy is to stick with a stock as long as he can, and let price tell him which direction the market will go. Use stop losses to get out of a stock. He'd like to see more convergence with the rest of the world where emerging markets are down. There's a little softness in the US dollar, and maybe EM has hit the bottom. US Fed Reserve announces interest rate tomorrow at 2:00 pm EST. His portfolio is 50-55% American. It's an American story wth pain outside, around the world. Slightly altering the balance between CAD and USD has been a better thing to do than hedging. A lot of ETFs hedge, in fact.

A global oil ETF? NXF-T is a covered call. It has the 15-largest non-Canadian oil stocks equal-weighted. It's done well because of volatility and currency. Also, the NXF-T. Oil has been up since the Sunday OPEC oil meeting and some excitement. We'll see if this is a head-fake or a real trend.

Do you worry about record levels of debt among households and businesses? It worries him, yes. How the global community coordinates and keeps on top of debt will be really important. Nobody in 30 years is used to raising interest rates and bond yields. The repositioning of trade is very odd; if the U.S. gets even stronger, it will have ramifications in emerging market debt and their ability to repay it. These are the icebergs we face. They won't go away, but they better shrink. He doen't think we will hit them.

How many ETF's should you hold proportionally in a porffolio? He owns ones like LIFE-T. It's a catch-all of all the innovation. ETFs are an amazing invention, a democratic way to play various areas. But he doesn't use a broad ETF to cover, say, the S&P 500 or TSX. There are always some stocks in a market, like the S&P, that he wouldn't touch. Maybe that works in a $10K portfolio, but not a larger one.

Would you wait until NAFTA is resolved before buying a car parts maker? This reminds him of Facebook; you need negativity to give you buying opportunities, but this is premature. If NAFTA falls apart, then the Canadian dollar and the auto-parts makers get hurt. If it works, they go up a lot. What will make a bigger impact on your life: making 10-15% or losing that much? He himself doesn't want to lose, so he will wait.

Market. He is not a resource stock fan and avoids them like the plague. The money you have to raise for exploration and permitting is too much. The price of the commodity would have to cooperate over the long term and you can’t control that. You end up with an enormous hole in the ground and return little to shareholders. These are huge disconnects between the US market and the rest of the world. There are the trade wars between the US ad everyone including China. The US market is extremely highly valued and vulnerable. Tariffs are causing products imported to us to be more highly priced and to be a problem for US producers.

Cannabis Stocks. A lot of them will become commodities and become commoditized. There will not be that much differentiation. The sector is so overvalued that it is indescribable. You can’t justify these valuations based on forward results 10 years out. There will be causalities. Take a good chunk off the table. There may be a little bump when it is legalized or there may be a sell-on-news thing. It is a bubble. It is madness and greed. There will be some winners in the medical marijuana space.

Market. He thinks there will be a third wave of tariffs on China. Ultimately a deal gets done because it has to. It is just matter of timing. It will probably get done in 2019. He hopes the tariffs will get unwound with an agreement. He predicts that US congress will go democratic in November. The markets have not gone down in North America so see little risk in it. Japan has been keeping interest rates artificially low but now they are breaking. Germany has seen interest rates rising now. He thinks we will see yields drift higher. But the US consumers will keep US interest rates from increasing substantially. Bond yields will get pressured in the upcoming months.

Educational Segment. Gold and Gold Stock Valuations. Gold equities are the cheapest they have been in a decade. XGD-T has gone down to where it is approaching its cheapest ever. It is almost uncorrelated with anything. There are things that have to happen for Gold to do well. We need a debt crisis. A lot of junior stocks don’t have production, but he is okay with them.

The bond yield cracked 3% last week, so perhaps we should be concerned over the shape of the yield curve. We worry about an inverted yield curve because it foretells a recession by 12-18 months; the market rolls over 6 months before that. He's holding more cash and buying longer-term bonds. Telecoms are getting hit this year, but they would do well during a recession. He fears that when the recession hits, then households and businesses alike will carry heavy debt that's unseen in history. Japan would be an okay place to invest in a recession; they are especially advanced in developing artificial intelligence.

What's the future price of oil? He has no idea where oil is going. It's difficult to predict commodity prices. That's the truth. There are so many factors that go into the prce of oil.

Buy a bank ETF or individual banks? Unless you want to do the work researching banks, then buy an ETF of the Canadian banks. If you want to research, then look at ROE, dividend growth history and growth rate. RY and TD are the leaders in Canada.

Market. The growth names are in the US. Canada is seeming good valuations, especially within the lifecos, banks and energy stocks. With interest rates potentially going up and the Canadian government not being pro-business, the lack of growth in the Canadian markets could continue. We have to be cautious in the NAFTA negotiations to not show Canada as being against business development. The cannabis sector seems over valued in Canada and he warns of further potential downside – play it smartly. Some of these new companies will be bankrupt in a year. He is watching the US 10 year bond yield with only a 25 bps spread with short term rates as a potential warning of an upcoming recession.