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

New US highs reached this week. First time since 2011, he’s been taking money off the table in the US specifically and getting a bit cautious. Has been underweight Canada for a while. Now neutral on the US, and starting to underweight the US. Three things concern him about the S&P 500. 1) The advance is narrow. FANGs have created the bulk of the rise. 2) Earnings in the first quarter were a one-time shot because of tax cuts. Earnings are the fuel for equities. 3) US interest rate being high, and the S&P 500 doing well, and the US dollar going up, all investments flows have been going to the US either bonds, stocks or currency. He thinks we are coming to the end of that road.

Where’s the opportunity? We’re back in the international markets because of process of elimination. We’ve seen terrible underperformance from international markets relative to the US, so now it’s cheap. Unlike the US, that market it’s not tech oriented but more value oriented and thinks downside risk is less. As we take money off the table, he’s keeping it in cash.

What would it take to be interested in Canada again? Thinks the resolution on the pipeline issue is key. The broad TSX index is probably not going to move much it’s 40% financial and although he is not worried about the Canadian banks they’re not going to go up a lot. So it rests on energy and materials. Energy stocks are not responding to the lift of price because we can’t move the product so what’s the point of finding more oil.

Where do you stand on marijuana? If you’re playing in marijuana, you’re not investing. Remember crypto and bitcoin at year end and big swings day to day. As long as you understand that you’re gambling now and not investing it’s up to you.

Outlook for the rest of the year? Fourth quarter is typically good. But the question mark is US mid-terms in November, and then how Trump reacts to the results. It could be a tough end to the year.

Market. There is no way to value these things from a fundamental stand point. Their applications can be pharma, wellness or applications in beverages. There is a significant amount of speculative interest in investment. The flavor is 'cannabis'. A year from now the ETF could grind higher if there are more participants coming to the table. We are in the late stages of the business cycle. We should see strength in industrials but that has not been taking place yet. There are trade wars, for example. There is a very narrow band of what is driving markets. The 9% of S&P increases have been explained by healthcare and techs. Japan is attracting a lot of investor inflows.

Market Outlook. The S&P 500 at an all-time high today but the Canadian Market is disastrous. Since the Financial Crisis the US stock market has done like 200% vs the Canadian Market that returned 30%. The difference being that they have all the Googles, the Facebooks and Apples and Amazon and we have crappy oil stocks and the Banks that are doing a lot. In the marijuana sector is all retail money. There is going to be real demand for these products but for now it is all speculation. He doesn’t think it will have a great effect on the economy in general.

All the way through this bull market, people have been nervous. Bull markets die of excess, but that we have been in a cautious expansion. We are in the early stages of a reflation in the economy. There are no signs of recession on the horizon. The market is healthy. Tilray took off today: that's investing, not speculating. He'd be concerned about buying cannabis stocks, but if you have the stomach for it, all the power to you. He doesn't have the stomach for it. Some cannabis companies will do well and others will be wreckage.

Market. Canada has continued to weaken while the US has shown growth. Headwinds in all our three key sectors have continued, this includes consume debt and rising interest rates slowing down financials. The energy sector has been off as political leadership has been lacking. Materials companies cannot catch a bid. Over 70% of our market is doing poorly and for what is left over, there are other companies around the world doing it better. The silver lining is that valuations in Canada have become quite low. A drop in the US dollar could potentially benefit the Canadian market, causing investment to go looking for other markets.

Why are there no trade worries about US-China? Why are were markets were up today? The Federal Reserve today said the economy is doing well. Trade barriers are raising prices in US and China. He thinks investors think this will all get resolved as will NAFTA. Corporate profits are pretty good. Banks and industry are unchanged or slightly down--there's some turmoil beneath the surface. Investors are immune to Trump's bluster and looking to invest--won't invest by headline. Canadian markets have been down the past few years, and the lack of pipelines have been discouraging. Canadian financials have done nothing for the past year, though their profits are rising--this sector looks interesting. Canadian investors should continue to explore America and abroad, though the weak CAD is an obstacle. Canadian capital markets have limited choice.

Why is the Canadian dollar so cheap against the USD? He shares the caller's frustrations. Canada needs its resources to be extracted in a safe way. He blames the current government, though these problems go a long way back. We don't have a strong industrial policy--we need to get our act together. Petty politics by provincial and city politicians doesn't help. We're not a country right now. That's what is driving investors away from Canada.

Market. We are in one of the greatest bull markets of his lifetime. GDP growth is at 4%, US employment continues to improve. He expects the quality of jobs to improve, with higher wages that feed increased consumer spending. His advice to investors, “Don’t fight the tape.” Western Europe is being dragged along by this positive American activity, as is China. Tariffs pose a short-term problem but this will resolve and they won’t affect the large growth stocks. The drug companies and the movement in technology and automation, for example, will not be affected by tariffs. There are reasons to be concerned about certain specific stocks or sectors, but in general, the best thing to do is “get on, and ride the flood.” He is less enthusiastic about Canada because of high household debt and because Canada’s economy is too reliant on commodities. The world has overbuilt its infrastructure for commodities in this century and is awash in them. Additionally, NIMBY (”not in my backyard”) activists prevent Canadians from exploiting resources. For example, US railways are making $10 to 15 US to move oil rather than pipeline companies making $5. The Canadian oil producers pay the difference and Canadians lose the jobs. The Canadian dollar will probably go down further to compensate.

Comment on Preferred Shares and Royalty Companies. He would not own preferred shares because they are debt at the end of the structure and they offer no upside. He would rather own high-quality debt or high-quality companies that can grow their dividend. Royalty companies also offer income. They are a preferred way for institutions to own gold companies because they diversify the risk of actually owning the mines. Gold-royalty and oil-royalty companies are often very expensive. He thinks they are OK but there is no story to drive them other than the commodity itself.

Market. Growth stocks continue to lead the markets but if you strip out tech stocks then the market is down on the year. The FANG stocks are off their highs. We are seeing a rotation into a broader basket of stocks. In Canada it is the Cannabis stocks. They are our tech stocks. Aurora is higher today on a partnership with Coke. They have the strongest momentum on the TSX but he wants investors to rotate into value stocks. He does not want to crowd himself into a small group of growth stocks this late into the cycle. He prefers US and Canadian REITs for yield.

Market. As we get into the US midterm elections, trade will be a big thing. It is most important what the US is going to do with China and Europe. Canada is reaching a soft deadline at the end of this month for free trade. He heard there is a deadline of the 20^th of September. It all means uncertainty for markets and volatility around currency. Trump has to be able to talk of doing a deal on trade. It is next year's congress that will vote on all these things. He is not sure the uncertainty is going to go away. China is the most senior of the emerging markets and is down 20% from their peaks. The US is leading here. The Fed is slowing things down and that always, always ends the bull market. It could be 2 months, 6 months or a year from now but the emerging markets are showing that warning sign here.