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

ETF to replace registered pension plan. You have to figure out your risk tolerance. We are late in the cycle so now is not a good time to strap on a lot of risk. VGRO-T, VBAL-T, VCNS-T are very low cost ETFs he would recommend otherwise. Wait for a 20% pull back in global equity markets.

Educational Segment. The Longest Bull Market? It depends on how you measure it. If you measure it on a close to close basis we have not had a 20% decline since the bottom in 2009. But if you measure it on a peak to trough basis, we had a 20%+ decline in 2011. When you buy and sell, what you buy and sell is critical. We are definitely late in the cycle. He thinks you need to be cautious.

He's expecting the US to slap more tariffs on China, which is not good. True, China has been taking advantage of other markets, but tariffs won't help markets either. Canadian markets are going sideways whereas U.S. markets are rising. Valuations peaked at 19x and are now 17.5x, because earnings have risen. Good, but what will happen next year? He predicts earnings to be positive in 2019 due to less regulation in the U.S. and a tax structure that encourages business. He is cautious in this 10-year bull run. Earnings are going up, but there is pressure on wages and more tariffs. He has trimmed positions to rise to 7% cash and is not spending dividends. The market is fairly valued, but things could go wrong on the trade front.

News flash: Trump imposes new tariffs to China, starting at 10% for the rest of 2018, then 25% This isn't good. This is Trump's way of pushing things along to get China to the table. But Trump's time horizon is November, the U.S. midterms, while China's is much longer. Also, China vows to retaliate.

Sell U.S. banks to buy tech stocks? Buy a defensive tech stocks that pay a yield. Go conservative in tech.

Market. He thinks the energy market is about as bad as it can get. Differentials are at multi-year lows. Canada needs rail or something to get things moving. The BP refinery in the US Midwest will be back online next month. There are talks of two unit train projects being developed – putting 120,000 bpd on rail. There are discussions underway on Enbridge to deal with over-nominations and using drag reducers that can add 50,000 bpd of capacity. Line 3 and other projects are advancing. At today’s pricing levels, there are still 56% margins in the energy sector and stocks are trading at 3.7 times cash flow (half of historical levels). He is trying to convince oil executives to dial back capital outlays and buy back shares instead.

There's a divergence between copper (falling) and US 10-year yelds (rising) this year. Commodities sold off at end-July when they usually rise. At the same time, the US dollar went into the other direction, breaking seasonality too--and this rise is causing havok (like serving emerging market debt). He thinks copper will move back up. If trade talks resolve, then investors in the US may rotate to emerging markets. Meanwhile, the S&P recently broke a new high and the TSX has enjoyed a breakout since the spring and enjoys some good underpinnings despite pressure from the NAFTA talks.

It's the U.S. vs. world markets. The U.S. is still up 8% YTD while the TSX is down 0.5% YTD. It's frustrating for Canadian investors. Financials and energy make up half the TSX, so can those sectors carry the TSX? Probably not. Tech and healthcare make up only 15%.

"Late cycle" is a time when investors transition from pro-cyclical stocks (energy, consumer discretionary) into telcop, staples, utilities and healthcare--defensive stocks. That said, Canadian telcos haven't done well, though utilities and real estate have done better. Investors need to review their asset allocation (stocks/bonds mix) to protect themselves in this late cycle when multiples contract from 16x to 14x earnings in the S&P. Tighter money will mean less company hiring and consumer spending. Resolving NAFTA (finally) will be a big relief--and it will happen. It will be positive for Canada. Foreign investors will look at Canada more favourably. The auto sector may enjoy a pop.

Market. He sees cash liquidity in the market being fairly tight at the moment. In the pursuit of yield, this cash was previously employed via Quantitative Easing into equities as well looking for higher yields along with higher risk. As yields are rising on junk bonds (and bonds and emerging markets, in general), this may now be taking cash liquidity away from stocks.

Markets. Noteworthy is how well US equity markets have done despite all the tensions. Hit new all time high just weeks ago. He’s overweight US equities. The narrative of “global synchronized economic growth” has changed. Strong corporate earnings momentum. Solid US jobs and manufacturing reports are giving a positive backdrop to investing in US equities. Bit of tech weakness, and investors are asking if this stumble is going to be a tumble? Be careful if you’re overweight tech. Evaluate each position you have, and for those where the valuation is a little stretched, consider the ones that are strong long-term and not too expensive.

Is money moving out of yield plays overdone? Yes, the talk was that the 10-year would pass 3% and it hasn’t. REITs and telecoms have done well recently. In the last 3 months, consumer staples, utilities, and telecom have outperformed the broader market.

Speculative plays like marijuana. He stays away from crypto and marijuana because valuations are not there, 100s of times PE levels.

NAFTA’s impact on Canadian equities. If we see resolution, could see loonie jump and Canadian equities respond. He’s still heavier on the US side. NAFTA won’t look as beneficial to Canada, because the US has more leverage in how they negotiate with Canada and China.

Markets. Are large international investors losing confidence in Canada as a place to make energy investments? She has seen many companies that made large investments in the oil sands have pulled out since the collapse of the price of oil a few years ago. And the Trans-Mountain Pipeline problems are highlighting the difficulty of solving Canada’s inadequate takeaway capacity. Even when the Government of Canada steps in, takeaway capacity still can’t be significantly improved and the oil gets trapped in Western Canada and can oil get out if it is sold at a large discount, reducing the value of the investments. Because of these issues, she has not bought any Canadian energy producers for the last year and a half or two years. In contrast, the US economy is growing and leading the growth globally. Growth has been moderating outside the United States, especially in emerging markets. Profits are still rising, wages are finally starting to rise, and she sees no indications of recession on the horizon. However, the trade war with China is a big unknown. In addition, US currency is strengthening, which creates a headwind for large companies with multinational markets. Profit growth is driving overall growth at this point, and anything that causes that to slow could cause the market to pull back.