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

What is Market-Neutral Investing? A market-neutral find tries to be effectively short as much as it is long. He has about $400 million assets under administration, with roughly $200 short and $200 long.

Market. He has no inside insight about the NAFTA negotiations but suspects that they will take a little while (longer than the week currently being talked about). This has been a hot topic since Trump was elected and so, he thinks, investors have already positioned themselves in terms of this risk. Therefore, he is focused on the fundamentals and risks of individual companies rather than on the macro developments. The investment theme that is currently most interesting to him is the interest rate-hiking cycle. Short rates are up, not just in Canada. This usually has a lagging impact. The last rate-hiking cycle was in 2007. Other similarities to 2007 are the yield curve and the level of M&A activity (the market is blowing past the 2007 level of M&A). M&A has involved several trillion dollars this year, which makes shorting individual companies very challenging, but he thinks that shorting is likely to pay off on a go-forward basis. He has been doing well with a merger arbitrage strategy.

Market. NAFTA news could come quite soon. It is good news. If we get to trade agreements before they escalate that is good news. Trade between China and the US could take a long time to solve, however. Any deal Canada does for dairy will have to include a schedule where supply management gets unwound over a number of years. Next October there will probably be a federal election so Trudeau is under pressure. It is more noise than anything else, however. The markets have taken a bit of a notch off of rate hike expectations for November.

Recently we had a selloff in the gold sector so he is overweight gold in all his strategies. If you want less risk then go for the option type strategies, such as put-write (ZPW-T, PYF-T). He likes these late in the cycle.

Value Stocks a good Choice at this Point in the Economic cycle? There are ETFs you might play for a value tilt: In 2001 all the money came out of tech and went into value stocks.

Educational Segment. Currencies matter. Trade deals impact currencies. After 1970 the US went off the gold standard and floated more freely. In Canada/US, the average annual change is 5.39%. Most years, currency is the single biggest item that defines your returns. We are much weaker against the US dollar than we were in the '70s. Against Germany, 70% of the return between Germany and the US was the currency. ETFs allow us to hedge or not hedge and that is another reason he loves them.

Market. It seems like it is pretty definitive regarding the US/Mexico deal and the real question is if Canada will be part of it or will it be a separate deal. The Canadian dollar has come up a bit and the markets are where they were before the deal. It is a limited market reaction and that is a positive sign. He sees some catch-up trade in Canada as the US has done so well. He has been moving money into the US since 2013. It has been a bit of a safe haven from a Canadian dollar point of view. The US is still a favourable place to invest. Within Canada he would not change any weightings. The biggest risk is the dollar.

Banks. We are in the longest bull market in history. We are long in the tooth. Invest a little at a time going forward, investing more if the market goes down. He thinks there is a negative overhang on the Canadian banks from housing. He suggests keeping adding as markets go down.

Mexico and the U.S. strike an early trade deal: Typical Trump--he solved a problem he created by crapping on NAFTA. But nothing was signed today; they agreed on things. The whole process was divisive, alienating Canada from the talks. The market continues to give Trump these passes. He's reviving businesses that died 40 years ago. The warning signs are going up anyway. Economies have been strong, but stock markets look forward--and there are cracks. For example, why is copper rolling over, if things are so good? Turkey and Venezuela are falling apart. Even Japan and Europe are seeing sloppier numbers. Tax cuts have poured a little fuel on the U.S. market fire, but the cost will be the huge deficits to pay later. The U.S. is drinking the Kool-Aid. ETF flows are really keeping the market going, and when they stop, the market will tank. Overshoot on the upside, then overshoot on the downside. The question is when exactly it happens.

American financials have been flat since March, but tax cuts are putting money in the pockets are American consumers. Why? He agrees. It's surprising. BoA has the best valuation upside. The U.S. financials are telling us something negative about the rest of the market. The 10-year US treasury hasn't broken above 3%. That said, valuations are cheap.

Silver: The US dollar will face downward pressure and silver will decrease with it. Buy it then.

Market. The average bull market usually lasts 14 or 15 years. Some thought this bull market began when the lows were hit in 2009. He believes this new bull market didn’t start until 2013 until the old high was taken out, the breakout point. So there could be another 5 years or more left in this bull run. Today we are testing the January highs of this year. Right now, it is just a correction until a major low is taken out. He does not have a bearish case, just a case for pause. He expects to see a summer correction which becomes a buying opportunity.

Technical Analysis indicators. Start with trend, higher highs and higher lows. Once that is established, then start using indicators. To confirm trend, always use 200 day moving average, if you are a midterm trader. Then would use a longer term momentum indicator, telling us the velocity of a stock. Then would use money flow. This tells whether money is flowing in or out of a stock.

Seasonal Technical Analysis. Seasonal references are available on his blog (Valuetrend.ca) that references websites that provide this information. You have to look at charts through a logarithmic scale that would address both the percentage gain and dollar figure.

S&P 500 and NASDAQ hitting record highs. Earnings have been very strong. Two-year swap spreads give corporations tremendous access to capital. Tech has been leading the way. VIX is at 25, which usually signals risk is away from the market, notwithstanding trade wars and benign nature of the yield curve.