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

If there is a major sell off, Canadian banks are usually pretty good. If markets get beaten up across the board, you can often get good buys.

Cautiously optimistic about America. The Fed is raising rates to get back some of their dry powder in case the economy hits a rough patch. Trade: China is more complicated than NAFTA or Europe, both of which are approaching a resolution. There will be more headlines about U.S. and China. He's optimistic about the U.S. tax reforms, which has loosened free cash, and will spur more economic activity by corporations. The American economy is doing very well, so now is a good time to raise interest rates. However, as the old saying goes, rate increases in the past have killed recoveries and sparked recessions.

Market. Investors in energy have been moving away from the energy space in Canada and the US. Energy is becoming less relevant to investors as the space is becoming more complex (due to widening differentials for example). He thinks you need to see more hostile takeovers to change things. Despite reduced valuations and strong cash flow margins there is a lack of interest. Over 10% of Canadian oil demand is off line with refinery maintenance with the BP Whiting turnaround. When sentiment changes back to normal situations, he expects to see several doubles or triples going forward especially the larger cap energy stocks.

Why is energy not benefiting despite rising oil prices? He thought this was going to be a great year for WTI prices – hitting $70 per barrel. It did not and LNG projects were positive. There always seems to be another concern for investors. He is not sure what the unicorn is needed to change things. He things hostile takeovers and share buybacks are needed in 2019.

What is a good yielding energy stock? For a reasonable dividend you are limited to Vermilion, Whitecap and Torc. His preference is Torc (TOG-T) as he trusts management, it has high-quality assets and the market cap is large enough to attract interest from CPP as an investor. It is trading at 4 times cash flow with a yield of about 4%.

Canadian or US investments. Feels there is still much better value in Canada. He thinks the US dollar has made its run. He is bringing money in back from the US. There are some sectors in the US he still likes, health, financials, and technology. The TSX is a mixed bag. He likes to own high quality real estate, infrastructure, utilities, or pension type investments and high yield bonds. Marijuana stocks does not fit into their investment sphere. Still not enough access in Canada for Canadian energy stocks. Big issue is pipeline access and differential in Canadian oil.

Market. Last week there was a big jump in ETF trading volume during the selloff. People were feeling quite fearful. ETF was almost 50% of trading in the US, but stayed the same in Canada. ETFs are traded on exchanges just like stocks and can even be shorted. They can also be optioned. ETFs can lend out their stock holding within their fund to short sellers and this can create a yield for an ETF when its holdings do not pay a yield.

Market. There are some underlying concerns regarding trade with China, rising interest rates, the fact that the economy is doing so well that it can only do worse and Saudi Arabia – Turkey thing and there is always Donald Trump. And there is lots of things to get excited about. And there are professional traders that also create panics or euphoria to help their short trades. He thinks that the economy is anyways very strong. The market is not cheap trading at 16 ½ next year earnings. He thinks there is still room for solid growth in equities in the next 3-5 years. Normalizing rates is probably healthy.

Question on the US homebuilding sector. The sector has sold off and is all part of rising interest rates. Housing sales in the US has been disappointing for the last 6-8 months. He thinks there is no reason to believe that the sector won’t come back as the population has grown and the prices has not fully recovered from the crash of 2007-08. Picking the bottom is very difficult so it makes sense to buy 25% of the position and 25% in 2-3 months, etc.

He hopes Canada will catch up to the U.S. by year's end. The market could easily rally. Canadian stocks look cheap, but it's hard to find anything to buy. Netflix's big spike didn't set the other FANGs on fire and will probably stay this way. There's now a dichotomy amongst the FANG stocks, acting individually. In the U.S. we won't see clarity until the U.S. midterms. Cannabis was legalized today in Canada, so the market will now expect real numbers--growth, earnings, sales--to justify those high stock prices.

Market. His was the first open-ended mutual fund focusing in cannabis. People are trying to be more proactive on their health care and don’t want to visit the doctor as much. They look at cannabis as a medication and his fund is focused 50-60% Canadian cannabis companies with the rest focused on alternative medicine companies. He holds about 18-20% in cash in the fund presently to take advantage of any short-term sell off in the sector.

Early Advantage for Canadian Marijuana. It is important for Canadians to understand that Canada is the first G7 country to legalize marijuana. Internationally, medical use marijuana can be shipped across borders, creating a great advantage for Canadian companies. He sees an early leader advantage to Canada for international trade. There are 40 countries around the world, representing over 1 billion people, who can legally use marijuana for medical use. He cautions domestic use in Canada may develop slower than people expect due to slow start to the number of legal outlets.

Meta Farm. He has visited their location outside Toronto. He believes there is enough capacity for cultivation and looks to those who can add value – oil extraction, for example. He likes this company and will be watching its development.

Gold has long been range-bound. To change this, there needs to be a systemic risk that hits the general market to force investors to flock to gold, where greed overtakes fear. It's usually trade events that trigger a move out of equities and into gold. Conversely in past years, the rise of equities has made gold a dead trade. Now, we could see a bounce in gold to $1,350. Junior mining is risky, but more retail investors have been moving into this space. The industry is concerned that there isn't enough supply in minerals like gold and lithium. His end game is to find a junior miner that gets taken out by a producer. For the past 5-7 years, gold has been undercapitalized with not enough exploration. But he's really concerned how grassroots exploration has fallen since 2002.

Active vs. Passive funds in mining Mining ETFs have taken out active funds which are seeing redemptions now. There are 18 actively managed mining funds in the U.S. and they dropped $1-billion in AUM and now sit at $8.5 billion. On the other end the 10 passive mining funds increased to $7.2 billion to $14-billion AUM. This is a turnaround, and it's playing out across the spectrum, not just mining. Investors wants the liquidity and anonymity of ETFs.