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

Amia bid by Air Canada – The re-purchase of Amia by Air Canada has a lot of points customers upset. Was it fair for Air Canada to buy them and not redeem all the previously earned air miles, only to bid for the company at a sizable discount? The unsolicited bid has driven up the Amia stock by 30%.

Market. He does not see a recession soon, but it depends on interest rates and earnings. Thus far, 90% of companies are beating on earnings expectations. Tariffs could result in higher costs in things like automobiles and it is not yet clear how that may influence the economy.

Trump's call to EU today should remove some tariff uncertanty. Should. Maybe that'll transpire with NAFTA and the auto deal, too. Meanwhile, economic indicators show continued improvement. The 10-year yield curve is trending down and is certainly on a lot of people's radar. If the yield turns negative, a recession usually follows in 12-18 months, but maybe it'll happen sooner this time because so many are tracking it.

Markets. He thinks the equity market looks decent for the next year, but acknowledges that the declining prices of copper and zinc would traditionally be interpreted as signalling a potential recession. He thinks the U.S. economy is still growing and that Canada’s will grow with it, at least for the next 12 to 18 months. In contrast, economic indicators for Europe rolled over almost a year ago. As the U.S. dollar rises, the cost of servicing US-denominated debt is rising for European and emerging-market businesses. The yield curve is close to being inverted (short-term interest rates higher than long-term): this usually indicates a recession is coming, sometime in the next 14-34 months. Typically, equities continue to rise, by about 15%, for about 18 months after the yield curve inverts, before the recession hits. In addition, there are reasons to expect the yield spread to widen, with long-term rates rising significantly in the next few months.

Comment on Utilities versus Telecoms. In a rising interest rate environment, stocks in both industries come under pressure. Research by Ned Davis suggests that dividend stocks can still perform well in a rising-rate environment if their underlying earnings are improving. He owns more utilities and fewer telecoms but in general he thinks there are better opportunities than appear in either industry at this time.

Daniel Farb resigns from the board of Meg Energy, unhappy with its direction. He agrees, unhappy with their direction. Also, energy is a sector you want to be in only a short time. He thinks we're in one of the great bull markets. Other than Trump, the world is a great place. Commodity prices are high. Inflation is low. The stocks that rose, did, as seen with current earnings reports. Trump creates a lot of noise and some of that he makes into policy that is destructive to a degree to Canada. However, Facebook, Mastercard and other U.S. companies are doing well. We're moving away from factories to automation, and those who used to vote Democrat feel left behind. He doesn't know anyone cancelling Facebook and he expects their earnings report to be strong.

Are cannabis stocks iin a bubble? He can't do fundamental analysis on cannabis stocks--he doesn't know what the demand will be and what share the illegal market will have. Also, this kind of consumer product involves customer brand loyalty. So, branded companies like Constellation which are working with cannabis will fare better. Yes, we're in a bubble.

Market. The yield curve in Japan has been flat with negative interest rates for some time. They are the world leader in QE. They are the single largest holder of Japanese ETFs in the world. He thinks they will target shorter parts of the curve. And longer term parts of the curve will creep higher. There is a tremendous supply of bonds coming to the market. He thinks we will start to see a steepening of the yield curve. It will be interesting to see what happens to mortgage rates. Tensions with Iran are bearish for the world – don't go out and buy oil stocks because of it. The FANG index is hitting resistance and he thinks we are in for a correction.

Educational Segment. Market Breadth. Everyone knows earnings are expected to be good. What matters most is what people actually do with their money, not reports. He likes to look at the S&P 500 and its 200 day moving average. We are getting close to the highs from earlier this year. The return to risk ratio is not looking so good. He then looks at the percentage of stocks that are trending above their 200 day moving average. We are at 62% but were at 70-80% back last year when the markets were robust. How many stocks are making new highs? Last year the trend was robust and increasing. It peaked in January. This year the percentage is on the decline. You currently have only a few stocks lifting the markets. The S&P-500 absent the FANGs is not even up this year.

Market. Markets have been a little choppy. The US market has continued to climb despite all the things Trump says. There are positive fundamentals and good economic numbers. He believes this will continue to play out for the remainder of the year. However there are high PE multiples and rising interest rates. There are opportunities for stock pickers and you have to be a little more selective. Avoid the momentum and tech stocks. He invests in US banks rather than Canadian ones. There are greater risks and more headwinds for Canadian Banks.

Earnings season has been great, such as Thomson Reuters revenues up 20%. But these gains are already built into stock prices. Can the markets keep going up? Every August-September there's some geo-political event. These are usually the worst two months. Trump doesn't like that the U.S Fed will raise interest rates, though he's not the first President to put pressure on the Fed He thinks Powell will stay independent and won't buckle. It's difficult how Trump will manage trade, the dollar and China.

Lumber stocks have been effected by hurricanes and rebuilds, but has suffered a big downturn since May. It's now out of season, still falling. Wait till the fall to buy this sector. It could fall further from now to then.

Use moving averages to determine bounces and lines of support? It's one factor. Looking at 50- and 200-day moving averages, you get into golden and death crosses, but these happen over too long of a timeframe for him to look at. Instead, he looks at 10- and 20-day moving averages to establish a trade. That said, the 200-day is important, because many investors feel it is and they will sell. It's impossible to follow just one moving average because an investor will get whipsawed all over the place. You need another factor to decide whether to get in or out.

Market. The US economy had a good second quarter. In Europe and China things are slowing little. One of the main things that the Fed has to face is the yield curve flattening quickly. He believes the bond markets figure things out fairly quickly. The yield curve is saying that there is slower growth and low inflation. This doesn’t mean you can’t do well in stocks. You have to be very careful when interest rates are being raised. Particularly in light of coming out of QE. Earnings have been coming very strong.

Market. Stock piles are nearing record low levels. Lack of available inventory within OPEC and lack of investment in OPEC and non OPEC countries. Inability to meaningfully grow production after 2019. USA has a pipeline bottleneck until 2020. With continued demand growth, we see inventory continuing to drop. See inventories approaching all time lows by the end of next year. Demand will only decelerate in today’s economy at $120 oil.
40% underperformance by Canadian energy stocks relative to index. A lot are trading at 4X multiples instead of normal 7.5 to 8X. He sees a minimum of 50% upside and if he is correct at $80 oil, he sees 100% upside in Canadian energy stocks.