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

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.

Where to invest in Japan? Traditionally, Japan companies would make money, but wouldn't pay it to investors. Also, a company would appear to be selling, say, electronics, but were really selling chemicals, so investors weren't sure what that company's business really was. Today, dividends at Japanese companies are starting to rise and there's more transparency. If this continues, the Japanese market will outperform for a long time. Also, Japan is seen as a safe haven for investors, meaning it's not a Trump target. He has misgivings about the Japanese economy though, despite there being some good companies, like the rail companies.

You have to be in the US market, but it depends on the currency you're in. US dollars are ideal, though every portfolio should have a mix of currencies including Euros. The US is outperforming though the S&P has not. Similarly, Asian tech has had surprising recent down weeks, including Alibaba's sudden downturn. Any FANG tech stock that misses an earnings report suffers a vicious downturn. Trump's trade fight against China: China is not the underdog and can in fact fight back, like dumping U.S. treasury debt notes that would put severe pressure on the U.S. dollar. China could also prevent American companies from sending capital back to the U.S. that would cause carnage in U.S. markets--and Trump can't afford to have the markets tank. The U.S. picking a fight with three guys--China, Europe, Canada--and this will only lead to an America nosebleed. Meanwhile, dividend payers like telcos are attractive now, so the sell-off these stocks is premature.

Market. Markets in the US have not responded to trade wars. We are coming up to mid-term elections and the markets don’t like uncertainty. These will be volatile months. It is justified for the US market to do well but there is uncertainty. Tax reform is being used as a reason for the US market doing well. They are trying to reintroduce another round of tax reform and it is debatable as to whether this will do well. There will be volatility in the markets. It is difficult to say how the markets will react to the mid-term elections.

Distributions in a rising rate environment. REITs can raise their rates. XRE-T can be compared to interest rates. We saw REITs do well this summer for a seasonal reason. REIT returns are generally safe even in a rising rate environment. Distributions are safe but you have to ask if they are attractive in a rising rate environment.

[Caller wanted 3% return for a year or two]. This is risky because if the market goes back up where do you go back in again? There are option calls. Utilities or REITs still have quite a bit of volatility. There are covered call ETFs.