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

US drillers. Prefers Canadian names, because of valuation. Go for straight-up growth or harvesting some cash flow. Valuations in the US are getting a bit stretched.

Oversupply of marijuana similar to .com era? Will black market add to oversupply? Will big players be in financial trouble? That’s one issue, but another point is these stocks imply $6/gram price, but provincial price implies $4.50/gram. That’s a worry.

Specialized marijuana companies. Hasn’t looked closely at these companies. But the infused beverage space is an interesting way to play marijuana. Possible takeout opportunity from liquor and big tobacco. As long as they execute well, could be a takeout or grow their own market share.

Marijuana based in Canada only a big concern? Yes, because of oversupply. If Europe had regulatory change, they could eat up the extra supply. But if don’t sign agreements now, could get shut out by the big guys. Need a route out of Canada if there’s oversupply.

Natural gas futures 18 months out. Take a partial position in Tourmaline or Whitecap? We’re awash in gas in North America, with some liquified natural gas projects coming on in future that could soak up some of this. But now it’s just normal supply/demand. US shale is growing, so you have to contend with more gas in the Permian. Be cautious with gas going into the winter.

Investor overlap in oil and marijuana? Retail investor is the one in the marijuana game, but institutional investors are the ones playing in oil.

For marijuana, buy one company or an ETF like HMMJ? The industry is young and small, so an ETF is not well diversified. If you have the time, pick the individual names because that’s where the real growth is. An ETF lets you be fully invested in the space if you don’t have the time.

Market. We have to differentiate between trade rhetoric and trade actions. Investors need to understand that a lot of this is politically motivated as opposed to economically. It is part of a negotiating strategy. Are these going to be lasting features of the trading relationship? He does not believe it is. We have not seen inflationary pressures through wage inflation yet but these things are typically lagged. We are late in the cycle and you want to be mindful of which sectors are inflation resistive.

Market Outlook. He has a continued concern about equity markets for the last coupe of months. On a global basis the economy is showing more and more signs of trouble ahead. Many holes to the synchronized global growth story. Europe is slowing. Japan is slowing. Emerging markets are very difficult. China effectively in a bear market. Domestically we are in a cycle. Expansion started in 2009. Now we hit capacity levels. US unemployment at 3.4%. All companies are now talking about rising input costs. The greatest tailwind for the equity markets in the last years – the zero-interest rate policy – is being pulled away. The party is almost over. Stocks are not ridiculously overvalued but highly valued. He would question the earnings quality for some companies also.

Can you explain the disconnect between the price of oil and the stocks in the sector? There has been a disconnect that is surprising. There are some reasons like the pipeline problems and the western Canadian select spread - but that is improving -. Capital leaving the Canadian Patch and going to the Permian basin. That created opportunities and companies are figuring it out. You have to be patient with this group. Many names are looking cheap now. Bottom line: stick with this group. One of the few sectors he has a significant overweight in the market now.

Is the Canadian Telco sector a good investment for capital preservation and yield? Yes. Yield and safety are there. Within the sector he likes Rogers Communications Inc. Class B (RCI.B-T) and Shaw Communications Inc B (SRJ.B-T). Particularly the later as the stock might play a little bit of catch up here.

Market. He sees the market being in a tug of war with the Trump Administration creating volatility with trade tariffs globally. He thinks the market is continuing to bet this is all just short term noise. A year ago he was very cautious about interest rate sensitive stocks, which conflicts with the need for yield by investors. They were lightening up on telcos and utilities and feels there is still pain to come in these sectors.

Deploying cash now. He would focus on mid-cap names to avoid noise with tariff risks. His company portfolio holds 60% mid-caps. From a currency perspective to the US dollar, he doesn’t see much to protect against potential currency exposure at this time. He would suggest employing a dollar cost average approach for entry. He would caution purchasing bonds, as some high yielding ones trade more like equity than bonds.

Governor Poloz from Bank of Canada talked today: He didn't say a lot. He'll make a rate decision later. Today, various comments from Washington about backing off with proposed tariffs, then reversing themselves created market uncertainty and volatility. Things can get worse, but we still have a strong economy with reasonable valuations. The yield curve has not inverted, though it's flat. Don't be aggressive at these levels. Tilt your portfolio just a little towards defensive stocks, but don't abandon your portfolio. If there is no major damage in trade, there won't be a recession for months or even years. We had a spectacular earnings season in Q1 in the U.S. with Q2 coming. Canadian markets are a little deceiving, largely due to a falling Canadian dollar. We're not really hitting new highs, just last week matching January's.

Why are Canadian junior companies badly lagging the rise in oil prices the past year? Because those companies fetch lower western Canadian prices, not world (WTI) that we see. The price difference lies in the lack of pipelines in this country. Another reason is that U.S. investors no longer flock to Canadian oil--the U.S. now has its own oil production, so those investors aren't crossing the border anymore.