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

Trump is preventing better returns. His tweets pressure the markets. Calm would raise the markets. A recession is still more than 12 months away, and so the market can still rise a bit more. Start to hold a little more cash for opportunities. Underperformers are financials and the interest-sensitives, but these have been done underdone. Be in a little less tech and a little more defensive. If you can take partial profits from say Facebook, then buy a dividend-paying stock. Look at reset preferreds. The Canadian market is roughly flat for 2018 (January highs) while energy has been improving from the gruesome lows of the past few years, though $22 is the Canadian discount. That said, Canada will benefit from rising oil. Big cannabis stocks need an awful lot of growth to justify the valuations. The smaller weed stocks hold more opportunity, because they can be taken over.

Market. The US dollar is in a bull market. He expects the US dollar, and all assets priced in US dollars, will go substantially higher. He expects this to continue for a 5 to 7 year period. Things look good in the US market. He recommends ignoring the Trump tweets and focusing on the statistics. Fewer companies are participating in the growth than he would like. Financials are going sideways as his models of their value increase. He uses Model Price Theory (https://modelprice.wordpress.com/) and sees rises in interest rates as bullish. He thinks that Europe’s economy is getting substantially worse and that Deutsche Bank’s woes will cause broader problems in Europe.

Comment on Canadian Banks in the United States. In general, American customers tend to like Canadian banks, so they are positioned to expand there. He would buy the Canadian banks on a pullback but would not buy them today. The upside is not as strong as it was in the past. All over the world, everyone is short Canadian stocks, including Canadian banks. Our debt and valuation are seen as high. So, for example, he would buy TD at $66 compared to its current price of $76.74.

Is it a good strategy to hold half-fixed income stocks and half-dividend growers and generate income this way in a rising rate environment? In the past two years in Canada, the bond index return is about 0%. You need the return to be 4% which you can get in preferreds without the risk. If you have a dividend grower, find a stock that also has earnings growth, like AQN-T.

Market. He is not lightening up on any position today. He has taken a defensive stance over the last few weeks. He has moved away a bit from tech, industrials, financials. A potential trade war with China could be a cloud over stocks for the next little while but building tech products at the lowest price is good for everyone in the world. He thinks earnings will be great this year and continue to be good in Q2. Tariffs, though could put us into the feared recession. Domestic names in the US have done quite well where they don't deal with borders. Don't fear equities but have a basket that includes unloved sectors.

Split Share Yields. When you have a portfolio of securities that pay a high dividend, you create a split share to allocate the growth and the dividend of the company to two different securities. One is a preferred and the other is a capital share.

Educational Segment. The Best Market Return Indicator. The percentage of three asset classes that are part of the household assets. The value of your real estate, value of your portfolio and all liabilities. When everyone is in and have a high percentage of their household assets invested in markets, usually for the next 10 years, it is just less than 4% annualized. We are in a period now where a high percentage of household assets are in the market. This indicator has a 91% correlation to returns. This indicates we are late in the cycle.

Market. Over the last couple of weeks we saw trade, trades, trade and today we are down. We are sitting in the DOW right at the 200 day. We have not had a close below the 200 day since 2016. If it closes below there then we will test the 200 day on the S&P and if we break that we look at the lows from April and May to test out the downside. In Germany there has been pressure within Merkel's party. If things come apart in Italy it does not look like Germany will write a cheque for it. The more pressure we have on the US dollar, the more pressure we will have on the financial markets. Mid-2019 is where he thinks the recession will come. The market peaks about 8-9 months before a recession is labeled. By that time the markets are down 29% on average. The market peak should be early next year.

Vanguard double taxation of some ETFs. There is a withholding tax for an ETF wrapped within another ETF that also has withholding tax. He suggests calling Vanguard to discuss it.

Gold and Gold Equities. It offers a different path of return. It offers no yield. He added to gold recently. He sees a trading range for 6 months.

Today's 2% drop in North American markets, triggered by Trump's tariff tweets, is a short-term hiccup. The more noise we hear from him is finally taking its toll; the Dow is down 1,000 points in short term. There'll be more downside about 5%, but long-term we're okay. The market needs a sell-off of another 1,000 points, then it'll be calm and steady before we see new highs. We have a lot of steam left, but need to blow off stale air now. He doesn't see a recession in the near future, just a correction, which is healthy. The TSX has been faring better than the American markets lately. It's amazing there's been so much volatility in cannabis stocks when there hasn't gotten under way yet. There's a lot of eurphoria now; he's in a wait-and-see mode.

Market. Lots of noise out there. People are positioning for Trump. At the end of the day you have to ask, are sane and rational people going to get self-inflected wounds? There is going to be drama along the way, but he thinks in the end what is going to end the cycle is what usually ends the cycle which is interest rates or extreme valuations. None of which are really flashing now. Some areas, like the TSX, are undervalued. OPEC has engineered a false market for oil. Differentials in Canada are narrowing and if that continues there is going to be great opportunity in Canada for the oil patch.

Recently retired would like to know options to get 5% return. In preferred share-land there are many names that can give you 5%. He likes the rate resets. Many issuers, banks, insurance companies, etc.

All the utilities have been going down since mid-last year, when are they bottoming out? Great question. Area that used to be a big part of their portfolio. They reduced it. He thinks it is close on the growy names. On the ones that don’t grow, there is still some more downside to go.

Market. Based on his recent work, he thinks this is the greatest credit boom and possibly greatest bull move of the stock market. Even if the forward interest rate curve inverts, there will be substantial credit available in the shadow banking space. He thinks we are another year and a half away from seeing rate curves invert. Pension funds have large shortfalls and have hurdle rates of 7% returns, which must be earned by fixed income (i.e. bonds). This group is lending to credit-worthy companies. This could eventually lead to the largest credit bust in history, as these groups become more and more leveraged. He prefers the US market, because the limited number of quality Canadian equities makes the good ones very expensive compared to their US counterparts.