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

Comment on Canadian Banks. The Canadian yield curve is even flatter than the US yield curve. In addition, there’s a lot of stuff to be worked out on the Canadian mortgage front. He is neutral on the banks and would go to real estate and REITs before going to Canadian banks.

Tesla, down 11% today. Going private at $420? Can Elon Musk pull it off? Yes, wouldn’t have made the statement without having funding lined up. Timing makes sense. In Musk’s best interests, since production is where they want, the 3 is ready to go. Doesn’t need the street any more to raise cash. Musk won’t have to deal with mundane matters, and defending himself against short-sellers, and can focus on getting the company commercially viable.

Big picture advice for investors. All-time highs, yet an underpinning of fear? That’s why stock-picking is secondary, and portfolio construction is much more imperative. Especially 10 years into a bull market. Cash is important, because you can take advantage of opportunities, and because you don’t want to sell into a falling market. Know the proportions of what you own, and the beta. Especially for retirees, who can’t afford to take a 40% hit to their portfolios when they need to withdraw cash.

Analysts reports. Doesn’t read them. Doesn’t believe there is a “Chinese wall” between research and investment banking. Analysts are not independent. Companies “beat,” because “adjusted earnings” are becoming in vogue. Remember, earnings are artificial, cash is real. There’s manipulation going on.

Where to park cash? In Canada, he buys banker’s acceptances, which pay 1.5%. In the US, T-bills get them 2%.

RRSP, TFSA, or cash account to avoid an ADR’s withholding tax? Only in a cash account can you claim back the withholding tax for an ADR.

Market. He thinks there is too much emphasis on the recent slowing results of some of the monopolistic stocks. He thinks the market should focus on the broader market, which is doing very well right now. Wage inflation should be starting to show at full capacity, but so far companies are not increasing wages and that is why the earnings of the S&P companies is looking so good right now. It is good for workers as there are many more jobs and it is good for companies as their earnings improve.

Where is the opportunity? If market dropped 10-15%. But US market is doing very well. Economy also doing well with 4% Q2 growth. No value investing in this market. He’s still looking at US, less at Canada.

Outlook for next couple of months? Volatility with several different 10% declines, but these would be buying opportunities in the US. No reason to exit the US.

Canadian economy. Market’s done well because of oil prices. Though economy appears to be doing well, so many problems to getting energy offshore. “Complete policy bewilderment” in terms of competitiveness and unfavourable tax rates compared to US. Still keeps Canadian banks because of their US exposure, and Canadian industrials. Strongly overweight the US.

Canadian energy policy “bewilderment.” Political will was missing a couple of years ago, and now in desperation the only way to get a pipeline built is to nationalize it. Social license issues are not something you bring to a trade meeting lik NAFTA. Lots of policy problems in Canada.

Bank stocks in an ETF or directly for a long-term investment? There’s the ZEB ETF, but this one is expensive, and only has the 6 banks. He would buy just a couple of the banks outright, and relax.

How else to access Canadian economy beyond XIU? There are 700 ETFs and 2700 providers. BMO, iShares, and Vanguard, dominate 80% of the ETF market. Very competitive prices, pick one. He likes XIU and XIC because they’re liquid, and he can get options on the Montreal exchange.

How important is the brand name of the ETF? Doesn’t matter except what it means for the cost. Horizons are a little pricier because they have do some creative things. But no one can compete with the top 3 providers (iShares, BMO, Vanguard) in terms of cost.

For emerging markets, do you have to look country by country? When looking at EM, would buy as a block, not country by country. You want diversification. Too much concentrated risk. In developed markets, you can look at a country like Germany or Japan.