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

Currency balance within your portfolio. He likes the US market. With today’s currency, you will be paying up for US holdings. As a Canadian having all your money in the Canadian dollar is very risky. Adding US dollars helps reduce risk. You will find cheaper valued stocks in the US, due to the premium paid for quality brands in Canada – and the US companies will be bigger and better. He likes 60% US dollar exposure. He thinks $0.80 CAN/US would be a good time to buy US dollars.

Trump threatens a tariff on EU cars: He's telling the G7 you're on your own. He's unwinding a global system, and there's further fraying from other parties, such as Italy. Gold is seriously undervalued and should be at $5,000. Western banks aren't valuating them anymore. The monetary system needs to change. Markets aren't working as markets anymore, because ETFs are manipulating them. Cryptos are not competing with gold, but currencies. Outside gold, he sees anything that's inflation-driven. All hard assets and real estate should do well. He sees opportunity, but not where it is right now, but later. What problems lie ahead considering all the debt there is? Investors are not considering this.

Would Treasury Inflation Protected Securities (TIPS) act as an inflation hedge? He hasn't looked at TIPs in a while, but they should. A concern is whether the value is being generated from futures or options? How? The reason is that if there is the market go negative, you could run into trouble and lose your investment. He has looked at TIPs in the past, so he can't say yes or no now. If it's generated by an options-driven vehicle, then you're okay. He thinks the best hedge against inflation is gold and gold producers.

Market. He sees governments running big deficits and worries about it. When employment is high, that is when governments have to run surpluses to pay down the debt. Politicians don’t want to lose voters so what is good for the economy is bad for voters. There's going to eventually be a recession and the only way to fight it is to spend and increase the deficit.

The Canada banks are great dividend stocks. They regularly increase the dividends. Capital appreciation is much iffier. Banks are an interesting sector to be in. Keep in mind preferred shares. He is moving more and more into them. Some of them are riskier companies, however.

Block chain. In November/December, everyone was asking about this and Marijuana. The insanity did not make sense to him. Now you have so many companies entering the field. It is not whether block chain and crypto currency works. You have to know which companies are going to survive.

TSX makes an all-time high today: This is the first time he has such a low allocation to American markets. Capital is finding cheap investments, and Canada is the place. He's bullish oil, foreseeing good returns between now and the end of the year. This will bring money into the Canadian market, and passive money will come back. Trump is a classic high-anchor negotiator. He himself would let Trump win a couple of topics, but then demand the others. He owns almost no consumer staples or discretionary. Bond proxies like utilities and telecoms, have seen a bloodbath this year and this won't change, given rising interest rates and inflation. That said, those stocks are looking cheap now. If you're skeptical about a high-dividend stock, then look at its fresh cash flow, like Altagas. Canadian housing won't be the best investment in the coming decade and will go sideways.

Trading Stops. He has two prices for when to sell a stock. He sells 50% on the first tranche and 100% on the second. He selects it visually – no algorithm. His portfolios are concentrated so he needs to be disciplined. He sticks to the process religiously. This has helped him avoid massive drawdowns.

Millennial investment advice. He looks for a high and consistent ROE. You see trends in Canada, where the pickings are slim here – due to the mature nature of our economy. Healthcare and technology opportunities are better in the US and young investors, with long time horizons, should begin there.

Market. The Russell 2000 is breaking out to long-term highs. Canada’s Venture is also breaking out after a 3-year consolidation pattern. This is inconsistent with the idea of selling in May and going away. The underlying basis for growth in Canadian securities is from the cannabis industry. The first wave of growth came for domestic medicinal consumption, but now there is a growing international market and there are strong institutional investors.

Comment on the valuation of cannabis stocks. A caller asked whether cannabis stocks are currently overvalued. Marchand responded that there is a large black market for cannabis and the legal cannabis companies will take share away from them. Roch-Decter pointed out that several large-cap cannabis companies, such as Aurora, are using their highly valued shares to buy other companies. The agriculture market trades at 1x revenue. Cannabis companies trade at 4X, which she does not consider sustainable. Over the long run, the cannabis multiples will retreat to more normal levels and the smart companies today are highly acquisitive. She recommends holding a smaller midcap that will be swallowed by one of the larger companies or one of the larger companies that is getting international licenses.

Comment on cannabis supply. There is already substantial supply of cannabis in Canada via the black market. One question is how much of that market will switch over to consumers buying their recreational supplies in the legal market. She does not believe that Canada will, initially, be oversupplied. In addition, the legal cannabis sellers are focusing on the high end market. In Colorado, about 37% of the market is edibles and other ancillary products. She believes that as the government moves to allow these in Canada over the next year, this will also solve oversupply issues.

Comment on connections between crypto and cannabis. Roch-Decter noted that there are two privately-held companies in BC that use the excess power from their crypto-mining operations to grow cannabis. This is the perfect intersection of both sectors. Both sectors have trouble playing with traditional financial institutions, so they have that in common too. Marchand says that cannabis producers are interested in, or using blockchain technology in their business, but blockchain is a tool for them, not something that changes the industry.

Comment on the crypto market. Question: Could this be like the 3D printing market, which attracted huge interest a few years ago but now that 3D printing is here, one doesn’t hear much about it? Response: Crypto blew its top with $20,000 on bitcoin and everyone wanted into it. Over the past 6 months, the pattern has been lower highs. There has been a fog over the regulatory space, and some serious hacks, creating a tug-of-war between the bulls and the bears. Last week, the US Securities and Exchange Commission said that Ethereum is not a security; it is a commodity. By clearing this up, the SEC provided some additional certainty in the market, which favors investors. The crypto market is still only $300 billion, which is not much. There is a lot of room to grow.

Beijing trade war with Washington. Surprised there hasn't been more worry in the markets, but Canada has been focused on NAFTA. The two largest economic powers in a trade war is concerning. With Trump, always wonder if it’s just a negotiating tactic or not. In general, investors should be positioned more defensively. For Canadian investors, these tactics pose some risk to NAFTA if the US takes a hard line. Canada needs the trade more than the US does, and the power of US consumer puts US in a strong negotiating position. Bit of a game of chicken now. In Canada, people should think about the view that a slightly worse deal is better than no deal at all.