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

Should I sell my negative holdings as the market is trading a record highs? This requires the leap that you are moving on to a better place. Would I be a buyer of these holdings today? If not, then take at least or half or more off the table and watch how things progress. If they are not in the sunshine, be careful. You want to own things participating now. There are many months of higher stock prices yet to come.

The worry for the market is that it will get Trumped. There's been so much talk, but the market absorbs the news about him and keeps coming back. If this earnings season goes well, we will have higher markets. Congress has allowed Trump to take control of trade and tariffs, but he'd be surprised if there isn't sympathy for Canada in places like Ohio because of our existing trading relationships. He hopes Trump is all bluster and is using all these threats to bargain, then eventually backs off. Saner heads will prevail, he hopes. Abroad, China has had an economic miracle over the past few decades and growth has far outpaced that of the U.S. and India (which has been growing rapidly in the past five years). Maybe Americans feels it's now or never to balance trade between them and China. Meanwhile, India recently has been outpacing China.

Canadian telecoms: He owns nothing here. He doesn't believe in their growth rates, though feels these dividends are safe. He's looking for 10% growth + yield, and these don't pass the test.

Helsinki Summit: Whatever effects on markets from this Putin-Trump meeting will diminish and won't last. Generally, politicians take credit for the direction of economies, but company earnings really drive markets. Earnings are the best we've seen in seven years with 20% YOY growth. All positive. The TSX is up only 2% YTD and he believes we can do better before the end of 2018. The Canadian market has long lagged the U.S. market. We are a late-cycle economy and are focussed on commodities. The current oil price drop is temporary.

Overview. He thinks the fair value of the S&P 500 is about 3800, which is 30% higher than today’s level. He thinks fundamentals are great, especially in the US, which is where most of his focus is. He thinks US government policy (and the associated parts of the Twitterverse) is holding the market down. The S&P hit a high in early February, went through a long consolidation, and has risen back to almost the level it held at its high. He thinks S&P will easily reach that this summer. Beyond that, though, the S&P is running out of time. China is slowing down, world growth is slowing down, and commodities stocks in Canada ex oil are not doing well. Many are down 50%, which also suggests weakness in global growth. He expects a recession in the next year or 18 months. In the recent past, the FAANG stocks have pushed the S&P higher. Netflix stumbled but it looks as though Amazon, Google and Facebook are hitting new highs. The financials are acting well. For S&P to rise 30%, the lead will have to come from the financials not the FAANGs.

[Berman's Call today was preempted by breaking news.]

Market. Russia has one pipeline going through Ukraine to Europe. They are working on another one to get around this off shore. The US is increasing exports of LNG and so is able to sell to Europe now. He is an oil bear. Oil went to $75 due to rumours. But OPEC raised production and are saying they will continue to do so. He sees Oil coming down to the low $60s soon.

Trump and Putin meet today: Investors can read too much into a given day. True, Trump surprises investors and roils markets, but overall the long-term direction of the economy means corporate profits and the extent of any trade wars--that will really impact profits and markets. Trump can't aggravate everybody then expect them to help him. We're moving from a momentum to a value market. Investors will be much more cautious about where to invest. You have to kiss more frogs before finding a prince. He can't pinpoint a particular area to invest in, though oil and banks look interesting.

Market. We have a rally afoot presently, he thinks. Normally we see Managers selling winners in June to reposition later in the summer, which can position the market later for a good rally. The trade wars will likely resolve themselves, he believes, so he still sees a brief rally playing out before the fall. The TSX has been in a long term bull trend and he expects it to continue. However, if we saw the TSX move below 15,000 roughly, he would become cautious. The S&P500 continues its bull run and is looking to make yet another new high and he expects that to continue. He thinks any calming of the trade wars with China would cause a short-term sharp upward rally.

Where should one park US currency? He is looking for areas that are seasonally strong, like health care and the NASDAQ. He would also look at pharma and bio-tech, which are demonstrating good bottoming on the charts. August could be volatile as trading desks are often staffed by junior traders.

Perpetual preferred shares and interest rate increases. Perpetual preferreds are not his favorite holding, because of the interest rate increases. However, after selling most of their interest rate sensitive holdings, he is thinking rates may be peaking. He would hold an ETF for a preferred portfolio such as PFD-T. He thinks the equity market for common shares may provide more liquidity, such as Fortis, Altagas or Enbridge and they tend to have a lower beta as well.

What maximum percentage would you recommend for a holding? Hold no more than 25% for an individual sector. Base metals holdings would never get this close, but banks and utilities could approach this. Individual stock holdings would average 5%, going as high as 10% for high-quality holdings.

How to play the US trade tumult? You have to look through it. It’ll calm down. US earnings quite good, economy is strong, employment’s good, consumer’s in good shape. In Europe, they’ll start to move off monetary policy, and towards fiscal stimulus, especially in Germany. Low rates aren’t doing anything for Europe anymore.

With the TSX hitting new highs, can investors heavily invested in Canada, expect better than 2% this year? Depends on energy, doesn’t see much happening with financials. Excitement in energy has been due to the lift in crude oil prices, but this is temporary. Not that there’s anything wrong with Canada, it’s just there’s not enough fuel in the tank to get Canada beyond where it is.

Canadian financials. Will they keep going sideways? Yes. Canadians have been heavy borrowers for housing, but regulations have cooled this down. Profits are the fuel for earnings. At end of the day, earnings can’t go up if profits aren’t going up.