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

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.

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.