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

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.

Today’s money flow into defensive sectors. Today US money moved out of cyclicals and into telecoms, utilities, and consumer staples. He’s not as attracted to Telco’s, utilities because they’re slow growth, have high valuations, and will be hit by rising interest rates. They find businesses not in those traditionally defensive sectors, but with stable cash flow, good dividends, such as gaming, waste management, some industrials. Traditional safe sectors being hurt by rising rates is a continuing concern.

Market. The Vienna OPEC Meeting: They could decide to add a million to a million and a half barrels of oil production but they moved it down to a third of that. OPEC has not been able to NOT CHEAT for a long period of time so he things they can't refrain from 'opening the spigots'. There has not been a huge investment in oil here for the last few years. He looks at the forward market. If we are going to $100 [as another guest predicted] then why is the futures market anchored at $50. He thinks Trump will make trade wars a little bit worse before making it better. The Canadian dollar is under pressure due to NAFTA which will perpetuate into next year at this point.

Educational Segment. Bitcoin. It is not sustainable because of the energy consumption. There are 4 thousand crypto currencies. Half of a percent of all the electricity in the world today is consumed in making crypto currency. He thinks eventually governments will control all digital currencies as they can more easily track transactions to tax them. In the end he feels Bitcoin is worth nothing although it's energy cost is a couple of thousand.

Interest Rates. He would recommend a target rate bond fund. You are diversified across corporate and other bonds.

Oil. We are in the bottoming phase of the market. The US is taking all the growth in global oil production. OPEC countries are already shipping more oil to the states. There is going to be a seasonal pull back in oil. He thinks he will be bullish on oil sometime next year. He expects a multi-year bull market starting then for 5 years or so.

He's not rattled by current headlines. The stories in the back of the newspaper are more important than the front page. A news item is shocking at first, but people get used to that news or forget it. Also, people focus on the negative more than the positive, and the negative can be positive in the investing world, such as a collapse in oil prices doesn't trigger an economic collapse (rising oil does, actually). The bond proxies like utilities, REITs and telecoms are not attractive. Rates are rising and there's no growth in these stocks. He's also worried about the bond market and gold. Instead, buy cyclicals instead of defensives, like healthcare and technology, stocks that benefit from a strengthening economy.

How close are 3D printing companies to making auto parts and medical devices? There's nothing new about 3D printing, so he's skeptical when somebody says they have something new and disruptive. Lots of companies, from hearing aids, concrete and aerospace, are already using 3D companies.

Market. In the case of 5G he wants to position himself in the companies that have the most spectrum. There is a spectrum auction coming up shortly. The incumbents will probably share 53% and the rest goes to smaller companies. Cellular is going to change all kinds of occupations in years to come. AI is more applicable to more industries than block chain. In the future you probably won't need a radiologist. The insurance companies will love this as they won't have to employ all these people. He is involved in an AI start up fund.

5 G Networks. This is going to be bigger than the Internet. He is not sure he completely agrees with that but with the smart cities including automated cars, we need this. It actually uses less power at the end of the day. It is 100 times faster than 4G. FB-Q and so on have basically built their companies with no infrastructure because they use the internet.

Choosing an equity mutual fund. It is hard to do stock picking as an individual so he would recommend a mutual fund. It is better to have it in a cash account than an RRSP. It depends on the environment and where you are in the cycle. A lot of people are managing their own portfolios these days. If you are willing to spend the time and do the research you can build a decent portfolio. We have been in a great cycle for 10 years. The world's not getting any safer or stable with Trump in power. You want to look for lower fees. The industry has shrunk in terms of companies. An ETF is a market or a part of the market and it depends on how you feel about the sector. The market is not without risk at the end of the day.

Growth vs Defensive. Normally this time year, on a seasonal basis, there’s a shift from heavy cyclical stocks like base metals, industrials, financials. Staples, bonds, utilities tend to pick up in summer. And we do see this rotation, but with all the talk of inflation, still don’t see US 10-year yield much higher. Somewhat pro-cyclical tech sector ETF, XLK, should carry on into July. Industrials have come off. XLP (staples) and XLU (utilities) have started to pick up right on cue. Corporate and individual debt lag rate increases. At Castlemoore, when they look out, they’re thinking is this typical rotation or might there be something more.