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

What's the difference between managed and passive index ETFs? If it charges between 5-20 basis points, it's an index. More than that, it's managed. Then there are smart-beta ETFs which are run by ex-mutual fund managers using their mutual fund principles in an ETF at much lower cost.

Overview Corporate earnings were terrific in the first quarter. The stocks that he buys are driven by corporate earnings. He looks for value stocks that have lower growth but are steady. There's a big appetite for risk in the market and so the high-growth stocks are doing well.

Comment on long term bonds as a stabilizing investment for seniors. He thinks these are a wise investment to reduce risk in a portfolio. Currently, a good quality corporate bond (BBB or BBB+) in Canada that will mature in 5 to 7 years earns about 3.4%. The real return, after inflation, is about 1.5% before inflation. No one will get rich from these. However, in the event of an adverse stock market, investors will be happy to have these. He recommends against buying bonds that mature more than 6 years from now because they do not compensate investors for the extra duration risk, especially in a rising interest rate environment.

Market. He thinks not much of real substance will come of the meeting between US and North Korea. The problem is what will happen with his twitter feed. He thinks there is an opportunity for Canada to mitigate the issues with trade tariffs. Trump is good for the stock market.

Crypto Currencies. Bit coin is very different to the rest. It is more like digital gold. It is a store of value or wealth. The bit coin market is too small to significantly affect the gold market.

Three recommendations for a mid-career investor with 10 years. Focus on emerging markets. Go where the growth is. Own India and China. Include Technology. Marijuana is interesting but be wary of valuation.

Caller owns a bit coin and it has tanked. Think of it as a store of wealth. It has all the characteristics of gold. Hold it for the long term.

Greenhouses moving from vegetables to pot? He does not think it is a genuine concern. You still have to get a regulatory license. He thinks the black market will oversupply the Canadian market and people won't switch from vegetables to pot.

Market. There has been no shortage of commentary on the G7 summit this morning. Regarding Trump's comments. Things have to get worse before they get better. It is not a good thing. But ultimately it could lead to better trade deals. It seems this is what the market is pricing in. Trump thinks he needs to come out ahead on the trade deals. Attention is now on North Korea. This could play out for years and years. The ECB actions will be more important than those of the Fed. The ECB has purchased $3.5 billion of Italian bonds in the last three years.

Withholding tax if US ETFs held in an RRIF. Yes, there is a withholding tax and there is not a whole lot we can do about it. You need a W8BEN form signed and there might be some tax relief in some cases.

Canada's debt to GDP ratio. At the federal level it is around 33%. You have to add in the provincial debt. As a whole it is around 95% debt to GDP. The US is over a hundred as is Europe. Japan is far beyond that. When the level of debt is the same size as the output of the world, it is like hitting the breaks on growth. Debt globally is choking and interest rates can't go up much because debt servicing would be astronomical. We are in a 1 to 3 % growth world.

Recession in 2019/20? The yield curve is the best predictor of a recession. It is inverted within a year of the recession. The yield curve in question is the 3 year relative to the 10 year. There is a 10% or less chance of a recession next year. Equity markets peak about 8-9 months before a recession. Longer bonds should make you money as the market prices in recession risk.

Russia. RSX, an ETF, is the main index in Russia. There are other, broader ETFs that include Russia. You may want to look at it if oil under performs.

Educational Segment. Bond Supply and Unwinding Quantitative Easing. Part of the equity market anxiety earlier this year was related to volatility. Inflation pressures are still building. The Fed is unwinding the balance sheet and the ECB may announce they are doing the same thing later this week. There is a VIX for everything. He showed a chart of the VIX on 10 year bonds. It has been declining for a number of years since 2010. He thinks we will see bond volatility spike up again but not to the '08/'09 levels. It will cause anxiety in the equity markets, however. If we see equity markets weaken after 1 pm today then the supply of bonds will be a problem. The ECB is probably not going to put net new supply into the market until 2020 but the question is who is going buy the Italian bonds. He thinks it will be a big problem at some point. The markets are underplaying the risks. Corporate balance sheets everywhere are not in good shape. S&P companies have never been more leveraged compared to revenues before. There is probably going to be stresses in fixed income and equities as well, and at the same time. It is not as simple as going into a balanced fund.

Market. Oil. OPEC has succeeded in bringing oil inventories down and in fact at the fastest rate in history. There is going to be drama and volatility in two sources considering increasing production. Most production growth in North America takes 4 to 6 years. We have seen the biggest contraction in history in the spending on new long term projects. Spending will stagnate until 2023. He feels oil prices will fall until then. Oil inventories are going to reach an all time low in Oct 2020. He feels inventories will fall below what refineries need to function. We need demand to fall and will do that through high oil prices. At today's GDP levels we would need $120 oil to get demand destruction. He seems $80 oil in 2020 months.