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

Comment on the impact of rising oil prices on pipelines. There is a correlation but it is often sentimental rather than economic. When the pipeline is built, the company writes contracts that will continue regardless of the oil price. However, when oil rises for a sustained period, oil companies explore more and produce more, increasing the demand for space in the pipeline. The increase of long-term demand supports development of new pipelines and increased cash flow for the pipeline companies.

Market. BREXIT. You are seeing a real risk with Boris Johnson stepping down and there could be a confidence vote with Teresa May's government. As we get into earnings season this is important. If the markets can't make new highs, it would be a sign of a bigger top forming. What's going on in Italy will percolate up also. He thinks the Fed should wait on a rate hike to see what the trade impact will be. They have made a move to be less transparent. They keep the market guessing. The talk on the street is for a dovish rate hike. They made say that this is the last rate hike for a while.

Specific info Larry looks for when deciding to buy, hold or sell. He looks at time frame for ownership. He looks out 1-6 months and asks, taking risk into account, what is the expectation. He looks at company specific risks as well as sector risks, which are more often important, depending on the sector.

If you hold US assets in an ETF then if the CAD$ falls, you benefit. ZBK-T is a basket of banks in the US with no currency hedge. ZUB-T hedges the currency. If the CAD$ is going to strengthen you want to hold the ZUB-T and move to ZBK-T if you believe the CAD$ will weaken.

Market. He is more defensive right now and they tend to do better over the summer. Defensive sectors were hammered earlier this year. He has been at 15% cash recently but is going to ramp it up to 20%.

He has done a lot of analysis on the dollar and viewers should see his web site. Basically in the short term the US$ is overbought. $0.78 is his short term target for the CAD$. The big trend is that the CAD$ is heading down. If it hits 78 cents, take the opportunity to load up on US$.

Educational Segment. How to assess revenue and earnings outlook. The market is going put trade issues in the rear view mirror. Revenue and earnings growth are going to be spectacular this quarter. He always likes to look at revenue growth as a qualifier to earnings gains. Buy-backs boost earnings per share. About 50% of revenues come from foreign companies so US$ currency is a factor. Energy, Tech and Materials should be the top sectors for revenue growth during FY 2018 as well as Q2/18. If the markets don't make new highs over the next 2 to 3 months then the tops are in in the markets.

Technology is all about digitalizing business. There are 10 trends such as digital content (i.e. in gambling), A.I. and advanced analytics. He runs a fund specializing in tech stocks.

Market. The markets haven’t moved much since the volatility bomb at the start of the year. The market is trading in a technical range while people stay undecided about the broader issues. It is hard to tell where we are in the cycle because of conflicting signals from emerging markets. And the trade war adds uncertainty. There won’t be a sustained break to the upside until some of the short-term issues are resolved. The underlying reality is that the US economy is doing well and should be fine unless there is a full-blown trade war. He sees the market “late-cycle but not end-of-cycle.” A typical bull market ends with a few common characteristics: (a) yield curve inverted (hasn’t happened yet--the end of the cycle can take 6 to 12 months after inversion); (b) commodity or inflation assets lead the market (crude is just starting to do that); (c) a peak in mergers and acquisitions (this has been heavy, but not at the level of past-cycle peaks). The peaks of past cycles look about 50% higher than today’s level of M&A’s. This usually happens after yield curve inversions and in that period, banks do a lot of lending to finance M&A deals. These two tend to go hand-in-hand.

Summary of his style of evaluation. He looks for three things. (a) Reasonable valuation: based on cash flow, quality of earnings and balance sheet; (b) Good price momentum; (c) Stock is fairly stable, has low volatility.

Comment on Utilities and REITs. The utilities were probably oversold as rates rose. They have recovered sharply recently. However, if the bull market continues, there will more interest rate increases and utility stocks will probably come back down. For an investor looking for yield, he recommends REITs over utilities because they have more pricing power in an inflationary environment.

Market. What’s moving markets? What about the US - China trade kerfuffle? Canadian markets are doing well, as oils have come back and banks have stabilized. All surprises will be on the upside, especially in US. US markets have been moving sideways, despite trade issues. Expectations of positive earnings and lower multiples are offsetting negative aspects of trade. Remember that trade is only 20% of the US GDP. Real concern is tariff on imported cars. Open to question whether it will apply to Canada. Doubts whether markets will go anywhere until this is sorted out. Trump is playing to his base and trying to maintain Republican majorities in November mid-term elections.

US jobs report shows unemployment ticking just a bit higher from an 18-year low, so perhaps Trump’s job plan is working? Coloured workers’ job improvement has been excellent. You may not like how he approaches the process, but he was voted in as someone who’d be disruptive. Immigration issue doesn’t bother his supporters.

NAFTA. Good for Canada that things are on hold? Trump has put NAFTA on the shelf until after the mid-term elections. Holding pattern is a positive move. If mid-terms turn out OK for Republicans, takes some pressure off to throw NAFTA into the fire. Less incentive for Trump to be more destructive in trade. NAFTA has a lot of support in US, and many states would be hurt if it were thrown out.

Equities vs. fixed income. More cautious in equities. Using a lot of fixed income alternatives. Pretty reasonable cash on hand, emphasizing the cash flow side in some of our alternative income investments 8. Shopify ( SHOP-T ) [OWN=n ] [signal=Speculative buy ] Good growth prospects? Used to own, but took their profits. Would have bought back at $100. Kicker niche with lots of growth prospects. But earnings are nebulous. Speculative stock. Well run, with a good product. Can be volatile, especially with negative news. 5% weighting at most. Concern would be that some of its competitors would eat into their business, but that doesn’t seem to have happened.