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

General Market Comment. He thinks we are still in a secular bear market that began in 2000. From a cyclical perspective it has been a bull market since 2009, set off by central bank spending, he says, which has meant the global debt bubble has not been allowed to deflate. Now, we are seeing volatility returning to the markets over the past six weeks and this likely here to stay.

Market sensitivity to interest rates. Market sensitivity to interest rates is much greater than in previous cycles, since we have not had a recession to cleanse the bubble growth like in the past. Flattening of the US yield curve, combined with protectionist trade actions is leading to another inflationary or stagflationary impact which could stall long term growth and could become toxic to the market. If we see a break below 200 day moving averages for a period of time, it may unleash some pent up selling pressure.

Commodities relative to equities. Relative to equities, the commodity sector is the cheapest it has been since the 1970s, which was a great time to be buying commodities. He thinks this could be similar. Interest rates and inflation expectations are starting to bubble, leading him to favour commodities.

Cash holdings. He got way more cautious on holding more cash when he saw the changes in Federal Reserve lending during Quantitative Easing. With the risk of rising interest rates, he sees market volatility increasing in the equity markets. He thinks we are going to so a lot more volatility going forward so holding more cash is good.

Clean energy outlook. He does not have a 20-year crystal ball on the geopolitical or social opinion. He is an investor and is not paid to make bets on social policy. To him, the entrenched infrastructure of the fossil fuel industry is not going anywhere soon.

When do you decide to cover short positions? He uses a quantitative process for about one-third of their portfolio. This system calculates change in quantifiable measures. He will cover a short if a company moves out of the bottom decile, for example. For the fundamental side of the portfolio, he still uses a portfolio approach of his 150 different short positions. For these he would use a stop-loss and a long term technical chart.

Oil outlook? $60-65 crude oil is sustainable for the next few years and will go up. Demand will remain strong. US shale alone cannot by itself supply demand. The Saudis alone may not longer have the power to control the price, but along with Russia and OPEC, they do. But beware of political risk, like the US' hawkish attitude towards Iran, and Venezuela's implosion.

What happens if Alberta can't export in the future? It's not just Alberta, but the entire country. We're leaving resources in the ground that we can get high prices for. That said, he expects pipeline expansion will get the go-ahead down to the U.S. including Keystone. TransMountain, maybe. Oil by rail will continue to grow to reach markets. Alberta will do reasonably well, but of course do much better with pipelines.

Market. He thinks the market made a change last year benefitting the pro-growth sector, while energy is still lagging behind. Utilities on the S&P500 have fallen since December. He says inflation is causing this sector to fall making it interesting again. If inflation really starts to run away Central Banks may not be able raise interest rates fast enough to keep up and this could be the concern for the sector.

Technical indicators for entry/exit? He prefers to use relative strength (14 period) and a Japanese system that identifies trend direction – similar to stochastics. He looks to moving averages as well, on the 100 and 24-day basis.

Oil technical comment. Oil prices have not returned back to the highs of 2015 he says. There is a nice uptrend forming on the commodity, but the XEG-T ETF representing producers has failed to keep track. He wants to see this reconciled quickly or may question if the rally will last.

[Note: President Trump announced tariffs on China on the day of this interview] He is concerned about risks arising out of trade rhetoric and trade barriers. He met with Steve Bannon last year; Bannon said that the Trump administration is willing to accept a near-term slowdown in the US economy in order to get trade barriers in place. Grammer sees this as problematic

Market. When you see a 750 drop on the Dow Jones followed by another 750 on the futures, it is algorithms kicking in, not investors getting out. We will see. No cause for concern here. As investors we tend to catastrophize everything. In this particular set of events this week is what was happening to Facebook could spill into other companies. But he doubts it. In regard to tariff with China, Trump is doing what he always does. He takes a hard position always and then he works your way back until you get something everybody wants. Don’t hit the panic button yet. The problems that we have here in Canada are the failure to develop pipelines and competitiveness in terms of regulations and ta compares to the US.

I am looking for a good steady Canadian Dividend ETF for my TFSA. BMO COVERED CALL CNDN BNK UNT ETF (ZWB-T). The good thing is that these banks are well diversified in the US and internationally.

Better off with a hedged or unhedged ETF with exposure to Asia? He has the same question. He tends to have some hedged and some unhedged to get some balance.