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

What three companies to invest in for a first-time investor for a year? Don't put money in the market for a year. That's gambling. You need a 3-5, preferably 8-10 years. Buy solid, long-term growth companies like Facebook or a healthcare company or even Amazon. You need more than three names to properly diversify, at least 10.

American healthcare stocks have been struggling, why? The tailwinds are good: we're all getting older so there's demand. The issue is that governments are more involved in healthcare payments, and governments are struggling for money and squeezing costs. We're shifting from chemistry-based to genetic-engineered products. The payment system in the U.S. is convulated--we had Obamacare and now they're repealing it. U.S. health care costs are 15% of GDP much higher than other developed countries. All these stocks are cheap at 12-13x earnings. Good profit margins. If you own them broadly, then fine. It's a tough business now.

Trans Mountain Pipeline acquisition by the Federal Government. He is not happy with the oil situation and he thinks this acquisition is a tragedy and didn't have to happen. It is all the fault of the Trudeau government. The government went on and killed Northern Gateway, went a step further and said no tankers would be allowed on BC coast, they made the regulation such that Energy East had to be cancelled. Then they were left with Trans Mountain and it blew up. Trans Mountain could have been cancelled if the other projects had gone ahead. The Kinder Morgan stock is slightly up today, but there isn’t much left in Kinder Morgan to grow, there is some oil storage left, but there is not much left to grow, so it’s only going to go up so much.

Concerns about Italy potentially leaving the Euro. There was some sell off today amid concerns about Italian government could take country out of Euro. That would be very bad for Europe and for markets. They have been expecting the market to sell off and have improved their cash. This could be the catalyst and give an opportunity for people to move into value stocks and small caps and away from the market leaders.

U.S. Banks. He prefers U.S. banks vs Canadian banks. They are more interest rate sensitive. If rates go up, they benefit more, and they don’t have the housing situation that Canadian banks have to face.

When is the right time to buy utilities? The best time to buy them is when interest rate is going down not when interest rate is going up.

The 10-year U.S. bond yield is now below 3% has to do with recent volatility, US trade issues and Italian bonds. He always thought the curve would normalize away from near-zero rates as the economy recovers. He doesn't think inflation will be an issue, because there's over 3% global growth with historically low unemployment. But isolated events put strain on the economy, like dropping money supply, the technological distruption with AI replacing huiman jobs; and debt, both corporate and consumer. These will push the Bank of Canada to raise rates this year once more, but not tomorrow. The curve will range-trade. He doesn't see a 4% yield, because that would constrain the economy.

Market. We have had the strongest quarterly results since 2010 and the market said 'Blaw'. The earnings per share growth has been 26% year over and the revenue growth 9%. It could be a tired equity market that just can't keep going up. The PE in 2017 was rather high. The recent pull back brought back PE from 21 to 17 and so now the market is no longer overvalued. Trump's approach has always been to go in hard and heavy and then to reach an agreement. The goods impacted by tariffs is actually relatively small. The trade wars with China are actually patent wars. These fears that are keeping the markets down could be addressed and then what would be keeping it down?

Educational Segment. Hedging Credit Risk. He is concerned about the level of debt in the world. A high yield instrument involves taking the worst quality corporations out there. When the economy turns, and we are getting close to that, these things can get pretty nasty. In 2009 about a third of the high quality bonds were rated triple 'B'. Today it is almost 50%. Corporations have put their balance sheets in a place of high risk. In '08 government bonds did very well and corporate bonds did not. He is concerned now about corporate bonds. You can make money when bonds come off by being in the right fund, such as the SJB fund, which is an inverse ETF.

Market. The Ontario Election. He is disappointed in all the parties. Two of the parties don’t understand the fundamentals of economics. We cannot keep running deficits. Over the next couple of years the dollar could drift significantly lower if the liberals maintain a federal position and the NDP wins in Ontario. In the late '90s the loonie got into the .60s. The Italian president will not put in the anti EU prime minister. It looks like the current government will fall soon. There may be a more anti-EU leader coming out of that election. Italy and Europe are fragile due to political uncertainty and it is not good for economic growth. He thinks there will be no move this week by the BOC.

The Loonie. If you can wait 3 or 4 months there is a good chance oil prices will pull back a bit and the Canadian dollar should drift closer to 75 cents.

Logistics and transportation space recommendation for an ETF. IYT-N is the DOW transportation space. There is not one for logistics in North America.

Oil falls below $70: he still has hope in Canada, even though geopolitics haven't improved and foregin capital hasn't returned here. If you buy Canadian oil, buy stocks with exposure to the U.S., like Vermillion. Saudi Arabia still has
power over the oil sector, as does Russia, and now America which now has an export market available to them. Canadian banks' mortgage books will be scrutinized going forward, though wealth management continues to deliver returns. Consumer debt is a headwind but it's offset by corporate lending. He's used volatility to trade HMMJ (the cannabis ETF) at a profit. The party's not over--these companies have to turn a profit after legalization,.

Defensive sectors offering big yieds and some growth have underperformed of late, but they're starting to look okay, especally if you have a long-term view. However, consumer staples are the worst sector, stocks like P&G and Colgate.
But he likes Couche-Tard. He owns only two Canadian banks, TD and Scotia, because they are the least "Canadian" banks given their foreign operations. The banks have been discounted given rate hikes and the cloudy real estate market in Canada.

Market Outlook. Looking ahead for a positive return for the TSX for the year. 6-7% and half of that dividends so no enthusiastic. The economic background is positive. We haven’t even seen the economic impact of the tax cuts in the US. With the new depreciation rules – writing off everything – would be surprised to see growth below 4%. On NAFT he changes his mind from day to day on what is going to happen. But in North America things are OK. Europe is another story. More concerned about what is going on there. He wouldn’t be surprise if the whole Brexit s turned and the UK decides to stay.