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

Green Rush moving to the US? (Marijuana) There are states where it is viewed as a social ill. It will catch on state by state. This is not something that gets resolved in a year.

He just returned from the southern U.S. Trump loves to operate in chaos, but markets don't. His negotiating strategy is to throw a hand grenade into a room and walk away. Best to separate the bluster from the reality (i.e. trade tariffs which still overhang the market). Trump won't renogate NAFTA as badly as people fear. His bark isn't as bad as his bite. And this market could reach new highs. Option premiums have risen dramatically. The biggest theat is higher interest rates--and they are coming. Can consumers withstand a 4% rate on a US 10-year bond? At 3.5%, he'd sell more equities. In Canada, the debt ratio is a serious concern.

How does the VIX work? It meaures volatility on options implied on the S&P 500 (in Canada: the iShares TSX 60 ETF). Basically, the VIX goes up when equities go down. Short volatility--inverse volatility ETFs which happened in February--is a very dangerous game. Those investors literally went backrupt overnight.

Options strategy in current volatility? Volatility has increased, though it's not dramatic right now. Premium levels are higher than 12 months ago. He would sell that premium, because it's worth more than it was before. If you're buiying options, the tend to cost you more. If you're bullish on a stock, either buy the stock or write a covered call. He'd write options in this environment.

He doesn't think oil is sustainable and is priced too high now. Alternative sources of energy will continue to grow in the future. Saudi Arabia is selling Saudi Aramco and so is keeping oil prices artificially high. He doesn't think Iranian oil will come off the market. (That's Trump's bluster.)

CAD vs. Euro and USD for the next 6 months? The CAD is closer to its low than its high--he sees upside in the next 6 months. Oil will stabilize or continue to rise, especially if the politics make it more favourable to business.

Bank stocks or ETFs? He prefers U.S. banks with their rising margins, while he doesn't see higher interest rates helping Europe's banks which also face tight margins. He likes both US and Canadian banks. If you trade options on banks, do the individual stocks for diversification to protect your downside.

Have you ever been assigned an option (approaching expiration) without your approval? No, they can't assign an option that you're long. You choose that. When you're short an option, the person who bought it has the right to exercise it--which means you're assigned. If you are long an option and go into expiration like the last day of trading, then the next day if your option is in the money you would want to get it assigned. If the option is in the money at any amount, it's settled automatically.

How do call spreads and LEAPS work? A LEAP is a long-term option, one that expires longer than a year. (It's like the old warrants.) You're writing options against a position you have on a stock long-term. The return is better than if you held the stock. It's a good strategy. [More about LEAPS: https://en.wikipedia.org/wiki/LEAPS_(finance)]

Mutual funds vs. ETFs? Mutual funds have been closet indexers for a long time (which led to ETFs), because the large, diversified ones look like the broader economy. Unlike mutual funds, ETFs you can buy and sell on the market during the day, but with ETFs you don't always get the NAV, though this has improved. Mutual funds cost more than ETFs, so go for the lower cost.

What European ETF to buy? He suggest you put them in an RRSP, because you guy and hold them. The grandaddy is EFA-N. It's large, liquid and diversified. The Canadian version is XEF-T. Also look at XEH-T, which is purely Europe, though hedged to CAD. (Buy this if you think the CAD will rise against the Euro.)

Do you write calls on Canadian banks for the entire position or just a percentage? A percentage no more than 40% of a portfolio. He likes Canadian banks for their long history of raising dividends. You can buy and hold them for a long, long time.

Market. Consumer staples had been the recommended safety trade after the 2008 financial crisis and performed very well since that time. Now those same stocks are being sold off. Capital is going into stocks perceived to be more growth orientated, such as bit-coin and cannabis. Investors should not chase the latest and greatest at whatever valuation; be less emotional and think about holding it for 5-10 years.

Market. Earnings have come up very strong in the last couple of weeks. Also, oil and other commodities started to rally. 15 times earnings for the TSX is god value. Banks earnings are expected to come pretty strong. They are staring to trim some positions in US and finding value in Canada. The differential between US crude oil and what Canadian firms get has come down to 18 dollars from 30 dollars in the summer. Hopefully there is a positive regulatory approval with Enbridge (ENB-T) on Line 3 and the political debacle that has come from Trans Mountain. That should alleviate some of the differential. It feels like there is some inflation in the system. The Fed has signaled that they are looking to raise once a quarter. The Bank of Canada has been more cautious. Clearly the yield curve is flattening and that is signaling that we are in the 8^th or 9^th inning of this expansion. Commodities start to heat up in the last part of the cycle.

With interest rates rising should P/E multiples fall? - Exactly what is happening so far this year. For yields to really compete with stocks they should be upwards of 4 - 5 %. There is still room for the stock market to come down. There is geopolitical risk. But they are still constructive on the stock market particularly in Canada.