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

Market. Folklore says you get three rate raises and then a selloff in the markets. We had five rate increases and are slotted for three more. The question is how much is too much and when is the market going to stumble. There are many things driving bond values. AGG-N has been trending downward since mid 2016. One of his Top Picks is a yield stock. He likes the look of US financials. We are in a period where the market tends to be strong. This is not the time to pull things out of the market. You ride it out at this point.

Gold. From July 27 to the end of September Gold does well, but it can also do well in China. Silver is his preference right now but he just exited yesterday. For Gold we are past the period where it typically goes up, but right now it is forming an ascending triangle and if we break above then it is very positive. Technically it actually looks strong although not seasonally. He would exit gold if it breaks below the triangle.

Steel. Stelco (STLC-T) or SLX-N ETF in the US. We saw some big days in the last little while. We have an ascending triangle. It is very positive. Steel stocks do well until late April.

Artificial Intelligence Technology – He feels this is very old technology and that there has been no innovation made in the last 20-30 years. High speed communication and lower cost data storage has made AI more cost effective. He prefers companies in the chip manufacturing sector instead. Facebook (FB-O) has been able to benefit from AI as it is not proprietary technology.

Overview Rising Interest Rates: Selloff was caused by reaction to rising wages in the U.S. Rising interest rates, at this point, are a good thing. When 10-year rates reach 3.5%, they can become a headwind. Real estate stocks and utilities will underperform as interest rates go up, but bank stocks will do well and healthy companies in other industries will grow in parallel with rising rates. Rising prices will also be good for base metal stocks and oil.

BC Budget - BC will raise foreign homebuyer tax: The vacancy of homes is a real, valid issue, but increasing the land transfer tax for homes above $3 million but will reduce supply. That's a negative.

Recent correction: We went from an overdue correction to overdone, and now we've come back too fast. This was not a systemic correction, meaning he didn't lose confidence on the market, government or numbers that were coming out--he still believes in what he owns. This was a technical correction. He used stop losses. 80-90% of his holdings were sitting on average-moving lines and didn't break. It was a tense, but orderly correction in valuation. Running for cover in bonds didn't work. Meanwhile, safe yield plays in REITs and telecoms are still down 6-9%. It's now difficult for a dividend investor, but good for a growth one. Tech stocks have led the charge.

Market. How do you set a stop loss so you don't lose a lot of money on a security? It's a combination of science and art. It's not easy. Some rules to follow: Don't buy a huge position at once, but buy bit by bit. When you build your position to full and the stock keeps growing, then sell it down to, say, a 5% weighting. Then, you're left with a minimum weighting. It's also about a stock's relative movement within its sector. Say Loblaw drops one day while the grocery sector rises, then sell Loblaw. The past two weeks saw a lot of situations for stop losses, and admittedly it was a tense time as I sold to raise cash.

Question. A retiree owns 20% in fixed income. Should he buy a real return ETF, a rate-reset preferred or buy more US and Canadian banks in his TFSA? Look at the SPDR DoubleLine Total Return Tactical ETF (TOTL-N), a catch-all ETF in U.S. dollars. Also consider XSI-T which has 30% floating rate bond exposure. Or even GICs, which he doesn't like, but some yield 2-3%.

Sell GOOGL-Q and buy an ETF tech stock? The basket makes a lot of sense. He just bought the First Trust Dow Jones Internet Index during the dip. Amazed how tech stocks held up during the correction. First Asset Tech Giants Covered Call (TXF-T) covers the big tech stocks, offers a decent yield and can be hedged to CAD.

General Investing Comment. Canadian stocks have not gone up as much as global counterparts, so it has not been hit as much on the way down. He sees better value in Canada. He is not a sector buyer, instead he looks for the best companies.

Global Economy. He does not think the global economy is long in the tooth. The UK market has been slow and is gaining momentum. Canada’s economy is not as diverse, so its recovery has been slower. The US President is pro-growth while in Canada our politicians are anti-growth.

Interest Rates. There is risk the US Fed will lag what is going on and can raise rates in anticipation when the economy starts stalling and that is what causes recessions. We are now returning to more normal interest rates.

Oil Prices. He believes the price of oil will remain strong, but is not in the habit of predicting outright levels because you are guaranteed to be wrong.

Pipelines. Governments are choosing to ignore the safest way to move oil and natural gas. They are more interested in getting elected than doing what is right. The Federal government needs to put the hammer down, starting at the Prime Minister’s office.