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

Market. He is not sure how permanent $70 oil is going to be. The best cure for high commodity process is high commodity prices. People will be producing all they can. There will be better value elsewhere.

US Treasury Bonds vs. The Petro Yuan. He would never bet against the US dollar, despite the increase in debt over the last few years. He does not see anything replacing the US dollar as the world reserve currency. He would only worry about US treasury bonds with higher interest rates.

Cannabis space. He is not in this sector due to the high market caps. He does not understand it.

Canadian Dollar. None ever correctly predicts trends against the US dollar. Oil prices are up and the Canadian dollar has not rallied. It is staying in the 75 to 90 cent range. He won't try to guess on currency moves.

The S&P 500 treading water these days signals a switch in market direection. Last year saw a steady ascent, but this year has been choppier. Stick with quality companies, but the market feels a general trepidation. Oil rose above $70 a barrel today, way above last winter's futures. Oil companies' profitability should be good in Q2, but the Canadian differential--and particularly, political delays over building new pipelines--is making investors here impatient.

General Market Comment. He sees several bullish indicators for energy. There are many geopolitical uncertainties along with good fundamentals. The Iranian nuclear deal is complicated as to how it will actually impact barrels on the market. It may take 200-500,000 barrels per day off the market. He thinks oil is heading to over $80 US next year. Demand is strong and supply is not growing quickly enough. The number of big supply projects falls after next year both in the OECD, non-OECD and OPEC countries and this supply shortfall will persist for several years. Demand does not really get impacted until prices rise above $70. If you are bullish on oil, there is 50-100% of upside in the Canadian energy sector – don’t get too cute trying to pick the bottom.

US money flows into energy. He has had the right fundamental outlook – oil prices improving to over $60. However, energy stocks performed so purely against indices for so long that it made it a small percentage of index value and appeared too complex to large investors. Now that the Permian is facing similar pipeline constraints as Canada, the Canadian stocks are looking very cheap in comparison.

Market. 2018 has been tougher than 2017. Likes technology and they are still overweight on the FANG stocks. Pipelines in Canada are seeing different factors affecting them like the difficulty building the new pipelines. Interest rates moving higher affects all the market in general but more the high dividend paying stocks. Some investor disinterest in Canada. The Canadian dollar being softer vs the US dollar. The Government policies aren’t spurring economic growth like in the US. The competitiveness of Canadian businesses is being affected by many different factors.

What do you think of the tech sector? We like the sector. Overweight in his funds. There is some negative connotation to this group as these risky high growths high valuation out of control companies. Facebook (FB-O), Apple (AAPL-O) and Alphabet Inc (A) (GOOGL-O) are very profitable. Actually, ones of the most profitable companies in the world. You are paying for the growth. The same with Amazon (AMZON-O) and Netflix (NFLX-O) that are disruptive, and you don’t have to use the basic valuation methodologies they teach you at Finance 101. You want the to continue spending in taking market share.

Market. He thinks investors are wondering if this is as good as it gets. You had a nice 10% rally in December/January. Earnings growth will be phenomenal this year because of tax cuts. We will go back to normal PE multiples. The market has priced in normality again. He is still constructive on the stock market.

Long term recommendation. Technology and healthcare are here to stay. SYK-N, JNJ-N, BMY-N, GOOGL-Q, and AMZN-Q are possibilities.

Market Outlook. We are still in a bull market. Bull markets don’t end unless there is a recession or extreme valuations. There is always a counter trend move and we are facing a powerful counter trend move. Anything could happen but probably this is a chance to reload. The debt load of part of the population in Canada is an area of concern. The S&P/TSX has stagnated for a long time and trading at 14 earnings with similar earnings growth story as the US without the tax cuts. So Canada is probably a good place to be. The Canadian pipelines are attractive now with high dividends that are safe-ish and growing.

US dividends are treated as interest income, is there anyway around it? The tax policy encourages Canadians to invest in Canadian companies. He thinks it makes sense. The Canadian market is 2% of the world but it’s a large world and there are many opportunities here. From a cash flow perspective, the extra advantage given by the dividend tax credit is very powerful.

Market. He sees companies beginning to spend more this year and we have not seen this for many years. Combined with revenue growth and margins expanding, it points to things being not so bad. Investors are still skeptical, but things are where they should be. The TSX is being held back by the skew against certain sectors, particularly financials. An earnings recovery along with economic expansion and interest rates increasing are all healthy indicators. It is not all rah-rah, but there a few positive factors.

Manager fees. Fees are the big problem with fund managers – especially when they charge 2.5%. He does not like the way the industry is structured. That is why he runs an independent firm and they do not charge the same fees. He does not own Canadian stocks.