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

What will happen to Canadian and America banks if NAFTA collapses? Canadian banks are at more risk. Ontario would face a tough time, because a lot of jobs here are tied to NAFTA. Canadian banks also trade at a higher multiple than U.S. ones. The biggest ones down there are more global than the Canadian ones, and the American ones have large capital markets businesses. Ontario may tip into recession. But he doesn't believe NAFTA will fail. NAFTA needs some revitalization, but all three countries know it's good for them. It takes time to revise the deal.

Nothing makes sense as an investment today except gold. Thoughts? It's wrong to own only gold. Gold was supposed to rise because there was going to massive inflation, but that hasn't happened. Gold is supposed to "work" as everything else fails, but that just hasn't happened. Inflation isn't actually rising if you look at the yield curve of the bond market flattening. Also, gold is held by those who think the world is falling apart, but now Bitcoin has replaced that and become gold's big competitor.

Market. He is over-weighted away from fixed income right now as he sees a rising interest rate environment and does not see deflation anytime soon. Mortgages and principal protected notes are better alternatives for fixed income investing. He is staying away from government bonds. Even in a recession (GDP declines in two consecutive quarters), he only sees a 20% potential downturn as a black swan event. He does not see a trade war with the US as being likely.

Can Trump win a Trade War? – He thinks free-trade is better for everyone. The major losers would be European Union (where 21% of steel imports come). If it happens it could be disastrous, but he does not expect it to.

Bitcoin Comment – He said back in December the price of bitcoin would collapse. He built a pricing model using the adoption rate, money supply, and other factors and calculated a forecasted weighted average value. Current bitcoin prices of $9000 US, he says, suggests an adoption rate of 40% for bitcoin and a 25% likelihood of it happening. He sticks by his thought that adoption will not occur near this rate, therefore, the current valuation should be around $500 US. If you are buying it, you are expecting growth in the adoption rate.

Legal marijuana stocks to buy – This is the toughest target to hit, he says, with 15-20 players in the sector. He would buy the HMMJ-T ETF, to avoid unknown factors in one company. This is the safest way to play it right now.

Tonight was a special Talking Tax show. No opinions were recorded.

Market. Trade threats from the US don’t worry him. It is NAFTA and especially in the energy space. It is a guess and he is waiting on the sidelines to see what language and body language we get. Short term we go a bit to the sidelines. In the long term you have to pay attention and be aware of what it means if something changes. Oil has doubled since January of 2016. The energy index is only up 8%. In the S&P the commodity index is at multi decade lows. We need to see a few quarters of results before the market accepts the new price of oil near $60. OR-T is investing in the Yukon. The reaction has not been too positive. He thinks this will be attractive to seniors in the next few years.

The tariff announcements didn’t make them shift their investments. They think that the global economy is improving. Key driver is corporate profits. Earnings are 16.5% up year over year. Better than expected. The tax reform package is boosting corporate profits. Going into 2019 earnings are forecasts to go up 19%. In Canada also, earnings are forecasted to go up by 12%. The other aspect is inflation. Relatively low inflation expectations mean that Central Banks don’t have to increase interest rates rapidly. Buying in the dips seems to still be working.

Is there a relation between gold and Bitcoin? Not sure if you can correlate both. People consider them both alternative investments.

If forced to choose between Amazon and Alibaba, which one would you choose? As a value investor wouldn’t pick any but if forced she would choose Amazon because of their cloud service sector that is basically subsidizing the entire company.

Amazon vs Alibaba vs Shopify – what do you think for the long run? They all trade at such a large multiple that they don’t own them. Downside prices are very difficult to establish for these stocks given the big expectation on them.

Market. He continues to be positive on the market. The pullback is really heathy and reminds people there are risks. Over 78% of companies beat earnings estimates in the last quarter. January was the largest upward revisions month since 2002. The P/E ratio is at very reasonable levels. He is most optimistic on US markets, and modestly on European markets, and less so on the Canadian market.

S&P 500 Comment. There has never been a bull market that has ended on the first shot, he says. You can expect higher volatility but nothing significant into later in the year. Tech, financials, industrials and consumer discretionary have been leading the market since early-2016. As there has been a recent recovery, these same sectors have again been leading. This bull-run is not over he believes.

Pipelines Comment. Between 2009-2014 he was a big energy infrastructure proponent, because of fracking and the growth in overall production and the ability to increase tolls. As pricing power is less for producers now, the ability for this sector to command growing multiples is at risk.