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

The Chinese market and a Chinese value stock? He doesn't invest in places that don't have a rule in law, so he doesn't own Russian or Chinese stocks. Chinese accounting doesn't have the same accounting rules. It is a state-controlled economy. The state intervenes in many businesses. He would be very, very careful about buying Chinese stocks.

Oil? The analysts have all been wrong in 07 and were all wrong a few years ago. Oil will never be what it was because renewables are gaining market share every year. Also, the US which was a massive importer of oil 20 years ago, has now become basically energy self-sufficient. Every time oil prices rise, the fracers come back in and start pumping like crazy. Barring some kind of terrorist activity or geopolitical unrest causing displacement of production, it is hard to see oil rallying sharply from here.

Market. He would welcome a bit of normalcy back in the market. You don't get 7.5% month after month after month, without creating a giant problem down the road. Let's just take normal markets making sure things are well priced, and go back to normal ways of investing so that there is an equal amount of risk and reward. Getting in at a lower price would make investors feel better, but they can get in today as long as they have a long enough threshold, and they'll do just fine. It won't all be positive, it won't all be good, but over time you will compound your money at a faster rate than inflation. You will also compound your money at a faster rate than your neighbour, which gives you an increased buying power over time.

Market. NAFTA: He believes they are at 50 out of 2000 pages of the agreement in negotiations. There may be two more meetings by April. If they haven’t moved ahead by July 1, when the Mexican elections take place, then he thinks Trump will be giving them 6 months notice to get the deal done and it may be a little bit worse for Canada and Mexico. He expects Trump in his next state of the union address to stay on script. This could be a surprise to the markets. US earnings look very, very good, both from a sales and a bottom line perspective. The question is how much of this is priced into the markets.

Canadian REIT Recommendation. Regardless of which one you use, we are at the high end of valuation in REITs. He thinks the Canadian sector will start to sell off with rising rates, but the US REIT sector is just starting to become interesting.

Educational Segment. The Bond Market and Interest Rates. Bond gurus over the last couple of weeks have come out and said that the bull market for interest rates is over. It has been 38 years now. One reason is technology as it advances and reduces the cost of everything. Society is aging and last year people took more money out of social security than money was put, into it for the first time. But he does not believe the end of the bond bull market is coming. He thinks the yield curve will invert by the second half of the year for North America. This does not support 24 times trailing earnings. Typically we eventually get a 25-50% correction.

Market. He has been seeing the markets as expensive and the euphoria worries him. Marijuana is the kind of mania you see at the end of a market. He focuses on Canadian companies that are expanding in the US. With tax cuts it is an extra boon.

Market. At these levels, it is very important for investors to ask themselves if their portfolio is constructed appropriately. If it goes higher, you make money. If it goes lower, are you ready for it? If you are buying the stock, you want to know why are you buying the stock. Is it a fit in the portfolio or is there risk that goes with it? When buying a stock, you should always have at least 5 reasons to want to buy. If you don't have 5 good reasons, then don't buy it. How does it fit in the portfolio? Everybody wants to own all the Canadian banks, but in 2008 they all fell 40%, and it takes 5 years to make that back. Finally, what are the risks?

US Treasury TIPs. If we get any kind of inflation in the US, with infrastructure spending or the drop in the US$ relative to other global currencies, the US with then start to import inflation, and this is where these bonds come from. As people get into retirement, bonds don't protect you from inflation, but these do. They pay 2.18% plus the inflation rate every year.

Market. The money flows in equity markets are suggesting the markets have to give something back. Every sort of metric would suggest markets are getting overbought and long in the tooth. However, he is not concerned, because there aren't too many good alternatives right now. With US treasuries trading at 2.6%, and still so many good stocks trading at 10 or 11 times with really good growth, people are trying to give up on this too soon. The retail investor is not back in a big way. If you look at the greed that finally came into Bitcoin, that is probably the 1st real greed we have seen since the financial crisis. There is still enough appetite to speculate.

Canadian Banks. He is expecting 6%-7% per share earnings growth over the next couple of years. They have a good cost control and a positive operating leverage. Global markets are helping them. They continue to be a really good story. He’s been a big Bull on US banks since 2012.

US$? The US$ goes inversely with commodity prices. Half of the S&P 500 earnings come from offshore, so where the dollar goes, is very, very important. These things tend to usually go in cycles. The Trump administration favours a slightly lower greenback, so he thinks that is the direction that it ultimately goes, relative to the euro.

Markets. Many market metrics are at the extremes for the US market. Bullish sentiment, fund flows, and even the RSI chart is very, very overbought. It is the most overbought in 20 years on a monthly chart. Contrarians are saying things couldn't get any better, so maybe we should Sell. However, none of these are Sell signals. At times like this, it is even more important to look at technical analysis. The RSI chart is parabolic, but it is still a very bullish chart, and there is no Sell signal.

On the other hand, the TSX is only going sideways and there is some sign of exhaustion, so it is really difficult to keep up with our southern neighbours. It's really a story of 2 halves. The 1st half from the end of December 2016 to the end of June 2017, we grew at about 2.4%. For the 2nd half, we only have 4 months of data, ending in October, and we only grew at 0.3%. Our household debt to income ratio is 171%, the highest in the G7, so rate hikes are going to have a much bigger impact on household spending.

Market. He does not think we are headed for a tumble. He remains constructive. He still feels that valuations are there and we are in a very favourable business environment especially in the US. Rates are low and the tax benefits are going to come through this year giving a boost to earnings. With growth in earnings we could have a very decent year. There will be some firming up in the US dollar with a slight rise in rates. There is a feeling that the value of the US dollar will be impacted with anti-Trump feelings. In the Marijuana sector, his two clients who insistent on it have done very well but as the globe says, he is a kill-joy advisor and won’t go near them. It is a speculation.

Treasury Bonds: countries are announcing they are no longer using them and are switching to a Chinese system. That is an interesting angle. As confidence in the US is eroding, this could be a factor on bonds, but the bigger factor would be rises in interest rates. He is more concerned with what happens to the US bond market with rising interest rates.