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

Cannabis. Is it better to go with an ETF or choose one of the current companies? When would be a good time to get in? Not a space he is in right now. He looks for consistent businesses that generates positive earnings. There is a speculative frenzy going on now, so a lot of the shares have gone up incredibly. You are much better to own as a basket, because nobody knows who is going to be a winner.

Market. US Bond yields of 30 year bonds are down over the last 30 years but you can see a double bottom and they have broken the trend to the upside. We had a great melt up since the beginning of December. We are out of the disinflationary camp. There is synchronized global growth. We are moving almost to inflation. A stock breaking though its trend line like this would be bullish. In 2013 the TLT ETF lost 20% in 4 months and it holds government bonds. You have to be tactical in fixed income this year. The strategy makes sense.

Market. S&P 500 is trading around 24X. Historically it is usually 16X. We are getting overvalued. Now we have tax cuts, consumer spending, expectation for GDP growth, hence the expectation that if earnings are growing at a faster rate, then the stock market should grow faster. Peaks have occurred in 1929 before the market crash, up and down until 1938, and then the tech bubble in 1997 and 1999 was a melt up before everything came crashing back to earth. In this phase, we could get a melt up. If it happens, be prepared to manage your portfolio appropriately, so you will be able to counter if we get any kind of a selloff after.

You should pay attention to a stock's beta. For example, you have some high-flying tech stocks which are trading at high betas, which is simply the price volatility relative to the underlying index. If the market index is 1, and the stock is trading at 1.75, that means for every $1 the market goes up or down, the price of the stock is going to go up or down by 1.75. If the stock market were to fall 40% like it did in 2008, then the stock's share price is going to go down 65%-75%.

Market. It's a tough market, and he doesn't remember when returns were as prosperous as they are now and feeling as bad as he does now. Experience teaches us that when you go through such a period of low volatility and no corrections, you have to pay the piper at some point. In anticipation of one that will come, it's hard to be over celebratory in this environment. However, markets are good, and you have to be invested, and need to build some defence as well. He is two thirds US and one third Canada in his investments, and has been that way since 2012. He is carrying about 10% cash and a 5% weighting in gold bullion.

Market. The strength in the US market is already reflecting US tax cuts. The lowered corporate tax to 21% and the 100% expensing of capital investments for the next 5 years will be good for the bottom line. Also, the repatriation of funds from overseas will help. It will also be healthy if interest rates go up, because they have been historically way too low. Because inflationary pressures are now relatively benign globally, there is no pressure on banks to raise rates quickly. Growth is fairly solid in the US and is improving in the rest of the world as well.

Market. He is positive on equities, versus other alternative assets. The decade ending 2000, was the worst decade for the US market ever. It makes sense that the markets 2010 to 2020 are going to be better markets. He is expecting spectacular earnings growth this year. The tax reform is not priced in whatsoever. As long as interest rates don't go up significantly, stocks are the way to invest. Sees a lot of value in technology.

Market. There might be trouble in the Whitehouse as we learn with the book just released. It is a 25^th amendment type of work, meaning impeachment. The market could go considerably higher still over the next two years despite geopolitical challenges. The market will ‘melt up’ in a fear of missing returns. This is usually the last phase blow off of the market. It looks like Canada is moving toward raising rates. He thought they would wait for the outcome of the NAFTA negotiations. They probably don’t want a stronger Canadian dollar, but it could be the right decision if inflation is picking up. Oil above $61 could last. The Canadian energy sector is probably going to lag the US.

Marijuana or Tech ETF Recommendation. HMMJ-T is the Marijuana ETF but don’t buy it here. The sector is tremendously overvalued. You would have to trade it with pretty tight stops. For Tech, it includes Bitcoin and so on which are very volatile. This is not the best time to put money to work in Tech. IYW-N is a way to play the tech sector but look to buy it 10% lower.

India ETF in Toronto. XID-T and ZID-T are the two was to play it in Canada. You need to be aware that the XID-T holds the INDA-N ETF and so there could be some double taxation. He does not own India right now but in the next 6 months we will get a chance to jump into India.

Educational Segment. The ‘Melt Up’. We are probably in the past phase of the market cycle and the market will probably ‘melt up’. The final phase of the acceleration up before a bubble takes 3 to 3.5 years to play out and you get a proportional decline. The start of this melt up was the election of Trump. The S&P within 9 months to two years will peak out in 3400 – 3700 range and will end the ‘melt up’. The change from previous market cycles is the amount of money in ETFs which affects advance decline lines. He thinks caution prevails rather than chasing the market higher.

Market. Canadian equities will play catch-up on the year. He thinks there is a catch-up trade this year. It is actually driven by commodities, which should do well and help make up some of the lost ground. He is a concentrated fund, holding 20 positions. Recently he has been cycling into some cyclical plays. You want some base metals and energy exposure. You are seeming a lift in the commodities but it has not played through into the equities. There is an upgrade cycle in the energy space that is due. Mining stocks are trading at a discount to their US counter parts. Extraction companies have a compelling risk/reward ratio. CS-T deserves a premium multiple. TCW-T is good in the oil space.

Market. We may be poised to return to more rational behaviour. In 2017, there were only 8 days that had more than a 1% corrective movement. Normal is closer to 40 days. You should have some wall of worry to climb, a staircase kind of look, and there was none last year. There were a lot of signs that there should've been a correction last year, but it never happened. An S&P 500 Index chart going back to 1980 showed the normal volatility up to about the late 1990s and there were plenty of corrections. From about mid-1990s, as the tech bubble took off, volatility evaporated. That resulted in a period of sideways followed by a strong market correction. This was followed by very low volatility in 2004-2008. A series of volatility followed by a correction. Even in the beginning, after the 2009 bottom, there was some pretty regular volatility. It then migrated into a period of no volatility from 2013 to 2016. In early 2016, there was a period of market volatility. We are in another one of these really low volatility periods. That usually means we usually head into a period of sideways chop or possibly a correction, but the very least we are going to get is a sideways chop. He thinks there is going to be some rotation into more value oriented sectors, some of the overlooked sectors like US banks, energy, some of the conglomerates, areas that everybody has been ignoring.

Moving averages? There is Simple, Exponential and Weighted moving averages. Simple Moving Average is the most commonly used. On a 200-day moving average, it basically takes the average for the last 200 days, adds them up and divides by 200. Weighted basically takes the most recent days, and weights them more than the early days. Exponential is another version of a Weighted Moving Average that is more complicated, but basically further weights the most recent data. The problem with Exponential and Weighted moving averages is that it frontloads the Weighted moving average, so it is almost like having a shorter moving average. Simple is probably the easiest to understand and to use, and is also the most commonly followed.

Energy. There has been the biggest dislocation between the price of oil and companies that produce oil themselves. Last year was particularly frustrating, because he was fairly accurate in terms of the macro calls and thought he would end the year with around $55-$60, and with that there would be a profound tightening of oil inventories, surpluses would fall by the greatest extended history, and that occurred as well. He nailed all the macros, but at the end of the year he was still down 36%, with stocks not even rallying when oil was up. This is creating a great opportunity for buying companies at 10%-15% free cash flow yields, companies with cash on the balance sheets, strong outlooks, etc. He believes we are in a multiyear bull market for oil, despite lingering concerns that people have about too much supply. The market is, was and remains undersupplied. Inventories will continue to fall. We are entering into a seasonally weak period where inventories build. He thinks the oil price of $55-$60 is going to stay.

Market. We are now at valuations similar to what we were back in the 2000 go-go Internet periods of tech. We are at a lower interest rate, and the greater concern is what happens if interest rates rise. That would generally be a positive for Canadian bank stocks, and would typically reflect an increase in demand, which means that profits are rising. So as long as rates on US 10 years don't go above 3.5%, then everybody is happy. In spite of people having concerns about the valuation, world economic growth is still proceeding. In the oil and gas patch as well as in the mining space, companies have worked long and hard to reduce costs of production.