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

Educational Segment. Bitcoin vs. Gold. Bitcoin was seen as possibly a gold disrupter. The biggest cost of investing is the volatility in order to take the position. Is Bitcoin appropriate? He thinks it is a bubble that will break because it is worth nothing. If you want to add it to your portfolio you have to understand if it will help you or hurt you. Gold does not do the same thing as equities do. It gives you a diversifying effect. If you adjust it for risk and then compare to Bitcoin, there is a daily volatility to Bitcoin of 10% and so it is hard to add this to your portfolio and improve your chances of an increase to its return. If you can stomach the ups and down, then maybe Bitcoin is appropriate for you. He thinks Bitcoin is close to zero in value and it is just a bubble. Block chain is a different story and has no relation to an investment in Bitcoin. Don’t trade futures in Bitcoin because of the leverage. Leave it to the professionals.

Market. There is a lot of speculation on Bitcoin, Crypto currency and Marijuana, where valuations make no sense and this is a sign of a top. Lots of money is going into ETFs with companies that may have no earnings. Once a manager gets too big they become the index and so cannot beat it. There are a lot of smaller managers that can easily beat the market over the long term. He is holding more cash in his funds than normal bit he is seeing a lot opportunities as money moves into ETFs and out of mid and small cap stocks.

Market. We are in one of the greatest Bull Markets of our lifetime. Valuations have been increasing, and thinks they can still go higher. In the 60’s had low interest rates for a long period of time, and we saw stocks getting into the 40, 50, 60 PE range, which were high quality companies. If you had bought them, even though they got badly slammed in the 70’s correction and the higher interest rate yield in the inflationary time period, by 2000 you had your money back. We could be in for a repeat of that.

Gold. Which company would you invest in? He doesn’t believe in investing in gold stocks. Most gold stocks are run for ounces produced, rather than profitability. We always get into trouble when the commodity prices dip. If you have to own gold, buy the high-quality ones. Franco Nevada (FNV-T) has been the best play in the sector, because they are not producers, but just take X% of the production and have no costs.

Market. For him, this is the best time of year. A lot of people wait until the end of the year to Sell their losers. It’s the simple law of supply and demand that puts more supply out there, therefore the price generally goes down. He gets to take advantage of that. This year there is going to be less tax loss selling because stocks have done well. He isn’t looking to buy a lot of stocks, perhaps 3 to 7.

Markets. He doesn’t see systemic risks or gross overvaluation, but does see a premium valuation in the markets. That means he has to be a.) a little more selective in stocks he owns and b.) if he does get a little more cautious, how does he migrate the portfolio to a more cautious stance. To do this, he starts to look at larger cap names instead of owning a bunch of junior or intermediate companies.

Lumber stocks? The time to buy these is when there’s blood in the streets and everybody is negative and lumber prices have collapsed. Currently, the picture is very rosy. He can’t buy the stocks right now knowing that lumber is a very inherently volatile commodity. Wait for a pullback.

Market. Every month this year the S&P has been up. Since 1987, we have not had a calendar year with 12 consecutive positive months on the S&P. It seems like it is a little more on the radar these days. You have synchronized global growth creating greater global output. This tightens the labour market. It attracts capital investment. He thinks we are getting increasing productivity that could surprise to the upside. However, we know we are closer to the end of the party than the beginning. We have to be careful about it. He thinks inflation is coming. If rate hikes are coming, he likes the slow and steady policy. Every end to a cycle has its own flavour. This one has rates going up. There could be more increases in futures in 2018. The market is pricing in two increases. It could end with compressing valuations as well as decreasing bond prices and decreasing liquidity.

Market. We’ve had a very brief pause in the markets and they’re starting to move up again. There was a little rotation out of technology and it is starting to move up again after a couple of days of moving down. He remains very constructive given that global economic data continues to expand and corporate earnings is accelerating. Expects global economic expansion to run through 2018 and lift global markets to new highs. There are some risks ahead. We are going to see Central Banks tightening throughout 2018, probably twice in Canada and 3 or 4 times in the US. Stock valuations are a little elevated, so we need to see earnings push forward in order to keep markets higher. If we see potential for more geopolitical disruption, that is going to be a risk for the market. Buying the dips is a strategy you want to continue to use. A lot of people are afraid because of the long run without a major correction or even a minor correction, but fear is something never to be trusted.

Market. One side looks pretty good. Confidence is high and there is earnings growth. US tax reform and Wall Street Reform are positive which helps earnings. The other side can’t be ignored if you are managing money. It’s how investors’ psychology plays into all this. After years of positive markets, with relatively low volatility, he expects that over the next 12-18 months, it will look uglier than it really is because, as we start to get volatility and a pullback, it will be further compounded by it being the first time it’s happened in a while. Once that happens, combined with the fact that there is a lot of bond money in equities, when we start to see some corrections, the volatility and the depth of how much markets go down, will be compounded by investors moving more capital out, taking a pause to digest the fact that every $1 million is now worth something like $900,000, etc. He feels pretty good about the earnings trajectory and what is going on from a global economic perspective. We will be going through a period that is relatively choppy.

Market. He tends to look at fundamentals, and is interested in what earnings, interest rates and inflation are doing, and how the companies are handling that. Companies don’t seem to go up very much on good news, but certainly get hammered if their earnings disappoint. There’s been some selling pressure recently, but thinks it is profit taking and readjusting of portfolios for the end of the year. The challenges for 2018 are that interest rates are going to go up and by how much, along with the overall market valuation. There is not a lot of upside in multiple expansion at this time. The probable good news is that earnings are still going up. He is looking for 8%-10% in the TSX and the S&P.

Market. We have seen this movie before. A speculative run-up in the market, and things like Bitcoin are a symptom of a manic approach. There is something at the top of the market that gives you a clue that the top has at last arrived. However, it doesn’t necessarily tell you when the top is, however all the preconditions are in. One of the important preconditions of a top is that there has to be a storyline that the market can’t go down because something is going to stop it from going down, and of course, it is going to be that the feds are coming back in again if there is any weakness. All the preconditions for a bear market are here, except for what is the trigger, and he hasn’t a clue.

Crypto currency? The argument for crypto currencies is very interesting, and particularly for Bitcoin, i.e., if you take the total amount of debt outstanding globally, and assuming that a certain number of transactions are going to be settled, Bitcoin ought to be worth some percentage of the total amount of debt outstanding. The number often thrown out by the real bulls is 1%. If that was 1%, then the Bitcoin would be worth $1 million. However, when you ask what the intrinsic value is, you can find it, because there isn’t any. Therefore, the value is anything you want it to be.

Market. In a short-term trading window between now and February, we can play all kinds of games, and pretty much guess that financials will probably do pretty well, as well as some of the healthcare stocks and media. On the flipside, a company like Royal Caribbean Cruise Lines actually has zero percent effective tax rate. To make an analogy between what we are seeing in the stock market right now and a car, we just got a reduction in the gasoline price, but what is the fuel efficiency of each and every car. He thinks we are going to get a little side swiped by too much focus on the taxes and are going to forget to look at the fundamentals of the companies.

Market. The risk of uncertainty in the white house is going to matter at some point. What matters now is the tax bill. We are getting the follow through pop today in the markets. We expect the president to sign the tax bill in by Christmas and then we get a sell-the-news effect. There is an awful lot of good news priced into the market.