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

ETF Return of Capital. There are two types: (1) they need to pay out a dividend on funds that recently came into the fund, so all unit holders get the same distribution. This is a good return of capital. (2) The underlying assets may pay a lower dividend than the ETF does, so they pay you back some of the capital gain. This is not a good return of capital.

Robotics ETFs. ROBO-N & BOTZ-N. These play the companies that build robots and create the artificial intelligence. In Canada we have MIND-T which is artificial intelligence for stock selection. He would wait for the markets to shake out in a bear market before getting in.

US Dollar investments. SHV-N is a money market fund for storing US$ in.

OIL ETFs. His most aggressive strategy is a long short strategy. He is net short crude oil via a US ETF. He is long the Equity side. He likes US pipelines is the US.

Educational Segment. Are all the benefits of a tax reform package in the US priced into the US market? He does not think this tax bill will help the people who voted for Trump. After the 10 years are up, the top 1 and 0.1% income earners will get the benefits of this package. The rest get almost nothing. Trailing earnings and expected earnings for the S&P will increase 20% and 10% per year in earnings growth after the package. There is a lot of good news priced into the market today. There will be a sell-the-news effect when it is signed. See his blog entry for today.

Market. Investors should pay attention to the short and long term yield curves. 10 of the last 11 recessions have started with a negative yield curve. We don’t actually have a negative yield curve just yet but if raising rates could tip us to a negative yield curve then a recession could ensue. This means they are not anticipating strong economic growth. Since 2008 The US have not had a robust GDP growth. The yield curve could start to flatten and go negative if they raise interest rates further. We are late cycle, although we saw a pickup in GDP growth around the world. This is typically what we see toward the end of a cycle. He would not read too much into this but it is indicative of us being into late cycle. The FED or BOC have not found a cure to the business cycle. We are closer to the next recession than we are to the last one in 2008. Leading indicators are not suggestion a recession is imminent, however.

Market. There has been a rotation out of the defensives, but in the last month or so, some have popped back up, but that is just a final rotation before we move down. GDP is looking a little better. Canada’s job numbers are pretty good, although there could be a revision. He sees a pro-growth theme moving through the market with sort of 3 groups including, 1) those involving pro-growth which would be the industrials, 2) energy base metals and financials and 3) on the other side the defensives of utilities, bonds, etc. In the middle, there is healthcare and tech. Under oil, we are sort of capped at $60 on the upside, but what is really encouraging is that on the down days, some of the components of the sector are showing a little strength. He expected some kind of correction on base metals. The 1^st salvo came in early July until a month ago, then we had a corrective phase and he expects that sector to be really strong.

Gold? If he were buying one today, it would be Kirkland Lake Gold (KL-T). You want to look at stocks that sell, produce or mine, not the commodity itself. This one has a chart that is nice and upwards, and this is a time that you want to be buying.

Market. Trading is one thing and investing is another. He wants to acquire things that are on sale. If he finds something that he likes and it is on sale, then that is wonderful. The current volatility is troubling as we have seen an absence of buyers on the downside. It is hard to do his job as a Canadian guy right now. To perform globally you need the kinds of sectors that we just don’t have enough of: tech, healthcare, & industrial. He looks for names. If you disappoint, you get killed. The market is driven by ETF buying and is overcrowded.

Times change. The ETF world is a new creation and a cheaper way of getting mutual funds. They are used by institutions to get into sectors without buying a particular stock. He is always cautious about who are you selling to on the way up and who are you buying from on the way down. The opportunities are more on the short side rather than the long side in recent years.

Oil Stocks. He gave up years ago on the junior oil business. Now we are sitting at $50 oil. We are at the end of the pipe. Egress from Alberta is becoming much more difficult. It’s going to be tough for Canadian companies to make money. Productivity and wells does not differentiate companies. He owns prairie sky (PSK-T) for the dividend and royalty stream.

Seasonal strength in December We’ve just been through this insane year of non-volatility and constant rise. Typically around this time of the year we tend to get some changing of the guard, from stocks that have been market leaders into some of the under performers in the new year. The Dogs of the Dow theory was created from that. He think the coming year will be more pronounced and that we’re going to see a lot of changing of the guard from some of the high flyers into some of the more ignored sectors.

Tax loss selling at this time of the year They are starting to rotate into some of the underappreciated sectors because he think there’s going to be some real movement into those sectors when tax loss selling stops at the end of the year and that people start moving into underappreciated stocks.

Bitcoin He wrote a blog post earlier this week on his web site about Bitcoin. You can look at how long a stock stays above its 200-day moving average as an indicator of how overbought it is. Bitcoin is almost 3X above its 200-day moving average, that’s when you know you’re in a bubble. It doesn’t mean it can’t keep going for a little while longer, but it can’t continue forever.

Moving allocations outside the US He is not bearish but a little cautious. He thinks a lot of companies in the US are a little bit overbought, particularly the big movers, and that their might be a better opportunities elsewhere. They are adding a little bit more diversification to their portfolio and started buying more Canadian stocks now than they’ve had for many years.