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

Market. This is the time of year when we might see some distortions in the market, when certain Selling and Buying occur. One level is where institutional investors are looking to lock in bonuses and not have difficult conversations with their bosses. There is also the tax loss selling process, which we are beginning to see in some of the Canadian names. It’s the time of year when valuations can get a little obscure. As we move further into the holiday season, there tends to be a lot of people on holidays. If you have fresh capital and are looking to buy some quality names that have been beaten up, now is a good time to start thinking about it. Also, for tax planning, taking a little money off the table is a good idea. If you are in the FAANG stocks, you want to probably cut it in half at this point.

With US$ falling, would investing internationally be smart? After the global financial crisis, we really got the lesson that if you didn’t invest internationally, it was really tough. If you want a portfolio that is going to be diversified by currency, product line, geography and income streams, over time you will end up with a more stable type of income stream. The answer is Yes, Buy internationally.

Blockchain crypto currency technology? Thinks the technology has a serious amount of vapour beneath it. Longer-term, it is obviously serious technology, because a lot of industries are looking to use the technology. For him, the big challenge is who is actually controlling this. The old concept of having a currency and it being controlled by a central bank, completely goes out the window on a crypto currency context. He does think it is going to evolve in the form of a few bankruptcies, but out of that noise, we will ultimately get a new technology which will be highly beneficial.

Investing. If he doesn’t like the look of a sector, he stays out of it. There used to be the phenomena where people thought that if you picked the best house on a bad block, you’d be okay. For most of his career, that was true, but it is becoming less and less of an appropriate way of looking at things. Everybody remembers the banks and insurance companies having a difficult time during the global financial crisis. It created a tremendous opportunity within real estate, but he noticed his real estate companies were getting hurt on days when other financials were getting hurt, then he realized real estate was part of the financials. Today credit spreads are very narrow, the economy is growing very nicely, so if looking for an underperformer in an outperforming sector, is the market telling you that it is going to do poorly the next time the market corrects? Also, a lot of that is incredibly time sensitive. To him, 3-5 years is what counts.

Market. North American equity markets made new all-time highs in 2013, the 1^st time since the 90s. We rallied 2 years into 2015 and corrected globally. Since February 2016, the market has been slowly making its way higher. We had begun a long reflation of equities in 2016. We have a synchronized growth going on globally, and equities are really an attractive asset class when you have the beginnings of reflation. It can go on for a long time. The hardest thing in a bull market is to stay in your winning positions. Everybody worries, which is good. Looking at the 3 years that came after the first major correction in a bull market of the 50s, there was a rally for 3 years with no volatility. In the rally after the first major correction in 1984 for the 80s and 90s bull market, you had 3 years with no major correction. Since February 2016, we’ve been getting 3%-4% corrections. Another correction is not coming, as there are people with cash sitting waiting for it. In the next 12 months you are going to see a real correction, and then you’ll probably get another 3-4 years of good markets. Regarding cyclicals, flows out of bonds has barely begun. (They’ve been flowing into bonds for over 40 years.) It is relatively early. US banks are trading at 1X BV, and they traded at 2X-3X in the past, and BV is growing.

Price to Book ratio? The value you pay for an asset in the event there was a problem. When looking at US banks trading at 1X or 1.5X BV, you are not paying that much for the assets you are getting.

[Today's show was pre-empted by BNN's coverage of the Nabraska vote on Keystone XL Pipeline.]

Market. The economies around the world are in synchrony and are good. It has helped the international markets. The emerging markets have led the ride. They have been the best performers. It is partly driven by a strong economy in China. The big question is what happens in normalization of interest rates and lack of stimulation. The macroeconomic text books were wrong and have to be re-written after we see what happens in 10 years. Inflated real estate is a global phenomenon. Prices are much higher than they have been in the past. Sweden is a signal of what comes afterwards. House prices are starting to decline and it will give us a road map as to what happens as housing prices around the world start to decline.

Oil and gas is an area he does not focus on because his Canadian investors can get it here. He has only owned TOT-N, which he thinks is the best and number two is RDS.A-N. Tot-N is fully integrated and has the best growth profile of all the majors in Europe.

Market. There are fundamentals driving the market. The US economy is clearly improving, and starting to accelerate a little. The Trump bump wasn’t so much about that, as it is that US companies are starting to make money, and doing a quite efficiently. If the tax reform doesn’t go through, that is really bad, but on the other hand it will get rid of the Trump bump temporarily. That would be a buying opportunity. He still likes oil long-term. A lot of Canadian producers have become a lot more efficient, which is allowing them to survive with prices at these levels.

Energy. We’ve been told that Canadian Oil Sands is one of the highest cost producers globally with a breakeven point of $60, $70 and $80. How can they make money when they are selling it for about half of what it costs to produce? These companies have become a lot more efficient and have been able to cut the costs of production. They can make some money at these oil prices.

Covered Calls? A covered call is where you are selling an option which gives somebody else the right to buy the stock. If the stock is at $50, and you sell a covered call, and if the other person has the right to buy it over 6-month period, they have to pay you a premium for that, probably $2-$2.50. One person might not want to do that as they might miss out on the upside of the stock, which is quite true. An investor has to decide whether they want income or the growth in the stock. The cost is a little more for covered calls. The Bank of Montréal website has a good explanation of how these work.

Deep in the money Call Options on momentum driven stocks? This is when a person is trying not to pay too much in premium value, which is the time value of the option. When doing it “deep in the money”, and the stock is at $54, you are buying it at $50, intrinsically worth $4, the time value is going to be compressed. It’s a good strategy, provided it goes up.

Market. Industrials, technology, financials, and materials are showing decent relative strength. The advance/decline lines have been a stubborn holdout, but this week it has turned. Everything else was already moving. When comparing the index to the advance/decline lines, it was still negative, but has flipped and gone positive this week. Signs point to a pretty good run right through to 2018. With higher rates, he believes the consumer and businesses gets us well out into 2018.

Market. He is christening this “The Year of the Repetition”. Feels we are going to see oil and gas pretty much the same. Oil and gas stocks have not really helped the market, but the rest are doing quite well. Mining is humming a bit. It’s at the lower end of things because we don’t have big mining companies any more. Banks will just plow on, so don’t bother to trade them.