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

Artificial Intelligence Technology – He feels this is very old technology and that there has been no innovation made in the last 20-30 years. High speed communication and lower cost data storage has made AI more cost effective. He prefers companies in the chip manufacturing sector instead. Facebook (FB-O) has been able to benefit from AI as it is not proprietary technology.

Overview Rising Interest Rates: Selloff was caused by reaction to rising wages in the U.S. Rising interest rates, at this point, are a good thing. When 10-year rates reach 3.5%, they can become a headwind. Real estate stocks and utilities will underperform as interest rates go up, but bank stocks will do well and healthy companies in other industries will grow in parallel with rising rates. Rising prices will also be good for base metal stocks and oil.

BC Budget - BC will raise foreign homebuyer tax: The vacancy of homes is a real, valid issue, but increasing the land transfer tax for homes above $3 million but will reduce supply. That's a negative.

Recent correction: We went from an overdue correction to overdone, and now we've come back too fast. This was not a systemic correction, meaning he didn't lose confidence on the market, government or numbers that were coming out--he still believes in what he owns. This was a technical correction. He used stop losses. 80-90% of his holdings were sitting on average-moving lines and didn't break. It was a tense, but orderly correction in valuation. Running for cover in bonds didn't work. Meanwhile, safe yield plays in REITs and telecoms are still down 6-9%. It's now difficult for a dividend investor, but good for a growth one. Tech stocks have led the charge.

Market. How do you set a stop loss so you don't lose a lot of money on a security? It's a combination of science and art. It's not easy. Some rules to follow: Don't buy a huge position at once, but buy bit by bit. When you build your position to full and the stock keeps growing, then sell it down to, say, a 5% weighting. Then, you're left with a minimum weighting. It's also about a stock's relative movement within its sector. Say Loblaw drops one day while the grocery sector rises, then sell Loblaw. The past two weeks saw a lot of situations for stop losses, and admittedly it was a tense time as I sold to raise cash.

Question. A retiree owns 20% in fixed income. Should he buy a real return ETF, a rate-reset preferred or buy more US and Canadian banks in his TFSA? Look at the SPDR DoubleLine Total Return Tactical ETF (TOTL-N), a catch-all ETF in U.S. dollars. Also consider XSI-T which has 30% floating rate bond exposure. Or even GICs, which he doesn't like, but some yield 2-3%.

Sell GOOGL-Q and buy an ETF tech stock? The basket makes a lot of sense. He just bought the First Trust Dow Jones Internet Index during the dip. Amazed how tech stocks held up during the correction. First Asset Tech Giants Covered Call (TXF-T) covers the big tech stocks, offers a decent yield and can be hedged to CAD.

General Investing Comment. Canadian stocks have not gone up as much as global counterparts, so it has not been hit as much on the way down. He sees better value in Canada. He is not a sector buyer, instead he looks for the best companies.

Global Economy. He does not think the global economy is long in the tooth. The UK market has been slow and is gaining momentum. Canada’s economy is not as diverse, so its recovery has been slower. The US President is pro-growth while in Canada our politicians are anti-growth.

Interest Rates. There is risk the US Fed will lag what is going on and can raise rates in anticipation when the economy starts stalling and that is what causes recessions. We are now returning to more normal interest rates.

Oil Prices. He believes the price of oil will remain strong, but is not in the habit of predicting outright levels because you are guaranteed to be wrong.

Pipelines. Governments are choosing to ignore the safest way to move oil and natural gas. They are more interested in getting elected than doing what is right. The Federal government needs to put the hammer down, starting at the Prime Minister’s office.

Gold. He does not own any gold as a value investor it is rarely something they own. He would rather own bullion or an ETF versus a gold stock which can be prone to operational problems. He has not opinion on current prices.

Market Outlook. Inflation and growth sometimes get interchanged. Now we want inflation. Central banks are changing to fight the inflation demons as opposed to the deflation demos. The market likes the pro-growth theme. How long it lasts given the push back form Central Banks on the short end? That remains to be seen. 10-year rates have come a long, long way from 1.4% to the current level of 2.9%. Housing has been decent in both countries, labor is tight. The S&P500 will continue its long-term trend after the correction. There has been no damage to the broad market.

Market. We had the quickest correction in history and snapped back a long way. He rolled into US tech financials last week. He does not think we are going back to the old highs. It is momentum strong. It is a global recovery. This move in rates cannot be underestimated. Cash levels are at all time highs. We have no idea how new ETFs will behave in a downturn. People buying ETFs have no idea what stocks are included in the underlying ETFs. It has the potential to make a downturn more veracious. Earnings and economic numbers are good, so it will be an interesting play. He would sit with a more neutral approach and move into value and cyclical.