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

Market. A correction is by no means implausible at this stage. There is a small stage during the last couple of weeks of October for a correction. Momentum is a bit overdone. Things have gotten extreme over the short term. There is a potential for a small correction. You should be buying because there is no end to the overall trend coming. If you have some cash, get in and buy. Several times the TSX has come close to the 16,000 level. It is pretty strong technical resistance level. It is the 30^th anniversary of the Wall Street crash, but he does not thing that is significant.

Market.TSX is finally waking from its slumber. Markets can move quickly. The TSX is up about 4% to date, which is not terrible, and if you add dividends, you get 6%, which is livable. Of course, in context with what is going on in other markets, we feel we are left behind. The Cdn$ going up hurts your returns if you have gone outside of Canada to try and get excess returns. September was a pretty good month for his clients, and October so far so good. Feels banks are attractive on valuation, and they don’t get a lot of credit for consistency of earnings they have delivered. Historically, they have returned double digit compound returns.

Market. Markets have become politicized where we have seen changes of government in most countries. Everyone is starting to see their populism moving into the markets. In Canada we have the impact of the proposed tax reforms, which is not being received well by a lot of people. Those kinds of dynamics are occurring across the globe. Quantitative easing has definitely helped markets across the globe move to high levels.

What US bank do you prefer? Under Obama, the banks that made sense were the regional banks, because the regulatory glare was very onerous. Under Trump, that has kind of softened, and we are under a rising interest rate environment. Some of the US money centred banks make sense. He owns the BB&T (BBT-N) on the regional side. He also owns Bank of America (BAC-N) which just announced very good results.

Market.He is concerned about high valuations. It’s hard to go against the tape which is really strong and good. He is more of a bottom-up and goes stock by stock by stock, which is just harder and harder and harder to find. We have to start worrying about being priced to perfection. If something comes down the road that isn’t quite as rosy and shiny as we would like, there could be pullbacks of 5%-10%, or even worse. If interest rates rise, we could see a substantial pullback, but there has been a reluctance to raise interest rates. There are also the things we don’t know about. For example, the Greek sovereign debt problem. Would that have been predicted to have as much effect as it did?

Market. We have seen the economy doing well and some of the stock markets breaking out. He looks for relative strength in both technical and economic indicators. The economic indicators were good all year but the market started to lose strength. He is more or less fully invested right now. It is stock specific in small caps. The index is now starting to show strength compared to larger caps. We are probably at the start of a period where small caps will outperform.

How accurate are fundamentals on a consumer trading platform? It is not something he uses. He suspects the data is pulled from a bigger source. The data should be fairly accurate, but you could always do your back checks. If you see an earning number, you could always pull it down from the company to verify.

Market.Investor sentiment has turned very positive, driven by the fact of increasing breadth in the global economic expansion, and expectations of sustained corporate earnings growth. We have a Goldilocks backdrop of improving global economic growth and modest inflation, which should allow all central banks to increase interest rates on a more gradual pace, rather than too quickly. Technically, we are overbought at this level, when you look at the RSI. A pause may be in order or some sort of consolidation. Volatility can flare up a little, whether it be from further fighting between the US and North Korea, or geopolitical strife in Washington. Given that we are moving into a very, very strong part of the season and seeing optimism surrounding potential tax reform, buying on dips and taking advantage of any consolidation makes a lot of sense. You want to be in the cyclicals. Financials are close to 30%, technology around 20%, and 22% for consumer discretionary. Those are the plays that will tend to move better in an economically sensitive environment. Has no exposure to utilities, real estate or telecom, although does have a little in consumer staples. He favours the high-quality companies. With interest rates moving higher, you want companies that are a little bit less leveraged. You don’t want to be at 30% cash in this environment. He likes both the international and EM markets, whether it be Europe, Asia or EM.

Market. We have synchronized global growth and low interest rates. The MIS increased its outlook for global economic growth. It was 3.2% in 2016, and has been upgraded to 3.6% for this year and 3.8% for 2018. The US and Canadian Central Banks have started to raise rates, and it looks like the UK may be the third. There is little inflationary pressure, so she doesn’t expect interest rate increases will be very rapid and will be well telegraphed. She likes financials generally, because a rising interest rate environment will help their margins, and improving economies will help their business.

Canadian Banks? She likes Canadian banks as a group. They’ve picked up in performance in the last few months, because they were flat, up until a few months ago. In this environment of an improving Canadian economy, it looks like energy problems are largely behind us and a rising interest rate environment is good for the banks. Forward P/E ratios are slightly above the 10-year historical averages, as is P/BV, another important valuation metric, where they are slightly below. They can kind of grow that mid-single digit 5%-7% earnings growth. All the banks have committed to a target payout ratio of 40%-50%. She owns Toronto Dominion (TD-T), Royal (RY-T) and Bank of Montréal (BMO-T), which all have US exposure which will be beneficial in a growing US economy. She also owns Bank of Nova Scotia (BNS-T) which is in a higher growth area.

Market.We have a lot of things to be worried about geopolitically, a lot of interesting tensions such as NAFTA trade talks. Investors are propelling this market higher. Fresh money is coming in. Credit Suisse upgraded all the FAANG stocks just when you thought they couldn’t go any higher. A report came out talking about a melt up, and he couldn’t agree more. He is positioning on a strength-basis, but does have a “best before” date, and it is somewhere that leads into January, where we have to get very cautious. Between now and Christmas he is pretty positive. You have to stick with really good quality companies. Still thinks most people are under invested. He is pretty comfortable with where he is. It really feels like this wants to go higher, for at least the next 2 months.

Market. Started the year thinking we were going to see a 3% 10-year yield in the US, but has come back from that. Inflation hasn’t reversed course badly, so is not looking at deflation. No indicators are pretending a higher 3%-4%. Very positive on the US and European side, which are taking a very slow and steady approach. Making great strides towards not pushing rates up too aggressively. If they can just gradually move along, there are no inflation pressures and it doesn’t have to be rushed, so he is quite sanguine going into the remainder of the year.

Market.It seems American business is ignoring all things political and the White House. The US economy is growing, unemployment is in pretty good shape and manufacturing is doing well. They seem to be ignoring all the tantrums that are coming out of Washington. He is hoping for some deregulation that would make things a lot easier for banks and get them back active in the market again. The Dodd Franks act is much too restrictive. If we don’t see that, midterm elections are coming up with more Democrats running than Republicans, which could change the dynamics.

ETF for Canadian Reset Preferreds 5 year laddered?There are 2 available. ZPR-T from Bank of Montréal where they are all rate resets or HPR-T from Horizons that are two thirds resets and one third fixed. Regarding the laddering, he doesn’t think that comes into play. Both have good yields. The one from BMO is going to be a little more volatile depending upon the rates.

Favourite bank for covered calls?One thing he looks at on covered calls is when the stock goes X dividend date, because you want to try and maximize the dividends you get within the 6-month Call period. You have to factor this into your calls. You want to capture as much as you can. He likes Royal (RY-T) and TD (TD-T), because they have a lot of US exposure.