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

Market. NAFTA: He believes they are at 50 out of 2000 pages of the agreement in negotiations. There may be two more meetings by April. If they haven’t moved ahead by July 1, when the Mexican elections take place, then he thinks Trump will be giving them 6 months notice to get the deal done and it may be a little bit worse for Canada and Mexico. He expects Trump in his next state of the union address to stay on script. This could be a surprise to the markets. US earnings look very, very good, both from a sales and a bottom line perspective. The question is how much of this is priced into the markets.

Canadian REIT Recommendation. Regardless of which one you use, we are at the high end of valuation in REITs. He thinks the Canadian sector will start to sell off with rising rates, but the US REIT sector is just starting to become interesting.

Educational Segment. The Bond Market and Interest Rates. Bond gurus over the last couple of weeks have come out and said that the bull market for interest rates is over. It has been 38 years now. One reason is technology as it advances and reduces the cost of everything. Society is aging and last year people took more money out of social security than money was put, into it for the first time. But he does not believe the end of the bond bull market is coming. He thinks the yield curve will invert by the second half of the year for North America. This does not support 24 times trailing earnings. Typically we eventually get a 25-50% correction.

Market. He has been seeing the markets as expensive and the euphoria worries him. Marijuana is the kind of mania you see at the end of a market. He focuses on Canadian companies that are expanding in the US. With tax cuts it is an extra boon.

Market. At these levels, it is very important for investors to ask themselves if their portfolio is constructed appropriately. If it goes higher, you make money. If it goes lower, are you ready for it? If you are buying the stock, you want to know why are you buying the stock. Is it a fit in the portfolio or is there risk that goes with it? When buying a stock, you should always have at least 5 reasons to want to buy. If you don't have 5 good reasons, then don't buy it. How does it fit in the portfolio? Everybody wants to own all the Canadian banks, but in 2008 they all fell 40%, and it takes 5 years to make that back. Finally, what are the risks?

US Treasury TIPs. If we get any kind of inflation in the US, with infrastructure spending or the drop in the US$ relative to other global currencies, the US with then start to import inflation, and this is where these bonds come from. As people get into retirement, bonds don't protect you from inflation, but these do. They pay 2.18% plus the inflation rate every year.

Market. The money flows in equity markets are suggesting the markets have to give something back. Every sort of metric would suggest markets are getting overbought and long in the tooth. However, he is not concerned, because there aren't too many good alternatives right now. With US treasuries trading at 2.6%, and still so many good stocks trading at 10 or 11 times with really good growth, people are trying to give up on this too soon. The retail investor is not back in a big way. If you look at the greed that finally came into Bitcoin, that is probably the 1st real greed we have seen since the financial crisis. There is still enough appetite to speculate.

Canadian Banks. He is expecting 6%-7% per share earnings growth over the next couple of years. They have a good cost control and a positive operating leverage. Global markets are helping them. They continue to be a really good story. He’s been a big Bull on US banks since 2012.

US$? The US$ goes inversely with commodity prices. Half of the S&P 500 earnings come from offshore, so where the dollar goes, is very, very important. These things tend to usually go in cycles. The Trump administration favours a slightly lower greenback, so he thinks that is the direction that it ultimately goes, relative to the euro.

Markets. Many market metrics are at the extremes for the US market. Bullish sentiment, fund flows, and even the RSI chart is very, very overbought. It is the most overbought in 20 years on a monthly chart. Contrarians are saying things couldn't get any better, so maybe we should Sell. However, none of these are Sell signals. At times like this, it is even more important to look at technical analysis. The RSI chart is parabolic, but it is still a very bullish chart, and there is no Sell signal.

On the other hand, the TSX is only going sideways and there is some sign of exhaustion, so it is really difficult to keep up with our southern neighbours. It's really a story of 2 halves. The 1st half from the end of December 2016 to the end of June 2017, we grew at about 2.4%. For the 2nd half, we only have 4 months of data, ending in October, and we only grew at 0.3%. Our household debt to income ratio is 171%, the highest in the G7, so rate hikes are going to have a much bigger impact on household spending.

Market. He does not think we are headed for a tumble. He remains constructive. He still feels that valuations are there and we are in a very favourable business environment especially in the US. Rates are low and the tax benefits are going to come through this year giving a boost to earnings. With growth in earnings we could have a very decent year. There will be some firming up in the US dollar with a slight rise in rates. There is a feeling that the value of the US dollar will be impacted with anti-Trump feelings. In the Marijuana sector, his two clients who insistent on it have done very well but as the globe says, he is a kill-joy advisor and won’t go near them. It is a speculation.

Treasury Bonds: countries are announcing they are no longer using them and are switching to a Chinese system. That is an interesting angle. As confidence in the US is eroding, this could be a factor on bonds, but the bigger factor would be rises in interest rates. He is more concerned with what happens to the US bond market with rising interest rates.

Market. The economic backdrop is okay for the markets, but certain indicators imply there is just too much euphoria among investors. The IMF raised guidance for the global economy in terms of growth, to 3.9% for this year and next. That’s the strongest global expansion since 2011. When you look at what has happened with the markets, the world Index is up 6%, Emerging-market index is up by 9%, and we are certainly seeing the economic data is strengthening in almost all quarters of the world. We are seeing solid corporate earnings growth. The US tax reforms helped a little as well. Also, commodity prices are moving up. We are seeing all the right stuff, but over the very near term, he thinks markets are a little extended, in terms of how far it has moved. We are definitely in overbought territory. A healthy pause and pull back is likely, and probably a good thing. However, over the next year or so, the market should be pretty solid.

Market. It's amazing how sentiment has really shifted for the investor. We’ve been hearing concerns everyone had about 2008-2009. There is always a bit of scepticism about this market. Markets continued to grind higher. What you look for are signs of overconfidence. With the interest in marijuana and the digital currency industry, (unproven business models), people are just lining up to toss their dough at it. At the bottom, there is a lot of fear and no one wants to talk or think about stocks.

Market. He's a little cautious. There are a number of positive factors, North American economy is growing, there is some real follow through on US tax cuts, some companies talking about increasing CapX, giving employees bonuses, and optimism in the US. However, equity market valuations are quite high with PEs close to record levels, and this late in the cycle, there is more speculative behaviour. Investors need to focus on quality, and to have some cash hedges in place.