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

Markets. We are coming off two emergency cuts in interest rates. The Canadian dollar keeps getting stronger and it acts as a headwind to the economy. The CAD$ has appreciated about 11% from its lows. There are oil companies selling out of the oil sands. Some Canadian companies have the ability to grow their dividends, so not all dividend companies are created equal. If you can grow higher than the rate of inflation then you have a good Dividend. Canadian banks had a good run from their lows. It may attract global investors. Toronto and Vancouver housing markets are markets unto themselves. No other country has ever engineered a soft landing. Job creation is about small businesses. Our unemployment rate is higher than the US.

Market. The market has done so well in real estate, bonds and stocks with interest rates trading at record low levels that it begs the question that if interest rates rise, it doesn’t sound like it isn’t going to be good for a lot of things. Investors need to take a hard look at some of the things that have done well, like pipeline and utilities. Those sectors are not going to perform well if rates keep going up. Things like REITs are probably going to suffer some pain. The Fed governors expect the short-term rate will be 3% in 3 years time. That is a big jump from today. If that happens, that suggests that 5-10 year bond yields will be somewhere between 4% and 5%, which means mortgage rates take a big jump. It is going to impact corporate capital allocation in terms of share buybacks and the like.

Market. Doesn’t believe this is a cheap stock market currently. He is holding cash and is very defensive. There is a lot of political noise, and is not something he spends an enormous amount of time on.

Auto parts maker with the best dividend? There are a number of suppliers in the 2%-3% dividend range, but this is a dangerous strategy. He would not seek out auto part suppliers based upon dividend yield. These are very cyclical, capital intensive businesses, and expecting them to provide a stable source of income without considering other factors, could be a little dangerous.

Royal Bank (RY-T), Toronto Dominion (TD-T) and Bank of Nova Scotia (BNS-T) have been dropping. Why? Higher interest rates do help the banks, but on the flipside you have to be mindful of the people who are paying the interest payments. He doesn’t own any Canadian banks. With the risk/reward, there are better places to put money in Canada. Canadians have taken on too much debt. Believes the dividends are safe.

US banks? Prior to the election, these were his largest holdings. They have enormous amounts of value given where they were trading. Post the election, interest rates moved higher and they became a very consensus Long and the shares revalued substantially. He sold the vast majority of his holdings. They’ve been pulling back and are getting more interesting today.

An index fund that represents the S&P 500 in Cdn or US dollars? You can buy these in various forms, and there are all types of passive products you can buy, that mimic the index. He is an active management firm, so this is not what he does. He would rather own the companies that he believes in rather than an index.

Telecom stocks? A typical reason to own these stocks are the dividends, and he doesn’t own any. Has nothing against the model, it is really just a function of valuation. He views all these companies as just free cash flow machines. Hasn’t got comfortable with the valuations. They are well-run.

Cdn$. Canadian investors who own US stocks have had a double-digit rally since May on the loonie, so you basically had to make 10% on your US stocks to break even. Technically, the Cdn$ could get as high as $0.84. The next level of resistance is somewhere near $0.84. Now that we have broken through $0.80-$0.81, we are probably going to hit somewhere around the $0.83-$0.84 level.

Market. From a long-range perspective, the market is very healthy. However, there are signs in the near term that the market is a bit overbought. Some of those signs include market breadth, the number of participating stocks, and momentum indicators are kind of diverging. This tells him that despite the trend, which looks great from the long-term, there is potential for some of the money flow to be slowing down. Some of the market leaders are starting to consolidate and are not making new highs. We might get a little more correction on the S&P 500, probably 5%, in the next few weeks, and then we should carry on in the uptrend. He is about 40% cash with that in mind.

Gold between now and March 2018? Gold has seasonality behind it right now, between July and the late fall. It is on schedule. However, from there, there is some technical resistance that will probably come into play in the high $1300. If gold can get through that, it could be very, very strong. However, that still has to happen.

Market. The FAANG stocks Facebook, Amazon, Apple, Netflix, Microsoft and Alphabet have attracted so much attention and so much money, that valuations are in the atmosphere and only one of them pays a dividend, and are all in one narrow area of the economy, i.e., Internet marketing. If you try to hitch your star to those stocks, there could be disappointment ahead. The good news is that among the rank-and-file, there are attractive valuations and some opportunities to be had. Economics 101 tells you that when prices plummet, supply dries up. As the global economy continues to rebound, demand for energy should stay firm and prices will come back in line. This is an area for those that have acrophobia at these sites. There are 3 areas of the market that look attractive right now, financials, healthcare and international. Financials got hit hard today as the 10-year treasury retreats to some of the lowest yields of the year. However, interest rates will eventually go higher as the global economy picks up.

Energy. It is a case of oil and gas waiting. Instead of being the mainstay of the market, it is going to be the thing that follows through and makes Canada great again, but it is going to take a while because things are not moving anywhere.

Gold. With the current North Korean situation, gold is an obvious way to play this. He usually doesn’t use numbers, but if we get closer and closer and closer, we could have a price of $1700. Trump knows that the only thing that will make him great in front of the American people, is to do something that they’ve been schooled in for decades, i.e. to protect the world from a nuclear tyrant.

The best marijuana stock? He can’t give any strong guidance. There is a whole model of entrepreneurs and wannabe’s, and the regulations are really confounding everybody. He was almost interested when they produced an ETF, which he bought, which is down and dirty. Expects he will continue to lose money.