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

Bonds and utilities. He knew a push from Central bankers was coming about 6 months ago wanting higher rates. Recent data indicates that some of it bears higher rates, but some was more wishing for animal spirits. For the last 3 days, bonds and utilities kind of crashed, which is pretty significant. That sort of confirms the 6-month watershed. Around July/August, it was noticed that relative to other sectors, bonds and utilities were starting to get weak. The price proceeded to go higher as we had a couple of data points that were rough in September/October, but in the last 3 days, there has been a real fall off. This push for higher rates is eventually going to weigh on things. For now, it's full steam ahead on everything for pro growth.

Seasonal Investing. The best time for seasonal investing is the 3 weeks starting in mid-December. That is the strongest time for the S&P 500 and the TSE. During the last 27 periods, the TSE Composite has gone up 23 times with an average gain of 2.4%. That period is the end of tax loss selling pressures. There is also diminished institutional activity where companies close operations in the middle of December.

How do you use Bollinger bands? Bollinger bands give you a range for a security to trade within 2 standard deviations. Most stocks will trade within those bands over a long period of time. This stock is an interesting one because, for a long period of time, it has been coming way down. Bollinger bands have been getting tighter and tighter and then, all of a sudden the news came out that they were going to reduce production and uranium oxide immediately went up 15%. Using Bollinger bands can be very useful except when there is specific news that comes out on a company like this, which can have a significant impact. Seasonally, it has done very well from November right through until April of each year. It hasn't done that for the last few years. This year, we might have something going for us, and it looks like the stock could expand beyond its Bollinger bands for a period of time.

Market. Long Island Ice Tea is contemplating a switch into block chain. It seems people will buy anything with the ‘B’ word in it. (LTEA-Q). The stock shot up. If there is no substance behind it then people will sell the stock down. With the .com bubble people understood what was going on. Valuations went crazy but there were price-to-sales figures. These companies do not have revenue from block chain. It is a gambling casino. Eventually governments will realize they are missing out on taxes. Small caps have lagged 6 of the 7 years. The TSX has been a terrible laggard these last 7 years. Small caps were only about 1.4% compound growth on the TSX. Oil prices have stabilized and copper prices are breaking out and this bodes well for Canada. It should outperform over the next couple of years.

Small Caps. These have lagged 6 of the past 7 years, and some of the numbers are quite staggering in terms of how much the US has outperformed Canada. Canada has compounded at about 6.5%, while the US has compounded about 14.5%. However, over the last 20-25 years or so, they’ve had close to similar returns. The compound annual growth rate returns on Canadian small caps for the last 7 years is only about 1.4%. From 2000 to about 2007, Canada actually outperformed by a tremendous amount. He is hoping for a reversion to the mean.

He is “reluctantly bullish” on the market. He’s been saying for a long time that the market is overvalued, there’s a lot of good companies doing well, but the valuations have to come back at some point. They just passed the tax bill in the US which is a reason to be bullish. The tax thing sounds great in the short run. But when you get ballooning deficit and interest rates looking like they are going to go higher, that's not great for the market in the long run. He thinks a pull back of at least 20% has to happen sometime within 1 to 2 years.

Energy and Oil Generally bullish for the next year. When looking at it, stock by stock, they do look pretty good generally speaking. Exploration companies are good, full integrators are good, and the last ones are kind of the services. Looking at his past top picks, one was a fully integrated and the other was a services company. It doesn’t surprise him that the services didn’t performed well. On two picks if you’re going to get one wrong it’s probably going to be the services. They are more volatile.

Resources Sector He does like this sector. We’re a bit of a bottom-up though. But when looking at them over and over they notice the entire industry in general is improving.

Will the DOW stop its straight up path? There are some good companies doing really well, buying back shares and doing a lot of good things, but at some point this valuation is going to catch up to us. The tax bill in the US is good in the short term but the ballooning deficit it’s going to create is going to be a problem down the road.

Pull back in January? January is probably not going to have a pull back. You need to weigh all the goods and the bads, and the tax thing in the US is so much bigger than people cashing out some gains in January. He doesn’t really pay attention to seasonal factors, he’s really into fundamentals.

Market. We are going to see a gradual increase in interest rates. Doesn't think the financial system is ready for a shock of a 2%, 3%, 4% increase in interest rates, but expects the process is going to be 25 basis points, which the economy can sustain, another 25 basis points, etc. We have to bear in mind that Japan is still effectively in QE, Europe is effectively talking about getting out of it. The next country that would be out of QE would be the UK, if it didn't have BREXIT. Thinks it is going to be a slow and steady process.

Market. The US has had an unbroken run of economic growth since June 2009. The characteristics that it is best known for its length, but also it has been shallow. We haven't had the breakout type of growth that we normally get in a cycle, which has led a lot of people to think it is going to be long gaited. As investors, we have to be prudent and have a plan in place, and make sure it is being acted on. From a planning standpoint, check your asset mix targets and make sure you are coming back to target. With a very strong equity market, the mathematics are that you are likely to be a little overweight in equities. If so, trim them back to your target levels. If we start to see some economic indicators where we might be rolling into a recession, on a company specific basis, you will have to get a little more defensive.

What sector for new money? The one area that will have staying power is technology. Valuations are not extreme now. Many of these companies are growing at a faster rate than they have in the past, and the valuations are at a lower level than they have been in the past. Technology is not as economically sensitive as it once was.

S&P 500 or DOW From seasonal perspective, the DOW and S&P have the same seasonal period from October 20th to May 5th. The DOW has done particularly well this year because of the large caps. He can’t say anything negative about it all. Technically, it’s strong. Seasonally we’re still in the period for it as well. In the fall-time, it’s typically DOW that tends to perform a bit better. Small cap tends to perform better at this time of the year so the S&P 500 might be a little bit better but they are both in fairly good shape at this point.

Market. They slipped some things into the US tax reform package at the last minute. Capping salt (state and local property tax and mortgage deductions) will impact markets like California. Most of the tax cost of the package is going to benefit corporations and the top 20% of earners. Over 10 years he understands they will pay more tax under $75k of income. It looks terrific now if you look at the numbers, however. Corporations won’t build more plant and equipment if they don’t see demand going up. He thinks people won’t get paid more.