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

Canadian Dollar $. We are back up to the extremes at the beginning of the month. The next technical level is at $0.83, but what is the catalyst to make the CAD$ stronger? There is the price of oil, interest rate differential and sentiment around what the BOC is going to do. We are in a trading range. He is backing up the truck to own US$ in his portfolio. The trading range will continue for at least the next 6 months.

S&P Seasonality. In the US we have not seen the same divergence as Canada. Seasonality, if it comes into play, should have more down draft than in Canada.

Educational Segment. Where Equity Markets Returns have come from. Going back to 1970, real return has been 6.3%. Breaking that down, dividends have been 3.4% points. Margin and multiple expansion have been 0.5% and 0.1% percentage points. But in the last 7 years those last two factors have been the most significant. A 7-year forecast shows a loss of 3.9 on US large caps vs. a gain of 2.9% on emerging markets.

Markets. WTI and Brent are separating because Texas is about 15% of North American refining. Every day that they are down (could be weeks), the demand is going to be temporarily low for WTI to refine. If you have a favourite oil stock you should take a look because many stocks are getting hit today. This is artificially low for a while. Stocks are off 1 or 2 percent and that is not enough to get out unless you are a short term trader. Financial services are his favourite in Canada. Earnings growth is 4 to 5% plus 4% dividend. It is a nice place to be. Above $0.80, the CAD$ is a bit ahead of itself – it could correct. If US rates don’t go up it could hurt the US$.

Market. The earnings is what has been driving stock prices, and not what Trump has been doing. Doesn’t think the Fed is inclined to raise rates again this year. Thinks they will concentrate on restructuring the balance sheet. Yellin could be out of a job by the end of the year. That by itself won’t be a stimulus to the market. Interest rates don’t necessarily mean PE expansion, which you would need in order for the market to start surging again.

Calculating ROE when selling a Covered Call? ROE’s are calculated on a Covered Call based on the current price, because they are looking at it as a position that you would enter today, which would be your Rate of Return if it were exercised and it stayed the same, and your downside break even based on today’s prices.

An international dividend ETF? There are a couple of things to think about on international holdings. There are currency risks. He would look at a US ETF that pays a high dividend, such as Global X Super Dividend US (DIV-N). Not sure he would look at a pure preferred share kind of ETF, because you have the currency risk and the interest rate exposure. Look at one that has dividends that are going to grow.

A book on options? He would recommend the hand book called “Options as a Strategic Investment”, written by Lawrence McMillan. It gives very clear examples of every possible strategy you can imagine. You want to look at the strategies that are interesting to you, read through them, and understand them.

Markets. A lot of the activity you are seeing is with tax arbitrage out of Ireland. Where does the money come from you may ask. It would be very expensive. A 5% reduction in tax itself would be significant. World GDP growth is forecast to be 3% which is pretty good. Emerging economies are participating with a 4.4% annual increase in production. Accommodating policies around the world are continuing and he expects equity prices should do better in the coming year. US wages are going up, but that could bring inflation back. You are seeing a lift in a number of commodities.

Canadian Dollar. The best time for strength is from Feb. to May and from now until the end of September. So look for it to move higher. It has already taken a huge run.

Markets. At this time of year the markets, in a year ending in seven, make an above average drop in October. Looking at the technicals, they are happening this year. A third factor to look at during seasonal analysis is recurring events – there aren’t any recurring events every 10 years.

Markets. There is a long term investor’s story and a shorter term story. He raised his cash levels from 5% to 20%. Longer term he thinks it is a fabulous environment. Shorter term the market has gone up without a correction so he is more defensive in here. He does not see a bear market at all. The secular bull market should go on for decades. When the leaders in the market get tired, then you get your correction. In the ‘80s market top there were three stocks that were taking the market higher and when they wore out the market went down. We are seeing this in the tech stocks. They have a lot of positive momentum in them. SHOP-T and FB-Q, for example, will have a lot of people exit in times of a correction and will correct more.

Japanese Casino Gambling. He looked at the entire sector a couple of years ago. He looked more at Chinese gambling, however. He did not buy. You want to own gambling stocks when the market is to the upside. Look for stocks you would like to own in this sector and then watch them through September/October for a low and if there is no correction then continue to watch them until the spring. Get them on the next up leg in the market.

Markets. There have been two questions from his clients: When is the warm weather coming and when is the correction coming. He thinks a minor pull back is the most we will get. Investors are ignoring all the good news that is happening around the world: Positive economic data all around the world and in the US earnings are up 12% year over year. We have a beat ratio of 77% in the S&P. The markets have realized that we are not going to get the tax reform or deregulation we were expecting. The TSX has been a laggard compared the rest of the world. NAFTA renegotiations are also having an effect. International markets have some compelling stories: stronger earnings and an upturn in economic data. Dividend yields are even stronger. We have had a period of relaxed volatility and now it is elevating. This will stay. It presents buying opportunities.

Markets. This US administration came in after the election with a lot of fanfare and there was a spike in value stocks. They sold off with broken promises and have been replaced with a selection of growth stocks. People are worried about the US economy. Earnings season was fine. If you look at the broad market, S&P100 are up 9%, S&P Midcaps are up 2% and S&P small caps are down 2%. It is a few mega caps that have been driving it. The TSX is down 2% like the broader US market. There are not a lot of sectors that are working. A correction won’t necessarily mean a bear market. The high yield space has had some stress and Canadian equities have been trending lower since May. The US and Europe are the ‘last man standing’. He would happily take some risk off the table rather than sit back and watch a correction. The yield curve is flattening. Golds are picking up.