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

REITs? This sector is one you have to be a little careful about these days. Specifically, the kind of investments they are in. The mall sector is one you have to be concerned about. Look for one with a residential aspect or industrial storage.

Are Canadian banks safe? He likes TD (TD-T) for its growing US exposure. Thinks they are going to get better results and the dividends are all safe. Bank of Montréal (BMO-T) is the 3rd on his list that he owns, and they are expanding their US exposure as well. Also has the Bank of Nova Scotia (BNS-T) which gives you an entry into central America and Chile, giving you offshore banking. These would give you a diversification that really reduces the risk in the event the Canadian situation turns a bit sour.

How do you assess the NAFTA agreement if the US pulls out? This is a very political situation. One of the main themes of Pres. Trump was to tear up NAFTA. So far, he’s followed through on just about anything he said he was going to do. Doesn't feel he can tear up NAFTA, but can set the scene if negotiations fail, which he thinks is going to happen. What happens after that is critical. If we pull back to the old Canadian/US free trade deal, we are almost back to square one, i.e., we don't really get hurt that much. From a market standpoint, if NAFTA gets washed out we could see our markets get hit from a psychological standpoint. That would be a buying opportunity, because when the dust settles, Trump's real target is Mexico, not Canada. He can't believe Trump would blow a hole in the US automotive industry just to satisfy a political promise.

Market. Believes we began a re-evaluation of the equity asset class in 2013. 2013 was when we took out the highs of the bull market of the 1990s, and it was the first major global developed market to take out all time highs. That was and has been the leader ever since. Bull markets tend to last 15-18 years with interruptions. Since 2013, multiples have steadily been improving since people became more comfortable with the future. We had the first serious correction in 2015 and beginning of 2016, and that was a reset starting a 2nd cyclical rally. We’re about 2 years into that and probably have another year in front of us in the cyclical rally. The secular re-evaluation of the equities goes on for another 10-12 years. Earnings are going up, so we pay for that. The quality of the earnings is getting better. We have revenue growth as opposed to just cost cutting. The average company in the S&P 500 is yielding just over 6% on its capital, so you are getting paid about 3% excess return to buy stocks, compared to bonds. You're getting paid well to take risks. Expects that a year from now we will get a significant correction, but we have another year to get pretty significant returns before it happens. Once you have that correction out of the way, then you have another 3-4 years in front of you.

Bitcoins. He looked at this from an interest standpoint 4 or 5 years ago in the early stages, and has done a fair bit of work on blockchain, but who would've known that there would have been this kind of parabolic move. Anecdotally, some people are saying that when they go to sell their Bitcoins, it can be hard to actually realize the cash. The plumbing is really very early stage, but is slowly being built and he will see what it will build into. Blockchain technology, as it applies to a whole bunch of different industries, might be really, really interesting.

Lighten up on ETF fang stocks to put more into US financials? There is a question as to whether we are seeing money rotate from tech into some financials, which are a beneficiary of rising rates. We are in a reflationary cycle that benefits banks and the banks have a long path in front of them for revaluation. You want to own both. It is a great pairing to have the growth attached to the fangs, and at the same time have a significant position in the financials.

Market. We are into tax loss selling which will put pressure on the upside going forward. People are becoming very wary of valuation levels. Since 2008, we haven't had any really significant setback in the markets. The underlying geopolitical factors are still at work. There are tensions in Europe but have been most predominant since 2008 with the debts of Italy, Portugal, Spain, etc. That ultimately led to the BREXIT vote. There are also tensions in Asia. The US itself is a big unknown right now because of NAFTA, which has been of particular concern in Canada. Despite that, the market has continued pushing ahead. He is in higher levels of cash than he was a year ago. That's about the only thing a prudent investor can do at this time.

Economy. This economic expansion has been slow. We are in the 8th year of a recovery. The US economy bottomed in Q3 of 2009, and the cumulative GDP growth is 19%, whereas the historical average is 26%, so there is still a lot of headway. We are only getting 2.5% GDP growth and in the 8th year of recovery, and when you think of all the accommodation the Fed has put into the system, we are in an environment where we will be lower for longer. Now we are getting other economies, the euro zone, Japan, China and emerging markets kicking in, which is helping the global economy. The Canadian market has really lagged, particularly since the composition of the TSX includes a heavy weighting of energy and mining.

Market. The new Cannabis for 2018 is Bitcoin, but he likes to think it is Block Chain upon which Bitcoin is based that is the new Cannabis. Block chain, people are beginning to realize, is very serious. Everyone has suddenly woken up and realized they have to take a hard look at it. It will make easier transactions over international borders. It is being used all over the world real time already. It is a software/hardware situation. He bought in a year ago. There are new companies coming into it daily, although only one is publicly traded in Canada. People are focused on the frenzy of the amazing gains and maybe someday there will be an amazing tumble in Bitcoin. People may not take all the profit this month because they will have to pay the tax man for the capital gains. Cannabis is going to carry on and the high fever of Bitcoin will continue. He only invests in Block Chain though, not Bitcoin.

Market. Bitcoin futures. The initial expectations were that you would see bears start to raid it and sell it aggressively. In fact it seemed to go the other way. When you look at the volume of a futures contract, we don’t know the amount of open interest. It may be the same people trading them back and forth and back and forth. He would wait to see the liquidity and the depth of the market before stepping into it. Larry prefers Gold to Bitcoin as Bitcoin has no intrinsic value.

He thinks there is a good chance Trump will break NAFTA.

Bitcoin Options. The underlying volatility is massive. The puts and call premiums are going to be huge. He does not believe there is an underlying derivatives market. It is not a mature market.

Gold. He is a value investor and has been nibbling away on gold. Don’t make it all of your portfolio. See his educational segment.

Educational Segment. Bitcoin vs. Gold. Bitcoin was seen as possibly a gold disrupter. The biggest cost of investing is the volatility in order to take the position. Is Bitcoin appropriate? He thinks it is a bubble that will break because it is worth nothing. If you want to add it to your portfolio you have to understand if it will help you or hurt you. Gold does not do the same thing as equities do. It gives you a diversifying effect. If you adjust it for risk and then compare to Bitcoin, there is a daily volatility to Bitcoin of 10% and so it is hard to add this to your portfolio and improve your chances of an increase to its return. If you can stomach the ups and down, then maybe Bitcoin is appropriate for you. He thinks Bitcoin is close to zero in value and it is just a bubble. Block chain is a different story and has no relation to an investment in Bitcoin. Don’t trade futures in Bitcoin because of the leverage. Leave it to the professionals.

Market. There is a lot of speculation on Bitcoin, Crypto currency and Marijuana, where valuations make no sense and this is a sign of a top. Lots of money is going into ETFs with companies that may have no earnings. Once a manager gets too big they become the index and so cannot beat it. There are a lot of smaller managers that can easily beat the market over the long term. He is holding more cash in his funds than normal bit he is seeing a lot opportunities as money moves into ETFs and out of mid and small cap stocks.

Market. We are in one of the greatest Bull Markets of our lifetime. Valuations have been increasing, and thinks they can still go higher. In the 60’s had low interest rates for a long period of time, and we saw stocks getting into the 40, 50, 60 PE range, which were high quality companies. If you had bought them, even though they got badly slammed in the 70’s correction and the higher interest rate yield in the inflationary time period, by 2000 you had your money back. We could be in for a repeat of that.